A month after proposing new, more transparent disclosure statements for mortgage costs, the Consumer Financial Protection Bureau announced another round of proposed rules, this time for tighter mortgage servicing rules.
Like the proposed disclosure statements, the proposal for new mortgage servicer rules are authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Mortgage services, which can be lenders, but are often other companies hired by the lender, accept and apply mortgage payments, handle matters regarding the administration of the loan and they respond to consumer requests for service regarding their mortgage.
Some of the new rules were mandated by Dodd-Frank, others were included in response to marketplace demands and the need to assist mortgage consumers and protect them from questionable practices including surprises and run-arounds that ensued with the onset of the housing crisis.
The proposed mortgage servicing rules include two proposals – one to amend the Truth in Lending Act (Regulation Z) and the other to amend the Real Estate Settlement Procedures Act (Regulation X or RESPA).
CFPB’s new rules address:
Monthly mortgage statements – Servicers would be required to provide clear billing statements including information about the loan, amount due, and application of past payments. Confusion reigns.
Warnings before interest rate adjustments – Forewarned is fore armed. Servicers would be required to provide consumers with a notice six to seven months before the first rate adjustment, as well as earlier and improved notices before rate adjustments causing an increase in a consumer’s mortgage payments.
Force-placed insurance – Servicers can only charge borrowers for buying insurance on the property when they have a reasonable basis to believe that the borrowers have let their own insurance lapse and have given borrowers two notices estimating the cost of the “force-placed insurance.”
Early outreach for delinquent borrowers – Getting a delinquent borrower back on track requires early intervention and information about options available. Borrowers need some help in this area.
Prompt crediting of payments – Payments must be applied as of the day they are received and how the servicer handles partial payments should be clear.
Accurate information management – Servicers must have reasonable policies to ensure that when borrowers provide documents and information, the servicers can find and use them. Lost and misplaced documents have plagued loan modification, short sale and other mortgage workouts since the housing crisis began and continued even during negotiations for the National Mortgage Settlement.
Error resolution and information requests – Mistakes happen, but servicers must address borrower concerns about possible errors within certain timeframes and provide the information borrowers request.
Direct and ongoing access to servicer personnel – Delinquent borrowers will be able to contact the right people at their servicer to get information and take steps to avoid foreclosure. The lack of adequate service contact personnel is among the issues that led to the National Mortgage Settlement.
Evaluation for alternatives to foreclosure – Servicers would be required to appropriately review borrower applications for loan modifications or other options to avoid foreclosure.