By BEN PROTESS
Financial regulators are planning broad new oversight of the mortgage servicing business in an effort to prevent some of the problems that led to the housing boom and bust.Alex Wong/Getty ImagesRichard Cordray, director of the Consumer Financial Protection Bureau, before a House panel in March.
The Consumer Financial Protection Bureau on Tuesday outlined preliminary plans to address a lack of transparency and accountability among mortgage servicers.
The new scrutiny will take aim at the industry’s aggressive tactics and sloppy record keeping that bedeviled homeowners in the aftermath of the financial crisis. The companies, typically arms of the nation’s biggest banks, collect payments and handle customer service for mortgage lenders.
“The mortgage servicing rules we are considering reflect two basic, common-sense principles — no surprises and no runarounds,” Richard Cordray, director of bureau, said in a statement. “For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress.”
The new regulation, Mr. Cordray said, would mandate “clear” monthly mortgage statements that break down a homeowner’s obligations by principal, interest, fees and the due date of the next payment.
Under the plan, servicers would have to take a series of steps to avoid foreclosure. They would, for instance, need to warn a homeowner before their interest rate adjusted. And they would need to provide a list of alternative options for consumers who cannot afford their new bill.
The bureau plans to formally propose rules this summer and finalize the plan by January 2013. The proposal is still subject to significant change.
The new oversight comes on the heels of a recent crackdown on the industry. The nation’s biggest banks struck a $26 billion pact with federal and state authorities earlier this year to settle claims over foreclosure abuses and other financial shenanigans.
“Picture every bad customer service experience you have ever had: calls going unanswered, glacially slow processes, mistakes made and not fixed, a kaleidoscopic cast of human beings who never seem to deal with you more than once, your paperwork submitted and lost repeatedly,” Mr. Cordray said in prepared remarks on Tuesday before a gathering at Operation HOPE, a nonprofit group that focuses on helping disadvantaged homeowners.
The bureau’s proposals aim to take a proactive approach to preventing a repeat of those abuses.
In a nod to consumer complaints, the bureau also hopes to address issues in mortgage bill processing. The plan would mandate that servicers credit bill payments immediately, keep “up-to-date and accessible” records and correct any errors promptly. The bureau would require mortgage servicers to respond to a consumer complaint within five days and complete an internal investigation within 30 days.
“All of these rules would give consumers accurate and relevant information so they can understand what their servicer is doing, identify problems as early as possible, and take follow up actions before things start to snowball,” Mr. Cordray said.
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