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Order Issued Against Servicer of Distressed Loans

A servicer of distressed residential loans out of North Texas has consented to an order alleging it blocked delinquent borrowers from avoiding foreclosure.

Residential Credit Solutions Inc. is a national mortgage servicer that was acquired in 2013 by American Capital Mortgage Investment Corp.

At the time, the Fort Worth, Texas-based financial services firm had a mortgage servicing portfolio of $8.5 billion.

The company, which opened for business in 2006, has acquired servicing on around 75,000 loans since 2009, according to an announcement Thursday from the Consumer Financial Protection Bureau.

But Residential Credit
has failed to honor trial loan modifications set up by the servicers that the loans were transferred from, the CFPB said. Instead, it made the borrowers again prove that they qualified for the modifications. The alleged abuses occurred from 2009 until 2013.

“The company put consumers in loan modification trial period purgatory and confused consumers about the status of their modifications, making it difficult for them to take appropriate action,” the announcement stated. “In many cases, the company delayed or deprived borrowers of the opportunity to save or sell their homes.”

It treated these borrowers as if they were in default — even when they weren’t, the bureau said.

The CFPB also claims that the company gave the modification applicants incorrect information about their unpaid balances, payment due dates, interest rates, monthly payment amounts and delinquency statuses.

“In many cases, the company deprived borrowers of the ability to make an informed choice about how to save or sell their home, caused borrowers to drop out from the loss mitigation process entirely, and drove borrowers into foreclosure,” the statement said.

The bureau additionally claims the company sent “consumers escrow statements falsely claiming they were due a refund, and forced consumers to waive their rights in order to get a repayment plan.” Incorrect escrow surpluses ranged from $80 to $10,000.

In order to approve a payment plan, the CFPB said that Residential Credit illegally required borrowers to surrender certain legal rights in future foreclosures and bankruptcy protections as a condition.

Residential Credit is accused of violating the Consumer Financial Protection Act.

The CFPB said that the company has agreed a consent order requiring it to pay $1.5 million
in restitution to hundreds of affected borrowers. The order additionally requires the servicer to pay a $100,000 civil penalty.

Also as part of the order, Residential Credit must convert in-process modifications to permanent modifications. It also must reach out to distressed borrowers by mail, telephone and translation services to offer them loss mitigation options.

In some cases, it must halt the foreclosure process.

Any loss mitigation agreements established by prior servicers must be honored by the company.

The CFPB said the servicer must
create a detailed data integrity program that tests, identifies and corrects errors in loans transferred to it to ensure that it has accurate information. It is prohibited from transferring or receiving loans that are in loss mitigation unless all account-level documents and data relating to loss mitigation are provided to the new servicer by the date of the transfer.

Residential Credit will need to make loss-mitigation applications readily accessible on its website or provide them to borrowers that request them.

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