WASHINGTON — Michigan-based Flagstar Bank will be required to pay $37.5 million in restitution and fines over regulatory allegations it blocked struggling homeowners from receiving foreclosure relief, the Consumer Financial Protection Bureau said Monday.
In a consent order issued by the agency, the CFPB said the $9.9 billion-asset Troy, Mich. bank violated mortgage servicing rules that took effect in January.
Flagstar was cited for, among other things, taking too long to process applications for foreclosure relief and finalizing permanent loan modifications; failing to inform borrowers when their application was incomplete; and denying loan modifications to qualified borrowers. Flagstar has agreed to pay $27.5 million to about 6,500 consumers affected by these practices and another $10 million penalty to the CFPB.
"Because of Flagstar's illegal actions and unacceptable delays, struggling homeowners lost the opportunity to save their homes," said CFPB Director Richard Cordray in a press release. "The bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today's action signals a new era of enforcement to protect consumers against the cost of servicer runarounds."
The CFPB said its examination of Flagstar revealed that from 2011 to the present, the servicer "failed consumers" in "every step in the foreclosure relief process."
In 2011 alone, Flagstar had 13,000 active loss mitigation applications but only 25 full-time employees and a third-party vendor who was reviewing those applications, the CFPB said. As a result, it took up to nine months for staff to review one application, after the documents supporting it had expired, which led to the bank closing the application.
The mortgage servicing rule requires a servicer to review a loss mitigation application within 30 days if it receives a complete application more than 37 days before a foreclosure sale. Flagstar was cited for violating this rule, among other citations.
The CFPB also said Flagstar's loss mitigation call center had an average call wait time of 25 minutes and the abandonment rate averaged almost 50%. The servicer was also cited for not letting borrowers know when documents were missing in order to complete a mitigation application nor did it specify why it denied an application. The CFPB also said Flagstar "routinely miscalculates" the income of borrowers who may have qualified for a modification.
"Flagstar's failures as a mortgage servicer hurt homeowners," the CFPB said. "In many cases, Flagstar deprived borrowers of the ability to make an informed choice about how to save or sell their home, caused borrowers to drop out from the loss mitigation process entirely, and drove borrowers into foreclosure."
Flagstar has been barred from acquiring servicing rights for default loan portfolios until it can prove it is in compliance with the new servicing standards.