New York DFS Reaches 17 Million Settlement with Large Mortgage Servicer

The New York Department of Financial Services (NYDFS) announced April 11 that it had reached a settlement in excess of seventeen million dollars with a large mortgage servicer (Company) for violations of New York banking law stemming from the Company’s inability to scale its compliance systems to keep pace with its rapid growth between 2012 and 2013.  The NYDFS fined the Company five million dollars, required verification that the Company provided restitution in excess of seven million dollars to New York borrowers, and the Company agreed to donate five million in residential real property or first-lien mortgages to one or more non-profit organizations to assist in the rehabilitation of vacant and abandoned properties in New York.

The settlement stems from two state examinations focused on servicing and origination operations between January 1, 2011 and March 31, 2014.  The NYDFS’s examinations allegedly found that unbridled growth and poor planning led to the following servicing and origination errors:

• Allegedly, the Company’s document retention and document management processes showed significant flaws. For example, servicing files allegedly lacked documentation showing loss mitigation correspondence, single point of contact notices, and annual privacy notices.  Moreover, origination files allegedly lacked fundamental documents, including Truth in Lending Act disclosures, property appraisals, and borrower income documents.
• The Company allegedly failed to fund mortgage loans in New York within the required timeframe in approximately nine hundred instances.
• NYDFS alleged that the Company failed to obtain authorization from it for the Company’s use of multiple domain names.
• The Company allegedly operated two branch locations without the NYDFS Superintendent’s authorization.
• NYDFS alleged that the Company failed to maintain a schedule of fees on its website.
• The Company allegedly failed to file multiple ninety day pre-foreclosure notices with the NYDFS.
• Allegedly, between 2011 and 2014, the number of consumer complaints submitted involving the Company increased by a large amount.