CFPB Releases Servicing Guidelines

As the mortgage industry grapples with the implications of the ""Consumer Financial Protection Bureau's"":http://www.consumerfinance.gov/ (CFPB) newly released ""qualified mortgage"":https://themreport.com/articles/cfpb-releases-qualified-mortgage-criteria-establishes-legal-protections-2013-01-10 guidelines, the bureau is issuing ""more rules"":http://files.consumerfinance.gov/f/201301_cfpb_servicing-rules_summary.pdf designed to clean up servicing practices.

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""For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures,"" CFPB director Richard Cordray said in a release. ""Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.""

Many of the new rules are designed to improve communications between lenders and borrowers and to do away with the ""sloppy recordkeeping"" that played a part in the financial crisis. One rule requires clearer monthly statements that include the amount due, the due date of the next payment, and a breakdown of payments. Another stipulates that servicers must provide disclosures when interest rates adjust on most adjustable-rate mortgages (ARMs).

In addition, servicers must be transparent in the purchase of force-placed property insurance for borrowers, providing advance notice and pricing information before charging consumers. Servicers must also have a ""reasonable basis"" for deciding a borrower lacks insurance before purchasing a policy and must terminate the policy and refund the premiums if there is evidence the borrower doesn't need it.

The new guidelines also require servicers to credit a consumer's account the date a payment is received and to provide a prompt (generally within seven business days) response to a consumer's request for the payoff balance of their loan.

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Written notices from consumers regarding account errors or seeking information must be acknowledged and addressed promptly, or a ""reasonable investigation"" must be conducted to inform the borrower why the servicer can't comply. Servicers must store borrower information in a way that makes it easily accessible and must have policies in place to ensure timely and accurate information can be provided to borrowers, investors, and the courts, CFPB said.

The agency also passed down guidelines for servicing struggling borrowers. The new protections include a restriction on dual-tracking--the fading practice of initiating foreclosure proceedings while evaluating a loan modification application--and the implementation of a fair review process of all available foreclosure alternatives.

Servicers will also be required to let borrowers know about their options to avoid foreclosure and to provide direct and ongoing access to servicing personnel for delinquent borrowers to assist with loss mitigation.

The new mortgage servicing rules take effect January 2014, the CFPB announced. In addition, the bureau said there will be certain exemptions for small servicers (defined by the CFPB as firms ""that service 5,000 or fewer mortgage loans that they or an affiliate either own or originated""), which mostly include community banks and credit unions.

Many industry representatives applauded the CFPB's efforts at providing comprehensive servicing standards, though some expressed concern that the agency could have taken extra steps. Julia Gordon, director of Housing Finance and Policy at the ""Center for American Progress"":http://www.americanprogress.org/, said the CFPB ""missed an opportunity to mandate that all servicers offer affordable loan modifications to homeowners who qualify"" and urged the bureau to work closely with regulators to ensure that modifications don't die down after the Home Affordable Modification Program (HAMP) expires.

Meanwhile, David Stevens, president and CEO of the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm, said the new rule may introduce inconsistencies with existing policies.

""An initial reading of the summary indicates that there are some issues that still concern us,"" Stevens said. ""For example, the definition of ├â┬ó├óÔÇÜ┬¼├ï┼ôsmall servicer,' while improved, may still be too narrow and there may be inconsistencies between the new rules around dual tracking and existing timelines mandated by Fannie Mae, Freddie Mac, FHA and the states.""