2024 Year in Review: Mortgage Origination and Servicing

With the change in administration, enforcement actions at the federal level are expected to decrease, reflecting President Trump’s focus on deregulation. Indeed, during President Trump’s first term, the number of enforcement actions related to mortgage servicing or origination decreased each year from 2017 through 2019. And, although enforcement activity in this space increased in 2020, it was still dramatically lower than in the years leading up to President Trump’s first term.

Key Trends From 2024

In 2024, Goodwin tracked 13 publicly announced enforcement actions related to mortgage origination and servicing. Those 13 actions (12 federal and one state) constitute a slight decrease from 2023’s 14 actions; likewise, the associated financial recoveries amounted to only about $43 million, down from nearly $90 million the year before. Indeed, 2024 saw the second fewest enforcement actions and the lowest annual recovery in the 10 years Goodwin has tracked such activity, and it continued a decade-long downward trend.

In the News

Reducing Borrowers’ Costs

In 2024, the Consumer Financial Protection Bureau (CFPB) signaled that it will continue to prioritize reducing the costs of mortgage loan borrowing, including preventing so-called junk fees associated with mortgage lending. For example, the CFPB issued two reports in April in which it found borrowers were paying more in up-front “discount” fees than in previous years (due primarily to the rising interest rates) and risking excessive borrowing costs due to the complexity of mortgage pricing. Additionally, in May, former Director Rohit Chopra gave remarks suggesting that increased credit reporting costs were also resulting in higher costs for borrowers by increasing the closing costs on mortgage loans.

Regulating Property Appraisals

In July 2024, five federal agencies — the CFPB, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board of Governors (FRB), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) — issued supervisory guidance concerning property valuations and challenges to those valuations (i.e., “reconsiderations of value” [ROVs]). The guidance highlights the risks of deficient valuations and how mortgage lenders can use the ROV process to comply with applicable laws and regulations, remain responsive to consumers, and resolve valuation deficiencies. Additionally, the guidance provides examples of policies, procedures, and control systems that financial institutions can implement to identify, address, and mitigate deficient valuations.

Relatedly, those five agencies, along with the Federal Housing Finance Agency, jointly adopted a new rule in October, regulating the use of algorithms and artificial intelligence (AI) for determining residential property valuations. The rule requires companies that use algorithmic appraisal tools to employ certain safeguards against the manipulation of data, conflicts of interest, and violations of nondiscrimination laws.

New York Courts Remain Undecided as to Retroactivity of 2022 Foreclosure Law

New York’s Foreclosure Abuse Prevention Act (FAPA), a law that took effect in December 2022 and restricts the statute of limitations for mortgage foreclosure actions, continued in 2024 to affect mortgage foreclosures in New York.

At the beginning of 2024, challenges by foreclosing plaintiffs to the constitutionality of retroactively applying the FAPA-modified laws had resulted in dozens of trial court decisions split on the retroactivity issue. Although New York appellate courts had, throughout 2023 and most of 2024, applied FAPA laws retroactively, none of those decisions had addressed the constitutionality of doing so. In September, the state’s highest court, the New York State Court of Appeals, dismissed a constitutional challenge to FAPA on its own because the issue was not preserved, and in October, it refused a certified question from the federal Second Circuit Court of Appeals as to whether certain provisions of FAPA applied retroactively, returning the case to the Second Circuit to decide. Coincidentally, on the same day, one of the four departments of New York’s Appellate Division (the tier directly below the highest court) became the first at that level to address the constitutionality of FAPA’s retroactivity and concluded that retroactive application did not violate constitutional due process. Then, in November and December, four more Appellate Division decisions, from three of the four departments, concluded that at least some FAPA provisions apply retroactively without running afoul of due process.

The year-end appellate decisions bind trial courts statewide as to the specific FAPA provisions at issue in them. But as of January 2025, the New York State Court of Appeals has yet to resolve the issue, leaving the constitutionality of retroactively applying New York’s FAPA contested.

2024 Enforcement Highlights

The significant mortgage origination and servicing enforcement events of 2024 fell broadly into three categories of allegations: servicing administration errors, illegal kickbacks, and racial or religious discrimination.

Alleged Servicing Administration Errors

In June, the CFPB announced that it had entered into consent orders with a loan servicing company, Sutherland Global Services, and with one of its subcontractors, NOVAD Management Consulting, resolving allegations that those companies failed to properly service reverse mortgages. Specifically, the CFPB alleged both companies violated the Consumer Financial Protection Act (CFPA) and the Real Estate Settlement Procedures Act (RESPA) when they “systematically failed to respond to thousands of homeowner requests for loan payoff statements, short sales, deeds-in-lieu of foreclosures, lien releases, and requests for general information.” The CFPB also accused the companies of falsely telling homeowners they were in default with 30 days to repay their reverse mortgage loans and of ignoring homeowners’ attempts to contest this information. Sutherland and its subsidiaries agreed to pay $11.5 million in consumer redress and $5 million in civil penalties. It also agreed that only one of its subsidiaries would continue servicing reverse mortgages — and only under strict compliance requirements. NOVAD consented to a permanent ban from advertising, marketing, promoting, offering, selling, or otherwise servicing reverse mortgages. NOVAD was assessed a civil penalty of $1, based on the company’s sworn and documented inability to pay.

