Mortgage servicing in the United States is a lucrative industry that is not known for its willingness to help troubled borrowers. Starting in 2014, however, mortgage servicers will be held to new standards recently finalized by the Consumer Financial Protection Bureau (CFPB), the federal consumer finance regulator created by the sweeping Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010.
According to an official statement from the Center for Responsible lending, the new rules will hold mortgage servicers more accountable for their actions and will also stop some questionable practices that have resulted in wrongful evictions.
Under the new rules, mortgage servicers will now have to wait 120 days from the day the monthly payment was missed before they can initiate the foreclosure process. In fact, servicers must now reach out to borrowers and offer foreclosure alternatives as soon as monthly mortgage payment is reported missing.
In a telephone call to Dow Jones Media, CFPB Director Richard Cordray did not have kind words about servicers and their foreclosure track record. He stated that many servicers rushed borrowers through foreclosures, often losing their paperwork and evicting them anyway. The new rules also prevent egregious practices such as robo-signing and dual-tracking, whereby in the latter borrowers applying for a home loan modification are simultaneously being rushed through foreclosure, and the former involves the mass signing of foreclosure documents without even performing a cursory review.
Mortgage servicers will now offer options to borrowers in lieu of foreclosure, but they will not be expected to handle a loan modification, a requirement that consumer groups involved in the rulemaking discussions wanted to see. According to the Center for Responsible Lending, the rules offer sorely needed foreclosure protection, but they also fall short in some regards; specifically in the fact that borrowers do not have the right to appeal loan modification denials.
The End of Exorbitant Force-Placed Insurance
Mortgage servicers will no longer be allowed to cut sweetheart deals with insurers that charge outrageous premiums for the purpose of force-placing policies on their borrowers. Instead of slamming borrowers with a force-placed policy, servicers will now have to actively assist borrowers in finding reasonable insurance they can actually afford.