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Putting the ‘service’ back in ‘mortgage servicing’

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Today, we’re proposing new mortgage servicing rules.

So, what’s mortgage servicing and why does it need the new rules?

The short answer is that mortgage servicing is the processing of mortgage payments. That may sound simple, but as many borrowers have learned in the aftermath to the financial crisis, it can get complicated very quickly.

When you make a mortgage payment, part of that pays interest on the money that you borrowed, and part of that actually repays the money that you borrowed. Often the company that owns your mortgage hires someone else – a servicer – to collect and apply these payments, along with handling other day-to-day responsibilities in administering the loan.

This can be a challenge due to sophisticated mortgage products, partial payments, delinquent borrowers, fees, errors and misunderstandings. And when consumers can’t make their mortgage payments, servicers are the ones that decide what to do. As we saw during the recession, not all servicers were prepared to handle these challenges. And that can have very bad consequences for consumers.

Why are you proposing new rules?
When an agency writes a new rule, that rule must first be proposed, and the public has an opportunity to comment on it. After we get your comments we’ll review them and consider them while we’re writing the final rule.

How did you arrive at these rules?
Several of them are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (which we call the Dodd-Frank Act for short). We developed others in response to issues in the marketplace. To do this, we have spent a lot of that time talking to the public because we want to write rules that work. For us, rules that work are rules that protect consumers, are consistent with other rules that apply to servicers, recognize the impact on lenders and mortgage investors, and do not cause unnecessary burden on industry. 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.

What are the new rules?
We are proposing rules on mortgage servicing to implement new laws in the Dodd-Frank Act. 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 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 rules are:

  • 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.

How can I get involved?
We want your comments by October 9 – here’s how to weigh in:

 
Update (8/20/12): The proposals were updated to reflect corrections and other changes on page 9 of each concerning litigation and settlements concerning servicing.”

  • Redciocc

    Banks, financial institutions should be required by law to give loans that customers will most likely be able to pay back. This effort and paperwork, appera to carefully avoid this simple solution.

  • Checkerjd

    I am all for making sure the consumer is crystal clear on things such as what their loan entails, as well as the lender needing to keep in communication with the customer in cases of late payments, and I agree that rules should be in place on limiting the use of force-placed insurance. In a nutshell, making sure the consumer knows the things they need to know is obviously the priority. No one can dispute that.

    BUT, there does come a certain point where the consumer also needs to exhibit some personal responsibility, critical thinking, and at some point, hand-holding by organizations such as CFPB needs to stop. People fall on hard times. Some people grasp certain concepts faster than others. However, when people can avoid personal responsibility simply by punting to a government agency to let them carry the ball, and punish/bully the lenders for enforcing legally binding documents that the customer signed as a symbol of their agreement to the terms, it starts moving beyond ridiculous. And this would be since recent simplification of various RESPA documents in order for the consumer to better understand what they are looking at.

  • David

    Please require mortgage servicers to provide accurate and clear disclosures of fees (for example if there’s a fee for loan payoff information). I requested a loan payoff figure from my servicer, but was never told there was a fee for the service. And there are no specific fees listed on their website. When the servicer could not provide a payoff figure for the date requested I was sent a letter with a payoff figure for a different date. I called them and was told why the date had been changed and that I would receive a new letter with the proper date. I responded that I would determine the payoff figure myself and required no more payoff information. A week or so later they sent a payoff letter with payoff  information with the correct date. It was only upon receiving the second payoff letter that I noticed two $30 fees assessed, one for each of the letters. When I called in to complain I was told there were actually three $30 fees assesed. The third was for another loan payoff request, made on a completely seperate date from the initial request and the phone call, and one that I had never made. I asked that all three fees be removed. I was told I had to send in a signed letter requesting the fees be removed. That was two weeks ago and I’ve yet to hear anything back. 

