New CFPB rules target mortgage service providers


New rules from the federal financial watchdog target businesses that provide mortgage services. Image: 401(K) 2012/Flickr/CC BY-SA

The Consumer Financial Protection Bureau has proposed new rules for mortgage service providers. The new CFPB rules attempt to provide more transparency for borrowers.

CFPB rules seek transparency

According to the CFPB, the new rules demand more transparency from companies that collect mortgage payments and handle foreclosure procedures.

Richard Cordray, director of the CFPB, said:

“The bottom line is to treat consumers fairly by preventing surprises and run-arounds… We want to make sure that at all times consumers can get information about how much they owe, what they are paying, and how their payments are being applied. And if consumers fall behind on their mortgage, we want them to know how to assess their options and take action.”

The proposed new rules

The finalized rules will be announced in January, 2013. Consumers will have until October 9 to chime in.

The new rules require providers of mortgage services to:

— Send monthly billing statements that contain the amount of the principal, interest and fees, as well as an explanation of why the fees were imposed.

— Inform borrowers of a change in interest rates, seven months in advance.

— Deduct borrower’s payments from their balances immediately.

— Inform consumers of any “force-placed” insurance, or that which is selected for them by the mortgage service provider, with no input from the borrower. Many mortgage lenders require homeowner’s insurance, but generally a borrower can find a better deal on the open market. Under the new rules, borrowers would then have 15 days to cancel any force-placed insurance if they find a better deal elsewhere.

— Servicers would be required to answer any borrower complaint or request for more information within five days.

— Require servicers to inform delinquent borrowers about options, such as loan modification, to avoid foreclosure.

Critics respond

Critics of the new rules say they would slow the recovery of the housing market by restricting lending. Also, they say the rules would be more costly for lenders and possibly force smaller companies to close shop.

Bob Davis, executive vice president of the American Bankers Association, said:

“It is important that consumers receive clear and accurate information about their mortgage loan. Yet, we want to make sure servicing doesn’t get tangled in so much red tape that high-quality, responsive servicing is no longer viable, particularly at small banks.”


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