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CFPB Combats Junk Fees in Mortgage Servicing

The regulator found servicers charging illegal junk fees and violating loss mitigation rules

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  • Written by  Banking Exchange staff
CFPB Combats Junk Fees in Mortgage Servicing

The Consumer Financial Protection Bureau (CFPB) has taken action to combat illegal junk fees charged by mortgage servicers after its studies revealed a rise in these fees.

The CFPB’s examinations found that mortgage servicers imposed prohibited and unauthorized fees on homeowners, such as illegal fees for property inspections.

Many also charged late fees that exceeded the amounts allowed by their mortgage loan agreement and failed to explain the reasons for fees as they were not described adequately on statements.

Most mortgage servicers used a streamlined process to determine repayment options for homeowners that struggled financially during the COVID-19 pandemic.

However, the CFPB found that some servicers failed to waive late fees and penalties, as required.

Mortgage servicers that received money from borrowers for tax and insurance payments failed to make those payments in a timely manner, which caused some borrowers to face penalties.

Servicers then only took responsibility for missed payments if homeowners submitted complaints.

The studies also revealed some servicers sent notices to homeowners in financial distress stating they had been approved for a repayment option, even though no financial decisions had been made.

Servicers also improperly denied requests for help and failed to evaluate struggling borrowers for repayment options, which is required under the CFPB’s mortgage servicing rules.

In response to the CFPB’s findings, financial institutions have refunded junk fees to borrowers and imposed changes to their policies and procedures to prevent their illegal practices.

The CFPB has also announced that it is working to address other anticompetitive mortgage fees, including those charged in connection with closing costs.

Rohit Chopra, director of the CFPB, said: “Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees. Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”

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