18 Nov New York Settles with PHH Mortgage Over Loan Rules Violations

New York Governor Andrew Cuomo recently announced that allegations against PHH Mortgage Corp. of deficiencies in its mortgage origination and servicing practices have been settled after an examination by the Multistate Mortgage Committee uncovered several weaknesses in its operations.  This announcement comes shortly after the D.C. Circuit Court of Appeals’ unprecedented decision issued in October, concerning the Consumer Financial Protection Bureau’s (“CFPB”) incorrect interpretation of the Real Estate Settlement Procedures Act in PHH Corp. v. CFPB, where parent PHH Corp. asked for the CFPB to be eliminated and for the court to dismiss the $109 million-dollar enforcement action from the agency.

The watchdog committee, comprised of a group of several state regulators, conducted an examination of PHH Mortgage that found it failed to provide accurate Good Faith Estimate disclosures to mortgage borrowers for their residential loans.  As a result, borrowers allegedly saw fees increase at closing.  And in some instances, PHH Mortgage failed to provide documentation showing that borrowers received agreed-upon discounts.

The investigation also found that PHH Mortgage failed to institute and maintain controls to prevent loan originators from overstepping licensing restrictions in originating loans for PHH entities, and had a loan originators’ compensation plan that allowed originators to steer customers into risky or unnecessarily high-cost loans.

The New Jersey-based company was also accused of discrepancies in its foreclosure documentation and processing, suggesting potential robo-signing practices.  Examiners discovered mortgage assignments that were illegible, calling into question their authenticity.  PHH Mortgage also allegedly did not adequately monitor the operations of outside vendors, and improperly assessed $1.2 million in attorneys’ fees against distressed New York borrowers because of a coding error in its automated invoice processing system.  PHH Mortgage had relied on roughly 95 outside vendors to perform important servicing-related tasks, without creating any internal controls or ensuring proper management oversight to monitor vendor operations.

“Despite first discovering this error in June 2014, PHH delayed disclosing the issue to the Department for 18 months,” Cuomo said.  PHH Mortgage also failed to provide examiners with satisfactory documentations during the examination to verify that due diligence was performed on its vendors.  Cuomo went on to explain that PHH Mortgage and its affiliate PHH Home Loans LLC have now agreed to a consent order that imposes a $28 million fine, along with hiring a third-party auditor.

Parent PHH Corp. said in a written statement that it agreed to resolve “concerns” raised by the New York Department of Financial Services stemming from its legacy servicing and origination examinations “in order to avoid the distraction and expense of litigation.”  PHH Corp. found that settling the matter was in the best interest of PHH and its customers, noting that it had cooperated with the state banking agency.  PHH Corp. added that it has made “substantial strides” in improving its servicing operations, which was acknowledged by the DFS.