The New York State Banking Department has issued new regulations that address the business practices of mortgage loan servicers and establish additional consumer protections for homeowners. Part 419 of the Superintendent’s Regulations, which go into effect Oct. 1, 2010, are a follow-up to the adoption of Part 418 in July 2009, which established standards and procedures for the registration of mortgage loan servicers in New York. The regulations implement certain provisions of the Mortgage Lending Reform Law enacted in 2008 to address the foreclosure crisis and establish greater consumer protections for sub-prime and high-cost home loans.
“New York State is continuing to take important steps toward ensuring that we will not see another mortgage and foreclosure crisis spurred on by irresponsible lenders or by unscrupulous individuals taking advantage of cracks in the system,” said Richard H. Neiman, Superintendent of Banks for New York State. “With these business conduct rules for mortgage servicers, combined with our existing oversight of mortgage bankers, brokers and loan originators, we are covering a mortgage throughout its life. From the moment a mortgage is signed in New York State to the time it comes to its end, these loans must now be handled at every step of the process by individuals and companies that are accountable to homeowners.”
The new regulations, applicable to servicers handling New York-based mortgages, include a duty to pursue appropriate loss mitigation efforts with homeowners, such as loan modifications or short sales, to avoid preventable foreclosures. In order to effectuate timely and appropriate responses to homeowners pursuing loss mitigations options, servicers are required to have adequate staffing, written procedures for handling consumer inquiries and complaints, and methods for making sure that homeowners are not required to submit multiple copies of required documents. Servicers are also expected to avoid a foreclosure action if a homeowner is being considered for, or currently in, a trial or permanent modification. The requirements are similar in many respects to the voluntary guidelines for servicers provided by the Home Affordable Modification Program (HAMP), but enforceable as law by state and federal regulators.
In addition to setting clear standards for the handling of loss mitigation efforts, Part 419 also provides directions for day-to-day dealings between servicers and borrowers and identifies certain actions that are prohibited, such as engaging in unfair or deceptive business practices. These servicer requirements include:
►A duty of fair dealing which establishes that servicers must act in good faith with borrowers on loan transactions and provide them with clear, accurate communications on their accounts;
►Compliance with other State and Federal laws relating to mortgage loan servicing;
procedures and systems in place for handling consumer complaints and inquiries in a prompt and appropriate manner;
►Clear disclosure of payments made on taxes and insurance premiums for borrowers in account statements;
►Standards for the prompt crediting of payments from borrowers and handling of late payments;
►A mandate to provide plain language annual account statements to borrowers, including unpaid principal balance;
►Prohibitions against placing insurance on a mortgaged property without the borrower’s knowledge;
►Limits set on the amount of late fees charged by servicers and how those late fees can be collected;
►Quarterly reports to the Banking Department on New York mortgage loans serviced;
and standards for maintaining books and records for regulatory review.
These business conduct rules are the latest effort by the Banking Department in the regulation of mortgage servicers. Earlier this year, servicers were required to file with the Department confirmation of 90-day pre-foreclosure notices sent to borrowers at risk of foreclosure. As part of the 2009 Mortgage Foreclosure Law, servicers are required to send these notices, which inform borrowers of their default status and outline steps they can take to avoid foreclosure, at least 90 days prior to the initiation of the foreclosure process.
Portions of the data captured by the Banking Department is shared with housing counseling agencies, as appropriate, to direct foreclosure prevention services to those most in need. The Department also uses the data to monitor defaults throughout the state.
“We would like for the regulation of mortgage servicers in New York State to serve, not only as a model for other states, but also as a model for national minimum standards that can be enforced across the country," said Neiman. "Just as we saw with the SAFE Act and the licensing of mortgage loan originators, states can and should serve as examples for lawmaking at the federal level."
For more information, visit www.banking.state.ny.us.