Citigroup Getting Out Of Servicing Following CFPB Action
A little over a week after the Consumer Financial Protection Bureau (CFPB) announced that it was fining two Citibank mortgage servicing units – CitiFinancial Servicing and CitiMortgage Inc. – for “giving the runaround to struggling homeowners seeking options to save their homes,” Citigroup Inc. announced in late January that it plans to exit the mortgage servicing business by the end of 2018.
In its complaint against CitiFinancial Servicing and CitiMortgage Inc., the bureau alleges that the mortgage servicing companies “kept borrowers in the dark about options to avoid foreclosure or burdened them with excessive paperwork demands in applying for foreclosure relief.”
As a result, the CFPB is fining CitiMortgage $3 million and is requiring the servicer to pay about $17 million in compensation to wronged consumers. In addition, it is requiring CitiFinancial Services to pay a $4.4 million fine and to refund approximately $4.4 million to consumers.
“Citi’s subsidiaries gave the runaround to borrowers who were already struggling with their mortgage payments and trying to save their homes,” says Richard Cordray, director of the CFPB, in a release. “Consumers were kept in the dark about their options or burdened with excessive paperwork. This action will put money back in consumers’ pockets and make sure borrowers can get help they need.”
The CFPB says when struggling borrowers who contacted CitiFinancial Servicing requesting assistance were offered deferments, however, the firm failed to offer them foreclosure relief options, as required under the CFPB’s mortgage servicing rules.
By omitting this information, the servicer kept “consumers in the dark about foreclosure relief options,” the CFPB says.
“When borrowers applied to have their payments deferred, CitiFinancial Servicing failed to consider it as a request for foreclosure relief options,” the bureau says in a release. “As a result, borrowers may have missed out on options that may have been more appropriate for them. Such requests for foreclosure relief trigger protections required by CFPB mortgage servicing rules. The rules include helping borrowers complete their applications and considering them for all available foreclosure relief alternatives.”
CitiFinancial Servicing is also accused of misleading consumers about the impact of deferring payment due dates. Specifically, the bureau says CitiFinancial Servicing “misled borrowers into thinking that if they deferred the payment, the additional interest would be added to the end of the loan rather than become due when the deferment ended.”
“In fact, the deferred interest became due immediately,” the bureau says in its release. “As a result, more of the borrowers’ payment went to pay interest on the loan instead of principal when they resumed making payments. This made it harder for borrowers to pay down their loan principal.”
CitiFinancial Servicing is also accused of charging consumers for credit insurance that should have been canceled or prematurely canceling that credit insurance for some borrowers.
In addition, the CFPB says the firm sent inaccurate consumer information to credit reporting companies – specifically, it is accused of incorrectly reporting some settled accounts as being charged off.
CitiFinancial Servicing is further accused of failing to investigate consumer disputes about incorrect information sent to credit reporting companies within the required time period. “In some instances, the servicer ignored a ‘notice of error’ sent by consumers, which should have stopped the servicer from sending negative information to credit reporting companies for 60 days,” the CFPB says.
CitiMortgage is accused of requiring borrowers who had asked for assistance to send “dozens of documents and forms that had no bearing on the application or that the consumer had already provided,” the bureau says.
“Many of these documents had nothing to do with a borrower’s financial circumstances and were actually not needed to complete the application,” the bureau says. “Letters sent to borrowers in 2014 requested documents with descriptions such as ‘teacher contract’ and ‘Social Security award letter.’ CitiMortgage sent such letters to about 41,000 consumers.”
As a result, CitiMortgage violated the Real Estate Settlement Procedures Act, as well as the Dodd-Frank Act’s prohibition against deceptive acts or practices, the CFPB says.
Just about a week after the CFPB took action, Citigroup announced its intention to sell off its mortgage servicing rights and get out of the servicing business completely.
To help it make the transition, Citi announced that New Residential Investment Corp. has agreed to buy the mortgage servicing rights on a portfolio of Fannie Mae- and Freddie Mac-backed loans with about $97 billion in unpaid principal balance for about $950 million.
In addition, Citi has reached a deal with Cenlar FSB to service its remaining mortgages. The bank plans to transfer the rights for those loans beginning in 2018.
The sale to New Residential, which is subject to regulatory approval, is expected to be complete in the first half of this year.
Citi says in a statement that the agreements will reduce pretax results by about $400 million in the current quarter. Expense benefits will start to accrue in 2018.
“The strategic action is intended to simplify CitiMortgage’s operations, reduce expenses and improve returns on capital,” the bank says in its statement.
Citi has agreed to pay $28.8 million to settle the allegations brought by the CFPB.
According to Citi’s fourth-quarter earnings statement, its total mortgage servicing rights portfolio was worth about $1.6 billion as of the end of last year – down from $6.5 billion at the end of 2009.
Black Knight: ‘Tappable’ Equity Continues To Grow
Due to rising home prices, about 1 million more homes in the U.S. returned to positive equity positions over the first three quarters of 2016, according to Black Knight Financial Services’ Mortgage Monitor report.
