Mortgage servicer Residential Credit Solutions agreed Thursday to pay $1.5 million for blocking consumers attempts to keep their homes from foreclosure, according to action taken by the Consumer Financial Protection Bureau.
The company, based in Fort Worth, Texas, allegedly failed to honor modifications for loans transferred from other servicers, treated consumers as if they were in default when they werent, sent people escrow statements falsely claiming they were owed a refund and forced consumers to waive their rights in order to get a repayment plan.
The company also agreed to a $100,000 civil money penalty.
According to the CFPBs order, Residential Credit often failed to honor trial loan modifications that consumers had entered into with their previous servicers. Instead, the company insisted that the consumer re-prove that they qualified. This prolonged many peoples loss mitigation plans.
The company put consumers in loan modification trial period purgatory and confused consumers about the status of their modifications, according to the CFPB. In many cases, the company delayed or deprived borrowers of the opportunity to save or sell their homes.
Residential Credit has approximately $95 million in total assets. Since 2009, an estimated 75,000 borrowers have had their loans transferred to the company, which specializes in servicing delinquent loans and residential mortgage loans where the borrower is at a high risk for default. As a servicer, it is responsible for creating and sending monthly statements to borrowers, and collecting and processing payments. For troubled borrowers, it administers short sale and foreclosure relief programs provided by the owner of the loan. These "loss mitigation programs provide alternatives to foreclosure.
"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 officials were not immediately available for comment.
The company allegedly violated the Consumer Financial Protection Act. Specifically, since January 2009, the company has:
- Failed to honor in-process modifications: Some of the borrowers who had their mortgage loans transferred to Residential Credit were already in trial modifications where they were making reduced payments. Residential Credit Solutions practice from at least 2009 to 2013 was to not honor those agreements. Instead, the company insisted that consumers re-qualify for the modifications. The company treated these consumers as if they were still in default, subjecting them to collection calls, late fees, and default and delinquency notices. Many consumers had their loans referred to foreclosure, and some eventually lost their homes.
- Provided incorrect information: For the in-process modifications that Residential Credit failed to recognize, the company gave incorrect information to certain consumers about their unpaid balances, payment due dates, interest rates, monthly payment amounts, and delinquency statuses.
- Misrepresented to consumers that they had extra money in escrow and were due a refund: Servicers are required, with certain exceptions, to provide annual escrow account statements to consumers. These statements include the amount of any surplus funds, which must be refunded to a consumer whose loan payments are current. Many of the escrow statements that Residential Credit sent to delinquent consumers incorrectly stated that they had an escrow surplus of between $80 and $10,000.
- Forced consumers to waive certain rights to get a payment plan:Sometimes, the company offered a payment plan to consumers who fell behind in their payments. It allowed the consumer to make additional payments over a defined period of time; these were often a consumers last opportunity to avoid default or foreclosure. But the company illegally required consumers to surrender certain legal rights in future foreclosures and bankruptcy protections as a condition of receiving the payment plan.
The enforcement action covers Residential Credits allegedly illegal practices before the January 2014 effective date of the CFPBs new mortgage servicing rules.
The full scope of the enforcement order includes:
- Pay $1.5 million in redress to victims: The company must pay $1.5 million to the hundreds of consumers whose in-process loan modifications were not honored. Borrowers who receive payments will not be prevented from taking individual action on their claims as a result of this settlement.
- Engage in efforts to help affected borrowers preserve their home: For some borrowers, Residential Credit must convert in-process loan modifications into permanent modifications. It also must engage in outreach, including telephone and mail campaigns and translation services to contact borrowers and offer them loss mitigation options. It must stop foreclosure processes for certain borrowers, if those are happening.
- End all mortgage servicing violations: Along with being subject to the loss mitigation provisions of the CFPBs new mortgage servicing rules, Residential Credit is banned from making misrepresentations to consumers regarding loss mitigation, such as false statements about how much is owed.
- Adhere to rigorous servicing transfer requirements: The company must create a detailed data integrity program that tests, identifies and corrects errors in loans transferred to it to ensure that it has accurate information about consumers loans.
- Make loss mitigation applications readily available: Residential Credit must make its loss mitigation application available to consumers at no cost by making it readily accessible on its website and providing it upon request to consumers.
- Pay $100,000 civil penalty: The company will make a $100,000 penalty payment to the CFPBs Civil Penalty Fund.