The mortgage servicing industry remains under scrutiny, as evidenced by the recent joint enforcement action against Green Tree Servicing, LLC by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). In a joint complaint filed in Minnesota, the regulators allege that Green Tree, through its collection activities and loss mitigation services for troubled loans, violated various federal statutes including:
the Federal Trade Commission Act (FTC), (15 U.S.C. . §§ 45(a) and 53(b); the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692-1692p; and the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681-1681x, Sections 1031(a), 1036(a)(1), and 1054 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531(a), 5536(a)(1), and 5564 and Section 6 of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2605, and its implementing regulation, Regulation X, 12 C.F.R. part 1024.
The Complaint Allegations
The complaint makes specific allegations arising from an investigation that began in 2010, including allegations that the servicer:
- wrongly represented to borrowers that they must make a loan payment before they could be considered for a loan modification;
- significantly delayed short sale approvals;
- failed to recognize modifications that consumers had with prior loan servicers, allegedly forcing borrowers to re-apply for a modification;
- sought payments on loans even where consumers have disputed the amount;
- revealed the consumer’s debt to third parties, and sometimes asked third parties to encourage the consumer to pay his debt;
- harassed or threatened borrowers;
- misled borrowers by requiring them to use a service called “speed pay” and incur a $12 convenience fee charge in order to make a timely payment, when other, free forms of payment were available;
- took payments from the customer’s account without authorization;
- misrepresented the grace period and/or due date for a timely payment;
- made inaccurate reports to credit bureaus; and
- failed to make timely payments to tax agencies from escrow accounts.
The Agreement with Regulators
The CFPB announced that, in order to resolve the action, Green Tree has entered into a stipulated order, which requires it to pay $48 million in restitution to victims, and a $15 million civil money penalty.
As part of its agreement to resolve the above allegations, beyond its cash payments, Green Tree must also create a new data integrity program and create a loss mitigation program, among other requirements.
The data integrity program will require a substantial investment of time and money, as Green Tree must create a program that both ensures the data it receives from third parties when it purchases servicing rights is accurate and tests and corrects Green Tree’s existing data. Green Tree also has to contract a third party to assess its program every two years for the next 8 years.
The order requires that Green Tree create a loss mitigation program. First, Green Tree must stop any pending foreclosure activity while it evaluates consumers for possible loss mitigation. Second, if a consumer had an investor approved loan modification processing prior to having their servicing transferred to Green Tree, Green Tree must implement the modification. Third, for consumers who had a loan modification application submitted but not yet approved prior to the servicing transfer, Green Tree must evaluate those consumers for loss mitigation.
Finally, Green Tree is enjoined from making any unsubstantiated claims regarding a consumer’s account or providing any misinformation about the consumer’s payment options. It is further enjoined from making unauthorized withdrawals from the consumer’s account or failing to pay taxes from the consumer’s escrow account. Green Tree must ensure that it gives the consumer the proper method to dispute any debt, and it must cease the collection activity during the pendency of the dispute.
An important take away from this case for other financial services institutions is the regulators’ concern with data integrity. Beyond the expected regulatory focus on the alleged deceptive behavior, the regulators targeted the servicer’s reliance on bad data. And it was not just the servicer’s own data that was allegedly problematic; it was data the servicer received with its purchase of servicing rights that was at issue – because the servicer allegedly did not have systems that “substantiated” data it collected where it had reason to believe the data may not be accurate. For financial institutions that rely on data collected by a third party, this action cautions subsequent servicers to create specific due diligence procedures that validate data they receive, lest they be held responsible for any mistakes due to the “unsubstantiated” data.