Mortgage Servicing and Consumer Bankruptcy
The Consumer Financial Protection Bureau (CFPB), the brainchild of Massachusetts Senator Elizabeth Warren, is working on making mortgages for homeowners more transparent. Following the financial crisis of 2008, the CFPB was established. Notwithstanding lots of opposition by the large banks, the CFPB is working to institute rules and regulations to help consumers.
2014 Mortgage Rules and Regulations
In 2013 the CFPB focused on mortgage servicing companies and their obligations to consumers. Mortgage servicing companies are, in a sense, the intermediately between the homeowner, who has a mortgage obligation, and the owner of the mortgage, often a complex ownership partnership.
New rules, as of January 10, 2014, require significantly improved recordkeeping, better access to mortgage service employees, and more immediate response to credit correction issues. The rules protect homeowners about to go into foreclosure as well.
CFPB Violations Addressed
The CFPB found violations with various service providers who committed unfair and deceptive practices. For example, providers who failed to honor previously agreed upon loan modifications were penalized and the loan amounts restored to the correct amount. In another example, two service providers were penalized for forcing consumers to waive their rights to prior claims in order to get a loan modification. Another provider was found to be mischaracterizing biweekly payments. Finally, a provider was found to be misreporting short sales as foreclosures, thus falsifying consumer records.
The largest non bank mortgage service provider, Ocwen, was penalized for “systemic misconduct at every stage of the mortgage servicing process.” The penalty to Ocwen was a $2 billion principal reductions to borrowers and $125 million in refunds to over $180,000 homeowners.
What is the CPFB Working on Now?
According to reports, one of the biggest problems is that consumers who are applying for a mortgage have too little time to review the HUD statements that is the initial document outlining the obligations of the homeowner when purchasing a home. The document is complicated. It does not include future obligations, such as what would happen if interest rates went up on mortgages where they are not fixed. Furthermore, as some lenders don’t complete the documents until the last minute, buyers don’t even know how much money is needed to close on their home. There is a much higher reporting of this problem with first time homebuyers.
The CFPB is working on “know before you owe” rules and regulations which will be focused on the aforementioned consumers.
Homeowners who do not satisfy certain financial threshold of ownership equity, historically 20%, need to purchase “mortgage insurance”. On one hand, this is a good insurance to have, for the lender; on the other hand, it can be a cash cow for the lender when folks have sufficient equity. Furthermore, in a case that was revealed recently, PHH Mortgage Company, and their affiliate Atrium Insurance, has been illegally issuing kickbacks between their lender and their reinsurance company.
If you are buying a home, or refinancing, get competent legal assistance. It’s a tremendous purchase, with wonderful potential or saving, retirement, and a place to live. But there are pitfalls out there, so beware.