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Beginning in January 2014, the Consumer Financial Protection Bureau, or CFPB, issued new rules to protect mortgage borrowers. The rules deal primarily with what is known as the “servicing” side of the mortgage process. That’s everything that happens after a mortgage closes, from setting up escrows and crediting payments to foreclosures.

There are nine rules in all. Their purpose is to “provide homeowners and consumers shopping for a home mortgage with new rights and greater protection from harmful practices.” Let’s see what each one is about.

1. Periodic Billing Statements

Mortgage lenders must provide periodic statements to borrowers for each billing cycle. These should reflect information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors , and, where applicable, information regarding delinquencies.

The periodic statement does not apply to fixed-rate mortgages, as long as the the servicer provides a coupon book. Also, the coupon book must contain certain information as specified in the rule and that information must be made available to the consumer.

2. Interest Rate Adjustment Notices for ARMS

If a loan is an adjustable rate mortgage (ARM), it contains provisions for periodic changes in the interest rate. If you have such a loan, the lender must provide you with written notice of a rate change between 210 and 240 days before the initial change is set to take place. They are then required to provide notice of subsequent rate and payment changes, between 60 and 120 days in advance of the change. The notice must include an estimate of both the new rate and the new payment.

3. Payment Crediting and Payoff Statements

Lenders must credit loan payments from borrowers as of the day of receipt. However, if a payment is received for less than the full amount, the payment may be held in a suspense account. When the amount in the suspense account covers a periodic payment, the servicer must apply the funds to the consumer’s account.

The lender is also required to deliver an accurate payoff balance to a consumer when requested. They have no later than seven business days from  receipt of a borrower’s written request to provide that information.

4. Force-place Insurance

In the past, lenders engaged in a practice known as force-place insurance. That was a practice in which the lender would get a homeowner’s insurance policy on the property securing the mortgage, if it believed that the borrowers had allowed their policy to lapse. This sometimes resulted in high-priced policies, which were then charged to the borrower.

Under the new rules, lenders are prohibited from charging a borrower for force-place insurance unless the lender has cause to believe the borrower has failed to maintain insurance. They must also provide the borrowers with required notices.

The lender must provide the borrower with written notice of the force-place policy at least 45 days before charging the borrower for the coverage. They must also provide a second notice at least 30 days after the first, and at least 15 days before charging the borrower for the coverage.

If the borrower provides proof that a homeowner’s insurance policy exists, the lender must cancel the force-place policy. They must also refund any premiums paid on the policy during overlapping periods of coverage. In addition, the cost of the force-place policy must be reasonable for the amount of coverage in force.

If there is an escrow account attached to the loan which includes the payment of homeowner’s insurance premiums, the lender is prohibited from obtaining force-place insurance. If the servicer can continue the borrower’s homeowner insurance, even if they need to advance funds to the borrower’s escrow account to do so, they must go that route.

5. Error Resolution and Information Requests

Lenders are now required to respond to written requests for information, as well as complaints of errors. The lender must comply with error resolution procedures for mistakes that are spelled out in the new rules. This includes any errors that are the result of the servicing of the loan.

Lenders are required to acknowledge receipt of the borrower’s written notification within five days of receipt. Lenders then have 30 to 45 days to respond to the borrower’s request. Within that time, they must either correct the error claimed by the borrower, or conduct an investigation to determine that no error exists. If the latter occurs, they must then inform the borrower in writing.

If information requested by the borrower is not available, the lender must notify the borrower in writing. This notice must include an explanation as to why the information is not available.

6. General Servicing Policies, Procedures and Requirements

Lenders are required to establish policies and procedures that are designed to comply with the new rules. That means they must spell out how they will accomplish the following:

  • Accessing and providing accurate and timely information to borrowers, investors, and courts
  • Properly evaluating loss mitigation applications in accordance with the eligibility rules established by investors
  • Facilitating oversight of, and compliance by, lenders
  • Facilitating transfer of information during servicing transfers
  • Informing borrowers of the availability of written error resolution and information request procedures

Each lender must also maintain certain documents and information for each mortgage loan. This must be done in a way that enables them to compile it into a servicing file within five days.

