Mortgages

When you take out a mortgage loan to buy a home, you trust the mortgage servicing industry to work. Mortgage servicers are responsible for sending you bills, processing your payments, answering your questions, and addressing any problems that may arise. When servicers fall down on the job, that can have serious consequences for consumers. People who are behind on their mortgages may not know what options they have. Bills may show up with unexpected and expensive charges. People who need more information may not be able to get it in a timely manner.

Today we are issuing two new rules to make this market work better for America’s homeowners. Director Cordray announced them this morning in Atlanta.

When we proposed these rules back in August, we said we wanted to put the service back in mortgage servicing. The two final rules we’re issuing today are designed to do just that. The result of these new rules will be a market with fewer surprises and runarounds for mortgage borrowers.

Here’s some of what’s new:

Space for consumers to pursue alternatives to foreclosure

Borrowers fall behind on mortgage 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 should know what avenues are available to them.

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 you until your payments are 120 days behind.

Pursuing modifications and other loss mitigation: The dual tracking restrictions give you time to assess your situation and apply for a modification or other option that may be available to help you. If you apply within the 120-day window, the servicer cannot begin foreclosure until your application has been addressed. If you and your servicer come to an agreement on an option, the servicer cannot start foreclosure proceedings unless you don’t uphold your end of the agreement. Even if you apply after you’re already facing foreclosure, your servicer cannot complete the foreclosure while your application is pending so long as you submit it at least 38 days before the foreclosure sale is scheduled.

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.

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 doesn’t apply to some mortgage types (like reverse mortgages), but it does apply to most home purchases and refinancings. The servicer does not have to provide you with a monthly statement if you have a fixed rate loan and pay with a coupon book, but the information that would be on the monthly statement needs to be available to you.

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.

Warnings before interest rate adjustments: 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.

Managing information and processing payments

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.

Error resolution: 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

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.

These rules take effect early in 2014, along with three of the rules we issued last week. We’ve developed a page for the new rules where you can learn more about the new rules, including a detailed summary. Watch the page for new resources to help you understand the rules and their implications in the days to come.

Today, we’re issuing one of our most important rules to date, the Ability-to-Repay rule. It’s designed to assure the reliability of
mortgages – making sure that lenders offer mortgages that consumers can actually afford to pay back. This is a simple, obvious principle that needs to be cemented in the housing market.

In the run-up to the financial crisis, we had a housing market that was reckless about lending money. Lenders thought they could make money on a loan even if the consumer could not pay back that loan, either by banking on rising housing prices or by off-loading the mortgage into the secondary market. This encouraged broad indifference to the ability of many consumers to repay loans, which dramatically increased mortgage delinquencies and rates of foreclosures.

Earlier this year, we heard from a California man named Henry, who was in the process of foreclosure. He was desperate. During the overheated years, a lender sold him a mortgage valued at more than half a million dollars. This was far more than he could afford on his annual salary of less than $50,000. He said he’d assumed that the lender knew what it was doing when he qualified for such a large loan. He’s now worried not only about losing his home, but about losing his family’s entire future.

Henry is not alone. Unaffordable loans helped cause the worst financial crisis since the Great Depression. People across the country were sold unsustainable mortgages. Some may have entered with their eyes open, seeking to ride the wave of rising housing prices, but many were led astray. For many borrowers, it appears that lenders ignored the numbers to get the loan approved. This kind of reckless lending was an endemic problem.

To put it simply: lenders should not set up consumers to fail.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created broad-based changes to how creditors make loans including new ability-to-repay standards, which we are charged with implementing. Among the features of our new Ability-to-Repay rule:

• Potential borrowers have to supply financial information, and lenders must verify it;
• To qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan; and
• Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

In addition to the Ability-to-Repay rule, today we are also issuing a proposal for potential adjustments. There are two key parts to the proposal:

• First, a proposed exemption for designated non-profit creditors and homeownership stabilization programs, as well as certain Fannie Mae, Freddie Mac, and Federal agency refinancing programs. These programs generally appear to be already subject to their own specialized underwriting criteria, and they are designed to help consumers refinance into a more affordable home loan.
• Second, a proposed a new category for certain loans made and held in portfolio by small creditors, such as small community banks and credit unions, called “Qualified Mortgages.”

Qualified Mortgages are a category of loans where borrowers would be the most protected. They, among other things, cannot have certain risky features like negative-amortization, where the amount owed actually increases for some period because the borrower does not even pay the interest and the unpaid interest gets added to the amount borrowed.

In the wake of the financial crisis, credit is achingly tight. Interest rates are low, but it is hard to qualify for a home mortgage. As the American mortgage market ebbs and flows, we have the duty to protect responsible lending in the housing market for borrowers, lenders, and everyone else who is engaged in the economic life of our country. We have been working hard, and we will continue to work hard, to do just that.

Consumers should be able to trust the American dream of homeownership without worrying about losing the roofs over their heads and the shirts off their backs. The Ability-to-Repay rule will help ensure that lenders and consumers share the same basic financial
incentives – that both of them win when borrowers can afford their loans. With this confidence, consumers can be active participants in the market and choose which of a wide variety of products they believe is best for them.

Today the Bureau also issued rules to strengthen protections for high-cost mortgages.

We were in Baltimore, MD for a field hearing on mortgage policy.

