Most headlines about the Real Estate Settlement Procedures Act discuss unlawful kickbacks. But that law also imposes requirements on mortgage servicers. A recent class-action settlement against Ocwen Loan Servicing shows the dangers of non-compliance.
In the case, Messineo v. Ocwen Loan Servicing, a borrower alleged that he routinely paid extra on his home mortgage and that Ocwen botched the processing of his payments. Instead of immediately crediting the excess to his principal, as his note required, Ocwen temporarily put the money into a “suspense account,” where it languished. Messineo contacted Ocwen in writing about the improper delay (making a “qualified written request”), but the servicer failed to fix the problem. All of that supposedly resulted in Ocwen violating the Truth-in-Lending Act and RESPA.
Messineo offers a number of important take-aways. First, unlike the section of RESPA dealing with kickbacks, the RESPA section involving mortgage servicing (Section 6) expressly allows class actions. (!!!) But the maximum liability is capped at $1 million—a lot of money, to be sure, but not enough to bankrupt most servicers. The Messineo class settled for the bargain-basement price of $800,000.
Second, Ocwen did actually have a problem in processing excess mortgage payments, so it was not completely innocent. The problem arose from a factor that can easily derail even strong compliance programs: a routine software update for the program that handles its mortgage payments. That just goes to show you how easy it is for a new defect to occur and then skate by unnoticed.
Third, the class notice generated only a 10% participation rate, which is actually high according to traditional norms. It used to be that low take-rates in class actions were the settling parties’ dirty little secrets, which would allow large payments for attorneys fees and small payments on liability. But courts have since caught on to the trick. The parties in Messineo veered around that type of trap by allowing payments to all class members, with extra money going to those few who made claims.