The Consumer Financial Protection Bureau (CFPB) today published new supervisory highlights describing the regulator's recent actions to combat junk fees charged by mortgage servicers, as well as other illegal practices. The CFPB has also announced that it is working to address other anticompetitive mortgage fees, including those charged in connection with closing costs.
The agency's efforts to blend consumer financial protection with solutions for housing affordability are not new. The CFPB is currently weighing a ban on banks charging homeowners for title insurance. While the regulator asserts that excessive and undisclosed fees violate consumer protection laws, industry leaders and trade associations maintain the agency's approach exposes a fundamental misunderstanding of how fees and related regulations work within the industry.
According to today's highlights, recent CFPB examinations found servicers engaging in prohibited activities such as charging illegal junk fees for property inspections, sending deceptive notices to homeowners, and violating loss mitigation rules that help struggling borrowers stay in their homes.
In response to the CFPB’s findings, mortgage servicers are taking corrective actions, including changes to their policies and procedures. For the fee-related findings, servicers are remediating homeowners, including providing refunds.
Chosen by the lender or investor that owns the mortgage, not the homeowner, mortgage servicers are a clearinghouse for borrowers' monthly mortgage payments, but are also responsible for helping mortgage borrowers access repayment options when they face financial difficulties. Residential mortgage servicers currently handle more than $13 trillion in mortgage balances, per the CFPB.
Findings from this edition of supervisory highlights will help inform any proposed changes the regulator may unveil moving forward.
CFPB Director Rohit Chopra highlighted the lack of choice consumers have in mortgage servicing. “Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees," he said. "Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”
Some other key findings from the CFPB's latest edition of supervisory highlights include mortgage servicers:
- Illegally charging and obscuring fees: Mortgage servicers charged homeowners prohibited and unauthorized fees. These included prohibited fees for property inspections and late fees that exceeded amounts allowed by their mortgage loan agreements. Mortgage servicers also failed to explain the reasons for fees by not describing them adequately on statements.
- Keeping homeowners on the hook for fees during COVID-19: During COVID-19, many servicers used a streamlined process to determine repayment options for struggling homeowners. Some servicers failed to waive late fees and penalties, as required.
- Missing deadlines to pay property tax and home insurance: Mortgage servicers that accepted or required money from borrowers to pay taxes and insurance failed to make those payments in a timely manner, which caused some borrowers to incur penalties. Servicers only took responsibility for those penalties for missed on-time payments if homeowners submitted complaints.
- Deceiving homeowners and failing to properly evaluate them for repayment options: Some servicers sent notices to homeowners in financial distress that stated they had been approved for a repayment option. In fact, no final decisions had been made, and some of the homeowners were ultimately rejected. Examiners also found servicers sent some homeowners false notices saying that they had missed payments and should apply for repayment options. Servicers also improperly denied requests for help and failed to evaluate struggling borrowers for repayment options as required under the CFPB’s mortgage servicing rules.
The agency's well-publicized battle against illegal junk fees in recent years has hit a wide range of consumer financial markets. Most recently, the CFPB announced a final rule that, when it goes into effect, would reduce credit card late fees by more than $10 billion every year.
The CFPB has also proposed a rule that would save consumers more than $3.5 billion in overdraft fees every year and has addressed junk fees charged on international money transfers. Overdraft and non-sufficient funds fees have declined by more than $6.1 billion since the CFPB began scrutinizing junk fees.
