As promised, the Consumer Financial Protection Bureau has updated its mortgage servicing rules that took effect in January 2014.
Now, mortgage servicers working with borrowers who have applied for loss mitigation will be required to let borrowers know the exact date when their loss mitigation package is competed, the CFPB says.
“This is important because certain protections don’t begin until an application is complete,” the CFFB says in a release. “Servicers are often prohibited from conducting a foreclosure sale while they are in the process of reviewing a complete application.”
In addition, borrowers who go through loss mitigation – including mortgage modification and forbearance programs – will be allowed to apply for those programs more than once. That means that if a borrower has gone through a modification program, but is still struggling after going through that program, they can apply for loss mitigation all over again. Under the current rules, borrowers can only go through loss mitigation once.
“When the new rule goes into effect, certain borrowers who received help under the rule before may be eligible to get help again,” the CFPB says in its release. “Receiving the protections more than once is important for people who may experience an unexpected hardship, like the loss of a job or a debilitating illness.”
The revised rules also offer more protection for “successors in interest,” individuals who didn’t borrow the money originally but who acquire ownership rights to a home, often when the borrower dies or as a result of a divorce.
Now, successors in interest will be defined more broadly to include “omeone receiving the ownership interest when a property is transferred upon the death of a relative, as a result of a divorce or legal separation, through certain trusts, between spouses, from a parent to a child, or when a borrower who is a joint tenant dies.”
It will be up to the servicers to determine who these successor in interest are and to confirm their status. In addition, once these successors are identified and confirmed, servicers will be required to give them access to many of the same notices and documents that the original borrower would receive.
In addition, there is new provision requiring servicers to provide more information to borrowers in bankruptcy. Under the current rules, “servicers do not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy,” the release states.
Under the new rules, however, servicers are required “to provide statements to these borrowers in certain circumstances, with specific information tailored for bankruptcy, as well as a modified early intervention notice to let them know about loss mitigation options.”
The revised rules also require servicers to provide additional protections for borrowers who loans are in some stage of loss mitigation when those loans are being transferred. This includes the addition of new timeframes for these transfers, with an option to extend if needed.
“If a borrower submits an application shortly before transfer, the new servicer must send an acknowledgment notice within 10 business days of the transfer date,” the CFPB says. “If the borrower’s application was complete prior to transfer, the new servicer must evaluate it within 30 days of the transfer date. If the new servicer needs more information to evaluate the application, the borrower would retain some foreclosure protections in the meantime. If the borrower submits an appeal, the new servicer has 30 days to make a determination on the appeal.”
The new rules also include a section that clarifies servicers’ obligations to avoid dual tracking and prevent wrongful foreclosures. The existing rules “prohibit servicers from taking certain actions in foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale.”
“However, in some cases, borrowers are not receiving this protection, and servicers’ foreclosure counsel may not be taking adequate steps to delay foreclosure proceedings or sales,” the bureau says.
“If a servicer has already made the first foreclosure notice or filing and receives a timely complete application, [the servicer and its] foreclosure counsel must not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, even if a third party conducts the sale proceedings, unless the borrower’s loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement,” the bureau says in its release, adding that this should help prevent dual-tracking and wrongful foreclosures.
“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” says Richard Cordray, director of the CFPB, in a statement. “These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable.”
The CFPB says the new rule won’t take affect “for a while” so as to “give servicers and others in the mortgage industry time to update their systems and to implement the new protections.”
To view the full final rule with changes, click here.