United States: CFPB Introduces New Protections For Borrowers

On August 4, 2016, the CFPB issued its final mortgage servicing rule pursuant to Regulation X of the Real Estate Settlement Procedures Act (RESPA) and Regulation Z of the Truth in Lending Act (TILA). The final rule provides greater foreclosure protections to borrowers and requires further transparency between borrowers and mortgage servicers. The final rule provides borrowers with more guidance on the status of their loss mitigation efforts, and also expands the protections borrowers' successors in interest (i.e., the borrowers' surviving family members).

In January 2013, the CFPB pursuant to its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act, established rules for mortgage servicers. Thereafter, in November 2014, the CFPB proposed amendments, and last week, on August 4, 2016, the CFPB issued its new rule for mortgage servicers, adopting many of the amendments proposed in November 2014. Below is an overview of some of the more important changes introduced by the CFPB:

  • Repeated Loss Mitigation: Servicers may be required to provide foreclosure prevention options, such as loan modifications, more than once during the life of the loan. Currently, mortgage services must provide foreclosure protections to a borrower only once during the life of a loan. Under the new rule, if a borrower has brought his or her loan current at any time since submitting his or her prior complete loss mitigation application, then the mortgage servicer will be required to offer foreclosure protections again.
  • Successors in Interest: If a borrower dies, existing CFPB rules already require mortgage servicers to promptly identify and communicate with the borrower's successors in interest, but the new rule will expand the definition of successors in interest. The new rule ensures that those who become the successor in interest on a borrower's loan receive the same protections as the original borrower.
  • Required Information for Borrowers in Bankruptcy: Under the old CFPB rules, a mortgage servicer was not required to provide periodic statement or loss mitigation information to borrowers in bankruptcy. The new rule requires servicers to provide borrowers in bankruptcy with periodic statements including specific information tailored for bankruptcy, as well as a modified written early intervention notice to inform borrowers in bankruptcy of their loss mitigation options.
  • FDCPA Safe Harbor: Mortgage servicers will be required to provide modified written early intervention notices explaining loss mitigation options to borrowers even if the borrowers have asked the servicer to cease contacting them pursuant to the Fair Debt Collections Practices Act. You can find the FDCPA safe harbor rule here.
  • Loss Mitigation Status: Servicers are now required to inform borrowers in writing within 5 days of receiving the borrower's complete loss mitigation application.
  • Servicing Transfers and Loss Mitigation: The new rule requires mortgage servicers to comply with strict timelines regarding loss mitigation efforts. If a loan is transferred to a new servicer while loss mitigation efforts are underway, and the application was complete before the loan was transferred, then the servicer will have thirty (30) days to issue a decision on the loss mitigation application. If the borrower had applied for loss mitigation shortly before the loan was transferred, the new servicer must acknowledge the loss mitigation application within ten (10) business days of receiving the loan.
  • Decision on Loss Mitigation Before Foreclosure: Before proceeding with foreclosure, any complete loss mitigation application must either be (1) properly denied, (2) withdrawn, or (3) the borrower failed to perform under the terms of the agreement.
  • Defining Delinquency: The new rule defines delinquency as the period beginning on the date that the borrower's periodic payment becomes due and is unpaid. If a borrower makes a payment, and the servicer applies the payment to the oldest outstanding periodic payment, then the borrower's delinquency date advances.
  • Partial Payment Discretion: Under certain circumstances, servicers will have discretion to consider a borrower as having made a timely payment, even if the borrower's payment falls short of a full periodic payment.

Most of the provisions of the CFPB's new rules for mortgage servicers will take effect twelve (12) months after publication in the Federal Register. However, the provisions related to borrowers' successors in interests and provisions related to periodic statements for borrowers in bankruptcy will take effect eighteen (18) months after publication in the Federal Register.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

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.

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Authors
Jon S. Hubbard
Ethan G. Ostroff
Michael E. Lacy
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