The federal agency tasked with protecting consumers from financial distress as a result of troublesome lending practices recently issued a proposal to change mortgage rules, but has drawn significant fire for it.
However, unlike most criticism of the federal Consumer Financial Protection Bureau’s proposed regulatory changes, these voices are not those of the lending industry, but rather from Americans the agency is supposed to protect, according to a report from the political news site The Hill. A number of consumer advocacy groups have noted that the CFPB’s latest rule still allows lenders to continue participating in a number of troubling practices that make it more difficult for borrowers to keep their homes.
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The most upsetting practice for these groups, which is known in the industry as “dual tracking,” allows lenders to continue evaluating a homeowner’s options for obtaining a mortgage modification while still moving toward foreclosure, the report said. The CFPB’s proposed rule allows this to continue, but the lender or servicer cannot foreclose on the home without having first officially considered the benefits of a modification. However, groups such as the Center for Responsible Lending and the National Consumer Law Center say that more can be done.
“If somebody is sending in their paperwork and applying … the servicer can continue going ahead with the foreclosure process – like having the court declare a person is in default, setting the date for the foreclosure sale,” Michael Calhoun, president of the Center for Responsible Lending, told the site. “That just cuts it way too close.”
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Instead, these groups would prefer that the rule require servicers to stop all foreclosure proceedings once a borrower seeks a modification of any kind, and that efforts to seize the property should only resume when all other options have been exhausted, the report said. Another potential problem is that borrowers are given the right to dispute potential errors, but if a home is already sold, there is little to be done about those complaints.
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The CFPB has generally received high praise from consumer advocacy groups for its efforts to increase protections for borrowers on many types of loans, including credit cards and mortgages. Fortunately for borrowers, the proposed rule won’t be finalized for until 2013, so there may still be time to alter the language contained therein.
Image: 401(K) 2012, via Flickr
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