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.
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