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Consumer Financial Protection Bureau Proposes New Safeguards for Mortgage Borrowers

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The CFPB is proving to be tough minded on the mortgage front. The Wall Street Journal reports that it intends to require banks to consider a modification request before proceeding with a foreclosure:

Under the Consumer Financial Protection Bureau’s proposal, loan servicers would be required to evaluate homeowners’ applications for loan-assistance within 30 days of receiving an application and would be barred from going ahead with a foreclosure until a final decision has been reached on a borrower’s application for help.

The article indicates that the big servicers won’t like this because they will “make less money” and will fob the work on to special servicers. This would be written more accurately as “servicers will lose more money.” Servicing portfolios with high levels of delinquencies is wildly unprofitable; that’s why servicers cheat so much these days. Of course, lousy servicer economics will be used to argue for seriously watering down this proposal. I hope the CFPB is not moved.

On top of this, the industry has such lousy infrastructure that I doubt the sort of servicers the article names as “special servicers” such as Ocwen and Nationstar, could give a response in 30 days. Ocwen and its peers have gotten so large that they are highly routinized and no longer able to do high touch servicing. There is a group of smaller servicers that may well be up to the task, but I doubt they have remotely enough capacity if the big banks start dumping their portfolios on other players.

That’s a long-winded way of saying I hope the CFPB has budget for a robust compliance and enforcement effort for this initiative. They’ll need it. The industry isn’t even remotely set up to comply, and violations will be commonplace. But this will save some borrowers, and even the ones who still get chewed up despite the new rules will presumably have a clearer path to restitution.

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7 comments

  1. fiscalliberal

    If budget is the problem, then priorities have to be listed with some tasks left undone. It takes a strong manager to identify this. However Congress needs to know that funding is the problem and some tasks are undone. Then the public has a chance to evaluate congress

  2. Doug Terpstra

    Well, Hallelujah! I think. OTOH, this could well be more pre-election eyewash, a good-cop feint, all-bark-but-no-bite, similar to Schneiderman’s fraudclosure amnesty. Doesn’t the CFPB share office space with the Criminal Reserve?

    I want to hope and believe in change, but nearing November, Lily Tomlin reminds us, “No matter how cynical you get, it’s impossible to keep up.”

  3. Pepe

    Since they’ll only be required to consider a modification, isn’t the danger that this will be turned into a foaming the runway situation?

    if the borrower qualifies for a mod, the lender should be required to modify.

  4. Paul Tioxonq

    Pennsylvania has been operating a program for decades now to prevent foreclosures. You can not legally initiate the process without sending a letter out to the homeowner with a list of the locations convenient for a homeowner to visit and apply for assistance. This will automatically extend the grace period, even for people unlikely to get assistance by months. It was initially set up during the recession in the 80s, especially the Western portion of the state where the steel industry was annihilated. For once, the urban Dems and small town Rs got together to do something for the people in the face of the banking industry. To their credit, it has been continuously funded, until recently. But even the depths of republican austerity at the state level, it has again found new funds.

    As part of the $25B foreclosure fraud settlement, the PA portion of the money is being allocated to the Homeowners Emergency Mortgage Assistance Program (HEMAP)

    http://www.philly.com/philly/business/homepage/20120810_Penna__resumes_mortgage-rescue_operations.html

    After 28 years of operation, HEMAP ceased in 2011, oh well! At least some money will trickle down and help some people. Thanks to all of the budget cutting politicians and Harrisburg who save me and all of the taxpayers so much money! I think I’ll treat myself to Batman in IMAX at the movies with an extra large popcorn.

    http://www.phfa.org/assets/404b_hemap.aspx

  5. justiceisserved

    As a homeowner who has had to deal with a mortgage servicer where you could never get a straight answer, talk to the same person twice, get a written reinstatement quote, unnecessary fees added to our account it was heaven-sent that we had our local state atty general and the Consumer Financial Protection Bureau working for us, to help us get fare decent treatment. These regulations are very necessary.

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