On the House: Limits to new rules on mortgages

Posted: February 03, 2013

Because I've covered the foreclosure crisis as long as I have, even a quick read of the latest proposed rules affecting mortgage servicing highlights all the abuses borrowers have mentioned over the last few years.

Choose the situation your servicer dumped on you and send me an e-mail about it. Experiences will be published.

The most common abuse that the latest rules from the Consumer Financial Protection Bureau address is "double-tracking," in which a servicer simultaneously pursues foreclosure and offers alternatives to loss of the home.

From what you've told me, this is carried out by servicer employees working in different departments, often separated by hundreds of miles.

They never talk. They rarely listen. They read from printed sheets. They seem incapable of independent thought. They never seem to be around for follow-up.

They are not as heinous as those who urged borrowers to default on their mortgages rather than offer advice about their ability to continue making full mortgage payments on time or in full. There is a rule to stop that, too.

As we learned in the mess created by the Home Affordable Modification Program and the Home Affordable Refinance Program, if rules are made, lenders and servicers will always find a way to break them.

Even three years after the Obama administration launched HAMP, designed to reduce the foreclosure rate from record levels, mortgage servicers were still disqualifying qualified applicants. Under the new rules, a servicer must wait 120 days after a missed payment before beginning the foreclosure process.

"This window of opportunity provides a healthy amount of time for struggling homeowners to adjust their loans without having to worry that their foreclosure is already being processed," says Lot Diaz, of the National Council of La Raza.

Servicers must reach out to troubled borrowers from the get-go, not on Day 119. The extended period should allow enough time for everyone to see whether an alternative to foreclosure can be found - which should eliminate unnecessary costs, as well as increase the likelihood that borrowers can stay in their homes.

The rules include protections for those who apply for foreclosure alternatives after the process has started. A borrower must complete an application for alternative to foreclosure at least 37 days before a house is to be sold.

Servicers will be prevented from seeking foreclosure judgments or selling houses until reviews of applications are complete.

These are important protections, but it would have been better to require that foreclosure proceedings be paused during reviews.

A borrower's ability to appeal will be limited when a request for an alternative to foreclosure is denied. Critics say that will prevent some borrowers from having improper denials corrected. They also wonder whether servicers will heed the rules.

"We've already seen servicers ignore the calls to end dual tracking," Diaz says. "Strong enforcement is key."


On the House: Town By Town

In the Sunday Business section, Alan J. Heavens takes a look at real estate and life throughout the Philadelphia region. This week's focus: Lansdowne


Contact Alan J. Heavens at 215-854-2472, aheavens@phillynews.com or @alheavens on Twitter.

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