The Consumer Financial Protection Bureau has released new mortgage servicing
rules that go into effect in 2014. These rules are meant to "put
the service back into mortgage servicing," as the CFPB describes it.
One of the biggest changes is that mortgage servicers will be prohibited
from dual-tracking. Dual-tracking is when a mortgage servicer considers
a loan modification while simultaneously advancing a foreclosure lawsuit.
Servicers will also be required to wait until borrowers are 120 days behind
on payments before proceeding to a foreclosure. If the homeowner applies
for a loan modification or other workout within that 120-day period, then
the servicer cannot move forward with a foreclosure until the application
is processed. If the application is accepted, the servicer cannot move
forward with foreclosure until the homeowner defaults on the new agreement.
Additionally, the new rules require servicers to give seven months advance
notice to borrowers before their interest rates adjust. This means that
for a borrower in an adjustable-rate mortgage, the servicer would have
to tell the borrower that the rate was adjusting and how much it would
be increasing seven months before the change took effect.
The new rules also include regulations for force-placed insurance, which
is insurance that servicers buy when they believe that homeowners are
not maintaining adequate homeowners' insurance. The new rules require
advance notice before force-placing insurance and require servicers to
make decisions on a case-by-case basis. This means that being in default
on a mortgage or being in foreclosure should no longer automatically trigger
The highlights of the new rules are available
here. I will be adding additional posts as I have time to review the rules
in more detail.