2015 MS FAQ Prohibited Conduct; Enforcement

MORTGAGE SERVICERS

 FREQUENTLY ASKED QUESTIONS

 These questions and answers constitute informal guidelines only and do not constitute legal advice or rules by DFI.  Any interpretations of Chapter 454M, HRS, are specific to the facts and circumstances in each particular situation.  Questions and answers will be updated and supplemented as DFI develops additional guidance.  Additional answers can be found using the NMLS Resource Center.

If additional guidance is required on a unique situation in your company or for yourself, you may send your inquiry via letter or email to:

Division of Financial Institutions
Department of Commerce and Consumer Affairs
P.O. Box 2054
Honolulu, HI 96805
OR
dfi-nmls@dcca.hawaii.gov

MORTGAGE SERVICER PROHIBITED CONDUCT

What conduct by a mortgage servicer is expressly prohibited?
As a general matter, no person subject to Chapter 454M, HRS, may engage in the business of mortgage servicing without a license as provided in that chapter, and without a physical presence in Hawaii, if required.  Section 454M-2(a), (b), HRS.

It is a violation of Chapter 454M for any mortgage servicer in the course of any mortgage loan transaction to fail to comply with any provision of Chapter 454M or any rule adopted pursuant to that chapter.  454M-6(b)(4).

It is a violation of Chapter 454M, HRS for any mortgage servicer to provide any mortgage loan modifications or other services that would require licensing pursuant to Chapter 454F, HRS, unless the mortgage servicer is licensed under Chapter 454F, HRS.  Section 454M-6(c), HRS.

Additionally, Section 454M-6(a), HRS, makes it a violation of Chapter 454M, HRS, for any mortgage servicer in the course of any mortgage loan transaction, or in connection with any mortgage servicing business, to:
(1)        Misrepresent or conceal material facts, make false promises, or pursue a course of misrepresentation through its agents or otherwise;
(2)        Engage in any transaction, practice, or course of business that is not in good faith, does   not constitute fair dealing, or that constitutes a fraud upon any person, in connection with the servicing, purchase, or sale of any mortgage loan;
(3)        Obtain property by fraud or misrepresentation;
(4)        Misapply residential mortgage loan payments;
(5)        Misapply payments to escrow accounts;
(6)        Require any amount of funds to be remitted by means more costly to the borrower than a  bank or certified check or attorney’s check from an attorney’s account to be paid by the borrower;
(7)        Fail to timely pay taxes or insurance premiums of the borrower, if and as required by Chapter 454M, HRS;
(8)       Fail to follow procedures concerning escrows for the payment of taxes and insurance as required by Chapter 454M, HRS;
(9)       Place hazard, homeowner’s, or flood insurance on the mortgaged property when the mortgage servicer knows or has reason to know that the borrower has an effective policy for such insurance;
(10)     Fail to provide written notice to a borrower upon taking action to place hazard, homeowner’s, or flood insurance on the mortgaged property, including a clear and conspicuous statement of the procedures by which the borrower may demonstrate that the borrower has the required insurance coverage and by which the mortgage servicer shall terminate the insurance coverage placed by the mortgage servicer and refund or cancel any insurance premiums and related fees paid by or charged to the borrower;
(11)     Place hazard, homeowner’s, or flood insurance on a mortgaged property, or require a borrower to obtain or maintain such insurance, in excess of the replacement cost of the improvements;
(12)     Fail to provide to the borrower a refund of unearned premiums paid by a borrower or charged to the borrower for hazard, homeowner’s, or flood insurance placed by a mortgagee or the mortgage servicer if the borrower provides reasonable proof that the borrower has obtained coverage such that the forced placement insurance is no longer necessary and the property is insured.  If the borrower provides reasonable proof that no lapse in coverage occurred such that the forced placement was not necessary, the mortgage servicer shall promptly refund the entire premium;
(13)     Collect private mortgage insurance beyond the date for which private mortgage insurance is required;
(14)     Collect, charge, attempt to collect or charge, or use or propose any agreement purporting to collect or charge, any fee not in compliance with, or prohibited by, Chapter 454M, HRS;
(15)      Fail to provide a timely and accurate statement of account, as required by Chapter 454M, HRS ;
(16)       Fail to handle a consumer complaint or inquiry in accordance with Chapter 454M, HRS;
(17)       Provide inaccurate information to a credit bureau, thereby harming a borrower’s creditworthiness;
(18)     Fail to report both the favorable and unfavorable payment history of the borrower to a nationally recognized consumer credit bureau at least annually if the mortgage servicer regularly reports information to a credit bureau;
(19)      Fail to provide or submit a timely, complete, and accurate notice, acknowledgment, statement, information, explanation, reminder, communication, or other information to any person as required by Chapter 454M, HRS;
(20)      Fail to comply with loss mitigation option requirements of Chapter 454M, HRS;
(21)      Fail to offer loan modifications in compliance with HAMP guidelines or directives, if the mortgage servicer is participating in HAMP;
(22)      Fail to comply with the requirements of Chapter 667, HRS (Foreclosures) and ensure that the mortgage servicer’s attorneys and agents comply with Chapter 667, HRS;
(23)     Refuse to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower; provided that the mortgage servicer may adopt procedures reasonably related to verifying that the representative is in fact authorized to act on behalf of the borrower;
(24)     Fail to provide a timely payoff statement as required by Chapter 454M, HRS;
(25)     Fail to issue a release of mortgage in accordance with section 506-8;
(26)     Conduct any business for which Chapter 454M, HRS, requires a license without holding a valid license as required under Chapter 454M, HRS, or assist or aid and abet any person in the conduct of business without a valid license as required under Chapter 454M, HRS;
(27)      Engage in the business of mortgage servicing without complying with bonding requirements of Chapter 454M, HRS;
(28)       Transfer or assign its mortgage servicer license;
(29)       Change its name or office address without complying with the requirements of Chapter 454M, HRS;
(30)        Fail to maintain adequate records of each residential mortgage loan transaction at the office named in the mortgage servicer license; or
(31)     Make any false statement or omission of a material fact, in connection with any information or reports filed with a governmental agency or NMLS or in connection with any investigation conducted by the Commissioner or another governmental agency.

