Mortgage Servicing Examination/Investigation Presented by: Michael Jackson, Maryland James Payne, Kansas Elliott D. Purty, Michigan

Mortgage Servicing Mortgage Servicing Examination/InvestigationExamination/Investigation

Presented by:Presented by:Michael Jackson, MarylandMichael Jackson, Maryland

James Payne, KansasJames Payne, KansasElliott D. Purty, MichiganElliott D. Purty, Michigan

Mortgage Servicing WorksheetMortgage Servicing Worksheet

Type of Mortgage Loan Being ServicedType of Mortgage Loan Being Serviced

Adjustable rateAdjustable rate Investor Loan Investor Loan EscrowsEscrows Foreclosure Foreclosure Paid OffPaid Off Servicing Transferred Servicing Transferred Other _____Other _____ Name:Name: Address:Address: Loan no.:Loan no.:


Were errors or discrepancies found with regard to the Were errors or discrepancies found with regard to the following? If yes, please explain.following? If yes, please explain.

YESYES NONO N/AN/A

Determining receipt date of mortgage loanDetermining receipt date of mortgage loanpaymentpayment

Timely and proper posting of payment Timely and proper posting of payment Depositing of money in escrowDepositing of money in escrow

accountaccount “ “Hello” letterHello” letter


““Good-bye” letterGood-bye” letter Escrow account analysisEscrow account analysis Adjustment of interest rateAdjustment of interest rate Proper assessment ofProper assessment of

service chargesservice charges Foreclosure noticesForeclosure notices Notification of principalNotification of principal

balancebalance


1098 interest statements1098 interest statements Timely remittance of money toTimely remittance of money to

investorinvestor Pay-off calculationPay-off calculation AssignmentAssignment Retention of communicationRetention of communication

recordsrecords DischargeDischarge

In-depth Evaluation ofIn-depth Evaluation of Mortgage Servicing Mortgage Servicing

Application of PaymentsApplication of Payments Debt CollectionsDebt Collections Corporate Advances and FeesCorporate Advances and Fees Proper Assessment of Late FeesProper Assessment of Late Fees Proper Reporting to Consumer Reporting Proper Reporting to Consumer Reporting

AgenciesAgencies State Specific ItemsState Specific Items


State Specific ItemsState Specific Items ACH Payments and FeesACH Payments and Fees Late Fee Application (“Pyramiding”)Late Fee Application (“Pyramiding”) Contracted Fees for “Additional Services”Contracted Fees for “Additional Services” Collection Fees and ChargesCollection Fees and Charges Application of PaymentsApplication of Payments


Types of Electronic Payments & Fees Types of Electronic Payments & Fees Automatic Clearing House (ACH)Automatic Clearing House (ACH)

Monies are deducted from checking/savings Monies are deducted from checking/savings accountaccount

Phone paymentsPhone payments Internet (Web) paymentsInternet (Web) payments Western Union paymentsWestern Union payments Automatic Payment PlansAutomatic Payment Plans


Automatic Clearing House (ACH)Automatic Clearing House (ACH)

Statutory Limitations on ACH feesStatutory Limitations on ACH fees Limitation based on state specific statutes (KS=$5 Limitation based on state specific statutes (KS=$5

per pmt.)per pmt.) Limitation when conducted in connection with a Limitation when conducted in connection with a

late installment (KS=No fee allowed when late late installment (KS=No fee allowed when late payment fee also collected)payment fee also collected)

Limitation based on consumer agreement (KS=No Limitation based on consumer agreement (KS=No fee allowed when consumer agrees in writing to fee allowed when consumer agrees in writing to make all payments by this method)make all payments by this method)


Pyramiding example:Pyramiding example:(Consumer has a 15-day grace period)(Consumer has a 15-day grace period)

Pmt DatePmt Date Mo. App.Mo. App. Due DateDue Date Late FeeLate Fee

NoneNone 01/05 01/05 01/01/05 01/01/05 Assessed Assessed (Jan)(Jan)

02/05/05 02/0502/05/05 02/05 02/01/05 02/01/05 Assessed (Feb)Assessed (Feb)

03/10/05 03/0503/10/05 03/05 03/01/05 03/01/05 Assessed (Mar)Assessed (Mar)

February and March payments were made on time. Late February and March payments were made on time. Late fees should not have been assessed for February or fees should not have been assessed for February or March.March.


