CFPB Targets Mortgage Servicer ‘Junk Fees’

America’s consumer finance watchdog is targeting “junk fees” in the mortgage industry.

The Consumer Financial Protection Bureau (CFPB) published findings Wednesday (April 24) showing that mortgage servicers — the companies responsible for processing mortgage payments — had charged illegal fees, sent deceptive notices to homeowners and violated loss mitigation rules that help struggling borrowers keep their homes.

“Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees,” said CFPB Director Rohit Chopra. “Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”

According to the CFPB, the bureau’s findings when investigating the sector include the discovery of mortgage servicers charging homeowners unauthorized fees for things like property inspections and late fees that exceeded amounts on their loan agreements. 

The bureau also found that during “COVID-19, many servicers used a streamlined process to determine repayment options for struggling homeowners. Some servicers failed to waive late fees and penalties, as required.”

In addition, the CFPB says some servicers had failed to properly evaluate homeowners for loan repayment options, and in some cases sent “homeowners false notices saying that they had missed payments and should apply for repayment options.”

Earlier this month, the CFPB said it was monitoring the increasing payment of “discount points” by homebuyers and the risk this could present to consumers. 

The regulator said the percentage of homebuyers who paid discount points doubled from 2021 to 2023, with this increase even larger among consumers who have lower credit scores.

While 65% of Federal Housing Administration borrowers have paid discount points, that figure climbed to 77% for borrowers with credit scores below 640.

“Higher interest rates on mortgages have led buyers to pay upfront fees to lower their interest payments,” Chopra said at the time. “The heavy use of ‘discount points’ suggests that many borrowers are uncertain about their ability to refinance in the future.”

Meanwhile, research by PYMNTS Intelligence and PSCU has found that consumers are actively seeking out better deals on mortgages and other credit products.

Interest rates and payment terms are the biggest factors for consumers when choosing a financial institution (FI), and they are the chief reasons for account holders to search for another FI with better offerings, according to the study “How Credit Product Rates Impact FI Selection.”

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