iThe CFPB released its Supervisory Highlights, Mortgage Servicing Edition on April 24, 2024. These highlights share the CFPB’s findings from supervisory examinations completed between April 1, 2023, and December 31, 2023. Although only a portion of the Supervisory Highlights addresses fees, as discussed below, the CFPB’s Newsroom article is titled “CFPB Takes Action to Stop Illegal Junk Fees in Mortgage Servicing,” once again emphasizing the bureau’s laser focus on “exploitative illegal fees,” that it has coined “junk fees.”
The Supervisory Highlight’s Introduction notes that the CFPB has been actively monitoring the mortgage “market for emerging risks during a period of increasing default servicing activity since the end of the COVID-19 pandemic emergency.” The bureau remains concerned about the rise in loss mitigation requests, changes in federal programs and policies, and staffing during the last few challenging years. While recognizing that “mortgage delinquencies and foreclosure rates remain near all-time lows,” the CFPB anticipates that the future will bring difficult changes as consumers have higher levels of debt and face affordability concerns.
The issues addressed in this recent edition of Supervisory Highlights include:
Unfair charges for property inspections prohibited by Fannie Mae guidelines: CFPB examiners found that some servicers improperly charged property inspection fees on Fannie Mae loans, in contravention of the Fannie Mae Servicing Guidelines. Specifically, the examiners found that, in some instances, servicers would charge a property inspection fee even though the property was borrower or tenant occupied and quality right party contact (QRPC) had been established within 30 days, the borrower had made a full payment within the last 30 days, or the borrower was performing under a loss mitigation option. These improper inspection fees numbered in the “hundreds.” In response to the findings, the servicers corrected identified automation flaws behind some of the fees and implemented testing and monitoring to address others. Borrower remediation was also required. We note that the CFPB deemed these improper fees to not only be violations of the Fannie Mae Servicing Guidelines but to also be violations of the Consumer Financial Protection Act’s prohibition on unfair acts or practices.
Unfair late fee overcharges: Several servicers were found to have engaged in unfair acts or practices by assessing unauthorized late fees. These errors occurred when (1) servicers charged late fees that exceeded the amount in the loan agreement, and/or (2) servicers charged late fees even though consumers had entered into loss mitigation agreements that should have prevented the fees. In response to the findings, refunds were provided and internal processes were improved.
Failing to waive existing fees following acceptance of COVID-19 loan modifications: Examiners found that some servicers offered streamlined COVID-19 loan modifications under Regulation X but that they failed to waive fees on the account after borrowers accepted the modifications. These failures violated the regulation’s fee waiver requirement for offering streamlined modifications. The CFPB noted that remediation was being provided to those affected consumers.
Failing to provide adequate description of fees in periodic statements: The Supervisory Highlights identified servicer failures to provide a “brief description of certain fees and charges” on periodic statements and, instead, used the generic term “service fee” without any other descriptive information. This practice violated Regulation Z’s requirement that billing statements include transaction history with “brief description of the transaction.” In response to the finding, the servicers implemented changes to provide more specific descriptions of each service fee.
Failing to make timely disbursements from escrow accounts: Servicers were cited for failure to make timely disbursements from consumer escrow accounts in compliance with Regulation X. Specifically, the servicers attempted to make disbursements in a timely manner, but the payments did not reach the recipients. To compound the error, the servicers then delayed for months in reissuing the payments. As a result, borrowers incurred penalties due to the late payments. These unsuccessful and late payments were not timely and, therefore, violated Regulation X. Remediation was later provided to the affected consumers.
Deceptive loss mitigation eligibility notices: The CFPB examiners identified instances where servicers were advising borrowers that they were approved for streamlined loss mitigation options even though no such determination had been made. In some instances, the consumers were actually denied for the streamlined option. The bureau deemed these notices to be misleading and material to consumers.
Deceptive delinquency notices: TheSupervisory Highlights identified servicer errors in sending notices to advise borrowers that they had missed payments and should fill out loss mitigation applications when, in fact, those consumers were current on their payments, in trial modification plans, or had inactive loans. These errors were deemed to be deceptive by the CFPB, and the affected servicers are implementing policies and procedures to ensure accuracy of their notices.
Loss mitigation violations: CFPB examiners found that some servicers violated Regulation X by sending loss mitigation application acknowledgment notices to borrowers that did not specify whether the applications were complete or incomplete. One servicer was cited for its failure to include a deadline for acceptance or rejection in its loss mitigation offers. And multiple servicers were also found to have violated Regulation X because they did not provide timely notices to borrowers stating their determination regarding the available loss mitigation options. Further, the bureau found that servicers violated Regulation X by failing to maintain policies and procedures reasonably designed to properly evaluate borrower applications for all available loss mitigation options. In response to this variety of errors, servicers promised to update their policies and procedures, refund or waive late charges, and to correct negative credit reporting where necessary.
Live contact and early intervention violations: CFPB examiners found that servicers “failed to make good faith efforts to establish live contact with hundreds of delinquent borrowers.” Further, some servicers failed to send early intervention notices to “thousands of delinquent borrowers,” as required by Regulation X. In response to the findings, the servicers agreed to waive or refund late fees.
Failing to retain records documenting actions taken on mortgage loan accounts: Servicers were cited for failing to document actions in their servicing systems, such as establishing live contact with borrowers, in violation of Regulation X.
We see two key takeaways from this latest edition of Supervisory Highlights. First, the overarching theme is that servicers still struggle with the complexities of loss mitigation engagement with borrowers and that the CFPB will scrutinize the smallest details of loss mitigation correspondence and handling. And second, the CFPB continues to focus on any and all fees imposed on consumers and any erroneously charged fee will be called a “junk fee.”
