The Mortgage Complaint Window Is Open

Kenneth R. Harney – The Nation’s Housing

WASHINGTON – Got a beef with your mortgage company or loan servicer? Lots of people do, and thousands of them have been turning to a federal complaint hotline for action — or at least a quick response from the lender.

The Consumer Financial Protection Bureau opened up its bulging online complaint hotline files to public view last week, and the contents are startling: Though the CFPB’s complaint window is open to various financial disputes — credit cards, student loans, credit reporting agencies, bank loans to consumers — by far the biggest source of complaints is home mortgages. Nearly half of all disputes reported to the agency by consumers are mortgage related — problems with payments, escrow accounts, servicing, FHA and conventional loans, home equity lines, second mortgages, reverse mortgages, loan modification delays, application foul-ups and the like.

The new database — accessible at www.consumerfinance.gov and updated daily with fresh cases — doesn’t provide the gory details of specific alleged misdeeds. Nor does it identify the consumers filing complaints other than by ZIP code and the general nature of their dispute. But it does identify the banks or mortgage lenders that are the targets of the complaints and whether they responded to the agency to try to resolve the matter.

In the vast majority of cases, lenders have responded within 15 days — often apparently to the satisfaction of their customers. When the CFPB receives a complaint, it verifies that the consumer is indeed a customer of the bank or mortgage company, but does not attempt to determine whether the allegations by the consumer have merit. It contacts the lender, provides a secure portal for a reply, then informs the consumer about the lender’s response using a separate secure portal.

When the case is posted to the online database, it’s cataloged as either in progress, closed, closed with an explanation, closed with monetary relief to the consumer, closed with non-monetary relief or closed with dispute comments added to the file by the consumer indicating unhappiness with the lender’s response.

Does the hotline system really work? Bob Ogle of Tucson, whose case number and ZIP code are posted in the database, describes himself as a big fan. He filed a complaint about a mortgage servicing company in Texas Feb. 8 protesting a pending foreclosure action against his mother. Not only was the CFPB’s response swift — the agency contacted the loan servicer immediately and obtained a response. The foreclosure was canceled and the entire dispute resolved.

“I got a letter stopping the foreclosure on Feb. 12,” he said in a telephone interview. “How can you do better than that?”

However, banks and mortgage lenders aren’t as thrilled about the newly released complaint database as Ogle is. For one thing, they are named, even if the complaint ultimately turns out to have been unfounded. Also, the searchable feature of the database allows anyone to check on the number of complaints filed against any specific lender — which some large banks consider unfair given that their high volumes of transactions are almost guaranteed to generate more complaint filings than would smaller lenders.

For example, of the roughly 50,000 mortgage complaints in the database at the end of March, 15,179 — about 30 percent — named Bank of America. Another 8,030 named Wells Fargo, 2,257 were against JPMorgan Chase, and 2,147 named Citibank, all among the highest-volume mortgage originators and servicers active in the market. Nearly 3,400 named Ocwen Financial Corp., a company that specializes in servicing large portfolios of underwater, delinquent and subprime mortgages.

Richard Hunt, president and CEO of the Consumer Bankers Association, says the CFPB’ s approach on this is flawed. “A better service to consumers,” he said, “would have allowed for collaboration between the CFPB and financial institutions to determine if a complaint is indeed valid, prior to publication.”

Bank of America spokesman Dan Frahm maintains that his company’s disproportionate share of complaints in the database stems from its purchase of Countrywide Home Loans, which was one of the largest and most controversial loan originators and servicers during the subprime boom. Despite these legacy problems, Frahm added, 98 percent of the mortgage-related complaints sent to it by the CFPB “have been closed.”

How can you use the CFPB mortgage hotline if you’ve got a dispute with a lender or bank? There are several ways: You can file online at www.consumerfinance.gov/Complaint. Or call toll-free at 1-855-411-CFPB. Or use snail mail: CFPB, P.O. Box 4503, Iowa City, Iowa, 52244.

Lenders Likely Next Target in CFPB Reinsurance Kickback Probe

by Joe Adler APR 4, 2013 4:43pm ET

WASHINGTON – The Consumer Financial Protection Bureau’s enforcement actions against four large mortgage insurers are likely just the start of efforts against an alleged widespread mortgage insurance kickback scheme that involves several lenders.

The agency ordered the firms to stop reinsurance deals with mortgage lenders that were purportedly made in return for getting a larger slice of the mortgage insurance pie. It also said the insurance companies must pay a total of $15.4 million in civil money penalties and undergo additional CFPB monitoring.

Yet the paltry size of the fines – combined with additional investigations and ongoing litigation involving borrowers, insurers and big banks alleged to have participated – suggests more enforcement activity is still on the way, including against lenders that were said to have received the reinsurance business. The scheme is estimated by some to have involved as much as $6 billion in kickbacks.

