Flagstar Bank Ordered to Pay $37.5 Million for Illegal Loan Modification Activities
The Consumer Financial Protection Bureau (CFPB) has ordered a Michigan-based bank to pay $37.5 million for illegally blocking borrowers' attempts to save their homes.
According to a CFPB complaint, Flagstar Bank took excessive time to process borrowers' applications for foreclosure relief, failed to tell borrowers when their applications were incomplete, denied loans modifications to qualified borrowers and illegally delayed finalizing permanent loan modifications. The CFPB ordered the company to pay $27.5 million to its victims and a $10 million fine.
Flagstar administers foreclosure relief programs and is responsible for collecting applications, determining eligibility and implementing the loss mitigation program for qualified borrowers. But according to the complaint, the company has been understaffed since 2011. It could take staff up to nine months to review a single application.
Subsequently, Flagstar's own actions resulted in the denial of loan modifications for borrowers.
The excessive time to review applications caused application documents to expire. Flagstar would then close these applications, even though the company was the cause of the delay. The company also delayed approving or denying applications, which it must do within 30 days. Flagstar prolonged trial periods for loan modifications, which in some causes increased the borrower's loan amount and jeopardized their permanent modifications.
If a customer submits an incomplete application, Flagstar must notify the borrower with a missing documents letter that informs them of what paperwork is needed to complete the application. Flagstar either delayed sending the letters, or failed to send them altogether. The company also failed to provide notice of appeal rights or wrongly stated that borrowers only have the right to appeal if they live in certain states.
Flagstar also routinely miscalculated borrower income, which is vital to being approved for the program. The company miscalculated these incomes and wrongfully denied loan modifications.
The consent order can be viewed here.