The Consumer Financial Protection Agency (CFPB) Friday issued two proposed rules designed to make mortgage servicing more consumer friendly, giving borrowers advanced notice of interest rate adjustments and how to avoid costly forced-placed insurance.
The proposals also set standards for timely crediting of mortgage payments and assisting borrowers who have fallen behind on their payments.
The “major failures” by the servicers during the housing crisis “demonstrate that all servicers need to meet basic standards of good consumer service,” said CFPB director Richard Cordray.
In a release, American Securitization Forum (ASF) Executive Director Tom Deutsch said, “ASF supports the CFPB’s efforts to promote standardization and transparency in mortgage servicing."
Deutsch added that the ASF is hopeful that an open dialogue between the industry and the CFPB will result in final regulations that are appropriate for borrowers, servicers as well as investors.
According to Deutsch, the servicing standards should strike the appropriate balance between providing meaningful protections for borrowers and ensuring the contractual certainty needed for the capital markets to fund the necessary amount of mortgage credit for U.S. consumers.
Meanwhile, David Stevens, president and CEO of the Mortgage Bankers Association (MBA), also issued a statement responding to the CFPB announcement of proposed rules that would establish uniform mortgage sevicing standards.
“MBA applauds Director Cordray and the CFPB for moving forward with proposed national mortgage servicing rules, an important step toward bringing certainty to our industry," Stevens said.
Like Deutsch, Stevens added that the MBA supports mortgage servicing standards that give the appropriate and uniform protections for borrowers regardless of who their servicer is or where they live. These servicing rules should allow lenders to operate efficiently and meet any legal or contractual obligations to their investors. He noted that a number of servicers are already implementing most of these standards.
The MBA will start reviewing the proposed standards to better understand their potential effect on servicers of all sizes and business models since "it is important that the final rules do not give preference to one business type over another," Stevens said. "It is also essential that they do not inhibit industry innovation or discourage new market entrants."
About the Rules
Under the proposals, all but the smallest servicers must provide periodic billing statements that show the borrower’s payment status and any fees or additional charges assessed by the servicer.
Servicers that process 1,000 or fewer loans (they originated or own) will be exempt from this billing statement requirement.
The CFPB proposal contains model forms for periodic billing statements and notices servicers should send to borrowers with ARMs. The notices must be sent to ARM borrowers 60 to 120 days before their first payment adjustment.
The bureau is issuing the proposed rules for a 60-day day comment period that ends October 9.
Like the state Attorneys General settlement and the federal banking agencies’ consent orders with major servicers, the CFPB expects loan processors to provide a single point of contact (SPOC) for borrowers where this dedicated employee will have excess to all the information necessary to provide guidance and assistance.
According to ASR sister publication American Banker reported that to get more input from borrowers, the agency is partnering with Cornell University on an e-Rulemaking Initiative to facilitate the process for the public to comment on the proposed rules via an online pilot program called Regulation Room.
Comments provided there will not become part of the CFPB's formal public comments, although they will be made part of a public report prepared by Cornell researchers and submitted to the bureau to use in preparing a final rule.
The public comment period ends Oct. 9.