The Consumer Financial Protection Bureau (CFPB) is tightening the screws on mortgage servicers and originators that violate consumer protection laws.
The watchdog agency found that lenders engaged in deceptive business practices, including violations of the Truth in Lending Act and the Equal Credit Opportunity Act, and provided inaccurate data on mortgage loans. The agency did not name the lenders or servicers it examined, and did not levy any fines or penalties.
The CFPB said one lender — which raised red flags when it received fewer applications from minority neighborhoods — engaged in “redlining.” In the lender’s direct marketing and open house materials, the models were white. The lender’s offices were concentrated in white neighborhoods, and nearly all of its loan officers were white. The CFPB also found that loan officers sent internal emails “containing racist and derogatory content.”
The lender will take action to correct the violations, which the CFPB is still reviewing.
The CFPB also identified “widespread errors” in lenders’ data disclosures. Financial institutions flubbed the credit scoring, rate spread and debt-to-income data fields on their home mortgage disclosure act. Those institutions will have to correct and resubmit their disclosures.
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In some instances, the CFPB found that lenders compensated loan originators differently based on the product type — a violation of the Truth in Lending Act. Lenders gave less compensation for bond loans subject to the requirements of a state Housing Finance Agency.
The watchdog agency found that mortgage servicers violated Regulation X, which requires lenders to provide borrowers with timely disclosures of the real estate settlement process, by filing for foreclosure when it was prohibited.
In some cases, servicers misrepresented the foreclosure timeline to borrowers. Servicers sent letters to borrowers, claiming they would not initiate a foreclosure action until a specified date. Nevertheless, they started foreclosures before that date.
“The inaccurate representations regarding the day foreclosure action would be initiated were likely to mislead borrowers into believing that they had more time until foreclosure than they actually did,” the report notes.
The agency also found that mortgage servicers initiated foreclosures after borrowers had appealed a decision on a loss-mitigation claim. Servicers initiated the foreclosures before making a decision on the appeals one way or another.
Some mortgage servicers didn’t tell legal counsel to pull the plug on foreclosure proceedings until five days after they received a loss mitigation application from borrowers.