On June 7, 2017, the Consumer Financial Protection Bureau (CFPB) issued a Consent Order against mortgage servicer Fay Servicing, LLC (Fay), requiring Fay Servicing to pay $1.15 million to borrowers and to cease activities that the CFPB contended violated the Real Estate Settlement Procedures Act (RESPA), its implementing regulation, Regulation X, and the Consumer Financial Protection Act of 2010 (CFPA).
Fay Servicing is based in Chicago, but services loans for borrower across the country. As part of its servicing obligations, the company creates and sends monthly statements to borrowers, and then collects and processes payments. For borrowers facing the possibility of foreclosure, Fay Servicing offers and is responsible for soliciting borrowers for, determining eligibility for, and implementing foreclosure relief programs.
The CFPB reviewed Fay Servicing’s handling of loss-mitigation applications and its implementation of foreclosure protections required by law and alleged that the company, inter alia, (1) “violated the CFPB’s servicing rules by keeping borrowers in the dark about critical information about the process of applying for foreclosure relief” and, (2) in some cases, “illegally launched or moved forward with the foreclosure process while borrowers were actively seeking help to save their homes.”
Concerning Fay Servicing’s foreclosure relief notification deficiencies, Regulation X requires mortgage servicers like Fay to provide two kinds of notices in a timely manner: (1) the Acknowledgement Notice serves the purpose of acknowledging receipt of an application for relief and must state whether and what additional documents or information are required to complete a relief application; (2) the Evaluation Notice must detail the servicer’s foreclosure relief offerings and the borrower’s rights with respect to accepting, rejecting, or appealing the servicer’s decisions with respect to those offerings.
The CFPB contended that Fay Servicing had not consistently met these obligations, alleging that the company sometimes failed to send the required notices to borrowers, failed to send them in a timely manner, or sent deficient notices. For example, when stating what additional documents are needed to complete an application, Regulation X requires services like Fay Servicing to specifically list the names of the required documents. The CFPB claimed that Fay Servicing violated this requirement by relying on broad categorical descriptors instead of listing the specific documents—such as by noting that “Income Documentation” was required instead of listing, e.g., that a profit and loss statement or a benefits letter was required.
Regulation X also generally prohibits mortgage servicers from initiating various aspects of the foreclosure process after receiving a timely and complete application for foreclosure relief from a borrower until a determination is made on the borrower’s eligibility for that relief, the borrower rejects the offered relief, the borrower fails to timely act on the offered relief, or the borrower’s right to appeal the servicer’s decision has been exhausted. The CFPB alleged that Fay Servicing’s practices had not met these requirements, either: the Bureau claimed that Fay Servicing began—and in some cases completed—foreclosure proceedings although foreclose relief considerations were pending.
Invoking its authority “to take action against institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws,” the CFPB ordered Fay Servicing to pay $1.15 million to injured borrowers, to offer them foreclosure relief, and to bring its practices into compliance with the law. Fay Servicing, for its part, executed a Stipulation and Consent to the Consent Order, meaning Fay agreed to comply with the Order’s mandates, but did not admit to or deny any of the CFPB’s findings of fact or conclusions of law.
The June 7, 2017 Consent Order against Fay Servicing serves as yet another cautionary tale for mortgage servicers. One noteworthy theme in the Consent Order was the CFPB’s reiteration of the fact that these alleged violations occurred at least in part due to a lack of policies and procedures in place to properly instruct personnel on how to handle loss-mitigation applications. It behooves mortgage servicers, then, to familiarize themselves with mortgage servicing requirements and to ensure that their internal policies and procedures provide proper guidance for servicing personnel.
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