The federal Consumer Financial Protection Bureau plans to implement new rules and regulations to mortgage servicers during the course of 2012, and says state attorneys general should be prepared to enforce the new lending regulation.
In a speech to the National Association of Attorneys General, CFPB director Richard Cordray said that the agency would soon require servicers to provide clear and precise information on billing statement, making it more difficult for households to make financial missteps with the home loans. In addition, new regulation with also prevent servicers from requiring force-places homeowners insurance, unless a borrower was unable to sufficiently maintain their own private insurance payments.
"Bad practices drove out the good; our responsible community banks and credit unions were literally robbed of market share; and the whole stinking mess eventually collapsed, dragging down many innocent people along with it. I firmly believe that had the consumer bureau been in place 10 years ago, the crisis would have been headed off before it metastasized," Cordray said.
Meanwhile, borrowers with mortgages who do not have guaranteed rates, run the risk of having a sudden increase in their monthly payments, which could force them into delinquency. However, the CFPB says that this will no longer be the case. New regulation with require servicers to notify borrower months in advance of an impending rate increase, giving them sufficient time to prepare financially or try to refinance their home loan.
The announcement of these changes gained the support from a number of industry experts who feel they are a step in the right direction.
"It's a tipping of the hat by Congress to the states to allow them to become bigger players in the regulation of the mortgage industry," said Ballard Spahr practice leader Richard Andreano. "When you're an AG and you see that, you feel emboldened to take that step and become a regulator."
However, the changes didn't gain support from all sectors of the industry. One mortgage servicer executive claimed that when the new regulations are implemented, it will result in a spike in servicing costs. As a result, lenders may be forced to increase mortgage rates to compensate for the added costs.