“In the context of the massive amount of mortgage fraud that occurred in this industry, a $15 million penalty seems pretty small,” said David Reiss, a professor at Brooklyn Law School. “But given that further enforcement against the large financial institutions that demanded the kickbacks is possibly still on the horizon, the jury is out on whether this will be an effective set of enforcement actions.”

The largest fines, of $4.5 million each, were levied against United Guaranty Corp. and Genworth Mortgage Insurance Corp. Radian Guaranty Inc. and Mortgage Guaranty Insurance Corp. were ordered to pay, respectively, $3.75 million and $2.65 million. Each of the companies was party to CFPB consent orders that must still be approved by the U.S. District Court for the Southern District of Florida.

The agency said the companies, which rely on lenders for referrals to sell mortgage insurance policies, agreed to take out reinsurance policies themselves from lender affiliates in return for those referrals. But the deals, regulators say, appeared to be more about providing lenders with extra profits than insurers needing a backstop.

“The mortgage insurance business can be lucrative, and our investigation indicates that lenders sought to leverage their control over the business to capture some of those revenues for themselves,” CFPB Director Richard Cordray said on a conference call with reporters.

Officials with the agency did not provide any details about further actions to come related to the scheme, but signaled that the institutions on the other side of the business arrangements continue to be a focus of their probe.

“In every kickback situation, there is somebody paying and there is somebody receiving. It takes two to tango,” said Kent Markus, the CFPB’s assistant director for enforcement. “As I’ve indicated, today we’re dealing with those who paid the kickbacks, and in particular trying to make sure that the practices stopped and that consumers do not continue to be victimized in this way. But we have more work to do on this matter.”

At issue are so-called captive reinsurance arrangements. Borrowers typically must pay for mortgage insurance when they cannot afford to make a 20% down payment. The CFPB said the mortgage insurance firms were unnecessarily taking out reinsurance contracts with a lender’s own subsidiary – a captive reinsurance arrangement that effectively allowed the insurance firms to provide additional money to the lender.

Under the proposed settlement, which cites alleged violations of the Real Estate Settlement Procedures Act, the companies are prohibited from entering into any mortgage reinsurance arrangements for at least 10 years. The CFPB said the fines were based on the insurers’ finances, “relative culpability” and the companies’ cooperation with the agency. (The federal investigation into the kickback schemes was initially launched by the inspector general of the Department of Housing and Urban Development.)

“While mortgage insurance can help borrowers get a loan, the financial burden it imposes is clearly magnified if the cost is inflated by illegal kickbacks,” Cordray said. “That harms not only consumers but entire communities, the housing market and the economy as a whole.”

In statements issued by the insurance companies involved, they expressed their hope to move past the ordeal, while also attempting to make the case that the captive deals did not affect borrower costs and were intended to help the firms mitigate losses.

“MGIC’s captive reinsurance transactions caused no harm to any borrower because MGIC’s premium rates were not based on, or affected by, captive reinsurance,” the company said.

A statement by Teresa Bryce Bazemore, president of Radian Guaranty, said, “We are pleased to put this behind us.”

“While we believe our captive arrangements complied with RESPA and caused no harm to consumers, this settlement was an opportunity to eliminate distractions at an acceptable cost so that we can continue our primary focus of writing new, profitable mortgage insurance and helping low down-payment borrowers realize the dream of homeownership,” Bazemore said.

But in its press release, the CFPB said the captive reinsurance “was essentially worthless” and “designed to make a profit for the lenders.”

Markus said mortgage-related kickbacks can have a real effect on consumers.

“The impact on consumers of illegal kickbacks is that it raises prices. That’s the entire reason the Congress made it illegal to have kickbacks in the context of real estate settlement activity,” he said. “Those kickback costs somehow end up working their way into the costs of the product and therefore increased costs for consumers.”

NEW CFPB COMPLAINT REPORT SHOWS MORTGAGE BROKERS ARE THE BEST ORIGINATORS

The National Association of Mortgage Brokers (NAMB) has come out in support of the Consumer Financial Protection Bureau’s (CFPB) release of the Consumer Complaint Database, a public database of federal consumer financial complaints, containing more than 90,000 individual complaints on financial products and services. One of NAMB’s core beliefs is the protection of consumers and their rights to fair and equal credit as it pertains to the residential mortgage market. It is NAMB’s belief that the CFPB’s Consumer Complaint Database will assist consumers in identifying reputable and efficient sources for obtaining credit needed to purchase a home in today’s heavily regulated market.

