More Banks Could Face Scrutiny over Foreclosure Billing Practices

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Federal and state regulators are ratcheting up scrutiny of the practice of padding foreclosure expenses, putting mortgage servicers on notice that they are responsible for making sure that fees charged by attorneys and third-party vendors are reasonable and accurate.

Two large servicers have already received subpoenas relating to vendors' billing practices and sources say that the Consumer Financial Protection Bureau is preparing to subpoena other servicers to determine if borrowers in foreclosure are being overcharged by vendors or paying for services that were not actually delivered.
The charges billed to borrowers in foreclosure range from posting a legal notice in a newspaper to preparing documents to recording a foreclosure at a county recorder's office. The concern is that vendors are overbilling borrowers and servicers are not properly monitoring the vendors.
"The servicers will be held accountable for not having audited or not managing the expenses better," says Tim Rood, a partner at consulting firm the Collingwood Group. "These enforcement actions are just getting started."
Banks typically outsource the processing of foreclosures to local attorneys, foreclosure trustees and a host of vendors, including property preservation companies.
Regulators have a strong interest in cracking down on vendors' billing practices because most mortgages are guaranteed or insured by Fannie Mae, Freddie Mac and the Federal Housing Administration. In most cases, the borrower has defaulted on the loan and exited the home, so it's the government agencies—and therefore, taxpayers—that are on the hook for the foreclosure costs.
For servicers that have already filed claims to be reimbursed for foreclosure expenses, the government can assess "treble damages" for violating the False Claims Act. Such fines and penalties could potentially be "onerous," says Rood.
The CFPB issued an industry bulletin in April warning banks and nonbanks that they will be held accountable and could face fines for the actions of third-party service providers. Examiners want proof that vendors are not overcharging consumers and that fees reflect the true costs of a service.
"In servicing, you have attorneys that pass the cost on to the servicer, who passes the costs on to the borrower or investor without any due diligence of whether that's the true cost of the service," says Christopher Sicuranza, a managing director of financial services at the consulting firm Navigant. "Banks need to understand what costs are being passed on to the consumer and whether those costs are reasonable and permissible."
The CFPB declined to comment on whether it plans to subpoena mortgage servicers. Other regulators, though, have already started cracking down.
PNC Financial Services Group disclosed on Aug. 8 that it had received a subpoena from the U.S. attorney for the Southern District of New York for "claims for foreclosure expenses that are incurred in connection with the foreclosure of loans insured or guaranteed by FHA, Fannie Mae or Freddie Mac." PNC did not disclose when it received the subpoena but said it is cooperating with the investigation, which is in its early stages. The company declined to comment further.
Also, insurer MetLife disclosed on Aug. 7 that its affiliate MetLife Bank received a subpoena in May from the Department of Justice "requiring production of documents related to…payment of certain foreclosure-related expenses to law firms and business entities affiliated with the law firms."
New York-based MetLife said in the filing "it is possible that various state or federal regulatory and law enforcement authorities may seek monetary penalties from MetLife Bank related to foreclosure practices." The company declined further comment.
In Colorado, foreclosure billings have reached a crisis point. Colorado Attorney General John Suthers has alleged that some law firms have charged homeowners six times the market rate to post legal notices of foreclosure. The state launched an investigation into law firms that either own or have a financial interest in vendors that bill for foreclosure notices and filings.
A separate investigation by the Denver Post last week found that some foreclosure attorneys charged borrowers twice the amount to post a legal notice of foreclosure and in some cases charge even when the notices were not posted at all.
At this point, the Colorado investigation is only targeting law firms, but it is conceivable that it could eventually ensnare banks and other servicers.
"There are any number of circumstances where banks could be held responsible for attorney foreclosure practices," says Richard Gottlieb, a partner at BuckleySandler.
"The risk of outsourcing has increased substantially," adds Sicuranza. "Many of these functions are outsourced traditionally because it was cheaper to do so and the banks didn't have the expertise in their organization. What regulators have focused on is the interaction with the customer. Banks need to implement a risk-based approach to provide oversight of vendors."

