The U.S. Consumer Financial Protection Bureau today proposed new regulations that would revamp how American homeowners interact with mortgage servicers.
One set of rules aims to provide homeowners with clearer, timelier information about changes to interest rates and options for avoiding foreclosure. A second set requires servicers to credit payments promptly, correct errors, stay accessible and limit foreclosures if homeowners are working on loan modifications.
“Millions of homeowners are struggling to pay their mortgages, often through no fault of their own,” CFPB Director Richard Cordray said in an e-mailed statement. “These proposed rules would offer consumers basic protections and put the ‘service’ back into mortgage servicing.”
Cordray summed up the policy underpinning the rules as “no surprises and no runarounds.” The bureau is seeking public comment on the proposals by Oct. 9, and will finalize them by January 2013.
The proposal would cover major bank servicers, such as Bank of America Corp., as well as smaller non-bank players like Ocwen Financial Corp.
Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington, said in a research note that the new rules would support a “secular shift in the mortgage servicing industry” away from big banks toward specialty servicers like Ocwen.
“We expect the big bank servicers to offload a sizable portion of their servicing assets,” Boltansky wrote.
Tom Deutsch, executive director of the American Securitization Forum, said the new rules aimed at consumers should also take the secondary market into consideration.
“Servicing standards must strike the appropriate balance between providing meaningful protections for borrowers and ensuring the contractual certainty necessary for the capital markets to fund sufficient mortgage credit for American consumers,” Deutsch said in an e-mailed statement.
Bob Davis, an executive vice president at the American Bankers Association, lauded the bureau’s goals while warning that some rules could create hurdles.
“We want to make sure servicing doesn’t get tangled in so much red tape that high quality, responsive servicing is no longer viable,” Davis said in an e-mail.
The new regulations go beyond the standards for mortgage servicing that state attorneys general wrote into a court settlement reached with major banks on March 12, according to a senior CFPB official who briefed reporters on condition of anonymity. For example, the CFPB proposal requires servicers to acknowledge receipt of complaints or information requests within five days, and respond to the borrower about the inquiry within 30 to 45 days.
Margot Saunders, an attorney with the Boston-based National Consumer Law Center, criticized the proposal for not compelling lenders to attempt loan modifications. Instead, it states that lenders must follow procedures they have in place for averting loan losses, Saunders said.
“There is procedure here, but there is no substantive requirement that a consumer gets an evaluation for a modification that might save the home from foreclosure and save the investor money,” Saunders said.