  • Jeffrey Weekley

    My loan servicing was recently assumed by BSI Financial Services, Inc. I was shocked to see that the terms of my loan did not match the note I signed at loan closing. For five years, my previous servicer, Aurora Loan Services, had failed to disclose they were applying payments as if the loan matured 15 years later than my note indicated. This means that the amortization was completely wrong. The loan is a HELOC  on a home which is underwater even on the first, but I have not been able to negotiate a settlement.

    Do any of these new regulations address redress or settlements?

  • GGLAMANCHA

    THE SERVICER SHOULD HAVE A TIME FRAME THAT THEY MUST RESPOND.  DOCUMENTS EXPIRE AND THE CONSUMER MUST RESUBMIT BECAUSE OF THE SERVICER’S LACK OF EXPIDITING THE DOCUMENTS IN A TIMELY MANNER  IT HAPPENED TO ME MANY TIMES AND STILL NOT RESOLVED GGLAMANCHA@HOTMAIL.COM 

  • Nikeylynn

    Buyers must show most current tax returns in order to purchase a home. Its not all loan servicers fault. Its the buyer who knows they cant afford the home in the first place. Its the broker who dummies up documents to make the buyer look like they can afford something they cant, so that they can make more money.

  • Anonymous

    Should be punished for human error

  • peg

     Consumers usually take the time to decide what companies that they want to do business with but the process now forces consumers to deal with servicing companies that would not have chosen initially for what ever reasons.  The right to chose was actually denied

  • Anonymous

    I took out a mortgage with the bank I use daily because they advertise themselves as the “hometown” bank helping the local economy. After many episodes of resubmission of paperwork and new paperwork that I was not made aware of at the beginning the loan was finally closed on. When the 2nd quarter property tax came due I found out the 1st quarter pro-rated bill had never been paid. I was told the closing attorney should have paid it,then the mortgage company should have paid it. I paid it again only because I was fustrated to then find out the mortgage company had paid it the day before out of my escrow. The city paid one of these back several weeks later, however no one knows what happened to the one paid at closing. Did I mention the “hometown” bank had sold my mortgage before the second payment came due to a credit union 1000 miles away that I had never heard of ? Also I found out they were holding my payments including principle only for 10 business days. Something needs to change and soon. Maybe a short list of who, if they must, can sell our mortgage to and let us decide. In the mean time I feel I should be added to their payroll for all the time and fustration I have exerted in trying to do business with this “full service lender”

  • http://www.easyhealthydiets.blogspot.co.uk/ Sowinpierwszyv

    It’s sad. Our world is coming to finish. Redciocc have right- financial institutions should be required by law to give loans.

    • John

      You need wake-up to fix our financial system in US. All bank create mess and this is should be address. We need solve this issue for middle class to make sure they can afford mortgage and other expensive. Middle class got hurt last recession because mortgage, student loan and credit card. Some young people can not start family because too much debt.

      Regulation need Bank to avoid abuse in this financial system.

  • Oldpinky

    Wonderful!!   I have been trying to make my comments more concise about my own servicer and the hell that BOA caused my life because of account number changes, moving my account from Arizona to Seattle, telling me I could not conform to my own property tax requirements in my State and city, and literally having a great time making my life miserable.  It is hard to know if the problem is the bank itself or the servicer they contract with.  Only recently learned that the BOA also owns landsafe, and that they actually employed my broker when he said he had no relationship to the BOA and gave me a Countrywide loan on a house that FHA requirements would not have covered.  He said that FHA had different rules and requirements for my house because I already owned it.  This was for conversion mortgage and he and the appraiser had a great time!  I was screwed big time when I bought the house and  9 years later another scheme.

  • Gingerius
  • Alpine06

    Mortgage disclosure are already complicated enough that we don’t need them to get worse.  I got almost a 1/2″ thick packet of paper at my last closing when I refinanced.  That is such a waste of paper that no one I know would bother taking the time to read.  I think many of the options above are great, but some seem repetitive.  If I let my insurance lapse, why do I need to be warned twice that the bank will put insurance on my house?  It was my fault that the insurance was canceled in the first place.  If I get notified 6 or 7 months before an interest rate increase, I will have forgotten about it by the time it actually happens. 