CFPB Claims Many Non-Banks Are Out of Compliance

Wed, 2013-08-21 16:09 — 

The Consumer Financial Protection Bureau (CFPB) issued a report, "Supervisory Highlights: Summer 2013," detailing mortgage servicing problems at banks and nonbanks. The report also found that many nonbanks lack robust systems for ensuring they are following federal laws.
“Our examinations of banks and nonbanks allow us to correct problems before more consumers are affected,” said CFPB Director Richard Cordray. “Today’s report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law. Fixing both is a priority for us.”
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the CFPB supervises depository institutions and credit unions with total assets of more than $10 billion, and their affiliates. The Bureau also has authority to supervise nonbanks regardless of size in certain specific markets: payday lenders; private education lenders; and mortgage companies including originators, brokers, and servicers. For other nonbank markets for consumer financial products or services, the CFPB has the authority to supervise “larger participants.” As directed by Dodd-Frank, the Bureau must define such larger participants by rule. To date, the Bureau has issued rules for the debt collection and credit reporting markets.
The report is part of a series of supervision reports that the CFPB issues regularly. It highlights examination work completed between November 2012 and June 2013.
Mortgage Servicing Problems
Since the CFPB launched its supervision program, it has focused much of its work on mortgage servicing. Mortgage servicers are responsible for collecting payments from mortgage borrowers on behalf of loan owners. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures. In supervising both bank and nonbank servicers, CFPB examiners have uncovered problems that can be harmful to consumers. These include:
Sloppy account transfers: The rights to manage a loan are frequently bought and sold among servicers. With these transfers among institutions, the CFPB discovered several risks that can cause consumers to miss payments, delay important processes, or affect the good standing of a mortgage borrower’s loan. For example, examiners found:
►Disorganized and unlabeled paperwork, including important loss mitigation documents
►Failures by mortgage servicers to tell consumers when the servicing of the loan is transferred to another company; and
►A lack of protocols related to the handling of key documents, such as trial modification agreements.
Poor payment processing: Servicers are responsible for processing loan payments and handling tax and insurance payments through escrow accounts. If they do not perform their duties correctly, it can result in extra costs and hassles for the consumer. In its exams, the CFPB found:
►Inadequate notice to borrowers of a change in address to send payments, resulting in late payments;
►Excessive delays in handling the cancellation of private mortgage insurance payments, resulting in late fees; and
►Property taxes being paid later than expected, resulting in borrowers’ inability to claim a tax deduction for the year they planned.
Loss mitigation mistakes: Servicers are also responsible for helping qualified struggling borrowers with alternative plans for repayments, if such plans are available. So when servicers fall short of their responsibilities, consumers can be sent to foreclosure unnecessarily. CFPB examiners discovered several problems, including:
►Inconsistent communications with borrowers, giving them conflicting instructions for loss mitigation processes;
►Inconsistent loss mitigation underwriting, waiving certain fees and interest charges for some borrowers but not others;
►Long application review periods, making the loss mitigation process especially hard on consumers whose accounts are also dual-tracked for foreclosure;
►Incomplete loan files, making it challenging for consumers to find out about their loan modification applications when they call the servicer for help;
►Poor procedures for requesting missing or incomplete information from consumers, making it difficult for consumers to provide the correct documentation; and
►Deceptive communications to borrowers about the status of loan modification applications, leading some consumers to faster foreclosure.
In all cases where the CFPB found mortgage servicing problems, examiners alerted the company to its concerns, specified necessary remedial measures, and, when appropriate, opened CFPB investigations for potential enforcement actions. CFPB’s corrective measures included making sure that important papers were filed appropriately, that servicers improved their policies and procedures governing the handling of loans in loss mitigation, and that consumers were treated according to the law.
The CFPB has also directed servicers to engage in specific corrective actions appropriate to the circumstances, such as: reviewing loss mitigation decisions and related fees or charges to borrowers to determine whether any reimbursement was appropriate; conducting periodic testing to monitor areas of concern; and providing reports to the CFPB on their progress completing the corrective actions.
Many Nonbanks Lack Compliance Management Systems
The CFPB expects the companies it supervises – regardless of size – to have fully developed compliance management systems to ensure all federal consumer financial protection laws are followed. A good system ensures that employees know about their responsibilities, creates structures for reviewing operations, and takes corrective actions when needed. A good system also lessens consumer risks and reduces the potential for violations.
Prior to the CFPB’s existence, many supervised nonbanks had not been subject to federal or even state examinations. Perhaps because of this, CFPB examiners found that many nonbanks are more likely to lack robust compliance management systems. The Bureau found that many nonbank institutions are:
Missing a comprehensive consumer compliance program: The CFPB found that often individual branches of a business were looking out for relevant federal laws without an overarching system in place at the company. This creates a lack of consistency in following the laws across products and across locations. The result can be erratic treatment of consumer problems. It can also mean that root causes of regulatory violations go undetected.
Lacking formal policies and procedures: Not having formal, written documents that both detail consumer compliance responsibilities and instruct employees on the appropriate methods for executing these responsibilities can lead to inconsistencies, sloppy recordkeeping, and ultimately, consumer harm because nobody at the institution is clearly responsible to make sure laws are being followed.
Forgoing independent consumer compliance audits: Independent audits are a good way for a company to routinely conduct quality-control checks on its operations. A compliance audit program provides a board of directors or its designated committees with information about whether policies and standards are being implemented. Without such a program, it is difficult to recognize any significant deficiencies in an institution’s compliance management system.

