Welcome to the Mortgage Origination and Servicing
chapter of our annual report Consumer Financial Services 2023 Year in
Review.
Looking Ahead to 2024
Enforcement efforts are expected to increase in 2024 and will
likely reflect anticipated industry growth (e.g., total mortgage
origination volume is expected to increase to $1.95 trillion in
2024 from the $1.64 trillion expected in 2023).
The CFPB will likely focus its efforts on RESPA violations,
force-placed insurance, and time-barred loans.
Key Trends From 2023
In 2023, Goodwin tracked 14 publicly announced enforcement
actions related to mortgage origination and mortgage servicing.
These 14 actions (ten federal and four state) produced recoveries
of more than $87 million. Of these recoveries, $25 million was
attributable to a federal action alleging improper mortgage loan
payments by a payment processing company and $24 million was
attributable to a federal action alleging False Claims Act
violations. Although 14 actions is more than the seven tracked last
year, it reflects a general decrease in the number of mortgage
origination and servicing enforcement actions over the past nine
years — from several dozen per year in 2015, 2016, and 2017
to a mere 13 in each of 2019 and 2021. The amount recovered in 2023
was also substantially less than the $37.3 billion recovered the
prior year and is the lowest annual recovery amount in the nine
years that Goodwin has tracked such activity.
In the News
Statements from the CFPB in 2023 suggest three areas in which
the Bureau may focus its efforts in the coming year: RESPA
violations; force-placed insurance; and time-barred loans.
CFPB Advisory Opinion Notes RESPA Issues With Mortgage
Comparison Websites
Regarding RESPA — specifically, its prohibition on
kickbacks for settlement-service referrals — the CFPB issued
an advisory opinion in February about possible
RESPA issues associated with mortgage comparison websites. The
opinion did not establish any new law or rules, but it did function
as a warning to market participants that displaying or benefitting
from “non-neutral” content on an online mortgage
comparison platform might, in the Bureau’s view, violate RESPA.
Listing several examples of potentially violative conduct, the
opinion cautioned against steering customers to one service
provider over another based on anything other than neutral
criteria, which might amount to unlawful referral activity. The
Bureau’s opinion, according to Director Chopra’s
accompanying statement, was “part of a broader
all-of-government effort to end the illegal biasing of ostensibly
neutral platforms.”
CFPB Signals Anticipated Monitoring of Mortgage Servicer
Compliance Regarding Force-Placed Insurance
Regarding force-placed insurance, Chopra gave public remarks in November, in which he
anticipated that the increasing frequency and severity of natural
disasters could precipitate problems with home insurance needs.
Specifically, if existing coverage is revoked or canceled by
insurers unwilling to cover certain hazards in certain areas,
mortgage servicers may choose to force place property insurance and
charge the homeowner for it. Recognizing the potential for abuse,
noting the availability of insurance options, and emphasizing the
notice requirements already in place for force-placing insurance,
Chopra made clear that the CFPB would be “carefully
monitoring” mortgage servicers for compliance with rules
regulating force-placed insurance.
CFPB Issues Guidance Regarding Debt-Collection Efforts
on Time-Barred Mortgages
Regarding time-barred loans, the CFPB clarified, in guidance issued in April, that bringing or
threatening to bring an action to foreclose a time-barred mortgage
may violate the FDCPA. The opinion was issued “in light of a
series of actions by debt collectors attempting to foreclosure on
silent second mortgages, also known as zombie mortgages” but
pertains to any mortgage on which the statute of limitations has
expired. It warns that any debt collector covered under the FDCPA
may be in violation of that law if it tries to enforce a
time-barred mortgage loan, even if the debt collector did not know
the debt was time-barred.
New York’s Foreclosure Abuse Prevention Act Leads to
Court Split on Its Retroactive Applicability
Separate from regulatory activity, legislative acts in at least
one state have affected the mortgage servicing industry. Signed
into law on December 30, 2022, New York’s Foreclosure Abuse
Prevention Act (FAPA) strictly cabins the time limits for
commencing mortgage foreclosures by amending five New York
procedural rules and the state’s General Obligations Law.
According to its sponsor, the intent of the act was to overturn
certain precedent interpreting those rules and laws. Most
significantly, FAPA invalidated the holding of Freedom Mortgage
v. Engel, 37 N.Y.3d 1 (Feb. 18, 2021), a case in which New
York’s highest court concluded that a mortgage holder may
revoke a prior election to accelerate an installment debt
(acceleration is generally a precursor to foreclosure), thereby
preserving the option to accelerate again in the future. By undoing
Engel, and other precedent too, FAPA takes away this and
similar options from foreclosing plaintiffs.
