The Consumer Financial Protection Bureau (CFPB) has proposed additional measures to ensure that homeowners and struggling borrowers are treated fairly by mortgage servicers. The proposal would require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan, to put in place additional servicing transfer protections and to take steps to protect borrowers from a wrongful foreclosure sale. The proposition would also help ensure that surviving family members and others who inherit or receive property have the same protections under the CFPB’s mortgage servicing rules as the original borrower.
“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” said CFPB Director Richard Cordray. “Today’s proposal would give greater protections to mortgage borrowers.”
The current rules, which went into effect on Jan. 10, require mortgage servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments and correct errors on request, according to the CFPB.
Highlights from the CFPB’s proposal:
- Require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan: Currently, a mortgage servicer must give the borrower certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. Under the proposed rule, servicers would have to give those protections again for borrowers who have brought their loans current at any time since the last loss mitigation application. CFPB said the change would help borrowers who obtain a permanent loan modification and later suffer an unrelated hardship— such as the loss of a job or the death of a family member— that could otherwise cause them to face foreclosure.
- Expand consumer protections to surviving family members and other homeowners: If a borrower dies, CFPB rules currently require that servicers promptly identify and communicate with family members, heirs, or other parties— known as “successors in interest”— who have a legal interest in the home. Today’s proposal would expand the circumstances in which consumers would be considered successors under the rules. The expanded circumstances include when a property is transferred after a divorce, legal separation, through a family trust, between spouses, from a parent to a child or when a joint tenant borrower dies.
- Require servicers to notify borrowers when loss mitigation applications are complete: When a borrower completes a loss mitigation application, key foreclosure protections take effect. If consumers do not know the status of their applications, they cannot know the status of their foreclosure protections, said the CFPB. The proposal would require servicers to notify borrowers promptly that the application is complete, so that borrowers know the status of the application and their protections.
- Protect struggling borrowers during servicing transfers: The proposition clarifies that generally a transferee servicer must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer. If the borrower’s application was complete prior to the transfer, the new servicer generally must evaluate it within 30 days of when the prior servicer received it. For involuntary transfers, the proposal would give the new servicer at least 15 days after the transfer date to evaluate a complete application. If the new servicer needs more information in order to evaluate the application, the borrower would retain some foreclosure protections in the meantime.
- Clarify servicers’ obligations to avoid dual-tracking and wrongful foreclosures: The new rule would clarify what steps servicers and their foreclosure counsel must take to protect borrowers from a wrongful foreclosure sale. The regulator is suggesting that servicers who do not take reasonable steps to prevent the sale must dismiss a pending foreclosure action. The measures would aid servicers in complying with, and assist courts in applying, the dual-tracking prohibitions in foreclosure proceedings to prevent wrongful foreclosures.
- Clarify when a borrower becomes delinquent: The proposal would simplify that delinquency begins on the day a borrower fails to make a periodic payment. When a borrower misses a payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date of delinquency advances. The proposal also would allow servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full payment by a small amount.
- Provide more information to borrowers in bankruptcy: The additional measures would require servicers to provide periodic statements to borrowers facing bankruptcy. Under the current rules, servicers do not have to provide certain disclosures to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act. With these changes, servicers would be required to provide written early intervention notices to let those borrowers know about loss mitigation options.