CFPB Says New Servicing Rules Protect Homeowners Against Foreclosure
By: Esther Cho
The Consumer Financial Protection Bureau (CFPB) announced a new set of rules for servicers in an effort to establish what the bureau calls “strong protections” for homeowners who are facing foreclosure.
Among the protections for homeowners facing foreclosure, one requires servicers to wait more than 120 days after a missed payment before beginning foreclosure proceedings against a homeowner. The rule is meant to provide homeowners more time to seek an alternative to foreclosure.
The bureau also placed a restriction on dual-tracking, which occurs when a homeowner goes through the foreclosure process while also pursuing a modification. With the new rule, servicers can’t begin the foreclosure process on a homeowner if a borrower has already submitted a completed application for a loan modification or another solution outside of foreclosure.
Protections were also established for homeowners who are facing a foreclosure sale date. If a homeowner submits a loss mitigation application more than 37 days before a scheduled sale date, the servicer must respond to the application. If an alternative to foreclosure is offered by the servicer and agreed upon by the homeowner, the servicer can’t proceed with the foreclosure sale unless the borrower fails to perform his or her part of the agreement.
Another foreclosure protection requires written notice from servicers to borrowers to let homeowners know of their options after missing two consecutive payments. Servicers must also provide borrowers with direct access to employees who are responsible for updating borrowers on the status of their applications and ensuring borrower documents get to the correct personnel for processing.
The rules also require a fair review process, meaning servicers must consider all foreclosure alternatives available from mortgage owners or investors to help borrowers stay in their home. And, servicers can’t steer borrowers to options that are most financially favorable for the servicer.
Another rule prohibits servicers from charging borrowers for force-placed insurance unless there is a reasonable basis to believe the borrower did not maintain hazard insurance. And, the servicer must send also send notices before charging force-placed insurance.
The new servicing rules take effect January 2014, but there are exceptions for small servicers. The bureau defines small servicers as those who service 5,000 or fewer loans and service only mortgage loans that they or an affiliate originated or own.
In a statement, David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA), commended the new rules while also addressing concerns.
“Overall, the objective of this effort is the right one – create one set of rules so that borrowers know how they will be treated and servicers know what is expected of them,” said Stevens.
“An initial reading of the summary indicates that there are some issues that still concern us. 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,” he added.
Julia Gordon, director of housing finance and policy at the Center for American Progress, also applauded the new servicing standards overall, stating, “The new rule takes a critically important step toward providing comprehensive standards for all mortgage servicers.”
Gordon did, however, offer one critique.
“[D]ue to concerns about the extent of its authority, the Consumer Financial Protection Bureau missed an opportunity to mandate that all servicers offer affordable loan modifications to homeowners who qualify.”
Under the Dodd-Frank Act, the CFPB was given authority to establish servicing rules. A summary of the rules can be found online.
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