MSU Extension MI Money Health

Many distressed homeowners had poor experiences during the mortgage crisis, including runarounds and surprises. In response, mortgage servicers must do a better job and comply with the new federal loss mitigation procedures implemented by the Consumer Financial Protection Bureau (CFPB) in 2014. The rules are designed to provide consistent and meaningful protections for borrowers. 

Only the five servicers who were part of the National Mortgage Settlement (See my related articles from April 9 and April 26, 2013) must comply with the CFPB procedures. The five Servicers are Ally/GMAC, Bank of America, CitiMortgage, JP Morgan Chase and Wells Fargo. The new rules do not apply to small servicers and community banks.

Servicers: Before foreclosing by advertisement, these five servicers must now do all of the following:

• By 36 days after a homeowner misses a payment or cannot pay the full amount, the servicer must make a good faith effort to establish contact by telephone or at an in-person meeting.
• If the borrower’s situation calls for it, the servicer must tell the borrower about loan modification or workout options available.
• By 45 days delinquent, the servicer must send a written notice to the borrower encouraging the borrower to contact the servicer that contains the name, address, phone number and e-mail of assigned employees responsible to help them avoid foreclosure. The correspondence must also contain information about how to find a housing counselor.
• After 45 days late, periodic or monthly mortgage statements must include a “delinquency box,” containing information on the possible risks the borrower faces, the amount needed to bring the loan current, how to find a HUD-approved housing counselor and any loss mitigation programs the borrower has already agreed to.
• Only after 120 days of late payments can a mortgage servicer make a first notice or filing for foreclosure. This gives the borrower time to learn about workout options and file an application for mortgage assistance. If the borrower has already submitted a complete application, the foreclosure process may not begin while the Borrower is being evaluated for a loss mitigation plan. This provision restricts Dual-Tracking, which hurt many consumers who thought they were working out a resolution with their banks and were shocked to learn of a scheduled foreclosure sale.
• If a loss mitigation application is received at least 37 days before a foreclosure sale, Servicers must review and respond to the borrower within 30 days. If the sale is more than 45 days away, servicers must inform the borrower if the application is complete within 5 business days of receipt.

Borrowers: The earlier that borrowers seek help, the more protections they have under CFPB rules:

• Borrowers have the most protections if they submit a complete application for mortgage assistance within 120 days of the first missed payment. The servicer is not allowed to start a foreclosure process during those 120 days. There is no deadline to apply, but the sooner the better.
• If a borrower submits a complete application 90 or more days before a scheduled foreclosure sale, the servicer must give the borrower at least 14 days to accept or reject an offer of a loss mitigation option. Plus, in this timeframe, the borrower may file an appeal of a denial for any loan modification within 14 days.
• If the borrower submits a complete application for loss mitigation options 45 days or more before a scheduled Sheriff’s Sale, the servicer must send a written notice to the borrower encouraging the borrower acknowledging the receipt of the application within 5 business days. If the application is not complete, the servicer must tell the borrower what additional information and documents must be provided. If the borrower’s application is less than 45 days before a foreclosure sale, the borrower is not entitled to a written notice that their application has been received.
• If the borrower submits a complete application 37 or more days before a scheduled foreclosure sale, it will be evaluated for loss mitigation options. The servicer must give the borrower written notice of the decision.
• When servicers deny a borrower for a loan modification option, they must give specific reasons for the denial for each available modification option.
• Borrowers who sought help before and were rejected may apply again for an evaluation under the new rules. Their complete application must be filed more than 37 days before a scheduled Sheriff Sale.
• Consumers may file a complaint about mortgages with the CFPB. Call 855-411-2372 (CFPB) or online at http://consumerfinance.gov/complaint.

Some Michigan State University Extension offices have HUD-approved housing counselors who offer the housing counseling requirement. Find one near you at https://www.canr.msu.edu/mimoneyhealth/contact to call for an appointment in person, by phone or online. In other areas, find a HUD approved housing counselor.