Servicing

CFPB fines Residential Credit Solutions $1.5 million for illegal mortgage servicing

Allegedly failed to honor loan modifications, drove borrowers into foreclosure

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The Consumer Financial Protection Bureau is taking action against another mortgage servicer, fining Residential Credit Solutions $1.5 million for illegal mortgage servicing practices.

According to a release from the CFPB, Residential Credit Solutions failed to honor modifications for loans transferred from other servicers, treated consumers as if they were in default when they weren’t, sent consumers escrow statements falsely claiming they were due a refund, and forced consumers to waive their rights in order to get a repayment plan.

Residential Credit Solutions, a Ft. Worth, Texas-based mortgage servicing company, specializes in servicing delinquent or default loans and so-called “credit-sensitive” residential mortgage loans, where the borrower is at high risk for default.

According to the CFPB, Residential Credit Solutions has about $95 million in total assets.

Since 2009, approximately 75,000 borrowers have had their loans transferred to Residential Credit Solutions.

According to the CFPB, Residential Credit Solutions engaged in illegal practices when servicing loans that it acquired from other servicers.

The CFPB order stated that the company, on a number of occasions, failed to honor trial loan modifications that consumers had entered into with their prior servicers.

Instead of honoring those previous agreements, Residential Credit Solutions allegedly insisted that the consumer re-prove that he or she was qualified.

According to the CFPB, by refusing to honor previously agreed upon loan modifications, Residential Credit Solutions effectively set consumers back as though they had not received a trial modification.

It also prolonged many people’s loss mitigation plans, the CFPB said.

“The company put consumers in loan modification trial period purgatory and confused consumers about the status of their modifications, making it difficult for them to take appropriate action,” the CFPB said in a release. “In many cases, the company delayed or deprived borrowers of the opportunity to save or sell their homes.”

The CFPB also said that Residential Credit Solutions’ “failures as a mortgage servicer” caused harm to homeowners.

“In many cases, the company 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,” the CFPB said.

According to the CFPB, Residential Credit Solutions violated the Consumer Financial Protection Act in the following ways since January 2009:

Failed to honor in-process modifications: Some of the borrowers who had their mortgage loans transferred to Residential Credit Solutions were already in trial modifications where they were making reduced payments. Residential Credit Solutions’ practice from at least 2009 to 2013 was to not honor those agreements. Instead, the company insisted that consumers re-qualify for the modifications. The company treated these consumers as if they were still in default, subjecting them to collection calls, late fees, and default and delinquency notices. Many consumers had their loans referred to foreclosure, and some eventually lost their homes.

Provided incorrect information: For the in-process modifications that Residential Credit Solutions failed to recognize, the company gave incorrect information to certain consumers about their unpaid balances, payment due dates, interest rates, monthly payment amounts, and delinquency statuses.

Misrepresented to consumers that they had extra money in escrow and were due a refund: Servicers are required, with certain exceptions, to provide annual escrow account statements to consumers. These statements include the amount of any surplus funds, which must be refunded to a consumer whose loan payments are current. Many of the escrow statements that Residential Credit Solutions sent to delinquent consumers incorrectly stated that they had an escrow surplus of between $80 and $10,000.

Forced consumers to waive certain rights to get a payment plan: Sometimes, the company offered a payment plan to consumers who fell behind in their payments. It allowed the consumer to make additional payments over a defined period of time; these were often a consumer’s last opportunity to avoid default or foreclosure. But the company illegally required consumers to surrender certain legal rights in future foreclosures and bankruptcy protections as a condition of receiving the payment plan.

As part of the CFPB’s punishment, Residential Credit Solutions is ordered must pay $1.5 million to the hundreds of consumers whose in-process loan modifications were not honored. Borrowers who receive payments will not be prevented from taking individual action on their claims as a result of this settlement, the CFPB said.

Residential Credit Solutions must also:

Engage in efforts to help affected borrowers preserve their home: For certain borrowers affected by its unlawful practices who were not foreclosed on, Residential Credit Solutions must convert in-process loan modifications into permanent modifications. And it must engage in outreach, including telephone and mail campaigns and translation services to contact borrowers and offer them loss mitigation options. It must stop foreclosure processes for certain borrowers, if those are happening.

Honor prior loss mitigation agreements: Residential Credit Solutions must honor loss mitigation agreements entered by prior servicers, including in-process modifications, continue processing pending loss mitigation requests received in transfers, and review and evaluate pending loss mitigation applications.

End all mortgage servicing violations: In addition to being subject to the loss mitigation provisions of the CFPB’s new mortgage servicing rules, Residential Credit Solutions is prohibited from making misrepresentations to consumers regarding loss mitigation, such as false statements about how much is owed.

Adhere to rigorous servicing transfer requirements: The company must create a detailed data integrity program that tests, identifies, and corrects errors in loans transferred to it to ensure that it has accurate information about consumers’ loans. Residential Credit Solutions may not transfer loans in loss mitigation, in or out, unless all account-level documents and data relating to loss mitigation are provided to the new servicer by the date of transfer.

Make loss mitigation applications readily available: Residential Credit Solutions must make its loss mitigation application available to consumers at no cost by making it readily accessible on its website and providing it upon request to consumers. The application must identify all required documentation and information necessary to complete a loss mitigation application. It must also adequately train its personnel in loss mitigation procedures.

Residential Credit Solutions is also ordered to pay a $100,000 penalty payment to the CFPB’s Civil Penalty Fund.

“By failing to honor loan modifications already in place, Residential Credit Solutions put consumers through more headaches but in some cases cost consumers their homes,” said CFPB Director Richard Cordray. “Residential Credit Solutions must now compensate its victims $1.5 million as a result of our action.”

HousingWire attempted to contact Residential Credit Solutions for comment on the CFPB fine, but the phone number listed on the company’s website is only for customers who have loans currently being serviced with the company. This article will be updated if Residential Credit Solutions comments officially.

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