View Mobile Site

Ask the Expert

Signal Photos


There are new rules for home mortgage borrowers

Real Estate Talk

Posted: January 31, 2013 2:00 a.m.
Updated: January 31, 2013 2:00 a.m.
Bob Khalsa Bob Khalsa
Bob Khalsa

In an attempt to put the “service” back in mortgage servicing, new rules have been devised that are intended to make it easier for borrowers facing financial stress to quickly learn about alternatives to foreclosure, speak directly to the loan servicer, and get errors fixed when there’s been a mistake.

Toward that end, the federal Consumer Financial Protection Bureau recently issued final rules.

Here’s some of what’s new:

Alternatives to Foreclosure — Borrowers fall behind on loan payments for a variety of reasons. Sometimes they can make up these payments quickly. Sometimes they need to figure out an alternative payment strategy. Sometimes they face the loss of their homes. But in any of these circumstances, they need to know what options are available.

• Restrictions on dual tracking: Dual tracking is the term used when servicers move forward on a foreclosure at the same time they’re working with the borrower to avoid foreclosure.

Many consumers report that they have discovered too late that they were foreclosed on by the same servicer they were working with to find an alternative.

Under the new rules, servicers cannot begin foreclosure proceedings against a borrower until payments are 120 days behind.

• Pursuing modifications and other loss mitigation: The dual tracking restrictions give borrowers time to assess their situation and apply for a modification or some other option.

If the borrower applies within the 120-day window, the servicer cannot begin foreclosure until the application has been addressed.

If the borrower and the servicer come to an agreement on an option, the servicer cannot start foreclosure proceedings unless the borrower fails to uphold their end of the agreement.

Regular, Clear Communication — Who services a mortgage, how to get in touch with them, and what is owed should not be mysterious.

The new rules include requirements to improve the communication between servicers and borrowers.

• A periodic statement for homeowners: One of the new requirements defines a periodic statement for residential mortgages.

The statement comes every billing cycle and covers basics, like an explanation of the amount due, payment and transaction history, account information, and contact information for the servicer.

It does not apply to some mortgage types (like reverse mortgages), but it does apply to most home purchases and refinancings.

• Early outreach when a borrower falls behind: If a borrower becomes delinquent, the servicer has to make a good faith effort to make contact. The servicer also has to assign people to the case and make those people available by phone so the borrower has a clear and consistent point of contact.

• Warnings before interest rate adjustments: If a borrower takes out an adjustable rate mortgage, the servicer must notify them about the first interest rate adjustment at least seven months in advance of when the borrower owes a payment at the adjusted interest rate.

The servicer has to provide an estimate of the new interest rate and payment amount, alternatives available, 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 an additional advance notice telling the borrower what their new payment will be.

Managing Information and Processing Payments — 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 a borrower makes a full payment, the servicer must credit it to their account as of that day. If the borrower requests a payoff statement in writing, the servicer has seven business days to issue the statement.

• Error resolution: When there’s a mistake, consumers should be able to get it fixed in a timely manner. The new rules set timelines and procedures for servicers to investigate and correct errors.

Bob Khalsa is President of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.


Most Popular Articles

There are no articles at this time.
Commenting not available.
Commenting is not available.


Powered By
Morris Technology
Please wait ...