PHH Mortgage Corporation and its affiliate, PHH Home Loans LLC, will pay a $28 million fine as part of a consent order for violations of state and federal laws designed to protect homeowners.
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The consent order between the two companies and the Department of Financial Services was reached following a series of examinations that uncovered persistent shortcomings in their mortgage origination and servicing practices, including discrepancies in how mortgage foreclosures were documented and processed.
The examinations revealed discrepancies in the origination of mortgage loans, including failing to give borrowers accurate good faith estimates on loans, imposing larger fees on unwary borrowers at closings and, in some cases, failing to provide documentation showing that borrowers received discounts for which they had bargained.
PHH Mortgage lacked formal and comprehensive policies and processes for executing foreclosure-related documents. Examiners found certain employees who executed foreclosure documents conducted little more than perfunctory reviews of materials prior to execution. Some employees lacked personal knowledge of facts to which they had sworn.
PHH Mortgage did not adequately monitor the operations of outside vendors it engaged to perform mortgage servicing related tasks, including foreclosure attorneys whose actions on behalf of the company had a direct impact on borrowers in financial distress.
PHH Home Loans failed to establish adequate controls to prevent mortgage loan originators employed by one PHH entity from originating loans in another PHH entity’s name, or to prevent employees whose mortgage loan originator licenses had expired or been withdrawn from taking loan applications.
PHH Home Loans had inadequate controls to ensure that electronic signatures appearing on loan applications were those of the mortgage loan originators who actually took the application from the borrower.
PHH Home Loans’ mortgage loan originator compensation plan failed to prevent against steering borrowers into risky or unnecessarily high-cost loans or basing a mortgage loan originator’s compensation on the terms of the particular loan brokered.
The independent third-party auditor, which will be subject to approval by the Department of Financial Services, will work to verify the identity of borrowers impacted by other improper closing costs so PHH can make refunds to those consumers.
The auditor will also review PHH’s business practices to ensure compliance with mortgage origination and servicing laws and regulations.
During follow-ups on previously identified deficiencies, examiners found certain weaknesses in PHH’s business practices persisted, and discovered that, in some instances, unlicensed individuals were allowed to originate mortgage loans and that PHH failed to retain copies of required pre-application disclosures to some customers.
One sampling of files by examiners revealed documents demonstrating that some consumers failed to receive discounted rates they had been promised.
As further evidence of internal deficiencies, in January 2016 PHH disclosed that, due to a coding error in an automated invoice processing system, PHH had improperly assessed attorneys’ fees of $1.2 million against New York borrowers already facing the hardship of default.
Despite first discovering this error in June 2014, PHH delayed disclosing the issue to the Department for 18 months. PHH has represented to the Department that it has made full financial restitution to borrowers affected by this error.
Reports of industry-wide irregularities into the foreclosure practices of mortgage loan servicers led to the first examination of PHH Mortgage by the Multistate Mortgage Committee, a group of several state regulators, including DFS, responsible for coordinating the examination and supervision of mortgage lenders and brokers operating in more than one state.
Based in New Jersey, both of the PHH companies are licensed to originate loans in New York; PHH Mortgage is also authorized to service loans in the State.
Between 2012 and 2014, PHH Mortgage’s servicing portfolio in New York grew from more than 52,000 residential loans to more than 205,000 with an unpaid principal balance of nearly $39 billion.
Nationally, the company’s servicing portfolio grew from 892,000 loans to more than 1.1 million residential loans with an unpaid principal balance of more than $227 billion. ■