The Consumer Financial Protection Bureau (CFPB) had previously announced they were proposing notices containing new rules to help homeowners with their mortgages, specifically from the ‘surprises’ and costly mistakes from the mortgage servicers.
Mortgage servicers are responsible for collecting mortgage payments on behalf of the lender (holder of the loan). They typically handle escrow, customer service, loan modifications and foreclosures. Customarily, the homeowner has little or no say with whom their loan is serviced by, or transferred to. Homeowners may find their loans transferred to different servicers every year or two – or more. Each time the loan is transferred, modifications generally begin all over again, further frustrating the homeowner.
There have been countless problems with the servicers and their recordkeeping. With more than 11 million homeowners in distress – complaints from borrowers have soared particularly concerning problems with modifications and foreclosures. Servicers constantly and consistently lose homeowners’ applications and paperwork. When an error is found, homeowners find it nearly impossible to get that error corrected.
In January 2013, the Dodd-Frank Wall Street Reform and Consumer Protection Act will address these problems and impose certain requirements on servicers that the CFPB is implementing and refining. The Dodd-Frank Act had also given the CFPB the statutory authority to help fix the market with additional rules.
The CFPB has been collecting feedback from consumer groups, servicers and various government agencies for input since April 2012. The CFPB also wants to enhance the processes for evaluating consumers for alternatives to foreclosure and to lessen burdens on small servicers.
The first set of proposed rules have servicers stating clear and timely information on homeowners’ mortgages to avoid the costly surprises. Servicers will be required to provide regular and transparent monthly mortgage statements and will have to include a breakdown of payments by principal, interest, fees, escrow, amount of and the due date of next payment, recent transaction activity and any and all warnings about fees.
Before any interest rate adjustments, servicers will have to provide early disclosure on any changes so the homeowner can adjust and anticipate the consequences. The disclosure has to include information about alternatives and counseling resources if the new payment is not affordable.
The CFPB is calling for more transparency in ‘forced-placed insurance’ by lenders. Servicers are responsible for ensuring the homes are insured. If the home becomes uninsured by the borrower, for any reason, the servicer has the right to purchase insurance to protect the lender’s property. The forced-placed insurance typically costs much more than normal insurance, the costs are passed along to the homeowner, many times without the homeowner even knowing. The new rules call for giving advance notice and pricing information to the homeowner before charging the homeowner. The servicer would also be required to terminate the insurance within 15 days if the borrower shows evidence he has the necessary insurance coverage.
Servicers would have to contact delinquent borrowers and inform them of their options to avoid foreclosure.
Servicers would be required to respond to the borrower in 30 days.
Many rules that are just common sense are supposed to go into effect including; having mortgage payments credited the day payment is received, establish policies and procedures to provide accurate and current information to minimize errors, correct errors quickly, provide delinquent borrowers with direct, easy, ongoing access to employees who are dedicated and empowered to help borrowers and evaluate borrowers for options to avoid foreclosure.
The CFPB will publish the finalized rules in January 2013. Having read the drafted rules, the Federal Housing Finance Agency (FHFA) new rules and the new rules federal regulators keep enacting, one can only hope the new safeguards will go into effect in a timely matter and will help the borrowers.
The CFPB want to first integrate their new rules with certain disclosures from the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) before taking effect. Though no deadline was mandated for finalizing the TILA-RESPA integrated proposal, the Bureau anticipates the finals rules will be published ‘sometime’ next year.
This article is not intended as legal advice. The opinions of this article are solely the opinion of the author.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. His foreclosure defense practice includes foreclosure prevention, foreclosure assistance, loan modifications, short sales, and all other foreclosure defense legal assistance. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you