On August 21, 2024, the Consumer Financial Protection Bureau (CFPB) announced an enforcement action against Fay Servicing, a nonbank mortgage servicer, for alleged violations of federal mortgage servicing laws and non-compliance with a 2017 CFPB order. As part of this action, the CFPB has imposed a total of $5 million in penalties and consumer redress, including a $2 million civil money penalty and $3 million in restitution to affected consumers. Additionally, Fay Servicing is required to allocate $2 million to enhance its servicing technology and compliance management systems. Notably, the CFPB's order includes provisions that may impact the compensation of CEO Edward Fay if the company does not meet the order's compliance requirements.

Context and Background on the Enforcement Action

Fay Servicing, a Delaware limited liability corporation headquartered in Tampa, Florida, services mortgage loans across the United States. As a mortgage servicer, the company is tasked with administering foreclosure relief programs designed to assist struggling borrowers in avoiding foreclosure. These programs, commonly referred to as loss mitigation, are vital in protecting both homeowners and investors from the financial impacts of foreclosure.

The CFPB initially targeted Fay Servicing in 2017, citing alleged failures in providing borrowers with legally mandated foreclosure protections. The 2017 order required the company to implement specific changes to its policies and procedures. However, the CFPB's latest findings suggest that Fay Servicing may not have fully complied with the terms of that order, leading to the current enforcement action.

CFPB’s Allegations and Findings

According to the CFPB, Fay Servicing engaged in several practices that allegedly contravened both the 2017 order and various federal mortgage servicing laws. These findings include:

1. Prohibited Foreclosure Actions: The CFPB alleges that Fay Servicing violated the 2017 order by continuing to initiate foreclosure actions against borrowers who were in the process of seeking mortgage assistance. The Bureau claims that Fay Servicing failed to implement adequate policies to prevent such actions and did not consistently place necessary holds on foreclosure processes.
2. Inadequate Disclosure of Loss Mitigation Options: The Bureau contends that Fay Servicing did not fully inform borrowers of all available loss mitigation options. This lack of transparency, the CFPB argues, may have inadvertently limited borrowers’ ability to pursue the most beneficial foreclosure relief options.
3. Overcharges for Private Mortgage Insurance and Late Fees: The CFPB asserts that Fay Servicing improperly continued to charge borrowers for private mortgage insurance beyond the required period, resulting in overpayments. The company is also accused of assessing late fees that exceeded the amounts permitted under borrowers' mortgage agreements.

Implications of the Enforcement Action

The CFPB’s enforcement order includes several critical mandates that Fay Servicing must follow:

• Consumer Redress: Fay Servicing is ordered to pay $3 million in restitution to consumers who were allegedly harmed by the company’s foreclosure practices and improper charges.
• CEO Compensation Limits: A unique aspect of the order is its potential impact on the compensation of Edward Fay, the company’s CEO. The CFPB has indicated that Mr. Fay’s compensation could be restricted if he does not ensure that the company complies with the order’s requirements.
• Investment in Compliance and Technology: Fay Servicing must allocate $2 million to upgrade its servicing technology and compliance management systems, a move that the CFPB believes is necessary to prevent future violations.
• Civil Money Penalty: The company is required to pay a $2 million fine, which will be directed to the CFPB’s victims relief fund.

Considerations for Mortgage Servicers

This enforcement action serves as a cautionary example for mortgage servicers regarding the importance of adhering to CFPB directives and federal mortgage servicing regulations. While the CFPB’s authority to impose significant penalties and direct company operations is well-established, it is crucial for companies to ensure that their compliance programs are robust and up-to-date to avoid similar actions.

For companies navigating CFPB investigations or enforcement actions, it is essential to proactively engage with the Bureau to resolve any potential issues before they escalate. Ensuring that compliance management systems are adequately equipped to handle the complexities of mortgage servicing is not only a regulatory requirement but also a critical business imperative.

If you represent a mortgage servicer or are involved in CFPB-related matters, understanding the nuances of enforcement actions and the Bureau’s expectations is key to mitigating risks and protecting your organization.