Does Hawaii law require a mortgage servicer to comply with other laws or agreements?
Yes.  Section 454M-6(b), HRS, makes it a violation of Chapter 454M, HRS, for any mortgage servicer in the course of any mortgage loan transaction to fail to comply with any:

(1)       Applicable federal law or regulation related to mortgage servicing, including but not limited to:
(A)       RESPA, including the mortgage loan servicing transfer, escrow account administration, and borrower request for information and error resolution requirements;
(B)   The Truth in Lending Act, title 15 United States Code sections 1601 through 1667f, as amended, and Regulation Z  adopted thereunder, title 12 C.F.R. part 226, as amended; or
(C)       Rules and regulations  issued or administered by Consumer Financial Protection Bureau (“CFPB”), and interpretations of the rules by the CFPB through interpretive rules, bulletins, statements of policy, and statements of guidance ;
(2)       Agreement with a governmental entity, agency, agent, or regulator, or state  attorney general that applies to the mortgage servicer, including:
(A)   A servicer participation agreement or other agreement to participate in HAMP or other Making Home Affordable program;
(B)    HAMP rules, including guidance provided by Making Home Affordable program handbooks, and supplemental directives; or
(C)    The National Mortgage Settlement  reached in 2012 by the federal government and forty-nine states, with the five largest mortgage servicers in the United States, to address mortgage servicing, foreclosure, and bankruptcy abuses;
(3)         Order of a court or government regulator that applies to the mortgage servicer;
(4)        Provision of Chapter 454M or any rule adopted pursuant to that chapter; or
(5)         Federal or state law, rule, or regulation.

