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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.
Servicers would have to immediately credit payments received from borrowers and provide warnings to homeowners before interest rates changed on adjustable-rate mortgages. They also would have to make mortgage statements easily understandable for borrowers, showing the terms of the mortgage, where payments are going and any included fees.
Working America applauded the proposals:
Our response to all of this? Fantastic, and long overdue. And we can’t help but remember how savagely Wall Street and their political allies in Congress fought the creation of this agency, the appointment of its originator Elizabeth Warren as its director, and then again the appointment of Richard Cordray. Now we know why – Cordray is arming consumers with the ability to fend off these long-accepted predatory practices.
The dirty secret about our economy right now is the enormous drag of foreclosures and the inability of homeowners to modify their loans. Sure, there was that much-trumpeted national foreclosure settlement, which resulted in $26 billion in assistance for struggling homeowners. But there were two big problems with that settlement: 1.) you can’t fix $700 billion in negative equity with $26 billion and 2.) in some states (like Wisconsin) anti-worker corporate-backed governors (like Scott Walker) took that money and used it to pay for tax breaks, so homeowners didn’t actually get any of it.
Needless to say, the so-called settlement did very little to alleviate the enormous economic pain felt by homeowners stuck in mortgages with no recourse, owing more to banks and servicers than they could possibly come up with, even if they sold their house.
Edward DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), singlehandedly has the authority to reduce the principal on underwater mortgages. This would help families pay for mortgages that cost more than their house is worth. Two weeks ago, the Treasury Department offered to subsidize this process – but still no movement from DeMarco.
We’re very encouraged by what the CFPB is doing to protect future consumers, but we need to urge DeMarco to act – and help those who are struggling now.