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Legal Insight: CFPB Announces Consent Order for Mortgage Servicing Violations

The CFPB recently announced that it has entered into a consent order with Fay Servicing, LLC (“Fay”) to settle alleged mortgage servicing violations.  A copy of the consent order can be found here. As is typical for CFPB enforcement activity in the mortgage servicing space, the focus of this consent order is alleged misconduct in connection with loss mitigation procedures and foreclosure protections.

According to the consent order, Fay did not send timely loss mitigation acknowledgement notices and loss mitigation evaluation notices.  The loss mitigation acknowledgement notice must generally be sent within five days after receipt of a loss mitigation application, and either confirm that the application is complete or detail the additional information or documents required.  The loss mitigation evaluation notice must generally be sent within 30 days of receiving a complete loss mitigation application and detail the determination of which options, if any, will be offered.

In some instances, the CFPB claims that Fay proceeded with certain foreclosure steps while the borrower was subject to foreclosure protections under Regulation X.  Those protections generally apply to a borrower who has submitted a complete loss mitigation application by certain points in the foreclosure process, and continue while the application is evaluated and resolved pursuant to Regulation X.

The consent order further states that there was a mistaken understanding that the loss mitigation requirements under Regulation X only applied to retention options (e.g., loan modification or repayment plan), and not to non-retention options (e.g., short sale or deed in lieu).  Finally, the CFPB asserted that Fay’s loss mitigation policies and procedures were lacking, and did not enable its personnel to engage in compliant practices.

Fay is required to pay restitution to consumers of up to $1.15 million, and to facilitate loss mitigation for those accounts that were the subject of the alleged misconduct.  Further, the consent order requires an extensive set of measures intended to ensure compliance going forward.

This enforcement action highlights again the importance of technical compliance with the loss mitigation procedures under Regulation X.  Since the servicing rules became effective in 2014, the CFPB has consistently signaled its prioritization of these requirements.

To learn how to avoid large problems and potentially hefty fines imposed by enforcement actions, download our free infographic.  

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Ballard Spahr's Privacy and Data Security Group

Written by Ballard Spahr's Privacy and Data Security Group

Ballard Spahr LLP, an Am Law 100 law firm with more than 500 lawyers in 15 offices in the United States, provides a range of services in litigation, business and finance, real estate, intellectual property, and public finance. Our clients include Fortune 500 companies, financial institutions, life sciences and technology companies, health systems, investors and developers, government agencies and sponsored enterprises, educational institutions, and nonprofit organizations. The firm combines a national scope of practice with strong regional market knowledge. For more information, please visit www.ballardspahr.com.

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