Attorney Ed WoodsYesterday, the Consumer Financial Protection Bureau (CFPB) issued a final rule designed to help struggling mortgage borrowers. The new rule amends the 2013 Mortgage Rules under the federal Real Estate Settlement Procedures Act and the federal Truth in Lending Act. Both of these laws exist to, among other things, establish standards for the mortgage lending industry and to provide important legal protections for consumers. The 2013 Mortgage Rules were intended to address many of the mortgage lending and servicing abuses and issues that came out of the recent mortgage crisis. The new rule will clarify and revise the 2013 rules.

 Struggling Homeowners Should Be Treated Fairly

The new rule is primarily intended to ensure that homeowners and those struggling to pay their mortgage debt are treated fairly by mortgage servicers. Mortgage servicers are entities that handle various aspects of a consumer’s mortgage account such as receiving payments from the consumer and forwarding these payments to the owner of the mortgage and other such details. Mortgage servicers are usually in direct contact with consumer borrowers about all aspects of the consumer’s mortgage account and thus are in the best position to provide assistance when things aren’t going well.

Mortgage Services Must Provide Debt Information

One area covered by the new rule pertains to those consumers in bankruptcy. Mortgage debt is very often a consumer’s largest debt and can be effectively addressed in a bankruptcy case, especially one under Chapter 13. In fact, Chapter 13 bankruptcy is very frequently utilized to help consumers avoid foreclosure and get current on their mortgage debt. In order to accomplish these goals, however, it is imperative to know the amount of that debt and exactly how any arrearages are calculated. As unlikely as it may seem, consumers frequently do not know the amount and extent of their mortgage debt. This can make it difficult to resolve in a bankruptcy case. The CFPB’s current mortgage rules do not require mortgage servicers to provide periodic statements to borrowers in bankruptcy. The new rule will require servicers to provide information to borrowers specific to the borrower’s bankruptcy case. This information can be quite helpful for these borrowers because, in most bankruptcy cases, the borrower will continue to owe the mortgage debt after the bankruptcy case is over.

The current rules also do not require mortgage servicers to provide consumer borrowers with early intervention loss mitigation information. In other words, under the current rules, mortgage servicers do not have to provide struggling borrowers with timely information designed to help them. Like most financial troubles, early intervention based on real options can help borrowers get through their struggles more easily and effectively.

The new rule also addresses many other aspects of consumer mortgage debt. The text of the new rule can be found here.

The new rule is an important step towards fairness in mortgage account servicing. The consumer protections provided by the rule should empower consumers to more effectively manage their mortgage debt and to get the information they need when they need it the most.

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