On June 18, the CFPB settled enforcement actions (found here and here) against two mortgage servicers who serviced reverse mortgages on behalf of HUD, for their systemic failure to respond to consumer requests for assistance, resulting in financial harm to many elderly borrowers.
A reverse mortgage is a special type of home loan only available to homeowners who are 62 and older seeking an income stream from their home equity. RESPA requires a servicer to respond to consumer requests for information about their loan in a timely manner. The requirement is important to protect reverse mortgage borrowers, who remain responsible for property taxes, insurance, and other applicable fees and assessments.
According to the CFPB, the servicers were woefully unprepared and under-resourced, leading to an inability to handle the needs of up to 150,000 borrowers. The alleged neglect ranged from unaddressed requests for assistance to failures in responding to crucial homeowner inquiries about loan statements and foreclosure alternatives. This mismanagement not only instilled fear of foreclosure among many elderly borrowers, but also led to financial losses due to missed opportunities for home sales and unnecessary fees and costs.
The CFPB determined that the companies violated RESPA as well as the Consumer Financial Protection Act’s prohibition of unfair, deceptive, and abusive acts and practices. Specifically, the Bureau found the companies harmed homeowners by:
- Leaving homeowners unsupported. The companies’ lack of communication prevented homeowners from being able to prove their occupancy, acquire loan payoff details, and explore foreclosure alternatives.
- Incorrectly informing homeowners they were in default. The companies issued notices to elderly homeowners, falsely claiming their reverse mortgage loans were due within 30 days due to a default condition, despite no such default-triggering event occurring. Further, the companies failed to respond appropriately to borrowers’ efforts to rectify these erroneous “due and payable” notices.
Under the consent orders, one of the loan servicers was required to cease all reverse mortgage activities and pay $11.5 million in redress to affected consumers, alongside a $5 million civil penalty. The second loan servicer, who was a subcontractor to the other, was ordered to permanently exit the reverse mortgage servicing business and pay a nominal $1 penalty—an act that maintains eligibility for future contributions to the Bureau’s victims relief fund.
Putting It Into Practice: These recent enforcement actions are the latest in the CFPB’s efforts to police improper mortgage loan servicing practices (previously discussed here). Servicers should take heed of this development and take steps to ensure they have devoted proper resources to service the needs of their customers, especially those customers that are economically disadvantaged or have limited-English proficiency.