The Consumer Financial Protection Bureau (CFPB) has proposed some new measures affecting the way servicers handle mortgages in various stages of default. The changes will require servicers to:
- Provide certain borrowers with foreclosure protections more than once over the life of the loan. Currently a borrower is given certain protections such as the right to be evaluated under the CFPB's options to avoid foreclosure, only once during the life of the loan, even if they suffer separate financial hardships years apart. The proposal would require that servicers provide those protections for borrowers who have brought their loans current since the last loss mitigation application.
- Put in place additional servicing transfer protections. The proposal clarifies that a transferee servicer must generally comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer.
- Expand consumer protections to surviving family members and other homeowners. Under current CFPB rules, if a borrower dies the servicer must promptly identify and communicate with family members or others with a legal interest in the home. The proposal expands the circumstances in which consumers would be considered such successors in interest such as 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 borrower who is a joint tenant dies. The proposal also ensures that those successors generally receive the same protections as the original borrower.
- Clarify servicers' obligations to avoid dual-tracking and prevent wrongful foreclosures. In some cases servicers are not observing the current rule which prohibits them from proceeding to foreclosure if they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. CFPB is proposing to clarify what steps servicers and foreclosure counsel must take to protect borrowers from a wrongful foreclosure sale and that servicers who do not act appropriately must dismiss a pending foreclosure action.
- Clarify when a borrower becomes delinquent: The proposal clarifies that, for purposes of the servicing rules, delinquency begins on the day a borrower fails to make a periodic payment but if the borrower makes up a missed payment which is applied to the oldest outstanding periodic payment, the date of delinquency advances.
The changes also require servicers to notify borrowers when their loss mitigation applications are complete so that borrowers know the status of the applications and the key foreclosure protections provided and to provide specific information to some borrowers in bankruptcy. The proposal would also make changes to the mortgage servicing rules such as providing flexibility for servicers to comply with certain force-placed insurance and periodic statement disclosure requirements. The changes would clarify several early intervention, loss mitigation, information request, and prompt crediting of payments requirements, as well as the small servicer exemption. Further, the proposal would exempt servicers from providing periodic statements under certain circumstances when the servicer has charged off the mortgage.
CFPB said that the proposal reflects the continued consultation with consumer advocacy groups, industry representatives and other stakeholders which has been ongoing since its mortgage servicing rules took effect. The proposed rule will be open for public comment for 90 days after its publication in the Federal Register.
