"It’s time to put the service back in mortgage servicing,"… (Alex Wong, Getty Images )
WASHINGTON — The federal government's consumer finance watchdog is considering tough new rules on banks to provide homeowners with more — and clearer — information about their mortgages.
Banks could be required to make monthly statements easier for customers to understand. And they may have to provide borrowers with warnings before their interest rates adjust. In addition, the rules could make it easier for homeowners to avoid foreclosure.
Richard Cordray, director of the Consumer Financial Protection Bureau, will outline the possible measures Tuesday as part of an effort to bring greater transparency to the mortgage-servicing industry. The goal is to make banks and other servicers more accountable in light of the controversy over botched foreclosure paperwork, the agency said.
The rules would extend to all mortgage servicers, and some are similar to changes agreed to by the largest institutions as part of a recent settlement with federal and state officials.
"It's time to put the service back in mortgage servicing," Cordray said.
Among the rules under consideration is a requirement for servicers to make a good-faith effort to contact homeowners who fall behind on their mortgages to let them know about options to avoid foreclosure. Institutions may also be required to provide "direct, easy and ongoing access to employees who are dedicated and empowered to help the troubled borrowers."
The agency said it would seek input from consumers and the financial industry before formally proposing rules this summer. It plans to finalize the rules in January.
Several of the proposals are similar to changes the five largest mortgage servicers agreed to implement as part of the recent $25-billion settlement with federal officials and attorneys general from California and 48 other states over so-called robo-signing and other foreclosure abuses.
Those banks — Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. — service about 55% of all U.S. mortgages. The new rules would codify the changes in federal regulations and extend them to all servicers.
The five large servicers agreed to measures to provide clearer information to customers, such as monthly bills that show unpaid principal, fees and charges. The servicers also promised to improve the handling and accuracy of customer data, including applying payments to accounts within two days and promptly fixing errors.
In addition, the servicers agreed to take more steps to help homeowners avoid foreclosure. Those included providing a single point of contact to customers to prevent bureaucratic runarounds and to hold off on foreclosure proceedings while a homeowner is being considered for a loan modification.
The consumer bureau is considering requiring all servicers to immediately credit payments to homeowners' accounts and to quickly correct errors in their accounts. Servicers could be required to acknowledge within five days that a homeowner has contacted them about an error, and they may have to finish investigating it within 30 days.
"The mortgage-servicing rules we are considering reflect two basic, common-sense principles: no surprises and no runarounds," Cordray said. "For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress."
The consumer bureau was the centerpiece of the sweeping overhaul of financial rules enacted in 2010 in response to the financial crisis triggered by the subprime mortgage market meltdown. Congress made mortgage servicing one of the agency's key responsibilities in hopes of avoiding future problems.
Most homeowners don't get to choose their mortgage servicer because the bank making the loan often sells it, so consumers can't shop for the best servicer, the agency said.
In February, the consumer bureau began addressing the servicing industry by releasing a prototype for a new monthly mortgage statement to be sent by servicers to their customers. The statement would include the principal owed on the loan, the current interest rate, the next date on which the rate could change, an explanation of late fees, and a phone number and email address to contact the servicer.
Last month, Cordray said the agency would issue rules requiring servicers to give homeowners options for obtaining property insurance coverage in the event their policy lapses.
Currently, if a homeowner does not maintain insurance on the property, the servicer can unilaterally purchase coverage for the borrower and recoup the cost by adding it to the monthly mortgage payment. Such coverage, known as "force-placed" insurance, is typically more expensive than a standard policy, the bureau said.
The servicing rules under consideration would make it harder for a servicer to impose force-placed insurance. A servicer would have to ask a homeowner at least twice for proof of insurance before forcing coverage on a borrower. Those notices would have to include the estimated cost of the force-placed insurance.