Banking and Finance Law Daily Wrap Up, ENFORCEMENT ACTIONS—Mortgage loan servicer settles CFPB’s charges of unlawful foreclosure practices, order violations, (Aug 22, 2024)

By Donielle Tigay Stutland, J.D.

Under the stipulation and consent order, Fay Servicing must pay $5 million in redress and civil penalties.

The Consumer Financial Protection Bureau (CFPB) has entered into a stipulation and consent order with mortgage servicer, Fay Servicing, LLC. The administrative action requires Fay Servicing pay a $2 million penalty for violations of mortgage servicing laws, as well as for violations of a 2017 agency order that addressed its allegedly illegal foreclosure practices. In addition to the civil money penalty, the CFPB’s order requires Fay Servicing to pay consumer redress of $3 million and to invest $2 million to update its servicing technology and compliance management systems. The CFPB contends that the mortgage servicer failed to implement the requirements of the 2017 order and continued to break the law, by taking prohibited foreclosure actions against borrowers requesting mortgage assistance, failing to offer borrowers mortgage assistance options available to them, and overcharging for private mortgage insurance (In the Matter of: Fay Servicing, LLC, CFPB File No. 2024-CFPB-0007 (CFPB Admin. Proc. Aug. 21, 2024)).

“Fay Servicing ignored a law enforcement order by taking steps to foreclose on homeowners who are shielded by housing protection laws,” said CFPB Director Rohit Chopra. “The CFPB’s order will put the CEO’s pay at risk if Fay continues to break the law.”

As part of the administrative action, Fay Servicing entered into a consent order and signed a stipulation agreeing to the consent order and admitting on the facts necessary to establish the CFPB’s jurisdiction over Fay Servicing. Fay Servicing, “in the interest of compliance and resolution of the matter, and without admitting or denying any wrongdoing, consents to the issuance of the Consent Order.”

Background. Fay Servicing is a nonbank mortgage servicer with its principal place of business in Tampa, Florida. It has branch offices in Chicago and Oakbrook Terrace, Illinois; Farmers Branch, Texas; and Lusaka, Zambia. It is a wholly-owned subsidiary of Fay Financial, LLC. Edward Fay is the founder, CEO, and Chairman of the Board of Fay Servicing and its parent company, Fay Financial. Fay Servicing services mortgage loans of borrowers across the country.

Previous enforcement action. In June 2017, the CFPB instituted an enforcement action against the mortgage servicer for failing to provide mortgage borrowers with information about the protections against foreclosure that are required by law. The Bureau found that Fay violated the CFPB’s servicing rules by keeping borrowers in the dark concerning critical information about the process of applying for foreclosure relief. The CFPB also found instances where the servicer illegally launched or moved forward with the foreclosure process while borrowers were actively seeking help to save their homes. The CFPB ordered Fay Servicing to stop its allegedly illegal practices, offer borrowers opportunities to pursue foreclosure relief, and pay up to $1.15 million to harmed borrowers (see Banking and Finance Law Daily, June 9, 2017).

Current enforcement action. In the current action, the CFPB found that Fay Servicing violated the 2017 order, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Homeowners Protection Act, and the Consumer Financial Protection Act. The CFPB asserts that Fay Servicing took prohibited foreclosure actions against borrowers seeking mortgage assistance and prevented borrowers from taking advantage of the foreclosure relief options available to them. Specifically, the CFPB highlighted the following actions, which harmed borrowers: (1) flouting a law enforcement order and violating rules that protect borrowers from prohibited foreclosure activities; (2) failing to provide full information to borrowers about their loss mitigation options; and (3) overcharging for private mortgage insurance and late fees.

The CFPB contends that since the 2017 order, Fay Servicing has continued to engage in prohibited foreclosure activities, failed to timely place holds on foreclosures, and failed to develop written policies and procedures to ensure compliance. Additionally, when borrowers apply for loss mitigation, the company’s application asks for their loss mitigation preference. However, Fay Servicing has failed to inform borrowers how the preference they indicated could end up limiting the options for which Fay Servicing would evaluate the borrowers. Finally, Fay Servicing did not stop collecting private mortgage insurance on time, which meant homeowners were forced to overpay for private mortgage insurance that was not required. The company also charged late fees higher than allowed by homeowners’ mortgage contracts.

The enforcement order requires Fay Servicing to pay $3 million in consumer redress for consumers against whom the company allegedly took illegal foreclosure actions and from whom Fay Servicing collected private mortgage insurance overpayments. Additionally, the order places limitations on compensation to principal Edward Fay if he does not take actions necessary to ensure compliance with the order. The order also requires that Fay Servicing must invest at least $2 million to update its servicing technology and compliance management systems. Fay Servicing must also pay a $2 million civil penalty, which will be deposited into the CFPB’s victims relief fund.

Companies: Fay Servicing, LLC

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