New Homeowner Protections Proposed

By:: Peter King | May 13, 2011

Bipartisan legislation designed to provide protections for homeowners seeking to avoid foreclosure has been introduced by two U.S. senators.

The Regulation of Mortgage Servicing Act would address some of the primary complaints that have been raised by homeowners seeking loan modifications through their mortgage servicers. The bill’s sponsors, Sen. Jeff Merkley (D-Ore.) and Olympia Snowe (R-Maine), say it would help protect homeowners against abusive practices by making the rules for mortgage servicers more fair and transparent.

Among other things, it would prohibit lenders from pressing ahead with foreclosure proceedings while a mortgage is under consideration for a loan modification. Some homeowners have complained that they have received foreclosure notices at the same time they were working with their lender on a loan modification, leading to confusion over just where things stood.

The bill would also require mortgage servicers to establish a single point of contact for borrowers, a provision meant to address borrower complaints about getting conflicting information from different people each time they called about their mortgage. An independent, third-party review would also be required before a mortgage could be sent to foreclosure.

“Every day Oregonians call my office with horror stories of applying for mortgage modifications,” said Sen. Merkley. “Families are rejected for modification because their payments aren’t current after being told to stop making their payments so they will qualify. Families have to tell their stories again and again to different people at the servicing company. Families get foreclosed upon while they are still negotiating a loan modification. This legislation will put these bad practices to an end.”

“I am deeply troubled a myriad of foreclosures nationwide have occurred as a result of confusing communications with loan servicers and misfiled or flawed paperwork,” said Sen. Snow. “What is deeply troubling is a number of homeowners throughout Maine, and across the nation, have gone into foreclosure in spite of their best efforts to obtain loan modifications for which they could be eligible.”

The two senators cited published figures that over 1 million homes have been foreclosed on in the past year, with as many as 8-10 million more headed in that direction.

Many of the provisions of the proposed bill echo terms of a proposed agreement that state attorneys general are seeking from mortgage servicers in exchanges for settling claims from last year’s robo-signing controversy. Terms of that negotiated settlement are still under discussion.

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