On January 17, 2013, the Consumer Finance Protection Bureau released a final Rule, which is impacting the servicing of consumer home mortgages, that are supposed to protect consumers. The new provisions are a direct response to the past abuses done to many consumers by servicers. In fact, there already have been meetings with state Attorneys General on the subject, where the AGs were planning on taking action for what were clear abuses of existing laws.
The biggest complaints were coming against lenders who lost borrower records, failed to communicate, and generally abused borrowers. Receiving high attention were servicers who participated in “robo” signing of delinquency, warning and foreclosure notices to consumers. Many of these damaged innocent homeowners, many of whom were actively participating in sanctioned loan restructuring agreements. The consumers were hurt when the services did not follow through on their promises and current legal responsibilities.
“The real issue is not new regulations, but a willingness on the part of the state and federal governments to enforce regulations at all,” said attorney Tim Sullivan of Hinshaw and Cullbertson. “It makes no sense to invent new regulations, when we now have plenty of regs and laws that could do the job already, but just need regulators and the legal system to act.”
Some unintended consequences of the new regulations will be to slow down processing and increase costs to consumers. Cost increase will be particularly felt in the form of higher interest rates to cover the increased costs of the servicers.
Some provisions could be good. Between a combination of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”) and the Dodd-Frank, now all mortgage loan officers will be subject to background checks and other competency and training qualifications. Previously, only mortgage originators working for mortgage brokers and mortgage bankers had to meet these requirements, while bank and thrift loan officers were exempt. This should increase loan originator competency and should help level the playing field between brokers and banks.
Also good is the elimination of the requirement of mandatory arbitration clauses in home loan or home equity loans. To be sure, binding arbitration could be a faster, cheaper and easier way for consumers to get relief. However, the mandatory nature of the provision makes it unfair and subject to abuse—especially of the lending institution who sets the rules.