Rules target sleazy mortgage practices
Consumer protections take front seat in proposed rule changes for servicing mortgages.
This post comes from Marilyn Lewis of MSN Money.
If some of the banking industry abuses of the robo-signing era weren't illegal, they will be soon. The Consumer Financial Protection Bureau is lowering the boom on the mortgage servicing industry, rewriting rules for the companies that send statements to borrowers, collect mortgage payments, track escrow accounts and initiate foreclosures.
Some of the abuses -- forging signatures on legal documents, for example -- were illegal at the time. Others, like failing to respond to customer requests for help, misplacing documents or "dual-tracking" (foreclosing while homeowners are trying to modify their mortgages) weren't, at least under federal law. State laws vary. The consumer agency aims to make the rules clear and consistent.
Says The Associated Press, "Mortgage servicers . . . have faced withering criticism for practices including charging excessive fees, foreclosing without completing the required paperwork and failing to help people stay in their homes by changing their loan terms."
Need for change
The rule changes are part of a mortgage reform package authorized in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rules for servicers will be issued in January, says the Mortgage Bankers Association's MBA Link. (Post continues below.)
The draft rules, open for comment until Oct. 9, require lenders and mortgage servicing companies to abide by simple and obvious business practices, including:
- Sending borrowers monthly statements.
- Alerting borrowers before their interest rate changes.
- Responding quickly to fix errors on a customer's account.
- Offering homeowner more ways to avoid foreclosure.
"A lot of this stuff is common sense," said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information, of the proposed rules. "You shouldn't have to codify proper business practices. That's not to say everyone is a bad actor. But the ones who did it wrong did it so badly, they forced the regulators' hands on the rest of the industry."
The problems occurred as servicers struggled under heavier, more complicated workloads brought on by the foreclosure crisis. The CFPB says:
This (servicing) can be a challenge due to sophisticated mortgage products, partial payments, delinquent borrowers, fees, errors and misunderstandings. And when consumers can't make their mortgage payments, servicers are the ones that decide what to do. As we saw during the recession, not all servicers were prepared to handle these challenges. And that can have very bad consequences for consumers.
Reining in abuse
The new rules also rein in one of the more egregious mortgage industry practices, "forced-placed" insurance. As Money Talks News' Stacy Johnson explains, your mortgage company can purchase a homeowners policy for your home and bill you if it deems your homeowners coverage to be inadequate. A servicer may purchase insurance for you at an inflated price, without your knowledge or permission. In fact, some servicers provided the policies themselves, at a huge commission.
Johnson tells of a homeowner who was billed $33,000 annually for a premium when the homeowner previously had coverage for $4,000. Proposed CFPB rules would give homeowners a chance to prove they have the proper insurance and would require servicers to notify homeowners before assigning insurance.
MarketWatch lists other proposed changes:
Evaluating borrowers. Servicers would also be required to review applications for loan modifications and other payment plans -- and in a timely fashion. In fact, servicers wouldn't be able to proceed with a foreclosure sale until they've reviewed the borrower's application. They'd also have to give consumers a heads-up when applications are incomplete. Borrowers would be able to appeal certain servicer decisions.
Access to servicer personnel. Delinquent borrowers would get direct and easy access to employees whose job it is to help them resolve their mortgage issues. The employees that borrowers work with will be empowered to help them.
Crediting payments. Servicers would be required to credit the borrower's account the day a payment is received.
Accurate and accessible documents. Policies and procedures would be required for servicers to provide accurate information to borrowers and minimize their errors. They'd also have to provide oversight of their contractors and attorneys.
The changes are proposed to rules written under two existing laws:
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Remember the term Force-Placed Insurance, as it is the leading cause of foreclosures since 1994. False placement of illegally and artificially inflated premiums have been proven to create a negative escrow account, which leads to increased mortgage payments, blocked tax payments, and denial of a loan modification.
Read chapter 2 of my firsthand account as a bank whistleblower uncovering the largest bank fraud in history here: http://thoughtforyourpenny.blogspot.com/2012/07/the-boy-who-cried-force-placed.html
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