New rules proposed by the Consumer Financial Protection Bureau (CFPB) today include provisions--authored by U.S. Sen. Sherrod Brown (D-OH)--to protect homeowners from surprises and costly mistakes by their mortgage servicers. Brown's Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011 would expand access to foreclosure prevention services, while increasing protections for homeowners and investors in mortgage-backed securities.
"Wall Street mortgage servicers made a business model out of cutting corners to pad their profits at the expense of Main Street homeowners," Brown said. "These new rules will help hold the banks to the same standards of responsibility they impose on homeowners. But more still needs to be done--like passing the Foreclosure Fraud and Homeowner Abuse Prevention Act to bring comprehensive reform, ending the foreclosure mill and keeping people in their homes."
Brown, chair of the Financial Institutions and Consumer Protection Subcommittee, is a leading proponent of providing assistance to communities affected by the housing crisis and population loss. Brown's Foreclosure Fraud and Homeowner Abuse Prevention Act would address many of the most common problems homeowners face when trying to modify their loans, would require banks to consider modification before proceeding to foreclosure, and would ensure adequate procedures and staffing levels to modify loans.
In July 2010, Brown sent a letter to the executives of the nation's four largest banks calling on them to work with responsible homeowners to avoid foreclosure.
Below is a list of reforms proposed in the Foreclosure Fraud and Homeowner Abuse Prevention Act that were addressed in the CFPBs proposal:
Forced-Placed Insurance Reform
Requires continuation of the existing forced-placed insurance policy or reestablishment of such policy if there is a lapse in payment.
Requires borrowers to provide creditors and servicers with premium payment information at the time of closing, and updated if the policy changes, whether or not there is an escrow, so that existing policy can be continued in the event of a lapse.
Servicers would not be permitted to charge a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and has provided required notices.
Charges related to forced place insurance must relate to a service that was actually performed and bear a reasonable relationship to the servicer's cost of providing the service
Reasonable Mortgage Servicer Staffing and Procedures
Creates a single electronic record for each borrower.
Requires a single contact for each stage of the mortgage process, from loan servicing to loan modification to bankruptcy.
Requires servicers to maintain adequate staffing to accommodate their caseload.
Provides for one team leader to coordinate between mortgage servicer departments.
Requires a reasonable limit on the number of cases handled by each employee of a mandatory special servicer of delinquent loans.
Requires reasonable minimum experience, education, and training for servicers' loan modification staffs.
Requires transferring servicers to update successor servicers on the status of the mortgage modification process, and requires successor servicers to continue the modification process or honor modification agreements.
Requires payments, including partial payments, to be applied to scheduled principal and interest before they are applied to fees.
Requires loans that are imminent default or more than 60 days delinquent to be transferred to a mandatory special servicer.
Entitles borrowers to a monthly servicing statement describing the payment amount, the date, time, and location for payments to be received under the terms of the loan agreement, and all payments received and their allocation.
Mandates that servicers of closed-end residential mortgage loans must send a periodic statement for each billing cycle.
Servicers would be required to establish reasonable information management policies and procedures.
Requires partial payments to be held in an expense account and when the amount in the suspense account covers a full installment of principal and interest, the proposal would require the servicer to apply the funds to the oldest outstanding payment owed.
Servicers would be required to acknowledge a borrower's request or complaint within five days, to correct or respond to the borrower with the results of the investigation within 30 to 45 days, and acknowledge borrower requests for information and either provide the information or explain why the information is not available within a similar amount of time.
Servicers would be required to provide delinquent borrowers with access to personnel to assist them with loss mitigation options and to assign dedicated contact personnel for a borrower no later than five days after providing the early intervention notice.
Foreclosure Prevention Procedures
Requires servicers to participate in loan modifications, including reductions in the payment amount and principal balance when it is in investors' best interest and homeowners can make reasonable and sustainable payments.
Servicers would be required to make good faith efforts to notify delinquent borrowers of loss mitigation options.
Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure sale.