Transcript Mortgage Servicing Examination/Investigation

Mortgage Servicing
Examination/Investigation
Presented by:
Michael Jackson, Maryland
James Payne, Kansas
Elliott D. Purty, Michigan
Mortgage Servicing Worksheet
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Type of Mortgage Loan Being Serviced
 Adjustable rate  Investor Loan
  Escrows
 Foreclosure
  Paid Off
 Servicing Transferred
  Other _____
 Name:
 Address:
 Loan no.:
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Mortgage Servicing Worksheet
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Were errors or discrepancies found with regard to the
following? If yes, please explain.
Determining receipt date of mortgage loan
payment
Timely and proper posting of payment
Depositing of money in escrow
account
“Hello” letter
YES
NO
N/A
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Mortgage Servicing Worksheet
“Good-bye” letter
 Escrow account analysis
 Adjustment of interest rate
 Proper assessment of
service charges
 Foreclosure notices
 Notification of principal
balance
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Mortgage Servicing Worksheet
1098 interest statements
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 Timely remittance of money to
investor
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 Pay-off calculation
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 Assignment
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 Retention of communication
records
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 Discharge
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In-depth Evaluation of
Mortgage Servicing
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Application of Payments
 Debt Collections
 Corporate Advances and Fees
 Proper Assessment of Late Fees
 Proper Reporting to Consumer Reporting
Agencies
 State Specific Items
In-depth Evaluation of
Mortgage Servicing
State Specific Items
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ACH Payments and Fees
 Late Fee Application (“Pyramiding”)
 Contracted Fees for “Additional Services”
 Collection Fees and Charges
 Application of Payments
In-depth Evaluation of
Mortgage Servicing
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Types of Electronic Payments & Fees
Automatic Clearing House (ACH)
 Monies are deducted from checking/savings
account
 Phone payments
 Internet (Web) payments
 Western Union payments
 Automatic Payment Plans
In-depth Evaluation of
Mortgage Servicing
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Automatic Clearing House (ACH)
Statutory Limitations on ACH fees
 Limitation based on state specific statutes
(KS=$5 per pmt.)
 Limitation when conducted in connection with a
late installment (KS=No fee allowed when late
payment fee also collected)
 Limitation based on consumer agreement
(KS=No fee allowed when consumer agrees in
writing to make all payments by this method)
In-depth Evaluation of
Mortgage Servicing
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Pyramiding example:
(Consumer has a 15-day grace period)
Pmt Date Mo. App. Due Date
Late Fee
None
01/05
01/01/05
Assessed (Jan)
02/05/05 02/05
02/01/05
Assessed (Feb)
03/10/05 03/05
03/01/05
Assessed (Mar)
 February and March payments were made on time.
Late fees should not have been assessed for February
or March.
In-depth Evaluation of
Mortgage Servicing
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Charges for “Additional Services”
– Licensee will contract for fees in addition to those
contracted for in the note (loan contract)
– Statutory limitations may prohibits additional fees
based on loan type/lien position/loan to value/etc.
– Loans subject to KS law (by definition or made
subject by agreement) must abide by additional
fees and charges limitations set by statute
In-depth Evaluation of
Mortgage Servicing
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Collection Fees and Charges
Property Preservation Fees
 Broker Price Opinions (BPO)
 Inspection Fees (“Drive By’s”)
 Foreclosure Preservation (Maintenance on home)
Other Collection Fees
 Attorney Fees
 Bankruptcy Costs
 Court Fees
In-depth Evaluation of
Mortgage Servicing
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Collection Fees and Charges Limitations
– KS law allows reasonable costs of collection up to
15% of unpaid debt after default.
– KS law prohibits costs incurred by a salaried
employee of the creditor or its assignee
– KS law prohibits collection of both attorney fees
and collection agency fees
In-depth Evaluation of
Mortgage Servicing
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Application of Payments
Normal payment application:
 Principal
 Interest
 Escrow (if applicable)
 Late Fee
 Other Fees
KS law requires payments to be credited as of the
date of receipt by the licensee.
