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The Treasury Department and the Federal Housing Administration will issue new rules in the coming months allowing borrowers to appeal mortgage servicer decisions under certain modification programs.
The action comes under the White House proposal announced Tuesday that also lays out a plan to usher more borrowers into refinanced government-insured mortgages. While the refinance plan will require passage by Congress, the appeal process will be implemented for the expanded Home Affordable Modification Program and the FHA modification program without legislation.
More than 1.8 million borrowers have been denied a HAMP trial under the previous version of the program. Changes were announced last week to allow more borrowers to qualify.
The Treasury already has call centers in place to hear third-party escalations about HAMP, but there is no formal review process in place. To date, more than 1.3 million calls have been made to the hotline. Servicers averaged 30 calendar days to resolve the escalations.
Outside of the HAMP appeal process, President Obama's proposal would include new requirements for mortgage servicers across the default process. These requirements would come under the legislation if passed by Congress.
The president called these the "homeowner bill of rights."
If passed by Congress, homeowners by law must have clear mortgage forms being developed by the Consumer Financial Protection Bureau. Mortgage servicers must disclose all known fees and penalties and eliminate any conflicts of interest with investors.
"Servicers and investors must implement standards that minimize conflicts of interest and facilitate coordination and communication, including those between multiple investors and junior lien holders, such that loss mitigation efforts are not hindered for borrowers," the White House said.
The servicers would also be required by law to contact borrowers early if they are at risk of foreclosure. The law would require servicers to provide an employee at the servicing shop to the borrower, maintain a complete record of previous communications and give access to "personnel with decision-making authority."
Also, the law if passed would keep servicers from initiating a foreclosure action unless the homeowner has been contacted or it has made reasonable efforts to do so.
Any foreclosure action underway must be stopped if the servicer receives the required documentation. The foreclosure cannot be restarted unless the homeowner fails to complete the modification process.
"No more hidden fees or conflicts of interest," Obama said in a speech at Falls Church, Va. Wednesday. "No more getting the runaround when you call about your loan. No more sneaking fine print under the noses of young families who don't know better. New safeguards against inappropriate foreclosures. New options to avoid foreclosure if you've fallen on hardship or a run of bad luck. And a new, simple, clear form for new buyers."
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