DOJ, CFPB put mortgage servicers “on notice” after veterans’ complaints

Complaints include inaccurate credit reporting and misleading communications to borrowers

Two federal regulators said on Monday that they will double down on scrutiny of mortgage servicers, following complaints of housing rights violations made by military families and veterans.

In a joint letter, the U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) said they are watching to ensure mortgage servicers fully comply with federal laws. The agencies also sent a letter to landlords and housing providers.

The CFPB said it received complaints about inaccurate credit reporting, misleading communications to borrowers, and requiring lump sum payments to reinstate mortgage loans. The CFPB said it is reviewing the complaints in light of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Rohit Chopra, the CFPB director, said in a statement that the illegal foreclosures of military families in the last crisis were one of the financial industry’s worst failures.

“The CFPB will be closely watching mortgage servicers and will hold them accountable for illegal tactics perpetrated against military families.”

Violations during the Great Recession resulted in numerous settlements, including one for $186 million between the DOJ and some of the country’s largest mortgage servicers.

“Mortgage servicers and landlords must ensure that they are in full compliance with federal laws intended to protect service members and their families during military service,” Assistant Attorney General Kristen Clarke said.

The joint statement is the most recent indication that regulators are taking a hard line with mortgage servicers.

Earlier this year, the CFPB told mortgage servicers “unprepared is unacceptable,” and that it would closely monitor how servicers guide mortgage borrowers out of forbearance. Last month, federal banking agencies, the CFPB and state financial regulators announced they would resume supervision and enforcement activities of mortgage servicers.

The DOJ and CFPB’s joint statement comes at a difficult time for mortgage servicers. Mortgage servicers are still negotiating with 1.25 million borrowers exiting forbearance plans related to the Covid-19 pandemic, including military borrowers. Roughly 7.6 million homeowners entered forbearance during the Covid-19 pandemic. The majority have resumed their regular payments.

Also, CFPB’s additional rules limiting foreclosures are expected to expire on Dec. 31. The rules directed servicers to give borrowers a meaningful opportunity to pursue affordable loss mitigation options before starting a foreclosure process.

In their letter to landlords and other housing providers, the CFPB and DOJ stated that some veterans and military families may have relocated to respond to the crisis. But they have additional housing protections under the Servicemembers Civil Relief Act, enforceable by the DOJ and service members themselves.

Service members have legal housing protections, such as the prohibition on foreclosing and eviction without court orders and the ability to terminate residential leases early, and without penalty, the agencies wrote.

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