In recent months many factions of the financial industry have been penalized for the participation in the mortgage crisis of 2008, but in recent news the Consumer Financial Protection Bureau has narrowed its scope and taken aim at the mortgage servicing firms who play a large role in whether struggling individuals either lose their home or receive extra time to rectify their situations.
In its first act of enforcement under new mortgage servicing rules that began this year, the consumer financial regulatory bureau and Flagstar bank reached a $37.5 million settlement because of accusations the bank prevented thousands of people from accessing tools that would have helped them escape foreclosure. Flagstar has been accused of withholding information from clients, stringing clients along for months, then wrongfully denying them loan modifications, they also failed to inform clients that documents critical to the approval of their modifications were needed. Richard Cordray, the director of the consumer protection bureau said “Flagstar took excessive time to process borrowers’ applications, did not tell them when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications”
One of the biggest concerns generated from this situation is the lack of options or even community oriented departments in these large financial institutions, focused on helping clients find the best option. Here in the District we have an opportunity to provide an incentive to some of these financial institutions. The Community Development Act of 2013 would incentivize more community development from financial institutions, by evaluating their community development plans and factoring those evaluations into which banks secure financial contracts with the city. This latest settlement by Flagstar shows our financial institutions need a little push in the right direction; a Responsible Banking Ordinance seems like the perfect start.