Federal Mortgage Servicing Laws Protecting Homeowners
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Real Estate Settlement Procedures Act of 1974 to further protect the rights of homeowners with mortgages. Implementing the new laws, the Consumer Financial Protection Bureau developed mortgage servicing rules in 2013 and 2014. These rules govern several parts of the relationship between mortgage servicers and homeowners, such as the information provided to homeowners about their mortgages and the time periods in which mortgage servicers must credit payments and respond to information requests.
Information Requirements
Mortgage servicers must send monthly billing statements to homeowners so that they understand the fees that they are charged and how they are handled and distributed. The billing statement will contain the transaction activity on their account, the amount that is due, the payments received since the last billing statement, any fees on the account, the remaining total balance, and the current interest rate. If the homeowner has missed a payment, the statement will provide information on how to catch up. (There is an exception for people who have a fixed-rate mortgage, who do not need to receive a monthly statement from the mortgage servicer if the servicer provides them with coupons to send with their payments.)
Moreover, mortgage servicers are responsible for notifying homeowners in advance about changes to their interest rate. They must send an interest-rate adjustment notice if they are changing the rate and the payment on a mortgage that has an adjustable interest rate. When the interest rate first adjusts, a servicer must provide 210 to 240 days of notice before the first payment based on the new interest rate is due. It also must provide between 60 and 120 days of notice before the first payment based on a new interest rate whenever the payment changes because the interest rate increases. The notice must provide the new rate and the new payment.
Timing Requirements
A mortgage servicer must credit a borrower for a payment under a mortgage on the day that it receives the payment. It does not need to credit partial payments, which are held in a suspense account, but it must acknowledge a partial payment on the monthly billing statement. It must transfer funds promptly from the suspense account to the main account once enough money has accumulated to make a full payment.
If a homeowner asks the mortgage servicer about the balance remaining on their mortgage, the servicer must respond within seven business days. Meanwhile, if a homeowner asks for other information or alleges an error by the servicer, it must acknowledge receipt within five days and respond within 30 days. If it has a reason for a delay, it may have an extra 15 days.
Force-Placed Insurance Requirements
When a homeowner does not keep up with insurance on the property, the mortgage servicer has the right to obtain a new insurance policy and bill the homeowner for it as part of the mortgage payment. However, it must provide 45 days’ notice before purchasing this type of policy so that a homeowner can buy their own policy instead. It must repeat this warning at least 15 days before applying a charge for force-placed insurance. If the insurance is paid from an escrow account, the servicer must continue the current insurance coverage and will be required to add funds to the escrow account if needed. It then has the right to get reimbursed by the homeowner for those funds.
If a homeowner provides proof that they have purchased insurance coverage, the mortgage servicer has only 15 days to cancel force-placed insurance that it purchased and refund premiums for the time in which both policies were in effect.
