One of the biggest banks in the Midwest is about to pay a big fine for illegal mortgage activities.
The Consumer Financial Protection Bureau handed down a $37.5 million fine to Michigan-based Flagstar Bank for the institution's failure to adhere to new mortgage servicing rules. While Flagstar has been offering foreclosure relief for troubled homeowners, a CFPB investigation revealed that the bank did little to provide help for those seeking loan modifications. From delaying application approvals to misinforming applicants about their appeal rights to wrongfully denying modifications, borrowers facing foreclosure encountered a range of issues while attempting to adjust their loans.
Waits of 25 minutes and nine months
One of the biggest problems was a serious shortage of resources. The bank was facing approximately 13,000 loan modification applications in 2011, but there were just 25 full-time employees assigned to the workload. In a time when homeowners needed immediate help, it took up to nine months to review a single application. Calling to check on the status of an application did little to speed the process along, either. The average wait time was 25 minutes, leading nearly half of all callers to disconnect.
Where the money will go
The CFPB will hand $20 million directly to an estimated 2,000 people who lost their homes, and an additional $7.5 million will go to approximately 4,500 other homeowners who were victims of the illegal activities. The final $10 million will be deposited into the CFPB's civil penalty fund.
CFPB director delivers warning
"Because of Flagstar’s illegal actions and unacceptable delays, struggling homeowners lost the opportunity to save their homes,” Richard Cordray, Director, CFPB, said in a statement. “The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today’s action signals a new era of enforcement to protect consumers against the cost of servicer runarounds.”
The new era refers to new mortgage servicing rules that officially went into effect in January. Interested in learning more about the new rules and what they mean for your loan? Check out "How Will New Mortgage Rules Affect You?"