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Consumer Bureau Plans Broader Rules for Mortgage Servicers

The U.S. Consumer Financial Protection Bureau will propose rules for the mortgage servicing industry that go beyond the March 12 agreement among state and federal authorities and major banks.

The servicing settlement was “an important step forward on the road to renewal,” CFPB Director Richard Cordray said today in a Washington speech. “But it was only a partial step, as it covered only certain financial institutions and only certain categories of the mortgage loans that they service.”

The consumer bureau would require servicers to disclose key information on monthly statements, give clear warnings before interest rates adjust, warn consumers before taking out hazard insurance on their homes, and credit payments immediately, the agency said in a fact sheet posted on its website. The rules will be formally proposed “this summer,” and completed by January, according to the fact sheet.

The $25 billion settlement with five banks, including Wells Fargo & Co. and JPMorgan Chase & Co., was filed in federal court in Washington on March 12. The agreement, which ended a joint federal-state investigation that began in 2010, doesn’t cover mortgage loans backed by government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

Cordray, who was Ohio attorney general when the inquiry began, said the settlement didn’t cover “the many independent servicers that specialize in the servicing of subprime or delinquent loans.” Those servicers include companies such as Ocwen Financial Corp.

Exceeding Dodd-Frank

The bureau will also propose regulations on mortgage servicing that go beyond the requirements in the Dodd-Frank law that created the agency, according to the fact sheet.

“We envision a world where homeowners can expect fair and reasonable treatment when they fall behind in their payments, and genuine efforts are made to help them stay in their homes,” Cordray said. “Simply put: We intend to require mortgage servicers to put the ‘service’ back into servicing.”

Beyond Dodd-Frank, the rules would require servicers to make “good faith” efforts to inform borrowers about options to avoid foreclosure, establish “reasonable policies” to minimize and resolve errors, and provide borrowers “direct, easy, ongoing access” to employees who help borrowers.

Kellie Geressy-Nilsen and Nathan Flanders of Fitch Ratings said it is unclear what effect the new rules would have on future mortgage performance.

“For example, if mortgage holders were given notice of increased payment amounts, they could begin budgeting for the additional cost sooner or shift to alternative products,” the New York-based analysts wrote in a note today. “Of course, if the borrower is already experiencing financial hardship any advance notice or better disclosure could be deemed irrelevant.”

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