Consumer Bureau Planning New Rules For Mortgage Servicers
04/09/2012| 10:15pm US/Eastern
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By Alan Zibel and Maya Jackson Randall
WASHINGTON--The banks and other firms that collect payments from mortgage borrowers and handle their defaults are drawing scrutiny from a new U.S. regulator, following widespread abuses in home foreclosures during the housing crisis.
The Consumer Financial Protection Bureau may soon require mortgage servicing firms, led by Wells Fargo & Co. (WFC), Bank of America Corp. (>> Bank of America Corp), J.P. Morgan Chase & Co. (>> JPMorgan Chase & Co.) and Citigroup Inc. (>> Citigroup Inc.), to reach out aggressively to delinquent borrowers, warn them about upcoming interest-rate changes and even apply monthly payments the same day.
The mortgage servicing industry, which handles payments on the bulk of the $10.3 trillion in outstanding U.S. mortgage debt, is dominated by the five largest banks. But the consumer bureau is the only federal regulator with direct authority over smaller players, including non-bank servicers such as Ocwen Financial Corp. (>> Ocwen Financial Corporation).
The bureau said Monday it plans to propose the new rules, required by the 2010 Dodd-Frank financial overhaul law, by this summer and finish them by next January, following a comment period.
The move follows numerous federal and state efforts to regulate the mortgage-servicing industry, which came under fire after reports emerged in 2010 that banks were foreclosing on borrowers without properly reviewing documents and other paperwork, a practice dubbed "robo-signing."
That spurred numerous regulators that weren't focused on mortgage-servicing issues in the past to scrutinize the industry. In addition, the federal regulator for Fannie Mae (FNM) and Freddie Mac (>> Federal Home Loan Mortgage Corp) is working on its own servicing regulations, as are several top U.S. banking regulators.
The mortgage industry's defenders say the complicated regulatory campaign could lead to state and federal agencies stepping on each others' toes.
"The clear trend towards overlapping regulatory initiatives will continue to challenge the mortgage industry," said Andrew Sandler, co-chairman of BuckleySandler LLP, a law firm that represents banks. "Hopefully the regulators will focus on the need for consistency in what they are putting out."
Banks have agreed to compensate consumers with mistakes in their foreclosure files as part of state and federal agreements. They say few homeowners actually lost their homes in error.
The rules the CFPB is considering would require servicers to provide clear monthly mortgage statements, with a detailed breakdown of payments and alerts about how to get help if the borrower is falling into trouble. In addition, borrowers would have to receive an estimate of when a mortgage will reset at a higher interest rate and an estimate of the resulting monthly payment.
Delinquent homeowners would have to receive two warnings before servicers demand what is known as "force-placed" homeowners' insurance, which servicers can impose if consumers allows their policies to lapse. Borrowers would also be told of the cost of those policies, which have come under scrutiny from numerous state insurance regulators this year.
A year ago, 14 large mortgage servicers agreed to overhaul their practices after being ordered to do so by federal banking regulators. In addition, five large U.S. banks in February struck a $25 billion settlement with federal and state authorities, which included a 42-page agreement on new standards for industry practices.
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