For the first time since the new mortgage servicing rules went into effect in January 2014, the Consumer Financial Protection Bureau (CFPB) enforced the rules, handing down a $37.5 million fine on Monday to Michigan-based bank Flagstar for illegally blocking foreclosure prevention.
CFPB Director Richard Cordray said in press call on Monday that his Bureau will not tolerate violations of the new mortgage servicing rules.
"These new regulations establish specific rules of the road for handling loss mitigation applications," Cordray said. "Since we first announced these rules almost two years ago, we have made clear that we expect full compliance to clean up the problems that had been pervasive in this industry and caused so many people to lose their homes. Consumers must not be hurt by illegal servicing any more. When mortgage servicers fail to treat people fairly, we will vigorously enforce the law."
Cordray said it is vital that mortgage servicers follow the law because of the "central role" they play in borrowers' lives.
"(Servicers) are the link between a mortgage borrower and a mortgage owner," Cordray said. "They collect and apply payments, work out modifications to the loan terms, and handle the difficult process of foreclosure. Importantly, consumers cannot take their business elsewhere. Instead, they are stuck with their mortgage servicer, whether they are treated well or poorly."
Flagstar was ordered to pay $37.5 million in penalties, which includes $27.5 million in restitution to victims and an additional $10 million fine, following a CFPB investigation that revealed the bank had not been devoting sufficient resources to implement its loss mitigation programs, thus causing a huge backlog of applications and resulting in many foreclosures which could have been prevented.
"The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly," Cordray said. "Today’s action signals a new era of enforcement to protect consumers against the cost of servicer runarounds. The financial crisis is still fresh in our minds and too many homeowners continue to feel its effects. We need all mortgage servicers to understand that they must step up and follow the law. We are working very hard to fulfill this objective."