New federal regulations may freeze foreclosures for 4 months

Sep 10, 2013

By Tonda F. Rush

NNA | CEO and General Counsel

Newspapers that have already faced much disruption in their public notice business for foreclosures may be about to face another shock. The mortgage foreclosure process will freeze for many types of loans from mid-January to mid-April while mortgage servicers begin to comply with a new set of federal consumer protection rules.

How quickly the transition in the remaining months of 2013 will develop remains to be seen.

The new federal Consumer Financial Protection Bureau, which recently required its first permanent director when Richard Cordray was finally approved by the Senate in early July after long partisan-driven delays, has flexed its new muscles over the mortgage markets. In July, it finalized a new set of consumer protection rules governing mortgage services that are intended to give borrowers more tools to avoid losing their homes.

The new rules are intended to stall foreclosures for 120 days after a lender determines a loan is in default. During that time, the servicer has new obligations to give borrowers an opportunity to avoid foreclosure, such as refinancing, agreeing to short sales and simply raising the money to cure the default. Only after the 120 days have tolled can the servicer begin the foreclosure process. The new rules also prevent services from providing forced-insurance without following certain personal notice processes and must comply with requests for data corrections within a specified time period.

Many states have already imposed slower foreclosure processes upon lenders. But in most cases, servicers have been able to simultaneously prepare for the foreclosure while negotiating over redemption relief with borrowers.

The newspaper public notices are part of the now-delayed foreclosure process.

Small mortgage servicers that handle fewer than 5,000 mortgages—which includes most community banks and credit unions—are not covered by the new rules and can proceed with foreclosures under current law in their states.

The new rules kick in Jan. 10, 2014.

Bradley L. Thompson II, president of the Public Notice Resource Center, which tracks public notice trends around the country, said the new rules would be disruptive for newspapers.

“The new bureau is clearly reaching out to make sure lenders know it means business,” he said. “The public notice interruption is now caught up in this exercise because we provide an essential and transparent back-end part of the foreclosure process. The rule may have some unintended consequences. I suspect some servicers who have been working with borrowers to cure defaults may accelerate their foreclosure decisions to get them wrapped up in 2013. After that, we will have to wait until the 120 days elapses before we see the foreclosure process resume. It is hard to argue with good faith intentions to help protect borrowers. But newspapers should prepare for a change in their public notice pages for a few months as this rule goes into effect.”