The Consumer Financial Protection Bureau (CFPB) has released new rules for mortgage servicers to follow when responding to mortgage delinquencies and pursuing foreclosure.
- Beginning October 19, 2017, mortgage servicers are to offer homeowners foreclosure protections more than once if the need for protection arises numerous times.
For instance, consider a homeowner unable to make their mortgage payments who submits a complete loss mitigation application and receives a permanent mortgage modification. The homeowner brings the mortgage current. A few months later, they suffer another, unrelated hardship like a job loss or medical emergency, and face foreclosure again. The servicer is required to offer the same protections that were discussed in the first instance, including evaluating options to avoid foreclosure with the owner.
- Beginning April 19, 2018, mortgage servicers are to extend foreclosure protections to surviving family members or heirs — known as successors in interest — upon the death of the homeowner.
Currently, the term successor in interest is somewhat ambiguous. This new rule defines a successor in interest as a person who receives property after the death of a family member or joint tenant, due to a divorce or legal separation, through certain trusts or from a spouse of parent. In defining this term, the CFPB makes certain that the same foreclosure protections granted the original homeowner pass on to the successor in interest.
- Beginning April 19, 2018, mortgage servicers are to provide more information to homeowners in bankruptcy.
Under the new rules, mortgage servicers need to provide periodic statements to homeowners in bankruptcy. These statements are to include information specific to homeowners in bankruptcy, including information about loss mitigation options. Previously, servicers did not have to provide early loss mitigation information to homeowners who asked them to stop contacting them under the Fair Debt Collection Practices Act, but they will now be required to contact them with early loss mitigation notices.
- Beginning October 19, 2017, mortgage servicers are to notify homeowners promptly when their loss mitigation applications are complete. Previously, owners were not always kept appraised of the status of their applications.
- Beginning October 19, 2017, mortgage servicers are to provide additional protections when transferring mortgage servicing of the mortgage of a homeowner pursuing loss mitigation.
When a homeowner pursuing loss mitigation has their mortgage service transferred, the new servicer needs to follow the same timeframe established by the previous servicer for the loss mitigation process. When the homeowner applies for loss mitigation shortly before a transfer, the new servicer needs to send an acknowledgement to the homeowner that their loss mitigation application was received within 10 business days of transfer. When the homeowner’s loss mitigation application is complete before the transfer, the new servicer has 30 days to evaluate and respond.
- Beginning October 19, 2017, mortgage servicers are to take aggressive measures to avoid dual-track foreclosures.
Under current law, servicers are not allowed to simultaneously pursue foreclosure while evaluating a homeowner for loss mitigation. However, some servicers do not take adequate measures to delay foreclosure proceedings after receiving a complete loss mitigation application before the required 37 days prior to the scheduled foreclosure sale. The CFPB clarifies that even if the servicer has delivered the first foreclosure notice, they are to halt foreclosure proceedings while evaluating a complete loss mitigation application.
- Beginning October 19, 2017, the homeowner’s date of delinquency is to be clarified in the context of mortgage servicing.
Servicers currently are unclear on when a homeowner becomes delinquent, which becomes particularly confusing when a homeowner misses a payment and later pays it, only to miss another. This rule clarifies a delinquency begins on the date a homeowner’s periodic payment becomes due and unpaid. When a homeowner later makes a late payment, it is applied to the oldest missed payment and the date of the delinquency advances to that date.
Too late for foreclosed homeowners
These new rules change little about the foreclosure process and will not apply retroactively, so don’t expect these changes to make any headlines in the real estate world.
Further, these small changes do little to help the millions of people who were foreclosed upon during the 2008 recession and ensuing extended recovery.
The nationwide foreclosure inventory was at its lowest in over eight years in mid-2016 at just 1%, according to CoreLogic. It’s even lower in California, where only 0.4% of all mortgaged homes were in some stage of foreclosure in mid-2016.
With the foreclosure crisis definitively over, foreclosures will continue to decline as long as home prices continue to rise, lifting negative equity homeowners above water. This will continue until around late-2017, when the impact of higher mortgage interest rates will catch up with homebuyers and sellers and prices will begin to decline. In 2018, we may see a spurt of foreclosures as underwater homeowners throw in the towel and decide to default to get out from under their black hole assets. But — lacking a nationwide recession — this uptick in foreclosures will likely be shallow and brief.
Finally, with a new presidential administration in power, calls for a curtailing of the CFPB have been frequent from members of the Republican party who want to see less government intervention in the financial world. Some have called for the CFPB to stop making new rules immediately in preparation for the changes to take place once President-elect Trump takes office and appoints a new director to the organization — if the organization is to exist at all under Trump’s tenure. Thus, keep an eye on the CFPB in the coming months, as big changes are ahead.
See the full rule here. Or, view the CFPB’s brief explanation of the new rule here.