Today the Consumer Financial Protection Bureau (CFPB) issued rules to establish new, strong protections for struggling homeowners facing underwater mortgages and being pressed into the Twin Cities foreclosures. The rules also protect mortgage borrowers from costly surprises and runarounds by their servicers.
The Bureau is establishing stronger protections and resources for homeowners and acknowledges the mortgage servicing industry has "experienced problems with bad practices and sloppy record-keeping. As millions of borrowers fell behind on their loans". With the heavier work loads as foreclosure filings increased, many servicers were unable to provide adequate services necessary to meet responsible homeowners’ needs. "Many simply had not made the investments in resources and infrastructure to service large numbers of delinquent loans, Consumers complained about getting the runaround and being hit with costly surprises," continues the Bureau.
A the housing market begins 2013 it is saturated with millions of distressed homeowners and homeowners continuing to experience serious problems gaining a timely response after requesting a home loan modification or other alternatives to avoid foreclosure.
Minneapolis Homeowners Should Have 'No Surprised' On Their Mortgage Disclosures
Mortgage borrowers should not be surprised about where their money is going, when interest rates adjust, or if sudden fees appear on their statements. Too many responsible homeonwers are caught unaware with unexpected fees charged by companies that collect their monthly mortgage payments. The CFPB’s rules will help every homeowner who borrows a loan in order to buy their home. Whether they struggle or not, mandating greater transparency when buying a home homeowners deserve clear mortgage disclosures and timely information about mortgages. These rules include:
Understanding The Difference Between the Homeowners Mortgage Servicer And Lender
Unless a Realtor or someone explains it, homeowners often don't understand the difference in roles between their Mortgage Servicer and their Lender. Or that as the homeowner, they have no say in choosing their mortgage servicers.
A provider responsible for collecting payments from the home mortgage borrower on behalf of the loan owner. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures.
The lender of the home loan frequently sells the loan to investors after buying the home and closing papers are all signed.
"For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures. Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes." ~ Richard Cordray, CFPB Director.
Strengthening Protections for Homeowners Facing Foreclosure:
The CFPB’s mortgage servicing rules ensure that fraught home loan borrowers get a fair process to avoid foreclosure. Struggling homeowners seeking mortgage debt relief shouldn’t have to worry about mortgage servicers cutting corners or losing applications for relief. They should be told about their options and given time to apply and be considered for loan modifications and other alternatives. Most of all, they shouldn’t be surprised by the start of a foreclosure proceeding until they have had time to explore all available foreclosure alternatives help. Responsible homeowners who take action promptly to seek foreclosure alternatives, should not face a looming foreclosure sale before their applications have been fairly evaluated. The new protections for struggling home borrowers include:
Under the CFPB’s new rules, dual-tracking – when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure – is restricted. Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure, and that application is still pending review. To give responsible borrowers fair time to submit such applications, servicers cannot make the first notice or filing required for the foreclosure process until a mortgage loan account is more than 120 days delinquent.
Servicers are not allowed to make the first notice or filing required for the foreclosure process until a mortgage loan account is at least 120 days delinquent. This will give struggling homeowner reasonable time to request a loan modification.
Servicers are not allowed to initiate foreclosure proceeding if an application is pending for a loan modification or other alternative to foreclosure.
Notification of Foreclosure Alternatives:
Servicers must let homeowners that borrow a home loan know about their “loss mitigation options” to retain their home after borrowers have missed two consecutive payments. They must provide them a written notice that includes examples of options that might be available to them as alternatives to foreclosure and instructions for how to obtain more information.
Servicers must send a written notice to the homeowner within 15 days of the borrower’s second missed payment.
Servicers must provide in the written notice examples of “loss mitigation” options, which may be available to avoid foreclosure. These options could include changing the interest rate, extending the terms of the loan, deferring or forgiving principal through a reduction, or coming up with some other alternative payment plan.
Servicers must include information about housing counseling in the written notice.
Direct and Ongoing Access to Servicing Personnel:
Servicers must have policies and procedures in place to provide delinquent borrowers with direct, easy, ongoing access to employees responsible for helping them. These personnel are responsible for alerting borrowers to any missing information on their applications, telling borrowers about the status of any loss mitigation application, and making sure documents get to the right servicing personnel for processing.
The foreclosure process and loss mitigation options
Actions the borrower must take to be evaluated for loss mitigation options
The status of any loss mitigation application the borrower has submitted.
Fair Review Process:
The servicer must consider all foreclosure alternatives available from the mortgage owners or investors – those who hold the decision-making power over the homeowners loan – to help the struggling homeowner retain the home loan and remain in their home. These options can range from deferment of payments to loan modifications. And servicers can no longer steer borrowers to those options that are most financially favorable for the servicer.
