Protect Your Most Valuable Possession – Your Home
The Consumer Financial Protection Bureau (CFPB), has issued new protections to help homeowners having trouble making mortgage payments or/who are seeking a loan modification. Below is an overview of some of these.
Better Communication and Information
Once a borrower misses two consecutive monthly mortgage payments, the loan servicer must include information about the defaults in the next monthly mortgage statement.
Also, a Loss Mitigation Notice must be sent to the borrower within 15 days of the second missed mortgage payment. The Notice has to include the following:
a. The date the borrower defaulted on the loan;
b. The amount required to bring the defaulted loan to current status; and
c. A list of the risks the borrower will face if they fail to bring the loan current
This Loss Mitigation Notice is in addition to the default information contained in the monthly statement the borrower will receive. Information about housing counselors and detailed options available to borrowers will be included with this Notice to help inform borrowers of steps they can take to avoid foreclosure.
Examples of these steps would be:
a. Deferring or forgiving principal on their loan
b. Lowering the interest rate
c. Increasing the length of the term
d. Entering into a different payment plan
More Time Prior to Foreclosure
Mortgage servicers will now have to wait 120 days after a loan is in default before starting a foreclosure proceeding. This additional time will give borrowers a chance to submit an application for a mortgage modification or other workable solution.
Servicers cannot begin a foreclosure proceeding if an application is pending for a loan modification or other workout solution. They also cannot proceed with a sale if the borrower has entered into a loan modification agreement and is performing under the agreement.
These new protections not only provide borrowers with more options, but also place restrictions on the practice of “dual tracking”. Dual tracking occurs when the mortgage servicer is working with the borrower to restructure their obligations while at the same time commencing a foreclosure proceeding. Previously, borrowers who were working with their lenders or servicers were often surprised to find that their properties were up for foreclosure sale.
Modification Application Process
One of the changes made to the modification process is that only one application form will be permitted to be provided to borrowers. Instead of submitting multiple applications to protect from foreclosure, borrowers will only have to submit one application for all loan modification programs. This single application will require the servicer to list all available options for modifications and the borrower will need to be considered for all options at once.
As long as the modification application is received at least 45 days before a foreclosure sale is scheduled, the servicer must respond within 5 days to a borrower to confirm receipt of the application and to let them know whether the application is complete or incomplete. If incomplete, the servicer must tell the borrower what is needed to complete it.
Servicers will have only 30 days to respond to a modification application if it is received more than 37 days before a foreclosure sale is scheduled. A servicer must also evaluate a borrower’s application for a loan modification first so long as it was submitted at least 37 days before the foreclosure sale was scheduled. Servicers must offer a fair review process and must be familiar with the loan modification options that each of their investors will allow (i.e. Fannie Mae, Freddie Mac, FHA or private). This is to ensure that all alternatives to foreclosure be explored first. Servicers must evaluate a borrower for all loss mitigation options permitted by the investor for which a borrower qualifies, and cannot steer a borrower to a particular option that is most favorable to the servicer or the investor.
For a servicer to continue with a foreclosure sale, one of the following must happen:
1. The servicer had informed a borrower that they were not eligible for a loan modification;
2. The borrower had rejected all loan modification options offered to them by the servicer; or
3. The borrower had failed to comply with the terms of the loan modification agreement
Borrower’s Options Upon Rejection for Loan Modification
If a borrower is rejected for a loan modification, the mortgage servicer must provide specific reasons for the rejection. If there is a right to appeal, Borrower must be informed about their right to appeal the decision to an employee of the servicer who was not involved in the original decision.
All of these new protections should help more borrowers work out affordable solutions. They should also limit the number of borrowers who lose their homes in foreclosure.