There have been several new laws (both state and federal) that have come into play over the last year as the foreclosure crisis begins to wind down. With home prices on the rise and foreclosures down nearly 30 percent from this time last year, the major issue distressed homeowners face today is the lack of laws that mortgage servicers are forced to abide by.
In California, the Homeowner Bill of Rights became law January 1, 2013 to provide homeowners clarity and a sense of relief when pursuing a loan modification or other forms of loss mitigation assistance. Nevada followed the trend shortly thereafter and enacted its own Homeowner Bill of Rights (NV Senate Bill 321) to stop unscrupulous mortgage servicing practices and provide better protection for homeowners looking to avoid foreclosure.
During the first quarter of 2013, the Consumer Financial Protection Bureau (CFPB) released a series of new servicing rules and guidelines mortgage servicers must follow to ensure homeowners have a fair opportunity to fight foreclosure. Over the last five years, it’s been the “wild wild west” for struggling homeowners wishing to save their home. Mortgage servicers have had very few (if any) laws they must abide by when processing a loan modification or other forms of loss mitigation assistance. More often than not, servicers would refuse to postpone foreclosure proceedings even if a homeowner was working hard to avoid foreclosure. It’s not hard to see the “flaws” in the system and we’ve been working hard for years to help borrowers overcome this grueling process.
Mortgage servicers don’t actually own the mortgage loan, they’re simply the institution that’s responsible for collecting payments and communicating with the borrower if any issues arise – this includes customer servicer, collections, processing loss mitigation requests (i.e. loan modification short sale, repayment plan, etc), as well initiating foreclosure proceedings. During the housing crisis, the sloppy and unscrupulous collection practices were exposed as millions of homeowners could no longer afford to pay their mortgage. Because of this, various laws came into play and the CFPB has established a new set of rules servicers must follow – beginning January 1, 2014.
Protection for Distressed Homeowners
No More Dual Tracking: When a struggling homeowner is striving to avoid foreclosure, more often than not the mortgage servicer continues with the foreclosure process – this is referred to as “dual tracking.” Under the new rules established by the CFPB, servicers are prohibited from initiating foreclosure proceedings if the borrower has submitted a “complete” loan modification application or another alternative to foreclosure such as a short sale or deed in lieu, until a decision has been made. To give homeowners a reasonable amount of time to gather the required documents and submit a complete application, the new rules require servicers to wait until the account is 120+ days behind before initiating foreclosure proceedings.
Provide Notice of Available Loss Mitigation Options: Many states have already adopted such ruling, but the CFPB is going to require that servicers provide distressed homeowners (who’ve fallen two consecutive payments behind) a written notice of available loss mitigation options, in every state. This notice must include instructions on how to apply for assistance and contacts to obtain additional information.
Fair Review Process: The servicer must consider all foreclosure alternatives available from the mortgage owners or investors – those with decision-making power over the loan – to help the borrower retain the home. These options can range from deferment of payments to loan modifications. And servicers can no longer steer borrowers to those options that are most financially favorable for the servicer.
No Foreclosure Sale Until All Other Alternatives Considered: Servicers must consider and respond to a borrower’s application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale. If the servicer offers an alternative to foreclosure, they must give the borrower time to accept the offer before moving for foreclosure judgment or conducting a foreclosure sale. Servicers cannot foreclose on a property if the borrower and servicer have come to a loss mitigation agreement, unless the borrower fails to perform under that agreement.
No More Surprises
Clear Monthly Mortgage Statements: Servicers must provide regular statements which include: the amount and due date of the next payment; a breakdown of payments by principal, interest, fees, and escrow; and recent transaction activity.
Early Warning Before Interest Rate Adjusts: Servicers must provide a disclosure before the first time the interest rate adjusts for most adjustable-rate mortgages. And they must provide disclosures before interest rate adjustments that result in a different payment amount.
Options for Avoiding Costly “Force-Placed” Insurance: Servicers typically must make sure borrowers maintain property insurance and if the borrower does not, the servicer generally has the right to purchase it. The CFPB’s rules ensure consumers will not be surprised by this insurance, which often can be more expensive than the insurance borrowers buy on their own. The rules say servicers must provide more transparency in this process, including advance notice and pricing information before charging consumers. Servicers must also have a reasonable basis for concluding that a borrower lacks such insurance before purchasing a new policy. If servicers buy the insurance but receive evidence that it was not needed, they must terminate it within fifteen days and refund the premiums.