New rules have recently been announced by the Consumer Financial Protection Bureau, a federal agency that is designed to ensure a stronger regulation of mortgage service companies that are responsible for the collection and processing of mortgage payments. From the new rules, foreclosure prevention options are highlighted, as well as the end of dual tracking, which is the process of beginning the first stages of foreclosure while the borrower is awaiting results of a loan modification request.
The new home mortgage clearly shows that there is a growing need for federal agencies to have an active role in overseeing the process of financial products on behalf of today’s consumer. In other words, the inclusion of federal agencies in the mortgage process will ensure that foreclosure of homes will only occur as a final option. Verifying the income of the borrower as well as allowing for a delinquency of up to three months before beginning the foreclosure process are included in the common sense measures, allowing the borrower a fair shot at making good on their loan payments.
The rules announced by the Consumer Financial Protection Bureau all come down to good servicing practice, and their implementation can positively contribute to the economy as well. Taking away the pressure and burdens of delinquent loans from the servicers will give them some leeway to incorporate these rules into their practices, and borrowers should be more inclined to make good on their mortgage payments due to the fact that they are given some extra time to save their homes. However, while the best rule is the elimination of dual tracking, these rules come with many details, so they will definitely subject the mortgage industry to higher costs. In turn, this is likely to create higher mortgage rates. The extension of foreclosure timelines for the percentage of borrowers that won’t make good can also lead to reduced flexibility of the servicers in the future.
While these new regulations are in place for borrowers to be more aware of where their payments are going as well as offering homeowners in financial crisis the information and options they need in order to ultimately avoid foreclosure, lenders may not be too excited to implement these practices. This is due to the fact that during the peak of the financial crisis, over a million homeowners defaulted on their mortgages, and many lenders did not provide the assistance or support that was needed, which could have helped the borrowers in default get back on track and save their homes. If these rules had been enforced in the past five years, borrowers may have obtained the assistance they needed in order to stay afloat.
One positive aspect of these new regulations is the fact that the mortgage servicer will have to disclose potential rate increases, as well as give the borrower various options if they start to miss mortgage payments. This will allow borrowers that obtained their loan due to their positive credit score the chance to get caught up and avoid foreclosure. The negative aspect is that the rules have the potential to minimize the profits of both servicer and investor, which will ultimately slow down the housing market.
Whether these new regulations will create a positive future for both borrower and lender still remains to be seen, but allowing worthy borrowers additional information as well as a potential cushion if they fall behind is definitely a good start.