Consumer bureau announces new rules to protect borrowers from unnecessary foreclosure. Learn more.
Homeowners will receive protection from unnecessary foreclosures under new rules for mortgage servicers announced today by the Consumer Finance Protection Bureau.
For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround,” Richard Cordray, CFPB director, said in a statement. “In too many cases, it has led to unnecessary foreclosures.”
The rules aim to ensure that homeowners who become delinquent on their mortgages can fairly participate in processes designed to help them stay in their homes. According to the CFPB, the mortgage servicing industry has a history of “sloppy recordkeeping” that has made it difficult to serve borrowers who fell behind on their payments. Among other provisions, the new rules require mortgage services to inform delinquent borrowers in writing of the options they have for keeping their home.
Servicers are banned from starting a foreclosure proceeding on a borrower who has a pending application for a loan modification or taken other steps to avoid foreclosure. Additionally, servicers must wait until a mortgage is 120 days delinquent before they start a foreclosure proceeding.
Mortgages services are also required to provide clear monthly mortgage statements, early warnings of adjustments to interest rates and transparency regarding home insurance options. The rules also put into place “common-sense” procedures for managing accounts and ensuring efficient services. For example, servicers must credit accounts on the day a payment is received, must correct any processing errors within 30 days, and maintain accurate and accessible databases.
The rules for mortgage services are part of a larger CFPB initiative to prevent the types of irresponsible mortgage lending practices that led to the financial crisis. Last week, the consumer agency announced rules requiring lenders to ensure borrowers have the ability to repay their mortgages. The regulations also ban risky lending practices, such as interest-only and no documentation loans. The mortgage servicer and Ability-to-Pay rules are scheduled to go into effect in January of 2014.