At an event in Atlanta Thursday morning, the Consumer Financial Protection Bureau unveiled several new rules for mortgage servicers that are intended to help troubled borrowers “get a fair process to avoid foreclosure, told about their options, and given time to be considered for loan modifications.”
Mortgage servicers collect payments from mortgage borrowers on behalf of loan owners and typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures. For years, even before the financial crisis, the industry has “experienced problems with bad practices and sloppy recordkeeping,” a CFPB statement said.
The rules come on the heels of others, issued on Jan. 10, that require lenders to ensure prospective buyers have the ability to repay the mortgages offered to them and prohibits risky lending practices, such as “no-doc” and “interest-only” offerings. A first for government agencies, the Bureau also defined the criteria for loans designated as a “qualified mortgage.”
Among the rules issued today:
Dual-tracking, when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure, is restricted. Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification, or other alternative, and that application is still pending review. They also may not make the first notice or filing required for foreclosure until a loan is more than 120 days delinquent.
Notification of Foreclosure Alternatives
Servicers must inform borrowers, in writing, about “loss mitigation options” to retain their home after missing two consecutive payments.
Access to Servicing Personnel
Servicers will be required to provide delinquent borrowers with “direct, easy, ongoing access” to the employees responsible for helping them. These contacts are responsible for alerting them to missing information on their applications, updating them on the status of a loss mitigation application, and overseeing processing.
Fair Review Process
Servicers must consider all foreclosure alternatives available from the mortgage owners or investors who have decision-making power over the loan. These options may range from deferment of payments to loan modifications. They can no longer steer borrowers only to options that are the most financially favorable for them.
No Foreclosure Sale Until Alternatives Considered
Servicers must consider and respond to a borrower's application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale. If an alternative to foreclosure is offered, they must give the borrower time to accept the offer before moving for foreclosure judgment or conducting a foreclosure sale. Servicers cannot foreclose on a property if there is a loss mitigation agreement, unless the borrower fails to live up to that agreement.
Also included in the package:
- Servicers will also be required to provide regular statements which include: the amount and due date of the next payment; a breakdown of payments by principal, interest, fees, and escrow; and recent transaction activity. Disclosures are required before the first time an interest rate changes for most adjustable-rate mortgages.
- Servicers currently have the right to purchase property insurance on behalf of a borrower who failed to do so on their own. The CFPB, however, will demand that they provide advance notice and pricing information before charging borrowers. If it is later learned such coverage was not needed, they must terminate the “force placed” policy within 15 days and refund the premiums.
- Servicers must credit a consumer's account the date a payment is received. If the servicer places partial payments in a “suspense account,” once the amount in such an account equals a full payment, they must credit it to the borrower's account.
- Servicers must acknowledge written notices from borrowers regarding errors or requesting information about their mortgage loans. Within 30 days, they must correct the error, detail why there is no error, or explain why the requested information is unavailable.
The mortgage servicing rules take effect in January 2014 with certain exemptions are allowed for small entities that service 5,000 or fewer mortgage loans, most of them community banks and credit unions. A summary of the new rules can be found here, and a factsheet about the rules can also be viewed online.