Consumer Protection & Privacy

CFPB Fines Mortgage Servicer $1.5 Million for Failing to Honor Loan Modifications after Service Transfers

 by D. Kyle DeakJason Manning and John C. Lynch

On July 30, the Consumer Financial Protection Bureau announced that it reached an agreement with Residential Credit Solutions, Inc., a national mortgage servicing company, whereby the mortgage loan servicer agreed to pay $1.5 million in restitution to borrowers and a $100,000 civil penalty.  The CFPB alleged that the Residential Credit Solutions had failed to honor modifications for loans transferred from other servicers, treated consumers as if they were in default when they weren’t, sent consumers escrow statements falsely claiming they were due a refund, and forced consumers to waive their rights in order to get a repayment plan.

The CFPB alleged that on a number of occasions, instead of honoring trial loan modifications that consumers had entered into with their prior servicers, the company insisted that the consumer again provide proof that they qualified.  This, according to the CFPB, effectively set consumers back as though they had not received a trial modification, and prolonged many consumers’ loss mitigation plans.  The CFPB alleged that in many cases, the company delayed or deprived borrowers of the opportunity to save or sell their homes.

“By failing to honor loan modifications already in place, Residential Credit Solutions put consumers through more headaches but in some cases cost consumers their homes,” said CFPB Director Richard Cordray.  “Residential Credit Solutions must now compensate its victims $1.5 million as a result of our action.”

This result highlights the importance for residential mortgage loan servicers to consider the issues and implications attendant to honoring loss mitigation agreements entered by prior servicers, including in-process modifications, continuing to process pending loss mitigation requests received in transfers, and reviewing and evaluating pending loss mitigation applications in a timely manner.

A copy of the consent order is available at http://files.consumerfinance.gov/f/201507_cfpb_consent-order_residential-credit-solutions.pdf.

Read more at Consumer Financial Services Law Monitor by Troutman Sanders LLP.  

Troutman Sanders LLP is an international law firm with more than 600 lawyers in 16 offices located throughout North America and Asia. Founded in 1897, the firm’s lawyers provide counsel and advice in practically every aspect of civil and commercial law related to the firm’s core practice areas: Corporate, Energy and Industry Regulation, Finance, Litigation and Real Estate. Firm clients range from multinational corporations to individual entrepreneurs, federal and state agencies to foreign governments, and non-profit organizations to businesses representing virtually every sector and industry. See troutmansanders.com for more information.

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