On Tuesday, the Consumer Financial Protection Bureau (CFPB) plans to announce that it may soon be imposing a new set of rules upon the heavily criticized mortgage service sector. The rules are an attempt to promote culpability and transparency in an industry where such things are in short supply.
According to the new rules being proposed, mortgage servicers would be required to notify homeowners prior to changing interest rates and provide those who are behind on their payments with avenues to help them avoid losing their homes to foreclosure. The proposals would also force servicers to look into claims of mistakes within 30 days and make it easier for customers to get in touch with staff. However, the CFPB wants to hear comments from businesses and members of the public prior to officially enacting the rules, which could be decided as soon as next year.
The Director of the Consumer Financial Protection Bureau, Richard Cordray, says that he has plans to reveal the proposal on Tuesday during a speech held at Operation Hope, a nonprofit organization based in Southeast Washington which works to promote financial literacy. Mr. Cordray called the idea “common sense” in one prepared statement.
Mr. Cordray then went on to state that, “For far too long, the mortgage servicing industry has not been held accountable to their customers and the result has been profoundly punishing to homeowners in distress. It’s time that we put the ‘service’ back in mortgage servicing.”
Mortgage servicers receive monthly installments from customers, manage their questions and handle foreclosures and loan changes. Recently, mortgage servicers have been under strict scrutiny from the public and various consumer protection watchdog organizations due to allegations of shady paperwork and fabricated documents. The five most powerful mortgage servicers, all run by banks, consented to pay $25 billion in remunerations in a suit with various federal and state agencies. This marks the biggest corporate settlement since the 1990 lawsuit against the tobacco industry which resulted in a $206 billion settlement.
For years, regulators have attempted to introduce higher standards on the mortgage servicing industry. Unfortunately, it’s a broad sector that includes small operators all the way to national bank chains. According to advocates for consumer protection, many companies have been overlooked as a result. The CFPB is the first agency of its kind that has the power to create rules and apply them to all areas of the industry.
The Consumer Financial Protection Bureau, which was established during the recent regulations overhaul, must write some of the 8 propositions currently being considered. Among these are methods for updating customer records, replacing peoples’ insurance plans with more costly options unless they’re late on their payments and completely overhauling homeowners’ monthly statements to show itemized fees.
However, in its first time exercising its broad authority to make and enforce new rules, the CFPB has chosen to add a few more propositions to the list. The first additional proposal would require mortgage servicers to make reasonable attempts to get in touch with delinquent customers and tell them how they can prevent foreclosure on their home. Another proposition would force the servicers to error reports within a month, including ones regarding home foreclosure and loan modification. These businesses would also be required to supply their customers with easy and uninterrupted access to staff who can help borrowers in need.
The Consumer Financial Protection Bureau intends to show a draft of these propositions to a review panel consisting of small businesses and members of the public. Later in the summer, the agency is scheduled to publish an official notice of proposed rulemaking.