[Federal Register Volume 89, Number 87 (Friday, May 3, 2024)]
[Notices]
[Pages 36779-36781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09713]


-----------------------------------------------------------------------

CONSUMER FINANCIAL PROTECTION BUREAU


Supervisory Highlights, Issue 33, Spring 2024

AGENCY: Consumer Financial Protection Bureau.

ACTION: Supervisory Highlights.

-----------------------------------------------------------------------

SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is 
issuing its thirty-third edition of Supervisory Highlights.

DATES: The findings in this report cover select examinations regarding 
mortgage servicing, that were completed from April 1, 2023, through 
December 31, 2023.

FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at 
(202) 435-7449. If you require this document in an alternative 
electronic format, please contact [email protected].

SUPPLEMENTARY INFORMATION:

1. Introduction

    The residential mortgage servicing market exceeds $13 trillion in 
current outstanding balances. When servicers do not comply with the 
law, they impose significant costs on consumers.
    The CFPB is actively monitoring the market for emerging risks 
during a period of increasing default servicing activity since the end 
of the COVID-19 pandemic emergency. The mortgage industry has grappled 
with many challenges during this period, including increased requests 
for loss mitigation, changes to housing policies and programs, and 
staffing issues. Violations described in prior editions of Supervisory 
Highlights raised concerns about servicers' ability to appropriately 
respond to consumer requests for assistance, especially consumers at 
risk of foreclosure. While mortgage delinquencies and foreclosure rates 
remain near all-time lows, this may change in the future as consumers 
grapple with higher levels of debt and affordability challenges due to 
high rates and low housing supply. Foreclosure starts have risen in 
recent months, increasing the risks that vulnerable consumers face.
    The CFPB also continues to prioritize scrutiny of exploitative 
illegal fees charged by banks and financial companies, commonly 
referred to as ``junk fees.'' Examiners continue to find supervised 
mortgage servicers assessing junk fees, including unnecessary property 
inspection fees and improper late fees. Additionally, examiners found 
that mortgage servicers engaged in other unfair, deceptive, and abusive 
acts or practices (UDAAP) such as sending deceptive loss mitigation 
eligibility notices to consumers.\1\ Mortgage servicers also violated 
several of Regulation X's loss mitigation provisions.\2\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5531, 5536.
    \2\ If a supervisory matter is referred to the Office of 
Enforcement, Enforcement may cite additional violations based on 
these facts or uncover additional information that could impact the 
conclusion as to what violations may exist.
---------------------------------------------------------------------------

    The CFPB is currently reviewing Regulation X's existing framework 
to identify ways to simplify and streamline the mortgage servicing 
rules. The CFPB is considering a proposal to streamline the mortgage 
servicing rules, only if it would promote greater agility on the part 
of mortgage servicers in responding to future economic shocks while 
also continuing to ensure they meet their obligations for assisting 
borrowers promptly and fairly.
    The findings in this report cover select examinations regarding 
mortgage servicing, that were completed from April 1, 2023, through 
December 31, 2023. To maintain the anonymity of the supervised 
institutions discussed in Supervisory Highlights, references to 
institutions generally are in the plural and related findings may 
pertain to one or more institutions.

2. Supervisory Observations

2.1 Mortgage Servicing

    Examiners found that mortgage servicers engaged in UDAAPs and 
regulatory violations while processing payments by overcharging certain 
fees, failing to adequately describe fees in periodic statements, and 
not making timely escrow account disbursements. Additionally, as in 
prior editions of Supervisory Highlights, examiners identified 
persistent UDAAP and regulatory violations at mortgage servicers 
related to loss mitigation practices.