“In reviewing the information on the current Consumer Complaint Database, it seems that the mortgage broker is again being thrown into a category with ‘Application, Originator and Mortgage Brokers,’” said Donald J. Frommeyer, CRMS, NAMB president. “I would think that mortgage brokers would be in a category separate from the other two items.

According to the Consumer Complaint Database (https://data.consumerfinance.gov/dataset/Mortgage-complaints/c6ve-d79g) released on March 28, 2013 of the 3,564 complaints filed with mortgage broker, 2,745 actually belonged to banks, not mortgage brokers. A closer examination shows that only 22 out of the 50,457 complaints filed are against mortgage brokers-a 0.0436 percent negative feedback reading against the mortgage broker community.

“It seems that this is creating a public perception that all origination complaints are against mortgage brokers when their own real data shows otherwise,” said Frommeyer. “The CFPB needs to make sure that the information that is being accumulated makes sense so that all consumers can and will eventually use this information as a correct and complete guideline.”

According to NAMB, the term “mortgage broker” has, for the last three years, been used to categorize both depository and non-depository institutions, when in fact, it should not. This unintentional oversight appears to have been made by the CFPB when defining the institutions receiving complaints.

“A mortgage broker, as defined by the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) is a non-depository institution that, for compensation, arranges a residential mortgage,” said Richard M. Bettencourt Jr., CRMS, chairman of the NAMB Government Affairs Committee. “The mortgage broker does not close, fund, or underwrite the file in question. The depository lender and mortgage banker, however, do, in fact, underwrite, approve, fund and close those transactions in their name, thus those institutions can be categorized as anything but a mortgage broker.”

NAMB is excited about the opportunity to work with the CFPB in the years to come to ensure that consumers nationwide are provided with the highest level of consumer protection.

“The data released by the CFPB shows that mortgage brokers receive the least amount of complaints of any origination channel,” said Bettencourt. “The bulk of complaints are for mortgage servicers and about not helping with payment issues. After sorting all of the 993 complaints against origination, less than 10 were against mortgage brokers.”

The National Association of Mortgage Brokers (NAMB)-The Association of Mortgage Professionals, is a trade association of mortgage professionals with membership in all 50 states and the District of Columbia. NAMB provides education, certification and government affairs representation for the mortgage industry. For more information, visit NAMB.org.

Energy savers due a break

Mar 29, 2013 Kenneth R. Harney

WASHINGTON — If you buy or own an energy efficient house, does this make you less likely to default on your mortgage? Is there a connection between the monthly savings on utility costs and the probability that you’ll pay your loan on time?

A new study by the University of North Carolina suggests that the answer to both questions is a resounding yes. Using a massive sample of 71,000 home loans from across the country that were originated between 2002 and 2012, researchers found that mortgages on homes with Energy Star certifications were on average 32 percent less likely to default compared with loans on homes with no energy efficiency improvements. Energy Star homes, which can be renovated dwellings or newly built, provide documentable savings of 15 percent or higher on utility bills compared with houses containing minimal energy improvements.

Researchers took pains to statistically separate out factors other than energy efficiency savings that might account for the strikingly different performances by borrowers on their mortgages. They controlled for house size; age of the house; neighborhood income levels; house values relative to the area median; local unemployment rates; borrowers’ credit scores; loan-to-value ratios; electricity costs; and even local weather conditions.

The sample came from a giant mortgage data repository managed by CoreLogic, a California-based company that has access to millions of loan files and payment records supplied by major banks, lenders and servicers. The average sale price of both the energy-efficient homes and the others was approximately $220,000, removing the possibility that the energy efficient properties were high-end houses purchased by families who are less likely to default.

So why the big difference in payment performance among borrowers during the roller-coaster decade that saw the mortgage bubble, the housing price boom, the calamitous bust and the start of a recovery? To Cliff Majersik, executive director of the Institute for Market Transformation, a Washington, D.C., think tank that sponsored the research, there’s no question.

“It stands to reason,” he says, “that energy-efficient homes should have a lower default rate because the owners of these homes save money on their utility bills, and they can put that money toward their mortgage payments.”

In light of the superior performance of mortgages on certified energy-saving houses, what discounts or preferences can borrowers or owners of such houses expect at the bank when they go in for a loan? After all, a key component of the interest rate you pay on a mortgage is compensation for default risk — that is, the possibility that you’ll go belly up, walk away, end up in foreclosure and produce big losses for the lender or bond investor.

For example, if you have a low FICO credit score of 620, you present a high risk of nonpayment to the lender and are virtually guaranteed to be charged a higher rate. On the other hand, if you have a platinum 800-plus FICO score, you’re likely to be quoted the best rates and generous underwriting terms — all because your statistical risk to the lender is lower.

