Putting the 'Service' back in Mortgage Servicing - Consumerfinance

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PUTT TING THE ‘SERVICE’ BACK IN M MORTGAGE SERVICING G No Surprises, No Runaarounds  The Consumeer Financial Protection P Burreau (CFPB) iss considering new mortgagee servicing rules to protect co onsumers from m being hit byy costly surpriises or gettingg the runaround fro om their serviicers. The CFP PB plans to foormally propoose the rules th his summer and finalize f them by January 20013. BACKGROU UND 







Morttgage serviceers are respon nsible for colllecting paym ments from th he morttgage borrow wer on behalff of the owne r of the loan.. They also typ pically hand dle customer service, escrow w accounts, coollections, loann modification ns, and forecclosures. In th he vast majorrity of cases, consumers d do not choosee their mortg gage serviicer. Servicerss have had littlle incentive, too meet consum mer needs. Th his lack of cuustomer care can c be disastro ous for the connsumer – it caan lead to creddit harm, finan ncial harm, eveen foreclosuree. Prob blems in the mortgage m serrvicing markket are well-k known. Even b before the crisis, there weere problems with w bad practtices and systeemic sloppy recorrdkeeping. As the number of o homeownerrs who have rrun into hardship and who need help or special attentiion in paying ttheir mortgagee has skyrockeeted, the indusstry’s deficienccies have beguun to inflict siignificant harm m on an increaasing numb bers of borrow wers. The CFPB is worrking on rulees to help fix the mortgag ge servicing m market. The rules r under co onsideration by b the Bureau are aimed at ttackling two undeerlying servicin ng problems: lack l of transpaarency and lacck of accountaability. In recen nt years, manyy borrowers haave complaineed that they diid not receive the inforrmation they needed n to help p them avoid fforeclosure. O Other borroweers’ troub bles worsened d because theyy found it diffiicult to get ansswers from th heir serviccers. The rules under consid deration are ddesigned to maake servicer m mistakes rare and a quickly fixxed, and to en nsure that struuggling homeoowners get thee inforrmation they need n to find allternatives to uunnecessary fforeclosures.

NO SURPR RISES Mortgage borrrowers deservve full transpaarency in dealiing with their servicer. Theyy should not be kept in n the dark abo out how their payments p are applied or whhen their interrest rate will change, nor n should theey experience bill b shock oveer an insurancee charge they did not expect. The CFPB C is consid dering rules th hat would proovide consumeers with clear and timely inform mation about changes to theiir mortgages sso they can avvoid costly surrprises.





Clear Month hly Mortgagee Statements:: The CFPB iss considering a rule under w which servicers wouuld be required d to provide clear monthly sstatements. These statemen nts would have to includ de:      

A sum mmary of the mortgage term ms like interesst rate and priincipal obligattion; A breeakdown of payments by prrincipal, intereest, fees, and eescrow; The amount a of and d due date forr the next paym yment; Recent transaction n activity, incluuding itemizattion of fees annd charges; Late fee warnings; and, d borrrowers, alertss and informaation about losss mitigation For delinquent altern natives.

Warning Beffore Interest Rate Adjustss: The CFPB is consideringg a rule under which servicers wouuld be required d to provide earlier disclosuures before thee interest rate changes on most adjustable-rate mo ortgages. This requirement w would provide greater claritty to the disclosure maany borrowerss currently receive. The new w disclosure w would include:      

An explanation off how the new rate paymentt would be dettermined and when the change will takke effect; A good-faith estim mate of the am mount of the nnew monthly ppayment; The date d of future interest-rate adjustments; a A listt of alternativees that the con nsumer may ppursue if the nnew monthly p payment is unaffordable; on for housingg counselors; and Conttact informatio The amount a of anyy pre-paymen nt penalty.

