Nationstar, the fourth-largest mortgage servicer in the U.S., is set to pay $91 million to settle claims brought by the Consumer Financial Protection Bureau and state attorneys general alleging that the company failed to honor mortgage forbearance agreements and unfairly foreclosed on homeowners.
From January 2012 to December 2016, the CFPB and 50 state attorneys general claim Nationstar, which is now doing business as Mr. Cooper, engaged in a number of unlawful practices in handling mortgages following the Great Recession. Specifically, the loan servicer failed to honor borrowers' loan modification agreements. Nationstar also allegedly foreclosed on borrowers with pending forbearance applications after promising not to do so and failed to properly handle escrow payments and accounting for homeowners who were in Chapter 13 bankruptcy proceedings.
Nationstar's failings resulted in "substantial consumer harm," CFPB Director Kathleen Kraninger said in a statement.
"Mortgage servicers are entrusted with handling significant financial transactions for millions of Americans, including struggling homeowners. Nationstar broke that trust by engaging in unfair and deceptive practices," Kraninger added.
The CFPB estimates about 40,000 borrowers were harmed by Nationstar's allegedly unfair and deceptive practices, according to a statement released Monday. The proposed settlement with the CFPB requires Nationstar to pay $73 million in restitution to affected borrowers, as well as a $1.5 million civil penalty to the agency. When combined with the state settlements, Nationstar is on the hook to pay a total of $91 million overall: $85 million to harmed consumers and $6 million in civil penalties.
If the settlements are approved by the D.C. district court, Nationstar will be required to immediately set aside about $15.6 million to pay borrowers it has not yet remediated. The company has already paid about $57.5 million in restitution to affected consumers, according to the CFPB.
"When these issues were identified several years ago, we immediately made restitution to our impacted customers and invested in process improvements to prevent reoccurrence," Jay Bray, CEO and chairman of Mr. Cooper said in a statement Monday. "Since then, we have continued to invest in technology, people, and leadership to ensure that our compliance and risk management programs not only meet our regulators' expectations but also support sustainable growth and maintain our position as an industry leader."
In addition to the fines and restitution, Delaware Attorney General Kathleen Jennings said the settlements require Nationstar to adhere to increased "servicing standards." Jennings' office said that these new standards are more robust than existing law and will be in place for three years starting in January 2021.
Nationstar will need to enhance its policies and processes around how it handles consumer complaints, performs escrow analyses and conducts audits, for example.
This is not the first time Nationstar has been the subject of federal and state investigations. In 2017, the CFPB fined Nationstar $1.75 million for failing to report accurate data about its mortgage transactions. Several states also fined Nationstar in 2018 over failing to have proper procedures in place and "unfair and deceptive" mortgage modification policies.
Although Monday's case specifically addresses Nationstar's actions following the Great Recession, the outcome can affect today's homeowners, says Kwame Raoul, attorney general of Illinois. The economic challenges and burdens that homeowners currently face are similar to the ones experienced following the Great Recession. That's one reason why the settlement, particularly the provisions requiring Nationstar to adhere to enhanced standards, is crucial.
As of November 22, about 2.8 million homeowners were in a forbearance plan, according to the latest research from the Mortgage Bankers Association.
"There are going to be a lot of homeowners who need a home loan modification or other assistance," Raoul says. "We will be watching the mortgage interest industry to ensure they are treating homeowners fairly and fulfilling their obligations."
State attorneys general are here for homeowners, Raoul adds. If a borrower is experiencing issues or not getting the help needed, contact your state attorneys general. "We want to hear from you," Raoul says.