7. Early Intervention With Delinquent Borrowers

Lenders are required to intervene in the event that a borrower may be heading for default. The lender must make “good faith efforts” to establish live contact with borrowers by the 36th day of their delinquency. They are required to promptly inform borrowers that loss mitigation options may be available. The lender must also provide the borrower written notice with information about loss mitigation options by the 45th day of a borrower’s delinquency.

8. Continuity of Contact with Delinquent Borrowers

Lenders are now required to make early contact with borrowers who are at risk of default. That contact must also be on a continuing basis. Once again, the lender must be fully prepared to assist the delinquent borrower with loss mitigation options where they are available.

The lender must make reasonable efforts to ensure that personnel are assigned to a delinquent borrower by the time written notice of early intervention is required. This can be no later than 45 days after a borrower’s delinquency.

In addition, the assigned personnel must be accessible to the borrowers by phone to assist with loss mitigation options. This includes advising the borrower on the status of a loss mitigation application, as well as expected timelines. Those personnel are also expected to have access to all of the information surrounding the borrower’s situation. This information can be shared with other personnel who are responsible for evaluating the loss mitigation options available to the borrowers.

9. Loss Mitigation Procedures

This rule gets to the heart of the attempt by the CFPB to provide the borrowers with more options and protections in the event of foreclosure. The borrowers must be given every opportunity to avoid foreclosure through loss mitigation.

The lender must follow specific loss mitigation procedures. For example, the lender is required to acknowledge the receipt of a loss mitigation application in writing, within five days of receipt. They must also inform the borrower whether or not the application is complete. The borrower must be apprised of any missing information.

If the completed loss mitigation application is received more than 37 days before a foreclosure sale, the lender is required to evaluate mitigation options within 30 days. This must include options that will enable the borrowers to retain their home. It must also include non-retention options, such as a short sale.

The lender is required to provide the borrowers with written notification of the decision in regard to loss mitigation. This includes the reasons for denying the application. The borrower must also be able to appeal the denial, under the provision that the complete loss mitigation application is received at least 90 days before the scheduled foreclosure sale.

This rule also prevents what is known as dual tracking. That’s a practice in which the lender is simultaneously evaluating a borrower for loan modifications or other mitigation options, at the same time that it is preparing to foreclose on the borrower’s property. The rule prohibits the lender from making the first notice or from filing requirements for the foreclosure process until the mortgage account is more than 120 days past due.

But even if a borrower is more than 120 days late, the lender may not begin foreclosure proceedings if the borrower has submitted a completed loss mitigation application before the foreclosure process has begun. This rule applies unless any of the following takes place:

  1. The lender notifies the borrower that they are not eligible for any loss mitigation option. Also, all appeals have been exhausted
  2. A borrower rejects all loss mitigation offers
  3. A borrower fails to comply with the terms of a loss mitigation option, such as a trial modification

However, if the borrowers submits a completed loss mitigation application after the foreclosure process has begun, but more than 37 days before a foreclosure sale, the lender may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions above has been met.

In general, the CFPB Mortgage Protection Rules are designed to improve the working relationship between borrowers and their mortgage lenders. And it is ultimately hoped that the rules will make the foreclosure process both less likely and less painful.

(Sources: What mortgage servicing rules apply to me?, What the new CFPB mortgage rules mean for families and homeowners, and Summary of the final mortgage servicing rules)

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Can you believe we’re already in September? The year has flown by, and IRS Tax Year 2016 will soon be coming to a close. While your filing deadline isn’t until April 17, 2017 (the 15th will fall on a Saturday), now is the perfect time to begin thinking about your taxes, maxing out your retirement contributions, and tying off of deductible expenses/donations.

So you can plan ahead, here are the IRS tax rates for your 2016 earnings, along with a little insight. Many of these have changed from last year, as they will almost always do in order to avoid a “bracket creep.” This is what happens when you get bumped up to the next tax bracket based on inflation, and not because you are actually earning more.

If you work for an employer, you’re probably very familiar with the taxes that are automatically withdrawn from your check each month. You are essentially prepaying your tax bill. Depending on how much you make before midnight on December 31, the number of exemptions you qualify for, etc., you will either owe additional money to the IRS or get a refund for overpayment. (Unless you’re a tax whiz who calculated your payments perfectly all year, of course, in which case you’re welcome to do mine, too!)

