The Consumer Financial Protection Bureau is taking aim at the mortgage industry again, this time focusing on making mortgage servicers provide customers with better and more transparent information about their home loans. The CFPB is unveiling a series of proposed rules for the industry, which it will formalize this summer and implement at the beginning of next year. Director Richard Cordray said in a statement consumers should be able to expect “no surprises and no runarounds” when it comes to their mortgage.
Many borrowers, especially those with adjustable-rate mortgages or who have fallen behind on their payments, say they have a tough time getting straight answers from the bank servicing their loan about what they can do to avoid foreclosure. The rules being proposed by the CFPB would have the potential to benefit all homeowners or buyers, but it’s clear that the people who would benefit the most are those who have the most to lose — people facing foreclosure.
“For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress,” Cordray said.
This initiative parallels and in some way mirrors the settlement being worked out between a consortium of 48 state attorney generals and the big banks that handle more than half of the mortgage servicing business in the country. According to the Los Angeles Times, Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo service around 55% of the mortgages held by American homeowners. These five have promised to adopt rules that would benefit borrowers as part of a $25 billion settlement related to foreclosure abuses (a topic first brought to national attention by Cordray when he was attorney general of Ohio).
The CFPB rules would require all servicers to provide homeowners with easier-to-understand mortgage statements, including a breakdown of their principal, interest, fees, and any escrow payments, along with the amount of and due date of the next payment. In February, the agency published a prototype disclosure box for mortgages that would spell out a lot of this information in a clear, standardized format.
These new rules would also provide borrowers with tools to help them avoid foreclosure. Servicers would have to alert people with adjustable-rate loans before any changes to the rate kicked in, and offer them other options in case the new payment was unaffordable. For people already behind on their payments, servicers would have to provide information about avoiding foreclosure. Finally, the CFPB would prohibit servicers from purchasing hazard insurance — ostensibly on behalf of borrowers but often at a much higher cost than homeowners could purchase on their own — without giving them pricing details and alternative options.
Finally, the rules would mandate what used to be considered just ordinary good customer service: Mortgage servicers would be required to keep records up-to-date, record payments promptly, fix mistakes in a timely manner and be better about communicating with their customers.