A Texas mortgage servicer has run badly afoul of the Consumer Financial Protection Bureau (CFPB) for repeated violations of servicing rules.  Residential Credit Solutions has agreed to pay $1.5 million in restitution to its victims and a $100,000 civil money penalty under a consent agreement announced on Thursday.

CFPB has a laundry list of complaints against the company which bills itself as specializing in servicing delinquent and "credit sensitive" mortgages loans.  Since 2009 approximately 75,000 borrowers have had loans transferred from other servicers to the company which has about $95 million in assets.

This enforcement action covers Residential Credit Solutions' illegal practices prior to the January 2014 effective date of the CFPB's new mortgage servicing rules. CFPB said the company:

  • Failed to honor trial loan modifications that consumers had entered into with their prior servicers. The company's practice from at least 2009 to 2013 was to not honor those agreements but instead to insist that consumers re-qualify for the modifications. "The company treated these consumers as if they were still in default, subjecting them to collection calls, late fees, and default and delinquency notices. Many consumers had their loans referred to foreclosure, and some eventually lost their homes. 
  • Provided consumers with incorrect information on the in-process modifications they refused to recognize such as unpaid balances, payment due dates, interest rates, monthly payment amounts and delinquency status.
  • Sent required annual escrow account statements to consumers that misrepresented the amount of any surplus funds which are required to be refunded to a consumer whose loan payments are current. Many of the escrow statements that Residential Credit Solutions sent to delinquent consumers incorrectly stated that they had an escrow surplus of between $80 and $10,000. 
  • When the company did offer a payment plans to consumers allowing them to make additional payments over a defined period of time to bring their loan current it illegally required consumers to surrender certain legal rights in future foreclosures and bankruptcy protections as a condition of receiving that plan. 

CFPB says the company's actions put customers in loan modification trials in "loan modification purgatory," confusing them, and effectively setting them back as though they had never received a trial modification. In many cases the company delayed or deprived borrowers of the opportunity to save or sell their homes. 

In addition to the civil penalty and redress to victims, who are not prevented by the payments from taking individual action against Residential Credit Solutions, the company has agreed to convert in-process loan modifications into permanent ones and engage in outreach efforts to offer borrowers loss mitigation options.  It will also stop foreclosure processes for certain borrowers, if those are happening and honor plans put in place by prior servicers, continue processing applications for loss mitigation and end all mortgage servicing violations.