A new federal agency, the Consumer Protection Bureau proposes tougher rules for mortgage servicers in an effort to help homeowners avoid foreclosure.
Mortgage servicers are used by banks to collect loan payments and carry out foreclosures. The rules were first suggested in the Dodd Frank Act passed in 2010, but have gained momentum since the $26 billion national foreclosure settlement. The new rules would require mortgage servicers to send homeowners monthly statements, give them advance notification of sharp interest rate increases, and offer more alternatives to foreclosure.
Investigations, on the state and federal level, revealed that mortgage servicers used fraudulent signatures, sloppy paperwork, and rushed the foreclosure process.
“The major failures in this industry demonstrate that all servicers need to meet the basic standards of good customer service,” said Richard Cordray, head of the bureau.
Servicers will be required to send homeowners a monthly statement with a concise breakdown of payment information and due dates. Homeowners should receive a notice of interest rate changes 200 to 240 days in advance along with an estimate of the new rate.
Foreclosure prevention is one of the main goals. If a foreclosure is imminent, the servicer must act in good faith and contact the borrower if they get behind on payments, and must inform them of their options for avoiding foreclosure.
If a homeowner requests a mortgage modification, the rules will require servicers to promptly review applications and access to mortgage servicer’s employees to offer assistance to borrowers.
The bureau will give the public 30 days to respond to the new rules before they are implemented.
Even with the new rules, dealing with servicers can be frustrating. A foreclosure attorney can act as the go-between and are often more effective at getting mortgage modifications and short sales.