WHEN THE HOUSING MARKET CRASHED AND SHATTERED THE GLOBAL ECONOMY, Americans were mad as hell at Wall Street and the banks for getting us into the mess. As a result, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. To implement the reforms called for in the act and to provide enforcement, a new bureaucracy was formed. The Consumer Financial Protection Bureau has since been busy writing regulations, investigating companies and levying big penalties against companies that violate the new regulations.
As a financial services professional, I receive the daily blogs and news feeds regarding CFPB actions. It seems that almost daily a new initiative or enforcement action is announced. The CFPB is taking action to protect consumers and right wrongs, fining companies, revoking licenses and, in some cases, contributing to the demise of businesses.
Big news — at least in the mortgage business — was a recent announcement about action taken by the CFPB under its new mortgage servicing rules. Flagstar Bank, a lender based in Troy, Mich., with offices nationwide, has agreed to pay $27.5 million to consumers whose loans the bank serviced, with at least $20 million of the amount going to victims of foreclosure. Flagstar also must pay a civil penalty of $10 million to the bureau’s civil penalty fund.
The CFPB’s allegations about Flagstar and its mortgage servicing practices will bring back really bad memories for many who found themselves stuck in mortgage servicing hell at the height of the housing crisis. Like many other companies, Flagstar was not equipped to handle the onslaught of homeowners seeking relief. The CFPB found that in 2011 the department responsible for assisting distressed homeowners had a staff of 25 and a contractor in India to handle 13,000 active loss mitigation cases.
The litany of charges goes on, but any homeowner who attempted a loan modification or other foreclosure prevention measure during this time knows the horrors, and knows it was not just Flagstar with a lack of staffing, incredibly long processing periods and endless wait times on the phone when trying to call their lender.
Flagstar is relatively small in comparison to heavyweights like JP Morgan Chase, Wells Fargo and Bank of America. This settlement may or may not be the first of more to come. But it has certainly gotten the industry’s attention.
On one hand, it’s pretty easy to get angry at the mortgage companies and banks that were poorly staffed and as a result made a bad situation worse for a lot of people. On the other, you could also make an argument for the banks, as this was an unprecedented event, and without the benefit of experience mistakes and missteps were unavoidable. The good news out of all this is that some consumers who lost homes in foreclosure will now receive some small financial benefit.
Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or guyb@fairwaymc.com.
Leave a Reply