The Consumer Financial Protection Bureau (CFPB), stressing that it seeks to ‘protect mortgage borrowers from costly surprises and runarounds by their servicers,’ has issued new rules covering the foreclosure process.
The CFPB's new rules, which take effect in January 2014, will mandate the following requirements:
Restrictions on dual tracking. Under this rule, foreclosure proceedings cannot commence if a borrower has already submitted a complete application for a loan modification or another alternative to foreclosure and that application is still pending review. Servicers will not be able to make the first notice or filing required for the foreclosure process until a mortgage loan account is more than 120 days delinquent.
Notification of foreclosure alternatives. Servicers will be required to inform borrowers in writing about loss mitigation options after borrowers have missed two consecutive payments.
Direct and ongoing access to servicers. According to the CFPB, servicers ‘must have policies and procedures in place to provide delinquent borrowers with direct, easy, ongoing access to employees responsible for helping them.’
A fair review process. Servicers will be required to ‘consider all foreclosure alternatives available from the mortgage owners or investors – those with decision-making power over the loan – to help the borrower retain the home.’
Foreclosure sales as a final option. Servicers will be required to consider and respond to a borrower's application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale.
The CFPB is also requiring that servicers provide ‘clear monthly mortgage statements’ and early warnings prior to interest rate adjustments. Servicers will also be required to provide advance notice and ‘more transparency’ before charging borrowers with lender-placed insurance premiums.
However, the rules come with a major exception: The CFPB adds that it is providing ‘certain exemptions’ to smaller servicing operations that are responsible for volumes of 5,000 mortgages or fewer.
‘For borrowers who get into trouble, our rules provide further specific protections for a fair process to avoid foreclosure wherever possible,’ says CFPB Director Richard Cordray. ‘The key point to understand is that these measures can determine whether people save or lose their homes. If you have seen, as I have, the anguish on people's faces at the prospect of losing their home – perhaps the only safe place in their lives, and a key symbol of their progress in climbing the ladder to financial success – then you realize how much is at stake.’
David H. Stevens, president and CEO of the Mortgage Bankers Association, has commended the CFPB for ‘continuing to produce regulations that enhance transparency and certainty for borrowers and servicers alike.’ However, he noted a few concerns.
‘An initial reading of the summary indicates that there are some issues that still concern us,’ says Stevens. ‘For example, the definition of 'small servicer,' while improved, may still be too narrow, and there may be inconsistencies between the new rules around dual tracking and existing timelines mandated by Fannie Mae, Freddie Mac, FHA and the states.’
The new mortgage servicing rules are now online.