Loan Modification Abuse Still Continuing

[dropcap]T[/dropcap]he banks and its servicers are still up to their old tricks. The Consumer Financial Protection Bureau (CFPB), which is the government agency overseeing the behavior of the banks, recently issued a report on its examination and observations in consumer reporting, debt collection, mortgage origination and servicing, fair lending, and student loan servicing.

According to the report, the CFPB found violations of mortgage servicing loan modification regulations, including dual tracking. While the banks, lenders and servicers described in the report as having violated consumer financial laws are not named, many of the violations described have resulted in actual enforcement orders providing injunctive and monetary relief. Specific violations identified include the following:

Mortgage Servicing Violations

Loss mitigation applications. The CFPB’s new RESPA loss mitigation rules include procedural requirements for soliciting and evaluating loss mitigation applications (LMAs) from borrowers. For example, within five business days of receiving a LMA, a servicer must send the homeowner written acknowledgment of receipt, advise whether the application is or is not complete, and if not complete, identify what is missing. Violations of loss mitigation rules mentioned in the report include:

  • Failing to send the required loss mitigation notices five days after receiving an LMA
  • Requesting additional documents from borrowers which had either been previously submitted, or were inapplicable to their circumstances
  • Disclosing terms of a payment plan deferring payments in a deceptive manner
  • Failing to honor trial modifications after servicing transfers, causing delays in converting trial modifications to permanent modifications and resulting harm to borrowers.

Dual Tracking/ Foreclosure Process.

The report describes findings of “unfair and deceptive practices” in the foreclosure process. For example, a servicer sent notices of intent to foreclose to borrowers previously approved for trial modification before the first payment under the trial modification was due. This “dual tracking,” according to the CFPB, “could mislead consumers to believe the servicer had abandoned the trial modification,” and was therefore found to be a deceptive practice. Servicers were directed to modify and track notices of intent to foreclose, and to clearly and conspicuously state whether such notices impacted any pending loss mitigation offers. Notices sent by another servicer to borrowers who were current on their loans which stated, due to a systems error, that foreclosure was imminent, were also cited as a deceptive practice.

As can be seen, despite rules, regulations and enforcement actions, the banks and its servicers are still ignoring and flouting the rights of the borrower. That is why it is important to have a knowledgeable advocate on your side for protections against these abuses during the loan modification and foreclosure defense process.

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