2.1.1 Unfair Charges for Property Inspections Prohibited by Investor 
Guidelines

    Mortgage investors generally require servicers to perform property 
inspection visits for accounts that reach a specified

[[Page 36780]]

level of delinquency. Investor guidelines stipulate when servicers 
should complete these property inspections. Servicers pass along the 
cost of property inspections to the consumers; the fees for this action 
generally range from $10 to $50.
    Examiners found that servicers engaged in unfair acts or practices 
by charging property inspection fees on Fannie Mae loans where such 
inspections were prohibited by Fannie Mae guidelines. The CFPA defines 
an unfair act or practice as an act or practice that: (1) causes or is 
likely to cause substantial injury to consumers; (2) is not reasonably 
avoidable by consumers, and (3) is not outweighed by countervailing 
benefits to consumers or to competition.\3\
---------------------------------------------------------------------------

    \3\ 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------

    Fannie Mae guidelines prohibit property inspections if the property 
is borrower-or tenant-occupied and one of the following applies: the 
servicer has established quality right party contact with the borrower 
within the last 30 days, the borrower made a full payment within the 
last 30 days, or the borrower is performing under a loss mitigation 
option or bankruptcy plan. Examiners found that in some instances a 
servicer would charge a property inspection fee on Fannie Mae loans 
even though the property was borrower-or tenant-occupied and the 
servicer had established quality right party contact within 30 days, 
the borrower had made a full payment within the last 30 days, or the 
borrower was performing under a loss mitigation option. In total, the 
servicers charged hundreds of borrowers' fees for property inspections 
that were prohibited by Fannie Mae's guidelines, causing consumers 
substantial injury. Consumers were unable to anticipate the property 
inspection fees or mitigate them because they have no influence over 
the servicer's practices. Charging improper fees has no benefit to 
consumers or competition. In response to these findings, the servicers 
corrected automation flaws behind some of the improper charges and 
implemented testing and monitoring to address the others. The servicers 
were also directed to identify and remediate borrowers who were charged 
fees contrary to investor guidelines.

2.1.2 Unfair Late Fee Overcharges

    Examiners found that servicers engaged in unfair acts or practices 
by assessing unauthorized late fees.\4\ These errors occurred for one 
of two reasons. First, in some instances servicers charged late fees 
that exceeded the amount allowed in the loan agreement. Second, in some 
instances servicers charged late fees even though consumers had entered 
into loss mitigation agreements that should have prevented late fees. 
Examiners found these practices constituted unfair acts or practices.
---------------------------------------------------------------------------

    \4\ Supervision previously reported a similar unfair act or 
practice of overcharging late fees in Supervisory Highlights, Issue 
29 (Winter 2023), available at: https://www.consumerfinance.gov/compliance/supervisory-highlights/
---------------------------------------------------------------------------

    The servicers caused substantial injury to consumers when they 
imposed these unauthorized late fees. Consumers could not reasonably 
avoid the injury because they do not control how servicers calculate 
late fees and had no reason to anticipate that servicers would impose 
unauthorized late fees. Charging unauthorized late fees had no benefits 
to consumers or competition. In response to these findings, servicers 
refunded the fees and improved internal processes.

2.1.3 Failing To Waive Existing Fees Following Acceptance of COVID-19 
Loan Modifications

    Regulation X generally allows certain servicers to offer 
streamlined loan modifications made available to borrowers experiencing 
a COVID-19 related hardship based on the evaluation of incomplete loss 
mitigation applications if the modifications meet certain 
requirements.\5\ One requirement is that the servicer ``waives all 
existing late charges, penalties, stop payment fees, or similar charges 
that were incurred on or after March 1, 2020, promptly upon the 
borrower's acceptance of the loan modification.'' \6\
---------------------------------------------------------------------------

    \5\ 12 CFR 1024.41(c)(vi)(A).
    \6\ 12 CFR 1024.41(c)(vi)(A)(5).
---------------------------------------------------------------------------

    Examiners found that servicers offered streamlined COVID-19 loan 
modifications but, in violation of Regulation X, failed to waive 
existing fees after borrowers accepted the modifications. In response 
to these findings, servicers are remediating consumers.

