The Consumer Financial Protection Bureau has issued new rules aimed at protecting widowed homeowners from a red-tape nightmare that has caused them to lose their homes to foreclosure.
The regulations, announced Thursday, generally give surviving spouses who are not on a mortgage note the same protections borrowers have. Those include a ban on so-called dual tracking in which mortgage servicers negotiate with clients to modify a mortgage while simultaneously pursuing foreclosure.
The rules, which expand and clarify existing guidance from the agency, were long awaited by consumer groups that are pushing similar regulations in a pending California Senate bill.
Those advocates say survivors — who already owned their homes or inherit them after a death — face considerable resistance from servicers when they seek loan modifications after losing their spouse's income.
Often companies won't allow a modification until the surviving spouse assumes the loan, which can't happen until the owner is current on the mortgage — something of a Catch-22.
Advocates also say servicers give them inaccurate information or require unnecessary documents to prove ownership of the home when applying for a modification as a foreclosure proceeds.
The new rules, which take effect in about 18 months, seek to address those issues. In addition to banning the dual tracking of survivors, the rules stop servicers from mandating survivors first get current on payments before receiving a loan modification.
Applicants, however, must still show they can afford even a smaller loan payment and servicers are not required to give a modification.
"The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon," CFPB Director Richard Cordray said in a statement.
Consumer groups praised the new rules, but expressed concern that they lack a strong enforcement mechanism.
"We have had positive rules before," said Kevin Stein of the California Reinvestment Coalition. "It's a question whether the rules are followed."
Stein said servicers have routinely flouted existing requirements for borrowers, but added companies have performed better in California. He attributed that to the California Homeowner Bill of Rights, which gives borrowers the right to sue to stop a foreclosure or for economic damages after one occurs if servicers don't follow state requirements.
The Homeowner Bill of Rights, however, does not apply to survivors or other so-called "successors in interest" who aren't on the mortgage note.
A bill that would extend those rights to such individuals passed the state Senate earlier this year. The full Assembly is expected to take up the bill, SB 1150, this month.
While the new federal consumer rules give survivors some rights to sue servicers, the ability to bring lawsuits is far more expansive under the pending state bill, said Maeve Elise Brown, executive director of the Housing and Economic Rights Advocates, which is sponsoring the bill.
The office of California Atty. Gen. Kamala D. Harris, who sponsored the California Homeowner Bill of Rights, said the passage of SB 1150 would "provide accountability and an enforcement mechanism that ensures California homeowners reap the benefits from these [new federal] rules."
Beth Mills, a spokeswoman for the California Bankers Assn., which is opposing the state bill in part because of the right-to-sue provisions, said the trade association was still reviewing the new CFPB rules. But she called them "very substantial" and said they make SB 1150 unnecessary.
The CFPB's rules for surviving homeowners came as part of a larger foreclosure prevention package that gave consumers the right to apply for a modification more than once.
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