Consumer Bureau Beefs Up Mortgage Disclosure

WASHINGTON (CN) - The infant Bureau of Consumer Financial Protection rolled out a new proposal that will require mortgage lenders to create more borrower-friendly information policies.

Perhaps the most important provision would require lenders to respond to borrower claims that incorrect information has been included in their loan or loan modification applications within 45 days.

Lenders would have a similar amount of time to respond to borrower requests for information or to explain why the lender declines to provide the information requested.

The changes, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, are meant to control practices that the bureau said became pervasive in the loan servicing industry during the housing bubble of the last decade.

Delinquent borrowers were particularly harmed by servicers that lost their loan modification documents, refused to tell borrowers the status or their modification requests or misled them about their status, the bureau says.

The proposal also amends Regulation X, which implements the Real Estate Settlement Procedures Act, to require that mortgage servicers notify adjustable rate mortgage holders 60 to 120 days before any adjustment in interest rates which would cause a change in their mortgage payment.

Loan servicers would have to provide an earlier notice of between 210 and 240 days before the first of any such adjustments.

Servicers will also have to act promptly to credit loan payments to the oldest outstanding balance on a mortgage. In the past, servicers typically applied payments to the most recent outstanding balance, making it nearly impossible for borrowers to pay off missed payments leading to an excessive number of foreclosures.

The public has until Oct. 9 to comment on the proposed changes.

To see this proposed regulation and others, please click the document icon.

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