CFPB Issues New National Mortgage Servicing Rules

by Donald C. Lampe, Jeffrey E. Jamison, and Michael B. Raines

On Dec. 17, the Consumer Financial Protection Bureau (CFPB) issued the expected mortgage servicing final rules. At over 1,000 pages, the final rules will amend the Truth in Lending Act (Regulation Z) and the Real Estate Settlement Procedures Act (Regulation X). Consistent with the Bureau's proposal, the rules cover nine major topics and implement the mortgage servicing  provisions of Title XIV of  the Dodd-Frank Act. The rules, which will take effect on January 10, 2014, directly implement Congressionally-mandated servicing reforms but also include a host of required loss mitigation rules and processes. The CFPB promulgated these latter rules by way of its general rulemaking authority under RESPA provided in the Dodd-Frank Act, not pursuant to specific Dodd-Frank statutory provisions. In prepared remarks for today's field hearing in Atlanta,  CFPB Director Cordray emphasized that these new rules are not only mandatory for mortgage servicers (with limited exceptions for smaller servicers), but "are backed by the full supervisory and enforcement authority that Congress has conferred upon [the CFPB]." 

According to Director Cordray, the CFPB's new mortgage servicing rules were designed to resolve sub-standard mortgage servicing practices  by achieving two main objectives. "First, they will help prevent all borrowers from being caught off guard by surprises and getting the runaround from their servicers.  Second, there are special protections for borrowers who are having trouble making their mortgage payments."   

The new rules set forth the following regulations and limitations:

FOR ALL BORROWERS

• Monthly Mortgage Statements: Monthly mortgage statements must be clearly written and easy to understand. Monthly statements must also break down payments received by the servicer by principal, interest, fees, and escrow, as well as include the amount and due date of the next payment.
• Adjustable Rate Mortgages: Servicers must provide advance notice prior to interest rate adjustments for most adjustable-rate mortgages specifying the new interest rate, new payment amount, and when that payment is due, as well as information regarding alternatives and counseling if the new payment turns out to be unaffordable for the borrower.
• Forced Placed Insurance: Services must provide advance notice and pricing information before charging consumers for forced placed insurance and, if, within 15 days of a servicers' purchase of an insurance policy, the servicer receives evidence that such insurance was not needed, then servicers must terminate such policy and refund the premiums paid.
• Payment Processing: All payments will be required to be credited the day they are received. Servicers must also timely acknowledge and investigate payment errors when notified by consumers, as well as timely inform consumers of how such investigation has been resolved.
• Documentation & Records: Servicers must maintain accurate and accessible documents and records to be able to provide accurate and timely information to borrowers, mortgage owners, and courts.

DELINQUENT BORROWERS

• Dual Tracking: Servicers are prohibited from commencing foreclosure proceedings until the borrower has missed payments for at least 120 days. Further, once the borrower submits a completed loss mitigation application, servicers are prohibited from commencing or completing a foreclosure until the loss mitigation application has been reviewed and the borrower has been given a chance to respond. Servicers are also required to process loan modification applications prior to continuing foreclosure proceedings, as long asthe applicationsare received more than 37 days before a foreclosure sale.
• Monthly Statements: After the borrower misses two consecutive payments, the borrower's monthly statement must identify the date the borrower became delinquent, the amount needed to bring the account current, and a statement regarding the risks of failing to bring the account current.
• Loss Mitigation: Servicers must proactively present loss mitigation options to borrowers who have missed payments. Servicers will also be required to offer a single application for all available loss mitigation alternatives, as well as review borrowers for all such alternatives at the same time. Services will need to acknowledge receipt of a loss mitigation application within five days, inform the borrower if the application is incomplete, and use reasonable diligence to obtain all information needed to complete the application. The rules also limit the loss mitigation options that servicers may offer borrowers. If no loss mitigation options are available, the servicer must then consider all other options. If the borrower is rejected for a loan modification, the servicer must provide the reasons for the rejection and, if the borrower disagrees with those reasons, she will have the ability to appeal the rejection and have her application reviewed again by another individual.
• Continuity of Contact: Servicers are required to develop policies and procedures to ensure borrowers have direct and ongoing access to the individuals responsible for helping delinquent borrowers.

Read more articles about the Consumer Financial Protection Bureau at Dykema's CFPB Blog

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