Because investors – like Fannie Mae, Freddie Mac, the Federal Housing Authority, or the private owner of the mortgage – decide loan modification options, servicers must have policies and procedures to ensure that homeowners know which foreclosure options the investor, or investors, will allow
Servicers must evaluate a home loan applicant for all loss mitigation options permitted by the investor for which the borrower may be eligible (so long as complete applications are received by specified deadlines)
Servicers cannot steer home loan borrowers to apply for particular options that are most favorable to the servicers or investors.
Foreclosure Sales Not Allowed Before All Other Alternatives Are Considered:
Servicers must consider and respond to a homeowner’s loan modification application if it arrives at least 37 days before a scheduled foreclosure sale. If the servicer offers an alternative to foreclosure, they must give the borrower time to accept the offer before moving for foreclosure judgment or conducting a foreclosure sale. Servicers cannot foreclose on a property if the borrower and servicer have come to a loss mitigation agreement, unless the borrower fails to perform under that agreement.
The servicer has informed the borrower that the borrower is not eligible for any loss mitigation option (and any appeal is not applicable or has been exhausted)
The borrower has rejected all loss mitigation options offered by the servicer
The borrower has failed to comply with the terms of an agreement on a loss mitigation option.
Servicers must explain why they have rejected a delinquent homeowner’s application for a loan modification if the application is received more than 37 days before a foreclosure sale. Specifically:
The servicer cannot merely cite “investor requirements” as the justification – the servicer must provide specifics
When an appeal is an option, the servicer must inform the borrower that they can appeal the decision to servicer personnel not involved in the original decision.
No Surprises: New Rules Must Provide Homeowners Clearer Monthly Statements
4 Clear Monthly Mortgage Statements: Generally, servicers must provide clear monthly statements. The statements have to include:
* The amount and due date of the next payment
* A summary of the mortgage terms like interest rate and principal obligation
* A breakdown of payments by principal, interest, fees, and escrow
* Recent transaction activity, including itemization of payments, fees, and charges
* If the consumer has missed two consecutive payments, the date the borrower became delinquent, the amount required to bring the loan current, and the risks of failing to do so.
Feds Finalize Protections for Mortgage Borrowers - Probably Means It Is Harder To Gain A Home Loan
The rules are set to take effect in January 2014
Some homeowners may face an even harder time buying a home with a quality loan under the new rules. NASDAQ commented on the new rules: "Like many newly released regulations, the full details are still being sorted out. However, in general it's going to be more difficult for marginally qualified borrowers to get a mortgage, while those who do get home loans will enjoy certain protections against excessive charges".
Loan Modification Mean The Homeowners Stays In Their Home - Short Sales Mean The Homeowner Leaves Thier Home
Home Destination finds that too often homeowner's need to be better informed to make the best possible decision that permits them to stay in their homes.
Servicers must look out for the homeowner as well as for themselves. For a complete loss mitigation application received more than 37 days before a foreclosure sale, the servicer is required to evaluate the borrower, within 30 days, for all loss mitigation options for which the borrower may be eligible in accordance with the investor’s eligibility rules, including both options that enable the borrower to retain the home (such as a loan modification) and non-retention options (such as a short sale).
"Alternative Compliance" Should Not Be Allowed
Notices regarding foreclosure sales have not been clearly announced nor often handled in a manner that protected struggling homeowners who needed mortgage debt relief, according to several California based housing market advocates. In an October 10, 2012 letter to the CFPB, The California Reinvestment Coalition, Housing and Economic Rights Advocates, Law Foundation of Silicon Valley, and nearly sixty community groups joined together to express their disappointment with the Consumer Financial Protection Bureau’s (CFPB) proposed Mortgage Servicing Rules.
California-based organizations and allies respectfully submit comments on the proposed Mortgage Servicing Rules:"Servicers must be required to communicate with borrowers in writing and not allow for an “alternative compliance” option relating to postponement of foreclosures.
Setting Right Servicers Who Have Wronged Homeowners With Overboard Exemptions
In recent years the proposed CFPB regulation failed to address situations in which servicers make an inaccurate finding of no error or does not fully or adequately address a noticed error and contains inappropriate exemptions for “overboard” or “unduly burdensome” notices of error or requests for information. Finally, home servicers should be required to provide requested information in writing upon request by the borrower and not be allowed to escape communicating important information to the home loan applicant or borrower using an overboard exemption for “confidential, proprietary, or general corporate information.”
Download the Consumer Finance Protection Bureau New Mortgage Servicing Rules Summary
Download the Consumer Finance Protection Bureau New Mortgage Servicing Rules Factsheet Monthly Indicators for Dec 2011
Download the California Housing Support Groups Real Estate Settlement Procedures Act Comments to the CFPB
Download the Mortgage Servicing Rules Under the Truth and Lending Act
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