CFPB’s new era of mortgage servicing enforcement for Flagstar Bank: Banning a servicer from servicing new loans until fixes are made

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From CFPB website, here is Director Richard Cordray’s remarks:

To remedy these wrongs, the Consumer Bureau is ordering Flagstar to halt any further violations of federal law. Flagstar must pay $27.5 million to consumers whose loans were being serviced by Flagstar and who were subject to its unlawful practices. At least $20 million of this amount will go to victims of foreclosure. Flagstar must also engage in outreach to affected borrowers who were not foreclosed on and offer them loss mitigation options. Flagstar must halt the foreclosure process, if one is happening, during this outreach and qualification process. Flagstar also is barred from acquiring servicing rights for default loan portfolios until it demonstrates that it is able to comply with the laws that protect consumers during the loss mitigation process. In addition, Flagstar will make a $10 million payment to the Bureau’s Civil Penalty Fund.

The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today’s action signals a new era of enforcement to protect consumers against the cost of servicer runarounds. The financial crisis is still fresh in our minds and too many homeowners continue to feel its effects. We need all mortgage servicers to understand that they must step up and follow the law. We are working very hard to fulfill this objective. Thank you.

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