Options for Avoiding A Co ostly “Force-P Placed” Insu urance: To asssure that serviicers do not unnecessaarily charge co onsumers for force-placed iinsurance, thee proposed rulle that the CFPB is considering c would require that: t    



In caases where thee servicer thinkks the borrow wer has allowedd the propertyy insurrance to lapse,, the servicer would w have too ask the borroower to providde proof of insurance; This communicatio on would havve to occur twiice before thee servicer charrges the borro ower for the in nsurance -- at least 45 days before and aggain at least 155 days beforre; These notices wouuld have to pro ovide the con sumer with a good-faith esttimate of how much the forcce-placed insuurance would cost; The servicer s must accept from the t borrower aany reasonablle form of confiirmation that the property is i insured;



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The servicer s would d terminate th he insurance w within 15 days if it receives eevidence from m the consumeer that he has the t necessary insurance andd refund the fo forceplaceed insurance premiums; p and d Wherre the servicerr has an escrow w account to pay the consuumer’s insuran nce prem miums, the servvicer would co ontinue the coonsumers’ hom meowner insuurance, even if the borrow wer is delinqueent, rather thann purchasing fforce-placed insurrance.

Early Inform mation and Options O for Avvoiding Foreeclosure: Thee CFPB is considering a rule under which w servicerrs would be reequired to makke good-faith efforts to con ntact delinquent bo orrowers and inform i them of o their optionns to help avooid foreclosuree. Specifically:   

p the boorrower with iinformation aabout the Serviicers would bee required to provide forecclosure processs; Outrreach would in nclude informiing borrowerss about housinng counselingg; and If a borrower b conttacts the serviccer because shhe is having diifficulty payin ng the loan, the servicer would w have to o provide inforrmation aboutt options.

NO RUNAR ROUNDS When mortgaage servicers make m mistakess, too often thhe fallout is haarm to the con nsumer. When records get lost, or the t servicer haas sloppy recoord-keeping annd information nn wind up in ttrouble. The C CFPB is consiidering management practices, the consumer can rules that wouuld require common-sense policies and pprocedures forr handling con nsumer accounts and preventing ruunarounds. Payments Im mmediately Credited: C Thee CFPB is connsidering a rule under which h servicers geneerally would have h to credit a consumer’s account the dday that a mon nthly payment is reeceived.  

If thee consumer makes m a partial payment, servvicers would bbe permitted tto retain such payment in a suspense acco ount. monthly paym ment, the Oncee the amount in the suspensse account equuals one full m serviccer would havve to apply thee amount to thhe earliest deliinquent paym ment.

Records Kep pt Up-to-Datte and Accesssible: The CF FPB is consideering a rule un nder which serviceers would be required to esttablish reasonaable informatiion-managem ment policies and procedures p designed to min nimize errors aand help with quick correctiions. These policies and proceduures would:  



Provvide accurate and a timely discclosures and oother informattion for borro owers; Minim mize errors an nd facilitate prrompt error coorrection;



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Main ntain records of o borrower co ontact, with ppossible excepttion for somee small serviccers; Faciliitate loss mitiggation by acceepting, organizzing, and mannaging documeents and inforrmation submiitted by or abo out borrowerss in connectioon with loss m mitigation requeests; Ensuure reasonablee and timely acccess to such ddocuments annd information n by all appro opriate loss mitigation m perso onnel; and Identtify additionall documents and a informatioon the borrow wer must proviide to be consiidered for losss mitigation options.

Errors Correected Quicklyy: The CFPB is consideringg a rule under which serviceers would have to addreess consumer concerns abouut possible errrors. They woould have to acknowledge the notificatio on of the error within five ddays and concclude an investtigation meframes woulld be imposedd with respect to errors relatting to within 30 dayys. Shorter tim foreclosures or o payoffs. Maany errors wouuld fall under this rule, incluuding:     

Incorrrect calculatio ons of amoun nts due, creditss, or paymentss; Paym ments (or non--payments) off taxes and inssurance out off escrow accouunts; Inacccurate disclosuures; Inacccurate informaation about ho ow a borroweer can avoid fooreclosure; andd The servicer s startin ng or continuiing foreclosurre procedures when the borrrower has met m his obligattions under a trial or permaanent loan moodification or o other plan.

Direct and Ongoing O Access to Servicer Foreclosu ure Prevention n Team: Thee CFPB is considering a rule under wh hich servicers would be reqquired to provvide delinquen nt borrowers (orr borrowers who w are askingg for help to avvoid delinquenncy) with direect, ongoing access to staff who o are dedicateed to servicingg troubled borrrowers. 





p these employees wiith easy accesss to the Serviicers would bee required to provide borro ower’s recordss. Serviicers would bee required to give g these empployees accesss to underwritters who could d evaluate the borrower to see s if he is eliggible for a loann modification n or anoth her option to avoid foreclossure.