Proposals on Servicers Are Only a First Step
In my last two articles, I examined the Federal Reserve Board's proposals for tightening mortgage underwriting requirements and for limiting mortgage broker charges to borrowers. These are long-standing regulatory concerns.</br></br>In contrast, the Fed seems to have discovered mortgage servicing abuses only recently. The regulatory proposals are weak, but they are a good first step.</br></br>One proposal would require that servicers credit payments on the days payments are received. Another would require servicers to provide accurate payoff statements within a reasonable time to borrowers who intend to pay off their loans. Both are fair, clear and not onerous for the lender.</br></br>A third proposal would prohibit servicers from imposing late fees or delinquency charges when scheduled payments are received on time but do not include previous late charges. This rule would eliminate the practice of "pyramiding late fees," in which servicers continue to charge late fees until all previous late fees have been paid.</br></br>But the proposal does not cover a worse type of pyramiding. When a scheduled payment is received on time but the escrow payment is short, the practice is to place the entire payment in a suspense account, charge the borrower a late fee and send a delinquency notice to the credit bureaus.