In early January, a number of new federal rules in the foreclosure and mortgage context became effective. The changes came out of the Dodd–Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) which provided authority to the Consumer Financial Protection Bureau (CFPB) to issue rules to implement the changes. The changes were many; below are just a few of the highlights.
No Dual Tracking
In recent years, dual tracking was a frequent practice among many mortgage lenders and servicers. With dual tracking, a bank would consider a homeowner’s application for a loan modification while simultaneously continuing to foreclose on the homeowner’s home.
A number of states passed laws prohibiting this practice in 2013, and the signatories to the National Mortgage Settlement agreed to stop this practice as well. But even better, as of January 10, 2014, federal law prohibits dual tracking. For details on the new rule, see New Laws Prohibiting Dual Tracking in the Foreclosure Context.
Ability to Pay Standards for Mortgages
In the 2000s, mortgage lenders often approved loans without running numbers or inquiring into whether the homeowner could actually afford the mortgage. Lenders signed people up for mortgages with “teaser rates” that later increased dramatically or low rate loans that had a large balloon payments after a few years. The homeowner would inevitably default and lose the home through foreclosure.
The new CFPB rules, which became effective January 10, 2014, require mortgage lenders to consider specific factors and make a good faith determination that the borrower has an ability to repay the loan. The “ability to repay” (ATR) requirements apply to almost all closed-end residential mortgage loans. (A closed-end loan is one that must be repaid by a certain date. Most mortgages are closed-end loans.) However, there are a number of loan types that are exempt from these requirements. For details on what the lenders must do under the new rule, and which loans it does and does not apply to, see New Mortgage Rules on Ability to Pay.
More Protections for Borrowers of High-Cost Home Loans
The Home Ownership and Equity Protection Act (HOEPA) provides protections to borrowers taking out certain types of loans with high interest rates or high fees. The Dodd-Frank Act expanded those protections and the CFPB’s rules implementing those changes became effective on January 10, 2014.
Among other things, the new rules:
- require lenders offering high cost loans to provide more disclosures to borrowers
- prohibit lenders from including certain types of onerous loan terms in the loans, like balloon payments, and
- restricts fees that lenders can charge for these loans.
For details on which loans the new CFPB rule applies to, and what is required and prohibited, see New Protections for High-Cost Mortgages.
Other Mortgage Servicer Requirements
The CFPB implemented a whole host of other rules that protect mortgage holders, people shopping for mortgages, and those facing foreclosure. These new rules require mortgage servicers to:
- provide monthly billing statements to borrowers (there are exceptions for some types of loans) that include specific information
- notify borrowers when the interest rate changes on adjustable interest rate loans
- promptly credit mortgage payments
- provide alternatives to force placed insurance
- quickly resolve errors and respond to borrowers’ information requests, and
- contact any borrower who falls behind in payments.
To get details on these new rules, see Federal Rules Protecting Homeowners With Mortgages.