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CFPB Fines Flagstar $37.5 Million for Blocking Foreclosure Prevention

seal-on-moneyThe Consumer Financial Protection Bureau (CFPB) ordered Michigan-based bank Flagstar to pay $37.5 million in penalties for violating the new mortgage servicing rules by failing to devote sufficient resources to its foreclosure prevention programs, CFPB announced on Monday.

CFPB said that Flagstar illegally blocked borrowers’ efforts to avoid foreclosure by unnecessarily delaying the processing of foreclosure relief applications, intentionally delaying permanent loan modifications, failing to notify borrowers when their applications for foreclosure relief were incomplete, and denying qualified borrowers of loan modifications.

Flagstar was ordered to pay $27.5 million in restitution to the victims and an additional $10 million fine, totaling $37.5 million in penalties, according to CFPB.

“Because of Flagstar’s illegal actions and unacceptable delays, struggling homeowners lost the opportunity to save their homes,” CFPB Director Richard Cordray said. “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, a federal savings bank and mortgage servicer, is responsible for soliciting borrowers for its loss mitigation programs and subsequently processing the applications, determining borrowers’ eligibility, and implementing the programs to qualified borrowers.

The Bureau’s investigation found that Flagstar failed consumers “at every step of the foreclosure process” by not devoting sufficient resources toward implementing the loss mitigation programs. CFPB discovered upon examination that during 2011 and continuing on into 2014, Flagstar had more than 13,000 active loss mitigation applications but only 25 full-time employees and a third party vendor in India reviewing them, increasing the wait time to review a single application to nine months in some cases and pushing the number of Flagstar’s backlogged applications to more than 1,000. CFPB found that the average wait time to Flagstar’s loss mitigation call center was 25 minutes, with more than 50 percent of calls being abandoned. CFPB found Flagstar’s actions to be in violation of the new mortgage servicing rules with respect to loss mitigation that went into effect in January 2014. The alleged violations began in 2011 and continued on into 2014, CFPB said.

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