New Mortgage Servicing Rules Focus on Foreclosures, Communications

The Consumer Financial Protection Bureau (CFPB) implemented changes to its new Mortgage Servicing Rule in mid-October, and the updates affect Regulation X and Regulation Z, which anyone involved in servicing consumer mortgages, including compliance managers and legal counsel, must deal with. The changes include a new interim final rule addressing communications between mortgage servicers and borrowers at risk of foreclosure, and a proposed rule about communications involving bankruptcies.

Insufficiency of hazard insurance may lead to new requirements for lender-placed insurance, and early intervention with delinquent buyers will be governed by new contract obligations, according to Chrys Lemon, a financial services attorney who regularly provides audio conferences through Eli Financial on banking and CFPB issues. Also, there will be several changes to periodic statement requirements and to the definition of a “small servicer.”

Rule Changes: A Rundown

The CFPB’s changes specifically include amendments to the 2016 Amendments to the 2013 Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z).

The new regs change several aspects of the Mortgage Servicing Rule:

  • Successors in Interest: There are added definitions to this subpart C of Regulations X and Z, which delineates the term by types of transfers. There is also a provision related to how a servicer confirms a successor and a provision that a confirmed successor in interest will be considered a borrower for purposes of Regulation X’s mortgage servicing guides.
  • Definition of Delinquency: “Delinquency” means “a period of time during which a borrower and a borrower’s mortgage loan obligation are delinquent.”
  • Requests for Information: The new rule changes “how a servicer must respond to requests for ownership information when Fannie Mae or Freddie Mac is the owner of the loan or the trustee of the securitization trust in which the loan is held.”
  • Force-Placed Insurance: The new rule accounts for times when a servicer wants to force-plan insurance because the borrower has insufficient—not expired or expiring—hazard insurance on the property.
  • Early Intervention: Live contact and written notice obligations have been clarified—just one written notice is required within a 180-day period, with provisions for follow-ups and exemptions for loans in bankruptcy or where the servicer is a debt collector.
  • Loss Mitigation: Nine modifications, clarifications and requirements were made covering document return, loss mitigation applications, written notice, a short-term payment forbearance program and more.
  • Prompt Payment Crediting: “Periodic payments made pursuant to temporary loss mitigation programs must continue to be credited according to the loan contract and could, if appropriate, be credited as partial payments,” according to the CFPB’s summary. “Periodic payments made pursuant to a permanent loan modification must be credited under the terms of the permanent loan agreement.”
  • Periodic Statements: These disclosure requirements are clarified.
  • Small Servicer: Some transactions are excluded from being counted toward the 5,000 loan limit.
  • Technical corrections, clarifications and a liability safe harbors have been added.

Of particular note, wrote Charles E. Washburn, Jr., a lawyer with Manatt, Phelps & Phillips, are changes to the notification process.

“While consumers have the right under the FDCPA to ask companies to stop contacting them (except for limited purposes), the CFPB’s amendments also required mortgage servicers to send notices every 45 days to borrowers who become delinquent to inform them of the available foreclosure prevention options, although the notices may not be sent more than once in a 180-day period,” he wrote.

Effort at Increasing Clarity Met with Industry Support

Regarding Regulation Z, the agency said it is striving for clarity. “The Bureau believes that these proposed changes would provide a clearer and more straightforward standard than the timing requirement adopted in the 2016 Mortgage Servicing Final Rule, offering greater certainty for implementation and compliance, without unnecessarily disadvantaging consumers,” CFPB said in an announcement of the proposed rule.

A host of organizations praised the changes. The National Association of Federally-Insured Credit Unions (NAFCU) supports the actions, the group’s regulatory affairs counsel, Andrew Morris, wrote to the CFPB. “The CFPB’s proposed amendments would allow a single-statement exemption at any point in the billing cycle related to the use of modified or unmodified periodic statements or coupon books used with bankruptcy cases. Morris told the CFPB this change would ‘vastly reduce the complexity associated with tracking and monitoring discrete triggering events in consumer bankruptcy actions,’” according to an NAFCU press release.

Preparing for the New Challenges

Mortgage Partnership Finance suggested that institutions take a number of proactive steps as they prepare for the April 2018 rule changes’ implementation date:

  • Consult legal counsel and/or a compliance team
  • Update processes and procedures to comply with the rule
  • Train staff
  • Make needed system changes
  • Find time to test process, procedure and system updates before the rules take effect
  • Contact vendors
  • Make contingency plans in case you aren’t ready by the implementation date
  • Create procedures to monitor rule compliance—both for you and your vendors

The Bottom Line. Make sure you are ready for the new rules and don’t be afraid to ask for expert help.

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