The Consumer Financial Protection Bureau recently laid out new rules for mortgage servicers, such as Ocwen and Nationstar. For most homeowners, it is the servicers who they actually interact with. Mortgage servicers are the ones who collect your payments, who you talk with (or, more accurately, sit on hold for) if you have an issue, and who hound you if you’re late or miss a payment. Some banks do their own servicing, with Wells Fargo being the largest. However, there are independent servicers who management mortgage payments but do not hold notes, such as Ocwen, Nationstar, Litton Loans, American Home Mortgage Servicing, Inc./AHMSI/Homeward Residential.
The actual rules are fairly lengthy and dry. But you can follow them here if you’re a rules geek like myself and find this stuff interesting. If you don’t want to wade through these changes to RESPSA (the Real Estate Settlement Practices Act) and TILA (Trust In Lending Act), here are the major changes.
1. Restrictions on dual tracking: Dual tracking is the term used when servicers move forward on a foreclosure at the same time they’re working with the borrower to avoid foreclosure. Many homeowners have painfully learned that they were foreclosed on by the same servicer they were working with to find an alternative. Under the new rules, servicers cannot begin foreclosure proceedings against you until your payments are 120 days behind.
2. Pursuing modifications and other loss mitigation: The dual tracking restrictions give homeowners some time to assess their situation and apply for a modification or other option. If homeowners apply within the 120-day window, the servicer cannot begin foreclosure until the loan modification application has been addressed. If an agreement is reached, the servicer cannot start foreclosure proceedings unless the homeowner doesn’t uphold their end of the agreement. Even if homeowners apply while facing foreclosure, the servicer cannot complete the foreclosure while the application is pending so long as it has been submitted at least 38 days before the foreclosure sale is scheduled.
3. A periodic statement for homeowners: One of the new requirements defines a periodic statement for residential mortgages. The statement comes every billing cycle and covers basics like an explanation of the amount due, payment and transaction history, account information, and contact information for the servicer. It doesn’t apply to some mortgage types (like reverse mortgages), but it does apply to most home purchases and refinancings. The servicer does not have to provide a monthly statement if homeowners have a fixed rate loan and pay with a coupon book, but the information that would be on the monthly statement needs to be available nonetheless.
4. Early outreach when a borrower falls behind: If a borrower becomes delinquent, the servicer has to make a good faith effort to reach out to them. The servicer also has to assign people to their case and make those people available by phone so the borrower has a clear and consistent point of contact.
5. Warnings before interest rate adjustments: If a homeowner took out an adjustable rate mortgage, the servicer must provide notification about the first interest rate adjustment at least seven months in advance of when the borrower owes a payment at the adjusted interest rate. The servicer has to provide an estimate of the new interest rate and payment amount, alternatives that may be available, and how to access a HUD-approved mortgage counselor. In addition, for the first interest rate adjustment, and all subsequent rate adjustments that result in a different payment amount, servicers must send an additional advance notice telling you what the new payment will be.
6. Crediting payments in a timely manner: When homeowners make a full payment, the servicer must credit it to their account as of that day. If you request a payoff statement in writing, the servicer has seven business days to issue the statement.
7. Force-placed insurance: Force-placed insurance is insurance that the servicer buys on the property when the borrower no longer has property insurance. Without insurance, whoever holds the mortgage would be at risk if the house were to be damaged or destroyed. But the borrower may actually be responsible for the costs of the force-placed insurance policy. This has led to unexpected or duplicate expenses for people who already have their own insurance policies. Under the new rules, servicers need a reasonable basis to believe borrowers lack their own insurance, and they must determine this on a case-by-case basis. The servicer also has to notify the borrower before purchasing the force-placed insurance policy and annually before renewing the policy.
These rules take effect in early 2014.
One of the biggest things that I take away from these rules changes are the mandatory loan modification provisions, and that servicers are limited in the foreclosure proceedings they can undertake if you are in the process of a loan mod. This underscores the importance of being proactive with your mortgage. Getting ahead of things can buy you additional time.
I’m encouraged that new rules have been promulgated to help homeowners get a fair shake from their servicers. It’s only a shame that it’s taken the bad acts of these servicers over the past 4-5 years to finally get to this point.