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Federal agency issuing more rules to improve mortgage and foreclosure …

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In addition to the rules announced earlier this week, the Consumer Financial Protection Bureau is issuing more rules to outlaw the kinds of abuses that led up to the housing crisis and the foreclosure debacle that followed.

The rules come at the same time big banks, including Bank of America, Goldman Sachs, Morgan Stanley, Citibank, Wells Fargo, JPMorgan Chase, SunTrust, and U.S. Bank, are signing billion dollar agreements to settle charges of mortgage and foreclosure abuse.

While it’s encouraging that federal agencies are filing lawsuits against the big banks for troublesome housing practices, some consumer advocates call the settlements flawed, offering consumers only pennies on the dollar for their losses.

Here are details on the bureau’s rules announced this week:

Rules to prevent loan originators from steering consumers into risky mortgages

These rules ban certain incentives that loan originators – loan officers and mortgage brokers – had to sell unsafe loans to consumers in the run-up to the financial crisis.

Unscrupulous mortgage loan originators too often led prospective homebuyers into risky and high-priced loan terms because they would generate higher compensation for themselves, Richard Cordray, director of the bureau, said in a statement. The Federal Reserve Board, and then Congress through the Dodd-Frank Wall Street Reform and Consumer Protection Act, took steps to limit these practices. The bureau’s new rules:

  • Prohibit steering incentives.
  • Prohibit “dual compensation,” getting compensation from the consumer and another person such as the creditor.
  • Set qualification and screening standards

The final rule also carries out Dodd-Frank provisions that, for mortgage and home equity loans, generally prohibit mandatory arbitration of disputes related to mortgage loans and the practice of increasing loan amounts to cover credit insurance premiums.

A summary of the rules is available at: http://files.consumerfinance.gov/f/201301_cfpb_loan-originator-compensation-rule_summary.pdf

Rule to improve consumer access to appraisal reports

This new rule requires mortgage lenders to provide applicants with free copies of all appraisals and other home-value estimates. The rule will ensure that consumers can receive information prior to closing about how the property’s value was determined, Cordray said in a statement.

Consumers are typically charged for the costs related to conducting an appraisal; however, currently the law doesn’t require that consumers receive a copy of the appraisal unless they request it and doesn’t require that consumers receive a copy of any other estimates of the home’s value.

Dodd-Frank requires that lenders give consumers a copy of each appraisal or other estimate free of charge although a lender generally may still charge the consumer a reasonable fee for the cost of conducting the appraisal or other estimate. The bureau’s new rule carries out these requirements.

A summary of the rule is available at: http://files.consumerfinance.gov/f/201301_cfpb_ecoa-appraisals-rule_summary.pdf

Rule on appraisals for higher-priced mortgage loans

The bureau, in cooperation with five other federal agencies, is issuing a rule that establishes new appraisal requirements for “higher-priced mortgage loans.” The rule carries out amendments to the Truth in Lending Act made by Dodd-Frank. Mortgage loans are higher-priced if they’re secured by a consumer’s home and have interest rates above certain thresholds.

For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical inspection of the interior of the property, Cordray said in a statement. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.

The rule exempts loans for qualified mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers, and boats that are dwellings. The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions.

In addition to the bureau, the rule is being issued by the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency.

A summary of the rule is available at: http://files.consumerfinance.gov/f/201301_cfpb_tila-appraisals-rule_summary.pdf

Rules to protect homeowners facing foreclosure

These rules establish new, strong protections for struggling homeowners facing foreclosure, Cordray said in a statement. They also protect mortgage borrowers from costly surprises and runarounds by their servicers.

The rules provide:

Protections for struggling borrowers

  • Restricts dual-tracking, when the servicer moves forward with foreclosure while at the same time working with the borrower to avoid foreclosure.
  • Requires notification of foreclosure alternatives.
  • Requires direct, easy, and ongoing access to servicing personnel.
  • Requires a fair review process.
  • Prohibits a foreclosure sale until all other alternatives considered.

No surprises

  • Clear monthly mortgage statements.
  • Early warning before interest rate adjusts.
  • Options for avoiding costly “force-placed” insurance.

No runarounds

  • Requires that payments be promptly credited.
  • Requires prompt responses to requests for payoff balances.
  • Requires that errors be corrected and information be provided quickly.
  • Requires the maintenance of accurate documents and information and accessibility to them.

These rules also originate from Dodd-Frank and are carried out by the bureau.

Small financial institutions that service 5,000 or fewer mortgage loans are exempt from the rule. These servicers are mostly community banks and credit unions.

All the rules will take effect in January 2014, except the prohibition on mandatory arbitration and on the financing of credit insurance will take effect in June 2013.

Last week, the bureau adopted a new rule, which also goes into effect in January 2014, that will protect consumers from irresponsible mortgage lending by requiring lenders to ensure borrowers have the ability to repay their mortgage.

The rule also protects borrowers from risky lending practices such as “no doc” and “interest only” features that contributed to many homeowners ending up in delinquency and foreclosure after the 2008 housing collapse.

The mortgage servicing rules can be found Thursday at:

A factsheet about the rules can be found at: http://files.consumerfinance.gov/f/201301_cfpb_servicing-fact-sheet.pdf

For more information for boomer consumers, see my blog The Survive and Thrive Boomer Guide.

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Article source: http://blog.seattlepi.com/boomerconsumer/2013/01/20/federal-agency-issuing-more-rules-to-improve-mortgage-and-foreclosure-procedures/

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