On August 10, 2012, the Consumer Financial Protection Bureau ("CFPB") proposed two sets of rules designed to protect mortgage borrowers from mistakes by mortgage servicers. Since the financial crisis, the CFPB has heard from many homeowners that have had trouble receiving information and competent service from their mortgage servicers.
The proposed rules are divided into two sets. The first set of rules details the new kinds of information that mortgage servicers will be required to give to consumers in a timely manner. In particular, the proposed rules would require servicers to: (i) provide consumers with a monthly statement that would clearly convey a variety of relevant information, including a breakdown of payments by principal, interest, fees, and escrow; (ii) provide earlier disclosures before the interest rate adjusts for most adjustable rate mortgages, including information about alternatives and counseling resources if the new payment is unaffordable; (iii) contact delinquent borrowers and inform them of their options to avoid foreclosure; and (iv) give advance notice and pricing information before charging consumers for "forced-placed" insurance. "Forced-placed" insurance is property insurance purchased by the mortgage servicer if the borrower does not maintain this insurance on his own. This rule is being proposed because "forced-place" insurance is usually more expensive than privately purchased insurance.
The second set of proposed rules concerns how mortgage servicers should handle consumer accounts and address problems with those accounts. This set of rules requires servicers to: (i) credit consumer accounts as of the date a payment was received; (ii) establish policies and procedures that would ensure borrowers receive accurate information, including up-to-date legal documents and providing proper oversight to their foreclosure attorneys; (iii) investigate and correct errors quickly if informed by a borrower that he or she believes there has been an error; (iv) create policies and procedures that provide delinquent borrowers with knowledgeable and helpful employees empowered to find solutions for these borrowers; and (v) if the servicer offers options, such as loan modifications, to avoid foreclosure, the servicer would be required to promptly review accounts in imminent risk of foreclosure for these options and are prohibited from proceeding with a foreclosure sale until the review is complete.
Comments on the proposed rules can be submitted until October 9, 2012 and the CFPB plans on issuing the final rules in January 2013.
The proposed rules, if enacted as is, would provide a regulatory framework for what many mortgage servicers are doing already. However, servicers would be wise to conduct an analysis of their policies and procedures in light of these proposed rules, paying particular attention to those pertaining to foreclosure. With the United States still struggling to work through the financial crisis and the foreclosure crisis still very much on the regulators' minds, the CFPB, as demonstrated by these proposed rules, will focus on foreclosures and the policies and procedures that facilitate them. While many servicers have already implemented policies and procedures to address improper foreclosures, the proposed rules will help the industry eliminate the differences between its policies and procedures and those the CFPB prefers.