The Consumer Financial Protection Bureau (CFPB) Friday proposed new rules for mortgage servicers designed to “protect homeowners from surprises and costly mistakes” it says are becoming too common in the home loan servicing industry.
“Millions of homeowners are struggling to pay their mortgages, often through no fault of their own,” said CFPB Director Richard Cordray in the press release detailing proposal. “These proposed rules would offer consumers basic protections and put the ‘service’ back into mortgage servicing. The goal is to prevent mortgage servicers from giving their customers unwelcome surprises and runarounds.”
Mortgage servicers are responsible for collecting payments from the mortgage borrower on behalf of the loan’s owner. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures. Generally, lenders contract out servicing after the mortgage deal is signed, giving borrowers little input on which company gets the account.
The CFPB noted that even before the financial crisis, the mortgage servicing industry had experienced problems with bad practices and sloppy recordkeeping. Now, with millions of homeowners in distress, many borrowers have complained about problems seeking loan modifications or other alternatives to and information about avoiding foreclosure.
The Dodd-Frank Wall Street Reform and Consumer Protection Act addressed some of these problems and imposed certain requirements on servicers, which the CFPB is implementing and refining, and which will be finalized in January 2013. The Dodd-Frank Act also gave the CFPB the statutory authority to help fix the market by writing additional rules.
Today’s announcement highlights two sets of proposals. Read the full proposals here.