2.1.4 Failing To Provide Adequate Description of Fees in Periodic 
Statements

    Regulation Z requires servicers to provide billing statements that 
include a list of all transaction activity that occurred since the last 
statement, including, among other things, ``a brief description of the 
transaction.'' \7\ Examiners found that servicers failed to provide a 
brief description of certain fees and charges in violation of this 
provision when they used the general label ``service fee'' for 18 
different fee types, without including any additional descriptive 
information. In response to these findings, the servicers implemented 
changes to provide more specific descriptions of each service fee.
---------------------------------------------------------------------------

    \7\ 12 CFR. 1026.41(d)(4).
---------------------------------------------------------------------------

2.1.5 Failing To Make Timely Disbursements From Escrow Accounts

    Regulation X requires servicers to make timely disbursements from 
escrow accounts if the borrower is not more than 30 days overdue.\8\ 
Timely disbursements are defined as payments made on or before the 
deadline to avoid a penalty.\9\ Examiners found servicers attempted to 
make timely escrow disbursements, but the payments did not reach the 
payees. The servicers did not resend the payments until months after 
the initial payment attempts. Some borrowers incurred penalties due to 
the late payments, which the servicers only reimbursed after the 
borrowers complained. Because the initial payments were unsuccessful, 
and the second payments were late, the servicers did not make timely 
disbursements and violated Regulation X. In response to these findings, 
the servicers were directed to comply with this regulation and 
remediate borrowers.
---------------------------------------------------------------------------

    \8\ 12 CFR 1024.17(k)(1).
    \9\ Id.
---------------------------------------------------------------------------

2.1.6 Deceptive Loss Mitigation Eligibility Notices

    Examiners found that servicers engaged in deceptive acts or 
practices when they sent notices to consumers representing that the 
consumers had been approved for a streamlined loss mitigation option 
even though the servicers had not yet determined whether the consumers 
were eligible for the option. In fact, some consumers were ultimately 
denied the option.
    An act or practice is deceptive when: (1) the representation, 
omission, act, or practice misleads or is likely to mislead the 
consumer; (2) the consumer's interpretation of the representation, 
omission, act, or practice is reasonable under the circumstances; and 
(3) the misleading representation, omission, act, or practice is 
material.\10\
---------------------------------------------------------------------------

    \10\ Consumer Financial Protection Bureau v. Gordon, 819 F.3d 
1179, 1192 (9th Cir. 2016).
---------------------------------------------------------------------------

    The notices were misleading because the servicers had not yet 
determined the consumers were eligible for the loss mitigation option. 
Consumers reasonably interpreted the representations to mean that the 
loss mitigation option was available to them. The representations were 
material because consumers could have made budgeting decisions on the 
false

[[Page 36781]]

assumption that they were approved for a loss mitigation option or were 
discouraged from submitting complete loss mitigation applications or 
taking other steps to cure their delinquencies and avoid foreclosure. 
In response to these findings, the servicers reviewed affected 
borrowers who remained delinquent to ensure they were considered for 
appropriate loss mitigation options.

2.1.7 Deceptive Delinquency Notices

    Examiners found that servicers engaged in deceptive acts or 
practices when they sent notices informing certain consumers that they 
had missed payments and should fill out loss mitigation applications. 
In fact, these consumers did not need to make a payment because they 
were current on their payments, in a trial modification plan, or had an 
inactive loan (e.g., loan was paid off or subject to short sale). These 
misrepresentations were likely to mislead consumers and it was 
reasonable for consumers under the circumstances to believe that the 
notices from their servicers were accurate. The representations were 
material because they were likely to influence consumers' course of 
conduct. For example, in response to the notice, a consumer may contact 
their servicer to correct the error or fill out unnecessary loss 
mitigation applications. In response to these findings, servicers are 
implementing additional policies and procedures to ensure accuracy of 
notices.

