By Bob Sullivan
At-risk homeowners trying save their homes from foreclosure during the mortgage meltdown complained for years that banks were systematically stonewalling them. On Monday, federal regulators accused a financial institution of doing just that, alleging that Michigan-based Flagstar Bank (FBC) intentionally frustrated homeowners and pushed some into foreclosure.
The Consumer Financial Protection Bureau said Flagstar "failed ... at every step in the foreclosure relief process." At one point, the bank had 13,000 active loss-mitigation applications but only assigned 25 full-time employees and a third-party vendor in India to review them. In some cases, it took nine%VIRTUAL-pullquote-The bank must ... engage in active loss-mitigation efforts for current loans, including "a door knocking campaign and translation services," % months to review applications, and the backlog of loss-mitigation applications numbered well over 1,000, the CFPB said.
The firm's website says that it has assets of $9.9 billion and is one of the nation's top 10 largest savings banks.
"This resolution is in the bank's best interest," said Alessandro DiNello, president and chief executive officer for Flagstar. "The dedicated employees of Flagstar Bank have completed thousands of successful loan modifications and work incredibly hard to meet and exceed the needs of our customers. With this matter now behind us, everyone at Flagstar Bank is committed to building on the significant progress we have achieved while continuing to operate with integrity, responsiveness and a commitment to our core values."
The CFPB said Flagstar must return $27.5 million to 6,500 consumers, including 2,000 who suffered foreclosure as a result of Flagstar's actions. The bank must also engage in active loss-mitigation efforts for current loans, including "a door knocking campaign and translation services," and it will pay a $10 million civil penalty.
Foreclosure relief delays saddled several efforts to ease the pain of the Great Recession, such as the Treasury Department's Home Affordable Modification Program.
Other allegations in the CFPB consent order claim:
Flagstar would close applications because of missed deadlines and stale documentation, even though "documents had expired because of Flagstar's delay."
The bank misled borrowers about their appeal rights. Under the CFPB's rules, banks must provide certain borrowers the right to appeal the denial of a loan modification. But Flagstar failed to provide this notice, and it wrongly stated that borrowers have an appeal right only if they reside in certain states.
Flagstar put borrowers in "trial period purgatory." The bank needlessly prolonged trial periods for loan modifications. This caused some borrowers' loan amount under the modified note to increase and, in some cases, jeopardized borrowers' permanent loan modification.
Bob Sullivan is author of the New York Times best-sellers Gotcha Capitalism and Stop Getting Ripped Off. His stories have appeared in The New York Times, the Wall Street Journal, and hundreds of other publications. He has appeared as a consumer advocate and technology expert numerous times on NBC's TODAY show, NBC Nightly News, CNBC, NPR's Marketplace, Terry Gross' Fresh Air, and various other radio and TV outlets. He helped start MSNBC.com and wrote there for nearly 20 years, most of it penning the consumer advocacy column The Red Tape Chronicles. See more at www.bobsullivan.net. Follow Bob Sullivan on Facebook or Twitter.