Since most servicers send out a foreclosure notice after 90 days, the one-month extension might appear to extend the foreclosure process. But in reality, 42% of delinquent borrowers have not made a payment in almost two years, according to data from RealtyTrac, so it is unclear whether the change by the CFPB will have much impact.
A basic premise of national servicing standards is that borrowers must be provided with all available options to avoid foreclosure and the process must be uniform for banks and nonbanks alike. With millions of homeowners in distress, many borrowers still have problems getting a loan modification. While the new servicing rules do not mandate that servicers give all borrowers a modification, they do outline the basic steps that must be taken, such as a fair review process, before a servicer can start a foreclosure.
"Servicers failed to answer phone calls, routinely lost paperwork, and mishandled accounts," Cordray said. "Communication and coordination were poor, leading many to think they were on their way to a solution, only to find that their homes had been foreclosed on and sold."
One of the more controversial areas related to servicing has been force-placed insurance, where servicers have come under fire for charging borrowers for such insurance without notice or time for the consumer to shop themselves.
The CFPB rules stop servicers from charging for such insurance unless the servicer has notified the consumer first and has a "reasonable basis" such insurance is necessary. To meet those tests, servicers must:
- Notify customers at least 45 days before charging for force-placed insurance and send a second notice at least 15 days prior to charging any fee.
- Cancel any force-placed insurance within 15 days and refund all premiums if the borrower provides proof of hazard insurance coverage.
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.