Protecting consumers from mortgage surprises
Since the inception of the Consumer Financial Protection Bureau (CFPB), mortgage servicers have been a clear target for reform, with the agency announcing that they are considering new rules that would help protect consumers against “costly surprises” from lenders, requiring servicers issue “more clear” mortgage statements and offer better disclosures about fees or loan interest rate changes.
Acting director of the CFPB, Richard Cordray said in a speech, “We want to make sure that at all times consumers know how much they owe, what they are paying, and how their payments are being applied.”
While this seems like an easy task and an obvious step, it has taken quite some time for the agency to get to this point, as they make their first move to regulate the mortgage servicing sector. The new rules would require servicers to provide improved transparency for new borrowers as well as delinquent homeowners, effective January 2013.
Three main rules under consideration
One rule being considered is a requirement of all mortgage servicers to outline in monthly statements terms like a breakdown of mortgage payments of principal, interest and fees, as well as itemization of the fees and charges, and warnings of possible late fees.
Yet another rule under consideration is in regards to what the bureau calls “force-placed” insurance, or property insurance the bank takes out for homeowners who miss an insurance payment. Servicers may be required to request proof of insurance before charging for force-placed insurance.
Lastly, another rule could require servicers to explain in better detail how a new interest rate is calculated when it changes, when it will take effect, and issue warnings of future interest rate changes and penalty fees on mortgages paid off early.