CFPB Details Slew of Mortgage Rules Coming Summer 2012

WASHINGTON — The Consumer Financial Protection Bureau detailed a slew of new mortgage servicing rules late Monday that it plans to propose this summer, including a call for expanded disclosures for payments and fees and new policies in how banks must handle customer accounts.

The rules, which the bureau must finalize by January 2013, are separate from the global servicing standards the CFPB is crafting with the other banking regulators. The agency said they are designed to ensure consumers know what awaits them and improve customer service by servicers.

"The mortgage servicing rules we are considering reflect two basic, common-sense principles — no surprises and no runarounds," CFPB Director Richard Corday said in a press release. "For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It's time to put the 'service' back in mortgage servicing."

Agency officials have already mentioned several of the rules under consideration, including ones that would impose new limits on force-placed insurance products, require additional disclosures for adjustable-rate mortgages and require servicers to provide clear monthly statements to borrowers.

The agency said it also plans to propose rules that would implement new policies for consumer accounts, including requirements that servicers immediately credit a consumer's account after receiving payment; establish policies to keep borrower records up-to-date and accessible; acknowledge and correct errors in a timely manner; and provide delinquent borrowers direct access to dedicated foreclosure prevention teams.

The agency said the rules tackle two significant problems inherent in servicing: lack of transparency and lack of accountability. In recent years, borrowers have complained that they did not receive the information they needed to avoid foreclosure, and had trouble getting answers from their servicers or getting errors corrected when they occurred, CFPB said.

The agency must outline certain rules in advance of the formal rulemaking process under the Small Business Regulatory Enforcement Fairness Act, which requires CFPB to convene a small business advisory panel if a rule would have a significant impact on those businesses. The agency will post additional documents related to the rules on its website Tuesday for review by the advisory panel, including a list of questions for which it is seeking specific input.

In a fact sheet released Monday, CFPB provided some details about eight rules it plans to put forth this summer:

• Monthly mortgage statements: Servicers would be required to provide statements that include a summary of the mortgage terms, a breakdown of payments by principal, interest, fees and escrow; the amount and due date of the next payment; recent transaction activity; late fee warnings and alerts about loss mitigation alternatives.

• ARM Warnings: A new rule would require servicers to provide "earlier" disclosures before interest rate changes on ARM mortgages. The disclosure must include an explanation of how the rate will be determined and when it will take effect; a good-faith estimate of the new monthly payment amount; the date of future interest-rate adjustments; the amount of any pre-payment penalty; and alternatives and resources for borrowers who can't afford the new payment.

• Force-Placed Insurance: If a servicer believes a borrower has allowed their property insurance to lapse, it must ask the borrower to provide proof of insurance twice — at least 45 days and again 15 days before charging for the insurance — and must provide a good-faith estimate of the cost of the force-placed insurance. The servicer must accept any "reasonable form of communication" provided by the borrower to confirm the insurance, and cancel the force-placed insurance within 15 days of the confirmation. If the servicer has an escrow account to pay a borrower's insurance premiums, it must continue the consumers' homeowner insurance rather than purchasing fore-placed insurance, even if the borrower is delinquent.

• Avoiding Foreclosure: The rule would require servicers to make good-faith efforts to contact delinquent borrowers about options to avoid foreclosure, as well as information about housing counseling and the foreclosure process.

• Payment Credits: The regulation would require servicers to credit a consumer's account the day a payment is received; allow them to retain any partial payment in a suspense account; and, once the amount in the account equals one full monthly payment, require servicers to apply it to the earliest delinquent payment.

• Information Management: The rule would require servicers to establish "reasonable" information-management policies and procedures "designed to minimize errors and help with quick correction." These include maintaining records of borrower contact, with possible exception for some small servicers; accept and organize documents submitted by borrowers in connection with loss mitigation requests; ensure reasonable and timely access to those documents.

• Quick Error Correction: The regulation would require borrowers to acknowledge the notification of an error within five days and conclude an investigation within 30 days, with shorter time frames for errors related to foreclosures or payoffs.

• Direct Access: The rule would require servicers to provide borrowers with direct and ongoing access to a dedicated foreclosure prevention staff, who would have easy access to delinquent borrowers' records, as well as access to underwriters who could evaluate whether a borrower is eligible for a loan modification or other option to avoid foreclosure.