by On January 17, 2013, the Consumer Financial Protection Bureau enacted mortgage servicing rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act provisions relating to the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).
The rules, which promote transparency in the mortgage servicing industry, address nine issues that continue to plague mortgage debtors. Regulation Z, applicable to TILA, provides that: 1) servicers of closed-end residential mortgage loans (other than reverse mortgages) must send a periodic statement for each billing cycle that complies with specified timing, form and content requirements, 2) servicers of adjustable rate mortgages must provide customers with 60 to 120 days’ notice before the rate changes, 3) servicers must credit payments promptly. Regulation X, applicable to RESPA, provides that: 4) there must be a reasonable basis to believe the borrower has failed to maintain hazard insurance before a servicer may charge for force-placed insurance, 5) specific procedural requirements must be met when responding to queries or complaints of errors, 6) servicers must establish reasonable information management policies and procedures, 7) delinquent borrowers must be notified of loss mitigation options, 8) delinquent borrowers must be provided access to personnel to assist them with loss mitigation, and 9) servicers offering loss mitigation options must proceed to the conclusion of those options before instituting foreclosure procedures.
This final rule, addressing problems associated with “dual-tracking” of delinquent foreclosures, while a step in the right direction, falls short of the mark sought by the NCLC. According to NCLC attorney Alys Cohen, the rules fail to require “meaningful loan modification protections,” and provide fewer safeguards than the soon-to-expire HAMP program.
Citing massive noncompliance by servicers as the primary cause of HAMP’s failure to adequately redress the mortgage foreclosure crisis, the NCLC, in a report issued last month, presented ways to use HAMP as a roadmap to remediate the problem. The report, built around the five principles of efficiency, affordability, accessibility, accountability and enforceability, noted that under the “net present value test” employed by HAMP to select mortgages for modification, borrowers and investors benefitted significantly with an 80% rate of compliance one year after modification.
The NCLC particularly took issue with the limitation in the new rules requiring homeowners to seek modification prior to the 37th day before the foreclosure sale is scheduled. Ms. Cohen says:
“While providing some additional protections to borrowers in judicial foreclosure states, this requirement provides significantly less protection to homeowners facing non-judicial foreclosure procedures. Moreover, because many homeowners will not know the sale date until after the 37-day mark, and will generally face difficulties knowing when the 37th day falls (because many sales are scheduled with less than 37 days’ advance notice), the rules give servicers an opportunity to manipulate the system. All homeowners need protection during the foreclosure process, with rules that recognize the real timelines they face. The rules also appear to deny homeowners an appeal of a loan modification review where that application has not been submitted 90 days prior to the sale. Every homeowner deserves a fair hearing and the rule does not provide for that.”
Happily, the CFPB resisted pressure to include broad exemptions in the RESPA regulations for debtors in bankruptcy that would have deprived NACBA members’ clients of some of the benefits of the new rules.