* Rules would help people avoid "force-placed" insurance
* Would also help consumers avoid foreclosure
* Mortgage servicers criticized for poor customer service,
By Emily Stephenson
WASHINGTON, Aug 10 The new U.S. consumer
oversight agency proposed rules on Friday to make the practices
of companies that service mortgages more transparent for
The rules, which could be modified after a comment period,
are designed to protect borrowers from being forced to buy
expensive homeowners insurance, for example. They are also aimed
at helping delinquent borrowers stay out of the foreclosure
The Consumer Financial Protection Bureau (CFPB) said its new
rules would ensure that the mortgage servicers responsible for
collecting payments from borrowers and handling issues such as
foreclosures are more transparent and accessible to borrowers.
"From processing payments to evaluating struggling
homeowners and helping them avoid foreclosures, the bottom line
is to treat consumers fairly by preventing surprises and
run-arounds," said CFPB Director Richard Cordray.
The consumer watchdog was created by the Dodd-Frank
financial oversight law and tasked with policing markets for
mortgages and other products. The agency said in April it would
tackle new regulations for mortgage servicers.
Among the industry practices that gained notoriety in the
wake of the 2007-2008 financial crisis were poor record-keeping,
limited customer service and the use of "robo-signers" to sign
unread foreclosure documents. The rules address some of those
Five large U.S. banks entered into a $25 billion settlement
earlier this year with state and federal authorities over
abusive servicing and foreclosure actions.
Bank of America Corp, Citigroup Inc, JPMorgan
Chase & Co, Wells Fargo & Co and Ally Financial
Inc agreed to clean up many of their practices. Some of
the CFPB's rules are designed to help implement the changes
established in the mortgage settlement, while others are new.
Among the rules announced on Friday are protections to help
borrowers avoid so-called force-placed insurance, or insurance
purchased on homeowners' behalf by mortgage servicers.
Homeowners insurance is required for many mortgages, but
force-placed insurance is often more expensive than what
borrowers might find on their own.
The consumer bureau's rules would require servicers to give
advance notice and pricing information to borrowers before they
can charge for insurance. Servicers would have 15 days to cancel
the insurance if borrowers can prove they already have the
necessary homeowners insurance.
Under the new rules, mortgage servicers also would be
required to tell delinquent borrowers about options for avoiding
foreclosure, such as loan modification, and to promptly consider
applications for these alternatives.
Critics say the new requirements could restrict borrowers'
access to lending and slow the housing market recovery. They say
the added costs of complying with new rules could drive smaller
operators out of business.
"It is important that consumers receive clear and accurate
information about their mortgage loan," Bob Davis, executive
vice president of the American Bankers Association, said in a
"Yet, we want to make sure servicing doesn't get tangled in
so much red tape that high-quality, responsive servicing is no
longer viable, particularly at small banks."