New Regulations Require Mortgage Statements Continue in Bankruptcy and More

Mortgage lenders can no longer refuse to provide monthly statements to individuals in bankruptcy.  Typically mortgage lenders stopped providing monthly statements when a borrower filed bankruptcy, which is the time when, more than ever, borrowers need to know what is going on with their mortgage.  Without statements, borrowers in bankruptcy were not alerted to changes in their monthly payment amount due to rate adjustments or changes in escrow or the assessment of fees and costs or even if they have missed payments.

New rules effective January 10, 2014 require that if mortgage lenders provided monthly statements before a case, they must continue providing statements during the bankruptcy case.  These rules were promulgated by the Consumer Financial Protection Bureau (CFPB) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.  There are some exceptions to this rule such as for reverse mortgages or home equity lines of credit (HELOCs).  In addition to monthly mortgage statements, lenders must also provide at least two months advance notice of changes in the monthly payment amount due to a rate adjustment.

The CFPB regulations also address the use of “force placed” insurance by mortgage lenders.  Typically, if a borrower’s home insurance lapses, lenders are allowed to obtain their own “force placed” insurance which only covers the lender up to the balance of the mortgage if something happens to the property.  The lender then assesses the costs for this “force placed” coverage, often several times higher than the borrower’s private home insurance, to the borrower’s account.  “Force placed” coverage was sometimes even put in place when a borrower paid their home insurance premiums as part of their mortgage payment, so-called “escrow,” if the borrower fell behind on their mortgage payments.  Assessing borrowers the more expensive premiums for the force placed coverage would compound the amount of the mortgage arrears catapulting borrowers into foreclosure.

The new regulations require that if a borrower escrowed their home insurance premiums as part of their mortgage payment, lenders now have to continue paying these premiums, even when the borrower falls behind on their mortgage payments.  Mortgage lenders will no longer be able to swap in the more expensive “force placed” coverage.

For more detailed information on the new CFPB regulations, see the very informative article by Attorney John Rao of the National Consumer Law Center titled “New Servicing Regulations Adopt Sensible Approach” published in the May 2013 ABI Journal at page 16 and available at this link: http://journal.abi.org/content/new-servicing-regulations-adopt-sensible-approach