The Consumer Financial Protection Board (CFPB) released new guidelines on foreclosures last Thursday. These new rules are aimed at addressing concerns in unlawful practices of home foreclosures. The organization seeks to press on in its goal to reform America’s huge loan market.
These new set of CFBP rules were produced as a result of the country’s housing bust that started in 2006. The rules were built on existing guidelines regarding mortgage servicers. That is, mortgage servicers are required to grant special foreclosure protections to struggling debtors.
Servicers, who are the channels for mortgage fees, are required to offer such protections more than ones. They are requested to offer them to borrowers who are able to meet up-to-date payments. This is after an agreement to evade foreclosure has been made.
Over the course of last week, CFPB has announced in a press release that it will revisit the rules and render necessary updates.
Now here is a list of the said updates:
In the case of successors or surviving family members:
The new set of guidelines pose updates for the protection of successors. This includes someone who might become a homeowner upon transfer of the property to him/her. Cases covered are:
- Divorce or legal separation
- Transfers between spouses
- Transfer from parent to child
- Or death of a joint tenant
So basically, a successor will receive the same protection that is awarded to the original borrower.
Over the lifespan of the loan:
Under the previous rules, a servicer must offer protections to a homeowner once throughout the period of the loan. In the updated rules, servicers should also offer protection once the debtor is up to date with their loan.
On providing information upon loss mitigation:
If a borrower fails to settle a payment, a resulting action maybe a file for “loss mitigation”. In simple terms, this refers to the process of acquiring assistance from the servicer in order to avoid foreclosure. The new guidelines dictate that the servicer should provide further information throughout this process. For instance, they need to inform the borrower when the application for loss mitigation is complete. This is very important as there are protections that do not start unless the application is rendered complete.
According to the CFPB, the new set of rules are finalized but are not yet in effect. The CFPB is still waiting for servicers to update their processes and systems.
In an estimate by RateTake, it may take up to a year and a half for the new guidelines to be on full implementation. This is after the CFPB releases an official publication of the rules. There are a number of additional updates apart from those mentioned. Do refer to CFPB’s official press release found below.
The rules noted further increase protections to surviving family members. Servicers are also required to provide borrowers possible insolvency information and any probable interventions.
They also strengthen requirements for loss mitigation. This gives borrowers a foreclosure alternative that allows them to continue to reside in their homes and pay lenders.
Servicers are also required to notify borrowers in advance once loss mitigations have been completed. This prevents dual tracks where legal actions are taken to deal with foreclosure while they assess applications.
In a report published in June, the CFPB noted that there are servicers who give homeowners incorrect and obsolete information. And sometimes, they don’t give any information at all.
When defaults on mortgage were rose in the financial crisis of 2007-09, servicers were bombarded with deep scrutiny. They missed reports, had unfinished documents, and were guilty of robosigning. That is, when personnel signed off foreclosures without the proper assessment.