New foreclosure avoidance procedures: Part 1
New procedures from the Consumer Financial Protection Bureau require servicers to contact delinquent borrowers early with information on options.
Many distressed homeowners had poor experiences during the mortgage crisis, including runarounds and surprises. In response, mortgage servicers must do a better job and comply with the new federal loss mitigation procedures implemented by the Consumer Financial Protection Bureau (CFPB). The new rules began January 10, 2014, and are designed to provide consistent and meaningful protections for borrowers. This article will focus on servicer responsibilities, and part two will focus on borrower timelines.
Only the five servicers who were part of the National Mortgage Settlement (See my related articles from April 9 and April 26, 2013) must comply with the CFPB procedures. The five Servicers are Ally/GMAC, Bank of America, CitiMortgage, JP Morgan Chase and Wells Fargo. The new rules do not apply to small servicers and community banks.
Before foreclosing by advertisement, these five servicers must now do all of the following:
- By 36 days after a homeowner misses a payment or cannot pay the full amount, the servicer must make a good faith effort to establish contact by telephone or at an in-person meeting.
- If the borrower’s situation calls for it, the servicer must tell the borrower about loan modification or workout options available.
- By 45 days delinquent, the servicer must send a written notice to the borrower encouraging the borrower to contact the servicer that contains the name, address, phone number and e-mail of assigned employees responsible to help them avoid foreclosure. The correspondence must also contain information about how to find a housing counselor.
- After 45 days late, periodic or monthly mortgage statements must include a “delinquency box,” containing information on the possible risks the borrower faces, the amount needed to bring the loan current, how to find a HUD-approved housing counselor and any loss mitigation programs the borrower has already agreed to.
- Only after 120 days of late payments can a mortgage servicer make a first notice or filing for foreclosure. This gives the borrower time to learn about workout options and file an application for mortgage assistance. If the borrower has already submitted a complete application, the foreclosure process may not begin while the Borrower is being evaluated for a loss mitigation plan. This provision restricts Dual-Tracking, which hurt many consumers who thought they were working out a resolution with their banks and were shocked to learn of a scheduled foreclosure sale.
- If a loss mitigation application is received at least 37 days before a foreclosure sale, Servicers must review and respond to the borrower within 30 days. If the sale is more than 45 days away, servicers must inform the borrower if the application is complete within 5 business days of receipt.
Many Michigan State University Extension offices have HUD-approved housing counselors who offer the housing counseling requirement. Find one near you at http://www.mimoneyhealth.org/contact_us to call for an appointment in person, by phone or online. In other areas, find a HUD approved housing counselor.