Mortgage Servicing Examination/Investigation

1. Mortgage Servicing Examination/Investigation Presented by: Michael Jackson, Maryland James Payne, Kansas Elliott D. Purty, Michigan

2. Mortgage Servicing Worksheet • Type of Mortgage Loan Being Serviced •  Adjustable rate  Investor Loan •  Escrows  Foreclosure •  Paid Off  Servicing Transferred •  Other _____ • Name: • Address: • Loan no.:

3. Mortgage Servicing Worksheet • Were errors or discrepancies found with regard to the following? If yes, please explain. YESNON/A • Determining receipt date of mortgage loan payment  • Timely and proper posting of payment  • Depositing of money in escrow account  • “Hello” letter 

4. Mortgage Servicing Worksheet • “Good-bye” letter  • Escrow account analysis  • Adjustment of interest rate  • Proper assessment of service charges  • Foreclosure notices  • Notification of principal balance   

5. Mortgage Servicing Worksheet • 1098 interest statements  • Timely remittance of money to investor  • Pay-off calculation  • Assignment  • Retention of communication records  • Discharge 

6. In-depth Evaluation of Mortgage Servicing • Application of Payments • Debt Collections • Corporate Advances and Fees • Proper Assessment of Late Fees • Proper Reporting to Consumer Reporting Agencies • State Specific Items

7. In-depth Evaluation of Mortgage Servicing State Specific Items • ACH Payments and Fees • Late Fee Application (“Pyramiding”) • Contracted Fees for “Additional Services” • Collection Fees and Charges • Application of Payments

8. In-depth Evaluation of Mortgage Servicing • Types of Electronic Payments & Fees Automatic Clearing House (ACH) • Monies are deducted from checking/savings account • Phone payments • Internet (Web) payments • Western Union payments • Automatic Payment Plans

9. In-depth Evaluation of Mortgage Servicing • Automatic Clearing House (ACH) Statutory Limitations on ACH fees • Limitation based on state specific statutes (KS=$5 per pmt.) • Limitation when conducted in connection with a late installment (KS=No fee allowed when late payment fee also collected) • Limitation based on consumer agreement (KS=No fee allowed when consumer agrees in writing to make all payments by this method)

10. In-depth Evaluation of Mortgage Servicing • Pyramiding example: (Consumer has a 15-day grace period) Pmt DateMo. App.Due DateLate Fee None 01/05 01/01/05 Assessed (Jan) 02/05/05 02/05 02/01/05 Assessed (Feb) 03/10/05 03/05 03/01/05 Assessed (Mar) • February and March payments were made on time. Late fees should not have been assessed for February or March.

11. In-depth Evaluation of Mortgage Servicing • Charges for “Additional Services” • Licensee will contract for fees in addition to those contracted for in the note (loan contract) • Statutory limitations may prohibits additional fees based on loan type/lien position/loan to value/etc. • Loans subject to KS law (by definition or made subject by agreement) must abide by additional fees and charges limitations set by statute

12. In-depth Evaluation of Mortgage Servicing • Collection Fees and Charges Property Preservation Fees • Broker Price Opinions (BPO) • Inspection Fees (“Drive By’s”) • Foreclosure Preservation (Maintenance on home) Other Collection Fees • Attorney Fees • Bankruptcy Costs • Court Fees

13. In-depth Evaluation of Mortgage Servicing • Collection Fees and Charges Limitations • KS law allows reasonable costs of collection up to 15% of unpaid debt after default. • KS law prohibits costs incurred by a salaried employee of the creditor or its assignee • KS law prohibits collection of both attorney fees and collection agency fees

14. In-depth Evaluation of Mortgage Servicing • Application of Payments Normal payment application: • Principal • Interest • Escrow (if applicable) • Late Fee • Other Fees KS law requires payments to be credited as of the date of receipt by the licensee.

