Millions of Americans know the desperation of trying to hold on to their homes as while nearly all of their efforts are thwarted by a mortgage company that seems determined to foreclose.
The Consumer Financial Protection Bureau laid out new rules Thursday to keep struggling homeowners from losing their homes by getting the runaround from mortgage servicers - the middlemen who collect loan payments and handle loan modifications and foreclosures.
The rules, which take effect January 2014, are not retroactive but will offer protections to households that may face the threat of foreclosure in the future. They will also provide greater transparency for homeowners who want to know where their money is going and when they will be charged fees.
If you own a home, or hope to some day, there are several key things to understand about the new servicing guidelines:
• Dude, Where's my money?: Once you sign your mortgage agreement, chances are your lender will shuttle your file off to a servicer, who will manage the loan. Servicers developed a bad reputation during the financial crisis for routinely losing paperwork, failing to answer phone calls and mishandling accounts.
CFPB will now require them to provide regular statements that include the amount and due date of the next payment; a breakdown of payments by principal, interest, fees and escrow; and recent account activity.
Also, servicers have to credit a homeowner's account the day the payment is received. If the servicer places partial payments in a so-called suspense account, once the amount adds up to a full payment, the servicer must credit it to the homeowner's account.
• No surprises: Numerous homeowners were caught flatfooted during the crisis when the interest rate on their mortgage shot up with little or no warning. Now servicers must provide advance notice of looming higher interest rates for most adjustable-rate mortgages.
The CFPB is also requiring greater disclosure in cases of "forced-place insurance," a practice of pushing homeowners who fall behind on insurance payments into new, high-cost policies. Servicers are now prohibited from charging for new insurance unless there is reasonable evidence that homeowners lack insurance on their properties. If servicers buy new insurance but receive proof that it wasn't needed, they must cancel it within 15 days and refund the premiums.
• Early intervention: If homeowners miss two consecutive mortgage payments, servicers must be proactive and alert them to options, such as lowering their monthly installments. They also have to provide a written notice of the date the homeowner became delinquent and the amount needed to bring the loan current.
• Point of contact: One recurring complaint about mortgage servicers is that the mortgage holders often find it difficult to contact them in times of trouble. Homeowners must now be able to call their servicers at any time and be given accurate information about their account. There doesn't have to be one person at the firm who handles each case, but the mortgage holder should have direct, easy, ongoing access to employees responsible for giving help.
• Simplifying modifications: Say you fall on hard times and need help managing your mortgage. Servicers now have to explore all options available to help you avoid foreclosure. These can range from deferment of payments to loan modifications.
Servicers must offer a single application for all the options and must consider you for all options at once. The idea is to prevent multiple applications for different modifications, which can get mixed up.
Once you apply for a modification, the servicer must acknowledge receipt of the application within five days and let you know whether it is complete. They must tell you the status of the application and make sure documents go through the right procedures.
• Two paths that lead to confusion: You've likely heard the woeful stories of homeowners working with mortgage servicers to lower their monthly payments while simultaneously being placed in foreclosure by the same company. No more.
Servicers can no longer start foreclosure proceedings until homeowners have missed payments for at least 120 days to give them a chance to understand their options.
If you submit a completed application for loan modification or other help, the servicer cannot start or complete the foreclosure process until the application has been processed and you've had time to respond. If you're rejected for a modification, the servicer must tell you why. If you disagree, you can appeal, and the servicer must choose someone new to conduct a review.
• Unavoidable foreclosure: If your home cannot be saved, the servicer must consider you for a short sale or other options. They can no longer steer you to the options most lucrative for them.