Congress Proposes Law To Clean Up Mortgage Servicing, Appraisal Practices

In an attempt to, among other things, (1) improve the mortgage servicing industry for consumers, (2) address unfair and deceptive practices in connection with real estate appraisals made in transactions involving the borrower's primary home, and (3) require the establishment of escrow accounts (for real estate taxes, insurance, etc.) for certain mortgage loans, the U.S. House of Representatives has introduced a proposed new law, H.R. 3837 - Escrow, Appraisal, and Mortgage Servicing Improvements Act.

In the context mortgage servicing, Congress is calling for a study into the following issues:

• (A) A survey of the industry in order to examine the issue of the timely posting of payments by servicers, (B) The use of force-placed insurance, (C) The employment of daily interest when payments are made after a due date, (D) The charging of late fees on the entire outstanding principal, (E) The charging of interest on servicing fees, (F) The utilization of abusive collection practices, (G) The charging of prepayment penalties when not authorized by either the note or law, (H) The employment of unconscionable forbearance agreements, (I) Foreclosure abuses.

Whether the call for this study is a tacit acknowledgement by Congress that these servicing practices exist to such an extent that they need to be addressed through legislation, or whether Congress is simply trying the prod the industry into doing a better job of self-regulating, only time will tell.

For the proposed statute, in its current form (as of 10-16-07), see H.R. 3837 - Escrow, Appraisal, and Mortgage Servicing Improvements Act.