In August 2016, the Consumer Financial Protection Bureau (CFPB) issued a final rule on mortgage loan servicing, Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z).
Defining Successors in Interest & Expanding Their Protection
In general, successors in interest arise from the transfer of an ownership interest in a property securing a mortgage loan. However, the definition of “successor” hasn’t been consistent. The final rule:
- Adds similar definitions of successor to Regulations X and Z
- Includes provisions on how a servicer confirms a successor’s identity and ownership interest in the property securing the mortgage loan
- Requires services, other than small servicers and qualified lenders, to maintain certain policies and procedures with respect to successors
- Provides that a confirmed successor will be considered a borrower for purposes of Regulation X’s mortgage servicing provisions and a consumer for purposes of Regulation Z’s mortgage servicing provisions
- Requires a servicer’s response to a confirmed successor’s requests for information (with some allowable omissions)
- States that unless a servicer is exempt from the loss-mitigation requirements, it must review and evaluate a loss-mitigation application received from a confirmed successor if the property is a principal residence
Following the 2013 issuance, there was confusion among servicers regarding when a borrower is considered delinquent. The Factsheet on Delinquency and the 2016 Mortgage Servicing Rule states borrowers are “delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and (if applicable) escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid. The delinquency begins on the date the periodic payment becomes due and unpaid even if the servicer will not assess a late charge if the borrower makes the periodic payment within a certain time frame after the periodic payment is due.”
Requests for Information
The final rule amends how a servicer must respond to requests for information when a government-sponsored enterprise (GSE)—the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac)—is the loan owner or trustee of the securitization trust where the loan is held. In some instances, the servicer complies by only providing the name and contact information for the GSE, as applicable, unless the name or number of the trust or pool is expressly requested. The servicer must provide the name of the trust and trustee’s name, address and appropriate contract information when the borrower expressly requests the name or number of the trust or pool when the GSE is the loan owner or trustee of the securitization trust in which the loan is held. Where GSEs aren’t the loan owner or trustee of the securitization trust, the servicer must provide the name of the trust and trustee’s name, address and appropriate contact information.
The final rule amends force-placed insurance disclosures and model forms to account for instances where the servicer chooses force-placed insurance when the borrower’s hazard coverage is insufficient, rather than expiring or expired.
Currently, servicers are required to make live contact with borrowers within 36 days after delinquency occurs. With the amended rule, the servicer must make efforts to/or establish live contact while the borrower remains delinquent and provide multiple, early-intervention written notices in certain circumstances. The final rule also exempts a servicer from any early intervention live-contact requirements for a mortgage loan when either of two conditions are met: (1) any borrower on the loan is in bankruptcy; or (2) the servicer is a debt collector within the Fair Debt Collection Practices Act (FDCPA) with respect to the mortgage loan, and any borrower on the loan has invoked the cease communication protection with respect to that loan. If either condition is met, the servicer also is exempt from the written notice requirements for the mortgage loan if no loss-mitigation option is available.
These are the final rule’s revisions and clarifications to loss-mitigation requirements:
- Servicers are required to meet the loss-mitigation requirements more than once in a loan’s life (for borrowers who become current between a borrower’s prior, complete a loss-mitigation application and subsequent, loss-mitigation application)
- Modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the foreclosure action of either a superior or subordinate lienholder
- Clarifies how servicers select the reasonable date that a borrower should return documents and information to complete a loss-mitigation application
- Clarifies a servicer’s obligations if a borrower submits a complete loss-mitigation application more than 37 days before the foreclosure sale
- Requires a servicer to provide a written notice to a borrower within five business days after it receives a complete loss-mitigation application
- Specifies how servicers must attempt to obtain documents or information not in the borrower’s control and evaluate a loss-mitigation application while waiting for third-party information
- Clarifies that servicers may offer a short-term payment forbearance program or short-term repayment plan based upon an evaluation of an incomplete loss-mitigation application
- Clarifies that servicers may stop collecting documents and information from a borrower for a loss-mitigation option after receiving information confirming, pursuant to any requirements established by the owner or assignee, the borrower is ineligible for that option
- Addresses and clarifies how loss-mitigation procedures and timelines apply when a transferee servicer receives a mortgage loan where there’s a loss-mitigation application pending at the time of a servicing transfer
Prompt Payment Crediting & Periodic Statements
The final rule addresses how servicers are required to handle periodic payments made by consumers who are performing under temporary loss-mitigation programs or permanent loan modifications.
The final rule clarifies certain, periodic statement disclosure requirements relating to mortgage loans that have been accelerated, permanently modified or are in loss-mitigation programs. Servicers also are required to send modified periodic statements to consumers who have filed for bankruptcy, with some exceptions. Additional provisions address charged-off mortgage loans.
The CFPB previously defined a small servicer as an entity (with any affiliates) that services up to 5,000 mortgage loans where the servicer is the assignee or creditor. The final rule clarifies that certain seller-financed transactions and mortgage loans voluntarily serviced for a nonaffiliate are excluded from the 5,000-loan limit.
The CFPB also issued an interpretive rule regarding the FDCPA as it relates to the final mortgage servicing rule. The purpose was to enact safe harbors for entities complying with the mortgage servicing rule in the following circumstances:
- Communicating about a mortgage loan with a confirmed successor as required or authorized by specific mortgage servicing rules in Regulation X or Z
- Providing a written early intervention notice to a borrower who has invoked cease-communication protection under the FDCPA
- Responding to borrower-initiated communications concerning loss mitigation after the borrower has invoked cease-communication protection under the FDCPA
Initial industry reactions to the final rule have been mixed. While servicers are generally pleased with the clarifications and definitions provided, there are concerns regarding the additional regulatory burdens, costs of compliance and other potential consequences. Most rule changes are effective 12 months after publication in the Federal Register.
For more information, contact your BKD advisor.