On September 29, 2014, the Consumer Financial Protection Bureau (CFPB) announced it had issued its first enforcement order under the agency’s new mortgage servicing rules that went into effect in January 2014. The action claims that the servicer, a Michigan-based federal savings bank and loan servicer, did not comply with the agency’s servicing rules concerning loss mitigation efforts to assist borrowers who had defaulted on their mortgage obligation. The servicer, which did not admit the allegations, issued a statement noting its history of successful loan modifications and its interest in fousing on its business (rather than a costly and protracted dispute with the emerging federal agency): “This resolution is in the bank’s best interest and allows us to continue building a great company that is poised for sustainable, long-term growth and value creation, benefitting our shareholders, customers and the communities we serve,” bank CEO Alessandro (Sandro) DiNello said in a statement. “The dedicated employees of Flagstar Bank have completed thousands of successful loan modifications and work incredibly hard to meet and exceed the needs of our customers.”
The conduct alleged by the CFPB occured begining in 2011, and much of the conduct criticized by the CFPB took place before the new servicing rules became effective. CFPB Director Richard Cordray said in a statement that the action “signals a new era of enforcement” relating to loan servicer activities. The allegations concerned the loan servicer’s loss mitigation efforts, and focused on such specific details of the servicer’s operations as the number of employees dedicated to loss mitigation and wait time to process borrower requests. The enforcement order requires that the servicer, among other things, pay $27.5 million to approximately 6,500 consumers whose loans it was servicing (regardless of whether the borrower had defaulted on the mortgage loan); to terminate acquisition of default servicing rights from third-parties until the servicer demonstrates to the CFPB it has the ability to comply with servicing rules; and a $10 million civil penalty. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions who the agency claims to have violated the January 2014 mortgage servicing rules. The agency has broad authority to take action against institutions it alleges has engaging in unfair, deceptive, or abusive practices.