Watchdog Proposes Rules to Protect Homeowners From Bad Foreclosures

The Consumer Financial Protection Bureau Thursday proposed new rules that would offer U.S. homeowners additional protection from foreclosure. The proposals are part of the CFPB’s ongoing effort to protect struggling homeowners and make the mortgage process easier to understand.

The expanded protections cover a variety of issues, from clarity about loan delinquency to additional help for people who have previously faced foreclosure. The goal is to ensure no one is wrongly foreclosed upon. Here are some of the requirements the CFPB proposes enacting.

Multiple Chances

Mortgage servicers are required to evaluate whether a borrower meets the CFPB’s standards for foreclosure protection at least once during the life of the loan. The new rule would require servicers to again evaluate borrowers for foreclosure protection eligibility if they became current on the loan since the last loss mitigation application (the process where a third party helps the borrower and lender negotiate loan terms to avoid foreclosure).

“This change would be particularly helpful for borrowers who obtain a permanent loan modification and later suffer an unrelated hardship – such as the loss of a job or the death of a family member – that could otherwise cause them to face foreclosure,” according to a CFPB release on the proposals.

Protections for Surviving Family Members

The proposals would extend foreclosure protections to family or “successors in interest” of a borrower who dies. It would also expand communication to successors or other homeowners following not just death but also a property transfer after circumstances like divorce and legal separation.

Better Communication

Foreclosure protections take effect after borrowers complete loss mitigation applications, but borrowers don’t always know when those applications are complete and they have access to the protections. This proposal would require servicers to promptly notify applicants of their completion status.

Servicers cannot go forward with foreclosure once they receive a complete loss-mitigation application, but that rule hasn’t adequately prevented servicers from going forward with foreclosure proceedings or sales. The new rules clarify those requirements.

More Information

The CFPB also wants servicers to more clearly communicate to borrowers at which point a loan is in default and maintain better contact with borrowers going through bankruptcy. Additionally, servicers would be required to proactively supply these troubled borrowers with information about options for avoiding foreclosure and statements tailored to borrowers going through bankruptcy.

“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” said CFPB Director Richard Cordray in a news release. “Today’s proposal would give greater protections to mortgage borrowers.”

Facing foreclosure is intimidating, but the good news is you may be able to avoid it (and possibly save your credit standing) if you explore your options.