In-depth Evaluation of
Mortgage Servicing
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Escrow Accounts & Analysis
Transfer of Servicing Accounts
Boarding of Mortgage Accounts
Proper Interest Calculations (P*R/12 or P*R/360*30)
Lender/Force Placed Insurance
Proper Pay-off Calculation on Mortgages
Proper Discharging of Mortgages
In-depth Evaluation of
Mortgage Servicing
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Complaints and Resolutions
 Forbearance Agreements
 Customer Service & Customer Statements
 Company’s Foreclosure Area
 Customer Communications
 Record Retention of Communication
Mortgage Servicing Evaluation
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Review Internal Procedures & Controls
 Review Risk Management Practices &
Processes
 Review Internal & External Audit Reports
 Review & Analyze Financial Statements
 Review Policies & Board Minutes
Fairbanks Capital Corporation
Maryland Case Review
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Background:
– 1989, FCC originally opened its doors in 1989 with four
employees in Park City, Utah
– 1997, FCC moved home office to Salt Lake City, Utah;
– 2000, FCC opened Hatboro, PA office;
 Purchase servicing rights to Conti Mortgage
– 2002, FCC acquired EquiCredit, formerly owned by the Bank of
America in Jacksonville, Florida;
– 2002, FCC acquired Olympus Servicing L.P. of Austin, Texas.
Fairbanks Capital Corporation
Maryland Case Review
Fairbanks Capital Corporation
Salt Lake City Utah
FCC
Hatboro, Pennsylvania
FCC
Jacksonville, Florida
FCC
Austin, Texas
Fairbanks Capital Corporation
Maryland Case Review
Each location of FCC provides a specialized function within the
organizational structure.
Salt Lake City Location
Hatboro Pennsylvania Location
• Consists of 760+ employees
• Areas include:
– Loan Resolution;
- Cashiering;
– Escrow;
– Data Conversion;
• Consists of 470+ employees
• Areas include:
– Bankruptcy;
– Foreclosure;
-- Skip Tracing;
– Residential Real Estate
Review
-- REO (Real Estate Owned);
– Management and Administration;
– Investor Reporting
Fairbanks Capital Corporation
Maryland Case Review
Each location of FCC provides a specialized function within the
organizational structure.
Austin Texas Location
Jacksonville Florida Location
• Consists of 250+ employees
• Areas include:
– Research
- Foreclosure Assistance
– Bankruptcy Assistance
– Company Support Functions
-- Data Communication
• Consists of 700+ employees
• Areas include:
– Customer service
– Primary Collections
-- Payoffs
– Loan Administration
-- Investor Reporting
Fairbanks Capital Corporation
Maryland Case Review
YEAR
SERVICING VOLUME
RANK.
2000
$12,033,000,000
9th
2001
$36,700,000,000
3rd
2002
$49,313,000,000
1st
Table: Growth volume of FCC over 3 years
Fairbanks Capital Corporation
Maryland Case Review
Servicing Portfolio Composition
– More than 550,000 loans, most owned by Wall street investors
– 90% of loans serviced by FCC were securitized;
– Servicing portfolio consisted of two types of loans:
 Sub-prime loans;
 Alt-A loans.
– 79% lower grade sub-prime loans;
– 11% Prime or high grade loans;
– 10% un-securitized loans.
– Maryland loans – 2.5% of total servicing portfolio;
 13,800 loans outstanding
 10,845 loans current, 1266 loans in bankruptcy, 422 loans under preforeclosure activity, and 291 loans foreclosed.
Fairbanks Capital Corporation
Maryland’s Examination Approach
The Examination Team targeted consumer allegations
received by the Commissioner of Financial Regulation in
the following area:
• Timely posting of payments;
• Disputed charges assessed to accounts;
• Accurate transfer of consumer account information
prior to loan servicing;
• Questionable or poor customer service support;
• Questionable broker’s price opinions (BOP) charges;
• Questionable foreclosure practices;
• Other deceptive or questionable loan servicing
practices.
Fairbanks Capital Corporation
Maryland’s Examination Approach
Development of The Examination Approach
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Analysis of FCC’s Structure and Organizational
Hierarchy;
Information Systems;
Payment Processing;
Escrow Servicing;
Primary Collection and Foreclosure Practices;
Permissible Fees and Other Charges;
Findings on Questionable Practices and Fee Charges.