15. In-depth Evaluation of Mortgage Servicing • Escrow Accounts & Analysis • Transfer of Servicing Accounts • Boarding of Mortgage Accounts • Proper Interest Calculations (P*R/12 or P*R/360*30) • Lender/Force Placed Insurance • Proper Pay-off Calculation on Mortgages • Proper Discharging of Mortgages

16. In-depth Evaluation of Mortgage Servicing • Complaints and Resolutions • Forbearance Agreements • Customer Service & Customer Statements • Company’s Foreclosure Area • Customer Communications • Record Retention of Communication

17. Mortgage Servicing Evaluation • Review Internal Procedures & Controls • Review Risk Management Practices & Processes • Review Internal & External Audit Reports • Review & Analyze Financial Statements • Review Policies & Board Minutes

18. Fairbanks Capital CorporationMaryland Case Review • Background: • 1989, FCC originally opened its doors in 1989 with four employees in Park City, Utah • 1997, FCC moved home office to Salt Lake City, Utah; • 2000, FCC opened Hatboro, PA office; • Purchase servicing rights to Conti Mortgage • 2002, FCC acquired EquiCredit, formerly owned by the Bank of America in Jacksonville, Florida; • 2002, FCC acquired Olympus Servicing L.P. of Austin, Texas.

19. Fairbanks Capital CorporationMaryland Case Review

20. Fairbanks Capital CorporationMaryland Case Review Each location of FCC provides a specialized function within the organizational structure. Salt Lake City LocationHatboro Pennsylvania Location • Consists of 760+ employees • Consists of 470+ employees • Areas include: • Areas include: – Loan Resolution; – Bankruptcy; - Cashiering; – Foreclosure; – Escrow; -- Skip Tracing; – Data Conversion; – Residential Real Estate Review -- REO (Real Estate Owned); – Management and Administration; – Investor Reporting

21. Fairbanks Capital CorporationMaryland Case Review Each location of FCC provides a specialized function within the organizational structure. Austin Texas LocationJacksonville Florida Location • Consists of 250+ employees • Consists of 700+ employees • Areas include: • Areas include: – Research – Customer service - Foreclosure Assistance – Primary Collections – Bankruptcy Assistance -- Payoffs – Company Support Functions – Loan Administration -- Data Communication -- Investor Reporting

22. Fairbanks Capital CorporationMaryland Case Review Table: Growth volume of FCC over 3 years

23. Fairbanks Capital CorporationMaryland Case Review Servicing Portfolio Composition • More than 550,000 loans, most owned by Wall street investors • 90% of loans serviced by FCC were securitized; • Servicing portfolio consisted of two types of loans: • Sub-prime loans; • Alt-A loans. • 79% lower grade sub-prime loans; • 11% Prime or high grade loans; • 10% un-securitized loans. • Maryland loans – 2.5% of total servicing portfolio; • 13,800 loans outstanding • 10,845 loans current, 1266 loans in bankruptcy, 422 loans under pre-foreclosure activity, and 291 loans foreclosed.

24. Fairbanks Capital CorporationMaryland’s Examination Approach The Examination Team targeted consumer allegations received by the Commissioner of Financial Regulation in the following area: • Timely posting of payments; • Disputed charges assessed to accounts; • Accurate transfer of consumer account information prior to loan servicing; • Questionable or poor customer service support; • Questionable broker’s price opinions (BOP) charges; • Questionable foreclosure practices; • Other deceptive or questionable loan servicing practices.

25. Fairbanks Capital CorporationMaryland’s Examination Approach Development of The Examination Approach • Analysis of FCC’s Structure and Organizational Hierarchy; • Information Systems; • Payment Processing; • Escrow Servicing; • Primary Collection and Foreclosure Practices; • Permissible Fees and Other Charges; • Findings on Questionable Practices and Fee Charges.