Curious how much the highest earners will pay in tax year 2016? The top marginal rate will again be 39.6 percent.

What are the 2016 marginal tax rates?

For those not well-versed in tax structure (which includes most people, I’d imagine), there’s a common misconception. Many people are afraid to earn more money because they don’t want to be bumped up into the next tax bracket. They don’t want to have all of their income taxed at an even higher rate than they’re already paying. Well, this is not actually how it works, as your effective tax rate and marginal tax rates are often very different. The only income tax applied at the highest rate, is on that income above and beyond the lower limits for that rate.

Confused? Let me explain further.

Pretent you make $50,000 this year. Or $5,000. Or even $500,000… the number is arbitrary. No matter what, your first $9,275 of earned income (if you file as a single individual, not jointly), will be taxed at the lowest tax rate: 10 percent. It doesn’t matter how many zeros are in that Income Earned box… your first $9,275 is taxed at 10 percent. This is called the “lowest tax bracket.” To determine your effective tax rate, you divide the amount of total tax owed by your entire income — if you don’t earn enough to get out of that lowest bracket, your marginal tax rate and your effective tax rate will be the same. Again, 10 percent.

This dynamic is why Warren Buffet says his secretary ‘pays more tax than he does.’ He earns a large portion of his income from investments, which are taxed at a lower percentage and therefore drop his average (effective) tax rate. As most of his secretary’s income (presumably) comes from wages, her effective tax rate is higher. I would still imagine that his actual tax bill is considerably larger than hers, however.

Let’s look at the chart:

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Most taxpayers can choose between itemizing tax deductions to reduce taxable income, which requires accurate record-keeping and support, and taking the standard deduction. The standard tax deduction is a fixed amount that reduces the amount of money on which year-end taxes are calculated. Generally, if you can show that you’ve had more deductible expenses than the amount of the default standard deduction, it’s better to itemize.

IRS publication 501 outlines each year’s deduction amounts. There are some cases where adjustments should be made to the standard deduction. For example, if you are 65 or older, or if you are blind, the standard deduction increases.

The personal exemption is another deduction to your income that you can take for yourself and for any dependents.

Tax Year 2016 2015 2014 2013 2012 2011 2010 2009
Single $6,300 $6,300 $6,200 $6,100 $5,950 $5,800 $5,700 $5,700
Married filing jointly $12,600 $12,600 $12,400 $12,200 $11,900 $11,600 $11,400 $11,400
Married filing separately $6,300 $6,300 $6,200 $6,100 $5,950 $5,800 $5,700 $5,700
Head of household $9,300 $9,250 $9,100 $8,950 $8,700 $8,500 $8.400 $8,350
Personal exemption $4,050 $4,000 $3,950 $3,900 $3,800 $3,750 $3,650 $3,650

Note: When you file taxes in April 2017, you’re actually filing for your 2016 earned income. Review the numbers in the 2016 column and understand the federal tax brackets.

A dependent child can increase the standard deduction by as much as $1,000, if certain requirements are met.

Do you itemize your tax deductions or take the standard deduction?

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Everyone hates bank maintenance fees. (If you don’t, email me – I have a few you’re welcome to take.) So, what would you think if you discovered that your bank had been charging you fees for an account you never opened? In fact, THEY secretly submitted an application and opened that account on your behalf. I’d imagine, you’d be furious.

So, you might be surprised to learn that Wells Fargo has fired over 5,300 employees over the past few years for this exact practice. A practice which, we’re learning, has affected a surprising number of customers. In fact, a consulting firm was hired by Wells Fargo to conduct an external investigation, and found that bank employees may have opened as many as 1.5 million deposit accounts without their customers’ permission or knowledge.

They also submitted 565,443 applications for credit card accounts without consent of the customers. These accounts racked up annual fees, interest charges, and even fees for overdraft protection. The resulting damage equates to almost half a million dollars in erroneous fees – over $400,000 from 14,000 credit card accounts alone, in fact.

