DALLAS Memo to mortgage servicers: to keep federal regulators off your backs stay on top of consumer complaints, and if a state attorney general or regulator come knocking, it’s best to be responsive and cooperative.
That was the key message attorneys and other mortgage servicing experts delivered Tuesday during a panel discussion at the Mortgage Bankers Association’s servicing conference here.
While federal regulators, like the Consumer Financial Protection Bureau, have ultimate jurisdiction over mortgage servicers, it is state regulators and attorneys general that generally initiate investigations based on complaints they are hearing from consumers. In dealing with state AGs whom CFPB Director Richard Cordray has referred to as the agency’s “boots on the ground” Joe Jacquot, a partner at Foley Lardner LLP in Jacksonville, emphasized extreme cooperation.
“They’re not regulators, they won’t know your business the way you do,” said Jacquot, a former deputy attorney general in Florida.” As frustrating as it might be to respond to an inquiry, you have to educate them on your business.” In addition to educating state officials, lenders and servicers also have “almost a fiduciary duty” to look out for the best interests of borrowers, Jacquot said.
Of course, states do have the authority to punish servicers for misdeeds. California regulators investigating the servicing practices of Ocwen Loan Services recently fined the Atlanta company $2.5 million for failing to provide investigators with documents in a timely manner. And New York regulators recently fined Ocwen a whopping $150 million for a variety of infractions, including mishandling foreclosures and overcharging fees to distressed borrowers.
Still, some states are wary of being too aggressive with servicers out of concern that if they punish them too much, servicers will find it more difficult to help distressed homeowners.
Regulators and law enforcement officials are to pay particularly close attention to violations of Unfair and Deceptive Actions and Abuse Protection, or UDAAP, laws. Laurence Platt, a partner at law firm KL Gates in Washington, D.C., said that when it comes to UDAAP, servicers should make sure their fees serve an actual purpose and are not just padding revenue.
“Sometimes you’re just asking for money that you don’t really deserve,” he said.