CFPB Mortgage Servicing Rules Could Prove Costly
Just one of the provisions in the Consumer Financial Protection Bureau’s proposed rules on mortgage servicers released Aug. 10 could cost credit unions tens of thousands of dollars, representatives of the industry told the bureau.
Five credit union executives weighed in on the CFPB’s proposed rules during an April 24 outreach meeting with the bureau’s Small Business Review Panel. They provided the panel with an estimate of start-up costs that would be required to implement the proposed requirement that would provide borrowers with regular monthly mortgage statements, which would include a breakdown of payments by principal, interest, fees and escrow, the amount of and due date of the next payment, recent transaction activity and warnings about fees.
One credit union representative stated it recently cost the cooperative $20,000 to make minor changes to statements, and another credit union reported that switching to a periodic statement system would cost as much as $40,000 in start-up costs, not including time.
Part of a group of 16 representatives from small entities, which include commercial banks and credit unions with fewer than $175 million in assets, those comments were compiled into a report the bureau posted on its website Aug. 13.
The first set of the proposed rules, which include the statement changes, aims to provide consumers with clear and timely information about their mortgages and bring greater transparency to the market. Servicers would also be required to provide earlier and more complete disclosures before interest rates adjust for most adjustable-rate mortgages.
Another proposed rule would require servicers to provide borrowers with two written notices before charging borrowers for force-placed insurance. The report didn’t reveal much objection among credit unions in attendance, as one credit union said it already provides notices similar to those proposed, and another credit union said its force-placed insurance notification policy provides more information than proposed. Servicers would also be required to terminate the insurance within 15 days if it receives evidence the borrower has the necessary insurance, and insurers would be required to refund the force-placed insurance premiums.
Servicers would also be required to make good faith efforts to contact delinquent borrowers and inform them of their options to avoid foreclosure.
The bureau said a second set of proposed rules would impose common-sense requirements for handling consumer accounts, correcting errors, and evaluating borrowers for options to avoid foreclosure. These “no-runaround” rules would include a requirement to apply a payment to a consumer’s account as of the date it is received, maintain accurate and accessible documents and information, correct errors in a timely manner, provide delinquent borrowers with “easy, ongoing access to employees” dedicated to helping them and offer options to borrowers to avoid foreclosure, such as loan modifications or other payment plans. Servicers would be prohibited from proceeding with a foreclosure sale until a review of the borrower’s modification application is complete. Servicers would also be required to let borrowers know when applications are incomplete and to allow them to appeal certain servicer decisions.
The new rules come after borrowers complained about problems seeking loan modifications and other ways to avoid foreclosure. Public comment will be collected until Oct. 9, 2012, with a final rule anticipated in January 2013.
CUNA President/CEO Bill Cheney said at first glance, his organization has already identified a number of problem issues and concerns with the proposed rules. CUNA will work with key committees and member contacts within the organization to determine how to best address those concerns.
The five credit union executives that attended the meeting and were listed in the report were Brian Barkdull, president/CEO of the $164 million American Southwest Credit Union of Sierra Vista, Ariz.; Tiffany Michel, vice president of lending at the $59 million Omaha Police FCU of Nebraska; David Wright, president/CEO of the $43 million Services Center FCU of Yankton, S.D.; Victor Petroni, senior vice president of lending at the $78 million First New England FCU of East Hartford, Conn.; and Christine Wiley, president/CEO of the $156 million Rocky Mountain Law Enforcement FCU of Denver.