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New Protections For Homeowners In Mortgage Debt Restructurings

New Protections For Homeowners In Mortgage Debt Restructurings

Homeowners struggling with mortgage debt may have new options and protections thanks to recent changes in laws and regulations. This article provides an overview of some of the key new protections that aim to help homeowners avoid foreclosure and stay in their homes.

New Loss Mitigation Rules

In 2022, the Consumer Financial Protection Bureau (CFPB) issued new rules related to loss mitigation for mortgages. These rules require mortgage servicers (the companies that collect mortgage payments) to take certain steps to prevent foreclosures. Some key aspects include:

• Servicers must offer homeowners a streamlined loan modification option before starting foreclosure. This loan mod must lower monthly payments by at least 10%.
• Servicers can’t charge any fees for loss mitigation assistance or accept incomplete applications.
• Servicers have specific deadlines for reviewing loan modification applications and can’t start foreclosure until making a decision.
• Homeowners have a right to appeal denied loan modification requests.

So in short, the CFPB rules aim to streamline options to avoid foreclosure, limit servicer fees, and give homeowners more time and rights in the process. Consumer advocates have largely praised the changes.

New Protections for Reverse Mortgages

Reverse mortgages allow older homeowners (62+) to tap home equity without having to make monthly payments. In the past, reverse mortgages had fewer consumer protections and were vulnerable to predatory lending tactics.

However, the CFPB recently issued stricter regulations on reverse mortgages including:

• Limiting upfront costs for reverse mortgages
• Requiring lenders to assess homeowners’ ability to keep paying property taxes and insurance
• Expanding mandatory reverse mortgage counseling
• Allowing non-borrowing spouses to remain in the home after the reverse mortgage holder dies or moves out

So the new rules aim to prevent seniors from losing homes due to unaffordable reverse mortgages. Counseling and cost caps specifically help ensure reverse mortgages are suitable for each borrower.

State Laws Against Mortgage Discrimination

Several states have passed laws prohibiting discrimination in mortgage lending. These laws specifically protect borrowers from being denied mortgages or offered less favorable rates due to race, gender, or other protected characteristics.

For example, California passed the Fair Access to Credit Act which lets borrowers sue if they face discriminatory lending. And New York requires mortgage lenders to report demographic data about borrowers to detect any patterns of discrimination.

So homeowners have new grounds to fight back if they encounter bias or predatory tactics when applying for mortgage relief options. Discrimination should never prevent homeowners from saving their homes.

Resources for Struggling Homeowners

• HUD Approved Housing Counselors – Get free foreclosure prevention help from non-profit counselors
• Legal Aid Groups – Low income homeowners can access free legal assistance
• State Foreclosure Prevention Resources – Helplines and programs by state to avoid foreclosure

Homeowners don’t have to navigate mortgage struggles alone. Free counseling services and legal aid can help homeowners understand all their options. Support is especially critical for vulnerable groups like seniors, veterans, low-income families, and communities of color.

New Bankruptcy Protections

Filing for bankruptcy can stop foreclosure sales and wipe out some mortgage debt. And recent changes make it easier for struggling homeowners to file Chapter 13 bankruptcy.

Some examples of new bankruptcy protections include:

• Higher debt limits to qualify for Chapter 13
• More flexibility on repayment plans
• Preventing mortgage servicers from inflating proof-of-claim amounts
• Requiring timely responses to mortgage modification requests

Collectively, these changes allow more homeowners to file Chapter 13 bankruptcy to save their homes. Chapter 13 stops foreclosure sales while homeowners get on more affordable repayment plans.

The Foreclosure Process Varies By State

If struggling homeowners do face foreclosure, the process and timeline varies significantly by state. Some states are quite “foreclosure friendly” and allow for quick foreclosure sales. Other states have judicial foreclosure processes that take much longer.

Homeowners should understand their state’s foreclosure laws and timeline. This state foreclosure overview helps homeowners know what to expect.

Non-profit housing counselors can also walk homeowners through the specifics for their state. But generally, homeowners have more protections and time to pursue alternatives in “judicial states” like New York and New Jersey.

Beware of Foreclosure Rescue Scams

With desperate homeowners facing foreclosure, many shady operators offer bogus “foreclosure rescue” services. Homeowners should watch out for common scam tactics:

• Requests to sign over property title
• Upfront fees before providing any services
• Guarantees to “save” your home
• Offers to “buy” the home with an option to “rent” and repurchase

Reputable non-profit housing counselors can help homeowners avoid scams. HUD keeps a list of approved counselors here. They offer legitimate foreclosure prevention help for free.

Conclusion

Losing a home to foreclosure can be absolutely devastating for a family. However, new rules and protections aim to help more struggling homeowners avoid this worst-case outcome. Non-profit housing counselors and legal aid can also provide critical support.

Homeowners facing mortgage troubles shouldn’t struggle alone. Free help is available to understand all options, rights, and next steps. While keeping a home may not always be realistic, homeowners have more protections to make the process fair.

References

1. CFPB issues rule to prevent avoidable foreclosures
2. How New Mortgage Servicing Rules Can Help Borrowers
3. What are the risks with reverse mortgages?
4. CFPB Tackles Reverse Mortgage Issues
5. California Approves Law To Fight Mortgage Discrimination
6. New York mortgage data law aims to fight discrimination
7. How Bankruptcy Can Help Homeowners Facing Foreclosure
8. Judicial vs. Non-Judicial Foreclosure States 2023