PHH Corp. has agreed to pay a $28 million fine to the New York Department of Financial Services to settle allegations its servicing and origination units mistreated borrowers.
Among the accusations leveled against Mount Laurel, N.J.-based PHH is that it was improperly charging attorney fees totaling $1.2 million to borrowers whose loans were in default. PHH first discovered this error in June 2014, but did not report it to New York State regulators for 18 months. PHH has already made restitution to the affected borrowers, NYDFS said in a press release.
PHH was also accused of lacking oversight over its third-party vendors. "The company relied on approximately 95 outside vendors to perform important servicing-related tasks, yet it failed to establish internal controls or proper management oversight to monitor the operations of its vendors. This lack of sufficient oversight extended to outside foreclosure attorneys," the settlement agreement stated.
In its third-quarter earnings released on Nov. 8, PHH said this
The problems were first uncovered in a 2010 examination conducted by the Multistate Mortgage Committee, a group of state regulators that conduct regulatory examinations of companies like PHH who are licensed in more than one state.
That examination uncovered problems with PHH's document retention practices for borrowers in default or face foreclosure.
Regulators found illegible mortgage assignments, which called into question if those documents were authentic.
In 2011 there was an examination of PHH Mortgage's origination activities, where regulators found that unlicensed individuals originated loans between June 2009 and February 2011. In some instances, loan officers who worked for its separately licensed joint venture with Realogy, PHH Home Loans, originated on behalf of PHH Mortgage even though they were not employed by that company.
Plus, PHH could not show that security measures were in place to ensure the electronic signatures on the applications were for the individual who took the application.
A 2012 examination found that PHH Mortgage employees were originating loans in PHH Home Loans' name. Furthermore, one former PHH Home Loans LO was listed on an application taken two weeks after his license had been withdrawn.
The PHH Home Loans exam also found issues with the electronic signature on applications.
It also found that PHH Home Loans' compensation plan failed to prevent LOs steering borrowers into high-cost loans or basing their compensation on the terms of the particular loan brokered.
Finally there was an unscheduled 2014 examination of PHH Mortgage's servicing operation that still found weaknesses in internal controls at the company, including in the onboarding process of past-due loans, and loans that were in loss mitigation, bankruptcy or foreclosure.
Besides the fine, PHH agreed to hire a third-party auditor to review origination and servicing practices at both PHH Mortgage and PHH Home Loans. The auditor will look for compliance with the Truth-in-Lending Act, as well as New York State banking law.
Plus the auditor will determine if any additional restitution to borrowers is needed.
“We have agreed to resolve concerns raised by the DFS arising from legacy servicing and origination examinations conducted between 2010 and 2014 in order to avoid the distraction and expense of litigation. While we provided detailed responses to the examination findings and worked cooperatively with the DFS on this matter, we concluded that settling these matters is in the best interest of PHH and its constituents,” the company said in a separate press release.
