NY Establishes Loss Mitigation, Fair Dealing Duties for Mortgage Servicers
New York regulators enacted rules for mortgage loan servicers to curb what officials call irresponsible lending and address the foreclosure crisis with increased consumer protections for subprime and high-cost home loans. The Empire State's banking department mandated servicers handling New York-based mortgages, "include a duty to pursue appropriate loss-mitigation efforts with homeowners, such as loan modifications or short sales, to avoid preventable foreclosures." The new procedures are similar to the federal guidelines for servicers provided in the Home Affordable Modification Program (HAMP), but enforceable as law by state and federal regulators. Some specific regulations for New York servicers include the need to provide "plain language annual account statements;" prohibitions on insuring a mortgaged property without the borrower's knowledge; and limits on late fees. "New York State is continuing to take important steps toward ensuring that we will not see another mortgage and foreclosure crisis spurred on by irresponsible lenders or by unscrupulous individuals taking advantage of cracks in the system," Superintendent of Banks Richard Neiman said. "From the moment a mortgage is signed in New York State to the time it comes to its end, these loans must now be handled at every step of the process by individuals and companies that are accountable to homeowners." The state wants servicers to employ adequate staffing and draw up procedures and methods for handling consumer inquiries and complaints regarding loss-mitigation options. Mortgage loan servicers also need to ensure homeowners aren't required to submit multiple copies of relevant documents. And avoiding foreclosure action if a homeowner seeks permanent modification also is now required. The regulations take effect Oct. 1 and expand state procedures for mortgage loan servicers begun in July, while implementing provisions of the federal mortgage lending reform law enacted in 2008. "We would like for the regulation of mortgage servicers in New York State to serve, not only as a model for other states, but also as a model for national minimum standards that can be enforced across the country," Neiman said. "Just as we saw with the SAFE Act and the licensing of mortgage loan originators, states can and should serves as examples for lawmaking at the federal level." Write to Jason Philyaw.