In late April of 2013, the Office of the Comptroller of the Currency (OCC) issued minimum mortgage servicing standards designed to protect homeowners when it comes to imminent foreclosure. Read on to learn more about how mortgage servicers must treat struggling borrowers during the two months prior to losing their homes and how these guidelines are designed to protect you.
To learn the ins and outs of the foreclosure process, visit our Foreclosure Center.
The OCC Imposes New Standards for Mortgage Servicers
A mortgage servicer is the company that collects monthly mortgage payments from borrowers on behalf of the owner of the loan. The servicer also:
- tracks account balances
- manages the escrow account
- handles loss mitigation applications, and
- pursues foreclosure in the case of defaulted loans.
The standards issued by the OCC (the government agency that regulates banks) establish review procedures that servicers must follow before a home can be sold in a foreclosure sale.
Why the Need for Additional Standards?
During the mortgage crisis of the late 2000s, mortgage servicers commonly committed egregious servicing errors and took shortcuts during the foreclosure process, including doing things such as robo-signing. (Robo-signing occurs when a person signs a foreclosure document even though he/she has no knowledge about whether the information contained in the document is correct).
Read more about abuses by the mortgage servicing industry.
The recent guidance from the OCC is simply the latest attempt to correct the issues that came to light during the foreclosure crisis, yet continue to occur.
New Guidance Protects Homeowners Facing Imminent Foreclosure
The purpose of the guidance is to define the proper practices for a mortgage servicer's ongoing loss mitigation and foreclosure activities, as well as ensure:
- that borrowers receive, at minimum, a pre-foreclosure sale review, and
- that a loan modification is appropriately considered.
Homeowners who are facing an imminent scheduled foreclosure sale (within 60 days) are entitled to this review.
Pre-Foreclosure Review Questions
There are 13 key questions that mortgage servicers must consider before the sale can take place, along with numerous follow-up questions. The questions are as follows:
1. Is the loan's default status accurate?
2. Does the servicer have the legal right to foreclose as evidenced by assignments, note endorsements, or other documentation? (Learn more about the difference between a mortgage assignment and note endorsement.)
3. Have the foreclosure notices or other required communications been provided in a timely manner?
4. Do Servicemembers Civil Relief Act (SCRA) protections apply? (To find out more about the SCRA, see our article Legal Protections for America's Military: The Servicemembers' Civil Relief Act.)
5. Is the borrower in an active bankruptcy? If so, does the servicer have documented legal authority to foreclose? (Visit our Bankruptcy & Foreclosure Center to learn more about how bankruptcy affects foreclosure.)
6. Is the loan currently under loss mitigation review? (For information about loss mitigation, see our Alternatives to Foreclosure area.) If so, did the servicer notify the borrower about any missing documentation or information, as well as when the information must be submitted to avoid further foreclosure action? If the borrower submitted a complete loan modification application after the foreclosure started, did the servicer comply with restrictions on dual tracking? (“Dual tracking” is where a servicer is simultaneously evaluating a borrower for a loan modification or other alternatives while at the same time pursuing a foreclosure on the property.)
7. Is the borrower currently in an active trial loss mitigation plan? (Trial period plans are common with the Home Affordable Modification program, usually referred to as HAMP. To learn about HAMP and other government programs for distressed homeowners, visit Nolo's Government Foreclosure Prevention Programs area.)
8. Did the servicer accept any payment from the borrower in the preceding 60 days and apply the funds to the borrower's account or a suspense account? (If a borrower makes a partial payment, the funds are generally placed into a special account called a “suspense account.” Once the suspense account has sufficient funds to make a full payment of principal, interest, and any escrow, the servicer credits that payment to the account.) If so, the servicer must clearly communicate to the borrower prior to foreclosure that:
- he or she is neither in nor being considered for a loss mitigation program, and
- the servicer's acceptance of the payment in no way affected the status of the foreclosure that is proceeding.
9. Was the borrower solicited for and offered a loss mitigation option, as required by federal/state law, investor guidelines, or the servicer's loss mitigation programs? Has the servicer complied with loss mitigation obligations detailed in the National Mortgage Settlement? (The National Mortgage Settlement also set national standards for certain loan servicers to address the types of conduct that has harmed consumers in recent years.) Have any borrower complaints, appeals, or escalations been considered and addressed?
10. If the borrower submitted a complete loan modification application, did the servicer review it appropriately and meet timelines/notice requirements?
11. Was the loan modification decision correct?
12. Was the borrower or the borrower's representative (for example, a housing counselor or attorney) notified of the loan modification decision and reasons behind the decision?
13. If required by the investor, has the servicer certified to the foreclosing attorney that all pre-foreclosure requirements have been met, including that there is neither an approved payment plan nor a foreclosure alternative offer pending or accepted?
If in the course of answering these questions the servicer’s review reveals any concerns or deficiencies, the scheduled sale must be postponed, suspended, or cancelled.
The Effect of the Minimum Standards
In response to these servicing standards, Wells Fargo, JPMorgan Chase, and Citi temporarily halted nearly all foreclosure sales beginning in early May 2013 to ensure that their procedures were in accordance with the guidelines. Other banks, such as Bank of America, did not impose any such moratorium because they are confident that they are in compliance with all laws, regulations and standards for sound business practices.
When to Seek Counsel
Even if a mortgage servicer has implemented the minimum standards as part of their business practices, errors and oversights can happen. If you think your mortgage servicer is not properly following these guidelines, you may want to talk with a qualified foreclosure attorney about your case.