With the announcement of new rules governing the mortgage servicing industry in the United States, the Consumer Financial Protection Bureau has effectively changed the way home loans are managed after borrowers leave the closing table. The rules will not take effect until January 1st, 2014, which gives servicers ample time to adapt to the new way of doing business, particularly with regard to late monthly mortgage payments, default and the prospect of foreclosure.
The new rules are geared towards greater consumer protection and to hold servicers accountable as well. The new rules range from stopping servicers from slamming borrowers with expensive force-placed insurance policies to giving them enough time to react when they are unable to make their monthly mortgage payments. The following rules will also favor borrowers starting next year:
Clear Statements and Attentive Customer Service
Mortgage servicing institutions have been accused of playing possum when it comes to explaining complex mortgage features such as amortization and escrow. Under the new rules, servicers must provide borrowers with clear statements that accurately show how much each payment reduces the principal and interest owed. The new statements will also be required to explain all the escrow items, such as fire and flood insurance, as well as all fees.
When mortgage borrowers have questions about their home loans, servicers will have to make themselves available to answer them. An oft-heard consumer complaint during the foreclosure avalanche of 2008-2010 was that servicers were nowhere to be found once borrowers knew that they were going to fall behind on their payments.
In the past, servicers were eager to begin the foreclosure process once borrowers missed a couple of mortgage payments. The new rules call for services to intervene proactively on behalf of borrowers who are headed into default. Servicers will now be expected to offer reasonable options to borrowers in lieu of foreclosure.
The mechanisms behind the options that servicers will extend to borrowers will be ironed out between now and next year, but they will include a simplified application for all foreclosure prevention programs. This means that if unemployed borrowers need to defer a couple of monthly payments while they look for work, they will fill out the same initial application as if they were offered a change in rate and term.
The new rules also inject fairness into the foreclosure, forbearance and mitigation processes of servicers. This means that there will be no more dual-tracking of borrowers seeking loan modifications while simultaneously being set up for foreclosures. In fact, servicers will now have to wait four months from the day the last mortgage payment was received before they can even consider filing for foreclosure.