Since FAPA’s enactment, homeowners in foreclosure actions
have invoked the act in an attempt to persuade courts that the
actions against them are now untimely and should be dismissed. New
York trial courts are split on whether FAPA can apply retroactively
without violating the state and federal constitutions, and none of
the state’s four appellate divisions has decided that issue
yet. Every trial court to hold that FAPA applies retroactively has
also concluded that FAPA is constitutional. In contrast, courts
refusing to apply FAPA retroactively have cited the lack of a clear
expression of retroactive intent and/or constitutional issues that
would arise if FAPA were to apply retroactively, particularly the
violation of due process.
At the current rate, a decision from New York’s Court of
Appeals on FAPA’s retroactivity is years away.
2023 Enforcement and Litigation Highlights
CFPB’s Summer 2023 Supervisory Highlights Identifies
Areas of Focus for Bureau Examiners
In Supervisory Highlights, the CFPB summarized
its 2023 efforts to identify and correct mortgage servicing
violations, which were primarily related to loss mitigation, such
as failure to examine loan modification or forbearance applications
in a timely way, failure to continuously maintain a single point of
contact for customers seeking loss mitigation help, and various
errors in required notices, including vague denial reasons, missing
Spanish-language translations, or incorrect payment details. The
Bureau’s supervisory efforts also addressed some comparatively
minor mortgage-origination issues, such as ensuring that loan
originators are compensated at the same rate whether the loan was
originated in-house or brokered out, and adjusting servicing
software to enable proper rounding of numbers when disclosing terms
of variable interest rate loans.
Beyond those efforts, the CFPB and other regulatory agencies
litigated a handful of civil actions related to mortgage
origination and servicing in 2023. The CFPB brought a federal
action alleging redlining in African American neighborhoods in
Chicago but it was dismissed. DOJ actions were more successful. One
DOJ action, which focused on alleged redlining targeting Black and
Hispanic neighborhoods in Philadelphia, resulted in a $3 million
settlement and consent order. Another, which alleged similar
conduct against a mortgage lender in Jacksonville, Florida,
produced a $9 million settlement. In state court actions, the
Massachusetts Division of Banks secured a settlement with a
California bank over allegations of misleading marketing, and the
New Jersey Division of Consumer Affairs settled claims that a
mortgage servicer violated state consumer fraud regulations with
unsolicited telemarketing and untimely payment applications, among
other actions. The significant cases are summarized below.
Massachusetts Division of Banks Enters Into Consent
Order With Mortgage Lender
In January, the Massachusetts Division of Banks (DOB) entered
into a consent order with a California-based mortgage
lender, Broker Solutions Inc. According to the DOB, the company,
which was licensed as a mortgage lender in Massachusetts, had
allowed a separate company to use its government-issued mortgage
license number. The DOB argued that this could mislead consumers
into thinking the two companies were not separate and distinct, in
violation of 940 Code of Massachusetts Regulations (CMR) 8.06(1),
which bans unfair or deceptive practices in advertising.
Massachusetts requires mortgage lenders to be licensed by the
DOB, which issues individual mortgage lender licenses. The DOB
alleged that the mortgage lender entered into an agreement in
October 2019 that allowed the separate entity to display its brand
alongside the mortgage lender’s license number on certain
webpages and marketing materials. The DOB further alleged that
those advertisements were misleading or had the ability or capacity
to mislead consumers into thinking that the mortgage lender and the
separate entity were not separate and distinct companies, which is
a violation of 940 CMR 8.06(1) and allegedly facilitates unlicensed
mortgage lender and mortgage broker activity.
Pursuant to the consent order, the mortgage lender agreed to pay
a $25,000 administrative penalty and to refrain from future
facilitation of unlicensed mortgage lending or brokerage
activity.
CFPB Secures Ban on Mortgage Lending Activities Based on
Repeated Deceptive Conduct
In February, the CFPB announced that it had entered into a consent order with mortgage lender RMK
Financial Corp. (doing business as Majestic Home Loan), resolving
allegations that the lender had engaged in “a series of repeat
offenses,” including violating a 2015 order prohibiting it
from engaging in what the CFPB alleged was deceptive advertising.
According to the CFPB, Majestic Home Loan sent advertisements to
military families falsely claiming the company was affiliated with
the Department of Veterans Affairs (VA) and the Federal Housing
Administration in violation of the CFPA, Regulation N, TILA, and
Regulation Z. Further, the CFPB alleged that the company had misled
borrowers concerning key terms of the loans, such as interest rates
and monthly payment amounts, and misrepresented loan requirements
and potential refinancing options.
Pursuant to the consent order, Majestic Home Loan was
permanently banned from engaging in mortgage-lending activities and
will pay a $1 million penalty into the CFPB’s victim relief
fund.
