CFPB takes enforcement action against former HECM servicing contractor

The Consumer Financial Protection Bureau (CFPB) on Tuesday announced a series of enforcement actions against two companies for what the bureau called “illegal activities that harmed older homeowners and caused them to fear losing their homes.”

The actions were taken against Pittsford, New York-based Sutherland Global and Landover, Maryland-based NOVAD Management Consulting, which together formed a Home Equity Conversion Mortgage (HECM) servicing operation on behalf of the U.S. Department of Housing and Urban Development (HUD).

NOVAD, which held the HUD HECM servicing contract for assigned loans from 2014 to 2022, worked with Sutherland to form the HECM loan servicing operation on behalf of HUD. But the bureau alleges that the companies did not maintain adequate staffing to handle as many as 150,000 borrowers per year, which the government claims led to neglect for (and fear from) the senior borrowers they were contracted to serve.

“This caused systematic failures to respond to thousands of homeowner requests for assistance, and caused financial harm to borrowers, including losing out on home sales and paying unnecessary costs,” the bureau explained.

Under federal law, mortgage servicers are required to respond to consumers in a timely manner, a requirement that has added importance for reverse mortgage borrowers, the bureau stated.

“That requirement is important to protect reverse mortgage borrowers, who remain responsible for property taxes, insurance, and other applicable fees and assessments,” the CFPB stated. “However, many borrowers could not get in contact with anyone at the loan servicing operation. In fact, the companies systematically failed to respond to thousands of homeowner requests for loan payoff statements, short sales, deeds-in-lieu of foreclosures, lien releases, and requests for general information.”

Due to the lack of response, the companies “allowed problems to fester to critical points,” including many borrowers who feared displacement through a foreclosure. The companies “hang[ed] homeowners out to dry” by preventing HECM borrowers from fulfilling their annual occupancy requirement, obtaining loan payoff statements and finding foreclosure alternatives, the bureau said.

Communication failures also caused homeowners to be falsely told they were in foreclosure when that was not the case, the CFPB added.

“The companies sent false repayment letters to older adult homeowners stating that their reverse mortgage loans were due and must be paid within 30 days due to a default condition, when no such trigger event had occurred,” the CFPB explained. “The companies would then improperly ignore attempts by reverse mortgage borrowers to address and correct the ‘due and payable’ letters.”

The enforcement order bans Sutherland Global — and its subsidiaries Sutherland Government Solutions and Sutherland Mortgage Services — as well as NOVAD from “engaging in reverse mortgage activities, imposes strict compliance requirements on future reverse mortgage activities of Sutherland Mortgage Services, requires the Sutherland companies to pay $11.5 million in redress to affected consumers, and requires all companies to pay a civil penalty of approximately $5 million, which will be deposited in the CFPB’s victims relief fund.”

NOVAD’s fine, however, is limited to $1.

“Due to NOVAD’s declaration of an inability to pay, the order requires NOVAD to pay $1 to the CFPB’s victims relief fund,” the announcement stated. “By requiring NOVAD to pay at least $1 in penalties, the CFPB can make consumers eligible for additional relief from the CFPB’s victims relief fund in the future.”

CFPB Director Rohit Chopra characterized the actions leading to the enforcement orders as stemming from a neglectful attitude.

“Sutherland and NOVAD were unprepared to support the hundreds of thousands of older homeowners whose reverse mortgages the defendants were responsible for,” Chopra said in a statement. “The defendants ignored complaints and calls for help, and they let problems snowball into disasters. Older homeowners did not choose Sutherland and NOVAD as their reverse mortgage servicer, and the CFPB is holding these defendants accountable for their unlawful neglect.”

Celink was awarded the HECM servicing contract in 2022. NOVAD filed a protest in June of that year, but Celink assumed the contract in December.

Representatives for Sutherland could not be immediately reached for comment. A person who answered the phone number listed for NOVAD said the company had no comment.