CFPB Homes In On Mortgage “Junk Fees” – Financial Services

Recent releases from the Consumer Financial Protection Bureau
(CFPB) show that the mortgage industry is in the crosshairs of the
CFPB’s campaign against so-called junk fees. Earlier this year,
the CFPB indicated its interest in mortgage
servicing fees when it, along with the Federal Trade Commission,
filed an amicus brief in a case concerning whether
payment convenience fees, what the Bureau calls
“pay-to-pay” fees, are permissible when collecting
mortgage loan payments. The CFPB argued that, unless the payment
convenience fee was explicitly authorized by the mortgage
agreements, payment convenience fees may not be charged by a
mortgage servicer acting as a debt collector under the Fair Debt
Collection Practices Act.

Now, the CFPB is releasing guidance, in the form of a Supervisory Highlights and a blog post, regarding the imposition of
“junk fees” during the life cycle of a mortgage loan
transaction. Each signals the CFPB’s further attention on junk
fees and a return of focus on mortgage originators and servicers
after the COVID-19 pandemic.

CFPB Supervisory Highlights – Spring 2024 –
Mortgage Servicing Edition

Last month, the CFPB released an issue of its Supervisory
Highlights focused on mortgage servicing and, in particular, loss
mitigation and fee practices. The CFPB also noted that it is
currently reviewing Regulation X’s existing framework to
“simplify and streamline” the mortgage servicing
rules.

The Supervisory Highlights focused on the following acts and
practices, among others, that the CFPB states amount to unfair,
deceptive, or abusive acts or practices (UDAAPs) and violations of
mortgage servicing law and regulations, such as Regulation X and
Regulation Z:

• Unfair Charges for Property Inspections Prohibited by Investor
  Guidelines
  

  • Examiners found that servicers charged property inspection fees
    on government backed loans that were impermissible.




• Unfair Late Fee Overcharges
  

  • Examiners found that servicers were unfairly charging late fees
    when the fees were not authorized by the loan agreement or when the
    consumer had entered a loss mitigation solution that should have
    prevented the imposition of late fees.




• Failing to Waive Existing Fees Following Acceptance of COVID-19
  Loan Modifications
  

  • Examiners found that servicers failed to waive existing fees
    when a borrower accepted a COVID-19 loss mitigation option, in
    violation of Regulation X.




• Failing to Provide Adequate Descriptions of Fees in Periodic
  Statements
  

  • Examiners found that servicers did not adequately provide a
    “brief description of the transaction” for fees on
    periodic statements, as required by Regulation Z. For example,
    servicers used the label “service fee” for 18 different
    fee types, without including additional descriptive
    information.




• Deceptive Loss Mitigation Eligibility Notices
  

  • Examiners found that servicers engaged in deceptive acts or
    practices when sending loss mitigation notices to consumers stating
    that the consumer had been approved for a loss mitigation option
    when, in fact, the servicer had not yet considered the consumer for
    a loss mitigation option.




• Loss Mitigation Violations
  

  • Examiners found that servicers did not comply with Regulation X
    during the loss mitigation process. First, when servicers sent
    borrowers an acknowledgment of receiving a loss mitigation
    application, the servicers failed to specify whether a
    borrower’s loss mitigation application was incomplete or
    complete. Second, when servicers sent borrowers a notice about
    their eligibility for certain loss mitigation options, the notices
    failed to state the deadline for accepting or rejecting those
    options; additionally, some notices were sent outside the time
    frame required by Regulation X.

The CFPB’s Supervisory Highlights are an important source of
insight into the CFPB’s supervisory efforts and offer guidance
to covered persons on the practices the CFPB is currently
scrutinizing. That said, Supervisory Highlights do not provide
detail concerning how many covered persons were engaged in the
conduct cited or the effects of the finding on the institution.
They can be best used as a guidepost or benchmark to ensure that
current practices are compliant with current law and, if a servicer
is engaging in a practice cited in the Supervisory Highlights, as a
notice to modify current practices and procedures.

Scrutiny of Mortgage Origination Fees

Mortgage origination fees are also under the microscope. In an
earlier blog, the CFPB asked the public whether junk fees were
driving up housing costs and specifically pointed to title
insurance fees, credit reports and appraisal fees, and origination
fees. The CFPB also said it was paying particular attention to
discount points. According to the Bureau, a greater percentage of
home purchase borrowers paid discount points in 2022, compared with
2021, and the amount that borrowers are paying had also increased
in the same period. It said, “These points may not always save
borrowers money, however, and may indeed add to borrowers’
costs.” The Bureau seems concerned that borrowers might not
fully understand how discount points work and whether purchasing
them is advantageous for borrowers. Perhaps the CFPB is viewing the
sale of discount points as a potential UDAAP.

The CFPB speculated that some closing costs are high and
increasing because there is little competition. It said that,
although borrowers are required to pay for many of the costs
associated with a closing, borrowers are unable to pick the
provider for a particular service and do not benefit from the
service. For example, lenders’ title insurance and fees for
credit reports are fees borrowers face at closing where borrowers
have no control over costs, according to the Bureau.

The CFPB did not acknowledge, however, that lenders must
disclose estimated closing costs, which would include costs for
lenders’ title insurance and credit report fees, in a loan
estimate no later than three days after the consumer applies for a
mortgage loan. In fact, the purpose of these disclosures is to
allow consumers to compare loan terms and costs between lenders,
allowing the borrower to choose a lender (and the service providers
that the lender uses) with the lowest costs. The estimated costs
are subject to tolerances, meaning that the actual costs at closing
cannot exceed the estimated costs disclosed in the loan estimate by
a certain threshold (except for very narrow situations, like
unforeseen circumstances). If a service is something that the
borrower may not shop for, such as lenders’ title insurance or
credit reports, then there is zero tolerance; the actual costs at
closing may not exceed the estimated cost disclosed by any amount.
If the CFPB blames lack of consumer choice and competition for the
rise in mortgage costs, the CFPB should probably explain whether
the loan estimate is failing to perform its intended function of
allowing consumers to compare loan terms and costs among various
lenders and their service providers.

Conclusion

The CFPB has announced its interest in charges associated with
mortgages, during both origination and servicing. Mortgage
companies that either originate or service mortgage loans may want
to review their fees and make sure that they are
permissible—both under the law and under the agreements
governing the loan (e.g., note, mortgage, investor guidelines);
justifiable—that is, the charge to consumers is in line with
the company’s own expenses and the service associated with the
charge provides a benefit to the consumer; and adequately disclosed
to the consumer.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.