New servicing regulations that are brewing would require mortgage servicers to respond to borrowers’ inquiries within a week and resolve the issues within a month. The target date for a final rule is early next year.
Prospective rules under consideration for mortgage servicers were outlined by the Consumer Financial Protection Bureau.
Formal rules are expected to be proposed by this summer, while final rules are expected to be in place by January 2013. The agency issued Small Business Review Panel for Mortgage Servicing Rulemaking – Outline of Proposals Under Consideration and Alternatives Considered in conjunction with the announcement.
The regulator says that the rules will protect “mortgage borrowers from being hit by costly surprises or getting the runaround from their mortgage servicer.” Proposals under consideration would combat lack of transparency and lack of accountability.
CFPB Director Richard Cordray said servicers have gone too long with no customer accountability.
The Mortgage Bankers Association likes the idea of the same regulations across all states for all servicers.
“National standards that apply to all residential loan servicers have the potential to create more confidence and certainty in the real estate market for both borrowers and servicers alike,” MBA President and Chief Executive Officer David H. Stevens said in a statement. “Borrowers would be protected by a single standard regardless of where they live and servicers would have one set of rules to comply with everywhere they operate.”
The latest activity in the CFPB’s rulemaking process follows the October 2011 release of its Mortgage Servicing Examination Procedures and the full CFPB Supervision and Examination Manual.
Borrowers have complained in recent years that they weren’t given the information they needed to help avoid foreclosure, according to the CFPB. Others couldn’t get answers from the servicers or timely corrections to errors.
So the rules would require that error notifications from borrowers be acknowledged by the servicer within five days, followed by a “reasonable investigation” completed and resolved within 30 days.
Homeowners would need to be informed about the outcome within the initial 30-day period, and the notice would need to detail error corrections.
An investigation won’t be required if the borrower doesn’t provide enough information for the servicer to be able to investigate. If the alleged error is mostly the same as one previously investigated, then no investigation will be required.
When no error has occurred, a written notification to the borrower needs to include a statement of reasons for the servicer’s conclusion, the borrower’s right to request a copy of related documents and the process for obtaining copies. Contact information is needed for assistance or follow-up questions.
After the investigation, servicers need to provide documents requested by the borrower free of charge within 15 days.
Servicers would need to provide delinquent borrowers and borrowers who are seeking help in avoiding delinquency with “direct, easy, ongoing access” to distressed servicing staff.
Payments need to be credited to a borrower’s account “promptly” after payment receipt. Reasonable policies and procedures would be required that minimize errors, prevent the loss of documents and provide accurate information to borrowers as well as help with the resolution of inaccurate data.
Cordray says the rules will end the practice of “profoundly punishing” distressed borrowers.
The announcement indicated that additional measures to address servicing issues might be considered in coordination with CFPB’s federal government partners.
Stevens said that reforms outlined appear to closely track prior discussions between the CFPB and the Washington, D.C.-based trade group.
“MBA looks forward to working with the CFPB and other policymakers and stakeholders to ensure that the process used to develop the standards includes servicers of different sizes and business models,” Stevens added. “It is important that the final rules don’t give preference to one business type over any other, nor should they inhibit innovation or discourage new companies from entering the marketplace.”
