Richard Cordray, director of the Consumer Financial Protection Bureau announced new regulations for mortgage servicing designed to protect homeowners. The new rules, Cordray said, will require more specific notifications and protections from mortgage servicers to ensure quality service for homeowners and prevent customers from being caught off guard to changes made to their mortgage.
"Our rules will provide a fairer and more effective process for troubled borrowers who face the potential loss of their homes," Cordray said. "Even before [the financial crisis], many servicers failed to provide the basic level of customer service that borrowers deserve, costing them money and dumping them into foreclosure."
The rules will require better payment processing, information management and communication with customers, Cordray stated. For instance, mortgage statements will have to clearly explain payments by principal, interest, fees and escrow, and have to state the amount and due date of the next payment. Servicers will have to notify customers in advance on any changes to their interest rate. When notifying customers of a rate change the servicer will have to provide the new interest amount and payment amount, and when the next payment is due.
The regulations will also place limits on servicers' ability to "force-place" home insurance on customers, which often costs more than insurance that customers can buy on their own, Cordray said. Servicers will need to have a "reasonable basis" to prove that the borrower lacks necessary insurance before purchasing a new insurance policy. If that "reasonable basis" is not provided then the servicer will have to terminate the new policy within 15 days and refund the insurance premium.
The rules also include procedures for payment processing and resolving processing errors. Payments will have to be credited the day they are received, Cordray said. When customers call a servicer about a payment error the servicer will have to investigate the matter and inform the customer in a timely manner about the investigation's findings.
To prevent further foreclosures, the CFPB's new rules also provide new protections for homeowners to help avoid foreclosure. The CFPB will restrict the practice of "dual tracking," which is when the servicer pretends to b working with the borrower to avoid foreclosure while at the same time moving forward with foreclosure proceedings on the property. Under the new rules servicers will not be allowed to start foreclosure proceedings until after the borrower has missed payments for at least 120 days. This will give time for borrowers to understand their options and apply for loss mitigation, Cordray said. Also, if borrowers miss two consecutive payments their next statement must identify the date the borrower became delinquent, the amount needed to make the loan status current and clearly state the consequences of failing to do so.
If a customer misses a payment the servicer will now have to reach out to the customer early on to explain different options such as loan modification, Cordray said. Delinquent borrowers will have to be provided with a single application for all options available to them. If a customer applies for a loan modification the servicer has to acknowledge receipt of that application within five days and notify the borrower if the application is incomplete.
To that end servicers will be required to have personnel directly responsible for dealing with borrowers who are struggling to make their payments. Those personnel will have to have full access to the borrower's information and be in direct and ongoing contact with the borrower.
If a customer has applied for a loan modification or the borrower and servicer have agreed to loss-mitigation terms, the servicer will not be allowed to start foreclosure proceedings, Cordray stated. And if a loan modification application is denied, the servicer will have to provide specific reasons for the denial.
"Mortgage servicers who choose to be indifferent to the plight of consumers will now be subject to these mandatory rules," Cordray said.