In Greek mythology, Sisyphus was punished by the gods as a result of his chronic deceitfulness. Sisyphus was required to push a humongous boulder up a slope every day only to have it roll back down once it reached the top and then repeat the process. The parallels between this myth and the mortgage service industry cannot be understated. As a result of the “mortgage meltdown” and “robo-signing” scandal, the Consumer Financial Protection Bureau (the “CFPB”) was created to give consumers an oversight agency to protect them from rogue mortgage servicers. The CFPB, has previously enacted several rules and regulations designed to end “deceitful” and damaging practices in the mortgage industry. Recently, the CFPB has proposed a new rule designed to provide greater protections to consumers in the default and foreclosure process.
The newly proposed rule, which has just been released for review and comment, would alter the Real Estate Settlement Procedures Act’s (“RESPA”) Regulation X, and the Truth In Lending Act’s (“TILA”) Regulation Z by placing greater responsibilities and actions on mortgage loan holders and servicers. Here are some of the highlights:
- A new definition of “delinquency” applicable to both Regulation X and Regulation Z, which states that “a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid.”
- Increased requirements for verifying “successors in interest” and greater coverage of Regulation X and Z to successors in interest.
- New rules governing how a loan servicer responds to requests for information when Fannie Mae or Freddie Mac is involved.
- Changes to implementing and obtaining “forced-placed insurance.”
- Increasing the role and requirements of servicers in the loss mitigation stage of a delinquent account including additional steps during the foreclosure process.
- Clarification of how servicers must treat periodic payments made by consumers who are “performing under either temporary loss mitigation programs or permanent loan modifications.”
These newly proposed changes could, if enacted, increase the burdens placed upon servicers prior to and during foreclosure or other phases of the collection and enforcement process once an account becomes delinquent. As a result, the already lengthy process would be even longer resulting in increased costs and fees to the consumer in the form of greater loan scrutiny on the front-end of the mortgage process and increased interest rates and costs, and to the mortgage loan holders and servicers through greater legal fees and “carrying costs” for delinquent mortgage loans.
If ultimately passed, the new rules are not likely to come into effect until, at the earliest, mid-year of 2015, so the actual impact on the mortgage industry is only speculative at this point. Like Sisyphus, the consumer mortgage industry may be forced to push a larger boulder up the hill only to watch it role back down again as it tries to comply with the greater requirements for delinquent and defaulted obligations. Mortgage-based litigation, i.e., litigation challenging delinquent accounts and subsequent foreclosures, is already at an all-time high, and these newly proposed rule modifications will only increase the problem.
The following link sets forth the proposed changes and the CFPB’s explanation of the changes: http://goo.gl/6v1OMX
For more information about this topic or any others, please contact Ronn Steen. He can be reached at (615) 465-6010 or by email at [email protected].com.