Consumer Financial Protection Bureau (CFPB) is requesting comments on two sets
of proposed rules governing the operation of mortgage servicers. The new regulations, posted in The Federal Register, cover servicer's
operations involving both performing and delinquent mortgage loans.
said that the financial crisis has brought into focus many of the problems with
bad practices and sloppy record keeping that have plagued the servicing
industry for years. With millions of
homeowners falling delinquent on mortgages and facing or undergoing foreclosure,
complaints mounted about servicers losing applications and paper work for loan
modifications, homes being foreclosed in error, borrowers unable to reach
personnel who could assist them and facing difficulties in getting obvious
Dodd-Frank Wall Street Reform and Consumer Protection Act gave CFPB authority
to address some of these problems and the agency is implementing and refining
requirements for services which will be finalized in January, 2013. The first set of rules set out requirements
covering all mortgages and are designed, CFPB said, to provide consumers with "clear and timely information about their mortgages so they
can avoid costly surprises."
- Servicers would
be required to provide clear monthly mortgage statements which include a
breakdown of payments by principal, interest, fees, and escrows. The notices would also be required to inform
consumers of the amount and due date of their next payment, recent transaction
activity, and warnings about fees.
- Servicers would
be required to provide earlier disclosures before any adjustments on adjustable
rate mortgages. In addition to basic interest
rate and payment change information, servicers would have to inform borrowers
about alternatives and counseling resources if the new payment will be
unaffordable. Existing adjustment disclosures would be amended to include
improved information and mandated to arrive earlier so borrowers can anticipate
consequences of payment changes.
- If a borrower defaults in his obligation to maintain
property insurance the servicer has the right to purchase insurance to protect
their collateral. This "force-placed"
insurance is typically more expensive than the consumer could purchase on his
own so the new rule would provide more transparency in the process. Servicers would be required to give advance
notice and pricing information before charging the customer for a forced placed
policy and would require the servicer to terminate the insurance within 15 days
if the borrower provides proof of his own coverage. The insurer would also have
to refund any premiums for the forced-placed policy.
- Servicers would be required to make good faith efforts to
contact delinquent borrowers and inform them of their options to avoid
The second set of proposed rules
would impose requirements aimed at preventing events that might unnecessarily
lead to foreclosure. They include rules
for handling consumer accounts, correcting errors, and evaluating borrowers for
options to avoid foreclosure.
- As a general rule, servicers would have to credit a
consumer's account as of the date a payment is received.
- Servicers would be required to establish reasonable policies
and procedures to maintain accurate information, provide it to borrowers, and
minimize errors. Legal documents would
have to comply with applicable law.
Servicers would be required to help borrowers with options to avoid
foreclosure, and provide oversight of their contractors and foreclosure
- When a consumer notifies a servicer of a possible error, the
servicer must acknowledge receiving the notice, conduct a reasonable
investigation, and inform the consumer about the resolution in a timely manner.
- Delinquent borrowers must have direct, easy, and ongoing
access to servicing personnel who are dedicated and empowered to assist them
with their problems.
- Where servicers offer alternatives to foreclosure such as
loan modifications or payment plans, they will be required to evaluate borrower
requests for such assistance in a prompt manner. Servicers would be prohibited from proceeding
with a foreclosure sale while prevention actions are pending and would be
required to let borrowers know about incomplete applications and allow them to
appeal certain servicer decision.
"Millions of homeowners are struggling to pay
their mortgages, often through no fault of their own," said CFPB Director
Richard Cordray. "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
The agency said that in formulating
the rules it sought impact from consumer groups, small servicers, and other
government agencies and industry stakeholders.
The proposed rules released today represent refinements that came out of
these discussions, particularly regarding processes for evaluating consumers
for alternatives to foreclosure - and also lessen potential burdens on small
CFPB is also working with the
Cornell University e-Rulemaking Initiative (CeRI) to make it easier for the
public to comment on the proposed rules through a pilot project called
Regulation Room (www.regulationroom.org). Regulation Room provides
a mechanism for people and groups to learn about, discuss, and react to selected
rules proposed by federal agencies and CFPB expects contributions to Regulation
Room, while not becoming formal public comments, will be incorporated into a
public report prepared by CeRI researchers and submitted to the CFPB for use in
preparation of a final rule.
The public will have 60 days, until October 9, 2012,
to review and provide comments on the proposed rules. The CFPB will review and
analyze the comments before issuing final rules in January 2013.