It is stressful enough having to deal with a life-changing event like divorce or the death of a loved one, but a new report by the Consumer Financial Protection Bureau (CFPB) reveals that some mortgage companies are taking advantage of the stress and grief, pushing homeowners to take on new, higher-interest loans when the original borrower is no longer in the picture.
Homeowners report numerous requests from these companies for the same or updated documents extending over months—sometimes years—while survivors are dealing with a divorce or the death of a loved one. Servicers tend not to take responsibility for what CFPB calls their “shoddy” customer service, laying the blame on investor requirements, processing volumes, or “systems issues.”
“When someone loses a spouse or goes through a divorce, the last thing they need is their mortgage servicer giving them the runaround or pushing them into an unaffordable loan,” said CFPB Director Rohit Chopra. “Mortgage servicers have clear obligations under federal law to help these homeowners.”
Each year, many Americans become homeowners following divorce or the death of a spouse or family member, and these new homeowners must ensure that payments are made on time to avoid foreclosure. Federal rules and mortgage program guidelines require servicers to help these successor homeowners get the information they need on the existing mortgage, including how to make payments (through a loan modification, if necessary). Homeowners who want to modify their loan payments or remove a borrower from the mortgage must typically assume the mortgage (accept legal responsibility for the payments) and may need to go through an investor or federal mortgage agency’s underwriting process.
“Assumptions are a fundamental feature of a VA-guaranteed loan, and when a veteran passes away, their qualified surviving spouse should be able to assume the loan without further delay,” said Joshua Jacobs, Under Secretary for Benefits at the Department of Veterans Affairs. “It’s unacceptable that anyone would target surviving spouses in their time of need. VA has published guidance to remind holders and servicers of assumption guidelines—and we’ve outlined how VA will address any failure to comply with these requirements.”
The CFPB report revealed that homeowners have problems accessing basic information, as well as having their assumptions processed with loans insured by VA and other federal agencies.
Based on these complaints, the CFPB has identified multiple areas of concern, including:
- Pressure to take out higher-interest loans: Servicers tell homeowners they must refinance their mortgages at today’s higher interest rates, even though federal mortgage guidelines allow them to maintain the existing loan terms.
- Repeated delays and paperwork requests: Many homeowners report waiting months or even years for servicers to process their paperwork, with servicers repeatedly request the same documentation or failing to respond to inquiries.
- Refusals to release the original borrower from liability: Some homeowners report that servicers are denying their requests to remove the original borrower from the mortgage, even when the successor homeowner has been making all payments on the mortgage for years.
- Risks to domestic violence survivors: Survivors of domestic violence have reported that servicers continue sending account information to their abusers, and require their abusers’ consent for account changes, potentially creating safety threats.
The CFPB has previously taken action to protect homeowners who are successors in interest. As part of the CFPB’s 2013 mortgage servicing regulations, the CFPB established requirements for servicers to facilitate communications with successors in interest who are surviving family members. In 2014, the CFPB published an interpretive rule to clarify that the CFPB’s Ability to Repay Rule does not apply where a successor in interest who has acquired title to a property agrees to be added as obligor or substituted for the existing obligor. In 2016, the CFPB expanded mortgage servicing protections for successors in interest who receive property upon the death of a relative or joint tenant; as the result of divorce or legal separation; through certain trusts; or from a spouse or parent.
Click here to read more on the CFPB’s report on homeowner treatment after tragedy.
