Imagine the panic and frustration of facing foreclosure, and then the additional aggravation of unresponsive and unhelpful mortgage service companies when you try to get answers. Since the mortgage crisis began, financially distressed homeowners have reached their wits end.
Responding to consumer outcry, the Consumer Financial Protection Bureau (CFPB) has proposed new rules announced on Friday that demand better service for consumers and provide clear information about monthly mortgage statements, interest rates, and options for avoiding foreclosure.
Mortgage service companies, which are usually contracted by the mortgage lender, collect payments, handle customer service, escrow accounts, collections, loan modifications, and foreclosures. Unfortunately, mortgage servicers have come under fire for shoddy service and questionable practices including poor record keeping, lost paperwork and other problems with loan modifications, failure to correct errors, and unresponsive customer service.
“Millions of homeowners are struggling to pay their mortgages, often through no fault of their own,” CFPB Director Richard Cordray said in a press release. “These proposed rules would offer consumers basic protections and put the ‘service’ back into mortgage servicing. The goal is to prevent mortgage servicers from giving their customers unwelcome surprises and runarounds.”
CFPB’s proposed rules would require:
- Clear Monthly Mortgage Statements: Servicers would be required to provide regular statements which would include a breakdown of payments by principal, interest, fees, and escrow; the amount of and due date of the next payment; recent transaction activity; and warnings about fees.
- Warning Before Interest Rate Adjusts: Servicers would have to provide earlier disclosures before the interest rate adjusts for most adjustable-rate mortgages. This disclosure would include information about alternatives and counseling resources if the new payment is unaffordable. This requirement would provide greater clarity to borrowers about the impact of interest rate changes. Existing disclosures for interest rate adjustments that cause a change in mortgage payments would be amended to include improved information and arrive earlier so that borrowers can anticipate consequences of payment changes.
- Options for Avoiding Costly “Force-Placed” Insurance: If the borrower does not maintain this insurance, the servicer has the right to purchase insurance to protect the lender’s interest in the property. This is called “force-placed” insurance and is typically more expensive than insurance the borrower could privately purchase. The CFPB is proposing a rule requiring servicers to give advance notice and pricing information before charging consumers for this insurance.
- Early Information and Options for Avoiding Foreclosure: Servicers would be required to make good faith efforts to contact delinquent borrowers and inform them of their options to avoid foreclosure.
The CFPB also proposed “Common sense, no runaround” rules to correct some of the many of the mortgage service mistakes commonly cited by consumers:
- Payments Promptly Credited: Servicers generally would have to credit a consumer’s account as of the date a payment is received.
- Maintain Accurate and Accessible Documents and Information: Servicers would be required to establish reasonable policies and procedures to provide accurate and current information to borrowers and minimize errors.
- Errors Corrected Quickly: If a consumer notifies the servicer of a possible error, the servicer would be required to acknowledge receiving the notification, conduct a reasonable investigation, and, in a timely manner, inform the consumer about the resolution.
- Greater Assistance for Delinquent Borrowers: Servicers would be required to provide delinquent borrowers with direct, easy, ongoing access to employees who are dedicated and empowered to help delinquent borrowers.
- Evaluate Borrowers For Options To Avoid Foreclosure: Servicers that offer options to borrowers to avoid foreclosure, such as loan modifications or other payment plans, would be required to promptly review applications for those options. Servicers would be prohibited from proceeding with a foreclosure sale until the review of the borrower’s application is complete. Servicers would also be required to let borrowers know when applications are incomplete and to allow borrowers to appeal certain servicer decisions.