Flagstar Bank fined by CFPB, and must help affected homeowners

Yesterday, September 29, 2014, the Consumer Financial Protection Bureau announced in a press release (click here) regulatory action taken against Flagstar Bank, FSB a federal savings bank. The announcement details a consent order between the CFPB and Flagstar. You can read the full consent order here: (click to view consent order).

In summary, Flagstar "took excessive time to process borrowers’ applications for foreclosure relief, failed to tell borrowers when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications." (Press Release linked above 9/29/2014.)

The consent order requires Flagstar to compensate affected homeowners in an amount up to $20 million. This means direct payments to homeowners who were harmed, estimated to be 6,700 distressed homeowners with residential loans serviced by Flagstar between 2011 and 2013. This includes up to 2,000 homeowners who's homes were foreclosed prior to September 4, 2014. The consent order specifies that Flagstar must pay $27.5 million to the CFPB, of which $20 million is to be used by the CFPB to compensate "foreclosed consumers."

In the course of our representation of homeowners going through foreclosure, we have heard many stories of this kind of treatment from major servicers. Unfortunately, until recently, there were no state or federal laws requiring loan servicers to treat borrower applications for assistance with anything more than mere lip service. There is also usually a lack of evidence since most of the communications between borrowers and servicers is verbal, and servicer employees tended to disappear ever time a borrower got close to finding out the truth.

In the past few years, there have been similar consent orders entered against Bank of America, Wells Fargo, Citibank, JP Morgan Chase, and some others. However, in my opinion and experience, the practical benefit to the homeowners where were most negatively affected has been minimal, because prior consent orders did not require the servicers to contact homeowners and alert them of the order. Also, homeowners with pending legal actions or foreclosures have not been able to use the consent orders as evidence of wrongdoing in their specific case.

The Flagstar consent order is very similar to prior servicer consent orders, but it does have some terms that leave me more hopeful. For example, the order makes specific findings of servicer errors involving violations of the 2014 CFPB servicing requirements for delinquent mortgages. Examples include improper denial of requests for modifications, and improper prolonging of trial modifications that should have been made permanent. These are two of the biggest common complaints we encounter every day with homeowners.

In light of prior ineffective consent orders and settlement agreements with various servicers, if you were foreclosed on by Flagstar bank in 2011 or after, or if your request for modification was denied, you may be eligible for a compensatory damage award. Prior consent order damage claims (for ex. Bank of America) have been between $300 - $1,200. You can apply directly to the CFPB, but we recommend contacting a qualified licensed attorney to make sure your claim is recognized, and to have a better chance of getting the relief you need. New federal regulations allow homeowners to bring private actions against Flagstar for damages, even if the CFPB pays you compensation.

If you are a homeowner in Oregon, contact the attorneys at Garland Griffiths Knaupp directly at (503) 846-0707 or visit our website for more information about legal representation.