CFPB’s Regs Pack An Extra Wallop For NYS

August 9, 2013 at 7:46 am Leave a comment

With new mortgage regulations set to kick in in January, the most plausible interpretation of the law as it applies to New York credit unions is that financial institutions will have to wait 210 days before they even begin the formal foreclosure process.  Hopefully this is an unintended consequence of the CFPB’s mortgaging regulations that will be fixed before they take effect.  But as it stands right now, your concern is justified.  Here’s why.

For several years now, New York State has required lenders to send out a 90-day pre-foreclosure notice to delinquent homeowners.  No foreclosure action can be commenced in this state without doing so.  As I’ve explained in previous blogs, the CFPB examined New York’s existing statutes in devising national loss mitigation regulations.  As a result, 1024.41(f), which takes effect next year, provides that “a servicer shall not make the first notice or filing required by applicable law” for any foreclosure unless a borrower is more than 120 days delinquent.  This means that if New York’s pre-foreclosure notice is considered “the first notice or filing” to trigger the foreclosure process, then New York credit unions are going to have to wait an additional 90 days after the CFPB’s mandated 120 days before starting to foreclose.  New York already has one of the longest, most expensive foreclosure processes in the country.  If these regulations go into effect without clarification, the process will become virtually unusable.

The good news is that in a July comment letter to the CFPB, New York State’s Department of Financial Services outlined the problem and asked the Bureau to clarify its existing commentary.  Under the DFS’s solution, the 120-day period would run concurrently with any state mandated pre-foreclosure period.  This is probably what the CFPB intended in the first place.  The bad news is that now that this issue is out in the open, unless CFPB makes the changes requested, the best interpretation of state and federal regulation is that when you’re doing a foreclosure in New York a delinquent homeowner gets 210 days before any legal process begins.

By the way, there are some people out there who think that this result would be pro-consumer.  However, it’s in no one’s interest to make the foreclosure process, which already has numerous protections for homeowners in New York, so onerous that the price of delinquencies has to be borne by all homeowners both in the form of more expensive mortgages and deteriorating housing stock that brings down the value of housing prices in an entire neighborhood.  Hopefully, the CFPB understands this.

Have a nice weekend.

Entry filed under: Compliance, New York State, Regulatory. Tags: , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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