CFPB ECOA Action Against Townstone Financial
Dismissed
In February, a CFPB enforcement action brought in federal
district court against mortgage broker and lender Townstone
Financial Inc. and its owner was dismissed (CFPB v.
Townstone, 2023 WL 1766484 [N.D. Ill. Feb. 3, 2023]). The CFPB
had sued in July 2020, alleging under the ECOA and the CFPA that
Townstone had discouraged prospective applicants in African
American neighborhoods in the Chicago metropolitan statistical area
from applying for mortgages by making comments on local radio shows
that discouraged prospective African American borrowers from
applying with the lender. The court granted the defendants’
motion to dismiss the complaint with prejudice on the basis that
the ECOA applies only to applicants, not to prospective
applicants. Refusing to give “Chevron deference”
to Regulation B, which provides that a creditor shall not make
statements to “applicants or prospective applicants that would
discourage on a prohibited basis a reasonable person from making or
pursuing an application,” the court held that the plain
language of ECOA “clearly and unambiguously” prohibits
discrimination against an applicant (defined as “a person who
applies to a creditor for credit”), not a prospective one.
Thus, the court concluded that “Congress has directly and
unambiguously spoken on the issue at hand and only prohibits
discrimination against applicants,” and thus, it did not need
to reach step two of Chevron deference to consider whether
Regulation B, the agency interpretation, reflects a permissible
construction of the statute (id. at *5-*6).
The CFPB appealed the decision in April and filed its opening
brief in July. The appeal was argued in December, and a decision is
now pending in the Seventh Circuit Federal Appeals Court.
DOJ Addresses Allegedly Racially Discriminatory Mortgage
Lending and Serving
In 2023, in four federal lawsuits against mortgage lenders and
servicers, the DOJ turned its attention to the prevention of
racially discriminatory conduct.
In May, the DOJ announced that it had entered into a settlement with ESSA Bank & Trust (ESSA),
a Philadelphia-based bank and trust company, over allegations that
it had engaged in unlawful redlining in the Philadelphia
metropolitan area. In the complaint, filed contemporaneously with the
consent order in U.S. District Court for the Eastern District of
Pennsylvania, the DOJ alleged that ESSA’s practices violated
the FHA and the ECOA by failing to adequately service
majority-Black and -Hispanic neighborhoods in Philadelphia.
Specifically, the DOJ alleged that ESSA excluded predominantly
Black and Hispanic census tracts from its “assessment
areas” (as defined in the Community Reinvestment Act) and,
therefore, that its lending practices did not meet the needs of the
community that it served. The DOJ further alleged that ESSA failed
to adequately staff branches in majority-Black neighborhoods with
loan officers and did not engage in meaningful marketing and
outreach in minority communities around Philadelphia. Under the
consent order, ESSA agreed to establish a $2.92 million Loan
Subsidy Fund for consumers applying for first mortgages,
home-improvement loans, and refinance loans in majority-Black and
-Hispanic census tracts in ESSA’s lending area. ESSA also
agreed to spend at least $125,000 in partnership with community
organizations on outreach and education programs and to spend at
least $250,000 on advertising, outreach, financial education, and
credit counseling within majority-Black and -Hispanic census
tracts.
In October, the DOJ announced a $9 million agreement to resolve allegations against
mortgage loan originator Ameris Bank. According to the DOJ’s complaint filed in the U.S. District Court for
the Middle District of Florida, from 2016 through 2021, Ameris Bank
avoided providing mortgage services to majority-Black and -Hispanic
neighborhoods in Jacksonville, Florida, and discouraged people
seeking credit in those communities from obtaining home loans.
Specifically, even though Ameris operates 18 branches in
Jacksonville, it has never operated a branch in a majority-Black
and -Hispanic neighborhood in the city, and other lenders generated
applications in majority-Black and -Hispanic neighborhoods at three
times the rate of Ameris. Under the proposed consent order, Ameris
Bank will invest $9 million to increase credit opportunities for
communities of color in Jacksonville.
In December, the DOJ was joined by the CFPB, which announced a
suit against Colony Ridge, a Texas-based developer and lender, for
operating an allegedly illegal land sales scheme that targeted
Hispanic borrowers. The complaint, filed in the U.S. District Court
for the Southern District of Texas, alleges that Colony Ridge sells
borrowers “flood-prone land without water, sewer, or
electrical infrastructure” and then allows them to take out
loans they cannot afford, as evidenced by the fact that about one
in four Colony Ridge loans ends in foreclosure. Colony Ridge
allegedly targets Spanish-speaking borrowers by advertising almost
exclusively in Spanish, often via social media posts featuring
elements such as national flags and regional music from Latin
America. The complaint alleges violations of the CFPA, the ECOA,
the FHA, and, in a first for a federal court action brought by the
CFPB, the Interstate Land Sales Full Disclosure Act.
