New rules from the Consumer Financial Protection Bureau will benefit millions of Americans by fixing several key problems that have plagued mortgage servicing. The rules establish basic standards such as requiring a timely application of monthly mortgage payments and a prompt correction of errors. The rules also restrict servicers from forcing borrowers into high-cost homeowners' insurance policies—a common, needless and deceptive practice.
The rules also will help families save their homes from foreclosure. Protections from "dual tracking"—where servicers simultaneously pursue foreclosure and possible alternatives—are a significant improvement from the proposals the CFPB released in August, although in some areas the CFPB should have gone further.
A specific improvement from the CFPB's original proposal requires servicers to wait 120 days after a missed payment before beginning the foreclosure process. Combined with the rules' strong requirement for servicers to reach out early to delinquent borrowers, this 120-day period gives time for everyone – servicers, investors, and borrowers alike – to see if an alternative to foreclosure can be found. This eliminates unnecessary costs and increases the likelihood that borrowers can stay in their homes.
The rules also include protections for borrowers who apply for foreclosure alternatives after the foreclosure process has started, although some should be stronger.
Specifically, the rules:
- Require a borrower to complete an application for an alternative to foreclosure at least 37 days before his or her house is scheduled to go on sale. A 14-day deadline would have been better, but the current rule improves on the 90-day deadline the CFPB initially proposed.
- Prevent servicers from seeking a foreclosure judgment or from actually selling a house until they complete their review of an application. These are important protections, but it would have been better to require that foreclosure proceedings be paused during the review.
- Limit a borrower's ability to appeal when a request for an alternative to foreclosure is denied, which will prevent some borrowers from having an improper denial corrected.
For more information, contact Kathleen Day in DC at 202.349.1871 or kathleen.day@responsiblelending.org; Graciela Aponte in Calif. at 510.379.5518 or graciela.aponte@responsiblelending.org; or Ginna Green at 510.379.5513 or ginna.green@responsiblelending.org.