A new bill introduced by Rep. Maxine Waters on Monday would bring greater oversight to servicers of single-family home loans, in response to what the California Democrat has called “bad behavior” from players in the industry.
Under the Homeowner Mortgage Servicing Fairness Act of 2018, all mortgage servicers that work with Fannie Mae and Freddie Mac would see increased scrutiny from the Federal Housing Finance Agency, including new documentation requirements regarding communications with borrowers and per-day civil monetary penalties for companies that do not follow laws regarding mortgage servicing.
“Mortgage servicers play a critical role in determining whether homeowners experiencing financial hardships will be forced out of their homes,” Waters, the ranking member of the House Financial Services Committee, said in a statement announcing the bill. “However, despite the lessons learned during the foreclosure crisis, we continue to uncover evidence of bad behavior by our nation’s mortgage servicers.”
The bill serves as a companion to the Foreclosure Prevention Act of 2018, an April proposal aimed at beefing up loss mitigation requirements for servicers of Federal Housing Administration-backed loans.
At that time, Waters and House Democrats pointed to a September 2017 report from the Department of Housing and Urban Development’s Office of the Inspector General (HUD OIG), which found that 26 of 90 sampled claims had “significant servicing deficiencies” that increased the risk of foreclosure and cost HUD $120.9 million.
“This legislation seeks to implement those common-sense reforms in order to help strengthen compliance with the FHA’s loss mitigation requirements, and ultimately help to ensure that every FHA borrower is given a fair chance at avoiding foreclosure,” the House Democrats said in a statement announcing the earlier bill.
Those changes would include the withholding of FHA insurance benefits to lenders that don’t provide documentation of their loss mitigation practices, the implementation of compliance review processes, and a rule requiring servicers to tell borrowers the results of their individual loss-mitigation analyses before moving to foreclose.
Last fall, Waters introduced another bill that would have specifically taken aim at foreclosures in the Home Equity Conversion Mortgage program, including the introduction of mandatory loss mitigation practices and changes to non-borrowing spouse rules.
This most recent piece of legislation focuses specifically on mortgage servicers, which are generally responsible for initiating the foreclosure process.
“Borrowers can’t choose their servicer, so it’s especially important that Congress provide strong protections to prevent servicers from taking advantage of borrowers and to protect borrowers from foreclosure,” Waters said. “This bill will implement common-sense reforms to ensure that servicers are giving borrowers every possible opportunity to avoid foreclosure.”
Written by Alex Spanko