But here’s the problem with the way the mortgage system treats energy efficiency: Under current practices, you’d be hard pressed to find any lenders who’ll give you a better rate quote on your mortgage application, even if you showed them your Energy Star or HERS certifications along with documentation that your house saves buckets of money on utility bills.

The authors and sponsors of the study think lenders should start factoring energy efficiency into their underwriting. They’ve also begun meeting with officials from the mortgage industry, Congress and government to suggest how to do it: If not a lower interest rate, they argue, then at least give loan applicants who can demonstrate significant energy bill savings a break on upfront fees, debt-to-income ratios, or maybe some wiggle room on minimum down payments. It just makes sense.

Bob Sahadi, a mortgage industry veteran who now works for the Institute for Market Transformation, said in an interview that lenders “have wanted hard evidence” that energy savings reduce defaults.

Now they’ve got it.

Steve Baden, executive director of RESNET, a national nonprofit group that helps homeowners with energy efficiency improvements, takes the issue one step further. He argues that if mortgage lenders — confronted with statistical proof that borrowers who buy houses that save on energy outlays are at lower risk of default — decline to start recognizing this fact with more favorable pricing, they “are indeed overcharging consumers.”

Sounds right.

Victim of $440K wire fraud can’t blame bank for loss, judge rules

Jaikumar Vijayan March 26, 2013 (Computerworld)

A federal court in Missouri has rejected an escrow firm’s attempt to blame its bank for a $440,000 cyberheist in March 2010.

In a ruling last week, the U.S. District Court for the Western District of Missouri held that Choice Escrow and Title LLC had essentially failed to follow its bank’s recommended security procedures and therefore had only itself to blame for the loss.

Choice filed a lawsuit against BancorpSouth in November 2010 after unknown attackers stole the username and password to the company’s online bank account and used the credentials to transfer $440,000 to an account in Cyprus.

Choice alleged that the theft occurred only because the bank failed to implement commercially reasonable security measures as defined in the Funds Transfer Act provisions of the Uniform Commercial Code (UCC). Choice Escrow maintained that BancorpSouth should have known the wire transfer request was fraudulent because it was initiated from outside the U.S — something that had never happened before with its account.

In a countersuit, BancorpSouth noted that the wire transfer had been initiated by someone using Choice Escrow’s legitimate login in credentials and from an IP address associated with the escrow firm’s bank account.

Importantly, the bank said it had specifically asked Choice to adopt a dual-control process where two individuals would be needed to sign off on all wire transfer requests. Choice officials had declined the control, despite being warned about the risk of fraudulent wire transfers, the bank noted in a motion seeking a summary dismissal of the lawsuit.

U.S. District Court Judge John Maughmer held that BancorpSouth had indeed implemented commercially reasonable security measures and acted in good faith in handling the wire transfer request.

The judge noted that Choice had been informed about the importance of the dual-control process, but declined to use it. The escrow firm also declined to place a daily transfer limit on wire transfers, despite being informed about the risk of fraud.

“The court finds that the ‘Dual Control’ option offered by [Bancorpsouth] and refused by Choice did indeed meet the prevailing standards for good banking practices,” Maughmer wrote in a 16-page ruling.

This is the second time that BancorpSouth has tried to dismiss the case against it. Last year, the bank claimed that it should not have been sued over the incident because Choice Escrow had signed a contract that included an agreement not to hold BancorpSuth responsible for losses stemming from a failure to use the online services in a secure manner. Maughmer however < href=" http://www.computerworld.com/s/article/9230730/Judge_dismisses_BancorpSouth_ defense_in_online_theft_suit”>threw out that motion.

The decision is the latest involving disputes between banks and commercial customers over losses stemming from fraudulent wire transfers. Over the past few years, cybercriminals have looted tens of millions of dollars from numerous small businesses, municipalities, school districts, and other entities using the same technique.

In almost all cases, the attackers first managed to steal their victims’ banking credentials, then used those credentials to gain access to their accounts to initiate the illegal wire transfers.

Banks have insisted that the thefts occurred only because the victims allowed attackers to gain access to their bank login credentials. Victims like Choice, meanwhile, have blamed the banks for failing to prevent the illegal wire transfers despite what they say should have been obvious red flags.

In a similar dispute last July between Ocean Bank and Patco Construction Company of Maine, a federal appeals court held that the bank had not implemented commercially viable measures to detect and protect against fraudulent wire transfers. A Michigan federal court ruled the same way in 2011 in a case involving Comerica Bank and Experi-Metal, a maker of automobiles parts that was robbed of $560,000 through fraudulent wire transfers.

Maughmer’s ruling in the case was first reported by security blogger Brian Krebs.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at @jaivijayan or subscribe to Jaikumar’s RSS feed . His e-mail address is jvijayan@computerworld.com.

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