Also in June, the CFPB filed a proposed consent order under which a Florida-based nonbank mortgage loan originator, Freedom Mortgage, agreed to pay a $3.95 million penalty for allegedly submitting incorrect mortgage loan data to federal regulators in violation of the Home Mortgage Disclosure Act (HMDA). According to the CFPB’s October 2023 complaint, even after a 2019 CFPB consent order that resulted in a monetary penalty of $1.75 million for similar alleged conduct, Freedom submitted 2020 data containing multiple errors, allegedly attributable to “widespread systemic issues and compliance management system failures.” The steep penalty reflected CFPB’s increased crack down on entities it views as “repeat offenders.” In addition to the fine, Freedom also agreed to regularly audit, test, and correct its HMDA data under the proposed order.

In August, the CFPB entered into a consent order with another alleged “repeat offender,” Florida-based mortgage servicer Fay Servicing, resolving allegations that Fay’s foreclosure practices violated not only federal laws — CFPA, RESPA and its implementing regulation (Reg. X), the Truth in Lending Act (TILA) and its implementing regulation (Reg. Z), and the Homeowners Protection Act (HPA) — but also a 2017 consent order between Fay and the CFPB. The CFPB alleged that Fay, among other things, failed to timely review borrowers’ loss mitigation applications, maintain procedures for promptly responding to borrower information requests, timely terminate private mortgage insurance when required, refund unearned premiums, and properly disclose premiums in escrow account statements. Under the terms of the consent order, Fay agreed to pay $3 million in redress and a $2 million civil money penalty, and it also agreed to invest $2 million to update its servicing technology and compliance management systems.

Allegedly Illegal Kickbacks

In May, the FDIC announced a settlement with a bank located in England, Arkansas — the Bank of England — and nine of its employees, resolving allegations that the bank and its employees violated the Federal Trade Commission (FTC) Act, RESPA, the Fair Credit Reporting Act (FCRA), and HMDA. The FDIC alleged the bank violated Section 8 of RESPA because it paid fees to real estate brokers and online platforms pursuant to co-marketing arrangements and marketing service agreements for referrals of mortgage loan business. The FDIC also alleged the bank violated Section 5 of the FTC Act by misrepresenting to consumers its relationship with the Department of Veterans Affairs (VA) and misrepresenting that consumers would be able to skip several payments when refinancing a VA mortgage loan. Finally, the FDIC alleged the bank violated FCRA by failing to provide firm offers of credit and required disclosures to consumers and violated HMDA by failing to report accurate data on its 2021 loan application register. The bank consented to an order imposing a $1.5 million penalty, and the nine employees stipulated to individual enforcement orders resulting in agreements to pay penalties totaling $275,500.

Alleged Racial or Religious Discrimination

In January 2024, the United States Attorney’s Office for the Western District of Tennessee announced that it entered into a consent agreement with Patriot Bank, resolving allegations of lending discrimination in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). The complaint had alleged that the bank failed to provide mortgage services to majority-Black and Hispanic neighborhoods in Memphis from 2015 through at least 2020 and discouraged individuals in those communities who sought credit from obtaining home loans. Under the proposed consent order, the bank will invest $1.9 million in efforts to increase credit opportunities for communities of color in Memphis.

In May, the Minnesota attorney general filed a lawsuit against a realtor and several companies he owned, claiming that the defendants used deceptive trade practices to market “contracts for deed” without the residential property sales disclosures mandated by several laws, including TILA and two Minnesota statutes. The attorney general’s complaint alleges that the companies would offer contracts for deed, in which a buyer pays the seller over a period of time rather than all at once, targeting purchasers who would not take out mortgage loans due to financial difficulties or religious beliefs. The contract for deed terms were allegedly unfair because they required large down payments, balloon payments, or higher-than-market interest rates. The lawsuit also alleges that the defendants misrepresented or hid material contract terms and offered discriminatory contracts to Muslim purchasers by offering less favorable terms than those marketed to non-Muslim purchasers. The lawsuit, which remains pending, seeks to enjoin the defendants from continuing the alleged unlawful behavior, impose civil penalties, and either cancel or reform existing contracts.

In September, the U.S. Attorney’s Office for the District of New Jersey, the U.S. Department of Housing and Urban Development (HUD), and the U.S. Department of Justice (DOJ) announced they had entered into a consent order with OceanFirst Bank N.A., a New Jersey–based bank, resolving allegations that the bank had redlined majority-minority communities in New Jersey in violation of both the FHA and the ECOA and its implementing regulation (Reg. B). The bank allegedly acquired then closed bank branches and loan production offices in majority-Black, Hispanic, and Asian communities, which, combined with allegedly lackluster marketing efforts and allegedly insufficient fair lending policies, purportedly led to a failure to serve the needs of these communities. Pursuant to the consent order, the bank agreed to invest at least $14 million in a loan subsidy fund, $400,000 in professional services for credit needs, and $700,000 on advertising, outreach, consumer financial education, and credit counseling for these communities. The bank also agreed to maintain their branch in New Brunswick, New Jersey, and open a loan production office in the area, among other local infrastructure investments.

In October, the DOJ and CFPB announced they had jointly filed a complaint and consent order against a mortgage company, Fairway Independent Mortgage Corporation, over allegations of racial discrimination in Birmingham, Alabama. Fairway agreed to pay $8 million and a $1.9 million civil money penalty to resolve allegations that it engaged in a pattern or practice of lending discrimination by redlining predominantly Black neighborhoods in and around Birmingham, Alabama.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.