California Attorney General Announces Proposed $4.6 Million Settlement With Select Portfolio Servicing

California Attorney General Rob Bonta announced a proposed $4.6 million settlement with Select Portfolio Servicing, Inc. (SPS), resolving allegations that the mortgage servicer violated state and federal mortgage servicing requirements while assisting homeowners during the COVID-19 pandemic. The agreement includes $1.6 million in civil penalties, $3 million in consumer relief, and a series of servicing reforms intended to strengthen borrower communications and loss mitigation practices.

The settlement, which remains subject to court approval, affects thousands of California homeowners and highlights regulators’ continued scrutiny of pandemic-era mortgage servicing conduct.

California Alleges Multiple Mortgage Servicing Violations

According to the California Department of Justice, SPS failed to adequately assist borrowers who were enrolled in COVID-19 forbearance programs or seeking foreclosure-prevention alternatives.

The state alleged that SPS:

• Failed to provide clear and accurate information regarding COVID-19 forbearance options and available loss mitigation programs.
• Sent mortgage statements that incorrectly suggested late fees could be charged while borrowers were participating in authorized forbearance plans.
• Did not conduct individualized loss mitigation discussions with borrowers nearing the end of their forbearance periods.
• Failed to provide meaningful assistance through single points of contact required under California’s Homeowner Bill of Rights (HBOR).
• Did not adequately ensure borrowers could submit and complete loan modification applications within required timelines.

The Attorney General’s Office alleged that these practices created confusion for borrowers and increased the risk of avoidable defaults and foreclosures during a period of significant economic disruption.

SPS did not admit wrongdoing as part of the settlement.

Settlement Includes Consumer Relief and Civil Penalties

Under the proposed judgment, SPS will pay a total of $4.6 million.

The settlement includes:

• $3 million in consumer relief for affected California homeowners.
• $1.6 million in civil penalties payable to the state.

According to the Attorney General’s Office, eligible borrowers have already been identified through the investigation process and will receive restitution automatically without needing to submit claims.

The approach reflects a broader trend among regulators toward using loan-level reviews and servicing data analysis to identify affected consumers and calculate restitution.

Servicing Reforms Required Under the Agreement

In addition to monetary relief, SPS agreed to implement operational changes designed to strengthen compliance and improve borrower assistance.

The required reforms include:

• Providing clearer information about loan modifications, repayment options, and other loss mitigation programs.
• Enhancing single point of contact programs to ensure borrowers receive consistent guidance throughout the loss mitigation process.
• Implementing controls designed to prevent inaccurate statements regarding late fees and payment obligations during authorized forbearance periods.
• Strengthening procedures for receiving, evaluating, and processing loan modification applications.
• Improving compliance with foreclosure prevention requirements and anti-dual-tracking protections.

The Attorney General’s Office said the reforms are intended to help homeowners better understand available options and avoid unnecessary foreclosure activity.

Homeowner Bill of Rights Remains a Key Enforcement Tool

The settlement centers largely on California’s Homeowner Bill of Rights, one of the nation’s most comprehensive mortgage servicing frameworks.

HBOR requires mortgage servicers to provide designated borrower contacts, maintain loss mitigation procedures, and avoid certain foreclosure actions while borrowers are actively pursuing alternatives to foreclosure.

Violations of HBOR can expose servicers to significant liability, particularly when regulators identify systemic issues affecting large groups of borrowers.

The case also reflects ongoing regulatory interest in how mortgage servicers implemented federal COVID-19 relief programs and managed borrowers transitioning out of forbearance.