On November 9, 2016, the New York State Department of Financial Services (“NYDFS”) entered into a consent order with PHH Mortgage Corporation and PHH Home Loans (collectively “PHH”) to settle allegations that PHH violated New York and federal laws relating to mortgage origination and servicing. NYDFS discovered the alleged violations of law in a series of examinations of PHH conducted between 2010 and 2014, and PHH self-identified one violation in 2014 and reported it to NYDFS in 2016.
According to NYDFS’s allegations, the examinations it conducted revealed a variety of deficiencies in PHH’s origination and servicing practices, including:
- Deficiencies in the loan origination process, such as the disclosure of inaccurate fee amounts on Good Faith Estimates in violation of the Real Estate Settlement Procedures Act (“RESPA”), and the failure to provide documentation showing that borrowers who paid fees in exchange for reduced interest rates actually received the promised rate reduction.
- A lack of formal, comprehensive policies for executing foreclosure-related documents. According to the NYDFS allegations, these policy gaps resulted in employees conducting only perfunctory reviews of foreclosure-related documents prior to execution, or employees swearing to facts as to which they lacked personal knowledge.
- Inadequate oversight of third-party vendors, including foreclosure attorneys.
- Inadequate oversight of the mortgage loan origination process. According to the NYDFS allegations, this inadequate oversight led to issues such as unlicensed employees originating mortgage loans, and an inability to ensure that the electronic signatures affixed to loan applications were those of the mortgage loan originator who actually took the application.
- A compensation plan for mortgage loan originators did not prohibit steering borrowers into more risky or uneconomic loans or basing an originator’s compensation on the terms of the loan.
Although NYDFS noted in a 2014 exam that PHH “had made substantial strides to improve its servicing operations,” it nevertheless determined that “these improvements were insufficient to bring PHH Mortgage into material compliance with federal and state law.”
Also, in June 2014, PHH discovered a coding error in its invoicing system that resulted in PHH imposing approximately $1.2 million in impermissible attorney’s fees and costs on borrowers. PHH remediated these fees and costs, but NYDFS alleged that PHH “unreasonably delayed in disclosing” this self-identified error to NYDFS until January 2016.
In addition to the RESPA claim noted above, NYDFS alleged violations of a variety of New York state statutes and regulations relating to recordkeeping, mortgage servicing standards, foreclosure practices, late charges, application disclosures, mortgage originator licensing, and other areas.
The consent order requires PHH to pay a $28 million fine to NYDFS, and to retain an independent auditor for one year to review and assess PHH’s origination and servicing operations for compliance with New York and federal law. The auditor must also determine the identity of borrowers impacted by improper closing costs, including where fees collected at closing were improperly undisclosed or under-disclosed on Good Faith Estimates, so that PHH can refund the costs to those borrowers.