Attorney General James Leads Bipartisan Coalition Fighting to Protect Nearly One Million Homeowners from Unlawful Fees

Mortgage Servicing Class Action Settlement Violates Most States’ Laws and
Provides Windfall for Mortgage Servicer Instead of Homeowners

NEW YORK – New York Attorney General Letitia James today co-led a bipartisan coalition of 33 attorneys general in opposing a proposed class action settlement that would permit a mortgage servicer to profit from illegal payment processing fees charged to homeowners making normal mortgage payments online or by phone. Attorney General James co-leads the coalition in filing a motion for leave to file an amicus brief, opposing the proposed settlement in Morris et al. v. PHH Mortgage Corporation, et al., where mortgage servicer PHH Mortgage Corporation and its predecessor corporation, Ocwen Loan Servicing, LLC (collectively PHH), would be able to continue to profit from illegal processing fees the company has been charging to nearly one million homeowners nationwide, including more than 74,000 homeowners residing in New York state alone.

“When Americans utilize online or phone payments to pay off their monthly mortgages, PHH benefits, but instead of passing those savings on to homeowners PHH charged illegal fees and increased costs for nearly one million Americans,” said Attorney General James. “PHH’s sole purpose is to collect and process homeowners’ payments, which it already makes millions of dollars from each year. In the 21st century, when most Americans pay their bills online or by phone, to charge fees on top of what they are already being paid is not only unethical, but unlawful. A bipartisan coalition is standing up and fighting back against this backwards settlement because we will always fight to protect the wallets of our states’ residents.”

For years, PHH charged nearly one million homeowners an illegal fee — ranging from $7.50 to $17.50 — each time a homeowner made a monthly mortgage payment online or by phone, despite most Americans paying their mortgages one of these two ways. Nowhere in these homeowners’ mortgage contracts is there authorization for such fees and PHH does not charge “processing” fees for any other customers, including those who pay by check or those who set up automatic debit payments. Charging fees not mentioned in the mortgage contract is illegal and, under New York’s mortgage servicing regulations, explicitly forbidden. 

Under the terms of PHH's proposed settlement — which was hastily entered into only five months after the complaint was filed — PHH will not only be permitted to continue to charge these illegal fees, but will be able to actually increase fees — up to $19.50 per month — for the remaining life of the loan, which, for many homeowners, could be another 20 to 30 years. In exchange, homeowners will receive a paltry, and for some, illusory, one-time monetary payment. Further, the proposed settlement seeks to authorize these unlawful fees through an unwritten, mass amendment of the mortgages — a violation of most states’ statutes of frauds, a centuries old legal doctrine that requires contracts related to property to be in writing and signed by the parties. This unwritten, mass amendment also means PHH will evade many states’ recording requirements for modified mortgages, resulting in confusion and enabling PHH to avoid state and local recording fees. 

Additionally, Attorney General James leads the coalition in objecting to the inadequacy of the monetary relief, as the proposed settlement is designed to ensure that a portion of the monetary relief intended for homeowners will actually end up in PHH’s hands. Homeowners whose loans are still serviced by PHH will not receive any direct monetary payments for prior unlawful payments received by PHH. Instead, these homeowners will only receive a credit to their account that will only be applied to the unpaid principal balance of the mortgage after any late fees are first paid — costing homeowners more in the end. Moreover, any settlement funds not distributed to the class member homeowners will be returned to PHH, ensuring the settlement further benefits PHH and not impacted class members.

Joining Attorney General James in co-leading today’s filing is Minnesota Attorney General Keith Ellison. Joining Attorneys General James and Ellison in filing today’s amicus request is a bipartisan coalition of attorneys general from Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Maine, Maryland, Massachusetts, Michigan, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, West Virginia, and the District of Columbia.

This matter was handled by Assistant Attorney General Elizabeth M. Lynch, under the supervision of Consumer Frauds and Protection Bureau Chief Jane M. Azia and Deputy Bureau Chief Laura J. Levine, as well as Deputy Solicitor General Steven C. Wu of the Division for Appeals and Opinions. The Consumer Frauds and Protection Bureau is a part of the Division for Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.