by Anna DeSimone*, April 16, 2012
On April 9, 2012 the Consumer Financial Protection Bureau (CFPB) released an outline of rules under consideration to help protect mortgage borrowers from being hit by costly surprises or getting the runaround from their mortgage servicer. The CFPB plans to formally propose rules this summer and finalize them in January 2013. The Dodd-Frank Wall Street Reform and Consumer Protection Act imposed certain requirements on servicers and gave the CFPB the statutory authority to write strong additional rules to help fix the mortgage servicing market.
The rules under consideration by the Bureau are aimed at tackling two underlying servicing problems: lack of transparency and lack of accountability. To bring greater transparency to the servicing market, the CFPB is considering rules that would provide consumers with clear and timely information about changes to their mortgages so they can avoid costly surprises. The rules under consideration include:
Clear Monthly Mortgage Statements: Servicers would be required to provide regular statements with: a breakdown of payments by principal, interest, fees, and escrow; the amount of and due date of the next payment; and, for delinquent borrowers, alerts and information about counselors who can help them work with servicers and avoid foreclosure.
Warning Before Interest Rate Adjustments: Servicers would be required to provide disclosures before the interest rate changes on most adjustable-rate mortgages. This disclosure would include information about when the change will take effect and a list of alternatives that the consumer may pursue if the new monthly payment is unaffordable. The first interest rate reset notice would include contact information for housing counselors.
Options for Avoiding Costly “Force-Placed” Insurance: Because servicers have the responsibility to ensure that borrowers maintain hazard insurance on the property, if the borrower does not maintain such insurance, the servicer has the right to purchase insurance to protect the property. This is called “force-placed” insurance and is typically more expensive than insurance the borrower can purchase privately. The CFPB is considering a rule that would give the consumers more rights including requiring servicers to give advance notice and pricing information before charging consumers for this insurance.
Early Information and Options for Avoiding Foreclosure: Servicers would be required to make good faith efforts to contact delinquent borrowers and inform them of their options to help avoid foreclosure. And if a borrower contacts the servicer because she is having difficulty paying the loan, the servicer would have to provide timely, complete, and accurate information about her options.
To hold servicers accountable for treating consumers fairly, the CFPB is considering rules that would require common-sense policies and procedures for handling consumer accounts and preventing runarounds. These rules would include:
- Payments Immediately Credited: Servicers generally would have to credit a consumer’s account promptly after receiving payment.
- Records Kept Up-to-Date and Accessible: Servicers would be required to establish reasonable policies and procedures designed to minimize errors, prevent document loss, provide accurate information to borrowers, and assist with error resolution.
- Errors Corrected Quickly: If a consumer notifies the servicer that she thinks there has been an error the servicer would be required to acknowledge receipt of the notification, conduct a reasonable investigation, and inform the consumer about the resolution in a timely manner.
- Direct and Ongoing Access to Servicer Foreclosure Prevention Team: Servicers would be required to provide delinquent borrowers (or borrowers who are asking for help to avoid delinquency) with direct, easy, ongoing access to employees who are dedicated and empowered to help troubled borrowers.
All of these rules are part of the CFPB’s ongoing effort to address mortgage servicing problems. The CFPB may consider additional measures to address servicing issues in coordination with its federal government partners. The CFPB also has authority to supervise mortgage servicers and make sure federal consumer financial protection laws are being followed. The CFPB expects to publish a Notice of Proposed Rulemaking this summer, which will be followed by a public comment period. The rule will be finalized by January 21, 2013.
*Anna DeSimone is President and founder of Bankers Advisory, Inc., a quality control and compliance audit services company. Bankers Advisory authors state compliance matrices, policy manual templates and compliance commentaries exclusively for AllRegs.
Disclaimer: The information presented in this article represents the opinion of the author and not that of AllRegs. This article is not meant to be nor should it be construed as advice of legal counsel. The applicability of the information contained herein will vary based on the nature of each lending institution's business, under what law it was created, and its loan products and procedures. Readers are strongly urged to consult with their legal counsel and/or contact local counsel as appropriate in the various states and jurisdictions to determine the applicability of the materials contained herein to the specific facts and circumstances of each organization's programs and products and to identify other law applicable to its business operations. The information contained herein was not reviewed or approved by counsel in the respective jurisdictions.