Caliber Home Loans settles with N.Y. AG over interest-only loan mods

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Caliber Home Loans agreed to a settlement with New York Attorney General Letitia James in which it will provide as much as $17 million in forgiveness on loans with interest-only modifications.

The action demonstrates that James plans to make enforcing the state's recently implemented servicing regulations a priority in part due to the additional financial strain consumers may be facing because of the coronavirus and its economic impacts.

"As COVID-19 continues to impair our state's economy, mortgage servicers and investors should know that we will always prioritize home ownership for New Yorkers," James said in a press release issued Tuesday.

New York Attorney General Letitia James.

The short-term modifications the company originally applied to thousands of distressed mortgages adjusted to notably higher payments after a period of up to five years. New York regulations require modifications to be "sustainable and affordable."

As a result of the settlement, Caliber has agreed to evaluate all of its current customers in New York for a new principal-reduction modification.

Under the terms of the new modification, New York borrowers would pay amounts equal to the IO payments specified in the old modification, but those payments would be deemed enough to also cover principal, taxes and insurance. Other outstanding debt would be forgiven.

Caliber, which is owned by affiliates of Texas-based private equity firm Lone Star Funds, had purchased the loans it modified at a discount from federal government-related entities, including Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development.

In other recent news related to regulatory actions, the Consumer Financial Protection Bureau on Tuesday settled a dispute with three companies that issued contracts for deeds between 2012 and 2016, requiring those businesses to collectively pay civil money penalties totaling $35,000.

Under the settlement, Harbour Portfolio Advisors will pay a $25,000 penalty to the bureau. National Asset Advisors and National Asset Mortgage will jointly pay a $10,000 penalty. NAA dissolved in 2018.

At issue in the settlement were arrangements in which consumers agreed to repay fixed principal with interest to purchase foreclosed properties Harbour obtained in bulk from entities like Fannie and Freddie. Harbour primarily marketed the contracts for deed to consumers who could not obtain conventional financing.

The CFPB found that NAA and NAM, in serving as Harbour's intermediaries with consumers, made representations related to credit reporting errors that were "inaccurate and constituted deceptive acts and practices" in violation of the law.

In addition to paying penalties, the companies must make documented efforts to rectify this concern, according to the terms of the settlement.

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Loan modifications Servicing State regulators Secondary market Caliber Home Loans GSEs Distressed HUD CFPB