Mortgage Rules Aid Homeowners
By ALAN ZIBEL
banks will have to do more to help struggling mortgage borrowers keep
their homes under final rules to be released Thursday by a U.S.
Mortgage-loan servicers, which collect borrowers' loan
payments, will have to evaluate troubled borrowers for all
loan-assistance options permitted by mortgage investors such as Fannie
Mae FNMA -1.81% and Freddie Mac, FMCC -0.35% as well as private
investors, according to the rules from the Consumer Financial Protection
Bureau, which take effect in a year.
Currently, no national standard exists for how mortgage servicers must treat defaulting borrowers.
lending industry "must consider all options available from the mortgage
owners or investors to help the borrower retain the home," said Richard
Cordray, the consumer bureau's director, in remarks prepared for a
speech Thursday in Atlanta. The industry "can no longer steer borrowers
to those options that are most financially favorable for the servicer."
agency's move follows numerous federal and state efforts to regulate
the industry, which came under fire after reports in 2010 found banks
were foreclosing on borrowers without properly reviewing documents and
other paperwork, a practice dubbed "robo-signing."
regulators found abuses of foreclosure processes at 14 lenders. Ten of
those agreed to an $8.5 billion settlement of regulators' allegations.
new mortgage rules are complicated, and the industry will likely need
months to adapt. Still, certain lenders have already implemented some of
the standards required by the regulator.
"These are major
changes and while the industry was clearly expecting to adapt to most of
these provisions, there's still work to be done to ensure they work for
both lenders and borrowers," said David Stevens, chief executive of the
Mortgage Bankers Association.
Representatives of several large lenders declined to comment or couldn't be reached.
in mortgage-backed securities and homeowners have complained in recent
years that banks aren't doing enough to provide assistance to homeowners
and were putting homes into foreclosure.
Some investors have
said they were losing more through foreclosures than they would have if
banks had done a better job of providing loan assistance.
Some consumer advocates said the rules should have mandated a stronger requirement that banks modify loans.
rule fails "to implement the key lesson of the foreclosure crisis, that
a loan-modification requirement is essential to protect qualified
homeowners from unnecessary foreclosures," said Alys Cohen, staff
attorney at the National Consumer Law Center.
industry is dominated by the largest banks. But the CFPB is the only
federal regulator with direct authority over smaller players, including
Under the rules laid out by the agency,
lenders would be barred from starting the foreclosure process until
borrowers have missed at least four months of payments, a move designed
to give borrowers time to submit applications for help. This requirement
would end so-called dual-tracking—starting foreclosure if a borrower
has applied for help.
They are required to send a written notice
to borrowers within 15 days of a second missed payment that includes
examples of alternatives to foreclosure and information about housing
counseling. Servicers are barred from completing a foreclosure if a
borrower submits an application for aid more than 37 days before the
home is scheduled to be repossessed.
The consumer regulator will have the power to police whether loan services are following these mandates.