Federal agency announces new rules to protect against foreclosure


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.

If you’re currently struggling with your mortgage and aren’t sure what programs and options are available to you, Money Management International (MMI) offers free housing counseling 24 hours a day, 7 days a week, by telephone, Internet and in-person (in certain local markets).

You don’t have to struggle alone — contact us today and let us help you find a solution.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.