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Further State Involvement in Mortgage Servicing Needed to Prevent Foreclosures
Two consumer advocacy groups have outlined how staternlawmakers can bolster safeguards to prevent unnecessary foreclosures. The Center for Responsible Lending (CRL) andrnConsumers Union (CU) said in their report, Closingrnthe Gap: What States Should Do tornProtect Homeowners from Foreclosure that, while the foreclosure crisis was caused inrnlarge part by unscrupulous lending practices that went unregulated, servicing abuses – including the failure to engage in good faith loss mitigation before beginning the foreclosurernprocess – have exacerbated the problem.rn</p
While there have been recent advancements includingrnthe National Mortgage Settlement (NMS), the California HomeownerrnBillrnof Rights (HBOR), and new mortgage servicing rules from the Consumer Financial Protection Bureau (CFPB) that go into effect in January 2014, millions of families remain poisedrnto lose their homes andrncommunities remain at risk for the spillover effects of foreclosures. The two organizations said there is room forrnstates to build on the above reforms and help avoid unnecessary foreclosures. </p
The paper goes into considerable detail pointing to areasrnwhere, for example, the HBOR offers protections not available in the CFPB rulesrnand some shortcomings of those rules. Most importantly, its says, states should add private enforcement that gives homeowners a means to pause the foreclosure process while the servicer corrects violations of the law and encourages servicers to consider loss mitigation alternatives. Although the CFPB rules will be applicable in all states, homeownersrnwill not have the right to prevent unlawful foreclosurernsales while servicers correct legal violations,rnunless states adopt strongerrnprivate enforcementrnprovisions.</p
Over the last several years, some ofrnthe most significant problems have included the failure to review homeownersrnfor a loan modification and foreclosing on borrowers even as the servicer isrnconsidering an application for a modification (commonly referred to as “dualrntracking”). </p
By adopting a Homeowner Bill ofrnRights to help reduce as many foreclosures as possible, states would stabilizernlocal housing markets and protect homeowners. In the report, CRL and CU urgernstate lawmakers to:'</p<ul
The report says that when servicers fail to employ viable loss mitigation tools, the foreclosure crisis is exacerbated, “By ensuring that servicers examine all possible foreclosure alternatives and by promoting clarity, transparency, and accountability in the loss mitigation process, states will help more homeowners avoid unnecessary foreclosures and keep more people in their homes. This, in turn, will benefit everyone by reducing the spillover impact of foreclosures and by helping to stabilize the state’s economy and housing market.
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