As of the end of November, more than 39 million homeowners had “tappable” equity in their homes, meaning they had current combined loan-to-value ratios of less than 80%, according to the report.
In total, these U.S. homeowners had about $4.6 trillion in tappable equity, which is within 6% of the peak seen in 2006.
Only about 2.2 million homeowners – or about 4.4% of all homeowners with a mortgage – were in negative equity, which is the fewest since early 2007, according to Black Knight’s data.
The report shows that homes in the bottom 20% by price are nine times more likely to be underwater than those in the top 20%.
As Ben Graboske, executive vice president of Black Knight’s data and analytics division, explains, there is a distinct geographical component at work with regard to both the negative and the tappable equity sides of the equation.
“The negative equity situation has improved substantially since the height of the Great Recession,” Graboske says in a release. “There are now just 2.2 million homeowners left in negative equity positions – a full 1 million fewer than at the start of 2016. Whereas negative home equity was once a widespread national problem – with roughly 30 percent of all homeowners being underwater on their mortgages at the end of 2010 – it has now become much more of a localized issue.
“By and large, the majority of states have negative equity rates below the national average of 4.4 percent,” Graboske says. “There are, though, some pockets where homeowners continue to struggle. Three states in particular stand out: Nevada, Missouri and New Jersey, all of which have negative equity rates more than twice the national average. Atlantic City leads the nation, with 23 percent of its borrowers underwater, followed by St. Louis at 20 percent. We also see that lower-priced homes – those in the bottom 20 percent of prices in their communities – are nine times more likely to be underwater than those in the top 20 percent.
“On the other hand, we’ve also seen a steady increase in the number of borrowers with tappable equity in their homes, meaning they have current combined loan-to-value ratios of less than 80 percent,” he adds. “There are now some 39 million such borrowers, with a total of $4.6 trillion in available, lendable equity. That works out to an average of about $118,000 per borrower, making for the highest market total and highest average per borrower we’ve seen since 2006.”
However, Graboske points out that homeowners are tapping into their equity less than they used to during the pre-crisis years. Although total equity tapped via first-lien refinances hit a seven-year high of more than $70 billion over the first three quarters of 2016, it was still less than 2% of available equity to be tapped.
RoundPoint Inks Deal To Service Assets Acquired By Point
In yet another sign of growing diversification among mortgage servicing companies, RoundPoint Mortgage Servicing Corp. recently signed an agreement to manage assets acquired by Point, a financial technology platform that allows homeowners to, in essence, sell a piece of their homes.
Point gives qualifying homeowners a fractional interest in their properties in exchange for a tax-deferred lump sum without interest rates or monthly payments. Within 10 years, the homeowner exits the agreement by either selling his or her home or buying out Point.
Investors, meanwhile, can buy fractional interests in owner-occupied residential real estate via the Point platform.
“This type of innovation is critical to the continued growth of the housing market,” says Kevin Brungardt, CEO of RoundPoint Mortgage Servicing, in a release. “We are delighted to have been selected as Point’s servicer, and we are looking forward to a long and successful relationship.”
“As demand for our product continues to grow, it is clear that both the extent and diversity of RoundPoint’s asset management expertise make it the perfect partner for our unique product,” adds Eddie Lim, CEO of Point. “RoundPoint shares our mission to align our interests with homeowners and provide homeowners with a simple, fast and efficient experience, and our partnership enhances our ability to do just that.”
Elissa Kline, product manager for Point, says RoundPoint’s up-to-date technology infrastructure was a plus when it came time for integration.
Mortgage Servicing Software Segment Forecast To Grow 14.19% By 2021
It’s well known that mortgage servicers have been playing catch-up in recent years, in terms of deploying new contact center and customer service software, but just how much will the mortgage servicing software market grow over the next four years?
According to a report from Pune, India-based research aggregator ReportsNReports.com, the global loan servicing software market will witness a compound annual growth rate of 14.19% from 2017 through 2021.
This is mostly due to the emergence of software-as-a-service (SaaS)-based loan servicing software, which is faster and less expensive to deploy, the firm finds in its 62-page report. It also helps servicers better manage compliance.
“The market share of SaaS-based loan servicing software is likely to increase by 2021 because of its lower implementation cost than on-premises loan servicing software,” the firm says in a release. “SaaS-based loan servicing software enables loan originators to manage the entire lending cycle, from origination to maturity, from any location with a secure Internet connection. SaaS-based loan servicing software is cost-effective, as the installation and maintenance of such solutions does not require any extra cost.”
Key players in the global loan servicing market that are mentioned in the report include FICS, Fiserv, Mortgage Builder, Nortridge Software and Shaw Systems Associates.
Other prominent vendors in the market include Altisource Portfolio Solutions, Applied Business Software, AutoPal Software, Black Knight Financial Services, Cassiopae, C-Loans, Cloud Lending, DownHome Solutions, Emphasys Software, FIS, Grants Management Systems, Graveco Software, IBM, Integrated Accounting Solutions, ISGN, Loan Servicing Soft, Misys, NBFC Software, Nucleus Software, Oracle, PCFS Solutions, Simnang, and Sopra Banking Software.