Tag Archives: fairy tale ending

Holding Servicers Accountable

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image by Rizkyharis

I submitted my comment to the Consumer Financial Protection Bureau regarding the 2013 RESPA Servicing Rule Assessment. It reads, substantively, as follows:

The Consumer Financial Protection Bureau issued a Request for Information Regarding 2013 Real Estate Settlement Procedures Act Servicing Rule Assessment. The Bureau

is conducting an assessment of the Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), as amended prior to January 10, 2014, in accordance with section 1022(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is requesting public comment on its plans for assessing this rule as well as certain recommendations and information that may be useful in conducting the planned assessment. (82 F.R. 21952)

Before the RESPA Servicing Rule was adopted in 2013, homeowners had had to deal with unresponsive servicers who acted in ways that can only be described as arbitrary and capricious or worse.  Numerous judges have used terms such as “Kafka-esque” to describe homeowner’s dealings with servicers.  See, e.g., Sundquist v. Bank of Am., N.A., 566 B.R. 563 (Bankr. E.D. Cal. Mar. 23, 2017).  Others have found that servicers failed to act in “good faith,” even when courts were closely monitoring their actions.  See, e,g., United States Bank v. Sawyer, 95 A.3d 608  (Me. 2014). And yet others have found that servicers made multiple misrepresentations to homeowners.  See, e.g., Federal Natl. Mtge. Assn. v. Singer, 48 Misc. 3d 1211(A), 20 N.Y.S.3d 291 (N.Y. Sup. Ct. July 15, 2015).  The good news is that in those three cases, judges punished the servicers and lenders for their patterns of abuse of the homeowners. Indeed, the Sundquist judge fined Bank of America a whopping $45 million to send it a message about its horrible treatment of borrowers.

But a fairy tale ending for a handful of borrowers who are lucky enough to have a good lawyer with the resources to fully litigate one of these crazy cases is not a solution for the thousands upon thousands of borrowers who had to give up because they did not have the resources, patience, or mental fortitude to take on big lenders and servicers who were happy to drag these matters on for years and years through court proceeding after court proceeding.

The RESPA Servicing Rule goes a long way to help all of those other homeowners who find themselves caught up in trials imposed by their servicers that it would take a Franz Kafka to adequately describe.  The Rule has addressed intentional and unintentional abuses in the use of force-placed insurance and other servicer actions.

The RESPA Servicing Rule Assessment should evaluate whether the Rule is sufficiently evaluating servicers’ compliance with the Rule and implementing remediation plans for those which fail to comply with the vast majority of loans in their portfolios.  Servicers should not be evaluated just on substantive outcomes but also on their processes.  Are avoidable foreclosures avoided?  Are homeowners treated with basic good faith when it comes to interactions with servicers relating to defaults, loss mitigation and transfers of servicing rights?  The Assessment should evaluate whether the Rule adequately measures such things.  One measure the Bureau could look at would be court cases involving servicers and homeowners.  While perhaps difficult to do, the Bureau should attempt to measure the Rule’s impact on court filings alleging servicer abuses.

The occasional win in court won’t save the vast majority of homeowners from abusive lending practices.  The RESPA Servicing Rule, properly applied and evaluated, could.

 

Kafka and the CFPB

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photo by Ferran Cornellà

Statue of Franz Kafka by Jaroslav Rona

The Hill published my latest column, The CFPB Is a Champion for Americans Across The Country. It opens,

Republicans like Sen. Ted Cruz (R-Texas) have been arguing that consumers should be freed from the Consumer Financial Protection Bureau’s “regulatory blockades and financial activism.” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) accuses the CFPB of engaging in “financial shakedowns” of lenders. These accusations are weighty.

But let’s take a look at the types of behaviors consumers are facing from those put-upon lenders. A recent decision in federal bankruptcy court, Sundquist v. Bank of America, shows how consumers can be treated by them. You can tell from the first two sentences of the judge’s opinion that it goes poorly for the consumers: “Franz Kafka lives. This automatic stay violation case reveals that he works at Bank of America.”

The judge continues, “The mirage of promised mortgage modification lured the plaintiff debtors into a Kafka-esque nightmare of stay-violating foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder, for all of which Bank of America disclaims responsibility.”

Homeowners who reads this opinion will feel a pit in their stomachs, knowing that if they were in the Sundquists’ shoes they would also tremble with rage and fear from the way Bank of America treated them: 20 or so loan modification requests or supplements were “lost;” declared insufficient, incomplete or stale; or denied with no clear explanation.

Over the years, I have documented similar cases on REFinBlog.com. In U.S. Bank, N.A. v. David Sawyer et al., the Maine Supreme Judicial Court documented how loan servicers demanded various documents which were provided numerous times over the course of four court-ordered mediations and how the servicers made numerous promises about modifications that they did not keep. In Federal National Mortgage Assoc. v. Singer, the court documents the multiple delays and misrepresentations that the lender’s agents made to the homeowners.

The good news is that in those three cases, judges punished the servicers and lenders for their pattern of Kafka-esque abuse of the homeowners. Indeed, the Sundquist judge fined Bank of America a whopping $45 million to send it a message about its horrible treatment of borrowers.

But a fairy tale ending for a handful of borrowers who are lucky enough to have a good lawyer with the resources to fully litigate one of these crazy cases is not a solution for the thousands upon thousands of borrowers who had to give up because they did not have the resources, patience, or mental fortitude to take on big lenders who were happy to drag these matters on for years and years through court proceeding after court proceeding.

What homeowners need is a champion that will stand up for all of them, one that will create fair procedures that govern the origination and servicing of mortgages, one that will enforce those procedures, and one that will study and monitor the mortgage market to ensure that new forms of predatory behavior do not have the opportunity to take root. This is just what the Consumer Financial Protection Bureau has done. It has promulgated the qualified mortgage and ability-to-repay rules and has worked to ensure that lenders comply with them.

Kafka himself said that it was “the blend of absurd, surreal and mundane which gave rise to the adjective ‘kafkaesque.’” Most certainly that is the experience of borrowers like the Sundquists as they jump through hoop after hoop only to be told to jump once again, higher this time.

When we read a book like Kafka’s The Trial, we are left with a sense of dislocation. What if the world was the way Kafka described it to be? But if we go through an experience like the Sundquists’, it is so much worse. It turns out that an actor in the real world is insidiously working to destroy us, bit by bit.

The occasional win in court won’t save the vast majority of homeowners from abusive lending practices. A regulator like the Consumer Financial Protection Bureau can. And in fact it does.