WASHINGTON – April 12, 2011 – New rules for the nation’s largest mortgage servicers haven’t yet gone into effect, but critics are already speaking out, saying the new rules fall short of really addressing foreclosure problems and helping homeowners.
In a settlement with federal banking regulators, new rules for mortgage servicers include requirements that servicers stop foreclosing while negotiating a loan modification, improve their processing systems, provide defaulting borrowers a single point of contact, and bring in a consultant to investigate complaints by homeowners who were foreclosed on because of foreclosure processing errors in 2009 and 2010.
However, Alys Cohen of the National Consumer Law Center says the agreements “do not in any way require the servicers to stop avoidable foreclosures, and that is what we need.”
Critics say the new rules need to do more to help homeowners who are trying to modify their loans and stay in their home.
In a letter to the regulators, dozens of groups – including the Consumer Federation of America and the Center for Responsible Lending – are calling for the withdrawal of the agreement in favor of “specific and protective measures regarding loss mitigation, account management and documentation.”
About 4 million homeowners face foreclosure or are near to it, and housing analysts worry that adding those homes to already high inventories on the market will depress housing values even more.
Meanwhile, a coalition of all 50 state attorneys general and the Obama administration are working on a broader settlement to change the foreclosure process and keep more homeowners in their homes. The settlement could include a multibillion-dollar penalty to banks. State attorneys general have also called for servicers to reduce the mortgage principal of struggling homeowners, a move the servicers have strongly resisted.
The current agreement with bank regulators does not “pre-empts our efforts,” says Attorney General Tom Miller of Iowa, who is leading the state attorneys general settlement.