 Notwithstanding any other provision of Chapter 454M, HRS, a mortgage servicer shall not be in violation of Chapter 454M, HRS, if performance of a requirement under that chapter would constitute a violation of federal law, rules, or regulations.  Section 454M-6(d), HRS.

COMPLAINTS

What can DFI do in response to a consumer complaint?
DFI can investigate and take certain actions only against those persons (including entities) within DFI’s regulatory jurisdiction.  For Mortgage Servicers, DFI has regulatory jurisdiction over Chapter 454M licensees (see the Mortgage Servicer Company List), and persons whom the law requires to be licensed under that chapter.

For details concerning the action that DFI and the Commissioner can take against a person in violation of Chapter 454M, HRS, please refer to the Investigation, and Enforcement Powers sections below.

 What DFI cannot do.
DFI cannot litigate or seek monetary redress on behalf of individual complainants. DFI cannot serve as an arbitrator of private disputes and cannot determine contractual rights and obligations between an institution and an individual.  DFI also cannot render opinions or interpretations to individuals so as to determine an individual’s rights against an institution.

While DFI will make every effort to help address consumer complaints, there are situations and transactions that are beyond the jurisdiction of DFI.  For some complaints, a consumer may need to consult an attorney about pursuing civil remedies.  Section 454M-9, HRS, expressly states that nothing in Chapter 454M, HRS shall be construed to preclude any individual or entity that suffers loss as a result of a violation of Chapter 454M, HRS, from maintaining a civil action to recover damages and, as provided by statute, attorney’s fees.

How do I submit a complaint to DFI about my mortgage servicer?
If you have reason to believe that Chapter454M, HRS (or any rules adopted pursuant thereto) has been violated, or that a license issued under Chapter 454M, HRS should be suspended or revoked, you may file a written complaint with the Commissioner setting forth the details of the alleged violation or grounds for suspension or revocation.  Section 454M-8.5(j), HRS.

For a complaint form and instructions for submission, please see the File a Complaint page of the DFI website.

Before submitting your complaint, please determine to the best of your ability that the person or entity complained of is within DFI’s regulatory jurisdiction (see the first FAQ in this “Complaints” section).

If my mortgage servicer isn’t within DFI’s regulatory jurisdiction, what do I do?
You may need to contact a qualified private attorney qualified to handle your complaint.  Please note that actions may be barred if too much time passes.

Are there other resources that could help me with mortgage servicing issues?
Mortgage Foreclosure Information is available on the DCCA Office of Consumer Protection website.

Additionally, these government agency websites may provide some guidance, although DFI is unable to verify the website content:
Consumer Financial Protection Bureau
HUD Approved Housing Counseling Agencies

INVESTIGATION and EXAMINATION

What are the investigative powers of the Commissioner?
Specific investigative powers of the Commissioner are listed below, as set out in Section 454M-8.5, HRS.   The authority of that section remains in effect whether a licensee or person subject to Chapter 454M, HRS, acts or claims to act under any licensing or registration law of this State, or claims to act without such authority.  Section 454M-8.5(g), HRS.

What is the examination authority of the Commissioner?
In addition to any other authority under this chapter, the commissioner shall have the authority to conduct examinations.  The commissioner may access, receive, and use any books, accounts, records, files, documents, information, or evidence that the commissioner deems relevant to the inquiry or investigation, regardless of the location, possession, control, or custody of the documents, information, or evidence.  The commissioner may review, investigate, or examine any licensee or person subject to this chapter, as often as necessary to carry out the purposes of this chapter.  Section 454M-8.5(a), HRS

