The Consumer Financial Protection Bureau has issued new rules aimed at protecting widowed homeowners from a red-tape nightmare that has caused them to lose their homes to foreclosure.
The regulations, announced Aug. 4, 2016, generally give surviving spouses who are not on a mortgage note the same protections that borrowers have. Those include a ban on so-called dual tracking, in which mortgage servicers negotiate with clients to modify a mortgage while simultaneously pursuing foreclosure.
The rules, which expand and clarify existing guidance from the agency, were long awaited by consumer groups that are pushing similar regulations in a pending California Senate bill 1150.
Advocates say survivors — who already owned their homes or inherit them after a death — face considerable resistance from servicers when they seek loan modifications after losing their spouse’s income.
The office of California Atty. Gen. Kamala D. Harris, who sponsored the California Homeowner Bill of Rights, said the passage of SB 1150 would “provide accountability and an enforcement mechanism that ensures California homeowners reap the benefits from these [new federal] rules.”
Often companies won’t allow a modification until the surviving spouse assumes the loan, which can’t happen until the owner is current on the mortgage — something of a Catch-22.
Advocates also say servicers give them inaccurate information or require unnecessary documents to prove ownership of the home when applying for a modification as a foreclosure proceeds.
The new rules, which take effect in about 18 months, seek to address those issues. In addition to banning the dual tracking of survivors, the rules stop servicers from mandating survivors first get current on payments before receiving a loan modification.
Applicants, however, must still show they can afford even a smaller loan payment and servicers are not required to give a modification.
Consumer groups praised the new rules, but expressed concern that they lack a strong enforcement mechanism.
Critics say that servicers have routinely flouted existing requirements for borrowers, but added companies have performed better in California. Critics attribute the better performance to the California Homeowner Bill of Rights, which gives borrowers the right to sue to stop a foreclosure or for economic damages after one occurs if servicers don’t follow state requirements.
The Homeowner Bill of Rights, however, does not apply to survivors or other so-called “successors in interest” who aren’t on the mortgage note.
A bill that would extend those rights to such individuals passed the state Senate earlier this year. The full Assembly is expected to take up the bill, SB 1150, this month.
While the new federal consumer rules give survivors some rights to sue servicers, the ability to bring lawsuits is far more expansive under the pending state bill.