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New Rules for Mortgage Servicers to Help Avoid Foreclosures

The U.S. Consumer Financial Protection Bureau (CFPB) announced new rules for mortgage servicers to prevent careless practices that aggravated the U.S. foreclosure crisis. Mortgage servicer are the banks, mortgage companies, and other lenders that collect monthly payments for borrowers on behalf of the investors that own the loans. The CFPB rules now require the servicers to follow a clear process to help troubled borrowers seek alternatives to losing their homes. The rules also restrict dual-tracking, which occurs when servicers simultaneously pursue a loan modification and the foreclosure process. After the 2007-2009 financial crisis, problems such as poor record keeping, sparse customer service, and “robo-signing” unread foreclosure documents came under intense scrutiny.

The new rules will create a minimum national standard for mortgage servicers, and they will have until January 2014 to comply. Under the new guidelines, servicers must alert mortgage borrowers who miss two consecutive payments to spell out their options, such as changing the interest rate or extending the terms of the loan, which will help them ultimately avoid foreclosure. The rules preempt quick foreclosures by requiring servicers to wait until a loan is delinquent more than 120 days before beginning the foreclosure proceedings. Borrowers who apply for loss mitigation must be evaluated for all of the options allowed by the investor who owns the loan, and servicers must have an appeals process for borrowers whose applications are denied. In addition, the rules require servicers to provide warnings before interest rates adjust, correct errors quickly, and help consumers avoid so-called force-place insurance, or homeowners’ insurance bought by the servicer that is often more expensive than what borrowers might find on their own.