By Peter Schroeder - 04/10/12 02:01 AM EDT
The Consumer Financial Protection Bureau (CFPB) is looking to overhaul the mortgage servicing industry, arguing that the problem-plagued sector is unaccountable and opaque.
The CFPB announced Monday that it was mulling rules to reform that industry, which has been hotly criticized because as foreclosures mounted, so did evidence of shoddy business practices.
Cordray is expected to tout the new initiative at a public event Tuesday.
The new effort represents one of the broadest projects taken on so far by the new bureau, which opened its doors in July after being created by the Dodd-Frank financial reform law, targeting one of the more problematic areas under its jurisdiction.
Widespread problems in the mortgage servicing industry have become the subject of lawmaker criticism, congressional hearings and, ultimately, a $26 billion settlement. That agreement came about after a long-running investigation, and according to the pact, some of the nation's largest banks agreed to shell out billions to cover refinancing costs for homeowners and reimburse them for shoddy foreclosure practices. Among the practices President Obama called "plainly irresponsible," was "robo-signing," in which mortgage servicers would speedily sign off on foreclosure documents without reviewing or verifying their contents.
Now, the CFPB is planning to propose a set of rules aimed at making that business more transparent and holding servicers more accountable for their actions.
Under the CFPB's proposal, if homeowners get behind on their mortgage and face foreclosure, the servicer would be required to make a "good faith" effort to contact the borrower and explain the foreclosure process, as well as provide counseling options.
The CFPB is also considering requiring servicers to have staff members dedicated to working with struggling borrowers either facing foreclosure or trying to avoid it. These employees would have easy access to the borrower's records, as well as the ability to determine whether a loan modification could be pursued to avoid foreclosure. A common complaint by struggling borrowers was their inability to discuss their plight with an employee with their servicer.
Homeowners and policymakers were also frustrated by error-ridden documents at many servicers. Under the CFPB's plan, servicers would have to address found errors within 30 days, or an even shorter timeframe if a foreclosure or payoff is at stake.
Servicers would have to immediately credit payments received from borrowers and provide warnings to homeowners before interest rates changed on adjustable-rate mortgages. They also would have to make mortgage statements easily understandable for borrowers, showing the terms of the mortgage, where payments are going and any included fees.
While the CFPB announced the project Monday, the actual proposed rule will be published sometime this summer; it is expected to be finalized by the beginning of 2013. After that, the bureau can allow up to a year for implementation.