Consumer Groups Pan Pending Loan Servicer Rules

Bank regulators are being urged to return to the drawing board, even before announcing new rules for loan servicers.

A coalition of housing and consumer groups says the rules, expected to be published in the coming week, don't do enough to help struggling homeowners stay in their homes and, in some cases, may make a bad situation worse.

Among the rules expected to be adopted, loan servicers would be ordered to halt foreclosure proceedings while loan modification negotiations are taking place, improve their processing system, and make it easier for consumers to communicate, by assigning a single point of contact.

Common complaint

Those rules address thousands of complaints from homeowners, who have expressed nightmarish frustration in dealing with loan servicers during a modification.

"We have had financial problems for quite a long time now and have tried to get a loan modification for approximately two or three years now," Tereasa, of Chelan, Wash., told ConsumerAffairs.com. "Every time we are told we qualify and to call back in 30 to 90 days and when we do they say we do not qualify and have to apply again. We have re-submitted paperwork four times and have spent over $200 sending this information to them. We ended up in bankruptcy and still no response from them. After bankruptcy they said we did not qualify. Then our lawyer called them and they said 'oh, now we were still in review but we needed to re-submit paperwork again!' A week later I received a foreclosure notice in the mail!"

Not much help

In a letter to regulators, more than two dozen groups urged rules that would help slow or stop avoidable home foreclosures.

"The draft consent orders that have been released to the press do not hold servicers accountable for illegal practices and do not stop avoidable foreclosures," the letter states. "While homeowners and communities continue to face breached contracts, obstruction and misrepresentations from servicers, the proposed consent orders provide no new directions or standards to the financial institutions subject to your supervision."

Won’t stop abuses

Rather, the groups say, the proposed rules permit the perpetrators of abusive tactics to design a plan to comply with existing laws and contracts. They argue that won't stop the abuses. They also want punishment for past violators.

The groups conclude by asking the regulators, who include the Office of the Comptroller of the Currency and the Federal Reserve, to withdraw the proposed settlement and start over.

The investigation by all 50 state attorneys general continues, meanwhile. Iowa Attorney General Tom Miller told the New York Times that any settlement by servicers with federal regulators will have no effect on the states' probe.