.Flagstar ordered to pay $27.5M to thousands caught in foreclosure crisis TROY-BASED BANK ALSO HIT WITH $10M FINE Struggling homeowners tried to avoid foreclosures and they reached out to their mortgage service provider Troy-based Flagstar Bank. But unnecessary foot-dragging and hurdles meant many lost their homes anyway, federal officials say. Flagstar now must pay $27.5 million to about 6,500 consumers whose loans were being serviced by Flagstar and who were subject to the unlawful practices , according to a settlement reached with the federal financial watchdog. Flagstar Bank was charged with illegally blocking attempts by borrowers to save their homes, according to the Consumer Financial Protection Bureau. At least $20 million would go to about 2,000 of those foreclosure victims. Flagstar also must pay a $10-million fine. “At every step in the foreclosure relief process, Flagstar failed borrowers,” the Consumer Financial Protection Bureau said in a Flagstar is the largest bank headquartered in Michigan; it ranked No. 7 in Michigan based on deposits, according to the FDIC’s latest report. The mortgage servicing industry was one of the villains in the housing meltdown and charged with sloppy record keeping and bad practices. Other headline-grabbing settlements have been reached with other servicers and other federal agencies. But Flagstar is the first company to be fined by the Consumer Financial Protection Bureau for violating new mortgage servicing rules, which took effect in January 2014. Flagstar has consented to the order but did not admit wrongdoing. Consumer advocates and industry experts say the action is a sign that mortgage servicers are being put on notice. “If you’re doing a garbage job of it, the CFPB is going to take you to task,” said Paul Muolo, managing editor at Inside Mortgage Finance Publications. Barry Zigas, director of housing policy at the Consumer Federation of America, said it remains to be seen if Flagstar is the first of many settlements, but it’s a sign the bureau will use its powers to tackle bad behaviors that cost consumers dearly. Flagstar’s requirement to make financial payments to consumers is significant, Zigas said, but the money will hardly compensate for the unnecessary loss of their homes. People saw their lives dramatically altered. CFPB Director Richard Cordray said Monday’s action signals a new era of enforcement to protect consumers against the cost of runarounds. “Struggling homeowners paid a heavy price, including losing the opportunity to save their homes, as a result of Flagstar’s illegal actions,” Cordray said Monday. Flagstar also must engage in outreach, including a door-knocking campaign and translation services, for borrowers who were not foreclosed on but still affected. FlagstarBancorp, the holding company for Flagstar Bank, on Monday said in a news release that it entered into a settlement agreement regarding alleged violations of federal consumer financial laws arising from the bank’s loss mitigation practices and default servicing operations dating to 2011. “This resolution 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, benefiting our shareholders, customers and the communities we serve,” said Alessandro (Sandro) DiNello, president and CEO. “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,” he said. Flagstar made a disclosure with the Securities and Exchange Commission in August that hinted of an upcoming announcement. In August, Flagstar said it was discussing a possible settlement with the Consumer Financial Protection Bureau relating to loss mitigation practices. Regulators took Flagstar to task for how it handled that business. The consumer bureau charged that it took Flagstar staff up to nine months to review a single application. By contrast, regulators expect such activity could take a month or less. Regulators even mentioned the use of a third-party vendor in India, noting that Flagstar had 13,000 active loss mitigation applications in 2011 but assigned only 25 full-time employees and its vendor in India to review them. Edmund Mierzwinski, consumer program director for U.S. PIRG, said the $10-million civil penalty is significant relative to the amount of restitution, which sends a very strong message to other banks. “Two thousand wrongful victims will receive an average of $10,000 each plus retain the right to take other legal actions,” Mierzwinski noted. Among other things, the bureau charged that: › Flagstar would close applications due to expired documents, even though documents had expired at times because Flagstar took excessive time to review loss mitigation applications. › Flagstar miscalculated incomes of borrowers and, as a result, wrongly denied loan modifications. › Flagstar did not give borrowers a specific reason for the denial of applications. Under the Consumer Financial Protection Bureau’s new rules, mortgage servicers must provide the specific reason a complete loan modification application is rejected . › Flagstar has been wrongly telling borrowers that they only have the right to appeal the denial of a loan modification if they live in certain states. Cordray said that is not true. While the mortgage servicing rules are new, the bureau said it could go back to 2011 because it has authority to take action under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Posted on: Tue, 30 Sep 2014 21:41:16 +0000