The Consumer Finance Protection Bureau proposed two sets of common-sense rules today to protect homeowners from abuses by mortgage servicers.
The mortgage servicing industry has long experienced problems with "bad practices" and "sloppy record keeping," says Richard Cordray, director of the CFPB. "The goal is to prevent mortgage servicers from giving their customers unwelcome surprises and runarounds."
The new rules would require servicers to:
- Provide borrowers with clear monthly mortgage statements including a breakdown of payments by principal, interest, fees and escrow; the amount and due date of the next payment; and warnings about potential fees.
- Credit the borrower's payment promptly, generally on the day it receives the payment.
- Warn borrowers with adjustable-rate loans before the interest rate adjusts. Servicers would have to notify borrowers as early as 210 to 240 days before the first rate adjustment and 60 to 120 days before the payment changes, so that borrowers can anticipate the payment changes.
- Give advance notice before charging borrowers for "force-placed" insurance. A force-placed insurance policy happens when a homeowner fails to maintain adequate property insurance coverage, and the mortgage servicer buys a policy on behalf of the homeowner and bills the homeowner for the charges. There have been widespread complaints from homeowners who were charged excessive prices or had adequate insurance when the servicer bought a new policy. The new rules would require the servicer to let the borrower know the price of the policy before purchasing it. The servicer must terminate the insurance within 15 days if the borrower shows proof of insurance.
- Provide borrowers of delinquent loans with direct contact to an employee who works with borrowers in default.
- Inform borrowers, early in the process, of any options to foreclosure, such as loan modifications, before proceeding with a foreclosure. Servicers would be prohibited from foreclosing until the review of the borrower’s loan modification application is complete. And missing documents would no longer be an excuse for servicers. If there are documents missing in a loan modification application, the servicer has to tell the borrower.
These may seem like obvious practices that mortgage servicers should have been following all along, but you know they are necessary when you hear about some of the nightmare stories of borrowers getting lost in the process of loan modification because of missing paperwork and payments that are received but never credited to their accounts.
The CFPB will accept comments on the proposed rules until Oct. 9 and will finalize the rules by January.
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