WASHINGTON The Consumer Financial Protection Bureau continued its rewrite of the rules covering mortgage transactions by setting new rules this morning governing servicing, the latest efforts curbing the abuses recorded during the mortgage crisis.
The rules set specific timetables and restrictions on when a servicer can foreclosure on a borrower, including forcing them to wait at least four months after a loan is delinquent before even initiating a foreclosure proceeding. They also ban dual tracking of foreclosures and loan modifications and require additional disclosures and timetables for when servicers must comply with consumer requests.
"We will exercise our supervision and enforcement authority to make these rules stick for mortgage servicers across the entire market," said CFPB Director Richard Cordray. "By working to see that homeowners are treated with dignity once again, we are taking a big step forward for progress and fairness in this country."
The new rules ban servicers from moving forward with a foreclosure while simultaneously working with a borrower on a loan modification, a practice known as dual tracking.
They also force servicers to wait until a loan is at least 120 days delinquent before initiating a foreclosure, a requirement that supercedes state laws that allow speedier foreclosure timetables. Currently, a mortgage that is at least 90 days past due is considered seriously delinquent and at risk of foreclosure.
Servicers are also restricted from starting the foreclosure process if a borrower has already submitted a complete application for a loan modification and the application is pending a review.
Under the new rules, servicers must alert borrowers who miss two consecutive payments and spell out options, such as changing the interest rate or extending the terms of the loan, that could help borrowers avoid foreclosure.
Borrowers who apply for loss mitigation must be evaluated for all of the options allowed by the investor, who owns the loan, and servicers must have an appeals process for borrowers whose applications are denied.
The Consumer agency responded to requests by the credit unions lobby and others by exempting borrowers with 5,000 or fewer loans from the new rules. The agency determined that these lenders had lower mortgage delinquency rates, longer-term relationships with consumers and sought to protect their relationships within a community.
“We very much appreciate the CFPB’s raising the small issuer exemption to 5,000 transactions from parts of the mortgage servicing rule, yet we remain concerned as to the ultimate regulatory costs, given that credit unions have been and continue to operate using solid, traditional lending practices and are second to none in servicing their members’ mortgages,” said Fred Becker, president of NAFCU, which lobbied for an exemption.
