1/17/13 In a recent article in the National Law Journal a new rule made final January 17, the Consumer Financial Protection Bureau established new protections for homeowners facing foreclosure, imposing sweeping new restrictions on the conduct of mortgage servicer’s.
Servicer’s, hereinafter, “bank”, which collect mortgage payments on behalf of banks and typically handle customer service, loan modifications and foreclosures, are responsible for a range of abuses.
For many borrowers, dealing with the bank has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures. The new rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.
The rule, gives homeowners new protection throughout the foreclosure process.
At the first sign of trouble, when a homeowner has missed two consecutive mortgage payments, the bank must let the homeowner know about alternatives to foreclosure. The information must be provided in writing, and describe all the options available from the loan owner – not just the ones that are most financially favorable to the bank.
Once a homeowner submits an application for a loan modification, the bank cannot start foreclosure proceedings until the application review is complete. To give borrowers enough time to submit such an application, the bank cannot start the foreclosure process until a loan is more than 120 days overdue.
Even if the homeowner fails to submit an application for a loan modification within 120 days and foreclosure proceedings begin, the homeowner still has a chance for a reprieve. If a late application for a loan modification is submitted at least 37 days before a scheduled foreclosure sale, the bank must halt the sale to respond to the application.
The new rules ensure that borrowers in trouble get a fair process to avoid foreclosure. Borrowers shouldn’t have to worry about the bank cutting corners or losing applications for relief. They must be told about their options and given time to apply and be considered for loan modifications and other alternatives.
If banks violate any of these provisions, they can face charges by the Consumer Protection Bureau or the homeowner can file suit in court.
That’s not all. The rule, which goes into effect in January 2014, also requires banks to provide clear monthly statements that show a breakdown of payments by principal, interest, fees, and escrow, as well as an early warning before interest rates change and more transparency about property insurance that is purchased by the bank.
Also, the Consumer Finance Protection Bureau is instituting what it calls “common-sense policies and procedures for handling consumer accounts and preventing runarounds.”
For example, banks must credit a consumer’s account the date a payment is received, correct errors quickly and maintain accurate, accessible documents.
Small banks with 5,000 or fewer mortgage loans are exempt from some of the rule’s provisions.