The government's consumer watchdog issued another round of new mortgage rules today. This time the goal is to protect homeowners from abuses and poor service by the companies that collect their mortgage payments.
The new mortgage servicing rules will help prevent mortgage servicers from giving borrowers the runaround, especially for homeowners trying to avoid foreclosure, the Consumer Financial Protection Bureau claims.
"Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes," says CFPB director Richard Cordray.
Consumer advocates say the rules are needed and address many of the servicing problems that have hurt struggling homeowners since the foreclosure crisis started, but some say the rules don't go as far as they should.
"We commend the Consumer Financial Protection Bureau for seeking to address broad problems in the mortgage servicing industry and for extending some sensible, enforceable guidelines to the entire market," says Alys Cohen, attorney with the National Consumer Law Center. "However, the CFPB's final rules fail to implement the key lesson of the foreclosure crisis -- that a loan modification requirement is essential to protect qualified homeowners from unnecessary foreclosures."
The rules are part of a series of measures mandated by the Dodd-Frank financial reform law. Once the servicing rules go into effect a year from now, servicers will be required to take extra steps before pursuing foreclosure on homes with past-due balances, including informing borrowers of options to avoid foreclosure when those options are available. But the rules don't make it mandatory that all servicers offer loan modification as an alternative.
Changes that borrowers should expect to see
Here are some of the requirements that servicers will have to follow:
• They will be prohibited from foreclosing on a home once the borrower has submitted an application for loan modification or other alternative to foreclosure until the application has been reviewed, and the borrower has received a response.
• Once a borrower submits an application to try to work out an agreement on the delinquent loan, the servicer will have to acknowledge the receipt of the application within five days and let the borrower know if there is anything missing from the file.
• Servicers will have to send borrowers periodic billing statements. Unlike with most other types of loans, mortgage borrowers don't always receive monthly statements from their mortgage servicers.
• Borrowers with adjustable-rate mortgages must receive 210 to 240 days' notice before the first payment with a new rate is due.
• Servicers will have to jump through additional hoops, including sending various notices to the borrower, before force-placing homeowners insurance coverage when they believe the homeowner failed to maintain adequate coverage.
What the lending industry thinks of the rules
The "objective of this effort is the right one: Create one set of rules so that borrowers know how they will be treated and servicers know what is expected of them," says David Stevens, chief executive officer of the Mortgage Bankers Association.
But the MBA says it has concerns related to how the rule could affect small servicers. The CFPB has made various exceptions to the rule for small servicers, those with 5,000 or fewer mortgage loans. The MBA says the CFPB's definition of small servicers may be "too narrow."
In addition, the trade groups says some of the provisions, including those related to the timelines that servicers must follow before pursuing foreclosure on delinquent loans, may be inconsistent with existing timelines mandated by Fannie Mae, Freddie Mac and the Federal Housing Administration.
The CFPB will hold a hearing today to discuss the new rules.
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