Fitch Ratings [1] has recently released a new residential loan servicer rating for Flagstar Bank [2], the fifth largest national originator in the U.S. compared to other residential mortgage-backed originators. Fitch has listed Flagstar as average. The new rating comes nearly three years after Flagstar was fined a total of $37.5 million by the Consumer Finance Protection Bureau (CFPB) relating to illegal loss mitigation practices.
Ratings are based on six main principles and are listed on a four-tiered scale: above average, average, below average, and fail. The principles consist of: corporate governance, managed growth, systems and process enhancements, support of the parent company, experience of the senior management team, and continued performance versus increased cost.
The new rating comes in the wake of Flagstar’s compliance with a September 2014 fine by the CFPB and for illegally blocking borrowers’ attempts to save their homes once they entered the foreclosure process. CFPB, in an official release, found that, “At every step in the foreclosure relief process, Flagstar failed borrowers. The bank took excessive time to process borrowers’ applications for foreclosure relief, failed to tell borrowers when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications.”
It was further found that the bank closed borrower applications due to its own delays in processing, which resulted in applications to expire. It also miscalculated income, which resulted in denial for otherwise qualified borrowers.
As a result, the Flagstar was fined $10 million and ordered to repay effected borrowers $27.5 million dollars in restitution. CFPB’s investigation found that infringement on the bureau’s servicing rules lasted from 2011 to Q3 of 2014. In 2011 alone there were 13,000 loss mitigation applications with only 25 full-time employees and a third-party vendor located out of India assigned to them.
The Comptroller of Currency ordered Flagstar implement industry best practices relating to regulatory compliance and enterprise risk management. The order was lifted on December 19, 2016. Fitch Ratings has found that the bank has satisfied all outstanding deficiencies.
Flagstar will continue to be monitored by the CFPB until 2019.