Folks- the whole article is here:http://www.fhaloanpros.com/2007/12/fha-mortgages-senate-bill-specifics-revealed/
I just cut and pasted the servicing piece. It is basically the FTC Curry settlement put into a bill as near as I can tell. We'll see if it gains any traction. If anyone has online access to American Banker, I would love to see the 04 December issue that addresses the quote I highlighted in red below. This could be good stuff!
Title V – Good Faith and Fair Dealing in Home Loan Servicing
Requirements for mortgage servicers:
- Mortgage Servicers owe a duty of good faith and fair dealing to borrowers. James Montgomery, former Chairman of Great Western Financial Corporation, and a former director of Freddie Mac, said recently, “Servicers make money on foreclosure,” (American Banker, December 4, 2007). This standard would prevent servicers from unfairly profiting from their servicing responsibilities.
- Prompt crediting of payments. Servicers must credit all payments on the day received. Payments must first be credited to principal and interest due on the note.
Servicers can employ a scheme called “pyramiding,” by which they hold a payment until it is late, use a portion of the payment to cover the late fee, thereby causing the remaining payment to be insufficient. When the next month’s payment is made, it is insufficient to cover the previous shortfall and the new payment, generating another penalty fee. The legislation will require both prompt posting of payments and crediting of payments to principal and interest before being charged to late fees or other charges.
- All fees must be reasonable and for services actually provided, and only if allowed by the mortgage contract. In addition, an adequate notice and statement is required.
- No force-placing of insurance without clear notice to the borrower.
Currently, some servicers claim that the borrower does not have insurance on the property and “force-places” such insurance on the loan. Sometimes, that insurance is purchased from an affiliate; oftentimes the servicer is given a significant commission for doing so. Many times, as was the case with the Fairbanks Capital case settled by the FTC in 2003, the borrowers already had insurance, but were charged for the additional insurance in any case. As with the pyramiding problems, these extra charges could often result in the borrower being put into default.
- Prior to initiating foreclosure, a servicer must attempt to implement loss mitigation.
Even in the dire circumstances existing in the mortgage market today, and despite the nearly universal calls for action from regulators, government officials, and consumer advocates, mortgage servicers have been extremely slow to offer meaningful alternatives to foreclosure for most borrowers. In fact, according to Moody’s, only 1 percent of subprime ARM borrowers have received any loan modifications during the current crisis. Furthermore, a new study shows how servicers use the foreclosure process to make additional fees from the troubled borrowers, even borrowers in bankruptcy. These conclusions are consistent with practices uncovered by the FTC in its 2003 investigation of mortgage servicing practices of Fairbanks Capital, one of the largest subprime mortgage servicers at the time. This provision will insure that adequate loss mitigation is offered to the borrower prior to foreclosure.
- Require servicers to report their loss mitigation activities.
In order to see which servicers are meeting their requirements under this provision, the legislation will require public reporting of loss mitigation activities. The lack of responsiveness in the current crisis indicates how important public accountability is to maximize the number of homes saved.
Up to $5,000.00?? Good grief, that doesn't even cover the first month of my lawyer's time. However, if it is $5K Each instance (plus attorney's fees), maybe we could gain something back.
- Actual and statutory damages (up to $5,000).
I thought it was worth posting