New Guidance For Mortgage Servicing Rules

On October 15, 2013, the CFPB issued additional Guidance regarding various aspects of the Mortgage Servicing Rules issued last January and effective January 10, 2014. Those rules implement changes to the Real Estate Settlement Procedures Act and the Truth In Lending Act. This new Guidance addresses three areas of concern expressed by many servicers:

• Policies and procedures that servicers must have regarding the identification of and communication with a successor in interest of a deceased borrower with respect to the deceased borrower's mortgage loan.
• Communication with borrowers under the Early Intervention Rule.
• A servicer's obligation to provide notices and communicate with borrowers who have given notice under the Fair Debt Collections Practices Act (FDCPA) barring collectors from communicating with them.

Each of these areas of concern will be discussed below.

Successors in Interest. Starting on January 10, 2014, servicers must have policies and procedures in place to insure that the servicer can identify and facilitate communication with a successor in interest when a borrower dies. The CFPB Guidance provides the following examples of practices that would reasonably achieve the objective of the successor in interest provisions:

• Promptly providing any successor in interest with a list of documents the servicer requires to establish the death of the borrower and the identity and legal interest of the successor. (e.g., death certificate, will or probate documents, etc.)
• Establishing the procedure for identifying and evaluating the rights and obligations of the successor in interest. For example:

• Promptly providing documents, forms, etc. required to enable the successor to apply and be considered for either a loan assumption or a loss mitigation option.
• Promptly evaluating the successor for any of the above transactions.
• Providing employees with training related to the effect of laws related to ownership and inheritance of real property.

In addition to the foregoing, servicers should consider the impact that a borrower's death should have on any pending foreclosure process or loss mitigation effort in place at the time of death.

The Early Intervention Rule. The Rule requires that for each billing cycle during which a borrower is delinquent for at least 36 days, a servicer is required to make a good faith effort to establish live contact with the borrower by the 36th day and inform the borrower of any loss mitigation options available. Good faith efforts consist of reasonable efforts to reach a borrower and may include efforts to contact the customer by telephone or electronic communication. This Interagency Guidance provides additional guidance to cover the following situations:

• On-going Loss Mitigation. The live contact requirement can be satisfied in situations where a borrower is in the process of completing a loss mitigation application simply by establishing and maintaining the on-going contact required to evaluate and pursue such an application.
• Borrower Becomes Delinquent Under an Approved Loss Mitigation Plan. Failure to make a payment under an approved loss mitigation plan creates a new delinquency and a requirement to contact the borrower within 36 days of the start of that delinquency; however, a borrower is not considered delinquent if he or she is paying as agreed under such a plan – including a forbearance plan or a trial modification.
• Other Contact. The new Guidance makes it clear that a servicer may combine contacts under the Early Intervention Rule with other customer contacts (i.e., additions to scripts for collection calls, etc.).
• Unresponsive Borrower. "Good faith efforts" to establish live contacts do not necessarily mean unlimited efforts. If the borrower is repeatedly unresponsive for a period of six or more months, a single phone call or a simple sentence added to a communication asking the customer to contact the bank would suffice.

Fair Debt Collection Practices Act. The FDCPA generally allows debtors to prohibit debt collectors from contacting them. Such an action by a borrower could create confusion for a servicer that is under an obligation to contact a delinquent borrower. The CFPB has concluded that a servicer that complies with Regulation X (RESPA) for purposes of error resolution, requests for information, force-placed insurance or loss mitigation and with Regulation Z (TILA) for adjustable-rate mortgage initial interest rate adjustment and furnishing of periodic statements will have no liability under the FDCPA. The rationale of the CFPB is that the consumer should be deemed to have excluded these categories of communication from the general request to cease communications. In some of these instances, it can also be said that the specific communication requirement is contained in the Dodd-Frank Act which makes no reference to the FDCPA and may be viewed as the more recent and more specific statement of legislative intent.

These clarifications should be incorporated into your RESPA and TILA policies and procedures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.