AS THE POLITICAL LANDSCAPE began to shift after the last presidential election, some folks in the financial services world expressed the sentiment that they believed the regulatory environment would begin to loosen. However, seventeen state attorneys general (AGs) recently signed a letter stating their collective intent to enforce consumer protection laws vigorously, citing Dodd-Frank’s express statutory authority to
do so. The Consumer Financial Protection Bureau’s acting director has stated separately that his agency will depend
heavily on the state AGs and the other Federal banking regulators for enforcement. What’s new with UDAAP appears
not to be a change in the level of enforcement, but rather who has become more proactive in the space.
Through the first two months of 2018, the states have taken
their role as enforcer seriously, securing over $50 Million in
fines and restitution from financial services providers. This is
on par with the level of enforcement at the beginning of 2017.
Here are some highlights of the recent cases:
■ ■ ■ Fifty state AGs settled with a large mortgage servicer in early
January, fining it $13.8 Million and requiring an additional
$31.5 Million in restitution. While there was more at issue than
UDAAP, here are the relevant highlights:
;Generally, all sworn statements, including foreclosure/
bankruptcy declarations and affidavits, must be accurate and based strictly on personal knowledge (e.g.,
review of business records including the original note).
The servicer must retain the underlying documentary
evidence as a prerequisite to foreclosure.
; With regard to staffing, affiant employees shall be regularly trained and certified on required procedures. Staff
should not be incented by the volume of completed affidavits. There must be adequate staff available to execute
all required documents.
;Payments and Fees: All payments and fees must be accurate. Payments must be posted as of the date received,
including cure payments. Partial payments that are
more than $50 short may be placed in suspense until
full payment is received with the contingency that the
impacted borrower must be notified of the suspended
payment. Late fees should not be pyramidded. The
system of record shall be periodically audited to ensure
accuracy and adherence to these requirements.
; Taking Payments: Servicer shall not unreasonably restrict a borrower from using a particular payment method nor steer borrowers to a particular payment method
or provider using unfair or deceptive acts or practices.
• Loss Mitigation Staffing: Loss mitigation staff should
be compensated in a manner that encourages them to
provide loss mitigation options rather than jumping to
foreclosure. There must be adequate staffing commensurate with the volume of work. Servicers must periodically
assess these requirements.
• Property Preservation:
; Prerequisites to Securing Property: Servicers must
ensure that the underlying loan documents authorize
property preservation. If there is any indication in the
system that the borrower has not vacated or abandoned
the property, the property cannot be secured. For example, a property cannot be secured if there has been
correspondence with the borrower in the past 30 days
that is inconsistent with vacancy or abandonment.
; Process: Before securing a property, the servicer shall
conduct at least two inspections, at least three days
apart and leave a notice after each, to confirm there are
factors demonstrating vacancy/abandonment.
; Personal Property: Securers shall not remove any per-
sonal property unless authorized by court order and must
return it within three days if the customer requests it.
; Subsequent Customer Contact: In cases where the bor-
rower notifies the servicer that they were locked out of
their property, the servicer must reinstate exclusive use
of the property within 24 hours.
; Complaints: There shall be adequate staff to respond to
consumer disputes. Errors shall be promptly corrected.
Servicers must review and appropriately address con-
sumer complaints about third party servicing activities.
Many of the items on this laundry list should look familiar.
We’ve seen them in past consent orders, particularly those filed
against other mortgage servicers. Note that there is a heavy
emphasis on managing staffing levels to ensure adequate ser-
vice can be maintained. What is new are the requirements for
preserving property in default, which have not previously been
laid out as UDAAP concerns by a regulating authority. If your
bank services mortgage loans, you should verify staffing levels
as well as controls in the property preservation arena. Even if it
is a third party that secures the property for the bank, the state
AGs made it clear that the bank is responsible for their actions.
■ ■ ■ In January, the Massachusetts attorney general settled with
a large mortgage servicer for its unfair and deceptive mortgage modifications, requiring remediation in the “millions”
of dollars. According to the AG, the servicer offered troubled
borrowers short-term, interest only mortgage modifications
Who’s New with UDAAP?