CFPB Proposes New Foreclosure Rules


The Consumer Financial Protection Bureau (CFPB) has proposed
some new measures affecting the way servicers handle mortgages in various
stages of default.  The changes will
require servicers to:

  • Provide certain borrowers with
    foreclosure protections more than once over the life of the loan.  Currently a borrower is given certain protections such as the
    right to be evaluated under the CFPB’s options to avoid foreclosure, only
    once during the life of the loan, even if they suffer separate financial
    hardships years apart. The proposal would require that servicers provide
    those protections for borrowers who have brought their loans current since
    the last loss mitigation application.
  • Put in place additional servicing transfer protections. The
    proposal clarifies that a transferee servicer must generally comply with
    the loss mitigation requirements within the same timeframes that applied
    to the transferor servicer.
  • Expand consumer protections
    to surviving family members and other homeowners.  Under current CFPB rules, if a borrower dies the servicer must promptly identify and
    communicate with family members or others with a legal interest in the
    home.  The proposal expands the
    circumstances in which consumers would be considered such successors in
    interest such as when a property is transferred after a divorce, legal
    separation, through a family trust, between spouses, from a parent to a
    child or when a borrower who is a joint tenant dies. The proposal also
    ensures that those successors generally receive the same protections as
    the original borrower.
  • Clarify servicers’
    to avoid dual-tracking and prevent wrongful foreclosures.  In some cases servicers are not observing
    the current rule which prohibits them from proceeding
    to foreclosure if they receive a complete loss mitigation application from
    a borrower more than 37 days prior to a scheduled sale.  CFPB is
    proposing to clarify what steps servicers and foreclosure counsel must
    take to protect borrowers from a wrongful foreclosure sale and that
    servicers who do not act appropriately must dismiss a pending foreclosure
  • Clarify when a borrower
    becomes delinquent:
     The proposal clarifies that, for purposes
    of the servicing rules, delinquency begins on the day a borrower fails to
    make a periodic payment but if the borrower makes up a missed payment
    which is applied to the oldest outstanding periodic payment, the date of
    delinquency advances.

The changes also require servicers to notify
borrowers when their loss mitigation applications are complete so that
borrowers know the status of the applications and the key foreclosure
protections provided and to provide specific information to some borrowers in
bankruptcy.  The proposal would also make
changes to the mortgage servicing rules such as providing flexibility for
servicers to comply with certain force-placed insurance and periodic statement
disclosure requirements. The changes would clarify several early intervention,
loss mitigation, information request, and prompt crediting of payments
requirements, as well as the small servicer exemption. Further, the proposal
would exempt servicers from providing periodic statements under certain circumstances
when the servicer has charged off the mortgage.

CFPB said that the
proposal reflects the continued consultation with consumer advocacy groups,
industry representatives and other stakeholders which has been ongoing since
its mortgage servicing rules took effect. 
The proposed
rule will be open for public comment for 90 days after its publication in the
Federal Register.

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