New Protections for Homeowners and Buyers in 2014: CFPB Rules Go Into Effect on January 10th
By Consumers Union on Friday, December 20th, 2013
Homeowners and consumers shopping for a mortgage can breathe a bit easier knowing that some new CFPB rules are going into effect in January 2014. The new rules will bring much needed relief to consumers in the form of new rights and greater protection from harmful practices in the mortgage marketplace, including many of the practices that led to the mortgage meltdown.
The first of these new protections promotes responsible mortgage lending and borrowing. With these new rules, lenders must evaluate borrowers on their ability to repay a mortgage loan before making it. This includes evaluating a borrower’s ability to repay a mortgage over the long term, beyond low “teaser” rates that may apply when a loan is initially made. Sound underwriting must be the norm as lenders can determine a borrower’s ability to repay by considering factors supporting the borrower’s likelihood to repay, such as income, debts, assets, and credit history.
The CFPB rules also detail a new class of mortgages for which borrowers are presumed to be able to repay. “Qualified Mortgages” or “QMs” are required to include certain safeguards including requiring the lender to make a determination that the borrower can repay the loan; a QM must be safer and easier to understand and risky features such as negative amortization or interest-only payment provisions are prohibited; and, the QM should be a fairer deal as the new rules limit the points and fees lenders can charge. For example, a loan over $100,000 cannot be a QM if it has points and fees that are more than 3% of the loan amount.
The CFPB has also improved protections against steering. That’s the terrible practice of someone doing you wrong when they offer to arrange or assist you in finding a mortgage loan. No longer can such individuals steer you into a more costly loan just because it will mean a higher commission for them.
The new CFPB mortgage servicing rules also go into effect on January 10, 2014. These rules make it clear what mortgage loan servicers will have to do to protect homeowners throughout the United States. (Last January we wrote about this great development for consumers). These rules make it clear what mortgage loan servicers will have to do to protect homeowners throughout the United States. The CFPB rules create a floor for the types of protections all mortgage holders will have when dealing with their mortgage servicers. Individual states may take additional steps as they see fit (and some have already done so) to give consumers the protections they need. Beginning January 10, 2014, if you have a mortgage, mortgage loan servicers must:
- Give you billing information in writing (written mortgage statement) with details, including:
- What you owe, how much is applied to principal, interest, and escrow. If the mortgage has multiple payment options, the statement must show whether the principal balance will increase, decrease, or stay the same for each option listed;
- Payments made since the last statement;
- How previous payments were applied;
- Transaction activity;
- 3 days before loan closing, lender must give you a free copy of all appraisals if obtained;
- Contact information for your servicer;
- How to contact a housing counselor for help;
- Late payment information.
- Give you at least two months’ warning if a change in your adjustable-rate mortgage interest rate mean that your payments are about to change, if you have an adjustable rate mortgage (ARM).
- Promptly credit your payments as of the day they come in.
- Respond quickly when you ask about paying off your loan.
- Not charge you for insurance you don’t need, or over-charge you for force-placed insurance.
- Quickly resolve complaints and share information.
- Have and follow good customer service policies and procedures.
- Contact you to help when you’re having trouble making your payments, no later than 3 days after your payment was due. At no later than 45 days overdue, the servicer has to tell you your mortgage workout options, and assign personnel to help you.
- Work with you, if you are having trouble paying your mortgage, before starting or continuing foreclosure.
- Allow you to seek review of the mortgage servicer’s decision about your loan workout request.
In addition, the CFPB recently released educational materials and tools to improve the public’s understanding of the new rules and their protections. These include:
- Consumer tools on the CFPB website offering a tool to help consumers find local housing counseling agencies.
- Answers to consumer questions through an interactive online tool to answer consumers’ most frequently asked questions.
- A portal where consumers can file a complaint when there is an issue with a consumer financial product or service such as a mortgage.
- Factsheets on the Rules and a summary of the new procedures to help borrowers access foreclosure options.
- Guide for housing counselors who work directly with impacted consumers.
It looks like 2014 will be a good year for homeowners and buyers given these new protections. Does this sound like relief to you? Tell us what you think.