Carrington agrees to settle CFPB charges it mishandled pandemic relief

Carrington Mortgage has agreed to settle Consumer Financial Protection Bureau allegations that it engaged in improprieties related to the processing of COVID-19 forbearances.

The CFPB had alleged that Carrington "unlawfully withheld legally mandated pandemic protections, wrongly imposed fees, and reported false information to credit reporting companies," according to a statement from Director Rohit Chopra.

But the company neither admitted nor denied wrongdoing, and noted that it was agreeing to settle to avoid protracted litigation.

"In trying to help borrowers affected by the COVID-19 pandemic, Carrington acted in good faith and focused on delivering a benefit to consumers," said Bruce Rose, CEO and founder of The Carrington Companies, in a press release. "I am proud of what our people were able to do for borrowers suffering in the midst of the pandemic."

Specific improprieties the CFPB alleged that Carrington engaged in included requiring borrowers to make more detailed attestations than were required to obtain forbearance, misrepresenting the timelines and relief available, and inaccurately furnishing information to credit bureaus about the payment status of people with pandemic-related payment suspensions. Carrington is paying a $5.25 million penalty, but Rose said that the settlement did not demand additional consumer remediation, a sign of the lack of harm to borrowers in this case.

The allegations follow closely on the heels of the CFPB's latest supervisory report, in which the bureau indicated it found in recent examinations that some unnamed servicers needed to resolve concerns related to improper fees and the handling of distressed loans during the pandemic.

It showed specific concern about undisclosed phone payment fees in that report.

"Mortgage servicers violated federal law by charging sizable phone payment fees — even though consumers were not made aware," the bureau noted in a recent press release about exams it conducted during the first half of this year.

The CFPB, which is facing a court challenge to its funding, said in that report that it has been requiring all mortgage servicers to reimburse any phone payment fees if the charges involved weren't properly disclosed.

State regulators also have shown concern about such charges, and earlier this year suggested that the CFPB prohibit the use of them in response to a request for information the bureau issued on "junk fees."

Regulators initially promised to be lenient when it came to servicers' handling of forbearance due to their need to quickly stand up large scale programs amid the pandemic, but a year ago the CFPB warned that "full supervision" had resumed.

Rose said the CFPB's actions against Carrington walked back on its original promises of leniency.

"The CFPB's decision to pursue this matter also plainly contradicts its own repeated assurances to the industry and lawmakers that it would credit those servicers that 'put struggling families first,' and that it would take a 'flexible' supervisory approach that considered 'the circumstances that entities face(d) as a result of the COVID-19 pandemic and entities' good faith efforts to comply with their statutory and regulatory obligations,'" he said.

"The CFPB's allegations and enforcement actions reflect neither," Rose added. "Rather, this matter is an aggressive and unfortunate example of regulatory overreach."

In its latest Supervisory Highlights bulletin, the bureau also reported that improprieties have occurred as a large number of borrowers have exited forbearance.

Some servicers "made deceptive misrepresentations regarding how to accept deferral offers after forbearance and how to enroll in automatic payment programs," according to the CFPB's report. Deferrals are a common option available for forbearance exits and allows borrowers to resume regular payments while the missed amounts are set aside until later in the term.

The CFPB also showed some concern about the handling of foreclosure alternatives available to borrowers who aren't able to return to making regular payments after forbearance ends.

Some servicers "failed to maintain policies and procedures reasonably designed to properly evaluate loss mitigation options," according to the bureau.

Housing finance firms working with borrowers experiencing persistent or large amounts of distress may be the most likely to experience regulatory scrutiny going forward,  Rachel Rodman, a partner at Cadwalader, Wickersham & Taft said at Information Management Network's Residential Mortgage Servicing Rights Conference in New York this week.

"The most significant risk in mortgage servicing relates to default servicing," she said.