Apparently, this practice has been going on since 2011, with employees fraudulently opening both these bank and credit card accounts. But why? Richard Cordray, director of the Consumer Financial Protection Bureau, says that,”Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses.” Ah, it’s starting to make sense now.

‘How could they possibly get away with something like this, though?’ you may be asking. Well, for fake bank accounts, employees were moving customers’ existing funds from authorized accounts into the new, fraudulent ones. Because of this, many customers were hit with insufficient funds or overdraft fees, as they didn’t have as much money in their bank accounts as they had deposited. Many employees were even going as far as creating fake email addresses and PIN numbers, in order to enroll the victimized customers in online banking services without their knowledge.

As expected, people are fuming. Many are asking how such a large bank, with an extensive network of internal controls, could even allow this to happen on such a large scale. Between the discovered deposit accounts and credit card applications, that equates to over 2 million victimized customers. Keep in mind that 5,300 employees have been fired over the past few years for this practice. It has obviously been a well-documented problem within the company for a while. So, why wasn’t something done years ago to prevent it from continuing?

Regardless of how it got so out of hand, Wells Fargo is in quite a bit of hot water now. They have, of course, agreed to pay “full restitution to all victims,” as well as been slammed with $185 million in fines — which is the largest penalty imposed on a company since the CFPB’s founding in 2011. On top of that, Wells Fargo will also refund $5 million to its impacted customers.

While $185 million sounds like a lot of money, some are questioning whether it’s even enough. Wells Fargo, after all, is worth over $250 billion, with Warren Buffet as the leading stakeholder in the company. These fines equate to a mere 0.074% of their worth. That’s a drop in the financial bucket, after such a grievous breach of trust and ethics.

This betrayal will surely have impacts on the company for years to come, though. When picking the financial institution that will hold your money (and often, your credit) in their hands, it’s imperative that they been deemed trustworthy. Most people wouldn’t choose a bank with a history of fraudulent activity or unauthorized use of personal information and funds. Maybe they will be able to earn back their customers’ faith in the coming years. Personally, I’ll be keeping my money and information at my existing credit union, whom I trust.

Are you a Wells Fargo customer? What are your thoughts on this being brought to light? If you’re not a WF customer, would you consider opening an account with them in the future?

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Why 60,000 Morgan Stanley Employees are Suing Over Their 401(k) Accounts’ Management

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If you’re unhappy with your 401(k), rest easy… you’re not alone. In fact, on August 19, over 60,000 employees joined up and filed a class action lawsuit against their employer, Morgan Stanley. Their reason: questionably managed and poorly performing 401(k) plans. It’s one thing to ask workers to stay late or forget to restock the […]

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This year has been a rough one for health insurance companies of all sizes. With the recent news of Aetna withdrawing from most of its Obamacare exchanges, many Americans are beginning to worry about their shrinking options, skyrocketing premiums, and where they’ll even find services. Scarily enough, Aetna is not alone in its decision, and […]

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Cheap Flight Day: Now’s the Time to Plan Those Last-Minute Getaways

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A few weeks ago, Rick Seany of FareCompare published an article about the upcoming Cheap Flight Day. This certainly piqued my interest. While I have heard of National PB&J Day (April 2) and Men Make Dinner Day (the 1st Thursday in November — mark your calendars, ladies), I hadn’t ever heard of an airfare discount […]

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9 ways to reduce student loan debt before you owe

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It’s late May, and a new crop of students is preparing to go on to college. One of my less pleasant memories was the agonizing process of securing financing so I could pursue my degree. Though it’s many years later, I’d like to share what I learned that can make paying student loans more manageable […]

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How Much to Save for Retirement in Your 30s, 40s and 50s

by Satta Sarmah Hightower

Saving for retirement is a long game, but the idea of preparing for something decades away is counterintuitive for many of us. However, consistent saving is crucial for retirement planning. Here’s expert advice for how to prepare in your 30s, 40s and 50s. Your 30s Saving for retirement really should begin in earnest during your […]

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Travel reward credit cards — more vacation for your money

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If travel is in your plans, you may want to know about this offer from American Express. It’s the Starwood Preferred Guest Credit Card, and it offers 25,000 bonus points when you make $3,000 in purchases in the first three months after opening your account. You can redeem those points for free nights when it […]

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