Mortgage borrowers in Pennsylvania were exalted this month when the CFPB made recommendations that – if passed – will provide significant protections to consumers. While most of these protections are aimed at increased disclosure, some also sought to provide additional protections, such as error investigations and delinquency assistance. Understanding these new mortgage borrower protection recommendations by the US’s new top consumer protection agency is essential even if they don’t become law, as this indicates the direction the industry is likely to move in at some point.
The United States Consumer Financial Protection Bureau was formed less than a year ago in response to the housing market crash and financial crisis that has plagued the country since 2007. The Bureau sates that its mission is to “. . . promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.” To that end the Federal agency has made recommendations to the House that would offer substantial benefits and protections to mortgage borrowers.
For people seeking a mortgage in Pennsylvania, the recommendations may apply in the following manner:
*For those who do not maintain their own insurance, lenders are still permitted to purchase the insurance and add the cost into the mortgage directly, but under the proposed regulations they would be required to send the borrower an estimate of how much this insurance will cost. Because insurance obtained by a servicer is generally more expensive than private insurance, this “good faith” estimate may prompt the mortgage borrower to purchase insurance and avoid the servicer-imposed fees.
The CFPB also recommends that loan servicers make it easier for homeowners to prove the property in question is covered.
*Servicers will be required to research and conduct due diligence when a customer claims that an error has been made. This includes errors in payment amounts, interest, credit reporting, and more.
*Buyers will be entitled to more detailed disclosure on a monthly basis of principle reductions, interest, fees, amortization information and other data. This includes advance notice of changes at an account level – especially interest rate changes for those people holding an ARM.
However, mortgage borrowers will be held to a higher standard of responsibility in exchange for these protections. This primarily applies to borrowers who fall behind in their payments. Under the CFPB proposal, these individuals would be required to participate in debt and foreclosure counseling and agree to an increased level of communication about their account via electronic and other means once it becomes delinquent.
But while these protections seem great in theory, there’s still a long way to go if any of the CFPB’s proposal is to ever be voted into law. Some in the industry have voiced concern that the changes as proposed would create an undue burden on lenders that would ultimately lead to higher costs for consumers – the exact opposite of what the bureau is trying to accomplish. Whatever the case may be, these new mortgage borrower protection recommendations indicate one thing: there’s going to be change and growth in the industry.
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