Charges for “Additional Services”Charges for “Additional Services”– Licensee will contract for fees in addition to those Licensee will contract for fees in addition to those

contracted for in the note (loan contract)contracted for in the note (loan contract)– Statutory limitations may prohibits additional fees Statutory limitations may prohibits additional fees

based on loan type/lien position/loan to value/etc.based on loan type/lien position/loan to value/etc.– Loans subject to KS law (by definition or made Loans subject to KS law (by definition or made

subject by agreement) must abide by subject by agreement) must abide by additional additional fees and charges limitationsfees and charges limitations set by statute set by statute


Collection Fees and ChargesCollection Fees and Charges

Property Preservation FeesProperty Preservation Fees Broker Price Opinions (BPO)Broker Price Opinions (BPO) Inspection Fees (“Drive By’s”)Inspection Fees (“Drive By’s”) Foreclosure Preservation (Maintenance on home)Foreclosure Preservation (Maintenance on home)

Other Collection FeesOther Collection Fees Attorney FeesAttorney Fees Bankruptcy CostsBankruptcy Costs Court FeesCourt Fees


Collection Fees and Charges LimitationsCollection Fees and Charges Limitations– KS law allows KS law allows reasonablereasonable costs of collection up to costs of collection up to

15% of unpaid debt after default.15% of unpaid debt after default.– KS law prohibits costs incurred by a salaried KS law prohibits costs incurred by a salaried

employee of the creditor or its assigneeemployee of the creditor or its assignee– KS law prohibits collection of KS law prohibits collection of bothboth attorney fees attorney fees

and collection agency feesand collection agency fees


Application of PaymentsApplication of PaymentsNormal payment application:Normal payment application:

PrincipalPrincipal InterestInterest Escrow (if applicable)Escrow (if applicable) Late FeeLate Fee Other FeesOther Fees

KS law requires payments to be credited as of the KS law requires payments to be credited as of the date of receipt by the licensee.date of receipt by the licensee.


Escrow Accounts & AnalysisEscrow Accounts & Analysis Transfer of Servicing AccountsTransfer of Servicing Accounts Boarding of Mortgage AccountsBoarding of Mortgage Accounts Proper Interest Calculations (P*R/12 or P*R/360*30)Proper Interest Calculations (P*R/12 or P*R/360*30) Lender/Force Placed InsuranceLender/Force Placed Insurance Proper Pay-off Calculation on MortgagesProper Pay-off Calculation on Mortgages Proper Discharging of MortgagesProper Discharging of Mortgages


Complaints and ResolutionsComplaints and Resolutions Forbearance AgreementsForbearance Agreements Customer Service & Customer StatementsCustomer Service & Customer Statements Company’s Foreclosure AreaCompany’s Foreclosure Area Customer CommunicationsCustomer Communications Record Retention of CommunicationRecord Retention of Communication

Mortgage Servicing EvaluationMortgage Servicing Evaluation

Review Internal Procedures & ControlsReview Internal Procedures & Controls Review Risk Management Practices & Review Risk Management Practices &

ProcessesProcesses Review Internal & External Audit Reports Review Internal & External Audit Reports Review & Analyze Financial StatementsReview & Analyze Financial Statements Review Policies & Board Minutes Review Policies & Board Minutes

Fairbanks Capital CorporationFairbanks Capital CorporationMaryland Case ReviewMaryland Case Review

Background:Background:– 1989, FCC originally opened its doors in 1989 with four 1989, FCC originally opened its doors in 1989 with four

employees in Park City, Utahemployees in Park City, Utah– 1997, FCC moved home office to Salt Lake City, Utah;1997, FCC moved home office to Salt Lake City, Utah;– 2000, FCC opened Hatboro, PA office;2000, FCC opened Hatboro, PA office;

Purchase servicing rights to Conti MortgagePurchase servicing rights to Conti Mortgage– 2002, FCC acquired EquiCredit, formerly owned by the 2002, FCC acquired EquiCredit, formerly owned by the

Bank of America in Jacksonville, Florida;Bank of America in Jacksonville, Florida;– 2002, FCC acquired Olympus Servicing L.P. of Austin, 2002, FCC acquired Olympus Servicing L.P. of Austin,

Texas.Texas.


