Big bank wrongly foreclosed on more than 2,000 borrowers

by Ryan Smith29 Sep 2014
One of the nation’s biggest lenders drove more than 2,000 borrowers into foreclosure by sitting on important documents, according to the Consumer Financial Protection Bureau.

The CFPB today announced a $37.5 million enforcement action against Flagstar Bank, which the agency claims has violated federal servicing rules.
“Flagstar took excessive time to process borrowers’ applications, did not tell them when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications,” CFPB Director Richard Cordray said. “These unlawful practices caused many consumers to lose the homes they had been trying to save. That is wrong and it is unacceptable.”

Cordray accused Flagstar of “failing borrowers and illegally blocking them from trying to save their homes.”

According to Cordray, Flagstar saw applications for loss mitigation spike as a result of the foreclosure crisis. The bank, he said, failed to adequately handle the influx.

“For a time, it took the staff up to nine months to review a single application,” Cordray said. “In 2011, Flagstar had 13,000 active loss mitigation applications but had only 25 full-time employees and a third-party vendor in India reviewing them. The Bureau found that in Flagstar’s loss mitigation call center, the average wait time was 25 minutes and the average call abandonment rate was almost 50 percent. … To make things worse, we found that Flagstar would clear its backlog of applications by closing those with expired documents – even though the documents had expired because Flagstar sat on them for so long.”

The CFPB also alleged that even when Flagstar evaluated completed applications, “it did a poor job,” routinely miscalculating borrowers’ incomes.

“We determined that Flagstar’s failures led to wrongful denials of loan modifications,” Cordray said.

The CFPB has ordered Flagstar to pay $27.5 million to consumers whose loans were serviced by the bank, at least $20 million of which must go to victims of foreclosure. The bank was also ordered to pay $10 million to the CFPB’s Civil Penalty Fund.


  • by Gordon Schlicke. | 9/29/2014 4:31:49 PM

    While I may carp about CFPB interference this may be one example of some good they perform.

  • by Wm Matz | 9/29/2014 4:34:07 PM

    The numbers are probably much greater for them and even more for the Big Banks. E.g., we are currently trying a case against Citi and just stopped one by B of A, all for similar botched mods. The problem for the banks is the recent disclosures that these foreclosures were often intentional, not just the result of sloppy paper work or short staffing.

  • by Cheryl M | 9/29/2014 4:35:30 PM

    Chase Home Loan (all) did the same thing, just another bank caught up with the times. Chase just settled lawsuit in May 2014 to compensate (adjust their mortgages) those who had trial modification dangle in front of their face and now have to re pay those who "suffered through" by the "Poor Job" as CFPB calls it and who are still in these "so called" permanent modifications. None one will ever see "permanent" if these banks keep getting sued for their years of doing a poor job. Hopefully we'll see the end of this soon.


Should CFPB have more supervision over credit agencies?