The Consumer Financial Protection Bureau (CFPB) today finalized a new rule that requires mortgage servicers to provide homeowners with certain foreclosure protections.
The 900-page updated rule clarifies borrower protections when the servicing of a loan is transferred and provides important loan information to borrowers in bankruptcy. The changes also aim to ensure that surviving family members and others who inherit or receive property have the same safeguards under the CFPB’s mortgage servicing rules as the original borrower.
“These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable,” said CFPB Director Richard Cordray in a press release.
Reverse mortgages, however, are excluded from the new rule, per the urging of an unnamed trade group in the agency’s final rule.
“A trade association urged the Bureau to exempt reverse mortgages entirely,” the CFPB states in the rule. “It stated that existing guidelines, protocols, and timelines governing Home Equity Conversion Mortgages insured by the Federal Housing ADministration require servicers of such reverse mortgages to reach out to and deal with persons who might fall within the Bureau’s definition of successor in interest.”
To address what it viewed as “widespread mortgage servicing problems,” the CFPB initially established rules for servicers that went into effect on January 10, 2014. Later that year in November, the Bureau issued proposed amendments to those rules, with today’s final rule adopting many of those proposed provisions.
The new rule, however, does establish several new consumer protections, including the requirement of servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan.
Under the existing CFPB rules, a mortgage servicer must grant borrowers certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure only once during the life of the loan.
Today’s final rule requires that servicers give those protections again for borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application.
“This change will be particularly helpful for borrowers who obtain a permanent loan modification and later suffer an unrelated hardship—such as the loss of a job or the death of a family member—that could otherwise cause them to face foreclosure,” the CFPB said in a written statement.
The final rule also clarifies servicers’ obligations to avoid dual-tracking in efforts to prevent wrongful foreclosure.
Existing CFPB rules prohibit servicers from taking certain actions in foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale.
In some cases, however, the CFPB asserts that borrowers are not receiving this protection and the foreclosure counsel of servicers may not be taking adequate steps to delay foreclosure proceedings or sales.
The new rule now clarifies that if a servicer has already made the first foreclosure notice or filing and receives a timely complete application, servicers and their foreclosure counsel “must not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, even if a third party conducts the sale proceedings, unless the borrower’s loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement.”
Most of the provisions of the final rule will become effective 12 months after publication in the Federal Register, the CFPB stated. Meanwhile, the provisions relating to successors in interest and the provisions relating to periodic statements for borrowers in bankruptcy will take effect 18 months after publication in the Federal Register.
Written by Jason Oliva