For the last 25 years, USFN has been providing comprehensive default services to the mortgage banking industry, but according to Alberta Hultman, the not-for-profit association's executive director and CEO, the mortgage servicing industry is currently going through one of its toughest transition periods.
"It's nice to see home prices pick up. That's great and it will help a bunch of people," Hultman told this publication in an interview. "But there's so much legislation and regulation surrounding our industry right now that it is going to suppress whatever natural or real recovery could be happening."
Overall, Hultman believes the housing recovery should be much stronger but it isn't because financial institutions are too nervous to lend. She added that a lot of houses that might have proceeded through the foreclosure process are just stuck and until this happens, "we won't have a real recovery."
The California Homeowner Bill of Rights and similar types of regulation issues in other states are affecting recovery efforts because these rules favor the borrower by protecting them if they are at-risk of foreclosure.
However, the HBOR also creates problems for borrowers who want to either move out or new home buyers. For example, because of the risk involved in California now for lenders, it is going to be a lot more expensive and difficult for these types of borrowers to make a purchase.
According to Hultman, if a financial institution makes the slightest error, even if it's an unintended error or just an oversight, there's no way a lender can defend itself in court against the borrower because of the HBOR rules.
"I think it's really important that the servicing and financial companies say something, but honestly, there's so much headline risk, they will barely speak to publications never mind issue statements against legislation in particular states," Hultman stated. "They just won't do it."
Another challenge currently impacting the housing industry is the new Consumer Financial Protection Bureau servicing rules that are set to take effect in January 2014.
One of the CFPB's new rules that has created some controversy prohibits servicers from making the first notice or filing for any judicial or nonjudicial foreclosure process until a borrower is more than 120 days delinquent, which is considered the pre-foreclosure review period, regardless of what the state law says.
Under the CFPB's approach, if a servicer's sole purpose of providing a notice is to inform the borrower that they are late on their payments and/or explain what their loss mitigation options are, the servicer can deliver the notice within this pre-foreclosure review period.
However, if the notice would be used as evidence of compliance with state foreclosure practice requirements, the servicer would not be permitted to provide it until the borrower is more than 120 days delinquent. Therefore, a servicer would not be banned from attempting to collect debt, sending periodic statements, or breach letters during this review period as long as the documents are not used as evidence that shows they are complying with state law foreclosure requirements.
"The CFPB's interpretation forces borrowers to become significantly more delinquent and incur additional interest, fees and costs before they receive notice of procedural rights under a state's foreclosure requirements," said Mortgage Bankers Association President and Chief Executive Officer David Stephens in a letter to CFPB obtained by Mortgage Servicing News.
"Expanding the definition of first notice or filing to include any notice to a borrower that would be used as evidence of compliance with state requirements is overly broad and contradicts the stat preemption provisions in Regulation X (Real Estate Settlement Procedures Act) in the Amendments to the 2013 mortgage servicing rules issued July 10, 2013," Stephens continued.
Stephens said in the letter that breach letters and notices of default are "powerful tools" that help motivate a distressed borrower seek some sort of remediation action. By not allowing servicers to issue these documents until after 120 days as a prerequisite under state law or as evidence of compliance with state foreclosure requirements, it will become more difficult for servicers to establish contact with delinquent borrowers resulting in substantial delays in foreclosure timelines.
"The CFPB is an agency that doesn't seem to regard other laws that already exist or how those new proposed rules might layover on other processes," Hultman said. "That agency is going to be the biggest challenge for servicers and their legal counsel going forward. The servicers have been adjusting to all of the new regulations that are all going to come out in January and it's going to be really challenging for everybody to do everything just right. It's a very difficult situation right now."
