Since the recession began in the late 2000s, many homeowners have struggled to keep their homes, often fighting off aggressive and shady foreclosure attempts. Over the years, consumers groups have fought to extend protections for these consumers. On Thursday, the Consumer Financial Protection Bureau took steps to ensure that homeowners and struggling borrowers are treated fairly by mortgage servicers.
The Bureau’s proposed rules [PDF] cover a variety of issues from providing additional help to consumers who previously faced foreclosure to making sure that loan servicers who buy a borrower’s loan provide the consumer with the same protections and advanced notice as previously afforded to them.
The rules focus on correcting the often shady tactics mortgage servicers – companies responsible for collecting payments from the borrower and forwarding the payment to the owner of the loan – employ when typically handling customer service, collections, loan modifications, and foreclosures.
Officials with the CFPB say the proposed rules are part of the Bureau’s ongoing effort to protect struggling homeowners and to make the mortgage process easier to understand.
Back in 2010, the CFPB put in place rules to eliminate surprises and runaround from consumers, the rules require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments and correct errors on request.
Since those rules went into effect the CFPB has continued to hear from consumer advocacy groups that more could be done to protect consumers.
Require Foreclosure Protections More Than Once
Under the newly proposed rules, servicers are required to provide certain borrowers with foreclosure protections more than once over the life of the loan.
Currently, a mortgage servicer must give borrowers certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosures, only once during the life of their loan.
Expand Consumer Protections To Heirs, Successors
With the proposed rule, servicers would be required to once again extend these protections to borrowers who have brought their loans current at any time during the last loss mitigation application.
According to the CFPB this rule change would be particularly helpful for borrowers who obtain a permanent loan modification and later suffer an unrelated hardships, such as job loss or death of a family member.
Required Notification For Loss Mitigation Processes
The new rules also expand consumer protections to surviving family members and other homeowners.
In the event that a borrower dies, the CFPB’s rules currently require that servicers promptly identify and communication with family members, heirs, and other parties, known as “successors in interest,” who have a legal interest in the home.
The new rule expands the circumstances in which consumers would be considered successors. Meaning that if the property is passed to another family member through a divorce, legal separation, through a family trust, between spouses, from a parent to a child or when a borrower who is a joint tenant dies, that borrower would receive the same protections as the original homeowner.
Protection For Struggling Borrowers During Servicing Transfers
Often when mortgages are transferred from one servicer to another, the borrower who had applied to the prior serviver for loss mitigation may not be notified of where they stand with the new servicers. In that instance, the new CFPB rules clarify that generally a transferee servicer must comply with the loss mitigation requirements within the same timeframes that applied to the previous servicer.
So if the borrower’s application was complete prior to the transfer, the new servicer generally must evaluate it within 30 days of when the prior servicer received it. For involuntary transfers, the proposal would give the new servicer at least 15 days after the transfer date to evaluate a complete application. If the new servicer needs more information in order to evaluate the application, the borrower would retain some foreclosure protections in the meantime.
Clarification To Prevent Servicers’ Dual-Tracking, Wrongful Foreclosures
Currently CFPB rules prohibit servicers from proceeding to foreclosure one they receive a complete loss mitigation application from a borrower more than 37 says prior to a scheduled sale. But in some cases, borrowers are not receiving this protection and servicers’ foreclosure counsel may not be taking adequate steps to delay foreclosure proceedings or sale.
The Bureau’s proposal clarifies what steps servicers and their foreclosure counsel must take to protect borrowers from a wrongful foreclosure sale.
Servicers who do not take reasonable steps to prevent the sale must dismiss a pending foreclosure action.
The proposed clarifications would aid servicers in complying with, and assist courts in applying, the dual-tracking prohibitions in foreclosure proceedings to prevent wrongful foreclosures.
Clarification On Delinquency Timing
Several current protections under the Bureau’s rules are contingent on how long a consumer has been delinquent on a mortgage. The newly proposed rules aim to take the guess-work out of that issue, but clarifying that delinquency, for purposes of the servicing rules, begins on the day a borrower fails to make a periodic payment.
Under the proposal, when a borrower misses a payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date of delinquency advances.
The proposal also would allow servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full payment by a small amount.
Officials with the CFPB say the clarification will help ensure borrowers are treated uniformly and fairly by all servicers.
Protecting Borrowers In Bankruptcy
Currently borrowers in bankruptcy receive little or no periodic statements or loss mitigation information from their servicers; the proposed rule would change this way of business.
Consumer groups were quick to applaud the CFPB for their proposed foreclosure protections.
The National Consumer Law Center says in a statement [PDF] that the new revisions are an important step toward improving protections for distressed borrowers.
“The CFPB’s proposal addresses several top-line problems for homeowners seeking help from their mortgage companies,” Alys Cohen, staff attorney for the NCLC says in a statement.
Still, the group believes that several important issues were not addressed in the proposed rules and urged the CFPB to look into the problems further.
“Homeowners must have clear guidance on what they need to submit in order to have their request for assistance reviewed. Because key protections only apply once a complete application has been submitted, homeowners continue to face skyrocketing fees and piled-on interest from foreclosures while they try to complete their applications,” Cohen says.
The proposed rules and disclosures will be open for public comment for 90 days after their publication in the Federal Register.
CFPB Proposes Expanded Foreclosure Protections [CFPB]
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