CFPB outlines issues with illegal ‘junk fees’ by mortgage servicers

The Consumer Financial Protection Bureau (CFPB) on Wednesday released a special edition of its Supervisory Highlights report that profiles “unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets,” including among mortgage servicers.

“For years, junk fees have been creeping across the economy,” said CFPB Director Rohit Chopra. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”

A November 2022 Supervisory Highlights report described how “illegal fees [are] being charged in the mortgage servicing market,” which led to an enforcement action against a mortgage lender for what the CFPB called “improper” forbearance practices.

“CFPB examiners have identified old and new ways that mortgage servicers attempt to run-up unlawful fees that are charged to homeowners,” the CFPB said in its announcement of the latest report.

These include excessive late fees and fees for unnecessary property inspections.

“Mortgage servicers charged the top late fee amount allowed by relevant state laws, even when homeowners’ mortgage contracts capped late fee amounts below state maximums,” the CFPB said.

The CFPB also described its findings related to unnecessary property inspection fees, stating that mortgage servicers charged consumers between $10 and $50 “for every property inspection visit to addresses that were known to be incorrect.

According to the CFPB, “servicers continued to pay inspectors to go to the known incorrect addresses and continued to charge consumers for those visits.”

Servicers also collected money for fake private mortgage insurance (PMI) premiums that homeowners did not owe in their monthly statements, the CFPB said.

In addition, the CFPB found that servicers failed to waive fees for some homeowners entering loss mitigation options, in particular those outlined under the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law in 2020.

“CARES Act mortgage forbearance covered not only a mortgage’s principal and interest but also stopped servicers from charging late fees during the period of forbearance,” the CFPB said. “The Department of Housing and Urban Development (HUD) put further protections in place for homeowners that exited forbearance and went into permanent COVID-19 loss mitigation options, including waiving certain fees or other charges that accrued outside of forbearance periods.”

But CFPB examiners found that some mortgage servicers failed to adhere to the additional protections outlined by HUD and had charged homeowners late charges, fees and other penalties that should have been waived instead.

“Failure to waive the late charges, fees, and penalties constituted substantial injury to consumers,” the report states. “This injury was not reasonably avoidable by consumers because they had no reason to anticipate that their servicer would fail to follow HUD requirements, and consumers lacked reasonable means to avoid the charges. This harm outweighed any benefit to consumers or competition.”