Seterus agrees to pay $5M in distressed servicing settlement with CFPB

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Seterus, a now-defunct mortgage servicer that was owned by IBM, has agreed to pay over $5 million in restitution and penalties in a settlement with the Consumer Financial Protection Bureau. Seterus did not admit or deny any of the allegations.

The CFPB had accused the company of delaying or depriving some borrowers of a reasonable opportunity to get their loss mitigation applications completed. Seterus was also charged with failing to provide protections against prohibited foreclosure activities for some borrowers.

These were violations of Regulation X of the Real Estate Settlement Procedures Act as well as the Consumer Financial Protection Act of 2010.

"Seterus' third-party vendor made numerous errors in branding, coding and extracting data from borrower documents, and Seterus used that inaccurate data to populate these fields in the Acknowledgment Notice," the settlement agreement states. "Further, the coding on which Seterus relied to ensure its internal systems were communicating properly with each other and with the third-party vendor's system was not always correct, which led to further such errors."

When Seterus became aware of the erroneous notices in 2014, it issued corrected notices, but those contained the same wrong information that appeared in the original, the CFPB found.

During that period, Seterus allegedly sent numerous acknowledgment notices that failed to inform the affected borrowers about the additional documents and information they needed to submit to complete their loss mitigation applications. The notices also failed to provide a reasonable due date for submission of documents.

Some borrowers were improperly foreclosed upon, the CFPB said, while others incurred injuries such as negative credit reporting, additional late fees and additional interest payments.

The company entered into a settlement with New Hampshire regulators in September 2014 and it notified CFPB of the problems in 2015. But defective notices continued to be issued, albeit less frequently, until 2018.

The CFPB noted that Seterus attempted to mitigate the damages to some borrowers by offering streamlined loan modifications.

Kyanite Services, the successor in interest to Seterus, will have to pay $4.9 million to 11,866 consumers, which were broken out into three groups based on whether they were foreclosed upon or not.

In addition, Kyanite will have to pay a $500,000 fine. The agreement also provides for injunctive relief in the event Kyanite reenters the mortgage servicing business.

Mr. Cooper acquired Seterus' $24 billion servicing portfolio, with an additional $24 billion that was being subserviced, in February 2019.

In an unrelated case, Mr. Cooper recently entered into separate agreements with the CFPB and state regulators and with the Justice Department regarding treatment of distressed mortgage borrowers.Mr. Cooper confirmed that issues within the Seterus case occurred prior to its acquisition of the portfolio and that Mr. Cooper has no financial responsibility for that agreement.

During the financial crisis, Seterus had been one of several nonbanks to purchase MSR packages, a large share of which contained distressed loans.

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Enforcement actions CFPB Servicing Loss mitigation Foreclosures