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CFPB: New rules for mortgages

By Polyana da Costa ·
Friday, August 10, 2012
Posted: 1 pm ET

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.

I'll keep you posted if you follow me on Twitter @Polyanad.

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October 05, 2012 at 7:09 am

Question seeking an answer.
My bank on a new loan is charging me 4.625 (I have a 700 credit score putting down 12 % )rates are averaging in the low 3's they are also telling me I have to use a specific title company or no loan. Meanwhile the sellers agent has told me I have to use their title company in writing or no sale. This seems odd, but I have it all documented.

Michael Becker
August 11, 2012 at 8:13 am

I am in the mortgage business and yours is an interesting question. I also am in a similar situation to yours in that my arm adjusted down, and I have a lower rate now than the fixed rate I could refinance to. My guess is that you qualify for a HARP loan since you say your mortgage holder can refinance you even though the mortgage is greater than the value. It's hard to say where rates are going, but they have risen a little lately, but I really don't think they are going up much given the softening global economy. HARP will be available until the end of 2013, so you could enjoy the very low rate you have now for a while and then refinance. The risk is that rates will rise and you will miss the very low fixed rates of today. So it depends on your risk tolerance. But if your adjusted rate is only a little lower than the fixed rate you can refinance to, then I would grab the fixed rate. You may be able to get a better rate if you shop for a refinance with another lender than your current lender. Many lenders do HARP loans, and your current lender won't always offer the best rate. Also, the no cost refinance may not be your best option if you are going to be in the home for a while, since you really aren't getting a no cost refinance, you are just paying a higher rate than you would otherwise, and your lender is paying your closing costs for you. It might be in your best interest to roll the closing costs into the loan and get a better rate, as that may save you more in the long run.

Scotty Houston
August 10, 2012 at 2:47 pm

My ARM adjusted down in January(1 year libor) so for now I have a very low rate. My mortgage holder is offering to refinance at no cost to me,to a 4% fixed,even though mortgage is greater than the value.Should I take their offer or take advantage of the low libor for a year or two?