On February 17, 2017, the California Department of Business Oversight (California DBO) announced that it had entered in to a $225 million consent order with a national mortgage servicer following an investigation by a third-party auditor into loans serviced by the company in California between January 1, 2012 and June 30, 2015. The servicer had agreed to the audit as a result of a previous consent order it entered with the California DBO on January 23, 2015 (and covered previously by Enforcement Watch here). Pursuant to the terms of that consent order, the servicer had agreed to service no new loans in California while the audit was pending. The completion of that audit, and the consent order entered in to on February 17, 2017, allows the company to service new loans in California.
According to the California DBO, the auditor found hundreds of violations of state and federal law. Specifically, the audit found that the servicer violated the California Homeowners Bill of Rights by providing borrowers incomplete information in loss mitigation notices, inaccurately telling borrowers they were current on their payments when they were not, and providing borrowers with inaccurate notices of default. The audit also found that that the servicer violated the Servicemembers Civil Relief Act by failing to reduce monthly interest rates to six percent for active duty military personnel. Other alleged violations of federal law included sending monthly statements that failed to itemize late fees (an alleged violation of the Truth in Lending Act); failing to disclose to borrowers the deadline to accept loan modification offers (an alleged violation of the Real Estate Settlement Procedures Act); failing to send or sending inaccurate notices that borrowers were delinquent on their loans; and failing to timely correct inaccurate credit information (an alleged violation of the Fair Credit Reporting Act).
The California DBO also alleged that the servicer sent time-sensitive letters after the date represented on the letter itself. The servicer had already agreed to pay approximately $2 million to borrowers affected by the “letter-dating” issue.
Under the terms of the settlement, the servicer will pay $5 million in penalties, $20 million in borrower restitution, $198 million in debt forgiveness over three years, and at least $2 million in separate restitution for the letter-dating problem. The servicer is also required to re-solicit claims from other potentially affected borrowers for the letter-dating issue and pay any identified borrowers restitution if eligible.