On December 18, 2020, the CFPB announced a consent order with Seterus, Inc. (Seterus), and its successor-in-interest, Kyanite Services, Inc. (Kyanite), based on findings of mortgage servicing violations.
The consent order alleges the following violations by Seterus while it was in operation:
- Unfair acts or practices for failing to accurately review, process, track, and communicate to borrowers information regarding their loss mitigation applications;
- Deceptive acts or practices by sending loss mitigation application acknowledgement notices that (1) misrepresented the status of borrower application documents as received or missing, and (2) provided inaccurate due dates for submission of borrower application documents;
- Violations of the loss mitigation rules in Regulation X (12 C.F.R. § 1024.41) by:
- Sending acknowledgment notices that failed to state the additional documents and information borrowers needed to submit to complete their loss mitigation applications;
- Failing to provide a reasonable due date for submission of borrower documents;
- Failing to exercise reasonable diligence in obtaining documents and information necessary to complete borrowers’ loss mitigation applications;
- Failing to properly evaluate borrowers who submitted complete loss mitigation applications for all loss mitigation options available to the borrower; and
- Failing to treat certain applications as “facially complete” when required under Regulation X.
Specifically, the consent order states that Seterus automated its loss mitigation application and acknowledgment notice process, including its process for tracking documents received from borrowers and for generating and populating the resulting acknowledgement notices. Seterus also contracted with a third party vendor that would process the loss mitigation documents received from borrowers, and convey the relevant information from those documents to Seterus, for purposes of populating the acknowledgment notices.
Acknowledgment notices were generated, and populated with information conveying to the borrower what documentation was received, what documentation was still required, and a due date by which any such missing document should be submitted in light of the milestones required in Regulation X. The consent order alleges that the vendor used by Seterus made numerous errors in extracting data from documents received from borrowers, and transmitting that data to Seterus. That erroneous data was used to populate these field in the acknowledgment notices. In addition, the consent order alleges that coding used by Seterus, to ensure its systems communicated properly with its vendor, led to further errors. As a result, the consent order alleges that Seterus issued thousands of acknowledgement notices containing one or more errors.
The CFPB alleges that the resulting acknowledgement notices conveyed incorrect information regarding outstanding loss mitigation documentation, applicable due dates for outstanding documentation, and treatment of borrower applications, that in some cases compromised the foreclosure protections available to borrowers under Regulation X. As an example, the consent order states that, in certain instances, borrowers were provided a due date for providing missing loss mitigation application information, but a foreclosure sale occurred prior to that due date listed in the acknowledgment notice.
The consent order also alleges that Seterus failed to properly evaluate borrowers for all available loss mitigation options. Specifically, the CFPB states that Seterus’s loss mitigation process did not allow borrowers to be reviewed simultaneously for both retention and liquidation loss mitigation options, as required by Regulation X. For example, the order states that if a borrower failed to indicate a preference for either retention or liquidation, or if a borrower requested to be reviewed for both categories at the same time, Seterus treated the application as incomplete and required the borrower to state a preference.
Further, the CFPB claims that borrowers who indicated a preference for a retention option were not reviewed for any liquidation options unless they were first denied for all retention options and then subsequently requested a liquidation review. Conversely, borrowers who indicated a preference for a liquidation option were not reviewed for any retention options unless they submitted a new loss mitigation application requesting a retention option.
Finally, the consent order alleges that Seterus did not treat loss mitigation applications seeking a liquidation option as “facially complete” (i.e., the borrower had provided all information requested at that point in a loss mitigation acknowledgment letter), even when the applications met the requirements for that treatment under Regulation X. Therefore, borrowers were deprived of the Regulation X foreclosure protections that are triggered by a “facially complete” application.
The consent order requires Kyanite, the successor-in-interest to Seterus, to pay consumer redress of $4,932,525 and a civil money penalty of $500,000. The consent order also includes injunctive relief that would apply in the event Kyanite engages in mortgage servicing.