The Commissioner has the power to:
Broadly access and use documents, information and evidence – In addition to any other authority under Chapter 454M, HRS, the Commissioner shall have the authority to conduct investigations and examinations in accordance with Section 454M-8.5, HRS.  The Commissioner may access, receive, and use any books, accounts, records, files, documents, information, or evidence that the Commissioner deems relevant to the inquiry or investigation, regardless of the location, possession, control, or custody of the documents, information, or evidence.   Section 454M-8.5(a), HRS.  Section 454M-8.5(h), HRS, provides that no licensee or person subject to investigation or examination under Section 454M-8.5, HRS may knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, computer records, or other information.
Subpoena witnesses and documents – For the purposes of investigating violations or complaints arising under Chapter 454M, HRS, or for the purposes of examination, the Commissioner may review, investigate, or examine any licensee or person subject to Chapter 454M, HRS, as often as necessary to carry out the purposes of Chapter 454M, HRS.  The commissioner may direct, subpoena, or order the attendance of, and examine under oath, all persons whose testimony may be required about loans or the business or subject matter of any examination or investigation and may direct, subpoena, or order the person to produce books, accounts, records, files, and any other documents the Commissioner deems relevant to the inquiry. Section 454M-8.5(b), HRS.
Access to books, records, and personnel of persons subject to Chapter 454M, HRS – Each licensee or person subject to Chapter 454M shall provide to the Commissioner upon request the books and records relating to the operations of the licensee or person subject to Chapter 454M, HRS.  The Commissioner shall have access to the books and records and shall be permitted to interview the officers, principals, mortgage loan originators, employees, independent contractors, agents, and customers of the licensed mortgage loan originator or person subject to Chapter 454M, HRS, concerning their business. Section 454M-8.5(c), HRS.
Require preparation of information – Each licensee or person subject to Chapter 454M, HRS, shall make or compile reports or prepare other information as directed by the Commissioner in order to carry out the purposes of Section 454M-8.5, HRS, including:
(1)       Accounting compilations;
(2)        Information lists and data concerning loan transactions in a format prescribed by the Commissioner; or
(3)         Other information that the Commissioner deems necessary to carry out the purposes of Section 454M-8.5, HRS.  Section 454M-8.5(d), HRS.
Possession and control of documents and records – In conducting any examination or investigation authorized by Chapter 454M, the Commissioner may control access to any documents and records of the licensee or person under examination or investigation.  The Commissioner may take possession of the documents and records or place a person in exclusive charge of the documents and records.  During the period of control, no person shall remove or attempt to remove any of the documents and records except pursuant to a court order or with the consent of the Commissioner.  Unless the Commissioner has reasonable grounds to believe the documents or records of the licensee or person under examination or investigation have been, or are at risk of being, altered or destroyed for purposes of concealing a violation of Chapter 454M, HRS, the licensee or owner of the documents and records shall have access to the documents or records as necessary to conduct its ordinary business affairs. Section 454M-8.5(e), HRS.
Take action necessary to carry out Chapter 454M, HRS – To carry out the purposes of Chapter 454M, HRS, the Commissioner may:
(1)        Retain accountants or other professionals and specialists, who may be exempt from chapter 76, as examiners, auditors, or investigators to conduct or assist in the conduct of examinations or investigations;
(2)        Enter into agreements or relationships with other government officials or regulatory associations in order to improve efficiencies and reduce regulatory burden by sharing resources, standardized or uniform methods or procedures, and documents, records, information, or evidence obtained under Section 454M-8.5, HRS;
(3)        Use, hire, contract, or employ public or privately available analytical systems, methods, or software to examine or investigate the licensee or person subject to Chapter 454M, HRS;
(4)        Accept and rely on examination or investigation reports made by other government officials, within or without this State; and
(5)          Accept audit reports made by an independent certified public accountant for the licensee or person subject to Chapter 454M, HRS, in the course of that part of the examination covering the same general subject matter as the audit and may incorporate the audit report in the report of the examination, report of investigation, or other writing of the Commissioner.      Section 454M-8.5(f), HRS.
Charge an examination or investigation fee – The Commissioner may charge an examination or investigation fee, payable to the Commissioner, based upon the cost per hour per examiner for all licensees and persons subject to Chapter 454M, HRS, examined or investigated by the Commissioner or the Commissioner’s staff.  The hourly fee shall be $60 or an amount as the commissioner shall establish by rule pursuant to Chapter 91, HRS (Administrative Procedure).  In addition to the examination or investigation fee, the Commissioner may charge any person who is examined or investigated by the Commissioner or the Commissioner’s staff pursuant to Section 454M-8.5, HRS, additional amounts for travel, per diem, mileage, and other reasonable expenses incurred in connection with the examination or investigation, payable to the Commissioner. Section 454M-8.5(i), HRS.

