WASHINGTON (AP) — The federal government proposed new rules on Tuesday that will give homeowners more ways to avoid foreclosure and get an accurate accounting of their monthly mortgage payments.
Congress mandated changes in the rules covering the mortgage servicing industry in the wake of the 2008 financial crisis.
The Consumer Financial Protection Bureau's proposed rules would require mortgage servicers to give all borrowers standardized monthly statements and warn borrowers about interest rate or insurance change.
The mortgage servicers would also be required to make "good-faith efforts" to contact borrowers at risk of foreclosure and give them options to avoid losing their homes. There are also stipulations for improving record-keeping and providing foreclosure counseling to those who need it.
The agency said it will formally propose the rules this summer and finalize them by January 2013.
"By fixing these root causes of mortgage servicing problems — and securing transparency and accountability for borrowers — consumers would have clearer information about their options to keep their homes and would be in a better position to hold servicers accountable for their decisions," Richard Cordray, the agency's director, said during a speech in Washington on Tuesday.
The Consumer Financial Protection Bureau supervises U.S. payday lenders, mortgage companies and private student lenders. It also can write rules to supervise big lending companies and institute fines. Cordray said Tuesday the new rules would be backed up with "sharp teeth."
Nearly 8 million Americans have faced foreclosure since the housing bubble burst in late 2006. Many homeowners have said companies that process mortgages failed to verify information on foreclosure documents. The worst practices, known collectively as "robo-signing," included employees signing documents they hadn't read or using fake signatures to approve foreclosures.
In February, the nation's five largest mortgage lenders agreed to overhaul their mortgage servicing practices and pay $25 billion to U.S. states to help those who lost their homes or face foreclosure.
A mortgage servicer collects payments from the borrower on behalf of a loan's owner and typically handles customer service, escrow accounts, collections, loan modifications and foreclosures. Most borrowers do not choose their mortgage servicers. The owner of a loan frequently is not the original lender, even when the original lender is the servicer.