The Department of Housing and Urban Development's Office of Inspector General found that Mr. Cooper failed to provide proper retention options to more than 80% of borrowers with delinquent FHA-insured loans after their
The Dallas-based servicer, which still in some cases uses the Nationstar name, incorrectly calculated loss mitigation options for some borrowers with delinquent loans, did not reinstate arrearages properly and declined loss mitigation in error between November 2021 and February 2022. The OIG report projects that this impacted close to 3,572 FHA-insured loans out of a statistical sample of 4,288 mortgages, totaling $767 million.
As such, Mr. Cooper's practices and "inadequate policies and system" may have contributed to borrowers facing "additional hardships from improper loss mitigation," the department's watchdog claims.
The company, which is the largest nonbank servicer in the nation with an $853 billion portfolio as of March 31, was chosen for the audit because it had a notable number of delinquent loans and was also based on complaints made against it to the Consumer Financial Protection Bureau and the HUD OIG hotline.
During the four months that were audited, over 50% of borrowers in the statistical sample received improper loss mitigation options from Mr. Cooper, while for 35% of loans, the servicer did not follow HUD's guidance regarding notifying borrowers about the
A spokeswoman for the servicer acknowledged that "some limited, technical exceptions and differences in interpretation existed within the audit report sample population," but said the company "satisfied the program's objectives and took the necessary steps to help our customers remain in their homes."
"Mr. Cooper helped thousands of FHA customers with timely solutions, and we are deeply disappointed that the HUD OIG Report did not accurately reflect our commitment to those customers," the company's spokeswoman said in a written statement. "None of the homes in the sample population were foreclosed upon, and there was no harm to any of the customers."
However, HUD OIG claimed Mr. Cooper dropped the ball with the following: some borrowers received additional months of future payments in their partial claim, the servicer didn't include all arrearages needed to bring the borrower current, incorrect interest rates were used in the calculation of loss mitigation options and late fees were included in the partial claim that should have been waived.
Mr. Cooper also did not inform a notable chunk of borrowers about HAF during loss mitigation and only started doing so when the audit began in March 2022, the watchdog said. Earlier last year, the
Going forward, the OIG recommends for Mr. Cooper to implement controls and provide employee training to prevent noncompliance in loss mitigation, as well as identify loans that were affected by improper application and update said accounts.
In March, Mr. Cooper settled a
Concurrently, HUD's OIG released a report which looked at overall servicer compliance during the pandemic. The same problems that were noted in Mr. Cooper's audit were found across a large number of mortgage servicers.
Based on a sample of 231,362 FHA-insured forward loans totaling $41 billion, servicers did not meet HUD requirements for providing loss mitigation assistance to 155,297 borrowers, the report said.
Nearly half of the borrowers in the sample did not receive the correct loss mitigation assistance, while approximately one-quarter of the borrowers received the proper option, but servicers did not follow COVID-19 loss mitigation guidance to help borrowers with payments that were missed during forbearance, the report said.
"It goes without saying that the COVID-19 pandemic was unprecedented in the ways in which it impacted Americans, including those with FHA-insured loans," said Inspector General Rae Oliver Davis, in a written statement. "HUD's efforts to address the crisis necessarily evolved over time and mortgage servicers struggled to adapt to those changes."
Servicers were "unprepared for the pace in which FHA changed loss mitigation requirements" and "confused with the new requirements," which resulted in borrowers receiving conflicting information on eligibility requirements, the report said. The watchdog urged HUD to develop a plan for how to mitigate noncompliance.
A HUD spokeswoman said the department takes "very seriously" instances of non-compliance with servicing policies, particularly those that are designed to help borrowers retain their home."
"We continue to work with individual servicers on the appropriate remedies for non-compliance with our policies, and with all FHA servicers on education and training that will facilitate effective implementation of our requirements now and in the future," she added.
Bob Broeksmit, president of the Mortgage Bankers Association, dubbed the implementation of COVID-19 relief a major success story for servicers.
"A number of the technical faults that the report identifies were made by servicers in the spirit of helping COVID-affected borrowers exit forbearance and remain in their homes in the fastest, most efficient way possible," he wrote. " Others were the unfortunate outcome of confusing or conflicting program requirements and the inherent difficulties of quickly scaling such a massive borrower assistance effort."