CFPB Enters Into $25 Million Consent Order With Payment
Processor Over Unauthorized Mortgage Payments
In June, the CFPB entered into a consent order with ACI Worldwide and one of
its subsidiaries, ACI Payments (ACI), for allegedly improperly
initiating approximately $2.3 billion in unlawful mortgage payment
transactions. ACI’s data handling practices negatively affected
nearly 500,000 homeowners. The CFPB alleged that although this
one-time event was discovered within hours of its occurrence and
ACI immediately set about to reverse the erroneous debits, by
unlawfully processing erroneous and unauthorized transactions, ACI
exposed homeowners to overdraft and insufficient funds fees from
their financial institutions. The order imposed, among other relief
measures, a $25 million civil money penalty.
New Jersey Division of Consumer Affairs Enters Into
Consent Order With National Mortgage Servicer
In July, the New Jersey Division of Consumer Affairs, Office of
Consumer Protection (the Division) entered into a consent order with a national mortgage
servicer. According to the Division’s press release, the
company, which was formerly licensed in New Jersey before
relocating to Florida, had violated the state’s consumer
protection laws in its mortgage sale and servicing practices.
Based on 1,400 nationwide complaints, the Division alleged that
the company violated the New Jersey Consumer Fraud Act, the
state’s advertising regulations, and the state’s
telemarketing do-not-call (DNC) law from January 2015 to June 2022.
Specifically, among other things, the servicer allegedly made
unsolicited telemarketing sales calls without being a registered
telemarketer, engaged in abusive and deceptive telemarketing
practices, engaged in “bait and switch” sales tactics,
did not timely disburse escrow payments or apply mortgage loan
payments (resulting in negative credit reporting and late fees),
and failed to timely escrow refunds and respond accurately to
consumer inquiries.
Pursuant to the consent order, the company agreed to a $502,000
settlement, including $365,200 in civil penalties and $136,800 in
reimbursement for attorneys’ fees and costs. The consent order
states that $50,000 of the civil penalties would be suspended
assuming the servicer complies with the terms of the settlement.
The servicer also agreed to appoint a complaint coordinator and
agreed that consumer complaints received by the Division would be
forwarded to the Division’s alternative dispute resolution unit
for binding arbitration if unresolved by the servicer.
CFPB Enters Into Consent Order With Mortgage Lender Over
Alleged Kickbacks
In August, the CFPB entered into a consent order with a Florida-based mortgage
lender, which agreed to pay $1.75 million into the CFPB’s
victim relief fund and cease allegedly illegal activities.
According to the CFPB, the mortgage lender had been providing real
estate agents and brokers with numerous incentives —
including cash payments, paid subscription services, and catered
parties — with the understanding they would refer prospective
homebuyers to the mortgage lender for mortgage loans, in violation
of RESPA and its implementing regulation. The CFPB separately
entered into an order with a real estate brokerage firm, Realty
Connect USA Long Island, in which the brokerage agreed to pay a
$200,000 penalty and cease its alleged unlawful conduct of
accepting numerous illegal kickbacks from the mortgage lender.
CFPB Initiates Multiple Enforcement Actions Over
Allegedly Inaccurate HMDA Reporting
In October, the CFPB filed another lawsuit against the same mortgage lender,
alleging that the company violated the Home Mortgage Disclosure Act
(HMDA), its implementing Regulation C, the CFPA, and a recent 2019
consent order. The mortgage lender allegedly reported HMDA data in
2020 that contained widespread errors, prompting the CFPB to file a
lawsuit in the Southern District of Florida seeking civil penalties
and injunctive relief.
The 2019 consent order alleged that the mortgage company
intentionally submitted mortgage loan data for 2014 through 2017
that misreported certain HMDA data fields, such as applicants’
race, ethnicity, and/or sex. The settlement that accompanied the
2019 consent order required the company to pay a civil money
penalty of $1.75 million and improve its compliance management to
prevent future violations. Despite the settlement and consent
order, the CFPB alleged that in 2020, the mortgage company
“collected, recorded, and reported inaccurate HMDA data”
and “did not maintain procedures reasonably adapted to avoid
errors in its 2020 HMDA data submission.”
Then, in November, the CFPB entered into a second HMDA-related
consent order, this time with a national bank,
under which the bank agreed to pay a $12 million civil money
penalty. In the consent order, the CFPB alleged that for at least
four years, hundreds of the bank’s loan officers failed to ask
mortgage loan applicants certain demographic questions as required
under HMDA, and that the loan originator then falsely reported that
the applicants had chosen not to respond to the demographic
questions.
Click to access all 12 chapters of our Consumer Financial Services 2023 Year in
Review, including a market overview about the industry overall
and chapters on 11 industry segments.
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