Imagine every bad customer service experience you've ever had—unanswered calls, slow responses, a veritable army of representatives to weave through. Now, multiply that by millions of consumers and you'll start to get a picture of how bad some aspects of the mortgage servicing industry were during the height of the housing crisis.
Now the government's consumer watchdog agency plans to make sure consumers aren't trampled again by big banks and their servicers, proposing a set of new rules to govern the way lenders treat borrowers who fall behind on their mortgage payments.
"This industry has never had a requirement, or a strong incentive, to meet the needs of consumers," Consumer Financial Protection Bureau Director Richard Cordray said in a speech Tuesday. "Even before the crisis, there were already problems with bad practices and sloppy recordkeeping."
Borrowers got a first glimpse of the proposed borrower "bill of rights" Tuesday, which is designed to help protect consumers from abuses by mortgage servicers, the entities responsible for collecting payments on the behalf of the owner of the loan.
According to the CFPB, the new rules will tackle the lack of transparency and accountability in mortgage servicing, both of which are blamed for shady foreclosure practices and countless headaches among borrowers looking for answers.
"The mortgage servicing rules we are considering reflect two basic, common sense standards—no surprises and no runarounds," Cordray said. "They would apply to all mortgage servicers regardless of how they are organized, including banks, thrifts, credit unions, and nonbank servicers."
Among the rules proposed are mandating clear monthly mortgage statements, requiring servicers to warn consumers before adjusting their interest rates, and providing accessible information about how borrowers can avoid foreclosure.
The CFPB also wants to make sure servicers aren't dragging their feet when addressing consumer complaints and questions. Other "common sense" rules would require servicers to credit payments to a borrower's account immediately, keep records up to date and accessible, and correct errors quickly.
Reforms to the mortgage servicing industry are still very much needed, the CFPB says. According to the agency, one in four mortgages was underwater at the beginning of the year and 4.5 million loans were seriously delinquent.
"[T]he harms spawned by the problems in mortgage servicing may be the greatest of them all," Cordray said. "If we are going to make life better for the American consumer and strengthen the future course of the American economy, no task is more important for us right now."