Monday, April 16, 2012

Fitch Says Rules CFPB Is Considering Will Cause Servicers to Pay Up

In response to mortgage servicing rules the Consumer Financial Protection announced it may propose, Fitch Ratings issued a statement and said it believes mortgage servicers will incur increased “operational, compliance, and reporting expenses” if the rules take effect.

To create more transparency, the CFPB said it is considering rules which require clear monthly mortgage statements, a warning before interest rates adjust, options to avoid “force-placed” insurance, and early information to keep customers out of foreclosure.

In addition to the increased costs, Fitch also stated, “it is unclear what impact the agency’s new rules would have on future mortgage performance as a function of a more informed borrower.”

“For example, if mortgage holders were given notice of increased payment amounts, they could begin budgeting for the additional cost sooner or shift to alternative products. Of course, if the borrower is already experiencing financial hardship any advance notice or better disclosure could be deemed irrelevant,” Fitch explained.

The agency also questioned the relevancy, noting the “latest round of regulation appears focused on improving processes with respect to existing mortgages characterized by aggressive underwriting and exotic mortgage products tied to overvalued homes.”

Given that lenders are more focused on a borrower’s credit quality and financial situation and stability of home pries, the ratings agency said, “We believe the proposed set of rules could therefore be less relevant with respect to future underwriting.”

To hold servicers more accountable, the CFPB may propose to have payments immediately credited to avoid late fees for borrowers, up-to-date records that are accessible, quickly corrected errors, and easy, ongoing access to a foreclosure prevention team.

The federal regulator plans to propose the rules this summer and finalize them in January 2013.

By: Esther Cho

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