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.

HousingWire‘s Reverse Mortgage Daily (RMD) reached out to NOVAD, and a person who answered the phone said the company had no comment.

Following this story’s publication, a Sutherland representative reached out to RMD and provided a statement explaining that it reached a voluntary agreement with the CFPB regarding work it performed as a subcontractor for NOVAD.

“NOVAD was a prime contractor that entered into a series of contracts with [HUD] to provide loan servicing support for reverse mortgages and other mortgages. Sutherland was hired as a subcontractor by NOVAD to provide specified, limited support services,” the statement read.

“Under the subcontract, Sutherland was not directly responsible for the reverse mortgage servicing conduct that is the subject of the CFPB agreement. HUD controlled all aspects of the reverse mortgage servicing and communicated only with NOVAD. Sutherland had no direct access to HUD guidelines, the HUD servicing system, borrower communications, or the borrower files.”

As a result, Sutherland “disagrees with the CFPB findings and denies the CFPB’s allegations.”

The company “agreed to enter into the Consent Order despite NOVAD’s inability to pay,” which Sutherland says it verified based on a review of NOVAD’s financial statements and tax records belonging to a leading executive.

“Settling this issue allows Sutherland to close this matter on a subcontract that ended in 2022 so that it could focus on continuing to support its customers through industry-leading innovation and delivering high-quality digital solutions,” the company added.

Reverse mortgage industry educator and Understanding Reverse author Dan Hultquist offered perspective when reached by RMD.

“Many reverse mortgage professionals take pride in their work. Some even consider it a ministry, changing the quality of a homeowner’s retirement and giving them peace of mind as they age in place,” he said. “So, when a homeowner or their heirs have a negative experience with reverse mortgage servicing, it becomes more challenging to help other homeowners.

“NOVAD’s failure to properly service HUD-assigned reverse mortgages damaged the reverse mortgage industry. However, the move to assign the HUD servicing contract to Compu-Link was a great start to fixing it. The reverse mortgage community has also made efforts over the last two years to rebuild trust.”

Editor’s note: This story has been updated with a statement from Sutherland Global.

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