CFPB Fines Flagstar Bank $37.5 Million

Flagstar Bank recently got hit with $37.5 million in fines and penalties for failing to comply with the Consumer Financial Protection Bureau’s (CFPB) new mortgage servicing rules.

Specifically, the bank will pay a $10 million fine and return $27.5 million to affected borrowers for allegedly taking excessive time to process borrowers’ applications for foreclosure relief, failing to tell borrowers when their applications were incomplete, denying loan modifications to qualified borrowers and illegally delaying the finalization of permanent loan modifications, among other violations.

In a statement, Richard Cordray, director of the CFPB, says the action taken against Flagstar “signals a new era of enforcement to protect consumers against the cost of servicer runarounds.”

“Because of Flagstar’s illegal actions and unacceptable delays, struggling homeowners lost the opportunity to save their homes,” Cordray says. “The bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly.”

The CFPB says Flagstar “failed struggling borrowers at every step in the foreclosure relief process.” Flagstar “took excessive time to review loss mitigation applications, often causing application documents to expire,” which, in turn, resulted in some applications being closed. It also “delayed approving or denying borrower applications,” which, again, resulted in the applications expiring prior to the 30-day deadline for a servicer to review an application and take action.

Flagstar also failed to alert borrowers about incomplete applications, including telling them which documents were missing by way of “missing document” letters. The bank also miscalculated borrowers’ incomes and, as a result, ended up wrongfully denying loan modifications, the CFPB says in a release.

It also denied applications for unspecified reasons, misinformed borrowers about their appeal rights and put borrowers in “trial period purgatory,” which is when trial periods for loan modifications are needlessly prolonged.

Flagstar is also accused of failing to allocate sufficient resources to administering loss mitigation programs for distressed homeowners. For example, the CFPB claims that in 2011, the bank had 13,000 active loss mitigation applications but only assigned 25 full-time employees and a third-party vendor in India to review them.

As a result, applications for loss mitigation actions became backlogged up to nine months and call wait times in Flagstar’s loss mitigation call center averaged 25 minutes during certain time periods. During these periods, the average call abandonment rate was almost 50%.

At one point, the backlog at Flagstar was well over 1,000 applications, according to the CFPB.

Although the bureau’s investigation into violations at Flagstar goes back to 2011, it was not able to take action until its new servicing rules went into effect in January of this year.

As mentioned, Flagstar will pay $27.5 million to the approximately 6,500 consumers whose loans were improperly serviced. At least $20 million of this will go to the approximately 2,000 victims of foreclosure, the CFPB says in its release.

In addition, the bank is prohibited from acquiring default servicing rights from third parties until it demonstrates it has the ability to comply with the bureau’s new servicing rules.

What’s more, the bank must contact those borrowers who may have been adversely harmed by its past practices - including engaging in a door-knocking campaign - and further, must halt the foreclosure process for those borrowers who may have been impacted.

Finally, Flagstar must do an independent review of previously denied loan modifications to determine whether the borrower was offered all loss mitigation options for which they qualified. If they were not, the bank must offer the borrower those loss mitigation options.

In a statement, Alessandro DiNello, president and CEO of Flagstar Bank, says the resolution with the CFPB “is in the bank’s best interest and allows us to continue building a great company that is poised for sustainable, long-term growth and value creation, benefitting our shareholders, customers and the communities we serve.

“The dedicated employees of Flagstar Bank have completed thousands of successful loan modifications and work incredibly hard to meet and exceed the needs of our customers,” DiNello adds. “With this matter now behind us, everyone at Flagstar Bank is committed to building on the significant progress we have achieved, while continuing to operate with integrity, responsiveness and a commitment to our core values.”




New Ad Campaign To
Bolster MHA Programs

The U.S. Department of the Treasury, the U.S. Department of Housing and Urban Development (HUD) and the Ad Council recently launched a new series of public service advertisements to bolster awareness of the Making Home Affordable (MHA) program, which offers free resources and assistance for struggling homeowners.

The MHA program includes the Home Affordable Refinance Program (HARP) and Home Affordable Modification Program (HAMP), both of which are designed to help struggling homeowners remain in their current homes through mortgage refinancing, loan modifications and other loss mitigation efforts. Participation rates in both programs have fallen short of expectations.

Recently, the Federal Housing Finance Agency (FHFA), which oversees HARP and HAMP, said it had identified nearly 800,000 additional borrowers who could potentially find relief through HARP. To help serve these borrowers and boost HARP participation rates, the FHFA last year launched a public awareness campaign, including television ads featuring HGTV personality and Power Broker star Mike Aubrey to help raise awareness about the program. In addition, the FHFA launched a new website, www.harp.gov, featuring an expanding array of educational content.

More recently, the FHFA also launched a series of town hall-style meetings in cities where there are concentrations of eligible borrowers. The first of these was held July 8 at the Woodson Regional Library in Chicago, where the FHFA has identified approximately 36,000 residents who are eligible for the program. The second event was held recently in Atlanta.

The third outreach event will be held Oct. 2 in the Detroit Public Library in downtown Detroit. During this event, FHFA officials and panelists will also discuss the FHFA’s Neighborhood Stabilization Initiative (NSI), a pilot program designed to stabilize neighborhoods hit the hardest by the housing crisis.

Announced earlier this year, NSI entails both pre- and post-foreclosure strategies for assisting borrowers who have fallen behind on their mortgage payments. Detroit is the first pilot city for this new initiative, which involves working with local nonprofits to find solutions that maximize payment relief and home retention.

“We know that one size doesn’t fit all when it comes to helping homeowners and neighborhoods recover,” says Mel Watt, director of the FHFA, in a statement. “Our goal is to get the word out about HARP to borrowers who are current but underwater, and help borrowers who are either delinquent or at risk of losing their home recognize that they, too, have options. In Detroit, local leaders and community groups are already doing a tremendous amount of work and we applaud their proactive approach. Our event will allow us to coordinate more directly with those trusted sources as we move forward.”

Originally, the FHFA had forecast that 4 million to 5 million borrowers would take advantage of HARP; however, problems with its design, combined with rising interest rates, resulted in lower participation than had been anticipated. In May, the FHFA reported that about 77,000 applications for HARP had been processed in the first quarter - far short of the agency’s goals. It was the fourth straight quarter in which HARP refinances declined - however, it should be emphasized that the home refinance volume is down across the board.

The newest round of ads, which will run in both English and Spanish, were created by Chicago-based advertising agency Schafer Condon Carter (SCC). They will run on television and radio, as well as in print, with media organizations donating the airtime and space. The goal of the campaign is to “strongly encourage homeowners not to give up hope and remind them that there are free resources available to help,” HUD states in a press release.

“This new campaign will broaden the reach of MHA and extend the message of its benefits to more Americans who are struggling every day to meet the financial demands of their mortgages,” says David Selby, president and managing partner of SCC, in the release. “The advertising seeks to resonate with these homeowners by acknowledging the commitment they make to keep their homes, while letting them know that there is additional help available.”

Since 2010, media outlets have donated more than $135 million in airtime and space to run free ads promoting the MHA program’s mission. s

Agency Updates

CFPB Fines Flagstar Bank $37.5 Million




































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