How the 2014 Changes to Regulation Z (TILA) and Regulation X (RESPA) Impact Homeowners who are in Default on their Mortgage or in Bankruptcy
The Consumer Financial Protection Bureau (CFPB) is the federal agency that oversees and sets the standards and regulations for how home mortgages are serviced by lenders, particularly in the wake the post-2010 mortgage crisis. Amongst its many duties, the CFPB is tasked with creating and enforcing regulations on how home mortgages are serviced in the United States and, more specifically, how homeowners that are in default or in an active bankruptcy proceeding. In January 2014, the CFPB made some notable changes to Regulation Z (TILA) and Regulation X (RESPA) in an effort to provide homeowners with greater consumer protections regarding their mortgages.
For more information about foreclosure in Minnesota and options in bankruptcy, read Foreclosure in Minnesota: Know the Process, Timeline and How Bankruptcy Can Help.
As of January 10, 2014, the CFPB instituted new mandatory requirements regarding mortgages, including the following changes that apply to homeowners in bankruptcy proceedings:
“Dual tracking” of foreclosure actions now prohibited while a mortgage modification application is pending. Most important for many homeowners is that the recent 2014 changes now prohibit foreclosure while the homeowner has a mortgage modification application pending a response from their bank. “Dual tracking” is the practice of many banks to continue foreclosure proceedings while at the same time consider a mortgage modification application submitted by the homeowner. Understandably, this dual tracking caused enormous frustration for homeowners already struggling through the tedious and often prolonged process of obtaining a mortgage modification before the clock ticked down on a simultaneous foreclosure proceeding. Instead, mortgage servicers are now prohibited from initiating foreclosure proceedings during the first 120 days of delinquency and also must stop a foreclosure proceeding if the homeowner has submitted a “complete” application for loss mitigation.
Monthly mortgage statements must be provided despite the homeowner’s default or bankruptcy. Previously, many homeowners in default on their home mortgage or in an active bankruptcy proceeding experienced that their lender ceased sending the periodic mortgage statements that are relied on to track mortgage account information and make the monthly mortgage payments. With the 2014 changes, the mortgagee bank must now provide a homeowner who is 45 days or more delinquent with a detailed statement that includes, amongst other items: the date of first delinquency and a six-month account history that tracks the accrued delinquency over time, notification of risks such as foreclosure as well as loss mitigation options including mortgage modification and contact information for HUD-approved home counselors and the total amount due to bring the account current. These new rules do not apply to some fixed rate mortgages, reverse mortgages or timeshares.
Notice of all mortgage payment changes must be filed with the Bankruptcy Court and provided to Chapter 13 debtors. Previously, homeowners in bankruptcy cases were not always notified when their adjustable rate mortgage adjusted interest rate and, accordingly, their monthly payment also adjusted. With the 2014 changes, homeowners in Chapter 13 will receive notice from the mortgagee bank of the upcoming mortgage payment change since the bank must now file a statement with the bankruptcy court each time that the mortgage payment changes due to an adjustment in interest rate or other change in terms.
Force placed insurance now restricted. Previous to the 2014 changes by the CFPB, some mortgagee banks required that homeowners compensate the bank for mandatory hazard insurance that the bank obtains instead of the homeowner providing their own homeowner’s insurance. Once the bank obtained a separate insurance policy on the home, the bank would then force the homeowner to compensate the bank either by a mandatory and additional escrow into their mortgage payment and/or a charge-back to the homeowner for the bank-paid insurance. This force placed insurance often resulted in higher premiums to the homeowner, additional bank fees and increased the total arrearage owed to bring the mortgage current. The January 2014 changes now mandate that the mortgagee bank must now provide at least two notices to the homeowner requesting proof of insurance before the bank can institute the often more costly force placed insurance. Additionally when it is allowed after the requisite notice, the bank’s costs and fees associated with force placed insurance are also now restricted.
Banks must respond to homeowner request for account information and error reporting within 60 days. The 2014 changes to Regulations Z and X now require that mortgagee banks respond to homeowner requests for account information and alleged account errors within 60 days. Additionally, mortgagee banks must provide confirmation to the homeowner of their request within 5 days and must initiate an investigation within 30 days.
Links to more information on CFPB and consumer protection in mortgage servicing laws:
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