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April 2023 » 61 April 2023 J O U R N A L in the mortgage servicing space, student loans, payday lending, and in financial insti- tutions via deposit accounts. As described in the Supervisory Highlights, the CFPB con- tinues rooting unlawful fees out of consumer financial markets. "For years, junk fees have been creeping across the economy," CFPB Director Rohit Chopra said. "Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector." The CFPB publishes Supervisory High- lights reports to promote transparency and to stop potentially unlawful practices, as well as to help educate families, advocacy groups, and other law enforcement agencies about these practices. The CFPB's prior supervision work led the agency to issue guidance in October 2022, on the longstanding problem of surprise overdraft fees. As of today, after the CFPB's focus on surprise overdrafts, at least 20 of the largest banks in the United States, which hold 62% of the volume of consumer deposit accounts subject to the CFPB's supervisory authority, do not charge surprise overdraft fees. Additionally, banks that the CFPB has examined thus far will refund roughly $30 million to about 170,000 account holders who were assessed surprise overdraft fees. In the mortgage loan servicing sector, the CFPB recently identified illegal fees being charged in the mortgage servicing market, and, in November 2022, took action against a mortgage servicer for cheating homeowners out of CARES Act rights. CFPB examiners have identified old and new ways that mortgage servicers attempt to run up unlawful fees that are charged to homeowners. Specifically, CFPB examiners found that some mortgage servicers charged: » Excessive late fee amounts: Mortgage servicers charged the top late fee amount allowed by relevant state laws, even when homeowners' mortgage contracts capped late fee amounts below state maximums. » Fees for unnecessary property inspec- tions: Some servicers charged consumers $10 to $50 fees for every property inspec- tion visit to addresses that were known to be incorrect. Servicers continued to pay inspectors to go to the known incorrect addresses and continued to charge con- sumers for those visits. » Fake Private Mortgage Insurance (PMI) premium charges: Servicers included monthly PMI premiums that home- owners did not owe in their monthly statements. » Failure to waive fees for homeowners entering some loss mitigation options: CARES Act mortgage forbearance covered not only a mortgage's principal and interest but also stopped servicers from charging late fees during the period of forbearance. The U.S. Department of Housing and Urban Development (HUD) put further protections in place for home- owners that exited forbearance and went into permanent COVID-19 loss mitigation options, including waiving certain fees or other charges that accrued outside of forbearance periods. However, CFPB ex- aminers found that some servicers failed to adhere to HUD's additional protections and charged homeowners late charges, Default Spotlight DEFAULTS EXPECTED TO RISE, YET REMAIN MANAGEABLE A ccording to University Financial Associates (UFA) mortgage default risk numbers of late are rising but should still be manageable by lenders and servicers in the grand scheme of things due to the better quality of loans that have been issued since the Great Recession. In their latest index report, UFA found the index came in at a score of 147 for the first quarter of 2023—lenders and investors should expect defaults on loans originated in the first quarter to be 47% higher than the average of similar loans originated in the 90s due solely to the local and national economic environment. The index was initially benchmarked to 100 in 2003. "With prices beginning to decline in selected metro areas and many more to follow over the next couple years, mortgage lenders and investors will have to tighten underwriting standards and increase selectivity until house prices bottom," said Dennis Capozza, who is Professor Emeritus of Finance in the Ross School of Business at the University of Michigan, and a founding principal of UFA. "Mortgages rates have more than doubled in the last year while house prices have increased at double-digit rates since the pandemic making homeownership much less affordable." "To date delinquencies remain very low. Most homeowners have gained considerable equity as prices have risen and if stressed can sell to realize that equity rather than default," Capozza continued. "UFA does not expect a 'nuclear winter for housing' as some observers are expecting. Current economic conditions are much better positioned than in the Great Recession." "Although house prices have risen very fast in response to pandemic-driven demand, the excesses of the prior cycle are not present. Permits and stats remain well below the prior peak levels," Capozza concluded. "Demand remains high with many homeowners needing to adjust housing consumption due to changes arising from the pandemic and technological innovations like work from home."

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