The Consumer Financial Protection Bureau (CFPB) recently announced new rules aimed at mortgage servicers with the goal of protecting homeowners potentially facing foreclosure. The rules primarily serve to promote two ends: keeping consumers out of homes they can’t afford and making it harder for financial institutions to foreclose on those homes once the consumer starts to fall behind.
The CFPB is a federal agency created in 2011 and tasked with regulating consumer protection as it regards to financial products and services. The agency's jurisdiction includes banks, credit unions, securities firms, debt collectors and mortgage-servicers, among other financial institutions.
The new rules, which go into effect Jan. 10, 2014, include the following:
Firmer regulations on ‘dual tracking’
Dual tracking occurs when a financial institution processes a potential home loan modification for a borrower while simultaneously moving forward with a foreclosure.
Under the new rules, if the borrower applies for a modification at least 38 days before a scheduled foreclosure auction the lender must consider and respond to the application before moving forward with the foreclosure. If a modification is agreed upon, the lender cannot begin foreclosure proceedings unless you fail to meet your end of the agreement.
In addition, lenders cannot file for foreclosure until the borrower has fallen at least 120 days delinquent.
Improved communication and early intervention
Lenders will now be required to provide a detailed periodic statement every billing cycle, including a breakdown of the principal, interest, fees and escrow included in the payment due. Lenders must also advise borrowers with an adjustable rate mortgage of their estimated new rate and payment amount at least seven months before those changes go into effect.
If a borrower begins to fall behind on their payments, their lender will be required to make a good faith effort to contact the borrower and create a solution to the issue, assigning the borrower a dedicated point of contact in order to facilitate communication.
Also, servicers will now be required to credit your account for payments on the day the payment is received. The new rules also set specific guidelines for how quickly reported errors must be investigated and corrected.
Restrictions on force-placed insurance
Force-placed insurance is homeowner’s insurance purchased by your mortgage servicer on your behalf. It’s often significantly more expensive than the insurance you would purchase for yourself. The new rules require that servicers provide advanced warning and pricing information before purchasing this insurance.
The Ability-to-Repay rule
These new changes come on the heels of the recently announced Ability-to-Repay rule, which places a higher burden on lenders to verify that the loans they are selling to consumers can truly and reasonably be paid back under the agreed upon terms. This means more stringent verification of borrower assets and income to ensure that consumers are not stuck with loans they cannot afford.
For more information on the Consumer Financial Protection Bureau and these new rules, visit their website at ConsumerFinance.gov.
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