An outright dual-tracking ban and serious consideration of loan modification requests are just two provisions in a series of national servicing standards rolled out by the Consumer Financial Protection Bureau late Wednesday.
The CFPB's official servicing rules, which take effect Jan. 2014, create a baseline set of standards for all U.S. servicers to follow.
The guidelines apply to all mortgage servicers, except for smaller servicing shops that deal with 5,000 or fewer loans.
THE CFPB SERVICING RULE IN A NUTSHELL
The CFPB's official mortgage servicing guidelines released Wednesday forbid dual-tracking, or from starting a foreclosure if a borrower already submitted a completed application for a loan mod or foreclosure alternative.
To give borrowers time to submit loan-mod applications, the CFBP rule prevents servicers from making a first foreclosure notice or filing until a mortgage is at least 120 days delinquent.
Furthermore, servicers must inform a borrower of all loss mitigation options after the homeowner has missed two consecutive mortgage payments. This requirement forces servicers to provide a written notice with examples of options that could be available to troubled borrowers.
The CFPB servicing rule also mirrors guidelines outlined in the national foreclosure settlement and by prudential regulators last year. The new CFPB rule says servicers must deploy policies and procedures that provide delinquent borrowers with direct, easy and continuous access to servicing employees who can assist with loan issues.
In addition, these servicing employees are responsible for alerting borrowers who miss information on loan modification applications and for ensuring documents reach the right personnel for processing. The contacts also have to provide continuous updates to the borrower on loan modifications.
HANDLING LOAN MOD REQUESTS
Mortgage servicers must deploy a fair review process that considers all foreclosure alternatives available from either the investors or mortgage owners.
Servicing shops are no longer allowed to steer borrowers to options that are most financially favorable to the servicing shop.
Furthermore, if an application for a loan modification arrives at least 37 days before a scheduled foreclosure sale, servicers must consider and respond to the borrower's request.
In addition, if the servicer offers a foreclosure alternative, the borrower must be given time to accept the offer before the servicer can move for foreclosure judgment or sale. The CFPB added that servicers cannot foreclose if a borrower reaches a loss mitigation agreement, unless the borrower fails to perform their part of the deal.
KEEPING THE BORROWER INFORMED
The servicing guidelines from CFPB require servicers to offer borrowers regular and clear monthly statements, showing the amount owed and due date of the next payment. These statements should also break down payments by principal, interest, fees, escrow and include recent transaction data.
If a mortgage rate is about to adjust for the first time on an adjustable-rate mortgage, servicers have to provide the borrower with a disclosure.
The CFPB says borrowers can no longer be surprised by forced-placed insurance policies attached to their accounts. If such a transaction is required, the servicer must provide advance notice and pricing information before charging consumers. In addition, a servicer has to have a reasonable basis for concluding a borrower lacks this type of insurance before acquiring a policy. When servicers do buy insurance and find out it was not needed, the policy must be terminated within 15 days with all premiums refunded.
The CFPB guidelines also require servicers to promptly credit a consumer's account on the day that a payment is received. If partial payments are put in a suspense account, the account must be credited to the borrower's account as soon as the suspense account includes an amount equal to a full payment.
When receiving a request for payoff balances on mortgages, servicers must provide a response within seven business days of receiving the written request.
Servicers must quickly respond to borrowers who point out account errors. Servicers have to acknowledge receipt of written notices and must do the following within 30 days: correct the error and provide the information requested; lead a reasonable investigation and inform the borrower of why the error did not occur; or inform the borrower that the information asked for is not available.
Servicers also are required to store borrower information in a manner that makes it easily accessible. This means having policies and procedures in place to ensure information is passed on to borrowers, investors and the courts in a timely fashion.
NEW BORROWER STANDING
Officials with the CFPB said Wednesday that most issues are only enforceable through the bureau and enforcement agencies, not the borrower. However, a consumer not receiving the benefits of the CFPB's outlined servicing protections – such as an end to dual tracking – can go to court to stop the rule violation.
The rules contain a private right of action for borrowers, but the distinction to gain such a right is specific, according to the CFPB.
"Certain protections in the new rules for delinquent borrowers are subject to a private right of action," the CFPB said. "These include the early intervention requirements and the loss mitigation procedures. The loss mitigation procedures provide protections regarding the foreclosure alternatives evaluation process. They do not provide a private right of action to enforce an investor or guarantor's guidelines regarding when a servicer shall offer any particular loss mitigation option."
CFPB director Richard Cordray sees the creation of national servicing standards as a direct result of the housing meltdown, which led to obscene foreclosure levels and a dramatic increase in processing issues.
"Servicers were unprepared to work with borrowers that needed help to deal with their individual problems," he wrote. "People did not get the help or support they needed, such as timely and accurate information about their options for saving their homes. Servicers failed to answer phone calls, routinely lost paperwork, and mishandled accounts."
The CFPB said half of the complaints reported to the bureau in the second half of 2012 related to loan modifications, collections and foreclosure issues on mortgages.
A summary of the rule can be accessed here. The final rule will be available on the CFPB's website Thursday.