Mortgage Reforms Keep Coming

Before the housing crisis, few people knew what a mortgage servicer was. Then, as millions of homeowners had trouble paying their mortgages, they quickly learned about the mortgage servicing operations that processed monthly payments, modified troubled loans, and processed foreclosures. And what they learned wasn’t always pleasant. Mortgage servicers were overwhelmed,cutting corners and giving customers the runaround .

On Jan. 17, the Consumer Financial Protection Bureauannounced new rules aimed at preventing the problems the foreclosure crisis brought to light. Mortgage servicers are among the financial companies facing federal supervision for the first time under the CFPB. These rules come a week after the agency released new mortgage lending regulations that are going to reshape the mortgage market. The new rules cover the basics: Mortgage servicers must promptly credit mortgage payments to an account and quickly address errors, and they must send clear billing statements outlying fees and account activity.

Many of the rules focus on what happens after a loan sours.  They make it harder (though not impossible) for mortgage servicers to force expensive insurance on homeowners facing foreclosure—a questionable and lucrative practice the servicers pursued. And they restrict the controversial practice of “dual-tracking,” where servicers pursue the foreclosure process for a home at the same time they work with borrowers to modify the loan. Servicers can still pursue both paths once a loan is at least 120 days delinquent and if there’s no pending request for a loan modification.

Servicers also must tell delinquent borrowers in writing about various ways to mitigate their losses, such as a loan modification, but the rules stop short of requiring them to evaluate every struggling homeowner for a loan modification, something consumer advocates had favored(PDF).

The servicing regulations, as well as the mortgage lending rules, take effect in January 2014. In coming months, the CFPB will release a final version of a two-page mortgage disclosure form that lenders will have to use and regulations addressing how loan officers are compensated, among other things. They’re all part of an overhaul that will affect almost every aspect of how loans are sold and serviced.