CFPB’s Second Action Against Fay Servicing
Written by: Heather Papows, Senior Consultant, Loan Servicing & Secondary Market
Late last month, the CFPB announced action against Fay Servicing, a nonbank mortgage servicer of mortgage loans to borrowers across the country. In this action, the second against them in 7 years, Fay Servicing was cited for violations of mortgage servicing laws.
In 2017, Fay Servicing was cited for illegal foreclosure practices against borrowers. “Fay Servicing took prohibited foreclosure actions against borrowers requesting mortgage assistance, failed to offer borrowers mortgage assistance options available to them, and overcharged for private mortgage insurance.”
The 2017 action found that “the company kept borrowers in the dark about critical information about the process of applying for foreclosure relief. The CFPB also found instances where the servicer illegally launched or moved forward with the foreclosure process when borrowers were actively seeking help to save their homes.”
The 2024 action found Fay Servicing still in violation of “the 2017 order, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Homeowners Protection Act, and the Consumer Financial Protection Act. Fay Servicing took prohibited foreclosure actions against borrowers seeking mortgage assistance and prevented borrowers from taking advantage of the foreclosure relief options available to them.”
The consumer harm was summarized to three specific areas, which included:
Ignoring the prior law enforcement order, continuing to violate borrower protection laws around prohibited foreclosure activities, and failing to develop written policies and procedures to ensure compliance with housing protection laws
Failing to inform borrowers of the full scale of loss mitigation options available to them, and ultimately limiting their options based on misguided information related to their preferences on options.
Overcharging borrowers by failing to cease PMI collections when no longer required and charging higher late fees than contractually permitted.
In response to this pattern of non-compliance, the latest CFPB order now included limits on the CEO’s compensation, should they again fail to implement the requirements to ensure compliance as laid out in the order. Additionally, Fay Servicing must pay $3 million in consumer redress, invest at least $2 million to update its servicing technology and CMS program, and pay $2 million into the CFPB’s victims relief fund.
As noted in the CFPB announcement, the role of mortgage servicers handling loss mitigation is to “help homeowners to avoid foreclosure, and can help investors, as well as homeowners, avoid the costs of foreclosure. Mortgage servicers are responsible for soliciting borrowers for these programs, responding timely to their applications, determining eligibility, and implementing relief for qualified borrowers.”[1]
Servicers who manage loss mitigation in-house should consider the following actionable items in response to this order:
- Strengthen written policies and procedures
- Invest in staff training to ensure policies and procedures are followed, and that accurate information is communicated with borrowers
- Evaluate the CMS program used for compliance oversight
Those outsourcing servicing need to be mindful of their ultimate responsibility of the sub-servicers actions and therefore should:
Thoroughly review the sub-servicer’s policies and practices
Ensure adequate mechanisms are in place for proper oversight of loss mitigation activities.
For assistance, please contact us at SCA. We have helped numerous clients implement structured processes to comply with GSE and consumer protection regulations related to collections and loss mitigation procedures. Our experienced team stands ready to support you. Contact Bill Dolan, Director, at (617) 694-2617 or by email at WDolan@scapartnering.com.
[1] CFPB Takes Action Against Fay Servicing for Illegal Foreclosure Actions and Violating Law Enforcement Order | Consumer Financial Protection Bureau (consumerfinance.gov)
