A federal regulator Thursday announced new rules to protect struggling homeowners from the abusive mortgage servicing practices of the housing crash.

But consumer watchdog groups said the rules, while a good step in protecting borrowers, don't go far enough to address the complaints of millions of homeowners who were swamped by lenders' confusing, and sometimes illegal, loan servicing practices.

The rules were announced by the federal Consumer Financial Protection Bureau, which is implementing guidelines passed by Congress.

Last week, the bureau issued standards requiring banks to make sure borrowers have the ability to repay their mortgage. The standards issued Thursday cover how borrowers are treated once they fall behind on their mortgage payments.

The rules would affect tens of thousands of Californians in foreclosure or nearing it, but they don't go into effect until next January. However, some of the provisions are already contained in the California Homeowner Bill of Rights, which went into effect Jan. 1.

But the new standards come too late for Carol McCoy of San Bruno, who recently "short-sold" her three-bedroom home.

McCoy described spending "almost a year in trying to renegotiate a loan," while her mortgage was bounced from one person to another. "I got a different representative every time I called. The key representative was never there. Every once in a while I got a letter saying my representative had changed and here's the new phone number," she said.


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Key rules address complaints from consumer groups and homeowners who, like McCoy, have struggled endlessly to modify their loans.

Servicers are required to establish "live contact" with borrowers by the 36th day of their delinquency, informing them of their options. Servicers have to let borrowers know there are foreclosure alternatives.

Borrowers are to be provided "continuity of contact" with bank personnel assigned to their case within 45 days of their loan becoming delinquent, to avoid situations like McCoy's.

Borrowers also can appeal denials of mortgage loan modifications. Foreclosures can't start until 120 days after the loan becomes delinquent, according to the rules, and if a borrower applies for help, a foreclosure can't begin until the borrower's appeal is exhausted.

"Dual tracking," in which banks suddenly foreclose on borrowers while they're working with them on a loan modification, is restricted.

Norma Garcia of the Consumers Union in San Francisco said the rules are good but should go further and put a "hard stop" to foreclosures while owners are making good-faith efforts to save their homes.

Had the rules announced Thursday been "in place years ago, they might have prevented much of the abuse experienced by consumers and communities," said Kevin Stein of the California Reinvestment Coalition. "But we don't think the rules go far enough around dual track."

Contact Pete Carey at 408-920-5419. Follow him on Twitter.com/petecarey.