2.1.8 Loss Mitigation Violations

    Regulation X generally requires servicers to send borrowers a 
written notice acknowledging receipt of their loss mitigation 
application and notifying the borrowers of the servicers' determination 
that the loss mitigation application is either complete or incomplete 
after receiving the application.\11\ Examiners found that servicers 
violated Regulation X by sending acknowledgment notices to borrowers 
that failed to specify whether the borrowers' applications were 
complete or incomplete.
---------------------------------------------------------------------------

    \11\ 12 CFR 1024.41(b)(2)(i)(B). This notice is only required if 
the servicer receives a loss mitigation application 45 days or more 
before a foreclosure sale.
---------------------------------------------------------------------------

    Additionally, after receiving borrowers' complete loss mitigation 
applications, Regulation X generally requires servicers to provide 
borrowers with a written notice stating the servicers' determination of 
which loss mitigation options, if any, the servicers will offer to the 
borrower.\12\ Among other requirements, the written notice must include 
the amount of time the borrower has to accept or reject an offer of a 
loss mitigation option.\13\ Examiners found that servicers violated 
Regulation X because the servicers did not provide timely notices 
stating the servicers' determination regarding loss mitigation options. 
The servicers were directed to enhance policies and procedures to 
ensure timely loss mitigation determinations. One servicer also 
violated Regulation X because its written notices did not provide a 
deadline for accepting or rejecting loss mitigation offers. In response 
to the finding, the servicers updated the offer letter templates to 
include a deadline to accept or reject the loss mitigation offer.
---------------------------------------------------------------------------

    \12\ 12 CFR 1024.41(c)(1). This notice is only required if the 
servicer receives a complete loss mitigation application more than 
37 days before a foreclosure sale.
    \13\ 12 CFR 1024.41(c)(1)(ii).
---------------------------------------------------------------------------

    Finally, Regulation X requires servicers to maintain policies and 
procedures that are reasonably designed to ensure that they can 
properly evaluate borrowers who submit applications for all available 
loss mitigation options for which they may be eligible.\14\ Examiners 
found that servicers violated Regulation X because they failed to 
maintain policies and procedures reasonably designed to achieve this 
objective. Specifically, the servicers did not follow investor 
guidelines for evaluating loss mitigation applications when they 
automatically denied certain consumers a payment deferral option rather 
than submitting the consumers' applications to the investor for review. 
In response to these findings, the servicers updated their policies and 
procedures and refunded or waived late charges and corrected negative 
credit reporting for impacted consumers.
---------------------------------------------------------------------------

    \14\ 12 CFR 1024.38(b)(2)(v).
---------------------------------------------------------------------------

2.1.9 Live Contact and Early Intervention Violations

    Regulation X requires servicers to make good faith efforts to 
establish live contact with delinquent borrowers no later than the 36th 
day of delinquency.\15\ Examiners found that servicers violated this 
provision when they failed to make good faith efforts to establish live 
contact with hundreds of delinquent borrowers. The servicers took 
corrective action which included providing remediation to harmed 
borrowers including refunding or waiving late fees.
---------------------------------------------------------------------------

    \15\ 12 CFR 1024.39(a).
---------------------------------------------------------------------------

    Regulation X also requires servicers to provide written early 
intervention notices to delinquent borrowers no later than the 45th day 
of delinquency and again every 180 days thereafter.\16\ Examiners found 
that servicers violated this provision when they failed to send written 
early intervention notices to thousands of delinquent borrowers. In 
response to these findings, the servicers identified and provided 
remediation to affected borrowers who were assessed late fees for 
missed payments after the 45th day of delinquency.
---------------------------------------------------------------------------

    \16\ 12 CFR 1024.39(b)(1).
---------------------------------------------------------------------------

2.1.10 Failing To Retain Records Documenting Actions Takes on Mortgage 
Loan Accounts

    Regulation X requires servicers to retain records documenting 
actions taken with respect to a borrower's mortgage loan account until 
one year after the date the loan was discharged or servicing of the 
loan was transferred to another servicer.\17\ Examiners found that 
servicers failed to document certain actions in their servicing 
systems, such as establishing live contact with borrowers, in violation 
of this provision. In response to these findings, the servicers were 
directed to enhance training and monitoring to ensure compliance with 
this requirement.
---------------------------------------------------------------------------

    \17\ 12 CFR 1024.38(c)(1).

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-09713 Filed 5-2-24; 8:45 am]
BILLING CODE 4810-AM-P