Richard Cordray and the Consumer Financial Protection Agency are taking action that could help lessen the mortgage crisis facing American homeowners. The agency is considering a series of moves that would reform the mortgage servicing industry. Problems with mortgages contributed heavily to the global financial crisis that dominated the world economy in recent years.
The CFPB announced Monday that it was mulling rules to reform that industry, which has been hotly criticized because as foreclosures mounted, so did evidence of shoddy business practices.
“For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress," said CFPB Director Richard Cordray. "It’s time to put the ‘service’ back in mortgage servicing.”
Cordray is expected to tout the new initiative at a public event Tuesday.
The new effort represents one of the broadest projects taken on so far by the new bureau, which opened its doors in July after being created by the Dodd-Frank financial reform law, targeting one of the more problematic areas under its jurisdiction.
Among the changes being considered:
Under the CFPB's proposal, if homeowners get behind on their mortgage and face foreclosure, the servicer would be required to make a "good faith" effort to contact the borrower and explain the foreclosure process, as well as provide counseling options.
The CFPB is also considering requiring servicers to have staff members dedicated to working with struggling borrowers either facing foreclosure or trying to avoid it. These employees would have easy access to the borrower's records, as well as the ability to determine whether a loan modification could be pursued to avoid foreclosure. A common complaint by struggling borrowers was their inability to discuss their plight with an employee with their servicer.
Homeowners and policymakers were also frustrated by error-ridden documents at many servicers. Under the CFPB's plan, servicers would have to address found errors within 30 days, or an even shorter timeframe if a foreclosure or payoff is at stake.