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Regulatory News

Should servicers be worried about RESPA enforcement?

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Regulatory News
Thursday, December 10, 2020
The Consumer Financial Protection Bureau (CFPB) has had just two public RESPA enforcement actions this year, but the most recent case begs the question of whether more actions against servicers could be coming.

On Dec. 7, the CFPB filed a RESPA complaint and proposed stipulated judgment and order against the largest non-bank mortgage servicer in the United States. The bureau’s action against Dallas-based Nationstar Mortgage, LLC, which does business as Mr. Cooper, was part of a coordinated effort between the CFPB, a multistate group of state attorneys general and state bank regulators.  

“I do think that mortgage servicing is likely to be a continued focus of the CFPB, especially in light of COVID-related issues,” Mayer Brown Partner Ori Lev, a former bureau deputy enforcement director for litigation, told RESPA News. “That said, these cases take time to work through the system, so it’s hard to know when there will be additional enforcement actions that are made public. [This] action was years in the making.”

The findings

Mr. Cooper is the third largest mortgage servicer overall. The company has grown aggressively over the last decade, mainly by acquiring mortgage servicing rights in bulk transfers.

In 2011, the company serviced approximately 600,000 residential loans. It currently services the loans of over 3 million borrowers, with the unpaid principal balance of those loans totaling approximately $500 billion.

Since at least January 2012, Nationstar has acquired mortgage servicing rights for many loans that were subject to trial modification agreements where the trial period had begun but had not yet ended, or where the loan had not yet been permanently modified. The company frequently failed to identify such loans, the suit stated.

Because Nationstar failed to identify in-flight modifications, it wrongfully denied some borrowers loan modifications or made permanent modifications to borrowers’ loans only after significant delays beyond the period provided for in the trial modification agreements.

In 2013, the bureau required Nationstar to review loans to which it acquired servicing rights between January 2012 and November 2013. The company’s review identified a substantial number of loans with pending trial loan modifications that it did not timely convert to permanent status within the required 30-day window after the borrower’s successful completion of their trial plan. The bureau also required the company to conduct a follow-up review in 2015, which again identified a substantial number of such instances of delay among loans transferred between November 2013 and March 2015.

Nationstar is accused of violating multiple federal consumer financial laws and causing substantial harm to the borrowers whose mortgage loans it serviced, including distressed homeowners. 

Nationstar also allegedly improperly increased borrowers’ permanent, modified monthly loan payments, mispresented to borrowers when they would be eligible to have their private mortgage insurance premiums (PMI) canceled, and failed to timely remove PMI from borrowers’ accounts.  Nationstar also allegedly failed to timely disburse borrowers’ tax payments from their escrow accounts and failed to properly conduct escrow analyses for borrowers during their Chapter 13 bankruptcy proceedings.

Violations of RESPA and Regulation X

Section 6(g) of RESPA, 12 U.S.C. § 2605(g), states that “[i]f the terms of any federally related mortgage loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums, and other charges with respect to the property, the servicer shall make payments from the escrow account for such taxes, insurance premiums, and other charges in a timely manner as such payments become due.”

The requirements of Section 6(g) are further explained in Regulation X, 12 C.F.R. § 1024.17(k)(1), which states, among other requirements: “[i]f the terms of any federally related mortgage loan require the borrower to make payments to an escrow account, the servicer must pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower’s payment is not more than 30 days overdue.”

Among other obligations, Section 17 of Regulation X requires servicers to disburse property tax payments in a timely manner.

According to the lawsuit, in numerous instances between January 2012 and March 2015, Nationstar failed to make disbursements for homeowners’ property taxes on time, causing borrowers to incur unnecessary penalties.

Those violations also constituted violations of the Consumer Financial Protection Act (CFPA).

Section 17 of Regulation X also requires servicers to conduct annual escrow analyses for borrowers.

The CFPB alleged in numerous instances between 2011 and 2016, the company failed to conduct timely escrow analyses for borrowers who filed for bankruptcy.

In addition, on multiple occasions between January 2012 and March 2015, Nationstar failed to make disbursements for homeowners’ property taxes on time, causing borrowers to incur unnecessary penalties.  

 Mr. Cooper not first servicer targeted by bureau

In May, the bureau settled with Highlands Ranch, Colo.-based Specialized Loan Servicing, LLC (SLS), related to its handling of loss-mitigation applications and its implementation of foreclosure protections required to be afforded to borrowers engaged in the loss-mitigation process.

The bureau’s investigation found since January 2014, when the CFPB’s new RESPA mortgage servicing rules became effective, SLS violated RESPA and Regulation X by taking prohibited foreclosure actions against mortgage borrowers who were entitled to protection from foreclosure, and by failing to send or to timely send evaluation notices to mortgage borrowers who were entitled to them.

In some cases, SLS’s violations of Regulation X short-circuited the protections against foreclosure for consumers whose homes ultimately were foreclosed upon, the consent order stated.

The consent order required SLS to pay $1.275 million to consumers in the form of redress and waiver of borrower deficiencies, pay a $250,000 civil money penalty and implement procedures to ensure compliance with RESPA.

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“The sale of a loan after the original funding of the loan at settlement is a secondary market transaction. Such a sale is exempt from RESPA coverage as a secondary market transaction."

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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other consideration

Regulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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