The Consumer Financial Protection Bureau (CFPB) has proposed new mortgage servicing rules to address a lack of transparency and accountability by mortgage servicers and to prevent servicers’ mistakes and surprises.
The CFPB proposed the new rules, covering nine topics, in the form of two notices pursuant to the CFPB’s authority to fix the market by adding to the rules in implementing the Dodd Frank Act.
The first notice addressed implementation of provisions under the Truth in Lending Act (TILA).
The proposed rules under TILA include requiring servicers to provide periodic billing statements for residential mortgages and to provide notices regarding adjustable rate mortgages. For example, the proposed adjustable rate mortgage rule would require notice between 210 and 240 days before a first adjustment and 60 to 90 days before later adjustments. The third rule proposed under TILA pertains to servicers promptly crediting payments they receive.
The second notice was pursuant to implementation of the Real Estate Settlement Procedures Act (RESPA).
One proposed rule under RESPA would regulate force placed insurance. The proposed rule would not permit a servicer to provide insurance for a borrower unless there is a reasonable basis to believe that the borrower has not procured their own insurance and unless there is a 45-day notice sent prior to a servicer providing force-placed insurance. A second rule proposed under RESPA deals with error resolution and information, requiring a servicer to acknowledge receiving notification, to conduct reasonable investigations in a timely manner, and inform consumers about resolution of errors. A third rule would regulate information management. A fourth proposed rule deals with early intervention for delinquent borrows, for example, notifying a delinquent borrower 30 days orally regarding available loss mitigation options and providing written notice 40 days after delinquency and providing information about the foreclosure process. Another proposed rule regards continuity of contact with a servicer, whereby a servicer would be required to assign dedicated personnel to a particular borrower. The final proposed rule deals with loss mitigation procedures, whereby the servicer would be required to implement procedures that would ensure complete loss mitigation options are reasonably evaluated before foreclosure and requiring the servicer to exercise reasonable diligence to complete incomplete applications prior to filing foreclosure.
Will Proposed Rules Work?
Problems with servicers have become well-known since the mortgage mess began, with numerous examples of servicers keeping sloppy records, being unresponsive and even committing fraud through practices such as “robo-signing.” Consumers facing foreclosure no doubt have experienced servicers saying one thing and doing another, improperly crediting payments, and not knowing who to talk to or having a different person to speak with every time the consumer makes contact.
Will the proposed rules, if enacted, be effective? Only time will tell. Generally these types of regulations have helped with the symptoms and not the diseases of lack of oversight and improper incentivization schemes. That said, any regulations that acknowledge the serious problems inherent in the contemporary lender/borrower relationship are bound to improve the situation (even if such improvements are merely incremental).
The CFPB will accept public comments on the proposed rules until October 9, 2012. Finalization is expected in January 2013.