FCCHatboro, Pennsylvania

FCCJacksonville, Florida

FCCAustin, Texas

Fairbanks Capital CorporationSalt Lake City Utah


Each location of FCC provides a specialized function within the Each location of FCC provides a specialized function within the organizational structure.organizational structure.

Salt Lake City LocationSalt Lake City Location Hatboro Pennsylvania Hatboro Pennsylvania LocationLocation

• • Consists of 760+ employees Consists of 760+ employees • Consists of 470+ • Consists of 470+ employeesemployees

•• Areas include:Areas include: • Areas include:• Areas include:– – Loan Resolution;Loan Resolution; – Bankruptcy; – Bankruptcy;- Cashiering;- Cashiering; – Foreclosure; – Foreclosure;

– – Escrow;Escrow; -- Skip Tracing; -- Skip Tracing; – – Data Conversion;Data Conversion; – Residential Real Estate – Residential Real Estate

Review Review -- REO (Real Estate Owned);-- REO (Real Estate Owned);

– – Management and Administration;Management and Administration;– – Investor ReportingInvestor Reporting


Each location of FCC provides a specialized function within the Each location of FCC provides a specialized function within the organizational structure.organizational structure.

Austin Texas LocationAustin Texas Location Jacksonville Florida Jacksonville Florida LocationLocation

• • Consists of 250+ employees Consists of 250+ employees • Consists of • Consists of 700+ employees700+ employees

•• Areas include:Areas include: • Areas include:• Areas include:– – ResearchResearch – Customer service – Customer service- Foreclosure Assistance- Foreclosure Assistance – Primary Collections – Primary Collections

– – Bankruptcy AssistanceBankruptcy Assistance -- Payoffs -- Payoffs – – Company Support FunctionsCompany Support Functions – Loan Administration – Loan Administration

-- Data Communication-- Data Communication -- Investor Reporting -- Investor Reporting


YEAR SERVICING VOLUME RANK.

2000 $12,033,000,000 9th

2001 $36,700,000,000 3rd

2002 $49,313,000,000 1st

Table: Growth volume of FCC over 3 years


Servicing Portfolio CompositionServicing Portfolio Composition– More than 550,000 loans, most owned by Wall street investorsMore than 550,000 loans, most owned by Wall street investors– 90% of loans serviced by FCC were securitized;90% of loans serviced by FCC were securitized;– Servicing portfolio consisted of two types of loans:Servicing portfolio consisted of two types of loans:

Sub-prime loans;Sub-prime loans; Alt-A loans.Alt-A loans.

– 79% lower grade sub-prime loans;79% lower grade sub-prime loans;– 11% Prime or high grade loans;11% Prime or high grade loans;– 10% un-securitized loans.10% un-securitized loans.– Maryland loans – 2.5% of total servicing portfolio;Maryland loans – 2.5% of total servicing portfolio;

13,800 loans outstanding13,800 loans outstanding 10,845 loans current, 1266 loans in bankruptcy, 422 loans under pre-10,845 loans current, 1266 loans in bankruptcy, 422 loans under pre-

foreclosure activity, and 291 loans foreclosed.foreclosure activity, and 291 loans foreclosed.

Fairbanks Capital CorporationFairbanks Capital CorporationMaryland’s Examination ApproachMaryland’s Examination Approach

The Examination Team targeted consumer allegations The Examination Team targeted consumer allegations received by the Commissioner of Financial received by the Commissioner of Financial Regulation in the following area:Regulation in the following area:

• • Timely posting of payments;Timely posting of payments;• • Disputed charges assessed to accounts;Disputed charges assessed to accounts;• • Accurate transfer of consumer account Accurate transfer of consumer account information information prior to loan servicing;prior to loan servicing;• • Questionable or poor customer service support;Questionable or poor customer service support;• • Questionable broker’s price opinions (BOP) Questionable broker’s price opinions (BOP) charges;charges;

• • Questionable foreclosure practices;Questionable foreclosure practices;• • Other deceptive or questionable loan servicing Other deceptive or questionable loan servicing

practices.practices.

Fairbanks Capital CorporationFairbanks Capital CorporationMaryland’s Examination ApproachMaryland’s Examination Approach

Development of The Examination ApproachDevelopment of The Examination Approach

• • Analysis of FCC’s Structure and Organizational Analysis of FCC’s Structure and Organizational Hierarchy;Hierarchy;• • Information Systems;Information Systems;• • Payment Processing;Payment Processing;• • Escrow Servicing;Escrow Servicing;• • Primary Collection and Foreclosure Practices;Primary Collection and Foreclosure Practices;

• • Permissible Fees and Other Charges;Permissible Fees and Other Charges;• • Findings on Questionable Practices and Fee Charges.Findings on Questionable Practices and Fee Charges.

