Blog Enforcement Watch June 23, 2020

New York AG Reaches $17 Million Settlement with Mortgage Servicer

On June 23, 2020, the New York Office of Attorney General (New York AG) announced that it reached a $17 million settlement with a mortgage originator and servicer.  The New York AG alleged that the company violated New York’s mortgage servicing regulations, 3 N.Y.C.R.R. Part 419, by failing to make reasonable and good faith efforts to provide borrowers appropriate loss mitigation options and by failing to structure its loss mitigation offers in a way that resulted in reasonably affordable and sustainable payments for borrowers. The New York AG further alleged that the company’s loss mitigation communications were unfair and deceptive under New York Executive Law § 63(12), and General Business Law Article 22-A, § 349. Specifically, the company was alleged to have sent modification offers to borrowers stating that the modifications would lower their monthly payments but failed to mention that the payment reductions would be temporary. Additionally, according to the New York AG, the letters stated that borrowers’ payments “may increase” or “adjust” after the loan modification period rather than clearly stating that the payments would increase when the terms expired. Lastly, the company was alleged to have prioritized interest-only and short-term modifications that resulted in borrowers paying substantially higher payments after the modification period was over, which created an unacceptable risk of default.

Under the settlement agreement, the company will provide revised loan modification waterfall provisions to New York borrowers that include fee waivers, interest rate reductions to 3.75%, term extensions to up to 40 years, and principal deferment. For borrowers whose mortgage amounts are higher than their homes are worth, the company is ​​required to forgive the principal balances so that the amounts of those mortgages equal the market value of the homes. This loan forgiveness is estimated to be approximately $17 million. The company is also required to submit annual reports to OAG for the next two years, summarizing its loss mitigation activities for New Yorkers.