CFPB Releases New Mortgage Servicing Rules
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 force-placed insurance.
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.