New rules, fewer runarounds for mortgage borrowersBYÂ DAVID SILBERMAN
When you take out a mortgage loan to buy a home, you trust the mortgage servicing industry to work. Mortgage servicers are responsible for sending you bills, processing your payments, answering your questions, and addressing any problems that may arise. When servicers fall down on the job, that can have serious consequences for consumers. People who are behind on their mortgages may not know what options they have. Bills may show up with unexpected and expensive charges. People who need more information may not be able to get it in a timely manner.
Today we are issuingÂ two new rules to make this market work betterÂ for Americaâ€™s homeowners.Â Director Cordray announced themÂ this morning in Atlanta.
When we proposed these rules back in August, we said we wanted toÂ put the service back in mortgage servicing. The two final rules weâ€™re issuing today are designed to do just that. The result of these new rules will be a market with fewer surprises and runarounds for mortgage borrowers.
Hereâ€™s some of whatâ€™s new:
SPACE FOR CONSUMERS TO PURSUE ALTERNATIVES TO FORECLOSURE
Borrowers fall behind on mortgage payments for a variety of reasons. Sometimes they can make up these payments quickly. Sometimes they need to figure out an alternative payment strategy. Sometimes they face the loss of their homes. But in any of these circumstances, they should know what avenues are available to them.
Restrictions on dual tracking:Â Dual tracking is the term used when servicers move forward on a foreclosure at the same time theyâ€™re working with the borrower to avoid foreclosure. Many consumers report that they have discovered too late 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.
Pursuing modifications and other loss mitigation:Â The dual tracking restrictions give you time to assess your situation and apply for a modification or other option that may be available to help you. If you apply within the 120-day window, the servicer cannot begin foreclosure until your application has been addressed. If you and your servicer come to an agreement on an option, the servicer cannot start foreclosure proceedings unless you donâ€™t uphold your end of the agreement. Even if you apply after youâ€™re already facing foreclosure, your servicer cannot complete the foreclosure while your application is pending so long as you submit it at least 38 days before the foreclosure sale is scheduled.
REGULAR, CLEAR COMMUNICATION FROM SERVICERS
Who services your mortgage, how to get in touch with them, and what you owe should not be mysterious. The new rules include requirements to improve the communication from servicers to mortgage borrowers.
A periodic statement for homeowners:Â 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 doesnâ€™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 you with a monthly statement if you 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 to you.
Early outreach when a borrower falls behind:Â If you become delinquent, the servicer has to make a good faith effort to reach out to you. The servicer also has to assign people to your case and make those people available by phone so you have a clear and consistent point of contact.
Warnings before interest rate adjustments:Â If you take out an adjustable rate mortgage, the servicer must notify you about the first interest rate adjustment at least seven months in advance of when you owe a payment at the adjusted interest rate. The servicer has to provide an estimate of the new interest rate and payment amount, alternatives available to you, 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 you an additional advance notice telling you what your new payment will be.
MANAGING INFORMATION AND PROCESSING PAYMENTS
Good information and good records:Â Servicers should provide correct information about mortgage loans, whether thatâ€™s to a borrower, an investor, or a court during foreclosure. The new rules require policies and procedures to ensure servicers can provide accurate and timely information about the mortgage. They must keep records on all mortgages they service for a year after someone pays off a mortgage or after someone else takes over servicing the mortgage.
Crediting payments in a timely manner:Â When you make a full payment, the servicer must credit it to your account as of that day. If you request a payoff statement in writing, the servicer has seven business days to issue the statement.
Error resolution:Â When thereâ€™s a mistake, you should be able to get it fixed in a timely manner. If you write to your servicer to address what you believe to be an error, the servicer should reply in a timely manner. The new rules set timelines and procedures for servicers to investigate and correct errors.
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 early in 2014, along with three of the rules we issued last week. Weâ€™ve developedÂ a page for the new rulesÂ where you can learn more about the new rules, including a detailed summary. Watch the page for new resources to help you understand the rules and their implications in the days to come.