26. Fairbanks Capital CorporationMaryland’s Examination Findings Violations Alleged in the Examiners Findings • Fair Debt Collection Practices Act – 15 USC Section 1692; and Maryland Consumer debt Collection Act, Title 14, Section 202, Commercial Law article, Md. Code Annotated: • Assessing unauthorized fees – late fees, BPOs, property inspections, demand letters, attorney fees; • Interest charges and fees on corporate advances; • Harassment and abusive conduct in its contacts. • The Maryland Interest and Usury Act – Title 12, Subtitle 1, Commercial Law Article, Md. Code annotated: • Collection of a delinquency charge not expressly authorized by the agreement

27. Fairbanks Capital CorporationMaryland’s Examination Findings Violations Alleged in the Examiners Findings • Unfair and Deceptive Trade Practices Act, Title 13, Section 303, Commercial Law Article, Md. Code Annotated: • Questionable rolling late fee charges. • Other questionable fees: • Payoff statement fee; • Duplicate year end statement fee; • Reissue escrow refund check fee; • Partial release fee. • Real Estate Settlement Procedures Act – 15 USC Section 2605; • Failing to adequately acknowledge, investigate, and respond to consumers’ written requests regarding the servicing of their loan. •Questionable oversight of subcontracted entities:

28. Fairbanks Capital CorporationMaryland’s Consent Agreement Parts I through IX of Consent Agreement • Part I - Breach Fees. – FCC will not assess any fee for any demand letter sent to a defaulting borrower. • Part II - Broker Price Opinion Fees. – FCC agrees to conduct an internal review and refund all BPOs assessed and collected prior to the date of the agreement. Exceptions, does not apply to: • One BPO for each loan in foreclosure initiated or contemplated; • Assessed not more than once in a six month period, and • The agreement, note or other evidence of the loan permits. • Part III - Late Fees. - FCC agrees to conduct an internal review and refund all late fees and collected prior to the Agreement that were either: • In excess of those permitted by Maryland law, or • Not permitted by the agreement, note or other evidence of the loan.

29. Fairbanks Capital CorporationMaryland’s Consent Agreement Parts I through IX of Consent Agreement • Part IV - Payoff Statement Fees. – FCC will not assess any fee for any payoff statement requested by the borrower; except a fee in the amount of $5 for each second and subsequent statement in any rolling 12-month period. Additionally: • Clear disclosure to all borrowers of fees for optional services or expedited delivery of statement; • FCC agrees to conduct an internal review and to refund all fees assessed and collected ( rolling 12-month period exception.) • Part V - Property Inspection Fee. – FCC agrees to conduct an internal review and refund all property inspection fees, except as permitted by Maryland law. • Part VI - Interest on Corporate Advances. - FCC agrees to conduct an internal review and refund all interest assessed and collected on corporate advances. Exception, the agreement, note or other evidence of the loan permits the fee.

30. Fairbanks Capital CorporationMaryland’s Consent Agreement Parts I through IX of Consent Agreement • Part VII – Collection Practices. – FCC will conduct its collection practices in accordance with applicable federal and Maryland law. • Part VIII – Timely Response to Complaints. – FCC agrees to acknowledge and investigate: • All written customer inquiries and complaints within 20 business days, and communicate resolution, including reimbursement, if any, within 60 days; • Cooperate with the Office of the Commissioner on all written inquiries and complaints within 5 business days, and communicate resolution, including reimbursement, if any, within 20 days; • Upon reasonable investigation and confirmation of the expense, reimburse the borrower within 60 days of any written complaint in which the borrower claims and document sustained actual expenses paid to a third party as a result of unauthorized or erroneous actions taken by FCC.

31. Fairbanks Capital CorporationMaryland’s Consent Agreement Parts I through IX of Consent Agreement • Part IX – Lender Placed Insurance. – FCC agrees to take prompt corrective action, including making refunds to borrowers for unnecessary or excessive forced placement of insurance. And further agrees to implement an audit procedure within 60 days of the agreement whereby: • All Maryland loans for which lender placed insurance was caused to be purchased by FCC or its agent; and • For three years, on a semi-annual basis, conduct a random sampling of at least 10 percent of Maryland loans for which lender placed insurance was purchased during the preceding semi-annual period.

32. Conclusion of Examination • Recap of Conclusions & Recommendations