ENFORCEMENT

What powers are granted to the Commissioner under Chapter 454M, HRS?
Basically, the Commissioner has the power to make administrative rules, issue interpretations, investigate and act on complaints, conduct hearings, revoke licenses, issue fines,  report violations of Chapter 454M, HRS to federal agencies, and to do all things incidental to the exercise of the Commissioner’s powers.

Investigative powers are set out in Section 454M-8.5, HRS, discussed in the “Investigation” section of this FAQ, above.

Specifically, Section 454M-7, HRS, provides that the Commissioner may suspend, revoke, deny, condition in any manner, or refuse to renew, reinstate, or restore, any license issued under Chapter 454M, HRS, or fine any person holding a license issued under that chapter for any chapter violation.   All such orders shall be made pursuant to Chapter 91, HRS (Administrative Procedure).

Section 454M-8, HRS, provides that the Commissioner may:
(1)        Adopt, amend, or repeal rules, issue declaratory rulings or informal nonbinding interpretations, and investigate and act upon written consumer complaints;
(2)       Grant, deny, forfeit, renew, reinstate, or restore the license of any mortgage servicer;
(3)        Revoke, suspend, or otherwise limit the license of any mortgage servicer for any violation of the provisions in Chapter 454M, HRS, or any rule or order of, or agreement with the Commissioner;
(4)        Report any violation of Chapter 454M, HRS, or violation of federal or state law to the Consumer Financial Protection Bureau or other federal agency having jurisdiction over the licensee;
(5)        Investigate and conduct hearings regarding any violation of Chapter 454M, HRS, or any rule or order of or agreement with the Commissioner; and
(6)        Do any and all things necessary or incidental to the exercise of the Commissioner’s power and duties, including the authority to conduct contested case proceedings under Chapter 91, HRS.

What are the penalties for violation of Chapter 454M?
Administrative fine – Any person who violates any provision of Chapter 454M, HRS, may be subject to an administrative fine of not more than $7,000 for each violation. Section 454M-10, HRS.
Unlicensed foreclosure actions are voidedAny action taken in connection with a mortgage foreclosure under Chapter 667, HRS (Foreclosures), by a nonexempt person who engages in the business of mortgage servicing without a license as provided in Chapter 454M, HRS, shall be void for purposes of Chapter 667, HRS. Section 454M-2.5, HRS.
Liability to borrower for charges due to violation of payment of taxes and insurance requirements – Any mortgage servicer who violates any provision Section 454M-5(d), HRS pertaining to payment of taxes and insurance (discussed above), is liable to the borrower:   for any penalties, interest, or other charges levied by the taxing authority or insurance company as a result of any violation; any actual damages suffered by the borrower as a result of the violation, including any amount that would have been paid by an insurer for a casualty or liability claim had the insurance policy not been canceled for nonpayment by the mortgage servicer; and, in the case of any successful action to enforce the foregoing liability, the costs of the action together with reasonable attorney’s fees as determined by the court. Section 454M-5(d), HRS.

Where do fees and fines go?
Compliance resolution fund – Fees and fines collected by the Commissioner shall be deposited into the compliance resolution fund established pursuant to Section 26-9(o), HRS. Section 454M-11, HRS.
Administrative fine – $1,000 of the aggregate fine amount for violation of Chapter 454M, HRS, will be deposited into the mortgage foreclosure dispute resolution special fund established pursuant to Section 667-86, HRS. Section 454M-10, HRS.