This article first appeared in the St. Louis Beacon, Jan. 18, 2013 - New rules for mortgage servicers announced Thursday by the federal Consumer Financial Protection Bureau were praised by consumer advocates who say the industry's practices often stifled attempts by financially struggling homeowners to fight foreclosure.
The new rules ''will benefit millions of Americans by fixing several key problems that have plagued mortgage servicing,’’ said Mike Calhoun, president of the Center for Responsible Lending, in a statement. ''The rules establish basic standards such as requiring a timely application of monthly mortgage payments and a prompt correction of errors.’’
Calhoun said the new rules would help families save their homes from foreclosure, though he believes the consumer protection bureau should have gone further in some areas.
The Mortgage Bankers Association also expressed guarded approval of the final version of the regulations that had been proposed in August.
''Over all, 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 a statement by David Stevens, president and CEO of the association. ''While we still have not seen the full rule, the information we have seen so far indicates that the CFPB made productive changes to a number of the provisions, many of which were suggested by MBA and other stakeholders and we appreciate the CFPB’s inclusive rulemaking process. As with any rule of this size, the devil is truly in the details, and for servicers, that means how the rules are implemented and operationalized.”
Mortgage servicers act on behalf of mortgage owners, collecting payments from borrowers, providing customer service and handling loan modifications and foreclosures.
Among the issues tackled by the CFPB:
- Dual-tracking: The new rules restrict this practice, in which a servicer moves forward with foreclosure while simultaneously working with a homeowner to avoid it. It becomes a race to the finish for homeowners caught up in dual-tracking, as they receive conflicting information from the loan modification departments and collections departments of their servicers. In some documented cases, auction dates were set by servicers who had already notified borrowers that their mortgages would be modified. Under the new rules, servicers must wait until a mortgage is more than 120 days delinquent before making any foreclosure filings, and they cannot start a foreclosure if an application for a loan modification is pending.
- Poor communication and lost documents: The CFPB noted that servicers were unable to provide appropriate service during the height of the foreclosure crisis because ''many simply had not made the investments in resources and infrastructure to service large numbers of delinquent loans.” Homeowners complained of having to resubmit repeatedly lost documents and of getting the runaround as they sought to find solutions that were often touted by lenders. The new rules require servicers to provide ''continuity of contact’’ between their staff and borrowers to ensure that information is accessible and documents get to the right places. The rules also require servicers to provide early notification of delinquencies to homeowners, along with written ''loss mitigation” options to avoid foreclosure.