Fairbanks Capital CorporationFairbanks Capital CorporationMaryland’s Examination FindingsMaryland’s Examination Findings

Violations Alleged in the Examiners FindingsViolations Alleged in the Examiners Findings

• • Fair Debt Collection Practices Act – 15 USC Section 1692; and Fair Debt Collection Practices Act – 15 USC Section 1692; and Maryland Consumer debt Collection Act, Title 14, Section 202, Maryland Consumer debt Collection Act, Title 14, Section 202, Commercial Law article, Md. Code Annotated:Commercial Law article, Md. Code Annotated:

1.1. Assessing unauthorized fees – late fees, BPOs, property Assessing unauthorized fees – late fees, BPOs, property inspections, demand letters, attorney fees;inspections, demand letters, attorney fees;

2.2. Interest charges and fees on corporate advances;Interest charges and fees on corporate advances;3.3. Harassment and abusive conduct in its contacts.Harassment and abusive conduct in its contacts.

• • The Maryland Interest and Usury Act – Title 12, Subtitle 1, The Maryland Interest and Usury Act – Title 12, Subtitle 1, Commercial Law Article, Md. Code annotated:Commercial Law Article, Md. Code annotated:

1.1. Collection of a delinquency charge not expressly authorized by the Collection of a delinquency charge not expressly authorized by the agreementagreement

Fairbanks Capital CorporationFairbanks Capital CorporationMaryland’s Examination FindingsMaryland’s Examination Findings

Violations Alleged in the Examiners FindingsViolations Alleged in the Examiners Findings

• • Unfair and Deceptive Trade Practices Act, Title 13, Section Unfair and Deceptive Trade Practices Act, Title 13, Section 303, Commercial Law Article, Md. Code Annotated:303, Commercial Law Article, Md. Code Annotated:

1.1. Questionable rolling late fee charges.Questionable rolling late fee charges.2.2. Other questionable fees:Other questionable fees:

1.1. Payoff statement fee;Payoff statement fee;2.2. Duplicate year end statement fee;Duplicate year end statement fee;3.3. Reissue escrow refund check fee;Reissue escrow refund check fee;4.4. Partial release fee.Partial release fee.

• • Real Estate Settlement Procedures Act – 15 USC Section 2605;Real Estate Settlement Procedures Act – 15 USC Section 2605;1.1. Failing to adequately acknowledge, investigate, and respond to Failing to adequately acknowledge, investigate, and respond to

consumers’ written requests regarding the servicing of their loan.consumers’ written requests regarding the servicing of their loan.

•• Questionable oversight of subcontracted entities:Questionable oversight of subcontracted entities:

Fairbanks Capital CorporationFairbanks Capital CorporationMaryland’s Consent AgreementMaryland’s Consent Agreement

Parts I through IParts I through IXX of Consent Agreement of Consent Agreement

• • Part I - Breach Fees.Part I - Breach Fees. – FCC will not assess any fee for any – FCC will not assess any fee for any demand letter sent to a defaulting borrower.demand letter sent to a defaulting borrower.

• • Part II - Broker Price Opinion Fees.Part II - Broker Price Opinion Fees. – FCC agrees to conduct an – FCC agrees to conduct an internal review and refund all BPOs assessed and collected prior internal review and refund all BPOs assessed and collected prior to the date of the agreement. Exceptions, does not apply to:to the date of the agreement. Exceptions, does not apply to:

1.1. One BPO for each loan in foreclosure initiated or One BPO for each loan in foreclosure initiated or contemplated;contemplated;

2.2. Assessed not more than once in a six month period, andAssessed not more than once in a six month period, and3.3. The agreement, note or other evidence of the loan permits.The agreement, note or other evidence of the loan permits.

• • Part III - Late Fees.Part III - Late Fees. - FCC agrees to conduct an internal review - FCC agrees to conduct an internal review and refund all late fees and collected prior to the Agreement and refund all late fees and collected prior to the Agreement that were either:that were either:

1.1. In excess of those permitted by Maryland law, orIn excess of those permitted by Maryland law, or

2.2. Not permitted by the agreement, note or other evidence of Not permitted by the agreement, note or other evidence of the loan.the loan.


