Consumer watchdog growls at abusive mortgage servicers

House made of money

Reining in the often deceitful and frequently incompetent mortgage service industry is next on the to-do list of the Consumer Financial Protection Bureau.

Washington’s newest public advocates proposed new regulations today that are intended to make those companies a lot easier for homeowners to deal with.

The typical servicer (often the division of a large bank) manages hundreds of thousands, sometimes millions, of home loans on behalf of the investors who own them.

It processes monthly payments and deals with homeowners who run into financial problems and can’t keep up with their loans.

The new rules will require them to provide borrowers with clear and timely information about their mortgages and "direct, ongoing access" to staff members, especially when a loan is delinquent and foreclosure looms.

In fact, servicers would be required to halt all foreclosure proceedings while homeowners apply for a loan modification.

Why the guff with the mortgage service industry?

As many of us know all too well, servicers have been repeatedly sanctioned for imposing excessive fees and expensive insurance policies on homeowners, and for giving homeowners the general run around.

Demanding lots of pointless paperwork. Then losing it.

Passing borrowers from one customer service representative to another, none of whom have the power to make a decision about their loan.

"The inadequate performance of many mortgage servicers has helped widen the misery for many Americans," said Richard Cordray, director of the consumer agency, in remarks to reporters announcing the proposed rules.

The new rules, which would take effect next year if approved, hope to establish minimum standards for how homeowners must be treated.

Some of the CFPB’s requirements are similar to those that five big banks accepted in a heavily publicized $26 billion settlement last winter.

That deal was negotiated with the top prosecutors from all but one state to end a nationwide investigation of abusive foreclosure practices in which the banks used improperly prepared and reviewed documents to literally throw people out of their homes.

They have until Oct. 1 to fully comply. But according to housing advocates, the agreement is being widely ignored.

"We're not seeing any changes in servicer behavior," Megan Faux, director of the foreclosure prevention project at South Brooklyn Legal Services in New York, recently told the Huffington Post. “We're still seeing huge delays, improper denials of modification, very few principal reductions. None of their practices are really changing."

It's impossible to know if the federal government will be any more effective in regulating these collectors. The CFPB has yet to say how it will enforce any new regulations it might impose on servicers.

Join all of the savvy readers following Interest.com on Twitter and Facebook.