Consumer Financial Protection Bureau Settles with Mortgage Servicer for Illegal Practices that Impeded Borrowers’ Attempts to Avoid Foreclosure

Consumer Financial Protection Bureau Issues Analysis of HMDA Data Points

WASHINGTON, D.C. — The Consumer Financial Protection Bureau recently issued a consent order against Seterus, Inc. (Seterus) and Kyanite Services, Inc. (Kyanite), as Seterus’s successor in interest, based on the Bureau’s finding that Seterus violated the Consumer Financial Protection Act of 2010 (CFPA) and Regulation X. The Bureau found that Seterus’s actions resulted in delaying or depriving some borrowers of a reasonable opportunity to get their loss mitigation applications completed and evaluated and in some borrowers failing to timely receive protections against prohibited foreclosure activities to which they were legally entitled.

The consent order addresses widespread failures in Seterus’s handling and processing of struggling homeowners’ applications for loss mitigation options, which are alternatives to foreclosure made available through their servicer. The consent order requires Kyanite, as Seterus’s successor in interest, to pay consumer redress and a civil money penalty. The consent order requires Kyanite to pay $4,932,525 in total redress to approximately 11,866 of the consumers to whom Seterus sent a defective acknowledgment notice. The consent order also imposes a $500,000 civil money penalty and includes injunctive relief that would apply in the event Kyanite engages in mortgage servicing.

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As a mortgage servicer, Seterus was responsible for collecting borrower applications for these programs, communicating with borrowers regarding their applications, determining eligibility, and implementing loss mitigation programs for qualified borrowers. At its height, Seterus, a former mortgage servicer based in North Carolina, serviced approximately 500,000 residential mortgage loans. Seterus is no longer operating. On Feb. 28, 2019, after the relevant period covered by the Bureau’s investigation, Seterus was sold and its entire mortgage servicing portfolio was transferred to Nationstar Mortgage LLC, doing business as Mr. Cooper.

The Bureau found that Seterus, which used automated processes for handling loss mitigation applications, committed unfair acts and practices in violation of the CFPA by systematically failing to accurately review, process, track, and communicate to borrowers information regarding their applications. The Bureau found that Seterus also engaged in deceptive acts and practices in violation of the CFPA by sending numerous borrowers acknowledgment notices regarding their applications that misrepresented the status of borrower documents and provided inaccurate due dates for submission of borrower documents.

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The Bureau found that Seterus violated Regulation X, which implements the Real Estate Settlement Procedures Act, by sending numerous acknowledgment notices that failed to state the additional documents and information borrowers needed to submit to complete their loss mitigation applications or failed to provide a reasonable due date for submission of borrower documents. The Bureau also found that Seterus violated Regulation X by not exercising reasonable diligence in obtaining documents and information necessary to complete borrowers’ loss mitigation applications and by failing to properly evaluate borrowers who submitted complete loss mitigation applications for all loss mitigation options available to the borrower. The Bureau further found that Seterus failed to treat certain applications as “facially complete” when required under Regulation X. These violations also constitute violations of the CFPA.

Seterus sent out thousands of defective acknowledgment notices between 2014 and 2018. As a result of Seterus’s violations, some borrowers were delayed or deprived of a reasonable opportunity to get their loss mitigation applications completed and evaluated, and were delayed in receiving or deprived of the protections against prohibited foreclosure activities to which they were entitled under Regulation X. Some borrowers suffered improper foreclosure activity as a result. Borrowers also incurred injuries such as negative credit reporting, additional late fees, and additional interest as a result of defective acknowledgment notices that delayed or impaired their ability to obtain the benefits of a loss mitigation option.

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To read the consent order click here: https://files.consumerfinance.gov/f/documents/cfpb_seterus-inc_consent-order_2020-12.pdf.

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