New state and federal rules have been created to protect home buyers and other borrowers from unfair lending practices and to help homeowners seeking loan modifications or other foreclosure relief. These rules are enforced at the federal level by the Consumer Financial Protection Bureau and at the state level by the California Attorney General. If supported by active public participation, these laws could prove effective tools for holding financial institutions responsible for business practices that harm consumers.
CONSUMER FINANCIAL PROTECTION BUREAU
Created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) safeguards American consumers from unfair business practices by mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators), payday lenders, and student loan lenders as well as other non-bank financial companies, such as debt collectors and consumer reporting agencies. The CFPB makes new rules for lenders, investigates consumer complaints and sues lenders that break the rules. (See CFPB Sues Ocwen.)
In January 2014, new CFPB mortgage rules went into effect. These rules require lenders to evaluate a homeowner’s ability to make mortgage payments before making a mortgage loan to that individual, and they limit the money that lenders can pay brokers and loan officers to get homeowners into more expensive loans.
These rules tell mortgage companies:
- What penalties and fees they can charge
- When they can start the foreclosure process
- How to give homeowners accurate information about their foreclosure
- What to do when a homeowner applies for a loan modification, especially if the foreclosure process has started already
- What information they must provide if they deny or reject a homeowner’s application for a loan modification – including information about the homeowner’s right to appeal mistakes that may have been made in evaluating the application
Other key provisions include homeowner rights to:
- Get a clear monthly mortgage statement
- Have mortgage companies fix mistakes without delay
- Have payments counted the day the mortgage company gets them
- Get early notice if they have an Adjustable Rate Mortgage (ARM) and the interest rate is about to change
To be an active participant in helping the CFPB hold lenders accountable, you can:
- File a Complaint with the CFPB online or call (855) 411-2372
- Read our Understanding the Foreclosure Process guide
- Take our Dealing with Loan Modification Problems Legal Check-Up
- Learn more at New Rules at a Glance or Help for Struggling Borrowers
What happens when you file a CFPB complaint?
- When you file a complaint with the CFPB about your mortgage servicing problems, the CFPB will first send your complaint to the servicer for a response.
- You should receive an update on your complaint within 15 days. If you do not agree with the servicer’s response to your complaint, you can dispute the response with the CFPB.
- The CFPB will then start an investigation, but they will not specifically advocate for the result that you requested.
- After you submit a dispute, you will probably not hear back from the CFPB unless they need more information from you. You may end up receiving a more favorable response from the servicer as a result of the CFPB investigation, but you may not.
- If you don’t hear back from the CFPB within 60 days of submitting your dispute, the CFPB has investigated and closed your complaint.
HOMEOWNER BILL OF RIGHTS (CALIFORNIA)
The Homeowner Bill of Rights – known as HBOR - is a set of California state laws that went into effect on January 1, 2013. Many of the new CFPB rules echo the often stronger protections that HBOR provides to consumers.
The Homeowner Bill of Rights
- Stops mortgage companies from moving forward with foreclosures on a first mortgage after they get a complete loan modification application from a borrower. This practice is known as Dual-Tracking.
- Guarantees that every homeowner in default on their first mortgage gets a single point of contact (SPOC) assigned to them by the mortgage company. The SPOC can be a person or team of people who are familiar with the borrower’s loan and can help the borrower get a decision on their application for a loan modification.
- Stops lenders from filing unverified documents that transfer ownership of a borrower’s mortgage. This practice is known as Robo-Signing.
- Provides protection for tenants living in properties sold at foreclosure.
- Gives borrowers a private right of action to sue for certain material violations of HBOR.
- Gives local government tools to fight blight caused by multiple vacant homes in a neighborhood that include the ability to compel owners of these vacant homes to pay for their upkeep.
- Gives the California Attorney General’s Office the power to investigate and prosecute complex mortgage fraud schemes and other financial crimes.
The Homeowner Bill of Rights also requires mortgage companies to:
- Provide borrowers with a single point of contact during the foreclosure process
- Communicate with borrowers about what is needed to “complete” their application for a loan modification
- Fully review and come to a decision on each application for a loan modification
- Provide a written letter with every denial that includes the reason for the denial
- Give homeowners a full 30 days to appeal each denial before moving forward with the foreclosure process
One limitation of HBOR is that it leaves the mortgage company in charge of deciding when an application is “complete.” The California Monitor has made recommendations about how to cure this defect in the law. Additional information about the Homeowner Bill of Rights is available from the HBOR Collaborative, if you want to explore some of the more complex elements of the law. (This site is geared toward attorneys.)
To learn more about whether you have rights under HBOR, take one of our Legal Check-Ups, which are available on the following topics:
- Applying for a Loan Modification
- Dealing with Loan Modification Problems
- Foreclosure Rescue Scams
- Homeowner and Tenant Rights Post-Foreclosure
If you are facing foreclosure, do not wait. Get help right away.
- Call our HUD-approved housing counselors at (800) 834-5001. Our counselors are part of Coalition member Legal Aid Society of Orange County. They serve homeowners primarily in Los Angeles and Orange County. For additional resources, go to Financial Counseling.
- Check out dates, times and locations of our FREE foreclosure prevention legal clinics. Go to Legal Clinic Calendar.
National Mortgage Settlement
In 2012, federal prosecutors and the offices of attorney general from 49 states entered into a massive settlement agreement with five major lenders – Ally/GMAC, Bank of America/Countrywide, Citigroup, JP Morgan Chase and Wells Fargo. Under the National Mortgage Settlement, these lenders were required to make financial restitution to borrowers and to follow certain rules, many of which are now codified in the new CFPB rules for banks. Funds from the National Mortgage Settlement have been used to support consumer rights projects – including the California Consumer Justice Coalition – all around the country.
On the federal level, the National Mortgage Settlement is enforced by the Office of Mortgage Settlement Oversight (OMSO), which monitors compliance with the servicing standards and other terms of the Settlement. The OMSO issues periodic reports on compliance based on updates from the five lenders and from housing counselors around the country (see CRC May 2013 NMS Progress Report). If the OMSO determines that any of the five lenders are violating the terms of the Settlement, it has the ability to impose significant penalties on them. The OMSO will only operate until 2015.
In California, the National Mortgage Settlement is enforced by the California Monitor. The California Monitor will be completing its mission in June 2014 after which time homeowners can file complaints with the California Attorney General. For more information, go to File a Complaint.
The California Monitor has performed three key functions:
- Monitoring Lenders – The California Monitor has communicated with key decision-makers at each of the five settling banks; reviewed information and reports from the banks about their progress under the Settlement; and worked with lenders to resolve complaints from borrowers. In some cases, the Monitor has requested relief or assistance from a servicer on behalf of a homeowner. For a list of reports on lender performance, go to Monitor Resources or Monitor News and Updates.
- Helping Homeowners – The Monitor has provided personalized responses to more than 4,000 homeowners and assisted many who were eligible for benefits under the Settlement. The Monitor’s analysis of complaints has focused on whether a mortgage company might be violating the Settlement and whether the homeowner might be eligible for relief under the Settlement. The Monitor’s database framework has allowed it to easily search across cases for key issues, such as upcoming foreclosure dates or common problems with particular mortgage companies. For more information, go to Contact the Monitor.
- Outreach and Education – The Monitor has provided educational materials and trainings about the Settlement to community groups, housing counselors, and attorneys, meeting homeowners and their advocates at community events around the state.