The federal government's new consumer protection agency today will unveil a slate of new rules that would force mortgage servicers to be more open about their practices and give homeowners a bigger say in how their home loan is handled.
The Consumer Financial Protection Bureau is set to propose rules that would require mortgage servicers–or those entities that collect payments from borrowers and handle escrow accounts, loan modifications and foreclosures–to improve their customer service and give borrowers ample warning and options to avoid costly rate hikes, new fees and foreclosure.
"The mortgage servicing rules we are considering reflect two basic, common-sense principles – no surprises and no runarounds," Richard Cordray, director of the CFPB, said in a statement yesterday. "For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It's time to put the 'service' back in mortgage servicing."
Many borrowers have complained that they could have avoided foreclosure had they received certain information about their loan, while others found it difficult to have errors corrected, the agency said yesterday.
The proposals come on the heels of a massive settlement in February, in which five of the country's largest mortgage servicers agreed to pay a collective $25 billion to end an ongoing probe by state and federal regulators into abusive practices such as "robo-signing" foreclosure notices. New Jersey was earmarked to receive roughly $838 million from the accord, in the form of loan modifications, refinancings and direct payments to homeowners and contributions to state housing programs.
The CFPB's plans, which Cordray will announce at an event in Washington D.C., go beyond tackling misdeeds that ballooned during the housing bust, according to an advance summary of the eight proposed rules the agency provided to reporters yesterday.
One would require servicers to issue clear monthly mortgage statements that, for example, break down payments by principal, fees and escrow, and provide information for those falling into delinquency. Another rule would mandate earlier disclosure about interest-rate changes on most adjustable-rate mortgages, and provide alternatives for those who cannot afford the new rate.
A third rule would have to give homeowners options to avoid paying for costly "force-placed" insurance. These policies are bought by servicers when borrowers let their homeowners' insurance lapse, and often are more expensive than private insurance, the agency said. Under the CFPB's proposal, servicers would have to warn homeowners twice before charging them for this type of insurance, and provide an estimate for how much the policies would cost.
A fourth rule would require mortgage servicers to make good-faith efforts to reach out to delinquent homeowners and provide information to those having trouble paying their mortgage.
Other rules would require servicers to correct account errors promptly and credit payments properly. Servicers also would have to set up teams of employees to specifically assist delinquent borrowers and those who have warned that they may fall behind.
The rules would apply to all servicers, including those that handle mortgages owned by Fannie Mae and Freddie Mac. The CFPB has set an aggressive timetable for passing the mandate, too. The agency said it will publish the proposals for public comment during the summer and finalize them by mid-January.
Ed Beeson: (973) 392-4262, ebeeson@starledger.com
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