By Jim Donovan
PHILADELPHIA (CBS) — Having problems paying your mortgage? Some new rules have been announced by the federal government to protect homeowners from foreclosure. 3 On Your Side Consumer Reporter Jim Donovan takes a look at some of them, and explains what they mean for borrowers.
Even before the housing crisis, many homeowners experienced problems with bad practices and sloppy record-keeping when it came to their mortgages companies. These new rules are designed to help borrowers avoid costly surprises and runarounds.
The new rules announced by the Consumer Financial Protection Bureau go into effect beginning next year and are meant to ensure that borrowers who are in trouble with their loans get a fair shake in avoiding foreclosure.
One of the biggest changes involves what’s commonly referred to as “dual tracking.” That’s where one department in a mortgage company or bank would work with a customer to get a modification while another department was moving forward on foreclosure. They won’t be able to do that anymore.
In addition, mortgage servicers won’t be able to file for a foreclosure until an account is more than 120 days delinquent. And even then, they won’t be able to move forward if a customer has already submitted an application to modify a loan or obtain some other relief.
Companies will also have to notify borrowers of what options exist to help them after they’ve missed two consecutive payments, along with the fact that they’ll have to consider and respond to any application for a modification if it arrives at least 37 days before a scheduled foreclosure sale.
In an effort to make sure borrowers aren’t surprised about where their money is going, servicers will have to provide clear monthly mortgage statements that break down the payment by principal, interest and fees.
They will also be required to provide early warning if your interest rate is set to adjust. If you take out an adjustable rate mortgage, the servicer must notify you about the first interest rate adjustment at least seven months in advance of when you owe a payment at the adjusted interest rate. The servicer has to provide an estimate of the new interest rate and payment amount, alternatives available to you, and how to access a HUD-approved mortgage counselor. In addition, for the first interest rate adjustment, and all subsequent rate adjustments that result in a different payment amount, servicers must send you an additional advance notice telling you what your new payment will be.
Another change involves partial payments. Currently, if you’re behind and you try to at least pay something, such as half your monthly payment, the money often goes into a side account and isn’t always credited. The new rules require that once that side account equals a full payment, your mortgage servicer will have to credit it to the mortgage.
Here are some more of the new rules:
Regular, clear communication from servicers:
Who services your mortgage, how to get in touch with them, and what you owe should not be mysterious. The new rules include requirements to improve the communication from servicers to mortgage borrowers.
Early outreach when a borrower falls behind:
If you become delinquent, the servicer has to make a good faith effort to reach out to you. The servicer also has to assign people to your case and make those people available by phone so you have a clear and consistent point of contact.
Good information and good records:
Servicers should provide correct information about mortgage loans, whether that’s to a borrower, an investor, or a court during foreclosure. The new rules require policies and procedures to ensure servicers can provide accurate and timely information about the mortgage. They must keep records on all mortgages they service for a year after someone pays off a mortgage or after someone else takes over servicing the mortgage.
Crediting payments in a timely manner:
When you make a full payment, the servicer must credit it to your account as of that day. If you request a payoff statement in writing, the servicer has seven business days to issue the statement.
When there’s a mistake, you should be able to get it fixed in a timely manner. If you write to your servicer to address what you believe to be an error, the servicer should reply in a timely manner. The new rules set timelines and procedures for servicers to investigate and correct errors.
Force-placed insurance is insurance that the servicer buys on the property when the borrower no longer has property insurance. Without insurance, whoever holds the mortgage would be at risk if the house were to be damaged or destroyed. But the borrower may actually be responsible for the costs of the force-placed insurance policy. This has led to unexpected or duplicate expenses for people who already have their own insurance policies. Under the new rules, servicers need a reasonable basis to believe borrowers lack their own insurance, and they must determine this on a case-by-case basis. The servicer also has to notify the borrower before purchasing the force-placed insurance policy and annually before renewing the policy.