The Consumer Financial Protection Bureau announced Thursday that it has issued new consumer protection rules targeted at one of the industries for which it receives a large number of complaints — mortgage servicers.
Mortgage servicers are essentially the face of your mortgage. Their role in the lending process is to collect payments from borrowers on the behalf of lenders. They also deal with borrowers who are delinquent on their loans, either taking them through the foreclosure process or working on a loan modification or another type of resolution.
“For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures,” said CFPB Director Richard Cordray in a prepared statement. “Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.”
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The regulations specify a slew of major changes that the CFPB argues will give consumers more protections when it comes to the foreclosure process. First are restrictions to a practice known as dual tracking, when a mortgage servicer proceeds with the foreclosure process while simultaneously working with the borrower to modify the loan. The new rules prohibit mortgage servicers from beginning the foreclosure process until 120 days after the first missed payment, which is already a pretty standard time period in the industry, according to senior CFPB officials.
The CFPB will also institute what it’s calling a “fair review process,” which requires mortgage servicers to consider all possible means of avoiding foreclosure that have been approved by the owners of or investors in the mortgage. Also, servicers will be required to have staff dedicated to managing communications with borrowers. The intention of these rules is to give consumers a simpler way of working with the servicer to avoid foreclosure, while giving the owners of the mortgage more say in what loan modifications or other options they are willing to consider.
While this is a step forward in regulating a major section of the mortgage industry, some consumer advocates see the new rules as not going far enough.
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“We commend the Consumer Financial Protection Bureau for seeking to address broad problems in the mortgage servicing industry and for extending some sensible, enforceable, guidelines to the entire market,” said National Consumer Law Center (NCLC) attorney Alys Cohen in a statement. “However, the CFPB’s final rules fail to implement the key lesson of the foreclosure crisis, that a loan modification requirement is essential to protect qualified homeowners from unnecessary foreclosures. While the establishment of industry-wide standards is important, the failure to require meaningful loan modification protections is a retreat from current safeguards under the soon-to-expire HAMP loan modification program.”
The new rules will go into effect in January 2014 and the CFPB will work with servicers over the course of the year to assist with compliance. Servicers with less than 5,000 mortgages are exempt from certain parts of the new rules.
Image: Ian Muttoo, via Flickr