On August 4, the Bureau of Consumer Financial Protection (“CFPB”) finally adopted amendments (the “Amendments”) to its 2013 mortgage servicing rules (the “Servicing Rules”). The Servicing Rules implemented provisions in the Dodd-Frank Act to regulate in great detail the residential mortgage servicing business. The Amendments have been under consideration by the CFPB for more than 20 months and represent the CFPB’s response to numerous issues and concerns raised by industry and consumer groups alike about the Servicing Rules. The Amendments (which take up more than 900 pages) are significant. They cover the following nine major topics (as well as a few minor ones):
- Successors in interest. How to define them, what procedures must be followed to “confirm” them, and how the Servicing Rules will apply to them once they are so confirmed? In adopting these provisions, the CFPB was responding to reports by housing counselors and consumer advocacy groups about a variety of challenges that successors in interest face, including difficulties in establishing their successor status, obtaining information about the status of mortgage loans on their homes or the monthly payment amount, getting servicers to accept their payments, and finding out their options to avoid foreclosure.
- Delinquency. When does it begin, and when does it end? This is important for various timing requirements in the Servicing Rules.
- Requests for information. How to accurately respond to consumer requests for ownership information about loans in trust where Fannie or Freddie owns the loan or is the trustee of the securitization trust in which it is held?
- Force-placed insurance. How do the rules apply in cases where the borrower has insurance but in an insufficient amount? How should the model notices be modified to deal with this? Can loan numbers be included on these notices?
- Early intervention. How often must servicers attempt to make live contact and/or send early intervention notices to borrowers whose delinquency lasts several months? How is this affected by a servicing transfer? What about borrowers in bankruptcy or who have invoked their cease communication rights under the FDCPA?
- Loss mitigation. Whether and under what circumstances servicers must allow borrowers whose applications were rejected to reapply? May servicers join foreclosure actions instituted by a subordinate lienholder before the borrower is at least 120 days delinquent? How much time should borrowers be given to complete an application? What actions must servicers take or not take if they receive a complete application after having made the first foreclosure notice or filing? Whether and how servicers must notify borrowers that their applications are complete? What are servicers’ responsibilities concerning incomplete applications that lack only information in the possession of third parties? May servicers offer short-term repayment plans based upon an evaluation of an incomplete application? May servicers stop collecting information from borrowers for a particular loss mitigation option (a) upon learning that the borrower is ineligible for that option, (b) based solely upon the borrower’s stated preference for a different option, or (c) based on the borrower’s stated preference in conjunction with other information? How do loss mitigation procedures and timelines apply to transferee servicers when there is a pending application at time of transfer?
- Prompt payment crediting. How servicers must treat payments made by consumers who are performing under either temporary loss mitigation programs or permanent loan modifications?
- Periodic statements. How should servicers disclose the payment amount that is due for loans that have been accelerated, are in temporary loss mitigation programs, or have been permanently modified? Must servicers continue to send periodic statements to consumers who have filed for bankruptcy or consumers whose loans have been charged-off and, if so, with what modifications?
- Small servicer. What loans will not count toward the 5,000 limit to qualify as a small servicer?
With certain exceptions, the Amendments will become effective 12 months following their publication in the Federal Register, which may not occur until September. The exceptions are the Amendments that relate to successors in interest and consumers in bankruptcy and the Amendments that address when servicers may stop collecting information from borrowers for a particular loss mitigation option. These Amendments will not become effective until 18 months after publication in the Federal Register.