5 minute read
CFPB: Lenders engaged in discrimination, redlining, and reported bad data!
The last two years haven’t been easy, especially for the people in business. More so, for the people in the real estate market, everything has been chaotic, and from the looks of things, it might stay that way for a while, not unless congress acts upon the requests by NAR and NAHB. Perhaps to bring you up to speed with the current developments in the real estate market, we all know that the rates are down and the forbearance period is or almost over. In addition, with the rates relatively down, demand has been sky-high and has been for the past 5 years, only heightening now because people are realizing that now more than ever, our homes have value, especially after the fact that most are taking their jobs from home. In any market, operating optimally, you would expect that demand will equal the supply, only that in our real estate market, demand is a triple threat. There are no new homes, and the current supply of existing homes isn’t enough to sustain the sky-high demand. Prices are rising every single day because of increased competition! In a nutshell, it is a frantic market! Ordinarily, operating in such an environment, some players will go off the book and break some rules, after all, everybody is on edge and who would care if some rules are bend just a little bit? Well, Consumer Financial Protection Board is and has been watching and its response? Tightening the screws on mortgage servicers and originators who have been found on the wrong side of the consumer protection laws. Among its revelations, CFPB uncovered that some lenders engaged
in misconduct when dealing with consumers. To be specific, it says that some lenders engaged in deceptive business practices including the violation of the Truth in Lending Act and the Equal Credit Opportunity Act, while also providing wrongful and inaccurate data on mortgage loans. Some of the practices CFPB uncovered with some lenders (which for some reason it did disclose who) were redlining after the lender received fewer applications from the minority neighborhoods. This obviously raised questions. Furthermore, it was discovered that the lender’s CFPB: direct marketing and some open house materials Lenders engaged used White models and that lender’s offices were in discrimination, concentrated in white redlining, and neighborhoods and nearly all of its loan officers were reported bad white. Moreover, CFPB found that the loan officers data! from this lender send out internal emails that contained racist and derogatory remarks. In its investigations, CFPB also found that there were several instances of “widespread errors” in the lenders’ data disclosures. It disclosed that the financial institutions that botched the credit scoring, rate spread, and debt-to-income data fields on the home mortgage disclosure act will have no choice but to correct and resubmit their disclosures. There were instances where lenders also compensated loan originators differently on the basis of product type which is actually a violation of the Truth in Lending Act. according to CFPB, lenders gave less compensation for the bond loans subject to the requirements of a state Housing Finance Agency. In a separate statement, CFPB warned servicers about how they treat and manage borrowers coming out of forbearance. The Watchdog agency said that it is watching closely how the servicers work to prevent the wave of foreclosure about to happen this fall. In the statement, CFPB said, “Unprepared
is unacceptable,” which is a statement released just a day after the shocking news about lender misconduct.
CFPB also found out that mortgage servicers were in violation of Regulation X. This is a regulation that mandates lenders to provide borrowers with timely disclosure of the real estate settlement process. This is usually done by filing for foreclosures when it was prohibited. There are instances where mortgage servicers misrepresented the foreclosure timelines to the borrowers by sending letters that claimed that they would not initiate foreclosure action until a specified date. Nevertheless, they started the foreclosure before the said date.
“The inaccurate representations regarding the day foreclosure action would be initiated were likely to mislead borrowers into believing that they had more time until foreclosure than they actually did,” the report notes.
In some cases, the lenders would initiate foreclosure proceedings after borrowers had appealed a decision on a loss-mitigation claim. The watchdog agency has come out clearly saying that it will be closely looking at how well servicers are; Being proactive. “Servicers should contact borrowers in forbearance before the end of the forbearance period so they have time to apply for help.”
WORKING WITH BORROWERS. “Servicers should work to ensure borrowers have all necessary information and should help borrowers in obtaining documents and other information needed to evaluate the borrowers for assistance.”
ADDRESSING LANGUAGE ACCESS. “The CFPB will look carefully at how servicers manage communications with borrowers with limited English proficiency and maintain compliance with the Equal Credit Opportunity Act and other laws.”
EVALUATING INCOME FAIRLY. “Where servicers use income in determining eligibility for loss mitigation options, servicers should evaluate borrowers’ income from public assistance, child support, alimony, or other sources in accordance with the Equal Credit Opportunity Act’s antiHandling inquiries promptly. “The CFPB will closely examine servicer conduct where hold times are longer than industry averages.”
Preventing avoidable foreclosures. “The CFPB will expect servicers to comply with foreclosure restrictions in Regulation X and other federal and state restrictions in order to ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated.”
The tidal wave of foreclosures that’s about to happen is like nothing we’ve ever experienced! Responsible servicers are on their toes to make sure that no detail is underlooked. However, there are still some services and lenders who are not willing to play by the rules of the game and have skipped, bend, or completely broken the rules of engagement and fair dealing with some consumers. What the agency is doing right now is a bold move as it serves as a warning to any lender or servicers who think they can do something and get away with it! As of March 29, MBA reported an estimate of 2.5 million homeowners in some form of forbearance. The number has been steadily increasing, slowly approaching a peak. This means, after the moratoria end, many homeowners will become distressed and they will need all the help they can get. And also, it means, there might be possible law breaking by servicers and lenders which is why these warnings by CFPB couldn’t have come at a better time than this.
Sources
https://www.housingwire.com/articles/cfpb-warns-servicers-unprepared-isunacceptable/ https://www.housingwire.com/articles/cfpb-lenders-engaged-in-redliningreported-bad-data/