Parts I through IParts I through IXX of Consent Agreement of Consent Agreement • • Part IV - Payoff Statement Fees.Part IV - Payoff Statement Fees. – FCC will not assess any fee – FCC will not assess any fee for any payoff statement requested by the borrower; except a for any payoff statement requested by the borrower; except a fee in the amount of $5 for each second and subsequent fee in the amount of $5 for each second and subsequent statement in any rolling 12-month period. Additionally:statement in any rolling 12-month period. Additionally:

1.1. Clear disclosure to all borrowers of fees for optional services Clear disclosure to all borrowers of fees for optional services or expedited delivery of statement;or expedited delivery of statement;

2.2. FCC agrees to conduct an internal review and to refund all FCC agrees to conduct an internal review and to refund all fees assessed and collected ( rolling 12-month period fees assessed and collected ( rolling 12-month period exception.)exception.)

• • Part V - Property Inspection Fee.Part V - Property Inspection Fee. – FCC agrees to conduct an – FCC agrees to conduct an internal review and refund all property inspection fees, except internal review and refund all property inspection fees, except as permitted by Maryland law.as permitted by Maryland law.

• • Part VI - Interest on Corporate Advances.Part VI - Interest on Corporate Advances. - FCC agrees to - FCC agrees to conduct an internal review and refund all interest assessed and conduct an internal review and refund all interest assessed and collected on corporate advances. Exception, the agreement, collected on corporate advances. Exception, the agreement, note or other evidence of the loan permits the fee.note or other evidence of the loan permits the fee.



• • Part VII – Collection Practices.Part VII – Collection Practices. – FCC will conduct its collection – FCC will conduct its collection practices in accordance with applicable federal and Maryland law.practices in accordance with applicable federal and Maryland law.

• • Part VIII – Timely Response to Complaints.Part VIII – Timely Response to Complaints. – FCC agrees to – FCC agrees to acknowledge and investigate:acknowledge and investigate:

1.1. All written customer inquiries and complaints within 20 business All written customer inquiries and complaints within 20 business days, and communicate resolution, including reimbursement, if days, and communicate resolution, including reimbursement, if any, within 60 days;any, within 60 days;

2.2. Cooperate with the Office of the Commissioner on all written Cooperate with the Office of the Commissioner on all written inquiries and complaints within 5 business days, and communicate inquiries and complaints within 5 business days, and communicate resolution, including reimbursement, if any, within 20 days;resolution, including reimbursement, if any, within 20 days;

3.3. Upon reasonable investigation and confirmation of the expense, Upon reasonable investigation and confirmation of the expense, reimburse the borrower within 60 days of any written complaint in reimburse the borrower within 60 days of any written complaint in which the borrower claims and document sustained actual which the borrower claims and document sustained actual expenses paid to a third party as a result of unauthorized or expenses paid to a third party as a result of unauthorized or erroneous actions taken by FCC.erroneous actions taken by FCC.



• • Part IPart IXX – Lender Placed Insurance. – Lender Placed Insurance. – FCC agrees to take – FCC agrees to take prompt corrective action, including making refunds to borrowers prompt corrective action, including making refunds to borrowers for unnecessary or excessive forced placement of insurance. for unnecessary or excessive forced placement of insurance. And further agrees to implement an audit procedure within 60 And further agrees to implement an audit procedure within 60 days of the agreement whereby:days of the agreement whereby:

1.1. All Maryland loans for which lender placed insurance was caused All Maryland loans for which lender placed insurance was caused to be purchased by FCC or its agent; andto be purchased by FCC or its agent; and

2.2. For three years, on a semi-annual basis, conduct a random For three years, on a semi-annual basis, conduct a random sampling of at least 10 percent of Maryland loans for which sampling of at least 10 percent of Maryland loans for which lender placed insurance was purchased during the preceding lender placed insurance was purchased during the preceding semi-annual period.semi-annual period.

Conclusion of ExaminationConclusion of Examination

• Recap of Conclusions & RecommendationsRecap of Conclusions & Recommendations

Documents

Mortgage Servicing Examination/Investigation Presented by: Michael Jackson, Maryland James Payne, Kansas Elliott D. Purty, Michigan