Fairbanks Capital Corporation
Maryland’s Examination Findings
Violations Alleged in the Examiners Findings
• Fair Debt Collection Practices Act – 15 USC Section 1692; and Maryland
Consumer debt Collection Act, Title 14, Section 202, Commercial Law
article, Md. Code Annotated:
1. Assessing unauthorized fees – late fees, BPOs, property inspections,
demand letters, attorney fees;
2. Interest charges and fees on corporate advances;
3. Harassment and abusive conduct in its contacts.
• The Maryland Interest and Usury Act – Title 12, Subtitle 1, Commercial
Law Article, Md. Code annotated:
1. Collection of a delinquency charge not expressly authorized by the
agreement
Fairbanks Capital Corporation
Maryland’s Examination Findings
Violations Alleged in the Examiners Findings
• Unfair and Deceptive Trade Practices Act, Title 13, Section 303,
Commercial Law Article, Md. Code Annotated:
1.
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Questionable rolling late fee charges.
Other questionable fees:
1. Payoff statement fee;
2. Duplicate year end statement fee;
3. Reissue escrow refund check fee;
4. Partial release fee.
• Real Estate Settlement Procedures Act – 15 USC Section 2605;
1.
Failing to adequately acknowledge, investigate, and respond to
consumers’ written requests regarding the servicing of their loan.
• Questionable oversight of subcontracted entities:
Fairbanks Capital Corporation
Maryland’s Consent Agreement
Parts I through IX of Consent Agreement
• Part I - Breach Fees. – FCC will not assess any fee for any demand
letter sent to a defaulting borrower.
• Part II - Broker Price Opinion Fees. – FCC agrees to conduct an internal
review and refund all BPOs assessed and collected prior to the date of
the agreement. Exceptions, does not apply to:
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One BPO for each loan in foreclosure initiated or contemplated;
Assessed not more than once in a six month period, and
The agreement, note or other evidence of the loan permits.
• Part III - Late Fees. - FCC agrees to conduct an internal review and
refund all late fees and collected prior to the Agreement that were either:
1.
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In excess of those permitted by Maryland law, or
Not permitted by the agreement, note or other evidence of the loan.
Fairbanks Capital Corporation
Maryland’s Consent Agreement
Parts I through IX of Consent Agreement
• Part IV - Payoff Statement Fees. – FCC will not assess any fee for any
payoff statement requested by the borrower; except a fee in the amount
of $5 for each second and subsequent statement in any rolling 12-month
period. Additionally:
1.
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Clear disclosure to all borrowers of fees for optional services or
expedited delivery of statement;
FCC agrees to conduct an internal review and to refund all fees
assessed and collected ( rolling 12-month period exception.)
• Part V - Property Inspection Fee. – FCC agrees to conduct an internal
review and refund all property inspection fees, except as permitted by
Maryland law.
• Part VI - Interest on Corporate Advances. - FCC agrees to conduct an
internal review and refund all interest assessed and collected on
corporate advances. Exception, the agreement, note or other evidence
of the loan permits the fee.
Fairbanks Capital Corporation
Maryland’s Consent Agreement
Parts I through IX of Consent Agreement
• Part VII – Collection Practices. – FCC will conduct its collection practices
in accordance with applicable federal and Maryland law.
• Part VIII – Timely Response to Complaints. – FCC agrees to
acknowledge and investigate:
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All written customer inquiries and complaints within 20 business days, and
communicate resolution, including reimbursement, if any, within 60 days;
Cooperate with the Office of the Commissioner on all written inquiries and
complaints within 5 business days, and communicate resolution, including
reimbursement, if any, within 20 days;
Upon reasonable investigation and confirmation of the expense,
reimburse the borrower within 60 days of any written complaint in which
the borrower claims and document sustained actual expenses paid to a
third party as a result of unauthorized or erroneous actions taken by FCC.
Fairbanks Capital Corporation
Maryland’s Consent Agreement
Parts I through IX of Consent Agreement
• Part IX – Lender Placed Insurance. – FCC agrees to take prompt
corrective action, including making refunds to borrowers for unnecessary
or excessive forced placement of insurance. And further agrees to
implement an audit procedure within 60 days of the agreement whereby:
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All Maryland loans for which lender placed insurance was caused to be
purchased by FCC or its agent; and
For three years, on a semi-annual basis, conduct a random sampling of at
least 10 percent of Maryland loans for which lender placed insurance was
purchased during the preceding semi-annual period.
Conclusion of Examination
• Recap of Conclusions & Recommendations