CFPB Proposes New Servicer Rules, Open for Comment

by devteam August 10th, 2012 | Share

ThernConsumer Financial Protection Bureau (CFPB) is requesting comments on two setsrnof proposed rules governing the operation of mortgage servicers.  The new regulations, posted in The Federal Register, cover servicer’srnoperations involving both performing and delinquent mortgage loans.</p

CFPBrnsaid that the financial crisis has brought into focus many of the problems withrnbad practices and sloppy record keeping that have plagued the servicingrnindustry for years.  With millions ofrnhomeowners falling delinquent on mortgages and facing or undergoing foreclosure,rncomplaints mounted about servicers losing applications and paper work for loanrnmodifications, homes being foreclosed in error, borrowers unable to reachrnpersonnel who could assist them and facing difficulties in getting obviousrnmistakes corrected.</p

ThernDodd-Frank Wall Street Reform and Consumer Protection Act gave CFPB authorityrnto address some of these problems and the agency is implementing and refiningrnrequirements for services which will be finalized in January, 2013.  The first set of rules set out requirementsrncovering all mortgages and are designed, CFPB said, to provide consumers with “clear and timely information about their mortgages so theyrncan avoid costly surprises.”  </p<ul class="unIndentedList"

  • Servicers wouldrnbe required to provide clear monthly mortgage statements which include arnbreakdown of payments by principal, interest, fees, and escrows. The notices would also be required to informrnconsumers of the amount and due date of their next payment, recent transactionrnactivity, and warnings about fees. </li
  • Servicers wouldrnbe required to provide earlier disclosures before any adjustments on adjustablernrate mortgages. In addition to basic interestrnrate and payment change information, servicers would have to inform borrowersrnabout alternatives and counseling resources if the new payment will bernunaffordable. Existing adjustment disclosures would be amended to includernimproved information and mandated to arrive earlier so borrowers can anticipaternconsequences of payment changes.</li
  • If a borrower defaults in his obligation to maintainrnproperty insurance the servicer has the right to purchase insurance to protectrntheir collateral. This “force-placed”rninsurance is typically more expensive than the consumer could purchase on hisrnown so the new rule would provide more transparency in the process. Servicers would be required to give advancernnotice and pricing information before charging the customer for a forced placedrnpolicy and would require the servicer to terminate the insurance within 15 daysrnif the borrower provides proof of his own coverage. The insurer would also havernto refund any premiums for the forced-placed policy. </li
  • Servicers would be required to make good faith efforts torncontact delinquent borrowers and inform them of their options to avoidrnforeclosure.</li</ul

    The second set of proposed rulesrnwould impose requirements aimed at preventing events that might unnecessarilyrnlead to foreclosure.  They include rulesrnfor handling consumer accounts, correcting errors, and evaluating borrowers forrnoptions to avoid foreclosure. </p<ul class="unIndentedList"

  • As a general rule, servicers would have to credit arnconsumer’s account as of the date a payment is received.</li
  • Servicers would be required to establish reasonable policiesrnand procedures to maintain accurate information, provide it to borrowers, andrnminimize errors. Legal documents wouldrnhave to comply with applicable law.rnServicers would be required to help borrowers with options to avoidrnforeclosure, and provide oversight of their contractors and foreclosurernattorneys.</li
  • When a consumer notifies a servicer of a possible error, thernservicer must acknowledge receiving the notice, conduct a reasonablerninvestigation, and inform the consumer about the resolution in a timely manner.</li
  • Delinquent borrowers must have direct, easy, and ongoingrnaccess to servicing personnel who are dedicated and empowered to assist themrnwith their problems.</li
  • Where servicers offer alternatives to foreclosure such asrnloan modifications or payment plans, they will be required to evaluate borrowerrnrequests for such assistance in a prompt manner. Servicers would be prohibited from proceedingrnwith a foreclosure sale while prevention actions are pending and would bernrequired to let borrowers know about incomplete applications and allow them tornappeal certain servicer decision.</li</ul

     “Millions of homeowners are struggling to payrntheir mortgages, often through no fault of their own,” said CFPB DirectorrnRichard Cordray. “These proposed rules would offer consumers basic protectionsrnand put the ‘service’ back into mortgage servicing. The goal is to preventrnmortgage servicers from giving their customers unwelcome surprises andrnrunarounds.”</p

    The agency said that in formulatingrnthe rules it sought impact from consumer groups, small servicers, and otherrngovernment agencies and industry stakeholders. rnThe proposed rules released today represent refinements that came out ofrnthese discussions, particularly regarding processes for evaluating consumersrnfor alternatives to foreclosure – and also lessen potential burdens on smallrnservicers. </p

    CFPB is also working with thernCornell University e-Rulemaking Initiative (CeRI) to make it easier for thernpublic to comment on the proposed rules through a pilot project calledrnRegulation Room ( Regulation Room providesrna mechanism for people and groups to learn about, discuss, and react to selectedrnrules proposed by federal agencies and CFPB expects contributions to RegulationrnRoom, while not becoming formal public comments, will be incorporated into arnpublic report prepared by CeRI researchers and submitted to the CFPB for use inrnpreparation of a final rule.</p<pThe public will have 60 days, until October 9, 2012,rnto review and provide comments on the proposed rules. The CFPB will review andrnanalyze the comments before issuing final rules in January 2013.

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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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