Feds unveil new mortgage rules

-Provide notice of foreclosure alternatives: mortgage companies must tell borrowers about alternatives to foreclosure after two consecutive missed payments and provide examples of other options, such as short sales or loan modifications

-Fair review: A servicer must weigh alternatives and cannot direct borrowers to the option that is most financially advantageous to the servicer

-Exhaust alternatives: Servicers must evaluate and respond to an application for assistance if it arrives 37 days before a scheduled foreclosure sale. Servicers also must give borrowers time to weigh an offer of assistance before foreclosing.

Digging deep

The AJC has chronicled numerous cases of alleged abuse by mortgage companies and banks. In some cases, troubled borrowers were negotiating for loan help while a bank was simultaneously attempting to foreclose. In others, an institution that didn’t have the right to foreclose actually did. On Thursday, the Consumer Financial Protection Bureau, a new federal agency created as part of a broader overhaul of the financial industry, held a meeting in downtown Atlanta to discuss new rules governing the behavior of mortgage companies.

After years of complaints about foreclosure practices in Georgia and nationwide, federal officials say new regulations should help protect homeowners from mortgage company abuses.

The rules, announced Thursday in Atlanta, require lenders to give delinquent homeowners more information about ways to avoid foreclosure and time to pursue options.

The provisions announced by the Consumer Financial Protection Bureau will keep mortgage servicers from going forward with foreclosure proceedings for 120 days if they are simultaneously working with homeowners to modify loans. That is designed to reign in a practice known as “dual-tracking,” which happens when lenders foreclose on a homeowner in the middle of a modification effort.

The rules for servicers — who collect payments for mortgage owners and often handle foreclosures — also touch on how they communicate about loan modifications, how mortgage firms must organize homeowners' information and apply their payments and how mortgage statements must be organized.

The changes come after a series of steps to reform the practices of major banks, including some that consumer advocates say haven’t gone far enough.

“Many people like me fall through the system due to lack of process,” said Andu Long, a Mableton woman whose house was foreclosed on last year, even though she said she qualified for a program that should have allowed her to keep it. The new rules would have helped her, Long said.

The new policies will help ensure struggling borrowers “will not be kept in the dark about where they stand in the loan modification process or the foreclosure process,” said Richard Cordray, former attorney general of Ohio and head of the CFPB. The agency was formed after the financial crisis.

“They cannot be forced to roll this rock up the hill only to see it roll down again, repeatedly,” Cordray said at a hearing about mortgage issues at the Rialto Center for the Arts at Georgia State University. “People are entitled to be treated with respect, dignity and fairness.”

In 2012, Georgia had the fourth-highest foreclosure rate, with one in every 39 homes receiving some form of foreclosure notice, according to a report this week from research firm RealtyTrac.

Cordray said “nearly one out of 10” borrowers in the state are behind on payments, and about a third of Georgia homeowners owe more than their homes are worth since values fell.

About 20 people shared foreclosure stories at Thursday’s hearing. They thanked the CFPB officials for new rules but implored them to do more.

Lenders said they like the consistency of the federal rules, but questioned whether the costs would be onerous.

Pam Davis, vice president of real estate services for Delta Community Credit Union, said at the hearing that the rules carry significant compliance costs. She said credit unions already follow the spirit of the requirements, though in a different way than they are laid out.

Mortgage companies share the regulator’s goal of providing quality service and “extensive foreclosure prevention efforts to homeowners,” David Oliver, a spokesman for the Georgia Bankers Association, said in a statement.

“Many servicers and lenders already operate under some of the required rules either voluntarily or as part of settlements with regulators,” he said. The exemptions for institutions that service fewer than 5,000 loans – generally small banks and credit unions – he said “are helpful, especially in light of the recognition by Director Cordray that those organizations have a solid record of service.”

John Bartholomew, an attorney with Atlanta Legal Aid Society’s Home Defense Program, said the rules should help struggling homeowners.

“Quite a few clients would have been helped by these rules, at least in some fashion,” he said. “We think there’s probably still work to be done.”

The changes are the latest piece of a federal push to stop a similar foreclosure crisis from happening in the future. The actions have included lawsuits and settlements related to alleged improper foreclosure actions.

In 2010, federal regulators slapped 14 major mortgage servicers for abusive practices, and ordered them to pay for reviews of borrowers’ cases and pay for damages. But this month, most of those banks joined a new settlement agreement to send checks to borrowers foreclosed upon in 2009 and 2010 and end the individual review process.

Early last year, five major banks also entered into a $25 billion global settlement with the attorneys general of 49 states, including Georgia, and a separate deal with Oklahoma.

In October, Cobb, DeKalb and Fulton counties sued British financial giant HSBC alleging predatory practices that caused hundreds of millions of dollars in damage through lost tax revenue from eroded property values that followed the housing collapse.