PHH Mortgage settles FHA fee allegations for $3.5 million

PHH Mortgage has agreed to a $3.5 million settlement with the Department of Housing and Urban Development that HUD described as involving an unprecedented reimbursement to borrowers.

The settlement resolves a dispute between HUD and PHH Mortgage over whether fees applied to payments borrowers paid by phone, or online without enrolling in a paperless statement program, were improper.

HUD said the settlement marks the largest reimbursement to the most borrowers with Federal Housing Administration loans in history but it did not assign any fault or liability. Other FHA settlements more closely tied to systemic issues on the origination side of the business have been larger dollar-wise, such as one involving a $1.2 billion payment Wells Fargo made to resolve claims of shoddy loan manufacturing in 2016.

"This settlement serves as a reminder that HUD will always hold FHA mortgage companies accountable to ensure the people we serve are treated fairly," said HUD Agency Head Adrianne Todman in a press release.

PHH's parent company, Onity Group, asserted that all its actions were compliant in line with a position taken by an industry trade group.

"We remain steadfast in our belief that PHH has complied with all applicable laws and guidance related to this matter," the company said in an emailed statement. "While we are not the only servicer who has charged these fees and believe charging these voluntary fees was appropriate (a position supported by the Mortgage Bankers Association among others), we nevertheless voluntarily stopped charging these fees on FHA-insured loans nearly two years ago when HUD first brought its concerns to our attention."

In addition to noting that the MBA has challenged HUD's interpretations of the charges as violations for reasons that include the fact they're not on the latter's "prohibited fees" list, Onity also noted that they were voluntary and avoidable payments.

"The one-time payment methods at issue are purely optional and, prior to making a payment, PHH discloses to the borrower the fee amount as well as other payment methods available that do not impose a fee," the company stated. "In order to avoid the further distraction and expense of further regulatory engagement with HUD, we have concluded that it is in the best interest of the related borrowers and our stakeholders to resolve this matter.  We look forward to continuing our productive relationship with HUD going forward."

Almost $3.47 million in reimbursements are set to go to 51,500 borrowers for 490,000 transactions between May 2021 and February 2023, when the fees ended. There also will be a $246,000 administrative payment to HUD accounts.

Reimbursement will take the form of a credit for borrowers PHH still provides servicing for, or a check sent to those that are no longer customers.

HUD warned it will be pursuing other mortgage companies who charged similar fees as well.

PHH's parent company, which was previously known as Ocwen and recently rebranded as Onity, also has been battling borrower allegations that fees charged for online and phone payments were improper in a private legal action.

In that case, plaintiffs alleged the fees run counter to prohibitions in the Fair Debt Collection Practices Act, "unless such amount is expressly authorized by the agreement creating the debt or permitted by law."

(HUD's settlement involved alleged violations of FHA requirements "because accepting and processing mortgage payments is considered part of a mortgagee's ordinary servicing activities for which it is already paid.")

Onity has asserted in court documents that the FDCPA does not apply to what the company's legal representatives have characterized as optional payments because the debt and such payments are "incidental" to each other.

An amicus brief the CFPB filed previously took issue with Ocwen's description of its fees as voluntary given that consumers don't choose their servicers and the fee-for-service payment options weren't disclosed at origination, when borrowers could shop among different companies.

Whether the legislation prohibits such fees could have broader importance to the extent it applies to other similar legal disputes in the industry.

Other mortgage companies that have faced litigation over what the Consumer Financial Protection Bureau has called "junk fees" in recent years include Bank of America, which also charged fees for phone and online payments; and Mr. Cooper, which has faced a lawsuit related to expedited payoff quotes.

The industry has been watching legal and regulatory developments around "pay-to-pay" charges closely amid speculation the incoming Trump administration will scale back the Consumer Financial Protection Bureau, which has sided with consumer plaintiffs.