Nationstar Mortgage, the largest non-bank mortgage servicer in the United States, has settled a lawsuit with the federal Consumer Financial Protection Bureau for violating consumer protection laws.
The settlement with Nationstar Mortgage, which does business as “Mr Cooper”, calls for a number of concessions and changes to how the company does business, including how it deals with mortgagors who may be active-duty soldiers covered by the Servicemembers Civil Relief Act.
The Consumer Financial Protection Bureau worked with attorneys general from all 50 states and the District of Columbia and Puerto Rico to reach the settlement.
Loan Modifications & Foreclosures
The CFPB said that the mortgage servicer violated a number of rules set up to protect consumers from predatory and deceptive practices.
One such violation included foreclosing on homeowners who were still waiting for their loan modification applications to be processed.
A loan modification is similar to a refinance, but it has some key differences. In a refinance, lenders or mortgage servicers sell home loans to other lenders and mortgage servicers, thereby replacing one loan with another. This is considered advantageous and is often done after a drop in interest rates.
A loan modification is handled completely by the current mortgage holder. The homeowner generally asks for a modification such as an extension of the mortgage, a lower interest rate, a change from an adjustable-rate to a fixed-rate or some other type of modification.
Homeowners who ask for loan modifications usually do so because they are having trouble making their payments.
At issue was the fact that Nationstar did not process the loan modification applications or even inform the homeowners that their requests had been denied; they simply foreclosed on them, after promising them they would not. And while a modification can hurt your credit report, a foreclosure is much more damaging.
COVID-19 Impact on Mortgages
While any type of stealthy foreclosure can be considered a violation of consumer law, the problem has been magnified many times over due to the COVID-19 pandemic. With so many businesses shut down and hundreds of thousands of people sick and dying, many more people than before are finding they are unable to make their mortgage payments.
While the vaccine has brought hope, those struggling to pay their mortgages can’t expect relief will come soon.
Taxes & PMI
Mortgage servicers often collect real estate tax payments along with the mortgage payment every month and are responsible for forwarding the tax payment to the proper agency for crediting. However, according to the agreement with Nationstar, the company did not do this in a timely manner.
Further, the CFPB said Nationstar Mortgage wrongly charged borrowers for private mortgage insurance. Private mortgage insurance is required if the homeowner does not have at least 20% equity built up in their home. However, once the 20% status is reached, homeowners no longer have to pay PMI. Nationstar Mortgage failed to properly cancel homeowners’ private mortgage insurance in a timely manner after they had reached the 20% threshold.
Foreclosure & the SCRA
The Servicemembers Civil Relief Act provides active-duty servicemembers with a number of protections, including protection from foreclosure and eviction without a court order. This protection is also extended to the servicemember’s dependents if the service member is deployed.
The intent of the SCRA is to relieve servicemembers from worries back home while they are protecting their country. While the SCRA does not absolve active-duty servicemembers from meeting their responsibilities, it requires mortgage servicers, lien holders and any creditor to take extra steps before foreclosing on a servicemember or repossessing their vehicle.
The SCRA requires lenders and mortgage servicers to get a court order before beginning foreclosure proceedings. Failing to take this step is a violation of the SCRA and can trigger steep fines and penalties.
Rely on the SCRACVS
Lenders, mortgage servicers and anyone who does business with servicemembers must regularly check their customers’ military status to avoid violating the SCRA. The fastest, easiest, most reliable way to do this is to use the Servicemembers Civil Relief Act Centralized Verification Service. We provide military status verifications usually within 24 hours, and we offer batch and scrubbing solutions.