WASHINGTON, DC— Key provisions championed by U.S. Senator Jack Reed (D-RI) to help protect consumers from questionable mortgage practices will be going into effect as part of the Consumer Financial Protection Bureau’s (CFPB) new rules against foreclosure abuses.
For years, Reed, a senior member of the Banking Committee, has been pushing legislation to eliminate the practice of “dual-tracking,” where a troubled homeowner is simultaneously being evaluated for a loan modification and being foreclosed upon. While the final rules stop short of prohibiting dual-tracking, it restricts mortgage loan servicers from moving the foreclosure process forward without giving borrowers reasonable time to submit modification applications. It also prohibits servicers from starting a foreclosure proceeding if an application is pending for a loan modification or other alternative to foreclosure.
“This clear set of rules and procedures will help prevent more faulty foreclosures and protect borrowers while providing clearer rules of the road for conscientious lenders. It will change the way servicers deal with borrowers by helping to level the playing field for individuals who are trying to deal with the maze of big banks and mortgage companies. Everyone deserves to be treated fairly and these new rules are a smart step in the right direction,” said Reed, who authored the Preserving Homes and Communities Act, which sought to end the practice of dual-tracking. “These national standards will lead to a stronger, more transparent and sustainable real estate market.”
In 2010, Reed helped write key sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB and directed it to implement reforms for the mortgage servicing industry.
According to the CFPB, the new protections for borrowers also include:
Notification of Foreclosure Alternatives: Servicers must let borrowers know about their “loss mitigation options” to retain their home after borrowers have missed two consecutive payments. They must provide them a written notice that includes examples of options that might be available to them as alternatives to foreclosure and instructions for how to obtain more information.
Direct and Ongoing Access to Servicing Personnel: Servicers must have policies and procedures in place to provide delinquent borrowers with direct, easy, ongoing access to employees responsible for helping them. These personnel are responsible for alerting borrowers to any missing information on their applications, telling borrowers about the status of any loss mitigation application, and making sure documents get to the right servicing personnel for processing.
Fair Review Process: The servicer must consider all foreclosure alternatives available from the mortgage owners or investors – those with decision-making power over the loan – to help the borrower retain the home. These options can range from deferment of payments to loan modifications. And servicers can no longer steer borrowers to those options that are most financially favorable for the servicer.
No Foreclosure Sale Until All Other Alternatives Considered: Servicers must consider and respond to a borrower’s application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale. If the servicer offers an alternative to foreclosure, they must give the borrower time to accept the offer before moving for foreclosure judgment or conducting a foreclosure sale. Servicers cannot foreclose on a property if the borrower and servicer have come to a loss mitigation agreement, unless the borrower fails to perform under that agreement.
The CFPB’s rules will also help improve the mortgage process for all borrowers by increasing transparency and simplifying information about mortgages. The new protections for all borrowers include:
Clear Monthly Mortgage Statements: Servicers must provide regular statements which include: the amount and due date of the next payment; a breakdown of payments by principal, interest, fees, and escrow; and recent transaction activity.
Fair Warning Before Interest Rate Adjusts: Servicers must provide a disclosure before the first time the interest rate adjusts for most adjustable-rate mortgages. They must also provide disclosures before interest rate adjustments that result in a different payment amount.
Payments Promptly Credited: Servicers must credit mortgage payments the same day they're paid.
Errors Corrected and Information Provided Quickly: Servicers must generally acknowledge receipt of written notices from consumers regarding certain errors or requesting information about their mortgage loans. Generally, within 30 days, the servicer must: correct the error and provide the information requested; conduct a reasonable investigation and keep the borrower informed.
Maintain Accurate and Accessible Documents and Information: Servicers must store borrower information in a way that allows it to be easily accessible. Servicers must also have policies and procedures in place to ensure that they can provide timely and accurate information to borrowers, investors, and in any foreclosure proceeding, the courts.
The new mortgage servicing rules are scheduled to take effect in January 2014.