HUD Enters Settlement with FHA Servicer Over Payment Convenience Fees

HUD entered into a settlement with an FHA loan servicer regarding payment convenience fees (also referred to as “pay-to-pay” fees).

FHA loan servicers may charge servicing fees to borrowers which are expressly authorized by HUD or where the fee is: 1) reasonable and customary for the local jurisdiction; 2) based on actual costs of work performed or actual out-of-pocket expenses and not a percentage of the loan amount or unpaid balance; and 3) within the maximum limits set by HUD for certain types of fees.  Servicers may not charge fees for activities that are normally considered a part of prudent servicing activity.

HUD alleged that the servicer charged borrowers a fee for making their mortgage payment by phone or where borrowers sought to pay online without first enrolling in the servicer’s paperless statement program.  HUD asserts that such fees are impermissible since accepting and processing mortgage payments is supposed to be part of a servicer’s ordinary servicing activities for which it is already compensated.  The servicer allegedly charged these fees to approximately 51,500 borrowers between May 2021 and February 2023 (when the servicer ceased charging the fees).

Under the settlement, the service is required to pay approximately $3,465,000 in restitution to affected borrowers, as well as a $245,000 civil money penalty.  The servicer did not admit liability as part of the settlement.