New Mortgage-Servicing Rules to End ‘Surprises and Run-arounds’

The Consumer Financial Protection Bureau is proposing a series of new rules for the companies that service your mortgage, including requirements for warnings of pending interest rate increases and so-called force-placed property insurance.
Mortgage servicers will also be required to credit payments promptly on the day they are received.
“Our proposals have new rules that are designed to put the service back in mortgage servicing, and will benefit borrowers by eliminating surprises and run-arounds,” the CFPB said.
The U.S. agency said the rules are a result of mandates in the 2010 Dodd-Frank Wall Street reform legislation and responses to issues in the mortgage-servicing marketplace. But the CFPB also needed some restrain to avoid unnecessary burdens on lenders and servicers.
“So, in addition to meeting with consumers, consumer advocates, servicers, trade associations, and mortgage investors, we worked with a design team, conducted consumer testing, and met with small servicers to develop these proposals,” a CFPB statement said.
Many homeowners don’t understand the players behind their monthly statements.
When a mortgage payment is mad, part of the amount goes toward interest on the money that is borrowed, and part of it repays the money that you borrowed.
But the company that owns the mortgage hires someone else – a servicer – to collect and apply the payments, along with handling other day-to-day responsibilities in administering the loan.
Here are the new rules proposed by the CFPB:
Monthly mortgage statements
Servicers would be required to provide clear billing statements including information on the loan, amount due, and application of past payments.
Warnings before interest rate adjustments
Servicers would be required to provide consumers with a new notice 6 to 7 months before the first rate adjustment, as well as earlier and improved notices before rate adjustments causing an increase in a consumer’s mortgage payments.
Force-placed insurance
Servicers can only charge borrowers for buying insurance on the property when they have a reasonable basis to believe that the borrowers have let their own insurance lapse and have given borrowers two notices estimating the cost of the “force-placed insurance.”
Early outreach for delinquent borrowers
Getting a delinquent borrower back on track requires early intervention and information about options available.
Prompt crediting of payments
Payments must be applied as of the day they are received, and the handling of partial payments is clarified.
Accurate information management
Servicers must have reasonable policies to ensure that when borrowers provide documents and information the servicers can find and use them.
Error resolution and information requests
Mistakes happen, but they need to get fixed. Servicers must address borrower concerns about possible errors within certain timeframes and provide the information they request.
Direct and ongoing access to servicer personnel
Delinquent borrowers will be able to contact the right people at their servicer to get information and take steps to avoid foreclosure.
Evaluation for alternatives to foreclosure
Servicers would be required to appropriately review borrower applications for loan modifications or other options to avoid foreclosure.
The new rules are divided into two proposals – one to amend the regulations in the Truth in Lending Act (Regulation Z) and the other to amend the regulations in the Real Estate Settlement Procedures Act (Regulation X).
The public has until Oct. 9 to comment on the rules. Participate in the formal comment process by going to Regulations.gov (TILA Servicing or RESPA servicing).

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