    • http://twitter.com/grantstern Grant Stern

      My clients have often encountered situations where force placed insurance is applied improperly, and when there are technical issues with policies. Mandatory disclosure to the client could avoid many disputes where banks apply these costly policies – often through subsidiaries or internal agents and to their financial benefit – only later to dispute the necessity for these policies, and the costs, refunded premiums, etc. Furthermore, servicers typically have enhanced fees for special servicing ie. foreclosure. This creates the perverse incentive to encourage disputes between servicers and borrowers.

      An anecdotal example: Client refinances apartment building with now defunct Greenpoint Mortgage. Client obtains all required insurances at closing, pays for all premiums. Borrower’s attorney fails to pay required windstorm insurance premium. Bank obtains $25,000 force placed insurance coverage. Borrower has limited resources, not enough to sue his attorney – obtains new coverage to cancel force placed insurance. Borrower and bank could not agree amicably to insurance settlement resulting eventually in the filing of a foreclosure lawsuit.

      Sure, this is a commercial deal, but the experience is relative to any lending situation. Better to provide clear rules to Mortgage Servicers, who have perverse incentive to force place insurance coverage.

  • Joey B.

    Yeah CFPB, hold on while I read the RESPA link that’s 442 pages or the TILA that’s 313. Are you kidding me? No wonder banks are always shafting consumers. You can’t just come out and say what you mean in 20 pages or less? Why are these documents so long and confusing? Share with us what you mean and get to the point, I don’t have three days to read your proposals and make a proper comment.

  • Anonymous

    I hope all of you took the time to submit your comment on regulation.gov website, where it actually counts!

  • john

    You need wake-up to fix our financial system in US. All bank create mess and this is should be address. We need solve this issue for middle class to make sure they can afford mortgage and other expensive. Middle class got hurt last recession because mortgage, student loan and credit card. Some young people can not start family because too much debt.
    Regulation need Bank to avoid abuse in this financial system.

  • No Name

    Where is the outrage?? From the
    regulatoryroom summary (link above) (BOLD IS MINE):

    What this means for consumers: The servicer
    would NOT have to respond to requests:

    that the servicer
    has already answered once (unless the information changes over time)
    (CAN’T SUE THEM FOR NON COMPLIANCE);for confidential or “general
    corporate” information (THEY CAN MAKE EVERYTHING CONFIDENTIAL);for information not “directly
    related” to the borrower’s account; (LIKE ATTORNEY FEES? MAINTENANCE FEES?
    INSPECTION FEES?)that come more than 1 year
    after the loan was transferred to another servicer
    (see the Who
    is Servicing Your Loan? post) or paid off.for information it doesn’t
    have (THEY CLAIM THEY DON’T EVEN HAVE REINSTATEMENT FEES AVAILABLE ON THE
    PHONE);for information it can’t get
    from its records in the “ordinary course of business” with “reasonable
    efforts” (LIKE A COPY OF THE NOTE WITH ENDORSEMENTS?)for an “unreasonable volume
    of documents or information”that are “overbroad,” meaning
    that the servicer
    can’t tell what specific information the borrower wants (is this a good
    definition of “overbroad”?)that are “unduly burdensome,”
    meaning that a diligent servicer
    would need more than 45 business
    days to respond, that “unreasonable” costs or effort would be
    involved, or that the request is the kind usually made during a law
    suit (is this a good definition? are there other or better
    criteria for knowing when a request is unduly burdensome?) (THEY ARE
    ALREADY USING THE OVERBROAD ARGUMENT FOR VERY PRECISE QUESTIONS SUCH AS
    FEES ATTACHED)

    THIS CATERS TO THE BANKS AND SERVICERS. I WOULD LIKE TO KNOW WHO CAME UP
    WITH THESE RULES PRECISELY?

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