CFPB Issues Proposed Mortgage Servicing Rules

The Consumer Financial Protection Bureau (CFPB) has issued two notices of proposed rulemaking designed to protect homeowners from surprises and mistakes made by mortgage servicers. The two notices contain nine specific provisions regarding mortgage servicing.

The first set of the CFPB’s proposed rules would provide consumers with clear and timely information about their mortgages so they can avoid costly surprises. The proposed rules would do this with:

  • Clear Monthly Mortgage Statements: Servicers would be required to provide regular statements that would include a breakdown of payments by principal, interest, fees, and escrow; the amount and due date of the next payment; recent transaction activity; and warnings about fees.
  • Warnings Before Interest Rate Adjustments: 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: Servicers have the responsibility to ensure that borrowers maintain property insurance. If the borrower does not maintain this insurance, however, 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 that would provide more transparency in this process, including requiring servicers to give advance notice and pricing information before charging consumers for this insurance. The servicer would also be required to terminate the insurance within 15 days if it receives evidence that the borrower has the necessary insurance and the insurer would refund the force-placed insurance premiums.
  • 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 second set of proposed rules would impose requirements for handling consumer accounts, correcting errors, and evaluating borrowers for options to avoid foreclosure. These “no-runaround” rules would include:

  • Payments Promptly Credited: Servicers generally would have to credit a consumer’s account as of the date a payment is received.
  • Maintaining 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. They would have to submit accurate legal documents that comply with applicable law, help borrowers on options to avoid foreclosure, and provide oversight of their contractors and foreclosure attorneys.
  • Errors Corrected Quickly: If a consumer notifies the servicer that she thinks there has been an error, the servicer would be required to acknowledge receiving the notification, conduct a reasonable investigation, and, in a timely manner, inform the consumer of the resolution.
  • Direct and Ongoing Access to Servicer Personnel to Assist 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.
  • Evaluating 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.

Credit unions will have until Oct. 9, 2012 to provide feedback and comments to the CFPB regarding these proposed requirements. The CFPB will issue final rules in January 2013.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

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