Senator Elizabeth Warren, a Democrat from Massachusetts, asked the Trump administration for details on its work investigating and regulating collections of “zombie” second mortgages, old loans that homeowners hadn’t heard from lenders about in years before being hit with huge bills.
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In a letter sent Tuesday to acting Consumer Financial Protection Bureau Director Russell Vought, Warren called the administration’s approach to the issue a “dereliction of its duty” and said she remained concerned for Americans at risk of losing their houses to debt collectors that revive the loans.
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Last year, Bloomberg News reported that thousands of people across the US have been confronted with demands to pay back second mortgages that they took out before the 2008 financial crisis and that they often believed were cancelled or otherwise no longer due. Some debt collectors have demanded money after too much time had passed, borrowers have shown in court. In other cases, owners of the debt have sought unlawful amounts of back interest. The companies often bought the loans for pennies on the dollar, then reaped windfall profits by threatening foreclosure to get homeowners to pay.
Under the Biden administration, the CFPB issued guidance and held a public hearing to call attention to zombie loans. The agency had also opened at least
“Recent reporting indicates that the CFPB had been preparing cases against multiple parties involved in zombie mortgages,” Warren, the ranking member of the Banking Committee, wrote to Vought. “While the White House stated that it was ‘completely false to claim work on these cases has been “abandoned,”‘ the CFPB has not brought any public cases on this matter under your leadership.”
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Warren requested Vought provide information on any active matters the bureau is pursuing related to zombie loans, including regulatory guidance and examinations. She also sought information on any old second loans banks got credit for extinguishing as a result of legal settlements following the 2008 crisis. She said she was worried that some of these loans may have been sold to debt collectors.
Vought did not respond to questions sent to a CFPB spokesperson.
Warren, who was a driving force behind the creation of the CFPB in 2010, has sought to unearth more details about how old second mortgages resurfaced after years of laying dormant. In December, Warren asked the independent monitor of the $25 billion National Mortgage Settlement to see if he had records related to tens of thousands of second mortgages the banks took credit for extinguishing under the agreement.
Joseph A. Smith, Jr., the monitor, responded in late January, saying he didn’t have the information the senator requested. While oversight of the settlements was “rigorous,” he added that it was based on statistical sampling rather than a loan-by-loan review. He said he had no reason to believe banks took credit for cancelling loans and then sold them, but couldn’t rule it out with “absolute certainty.”
More broadly, Smith — a former North Carolina banking regulator — said he was concerned with how the Trump administration has managed the consumer agency and the potential harm to average Americans.
“A properly functioning CFPB is crucial to protecting people from predatory practices, including promising to cancel mortgages and then using those mortgages to foreclose on homes many years later, as is being reported,” Smith wrote to Warren.
Warren excerpted those comments for Vought in her letter and asked him to respond by April 13.