The New Mortgage Foreclosure Rules and Criticism of Them

The Consumer Finance Protection Bureau issued new qualified mortgage and mortgage foreclosure rules on January 10 and 17, 2013, respectively, including rules that define what constitutes “ability to repay” and what constitute “qualified mortgages,” as well as requirements to issue clear mortgage statements, provide same-day crediting of mortgage payments and notice of interest rate changes that will impact adjustable rate mortgage payments, correct errors quickly, maintain accessible, accurate documents and information about the loans, limit force-placed insurance, ensure facility and continuity of contact with the servicers for delinquent borrrowers, and prohibit dual tracking (the practice of pushing forward on foreclosure even though the borrower is seeking another resolution) for borrowers who have timely applied for an alternative solution, such as a loan modification. 

The rules are effective January 10, 2014, and the CFPB exempted small servicers (those with under $2 billion in assets and servicing 5000 or fewer mortgages) such as many community banks and credit unions.

The CFPB has also provided sample forms and model language for mortgage servicers. 

The rule on mortgage loan originator qualification and compensation practices, which amends the Truth in Lending Act’s Regulation Z, “prohibits the inclusion of clauses requiring the consumer to submit disputes concerning a residential mortgage loan or home equity line of credit to binding arbitration.”

Among the criticisms are the “safe harbors” provided to banks for qualified mortgages meeting certain strict criteria which may protect the issuers of these prime loans from future lawsuits, and a rebuttable presumption for those lenders that don’t meet the criteria and issue higher priced or sub-prime loans.  Consumer advocates also criticized the failure to require meaningful loan modification procedures.  Listen to Free Speech Radio News here.

In testimony to the House Financial Services Committee in September 2012, Richard Cordray told members that banks could still be sued for whether they meet the critieria (which also requires substantial recordkeeping and documentation) for the safe harbors.  See, e.g., Heather Anderson reporting for the Credit Union Times here