Consumer Financial Protection Bureau Launches Rules To Protect Mortgage Holders

The Consumer Financial Protection Agency unveiled new regulations on Friday that would help shield consumers against foreclosures or sudden hikes in mortgage interest rates.

The watchdog agency, created as part of the Dodd-Frank financial reform legislation, is building on proposals it issued in April for rules seeking more accountability and responsiveness from mortgage servicers.

"Millions of homeowners are struggling to pay their mortgages, often through no fault of their own," Consumer Financial Protection Bureau Director Richard Cordray said in a statement. "These proposed rules would offer consumers basic protections and put the 'service' back into mortgage servicing. The goal is to prevent mortgage servicers from giving their customers unwelcome surprises and runarounds."

One set of regulations would require mortgage servicers to do a better job of informing consumers. That would include clear monthly statements, warning people before raising the interest rate on adjustable-rate mortgages, and offering struggling homeowners guidance on how they can avoid foreclosure.

That would include giving homeowners who are lagging behind in their payments the opportunity to pursue alternate ways to avoid losing their homes. Only if they have exhausted those options, declined to exercise them, or do not qualify, would mortgage holders be eligible for foreclosure.

The second set of rules addresses how mortgage servicers handle their accounts, seeking to ensure that errors are corrected swiftly and providing more access to documents and employees.

After the housing market collapsed, many mortgage servicers began trying to slash through a backlog of mortgages by relying on shoddy practices -- such as "robo-signing," in which employees churned through thousands of documents and affidavits without reviewing them -- that often resulted in homes being foreclosed on even when crucial documentation was missing or inaccurate.

Revelations of such unscrupulous practices resulted in 49 state attorneys general bringing a massive legal action against several large banks, ultimately extracting a $26 billion settlement. The new rules would try to prevent that scenario from recurring.

There is now a 60-day public comment period, after which the bureau will begin reviewing the proposed rules before announcing them in their final form in January 2013.

The creation of the Consumer Financial Protection Bureau has sparked a backlash from Republicans, who argue the agency has unchecked power and will stymie economic growth with burdensome regulations. Presumptive Republican nominee Mitt Romney has vowed to roll back regulations contained in the Dodd-Frank legislation and has called the Consumer Financial Protection Bureau potentially the "most powerful and unaccountable bureaucracy in the history of our nation."