The CFPB rules also mandate that if a borrower already has an escrow account that covers hazard insurance premiums and the account runs out of funds, the servicer cannot purchase more expensive force-placed insurance. It must stick with the borrower's current insurer and even forward funds to the account if necessary.
Force-placed insurance "often can be more expensive than the insurance borrowers buy on their own," Cordray said. "Our rules force servicers to provide more transparency in this process, including advance notice and pricing information before charging consumers."
Servicers are required to:
- Inform borrowers within 60 days about their loss mitigation options after a borrower has missed two consecutive mortgage payments, including providing examples of various options to help avoid foreclosure.
- Make a good faith effort to establish "live" contact with a distressed homeowner after they have fallen behind on their mortgage payments by 36 days.
- Provide written notice about loss mitigation once a loan is delinquent by 45 days.
- Acknowledge receipt of a borrower's application for loss mitigation within five days and inform the borrower if their application is complete.
- Evaluate any mitigation application within 30 days for all eligible options to avoid foreclosure based on investors' eligibility rules.
- Give an explanation to borrowers if they are denied a loan modification. Servicers must provide a written decision, including their basis for a denial, and borrowers have a right to appeal as long as their application was received 90 days before a scheduled foreclosure sale.
Fair Review Process
Another major change to the final rules is that servicers now have to double-check with investors that own a delinquent loan what loss mitigation options they offer — from deferment of payments to loan modifications — and provide those options to the borrower. They also have to inform the investor of what they are doing.
For years, servicer incentives have not been aligned with the interests of investors, a senior CFPB official told reporters on Wednesday. Investors themselves have been unable to force servicers to provide loan modifications, in part because servicers may actually be paid more when a loan goes into foreclosure. Under the rules, servicers can no longer steer borrowers to those options that are most financially favorable to the servicer.
The CFPB's final rule differs from a requirement in the national mortgage settlement that the top five banks provide a "single point of contact," to borrowers. Instead, servicers are required to have "dedicated personnel" to provide delinquent borrowers "with direct, easy, ongoing access to employees responsible for helping them."
The CFPB rules require servicers to provide servicers with a handful of new notices, some of which are more common practices than others. Even for those that are already in use, however, the agency is mandating much more detail and a new set of timetables in certain cases.
- Billing statements must include a myriad of information such as payments due and made; fees imposed; contact information for the servicer and housing counselors; and delinquencies if applicable. The periodic statement requirement generally does not apply to fixed-rate loans if the consumer has a coupon book with the same information or is provided the remaining information, the CFPB said. The rule will also include sample forms and the timetable required to provide the information.
- Creditors, assignees, and servicers must provide consumers with an adjustable-rate mortgage a notice between 210 and 240 days before the first rate-adjustment payment is due. They must also give notice between 60 and 120 days before a payment is due that has been adjusted because of an interest rate change.
- Servicers must credit the periodic payments from borrowers on the day of receipt. If the borrower sends a payment less than the periodic amount due, the payment can be held in a suspense account. When there is enough funds in the suspense account to covers the payment, the servicer must apply the funds to the consumer's account.
- Creditors, assignees, and servicers must provide the correct payoff balance to a consumer no later than seven business days after receiving a written request from the borrower.
While some of this sounds like basic information, Cordray said such problems have gone on for years and continue today.
"In the second half of last year alone, our Office of Consumer Response fielded more than 47,000 complaints about mortgages," he said. "More than half were about the problems people have when they are unable to make their payments, such as issues relating to loan modifications, collections, or foreclosure."
The CFPB also issued requirements for how servicers must respond to written information requests or error complaints. The rule outlines error-resolution procedures that include any error relating to the servicing of a mortgage loan and timetables for responding.
Servicers have five days to acknowledge the notice of an error. They also have 30 to 45 days to: correct the error asserted by the borrower and provide the borrower written notification; or conduct an investigation and provide the borrower written notification that no error occurred.