Federal Laws Protecting Homeowners: New and Existing Mortgages

In 2014, certain mortgage servicing rules issued by the Consumer Financial Protection Bureau (CFPB) went into effect. These rules are designed to protect consumers by requiring mortgage servicers (companies that handle loan accounts) to:

• give borrowers certain information about their mortgage loans
• promptly credit mortgage payments to borrowers' accounts
• respond quickly to payoff requests from borrowers
• provide options so borrowers can avoid force-placed insurance, and
• quickly resolve errors and respond to information requests from borrowers.

Also, various other rules direct servicers to provide borrowers with assistance if they are having difficulty making mortgage payments. (Read about the rules that protect homeowners in foreclosure.)

Read on to learn more about the CFPB rules that protect homeowners with mortgages and learn how the rules might be able to help you if you have a home loan.

Dodd-Frank Act Cracked Down on Servicers

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Real Estate Settlement Procedures Act (RESPA) of 1974, which is implemented by Regulation X, and the Truth in Lending Act (TILA), which is implemented by Regulation Z. These amendments govern how mortgage servicers handle certain residential mortgage loans. The CFPB issued rules in January 2013 to implement the Dodd-Frank Act amendments to RESPA and TILA. The CFPB also issued various amendments to these rules in 2013 and 2014. (This article refers to all these rules collectively as "rules.")

Most of the rules went into effect on January 10, 2014.

Servicers Must Provide Borrowers With Certain Information

Under the rules, mortgage servicers must give borrowers certain information about their mortgage so they are not caught off guard when an interest rate adjusts or they are charged certain fees. (To learn more about fees, see our article What Fees Can the Lender Charge If I'm Late on Mortgage Payments?)

The rules require mortgage services to:

Send Periodic Billing Statements

A mortgage servicer must provide a written statement to the borrower each billing cycle, which is usually monthly. The statement must show:

• the amount currently due, including how much will be applied to principal, interest, and escrow
• the total of all payments received since the last statement
• how prior payments were applied
• transaction activity
• partial payment information
• fees or other charges to the account
• account information, like the outstanding balance and interest rate
• contact information for the servicer and housing counselors, and
• information about delinquencies, if the borrower is behind on payments.

Though, if you have a fixed-rate mortgage and your servicer sends you a book of coupons to send in with your payments, then a monthly statement isn't required.

Send Interest-Rate Adjustment Notices

If a mortgage loan has an adjustable interest rate, the servicer must provide the borrower with a notice containing the new rate and new payment (or an estimate):

• between 210 and 240 days (7-8 months) days prior to the first payment due after the rate first adjusts, and
• between 60 and 120 days (2-4 months) before payment at a new level is due when a rate adjustment causes a payment change.

Promptly Credit Mortgage Payments

Servicers must promptly credit a borrower for the full payment the day it is received. If the borrower only makes a partial payment, that amount may be held in a special account—called a suspense account—but the servicer must inform the borrower about this on the monthly statement. Once the suspense account has sufficient funds to make a full payment of principal, interest, and any escrow, the servicer must credit that payment to the account.

Respond Quickly to Payoff Requests

The servicer must provide an accurate payoff balance to a borrower no later than seven business days after receiving a written request asking how much it will cost to pay off the mortgage.

Provide Options to Avoid Force-Placed Insurance

Mortgages require homeowners to have adequate insurance on the property so that the lender’s interest is protected in case of fire or other casualty. If a borrower lets this hazard insurance coverage lapse, the loan servicer can get insurance coverage and add the cost to the loan payment. This is called force-placed insurance.

Under the rules, the servicer:

• must send notice at least 45 days before it purchases a force-placed insurance policy, which gives borrowers sufficient time to buy their own policy
• must send notice again at least 30 days later—and at least 15 days before charging the borrower for force-placed insurance coverage—if the servicer has not received proof from the borrower that insurance has been purchased, and
• generally must continue the existing insurance policy if there is an escrow account from which the servicer pays the insurance bill, even if the servicer needs to advance funds to the borrower’s escrow account to do so. The servicer may then add this cost to the escrow balance or otherwise seek reimbursement from the borrower for the funds advanced.

If a borrower gives the servicer proof of hazard insurance coverage, the servicer must within 15 days:

• cancel any force-placed insurance policy and
• refund any premiums paid for overlapping periods in which the borrower’s coverage was in place.

Quickly Resolve Errors and Respond to Information Requests

A mortgage servicer must, in most cases, acknowledge receiving a written information request or complaint of errors—like if a borrower complains that the servicer misapplied a payment or charged improper fees—within five days and respond within 30 days. The servicer may generally extend the 30-day period for an additional 15 days if the servicer notifies the borrower within the 30-day period of the extension and provides the reasons for delay in responding. (Learn more about sending a notice of error or request for information to a mortgage servicer.)

Talking to an Attorney

If you think your mortgage servicer has violated any of the rules discussed in this article—especially if you’re facing imminent foreclosure—consider talking to an attorney who can give advice on what to do in your particular situation.

To learn more about the CFPB rules, go to www.consumerfinance.gov and search for "mortgage servicing rules."