United States: CFPB Issues Proposal To Amend Mortgage Servicing Rules

Last Updated: November 23 2014
Article by D. Brian O'Dell and Jonathan R. Kolodziej

Yesterday, the Consumer Financial Protection Bureau (CFPB) proposed additional amendments to Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), and Regulation Z, which implements the Truth in Lending Act (TILA). After implementing extensive amendments to both Regulations in January 2014, the CFPB identified further issues after engaging in "ongoing outreach and monitoring with consumer advocacy groups, industry representatives, housing counselors and other stakeholders." According to CFPB Director Richard Cordray, the CFPB's proposed amendments are designed to "give greater protections to mortgage borrowers" and ensure that "homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon." The proposed amendments, which cover nine major topics, will be open for public comment for a period of 90 days starting on the date they are published in the Federal Register. Although the proposal touches upon many different aspects of a servicer's business, if the CFPB finalizes the rules as they are currently proposed the largest impact is likely to be felt in the areas of loss mitigation and periodic billing statements. Servicers of all sizes should work with legal counsel to review and analyze how these proposals could impact their business and consider submitting an official comment to the CFPB detailing any concerns.

Summary of the Major Topics of the CFPB's Proposal

The CFPB believessuccessors in interest may have difficulty receiving information about the status of a mortgage loan as servicers strive to balance the privacy issues of borrowers with the rights of successors in interest. The proposed amendments will define "borrower" or "consumer" to include successors in interest and would permit a successor in interest to retain "the same rights as the original owner, with no change in substance," including rights related to early intervention, continuity of contact, and loss mitigation assistance.

While the January 2014 amendments defined "delinquency" with respect to some rules, such as the 36-day live contact requirement and the 45-day written notice requirement, delinquency was not defined in other sections of the amendments, such as the 120-day prohibition on foreclosure referrals. The proposed amendments aim to provide a definition of delinquency that will be applicable to the Mortgage Servicing Rules as a whole. The CFPB's newly proposed delinquency definition is "a period of time during which a borrower and the borrower's mortgage loan obligation are delinquent. A borrower and borrower's mortgage loan are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow became due and unpaid, until such time as the outstanding payment is made." The CFPB is also proposing an official interpretation that would allow servicers to use payment tolerances. This would provide servicers with the ability to treat a borrower as current, notwithstanding the definition of delinquency, if a missing amount is advanced to the borrower's account.

The current Official Interpretations to the requests for information rules require a servicer to identify the owner or assignee of a mortgage loan when a borrower requests such information. If a mortgage-backed security exists, the name, address, and contact information of the trust and trustee must be disclosed to appropriately respond to a request to identify the owner or assignee of a mortgage loan. The proposed amendment would permit a servicer to only disclose Fannie Mae or Freddie Mac as the owner or assignee of a mortgage loan when Fannie Mae or Freddie Mac is the trustee, investor, or guarantor of the mortgage loan (unless the specific name and number of the trust is requested by the borrower).

Current force-placed insurance rules only address situations where borrowers do not possess hazard insurance and may not address situations where insurance exists but the existing insurance is insufficient pursuant to the mortgage terms. Accordingly, the proposed rules provide flexibility to servicers to force-place insurance not only when hazard insurance expires or is about to expire, but also when coverage is insufficient under the mortgage terms. The proposed rule would also permit servicers to include the borrower's loan number on force-placed insurance notices, which may help foster communication between servicers and borrowers.

After the CFPB amendments became effective in January 2014, questions surroundingperiodic billing statements continued to persist. Through the proposed amendments, the CFPB attempts to resolve many of the issues raised by the industry. For loans that have been accelerated, servicers currently include the entire accelerated amount on periodic billing statements, as the accelerated amount is the legal obligation owed by the borrower at the time the statement is sent. In October 2013, the CFPB confirmed this interpretation through informal guidance during a webinar with the MBA. The proposed rule appears to reconsider this interpretation, requiring servicers to include the reinstatement amount as the "amount due" as opposed to the entire accelerated amount. When a borrower agrees to a loss mitigation option, (1) under a permanent loss mitigation option, the "amount due" on the periodic billing statement shall be the permanent modified amount; and (2) under a temporary loss mitigation option, the "amount due" on the periodic billing statement can be either the amount due under the loan documents or the amount due under the temporary loss mitigation program. In October 2013, the CFPB exempted bankruptcy accounts from the periodic billing statement requirements, but in an anticipated move has proposed that bankrupt accounts begin receiving periodic billing statements except under specific exceptions, such as surrender of the property. Sample template forms for bankrupt statements have been provided by the CFPB. Finally, with regard to charged off-loans, the proposed amendments permit servicers to forego sending charged-off statements if the borrower will not be charged any additional fees or interest on the account after charge-off. The CFPB has previously taken the position that charged-off loans must continue to receive statements unless the lien is released on the property.

