Bank Accused of Driving Borrowers Into Foreclosure
September 30, 2014
The Consumer Financial Protection Bureau is accusing Flagstar Bank of stonewalling more than 2,000 borrowers and leading them into foreclosure over the last three years.
The agency says that the Michigan-based bank failed to process loan modification applications in a timely manner — in some cases, taking up to nine months when a review should have only taken a few days. CFPB says the bank was understaffed, with just 25 employees and a third-party contractor in charge of handling 13,000 applications at one point in time.
Other Bank Settlements
Flagstar has been fined $27.5 million to go toward the 6,500 victims who faced delays, including 2,000 who underwent a foreclosure because of the bank's actions, CFPB says. The bank also faces an additional $10 million civil penalty. It has been barred from acquiring certain types of new business until the government reviews its operations further. It also must undergo active loss-mitigation efforts for current loans, including a door-knocking campaign.
CFPB accused the bank of causing some borrowers' applications to expire or miss deadlines due to the review delays as well as taking too long to approve or deny loan modifications when foreclosures were pending. The bank was also accused of failing to notify borrowers that their applications were incomplete or giving them resources on how they could appeal decisions, which is required. The CFPB also accused the bank of leaving borrowers in an expensive "trial period purgatory" for loan modifications that could increase the borrowers' loan amount.
Flagstar agreed to pay the fines but did not admit any wrongdoing from the government's allegations.
"This resolution is in the bank's best interest," says Alessandro DiNello, president and CEO for Flagstar. "The dedicated employees of Flagstar Bank have completed thousands of successful loan modifications and work incredibly hard to meet and exceed the needs of our customers. With this matter now behind us, everyone at Flagstar Bank is committed to building on the significant progress we have achieved while continuing to operate with integrity, responsiveness, and a commitment to our core values."
Source: “Bank’s ‘Repeated Failures’ Led to 2,000 Foreclosures, Feds Say,” CNNMoney (Sept. 29, 2014) and “Bank Allegedly Stonewalled 2,000 Home Owners Into Foreclosure,” Credit.com (Sept. 29, 2014)
Updated: November 21, 2019