Will plan put the 'service' back in 'loan servicing'?

The new Consumer Financial Protection Bureau is proposing new rules for how mortgage servicers deal with borrowers. Will it make them more accountable?

By Teresa at MSN Real Estate Apr 10, 2012 1:35PM

The new Consumer Financial Protection Bureau is proposing rules the agency hopes will help the country avoid another housing crisis.


While we don't see anything that will keep your home from losing 50% of its value, the bureau is proposing a radical overhaul in how loan servicers deal with customers.


Adding a little customer service to mortgage servicing is part of the plan.


"The mortgage servicing rules we are considering reflect two basic, common-sense principles – no surprises and no runarounds," CFPB Director Richard Cordray said in a news 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."


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Woman writing check (© Corbis)The new rules are in response to complaints about how lenders deal with their customers. The bureau wants loan servicers to, at a minimum, post payments when they are received, warn borrowers when interest rates are about to rise and explain options before adding expensive

"force-placed" insurance.

Congress mandated that the new rules be drawn up. The CFPB will formally propose specific regulations this summer, ask for public comment and enact final rules in January.

The CFPB says the new rules are aimed at two problems: lack of transparency and lack of accountability.

"In recent years, many borrowers have complained that they did not receive the information they needed to help avoid foreclosure," the CFPB writes. "Other borrowers’ troubles worsened because they found it difficult to get answers from their servicers, or get errors corrected when they occurred."


These are among the proposed rules:

  • Clear monthly mortgage statements.Servicers would have to send regular statements that show how payments break down into principal, interest, fees and escrow. If borrowers are behind, the notices should give them information about how to avert foreclosure.
  • Warnings before interest-rate adjustments.Borrowers with adjustable-rate loans should be told when the rate will change and what to do if they can't afford the new payments.
  • Ways to avoid expensive "force-placed" insurance. The rule would require advance notice and pricing information.
  • Information on ways to avoid foreclosure.Servicers would have to try to contact borrowers in danger of foreclosure and advise them of their options. Plus, if the borrower calls the lender, the servicer would have to provide "timely, complete and accurate information" about options.
Rules under consideration also would require immediate crediting of payments, up-to-date and accessible records, quick correction of errors and easy access to foreclosure-prevention staff. (Is anyone else appalled we have to have an act of Congress to get this basic level of service?)


Just as a refresher, The Associated Press explains the role of the mortgage servicer:

A mortgage servicer collects payments from the borrower on behalf of a loan's owner and typically handles customer service, escrow accounts, collections, loan modifications and foreclosures. Most borrowers do not choose their mortgage servicers. The owner of a loan frequently is not the original lender, even when the original lender is the servicer.

What do you think? Would these rules help?

Apr 10, 2012 3:13PM
if you can't afford it, don't buy it!  if you don't understand it, don't sign it!  very simple...
K you are flat wrong.  Calling the mortgage company to work out a solution can turn into the most frustrating and unbelievable experience you could possibly imagine.  I am a former CEO of a mid sized company.  Due to a hostile takeover, all my funds were tied up.  For the next 18 months I wrangled with Citi Mortgage.  I was lied to repeatedly, given false information and given the runaround like you cannot believe.  I have 57 pages of documentation of this travesty.  They even lost two of my payments---credited them to another person's account-and filed wrongful foreclosure on me.  It took me 12 months to get that straightened out and it only happened when I wrote a registered letter to the CEO and also involved my State Attorney General's office.   Be thankful that it hasn't happened to you.  It defies descritpion.
Apr 10, 2012 3:11PM

Senators Dodd and Frank caused the mess then they tried to fix it - thats like the fox guarding the hen house.

Apr 10, 2012 3:08PM
My mortgage company gives me a great detailed break down every month - that is the 1st time I have seen one of those and I love it. Most of the other rules should already be in place... they are common sense rules!

Apr 10, 2012 3:00PM
The housing mess was first and foremost caused by the federal government. Wall Street and the banks went with the "Game" that was set up by the federal government. This is very important for people to understand and it was both sides of the aisle that are guilty of this. When these politicans hit these banks with fines and regulations, all they do is pass it on to the custmors, they have to. A CEO has to hand over a ROI to its shareholders. Business dont take hits...plain and simple.
Apr 10, 2012 2:59PM
here's a crazy thought on how to avoid foreclosure...pay your bill on time.      if you can't talk to the bank 99 times out of a 100 they will work with you if you don't try to hide from them
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