Michigan-based Flagstar Bank violated new U.S. mortgage servicing rules by illegally blocking borrowers’ attempts to save their homes, says the U.S. Consumer Financial Protection Bureau.
Flagstar failed borrowers at every step, the CFPB said.
The bank took too much time to process borrowers’ applications for foreclosure relief, failed to tell borrowers when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications, the CFPB alleges.
The CFPB is ordering Flagstar to halt its illegal activities, pay $27.5 million to victims, and pay a $10 million fine.
“Because of Flagstar’s illegal actions and unacceptable delays, struggling homeowners lost the opportunity to save their homes,” said CFPB Director Richard Cordray. “The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today’s action signals a new era of enforcement to protect consumers against the cost of servicer runarounds.”
Flagstar is a federal savings bank and mortgage servicer based out of Troy, Michigan. Flagstar administers foreclosure relief programs provided by the owner of the loan.
Designed to Mitigate Losses
Foreclosure relief programs are designed to mitigate losses for both the borrower and the owners of the loans by providing alternatives to foreclosure, including reduced mortgage-payment arrangements.
Flagstar is responsible for soliciting borrowers for these programs, collecting their applications, determining eligibility, and implementing the loss mitigation program for qualified borrowers.
The Bureau’s examinations and investigation found that from 2011 to the present, Flagstar failed to devote sufficient resources to administering loss mitigation programs for distressed homeowners.
For example, in 2011, Flagstar had 13,000 active loss mitigation applications but only assigned 25 full-time employees and a third-party vendor in India to review them.
For a time, it took the staff up to nine months to review a single application.
Here is the CFPB-Flagstar Bank consent order.