New rules to ensure mortgage lenders, servicers treat borrowers fairly

New rules to ensure mortgage lenders, servicers treat borrowers fairly

POSTED: September 12, 2016
It came as quite a shock to many distressed homeowners that the U.S. Treasury’s Home Affordable Modification Program and Home Affordable Refinance Program would end Dec. 31.

You still have until then to get out from the “under” that the bursting of the housing bubble put you in.

Although the programs were extended past their original expiration dates because the nationwide foreclosure crisis was deeper and lasted longer than anyone had imagined, this is it.

For me, this means my lender will not mention HARP when it sends me the 8,000th offer to refinance my mortgage without an appraisal. I didn’t qualify anyway, and the lender wasted postage and UPS delivery charges.

There is a difference of opinion on how well the two programs worked, and continuing concerns about the high percentage of defaults among these modified loans.

One constant, however, has been complaints about the treatment of distressed borrowers by lenders and servicers, something that the Consumer Finance Protection Bureau is hoping to address with new measures “to ensure that homeowners and struggling borrowers are treated fairly by mortgage servicers.”

I touched on these briefly in an Aug. 4 article, but I thought it was important to expand on some of the CFPB’s changes, which take effect in 12 months.

Under existing rules, a servicer must give borrowers foreclosure protections – including the right to be evaluated under the bureau’s requirements for options to avert foreclosure – only once during the life of the loan.

The new rule will require servicers to give those protections again to a borrower who has brought a loan current at any time since submitting the previous 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.

If a borrower dies, current rules require that servicers promptly identify and communicate with family members, heirs, or other parties, known as “successors in interest,” who have a legal interest in the home.

The new rule establishes a broad definition of “successor in interest” that generally includes people who receive property upon the death of a relative or joint tenant, or as a result of a divorce or legal separation, through certain trusts, or from a spouse or parent.

This ensures that those confirmed as successors in interest will generally receive the same protections under the mortgage-servicing rules as the original borrower.

Servicers are now prevented from taking certain actions in foreclosure once they receive a complete loss-mitigation application from a borrower more than 37 days before a scheduled sale.

In some cases, borrowers are not receiving this protection.

The new rule 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 or withdrawn or the borrower fails to perform on a loss-mitigation agreement.

These clarifications will aid servicers in complying with, and assist courts in applying, the dual-tracking prohibitions in foreclosure proceedings to prevent wrongful foreclosures, the CFPB said.