As anyone who’s ever dealt with a mortgage – not to mention a foreclosure – knows, getting a straight story from mortgage servicers, the companies that handle loan modifications and foreclosures, can be next to impossible.
The Consumer Financial Protection Bureau (CFPB) is trying to help: On Jan. 17, the federal agency released final rules that aim to better protect consumers from detrimental actions by such companies and require them to give homeowners facing foreclosure more and better information.
Avoiding Home Losses
The CFPB was established in 2011 in response to the mortgage and financial crisis of the recession that began in 2007 and worsened over the next few years. Its new rules, which amend regulations implementing federal laws that range from 1974 to 2010, go into effect in January 2014.
Under the new rules, mortgage servicing companies, including community banks and credit unions, that service more than 5,000 loans must:
- Provide periodic billing statements. These statements must include payment and transaction histories, fees imposed, any delinquencies, and contact information for the servicer or other counselors.
- Give notice for ARM adjustments. Adjustable rate mortgage holders will get notice from 210 to 240 days prior to the first payment due after the rate first adjustment.
- Provide prompt payment crediting and payoff statements. Servicers must now promptly credit borrowers’ periodic payments as of the day they are received. And they have seven days to respond when a payoff balance is requested.
- Not automatically charge for “force-placed” insurance. Servicers must have good reason to believe a borrower hasn’t purchased his own mortgage insurance before charging him for this.
- Respond promptly to information requests. If a borrower notifies a servicer of an error or wants more information, the servicer generally has to respond within five days.
- Create reasonable policies & procedures. Servicers must create written policies and procedures for providing a whole slew of information to consumers.
- Make efforts to help delinquent borrowers. A servicer must attempt “live contact” with borrowers – making a phone call, for example - within 36 days of their delinquency to let them know about ways they might be able to avoid foreclosure.
- Assign personnel to delinquent borrowers. Servicers must give borrowers dedicated, accessible personnel they can contact to help them if they fall behind on payments.
- Provide loan modification options. Specific procedures must be followed in providing options to help borrowers who want to modify their loans.
No Way to Enforce
Industry watchers have been waiting for these rules, especially mortgage servicers who have been overrun with consumer requests for help. So will they make a difference?
“These rules really just move from the Federal Reserve and the Office of the Comptroller of the Currency to the CFPB,” observes Roy Oppenheim, a partner with Oppenheim Law in Weston, Fla., who practices real estate law.
Oppenheim’s main concern is that the rules give consumers no way to see these rights are enforced. “Where’s the enforcement mechanism?” he asks. “I don’t see a private right of action.” Other areas like employment and financial services give consumers the right to sue to see laws are enforced, but no such right exists when it comes to the new regulations, according to the CFPB.
“The Bureau and the prudential regulators will be able to supervise servicers within their jurisdiction to assure compliance with these requirements but there will not be a private right of action to enforce these provisions,” says the agency.
“What if banks continue to thumb their noses at this agency?” Oppenheim asks. “They already do. The violations have been rampant, and the regulatory body itself is underfunded and understaffed to handle complaints.”
“It looks to me like a bunch of regulations without any teeth,” he laments. “At [the] end of [the] day, we are just relying on banks to comply.”