January 17, 2013
CFPB RULES ESTABLISH STRONG PROTECTIONS FOR HOMEOWNERS FACING FORECLOSURE
Abbreviate release from the Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) is issuing new mortgage servicing rules to establish strong protections for struggling homeowners facing foreclosure. The rules will also protect all homeowners from being hit by costly surprises or getting the runaround from their servicers. Rules will go into effect in January 2014.
STRONG PROTECTIONS FOR STRUGGLING BORROWERS
The CFPB’s rules will bring greater consumer protections to the mortgage servicing market. The rules are aimed at providing consumers with better tools and information when dealing with mortgage servicers. The rules will better inform consumers of, and assist consumers with, options that may be available if they are having difficulty with their mortgage loan obligations. For homeowners facing foreclosure, the rules provide strong protections in the foreclosure process.
The new protections for struggling borrowers include:
Restricted Dual-Tracking: Dual-tracking – when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure – is restricted. The practice has hurt many consumers who thought they were working out a resolution with their banks and were shocked to learn of a scheduled foreclosure sale. Under the new rules:
Early Notice When in Trouble: Servicers must include information about delinquency in a borrower’s monthly statement after the borrower misses two consecutive payments. This information must include the date the borrower became delinquent, the amount required to bring the loan current, and the risks of failing to do so.
Notification of Foreclosure Alternatives: Servicers must reach out to borrowers who have missed two consecutive payments. Specifically:
Direct and Ongoing Access to Servicer Personnel: Servicers must maintain policies and procedures to provide borrowers who are two months delinquent with direct, easy, ongoing access to employees responsible for helping them avoid foreclosure. This is often called “continuity of contact.” These personnel are responsible for making sure documents get to the right servicing personnel for processing. And, they must have timely access to the borrower’s records and be responsible for providing the borrower with accurate information about:
One Application: Servicers will not be allowed to require multiple applications for multiple modifications. They must offer a single application for all available options and a borrower who submits a complete and timely application must be considered for all options at once.
Confirm Application and Prompt Review: Servicers must inform the borrower, within five days of receipt, whether a loss mitigation application is complete (as long as the application is received 45 days or more before a foreclosure sale). Servicers must review and respond within 30 days to complete loss mitigation applications that are received more than 37 days before a foreclosure sale.
Fair Review Process: Servicers must provide a fair process to a borrower seeking alternatives to foreclosure. Specifically:
No Foreclosure Sale Until All Other Alternatives Considered: Servicers must not move for foreclosure judgment, order of sale, or conduct a foreclosure sale, if a borrower submits a complete application for a loss mitigation option more than 37 days before a foreclosure sale. The servicer must first evaluate the borrower’s application and one of the following must occur before the servicer can move forward with foreclosure:
No Foreclosure Sale With A Loss Mitigation Agreement: Servicers must not start foreclosure if they have come to a loss mitigation agreement with the borrower, unless the borrower fails to perform under that agreement.
Borrower Recourse: Servicers must explain why they have rejected a borrower’s application for a loan modification if the application is received more than 37 days before a foreclosure sale. Specifically:
Mortgage borrowers should not be surprised about where their money is going, when interest rates adjust, or when they get charged sudden fees. The CFPB’s rules will help every borrower, whether they struggle or not, by bringing greater transparency to the market with clear and timely information about mortgages. These rules include:
Clear Monthly Mortgage Statements: Generally, servicers must provide clear monthly statements. The statements have to include:
Early Warning Before Interest Rate Adjusts: Servicers must provide a disclosure before the first time the interest rate adjusts for most adjustable-rate mortgages. This disclosure must include:
Options for Avoiding Costly “Force-Placed” Insurance: Servicers typically must make sure borrowers maintain property insurance. If the borrower does not, the servicer generally has the right to purchase insurance to protect the lender’s interest in the property and require the borrower to reimburse the servicer for that cost. This is called “force-placed” insurance, and it is typically more expensive and provides less protection to borrowers than insurance borrowers can privately purchase. To ensure that servicers do not unnecessarily charge borrowers for force-placed insurance, the rule requires that:
When mortgage servicers make mistakes, records get lost, payments are processed too slowly, or servicer personnel do not have the latest information about a consumer’s account, the consumer suffers the consequences. CFPB’s rules require common-sense policies and procedures for handling consumer accounts and preventing runarounds. These rules include:
Payments Promptly Credited: Servicers must credit a borrower’s account the date the payment is received. Specifically:
Prompt Response to Requests for Balances: Servicers must generally provide a response to consumer requests for the balance of their mortgage loans within seven business days of receiving a written request.
Errors Corrected and Information Provided Quickly: Servicers must acknowledge and respond to written notices from consumers with respect to certain errors or requesting information regarding their mortgage loan accounts. Specifically:
Maintain Accurate and Accessible Documents and Information: Servicers must hold on to borrower records until one year after the loan is paid off or transferred. These records must be maintained in a manner that allows them to be compiled quickly. In addition, servicers must maintain policies and procedures to ensure that they can access and provide timely and accurate information to borrowers, investors, and, if there is a foreclosure proceeding, courts.
SMALL SERVICER EXEMPTIONS
Recognizing that small servicers approach servicing quite differently, the CFPB has made certain exemptions to today’s mortgage servicing rules. Servicers that service 5,000 mortgage loans or less and only service mortgage loans that they or an affiliate own or originated are exempt from some of the new rules. These exemptions include many of the procedural rules, including most of the requirements regarding the handling of loss mitigation applications.
For the complete article including background information, visit http://files.consumerfinance.gov/f/201301_cfpb_servicing-fact-sheet.pdf