Anyone who has ever fought with a lender over a "lost" or misapplied house payment should be heartened by the latest news from the new federal mortgage industry watchdog.
The Consumer Financial Protection Bureau plans to propose a straightforward approach to loan administration that should benefit consumers and "servicers," which are the firms that loan owners hire to collect payments, disburse taxes and insurance, and chase after delinquent borrowers.
The fledgling bureau, which is not yet a year old, will propose the new rules this summer and expects to put them in place in January. Servicers could be given up to a year to make the final rules a part of their routine, which means consumers may not see the benefits until about January 2014.
For some, though, that can't come soon enough.
"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 Richard Cordray, the former Ohio attorney general who heads the young agency. "It's time to put the 'service' back in mortgage servicing."
Even before the housing crisis and mortgage meltdown, consumers reported issues with sloppy record-keeping and unresponsive servicers. And because lenders, not homeowners, choose the servicers, those companies had little incentive to actually serve borrowers.
If the servicer is indifferent to your problem, the results can be disastrous. It can harm your credit, obliterate your finances and possibly even lead to foreclosure, all through no fault of your own.
The rules the Consumer Financial Protection Bureau is considering are aimed at tackling what it sees as two underlying issues -- the lack of transparency and the lack of accountability. Its goal is "no surprises." Borrowers, the bureau believes, should not be kept in the dark, nor should they be given the runaround.
Here's a brief look at what the agency has in mind:
-- Understandable monthly statements: Servicers would be required to provide regular statements with the payment broken down by principal, interest and any fees and escrows. It also would state the amount due and the due date for the next payment. For delinquent borrowers, statements also would have to include alerts and information about financial counseling agencies.
-- Rate adjustment warnings: If the loan has an interest rate that can change occasionally or regularly, the servicer would be required to provide advance disclosures and offer a list of alternatives the borrower can pursue if the new payment will be unaffordable.
-- Insurance options: Servicers are responsible for ensuring that adequate fire insurance is maintained on the mortgaged property. If it isn't, they have every right to purchase coverage to protect the collateral. This is known as "force-placed" insurance, and it is typically more expensive -- often much more expensive -- than a borrower can purchase on his own.
Consequently, the bureau is looking at a rule that would require servicers to give advance notices and pricing information before charging consumers for coverage.
-- Foreclosure options: Servicers would be required to make good-faith attempts to contact delinquent homeowners and inform them of the options available to avoid even deeper delinquency and foreclosure. And if borrowers contact the servicer because they are having financial issues, the servicers would have to provide timely, complete and accurate information about options.
To make sure servicers are held accountable if borrowers are not treated fairly, the consumer protection bureau is considering these rules for handling customer accounts:
-- Servicers would have to credit accounts promptly. While this should not be an issue, many consumers have complained that payments haven't been credited to their accounts until after the normal five- or 10-day grace period has expired. Such a practice makes the payment late and requires the borrower to ante up a significant late fee.
-- Servicers would be required to set reasonable policies and procedures to minimize errors, prevent the "loss" of documents, provide accurate information to borrowers and help resolve errors.
If you believe there has been an error with your account, for example, your servicer would be required to acknowledge your inquiry, conduct an investigation and inform you of how it intends to resolve the problem -- all within a reasonable time frame.
-- Servicers would have to provide delinquent borrowers -- or those asking for help to avoid being late -- with direct, easy and ongoing access to employees who are dedicated and empowered to help troubled borrowers.
The agency plans to engage extensively with consumers and the industry to further develop these and other rules to address servicing issues. If you would like to offer your two cents' worth, find the "Tell Your Story" tab on the agency's website, www.consumerfinance.gov, or write the Consumer Finance Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244.