CFPB Disappoints with Weak Mortgage Servicing Rules
October 10, 2012– The California Reinvestment Coalition, Housing and Economic Rights Advocates, Law Foundation of Silicon Valley, and nearly sixty community groups joined together to express their disappointment with the Consumer Financial Protection Bureau’s (CFPB) proposed Mortgage Servicing Rules. According to the Dodd-Frank Wall Street Reform & Consumer Protection Act, the CFPB is charged with creating uniform standards for loan servicers. Many of the proposed standards that the CFPB has put forth should significantly improve servicing and provide transparent and useful information to consumers. However, the proposal falls short in a few important areas, which CFPB needs to strengthen. The full letter to the CFPB can be seen here.
Of the nine categories of servicing standards proposed by the CFPB, standards around billing cycles, rate adjustment notices, payments, and other areas will help consumers. However, the proposals around loss mitigation are incredibly weak. Loan servicers have done tremendous harm to families and neighborhoods because of their poor handling of loans and foreclosures, and need to be held to a higher standard than what is currently in the CFPB’s proposal.
The proposed regulations do not create a minimum standard of ethical, required treatment of homeowners facing difficulties paying their mortgage. Nor do the standards end “dual tracking”—the now infamous practice that the Monitor of California’s portion of the $25 billion Attorney General Settlement, Professor Katie Porter, recently described as “the race between foreclosure and loan modification…[where] the bank sets the rules for both sides: the homeowner and the bank.” The California State Legislature passed the Homeowner Bill of Rights this year, which ends “dual track” and gives homeowners a fighting chance at getting a modification before the bank pursues foreclosure. The current proposal from the CFPB is a retreat from this hard-fought victory, and should be amended to be at least as strong as California’s law.
Furthermore, the proposal completely ignores renters and the many injustices they have suffered at the hands of servicers, including the failure to return security deposits, utilities that were prematurely shut off, and unexpected evictions. According to Tenants Together, over 38% of households impacted by the foreclosure crisis consist of renters. The CFPB should add specific provisions that would require servicers to follow existing federal laws like the Protecting Tenants in Foreclosure Act and other state and local ordinances.
In addition, servicers have failed to maintain repossessed properties, resulting in habitability and vacancy issues that contribute to blight, criminal activity, and decreased property values that keep communities mired in crisis.Poor property maintenance makes it nearly impossible for borrowers—especially borrowers of color—to compete with cash investors in auctions and sales of foreclosed properties. The CFPB does not address this issue in the proposal, and should require servicers to repair all repossessed properties to federally mandated standards set forth by the Federal Housing Administration (FHA).
“Uniform servicing standards represent an important opportunity to ensure that this damage is never again inflicted upon working families, their communities, and our economy as a whole,” said Maeve Elise Brown of Housing Economic Rights Advocates and member of the CFPB Consumer Advisory Board. “The CFPB should take this important opportunity to push their proposal further to truly protect all communities.”
“For years leading up to the subprime and foreclosure crises, too many regulators were toothless and subservient to the banks they were supposed to be regulating,” said James Zahradka, Supervising Attorney at the Law Foundation of Silicon Valley and chair of the board of the California Reinvestment Coalition. “Now that we finally have an agency which is not beholden to the banks, we need CFPB to stand tall and put in place meaningful, strong standards.”
“As the one agency with a singular mission of protecting consumers, we hope that CFPB will substantially strengthen this proposal,” said Kevin Stein, Associate Director of the California Reinvestment Coalition. “CFPB could go a long way towards protecting families from illegal displacement, as well as protecting communities from the onslaught of speculation by cash investors crowding out first time homebuyers.”
The CFPB has until January to finalize its Mortgage Servicing Rules.
Full letter can be found here.