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New CFPB rules provide homeowners greater protection from harmful practices

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Beginning in January 2014, some new CFPB rules will provide homeowners and consumers shopping for a home mortgage with new rights and greater protection from harmful practices. These rules should eliminate or sharply reduce the runarounds and painful surprises that hurt so many homeowners during and after the financial crisis.

On January 10, 2014, lenders making virtually any residential mortgage loan will have to assess a borrower’s ability to repay the loan. A Qualified Mortgage is presumed to meet this requirement.

At a minimum, a lender must consider eight underwriting standards:

o Current income or assets;
o Current employment status;
o Credit history;
o The monthly payment for the mortgage;
o The monthly payments on any other loans associated with the property;
o The monthly payment for other mortgage related obligations (such as property taxes);
o Other debt obligations; and
o The monthly debt-to-income ratio or residual income the borrower would be taking on with the
mortgage. (Debt-to-income ratio is a consumer’s total monthly debt divided by their total
monthly gross income)

In general, the borrower must have a total monthly debt-to-income ratio including mortgage payments of 43% or less.

A Qualified Mortgage can’t have risky features like negative amortization or interest-only payments. The new rules limit the points and fees lenders can charge when they want to make a qualified mortgage. This requirement responds to the the extremely high points and fees some borrowers paid during the mortgage crisis. A loan over $100,000 can’t be a QM if it has points and fees that are more than 3% of the loan amount.

Under new CFPB rules, borrowers who fall behind now have more options to take control:

Mortgage servicers will now have to call or contact most borrowers by the time they are 36 days late on their mortgage. Mortgage servicers now have to make sure the people who take calls from borrowers are able to answer questions and have access to critical documents.

Servicers cannot initiate a foreclosure until a borrower is more than 120 days delinquent. This should give borrowers time to submit an application for a loan modification or other alternative to foreclosure such as a short sale. If a borrower submits a complete application for assistance early enough — usually this is called a “loss mitigation application”— the mortgage servicer must evaluate the borrower for all the options that may be available to the borrower.

Mortgage servicers can no longer start a foreclosure while they are also working with a homeowner who has submitted a complete application for help.

The new CFPB rules limit the harm to consumers of “dual tracking.”

If the mortgage servicer denies a complete loss mitigation application sent in soon enough before foreclosure, the servicer must explain why the borrower was rejected. A borrower who filed a complete application soon enough before foreclosure is entitled to appeal mistakes the servicer may have made in evaluating the borrower for a loan modification.

Servicers will have to give Las Vegas homeowners who ask timely, accurate information about their foreclosure status when asked.

Nevada Homeowners Bill of Rights: Neither a Notice of Default nor a Judicial Foreclosure shall be initiated unless and until the mortgage servicer shows, through documented proof, that it holds the beneficial interest and has the legal standing to foreclose on the property.

A statement that the borrower may request: (1) A copy of the borrower’s promissory note or other evidence of indebtedness; (2) A copy of the borrower’s mortgage or deed of trust; (3) A copy of any assignment, if applicable, of the borrower’s mortgage or deed of trust required to demonstrate the right of the mortgage servicer, mortgagee or beneficiary of the deed of trust to cause the trustee to exercise the trustee’s power of sale pursuant to NRS 107.080 or to commence a civil action for the recovery of any debt, or for the enforcement of any right, under a residential mortgage loan that is not barred by NRS 40.430

Servicers may be requested to show the note was legally transferred and there are no breaks in the chain of title.

Congress created the CFPB to make sure financial markets work for consumers and by writing rules for mortgages and other consumer financial products. The CFPB accepts complaints about mortgages, so if you have a problem, you can submit a complaint to the CFPB. They’ll forward your complaint to the company and work to get a response from them. You can contact the CFPB at (855) 411-2372 or consumerfinance.gov/complaint.

If you need assistance understanding alternatives to foreclosure, you can reach an expert HUD-approved housing counseling agency by calling 888-995-HOPE (4673)

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