Today’s live event has ended.

If you missed the event, you can read CFPB Director Cordray’s remarks and watch the recording below.

Join us for a field hearing on mortgage policy on Thursday, Jan. 10, 2013, featuring remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

11 a.m. EST
Westminster Hall
519 W. Fayette Street
Baltimore, MD 21201

To RSVP, email cfpb.events@cfpb.gov with:

• Your full name
• Your organizational affiliation (if any)

No, really. Just because something has a government logo on it doesn’t mean that it’s legitimate.

Just today, we announced that we’re cracking down on two mortgage loan modification operations that allegedly ripped-off struggling homeowners across the country using websites, emails, and other advertising materials with government logos, letterhead, or other marks to trick consumers into believing that their services were associated with government agencies.

For example, one of the operations claimed that, for a fee, they could help people get benefits from programs offering government-sponsored relief for homeowners, including the recent nationwide mortgage servicing settlement or the federal Independent Foreclosure Review program. In fact, you don’t have to pay anything to get the benefits of these programs, you just have to qualify.

The national mortgage settlement is a $25 billion agreement with the nation’s five largest mortgage servicers to provide relief to homeowners – including loan modification and refinancing – for homeowners covered under the agreement. The federal Independent Foreclosure Review program provides homeowners the opportunity to request an independent review of their foreclosure process under consent orders between federal regulators and 14 mortgage servicing companies.

If you think you might qualify and want more information, don’t rely on any information you receive just because it has a government logo on it – check out the official government sites about the settlement or the Independent Foreclosure Review program.

How to spot a scam

Mortgage assistance and foreclosure relief scams are designed to take your money. They often use mail or email designed with emblems, logos and names intended to mimic government agencies or programs, lawyers or law firms, or legitimate creditors. Unfortunately, scammers are also constantly re-inventing new ways to scam struggling homeowners. So it’s not always easy to tell the difference between the scams and legitimate services. But there are a number of ways to help spot the fakes. Keep an eye out for red flags if a mortgage assistance or foreclosure relief scheme:

• Tells you to stop making mortgage loan payments. Not making your mortgage loan payments could hurt your credit score and limit your options.
• Tells you to start making payments to someone other than your servicer or lender.
• Ask you to pay high fees upfront to receive services.
• Promises to get you a loan modification.
• Asks you to sign over title to your property.
• Asks you to sign papers you do not understand.
• Pressure you to sign papers immediately.

Get real help, fast

Don’t be fooled. You can get real help by calling us at (855) 411-CFPB (2372) from 8 a.m. – 8 p.m. ET, Monday-Friday to be connected to a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor today.

A mortgage assistance or foreclosure relief scam could cost you your house. If you think you’ve been scammed, report suspected fraud immediately. The longer you wait, the more difficult it could be to prevent serious problems. There are lots of ways to register a complaint or report suspected scams:

• Contact your State Attorney General.
• Report a scam to the federal Financial Fraud Enforcement Task Force.
• File a complaint with the Federal Trade Commission.
• Tell us about your experience.

Share this information with others
It can be hard for people to talk about finances, especially if they’re in trouble. Even if you’re not facing foreclosure yourself, please share a link to this advice with your networks using the hashtag #ForeclosureHelpisFree. You never know who you might be able to help.

Today, along with the Federal Trade Commission (FTC), our Office of Enforcement sent letters to a number of lenders concerning potential violations of the Mortgage Acts and Practices – Advertising (MAP) Rule, a new rule that took effect in August 2011. The MAP Rule addresses claims and statements in mortgage advertising that may be misleading to consumers.

Many of these potentially misleading practices seem to be directed at older Americans and servicemembers/veterans. So today we are writing jointly to highlight things to be on the lookout for when you get mortgage advertisements. We have seen examples of the following potentially misleading practices through our complaint system, and also heard about them as we travel the country talking to consumers.

Be suspicious of ads with:

• Official-looking seals or logos that imply some kind of government status, for example making you think they come from the VA or HUD. Although government agencies do guarantee some loans, they are not involved in the actual lending or advertising of loans.
• Promises of amazingly low rates – which may turn out in the fine print only be in effect for a short period and then will readjust to a higher amount.
• Promises that a reverse mortgage will let you stay in your home payment-free. Typically borrowers with reverse mortgages still have to keep up with tax and insurance payments – and will most likely lose their homes if they don’t.
• Announcements of “pre-approval” and large amounts of cash or credit available to you. Typically there’s no guarantee that you will be approved for a loan, or the size of the loan, until you go through a standard qualification process.

You know the old saying: “If it sounds too good to be true, it probably is.” Some advertisers will use your military or veteran status as a way to approach you, promising special deals or implying VA approval. Others will use the lure of a “no-payment” reverse mortgage to troll for older Americans desperate to find a way to stay in their home when they can no longer afford a mortgage payment. And although mortgage rates are very low right now, an offer promising “historically low rates” may still have hidden traps that turn it into a bad deal.

So please, be cautious. If you get an ad that sounds a little (or a lot) too good to be true, you should get more information from a trusted source before you respond to the offer. The FTC has published a consumer alert on deceptive mortgage ads and what to look for. We also have more information about mortgages and other financial products on our website at Ask CFPB, as well as specific information for veterans and older Americans. Take the time to know before you owe!