The federal agency tasked with regulating the mortgage industry, among other sectors, recently proposed new rules to prevent future foreclosure abuse.
The Consumer Financial Protection Bureau, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, released new standards requiring servicers to provide monthly updates to borrowers on the status of their mortgages, specifically, the amount due at that time and the remaining balance of the loan.
"The inadequate performance of many servicers helped widen the misery of many Americans," said CFPB director Richard Cordray.
Under the proposal, servicers will also have to inform distressed borrowers about their options to avoid default, and subsequent foreclosure, in the early stages of delinquency. Further, they need to provide a single point of contact at their companies to make it easier for households to seek assistance.
Regulation could cost servicers
The CFPB estimates the new rules will collectively cost the 12,800 servicers they apply to roughly $2 million per year, at $41 each. Meanwhile, smaller servicers handling fewer than 1,000 mortgages or which only deal with loans they own will be exempt from the regulation.
This initiative has already gained support from a number of industry groups.
"This is an important step to getting certainty into the industry and to insure consumers know what to expect when they need help from their servicer," said Mortgage Bankers Association CEO David Stevens.
Others see the impending rules as a potential shift in responsibility from large banks servicing mortgages to specialized professionals taking on a much more intricate role to reduce the chances of a future foreclosure crisis.
Following the housing market collapse in 2007, an estimated 4 million properties were lost to repossession. In addition, a dense backlog of troubled borrowers continues to add pressure to the entire mortgage industry, and these new regulations could provide much-needed relief.
The CFPB started drafting specific proposals in April, but many companies adopted the new rules on their own prior to this date. In addition, once servicers have a chance to discover how the proposed regulations impact their books of business, the bureau will accept comments and concerns until October. Once the rules are fine-tuned, they will officially go into effect at the end of January 2013.