What Are The Rules For Mortgage Servicing?

CFPB’s New Rules for Mortgage Servicing

The Consumer Financial Protection Bureau (CFPB) plans to propose eight rules regarding mortgage servicing and will finalize them by January 2013.  The purpose is to address the lack of transparency and lack of accountability by mortgage servicers.  Some of the rules being considered are: be more reasonable regarding proof of property insurance before charging for it , require additional disclosures for adjustable-rate mortgages and require mortgage servicers to provide clear monthly statements to borrowers.

Eight Rules

Here are the eight rules the Consumer Financial Protection Bureau plans to propose this summer:

1. Monthly mortgage statements: Mortgage Servicers would be required to provide statements that include a summary of the mortgage terms, a breakdown of payments by principal, interest, fees and escrow; the amount and due date of the next payment; recent transaction activity; late fee warnings and alerts about loss mitigation alternatives.

2.  ARM Warnings: A new rule would require servicers to provide “earlier” disclosures before interest rate changes on Adjustable Rate Mortgages (ARM). The disclosure must include an explanation of how the rate will be determined and when it will take effect; a good-faith estimate of the new monthly payment amount; the date of future interest-rate adjustments; the amount of any pre-payment penalty; and alternatives and resources for borrowers who can’t afford the new payment.

3.  Force-Placed Insurance: If a servicer believes a borrower has allowed their property insurance to lapse, it must ask the borrower to provide proof of insurance twice — at least 45 days and again 15 days before charging for the insurance — and must provide a good-faith estimate of the cost of the force-placed insurance. The servicer must accept any “reasonable form of communication” provided by the borrower to confirm the insurance, and cancel the force-placed insurance within 15 days of the confirmation. If the servicer has an escrow account to pay a borrower’s insurance premiums, it must continue the consumers’ homeowner insurance rather than purchasing fore-placed insurance, even if the borrower is delinquent.

4.  Avoiding Foreclosure: The rule would require servicers to make good-faith efforts to contact delinquent borrowers about options to avoid foreclosure, as well as information about housing counseling and the foreclosure process.

5. Payment Credits: The regulation would require servicers to credit a consumer’s account the day a payment is received; allow them to retain any partial payment in a suspense account; and, once the amount in the account equals one full monthly payment, require servicers to apply it to the earliest delinquent payment.

6.  Information Management: The rule would require servicers to establish “reasonable” information-management policies and procedures “designed to minimize errors and help with quick correction.” These include maintaining records of borrower contact, with possible exception for some small servicers; accept and organize documents submitted by borrowers in connection with loss mitigation requests; ensure reasonable and timely access to those documents.

7. Quick Error Correction: The regulation would require borrowers to acknowledge the notification of an error within five days and conclude an investigation within 30 days, with shorter time frames for errors related to foreclosures or payoffs.

8.  Direct Access: The rule would require servicers to provide borrowers with direct and ongoing access to a dedicated foreclosure prevention staff, who would have easy access to delinquent borrowers’ records, as well as access to underwriters who could evaluate whether a borrower is eligible for a loan modification or other option to avoid foreclosure.

“The mortgage servicing rules we are considering reflect two basic, common-sense principles — no surprises and no runarounds,” CFPB Director Richard Corday said in a press release. “For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It’s time to put the ‘service’ back in mortgage servicing.”

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Government, Money & Identity

This post was written by John Ulzheimer