* CFPB will propose rules to boost mortgage disclosure
* Agency to tackle controversial "force-placed insurance"
* Expects to propose rules in summer, finalize Jan. 2013
By Alexandra Alper
WASHINGTON, April 9 The new U.S. consumer
watchdog plans to issue rules this summer to crackdown on the
practice of banks and other lenders forcing expensive homeowners
insurance on borrowers.
State and federal regulators have recently been taking a
closer look at the use of so-called "force-placed insurance" and
whether borrowers are getting a raw deal.
The Consumer Financial Protection Bureau on Monday announced
it plans to draft a rule that would boost disclosure
requirements by requiring mortgage servicers to give advance
notice and pricing information to borrowers before charging them
for this insurance.
Mortgage servicers collect payments and handle issues like
Many homeowners are required to buy insurance as a condition
of getting or keeping a mortgage. They often end up with
"force-placed insurance," controversial policies that are
purchased by the bank or mortgage servicer on the homeowners'
behalf if the borrower has not already purchased it elsewhere.
The agency said in a release that the goal of the rule would
be to give borrowers options and to "assure that servicers do
not unnecessarily charge consumers for force-placed insurance."
In many cases, existing force-placed insurance policies are
sold by insurance companies that are owned by the lenders, or by
insurers with which the lenders have a financial relationship.
New York financial regulators have been investigating the
practice, issuing subpoenas in January to roughly two dozen
insurers and mortgage servicers. [ID: nL6E8CB07C}
Fannie Mae, the largest U.S. home funding source, issued a
bulletin to lenders last month announcing it would change its
lender insurance requirements to reduce costs to homeowners.
CFPB's insurance proposal will be part of a broader set of
rules set to be released this summer that are intended to clean
up the mortgage servicing business, which has come under
withering criticism and government scrutiny for how it has
treated troubled borrowers in recent years.
"For too long, mortgage servicers have not been held
accountable to their customers, and the result has been
profoundly punishing to homeowners in distress," CFPB Director
Richard Cordray said in a statement. "It's time to put the
'service' back in mortgage servicing."
Among the other possible proposals outlined by the agency on
Monday are requiring servicers to give more notice about
interest rate changes and to make "good faith efforts" to
contact delinquent borrowers about options they can pursue to
avoid a foreclosure.
The agency expects its proposed rules to be released this
summer and they should be finalized by January 2013.
The consumer bureau was created by the 2010 Dodd-Frank
financial oversight law to police markets for products such as
mortgages and credit cards. It opened its doors in July.
Mortgage servicing problems, including the use of
"robo-signers" to sign hundreds of unread foreclosure documents
a day, have already caught the attention of state and federal
Five large U.S. banks entered into a $25 billion settlement
in February with state attorneys general and the Justice
Department over servicing and foreclosure abuses.
These banks are Bank of America Corp, Citigroup
, JPMorgan Chase & Co, Wells Fargo & Co and
Ally Financial Inc
Under the settlement, banks agreed to abandon the practice
of robo-signing, maintain proper documentation and revamp their
loan modification procedures.
In April of 2011, 14 mortgage servicers entered into a
settlement with the Office of the Comptroller of the Currency,
the Federal Reserve and the now defunct Office of Thrift
Supervision on steps that have to be taken to correct and
improve their servicing practices, such as providing borrowers
with a single point of contact for questions.