This summer, the Consumer Financial Protection Bureau will formally propose
new rules for mortgage servicers. The rules will be finalized by January
2013. The CFPB has released a factsheet about the rules that it is currently
considering. You can find it
The CFPB has set two main themes for the rules that it is considering:
the current lack of transparency and the current lack of accountability.
On the transparency side, the CFPB's fact sheet states:
"Mortgage borrowers deserve full transparency in dealing with their
servicers. They should not be kept in the dark about how their payments
are applied or when their interest rate will change, nor should they experience
bill shock over an insurance charge they did not expect."
In furtherance of this goal, the CFPB is considering several rules. The
first would require that servicers provide clear monthly statements that
break down payments by category (principal, interest, fees, and escrow).
It would also require servicers to itemize all fees and charges, as well
as provide loss mitigation information for delinquent borrowers.
Another transparency rule being considered is one that would require servicers
to provide warning to borrowers before an interest rate adjustment. This
warning would explain the means of determining the rate change and its
date of effect, a good-faith estimate of the amount of the new payment,
and a list of alternatives for customers who cannot afford the new monthly payment.
Also interesting are the requirements being considered for force-placed
insurance. Most servicers will automatically purchase homeowner's
insurance for borrowers if it is suspected that the borrower does not
have a policy. The new rule would require servicers to ask for proof of
insurance twice -- once at 45 days before charging for insurance and again
15 days prior. It would also require servicers to accept any reasonable
form of confirmation, which could go a long way towards combating the
"we didn't receive proof/your proof wasn't the required format"
issues that many borrowers have faced. Perhaps most importantly, when
the borrower has an escrow account used for purchasing insurance, the
servicer would be required to continue the borrwer's policy, even
if the borrower is behind on payments.
On the accountability side, the CFPB is considering rules that "would
require common-sense policies and procedures for handling consumer accounts
and preventing runarounds." These rules are designed to require servicers
to maintain better record-keeping and accounting practices to avoid the
mis-applied payments and missing documents that are standard operating
procedure for servicers.
One rule would require that servicers credit payments the day that they
are received. If a partial payment is made, it can only be held in a suspense
account until the account contains enough funds to make a full payment.
Those funds would then be applied to the oldest delinquent payment.
Another rule would appear to require servicers to update their information
management polices and systems to minimize errors and speed up fixing
errors. Servicers would be required to make information promptly available
to borrowers, maintain records of borrower contact, better organize and
manage loss mitigation documents, and promptly inform the borrower of
further documentation required as part of the loss mitigation process.
Error correction would also be addressed via a rule that requires servicers
to promptly respond to borrowers concerned about possible errors. The
rule would require servicers to acknowledge notification of the error
in 5 days and conclude an investigation in 30 days. The errors included
under this rule would include: incorrect calculations of amounts due,
credits or payments; payments of taxes and insurance out of escrow accoutns;
inaccurate disclosures; inaccurate information about avoiding foreclosure;
and the initiation or continuation of a foreclosure where the borrower
has met his obligations under a trial or permanent
Finally, the CFPB is considering a rule that would require servicers to
provide borrowers with access to a foreclosure prevention team throughout
the lifetime of their loans. This would allow delinquent or financially
distressed borrowers to get early access to assistance to minimize losses
or get a loan back on track.
With nothing more than a fact sheet describing broad strokes, it is difficult
to evaluate the proposed rules. However, they seem to be a step in the
right direction. When the rules are released for public comment, I will
update the blog with my analysis. I plan to also provide my own comments
to the CFPB when the rules are opened up for public commentary.