Similarly, there have been many questions surrounding how to evaluate applications in certain circumstances under the loss mitigation rules in Regulation X. The proposed amendments would add additional rules that servicers would have to navigate when engaging in loss mitigation and would also clarify a variety of existing obligations. For example, under the current law, some servicers have expressed concern regarding how to handle applications that are missing required third-party information, but qualify as "complete" under the current definition because everything in the borrower's control has been submitted. The CFPB's proposal would prohibit servicers from denying borrowers for loss mitigation when necessary third-party information is missing. Instead, servicers would be required to send a written notice within 30 days after receiving the complete application specifying, among other things, what information is still missing and when it was requested from the applicable third party. The proposal would also add a requirement that servicers notify borrowers in writing when an application becomes complete if that was not communicated in the initial acknowledgment letter. Additionally, servicers would be required to evaluate subsequent loss mitigation applications submitted by a borrower if the account is brought current at any time after the submission and evaluation of a prior application. In terms of clarifying existing obligations, the proposal would, for example, provide additional guidance in the official interpretations to Regulation X regarding how to set a "reasonable date" in an incomplete acknowledgment letter. It would also clarify that a repayment plan may be offered based upon an evaluation of an incomplete loss mitigation application, and would specifically state that servicers may stop collecting documentation for a loss mitigation option once the servicer knows that the borrower would be ineligible for that option.

The proposal also adds loss mitigation requirements that impact dual tracking. Currently, servicers must generally wait until a borrower is more than 120 days delinquent before making the first notice or filing required for applicable foreclosure law. One exception that is built into the 120-day rule is for joining the foreclosure action of a subordinate lienholder. The CFPB's proposal would extend this exception so that a servicer may also join the foreclosure action of a senior lienholder without waiting until a borrower is more than 120 days delinquent. If the first notice or filing required by applicable foreclosure law is made prior to receipt of a complete loss mitigation application, the current rules generally require servicers and their foreclosure counsel to take reasonable steps to avoid a ruling on a dispositive motion or issuance of an order of sale until the loss mitigation process has been completed. The CFPB's proposal would provide additional instruction on what a servicer must do to avoid a foreclosure sale and specifically states that "a servicer is not relieved of its obligations because the foreclosure counsel's actions or inaction caused a violation." When appropriate, servicers would be required to instruct foreclosure counsel to avoid a ruling or order in accordance with the law. The official interpretations would further state that if a servicer or their counsel does not take reasonable steps, the servicer must dismiss the foreclosure proceeding if necessary in order to avoid the sale.

The loss mitigation rules in Regulation X may also be amended to include additional provisions specific to loss mitigation applications in-flight during a servicing transfer. This includes clarification that all of the loss mitigation timelines and protections generally still apply when an application is pending at the time of transfer. For example, if a complete application was submitted to the transferor servicer prior to the transfer, the proposal would require the transferee to evaluate the application for all options within 30 days of the date that the original servicer received it. For involuntary transfers, which are those compelled by an unaffiliated investor, regulator, or court with jurisdiction with less than 30 days advance notice, the proposal would provide transferor servicers with additional time to comply with certain loss mitigation responsibilities.

With respect to the early intervention live contact and written notice obligations in Regulation X, the CFPB is proposing to clarify what servicers existing obligations are under the law. Specifically, the new amendments would state that servicers are required to make good faith efforts at establishing live contact with a delinquent borrower no later than 36 days after each missed periodic payment. Similarly, the required written notice must be sent no later than 45 days after each missed periodic payment, except that it must only be provided once during any 180-day period. This revision is designed to provide additional clarity and would not change a servicer's obligation under the current law. However, currently these contact requirements do not apply when borrowers are debtors in an active bankruptcy case or when the borrower submits a cease communication request pursuant to the Fair Debt Collection Practices Act (FDCPA) so long as the servicer is a debt collector with respect to that borrower. This proposal would loosen those exceptions and would require that the written notice be provided to certain borrowers who are in bankruptcy or who have invoked their cease communication right under the FDCPA if loss mitigation options are still available to those borrowers.

The proposed amendments would also add official interpretations to Regulation Z in order to clarify how servicers should treat payments made by borrowers in temporary loss mitigation programs or permanent loan modifications in accordance with the payment processing rules. This would explain that a periodic payment for a borrower performing under a temporary loss mitigation option would still be the principal, interest, and escrow amount that the borrower is required to pay under the loan contract, regardless of whether the borrower is required to make alternate payments under the loss mitigation agreement. On the other hand, once a borrower has permanently modified the loan contract through a loan modification, a periodic payment would equal the amount sufficient to cover principal, interest, and escrow as required by the modified agreement.

The proposed amendments also provide greater flexibility to small servicers, as the proposed amendments would exclude certain seller-financed transactions from being counted toward the 5,000 maximum loan limit to qualify as a small servicer.

The CFPB press release as well as the proposed amendments can be found at the Consumer Financial Protection Bureau website.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.