PHH Mortgage Corporation and its affiliate, PHH Home Loans LLC, have agreed to pay a $28 million fine and engage a third-party auditor for a 12-month period under a consent order entered into with the New York Department of Financial Services (DFS), Governor Andrew M. Cuomo has announced. The consent order follows a series of DFS examinations dating back to 2010 that revealed repeated deficiencies in the companies’ mortgage origination and servicing practices, including discrepancies relating to the documentation and processing of mortgage foreclosures. PHH Mortgage and PHH Home Loans are principally located in Mount Laurel, N.J. PHH Mortgage is a wholly-owned subsidiary of PHH Corporation, which is a publicly-traded company incorporated in Maryland.
DFS examinations. According to the order, multistate and DFS examinations revealed discrepancies in the companies’ origination of mortgage loans, including failing to give borrowers accurate good faith estimates on loans, imposing greater fees on unsuspecting borrowers at closings and, in some instances, failing to provide documentation showing that borrowers received agreed-to discounts. The examinations also showed that:
- PHH Mortgage lacked formal and comprehensive policies and processes for executing foreclosure-related documents;
- PHH Mortgage did not adequately monitor the operations of outside vendors it had engaged to perform mortgage servicing related tasks, including foreclosure attorneys;
- PHH Home Loans failed to establish adequate controls to prevent mortgage loan originators employed by one PHH entity from originating loans in another PHH entity’s name, or to prevent employees whose mortgage loan originator licenses had expired or been withdrawn from taking loan applications;
- PHH Home Loans lacked adequate controls to ensure that electronic signatures appearing on loan applications were those of the mortgage loan originators who actually took the application from the borrower; and
- PHH Home Loans’ mortgage loan originator compensation plan failed to prevent against steering borrowers into risky or unnecessarily high-cost loans or basing a mortgage loan originator’s compensation on the terms of the particular loan brokered.
Persistent deficiencies. Additional DFS examinations found that deficiencies in PHH Mortgage’s business practices persisted. According to the DFS: (1) unlicensed individuals were allowed to originate mortgage loans; (2) PHH Mortgage failed to retain copies of required pre-application disclosures to some customers; and (3) some consumers failed to receive discounted rates they had been promised. Moreover, in January 2016, PHH Mortgage disclosed it had improperly assessed $1.2 million in attorneys’ fees against New York borrowers in default as a result of a coding error in an automated invoice processing system that was initially discovered in 2014. PHH has represented to the Department that it has made full financial restitution to borrowers affected by this error, the order stated.
Corrective actions acknowledged. The DFS acknowledged that a 2014 examination found that PHH Mortgage had taken substantial steps to improve its servicing operations, including: (1) outsourcing its internal audit function; (2) implementing comprehensive compliance policies and procedures; and (3) addressing all issues raised in complaint files. The DFS further noted improvement in the company’s Legal and Regulatory Compliance function. However, “these improvements were insufficient to bring PHH Mortgage into material compliance with federal and state law,” the order said.
Auditor. The independent third-party auditor, which must be approved by the DFS, will be responsible for verifying the identity of borrowers impacted by other improper closing costs so PHH can make refunds to those consumers. The auditor will also review PHH’s business practices to ensure compliance with mortgage origination and servicing laws and regulations.
PHH response. In a statement issued by PHH Corporation following the settlement announcement, the company said it “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.” The company further emphasized its efforts in improving servicing operations “[a]s acknowledged by the DFS in the agreement,” adding that the “enhancements are part of [its] ongoing investments in compliance, technology, process management, and oversight infrastructure.”