Lost is America

Last week, I detailed bombshell revelations from Bank of America whistle-blowers, in which former employees of the bank detailed systematic fraud and deceptive practices inside their loan modification department — including bonuses and Target gift cards for staff who racked up foreclosures.
Now, another new lawsuit, featuring a separate whistle-blower, contains additional remarkable revelations – and may shed light on Bank of America’s strategy in getting out from under the mountain of legal exposure and costs in which it now finds itself. Simply put, the bank seeks to pocket quick cash and evade practices set forth in major settlements – by cashing out of the subprime mortgage servicing business. The result would be to leave struggling homeowners back at square one, with even fewer protections to avoid foreclosure.
First, some background. Over the past year, non-bank servicers like Nationstar and Ocwen have been buying up servicing rights to millions of mortgages, gradually positioning themselves to become the biggest companies in the space. These non-bank servicers, which process monthly payments and deal with foreclosures but do not originate loans, have an asset not available to their big bank colleagues: They haven’t yet been officially caught scamming customers. Therefore, they are not a party to the various servicer settlements brought by state and federal regulators, and they need not submit to those settlement guidelines. This includes rules like establishing a single point of contact for borrowers, stopping foreclosure operations when a modification is in process (ending what is known as “dual track”) and facilitating proper payment processing.
All of this has come to a head in a class-action lawsuit filed by Leonard Law Office in Massachusetts against Green Tree Servicing, a non-bank servicer based in St. Paul, Minn. As detailed by an insider at Bank of America in a packet of documents, in January 2013, BofA sold servicing rights to 650,000 mortgages (worth $93 billion) to the parent company for Green Tree.

