Proposed CFPB mortgage servicing rules are a start, but more could be done

October 23, 2012 at 11:10 am 1 comment

Back in August, the Consumer Financial Protection Bureau issued rules that would increase transparency and accountability within the mortgage servicing industry, which processes payments for the investors who own the home loans. In an effort to provide borrowers with the information they need to make sound decisions, the new rules (which will be finalized in January 2013) would require mortgage servicers to provide timely and accurate information about billing, interest rates, insurance, and other issues to borrowers. In addition, they would be required to be accessible and responsive to borrowers, and work to resolve any errors quickly.

These rules would help many borrowers facing potential foreclosure to get accurate information and counseling on their options, and hopefully be able to secure a modification and stay in their homes. The Huffington Post stated that

If enforced, the regulations would go a long way to resolving widespread abuses in the mortgage servicing industry. Borrowers seeking loan modifications, for example, often complain of a process that often feels like an existential nightmare: an endless cycle of lost paperwork, missed phone calls and conversations with low-level bank employees with no power to make deals. Judges have sanctioned servicers for charging unnecessary fees and for imposing expensive, insurance policies.

It also raised the question of whether or not mortgage services would abide by these rules, citing concerns that the servicing industry has already largely disregarded an earlier set of reforms. And then yesterday, the New York Times in an editorial asking, “Will foreclosure abuses ever end?” called these rules a disappointment:

In place of concrete standards, the bureau’s proposal largely relies on procedural reforms, like requiring servicers to establish reasonable policies for managing paperwork and answering phone calls from borrowers; to contact borrowers at an early stage of delinquency; and to adhere to deadlines for responding to borrowers who need help. Such requirements are not nearly enough.

The Times editorial stated that the CFPB should be focused on rule making that would allow for borrowers facing hardship to be considered for loan modifications, and that if a foreclosure is the only option, borrowers must be provided proof of the servicer’s legal right to foreclose.

Although this would provide more aggressive regulation of the mortgage servicing industry– and should certainly be a part of a reform agenda– the importance of the proposed mortgage servicing rules should not be understated. If anything, they speak to how faulty the industry’s practices were to begin with. While it may seem like a no-brainer to provide borrowers with accurate and current billing information, this was not the industry standard– leading to wrongful foreclosures, improper assessment of fees, and other abuses.

So yes, the CFPB could do more to help struggling homeowners; but these rules are important nonetheless. What should be a major concern is enforcement. As a new agency, what will the CFPB do to make sure that these rules are being adhered to?

Entry filed under: Banking, Banks, Economic Development, Economy, Housing. Tags: , , .

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