New U.S. Mortgage Rules Target Wrongful Foreclosures, Reports Reuters

New Rules Aim to Prevent Wrongful Home Foreclosures in the U.S.

The U.S. agency responsible for consumer financial protection has approved new regulations designed to reduce wrongful home foreclosures, continuing efforts to reform the nation’s extensive lending market.

The Consumer Financial Protection Bureau (CFPB), established in the wake of the housing crisis that began in 2006, has introduced rules that enhance existing regulations requiring mortgage servicers to extend specific foreclosure protections to struggling borrowers. Under the new guidelines, servicers—who manage mortgage payments—are now obligated to offer these protections multiple times throughout the duration of a loan, specifically to borrowers who have maintained their payments after negotiating alternatives to foreclosure.

"This adjustment will significantly benefit borrowers who secure permanent loan modifications but later encounter additional hardships, such as job loss or the death of a loved one, which could lead to foreclosure," the CFPB highlighted in a summary of the new regulations.

Furthermore, these rules expand protections to surviving family members and mandate that servicers provide borrowers in bankruptcy with critical information about possible interventions. They also strengthen loss mitigation requirements, a foreclosure alternative that allows homeowners to remain in their properties while making payments to lenders.

Servicers will be required to promptly inform borrowers when their loss mitigation applications are processed and cannot pursue legal action for foreclosure while simultaneously reviewing these applications.

"The Consumer Bureau is dedicated to ensuring fair treatment for homeowners and at-risk borrowers by mortgage servicers, with the goal of preventing wrongful foreclosures," stated CFPB Director Richard Cordray.

A report from June indicated that some servicers have been providing homeowners with inaccurate or outdated information, or in some cases, failing to provide any information at all. During the financial crisis from 2007 to 2009, servicers faced scrutiny for missing documents, incomplete paperwork, and the controversial "robosigning" practice, where employees approved foreclosures without adequate review.

As a crisis-era Treasury program designed to assist distressed borrowers by lowering monthly payments and preventing foreclosure is set to expire in January, the CFPB is exploring the development of new debt relief initiatives. Recently, the agency outlined its guiding principles, which focus on ensuring consumers have straightforward access to information regarding loss mitigation options and the decisions made by servicers on their loans, as well as creating affordable repayment plans and loan modifications.