Do you hear a whining sound in the distance? It's the mortgage industry, complaining again about government regulation. The Consumer Financial Protection Bureau is about to propose rules to ensure "no surprises and no runarounds" for mortgage customers, in the words of CFPB director Richard Cordray.
The CFPB is announcing tonight that it plans to propose new mortgage-servicing rules this summer, to be implemented in January. Among the bureau's goals:
Monthly statements would have to be clear, and include a breakdown of where the payment goes: principal, interest, escrow, fees. Statements would have to list recent transactions, post late-fee warnings, and give delinquent borrowers information about "loss mitigation alternatives."
ARM borrowers would get earlier warnings before interest-rate adjustments. Right now, the servicer must alert you 30 days in advance of rate adjustments. The CFPB wants to give customers more warning time, though the bureau isn't yet spelling out how much earlier. The alert would have to include an estimate of the new monthly payment.
Servicers would have a tougher time sneaking force-placed insurance past borrowers. Every mortgage servicer requires a mortgaged home to be insured against fire and other losses. If you stiff your insurance company, the servicer has the right to buy a policy. This is called force-placed insurance, and the premiums are steep.
In some cases, the servicer erroneously believes that the borrower has allowed insurance to lapse when the borrower has done no such thing. Then the servicer charges for force-placed insurance, costing the borrower hundreds or even thousands of dollars. The CFPB will require servicers to ask borrowers for proof of insurance. That will prevent some of these misunderstandings.
In cases in which the servicer does buy force-placed insurance, it would have to provide notice twice to the borrower -- at least 45 days before, and again at least 15 days before. That should give borrowers time to straighten out their messes, if they can.
Among other proposals, the CFPB plans to require mortgage servicers to credit payments immediately, keep records up to date, and correct servicer errors quickly.
Do you think it's sad that the regulators feel compelled to write regulations forcing mortgage servicers to treat their customers well? Or is this government overreach?