Like Nationstar and Ocwen, Green Tree is not part of any servicing settlements, nor do they have to abide by any guidelines set by those agreements, even though the loans they purchased were subject to those guidelines when they were in the hands of BofA. Moreover, as a non-bank servicer, Green Tree has traditionally had less stringent oversight from federal regulators, though the Consumer Financial Protection Bureau is fixing to change that.
Of course, servicers like Green Tree, Nationstar and Ocwen have terrible reputations as among the worst servicers in the country (worse than Bank of America, if you can imagine that). Among the charges Leonard Law Office made against Green Tree were claims that the servicer imposed illegal fees to process any kind of payment; failed to process mailed payments on time; harassed borrowers by calling them at all hours of the night and using abusive language to try to collect on debts; and delayed or denied timely modifications. These practices violate such federal laws as the Fair Debt Collection Practices Act, the Telephone Consumer Protections Act, and others. Complaints about Green Tree’s practices litter theInternet.
And some complaints have gone to court, like the case of a Florida widow who claimed that Green Tree debt collectors called her husband, as well as his co-workers and relatives, nine times a day about a mortgage debt. Nationstar and Ocwen have seen their share of complaints as well. One innovative Ocwen scam involves sending homeowners a check for $3.50, and claiming that cashing the check automatically enrolls the customer in an appliance insurance plan, which costs $54.95 a month.
Here’s where Bank of America comes in. According to a bank insider, this is part of a deliberate effort to flip the servicing rights for a quick buck and get out from under the scrutiny of the various settlements. “Brian Moynihan, Ron Sturzenegger and Tony Meola are well aware of the reputations of these servicers,” says the insider, referring to Bank of America’s CEO and two high-level executives. “Ron is a dealmaker, not an operations guy. He was brought in to sell the stuff.”
Sturzenegger runs Bank of America’s Legacy Asset Servicing Division, $1 trillion or so of the shakiest loans at the bank.  By selling off servicing rights, suddenly the bank doesn’t have to comply with settlement practices, nor do they have to increase staff for compliance purposes. So not only do they get some ready cash, they lower their labor costs.
Sturzenegger worked with Meola, the executive of Fulfillment Operations, to put together the “Bulk Transfer Program,” selling off these mostly delinquent loans to disreputable servicers like Green Tree and Nationstar (the more reputable ones didn’t want any part of them). But they only sold the “subservicing” rights. Non-bank servicers like Green Tree service the loans, but Bank of America held onto the so-called master servicing rights. This means that the bank still gets some of the profits from servicing the loans, and none of the responsibility to comply with settlements. Bank of America added a million-plus current loans to the mix of shakier loans to sweeten the pot for the subservicers.
In the most damning charge, the insider noted that, “It may mean that any modification currently in process with BAC (Bank of America) will not be recognized and the borrower will proceed into foreclosure.” This is almost certainly true, and it’s a very common practice. Servicers who purchase servicing rights are not obligated to follow through on prior agreements with homeowners on loan modifications that have not yet been made permanent. So the homeowner, who thought they were well on their way to saving their home, instead has to start all over with a new servicer.
Here’s one example from a former Bank of America customer in Puget Sound, Wash., whose switch to Green Tree voided his short sale and put him back in modification hell. Even if the borrower was getting special treatment because of a natural disaster like Hurricane Sandy, that treatment would be voided once the new subservicer entered the picture. The Fitch rating agency has recognized the danger of selling off distressed servicing rights to these non-bank operations, saying in a research note that “the growth and outsized scale of larger nonbank servicers may pose challenges to a potential orderly transfer of servicing.” Struggling homeowners will bear the brunt of these challenges.
Once Charles Giannotti, a friend of Bank of America CEO Brian Moynihan, found out that his servicing transferred to Nationstar, he emailed in a fit of rage. “Are you aware of the fact that your bank is turning its customers over to a processor that based on the complaints posted appears to not only lack basic competency but also poor customer service?” Giannotti fumed. This set off a flood of CYA emails within the bank from senior executives, responding to Moynihan’s queries about the scheme.
Regardless of how Bank of America resolves this situation, the damage to homeowners has already been done. Homeowners don’t get to choose their servicer – they just get passed around at the whim of big mortgage companies. And every time the servicing rights get transferred, they have to deal with a whole new set of practices. If they were fighting foreclosure at the time of the switch, then they have to start over, under typically disadvantageous circumstances. And that’s especially true when their new servicer sits outside the glare of strict oversight.
Bank of America’s reputation is already unsalvageable. But avoiding requirements they were forced to make to homeowners to compensate for an initial round of illegal practices, by selling the servicing rights off to fly-by-night organizations that specialize in abusing customers, just about takes the cake. And they’re profiting from it, too.

Lost is America  -- The banks found a way to hide and steal our homes and the SEC, FDIC, CFPB, US AG, OCC, are all hiding their heads in the sand..but wait for it......Wall Street will soon go belly up and where does that leave everyone than?