On August 19, 2014, the US Consumer Financial Protection Bureau ("CFPB") released Bulletin 2014-01,1("Bulletin"). The Bulletin replaces CPFB Bulletin 2013-1, which also addressed servicing transfers, and provides updated CFPB guidance and expectations with respect to mortgage servicing transfers.
The Bulletin highlights the CFPB's ongoing concern with servicing transfers given the continuing high volume of sales of residential mortgage servicing rights ("MSRs") in the marketplace. The CFPB states that it is issuing the Bulletin in light of the potential risks to consumers that may arise in connection with such MSR transfers and advises that it will be carefully reviewing servicers' compliance with Federal consumer protection laws applicable to servicing transfers, including the Real Estate Settlement Procedures Act and its implementing regulation, Regulation X, the Truth-in-Lending Act and its implementing regulation, Regulation Z, the Fair Credit Reporting Act and its implementing regulation, Regulation V, the Fair Debt Collection Practices Act, and the Dodd-Frank Act's prohibitions on unfair, deceptive, or abusive acts or practices. Importantly, the CFPB states that it is continuing to monitor the mortgage servicing market and may engage in further rulemaking in that area.
The Bulletin is set forth in four sections. Section A, "General Transfer-Related Policies and Procedures," provides examples of general transfer-related policies and procedures that CFPB examiners may consider in evaluating whether servicers have successfully met their obligations. Section B, "Applicability of the New Servicing Rules to Transfers," attempts to answer questions about how the new servicing rules apply to servicing transfers and also describes certain areas on which CFPB examiners will focus. Section C, "Protections under Federal Consumer Financial Law," describes other Federal consumer financial laws applicable to servicing transfers and explains potential consequences if servicers are not fulfilling their obligations under the law. Finally, Section D, "“Plans for Handling Servicing Transfers”, informs servicers engaged in significant servicing transfers that the CFPB will, in appropriate cases, require them to prepare and submit informational plans describing how they will be managing the related risks to consumers. We have set forth a short summary discussion of each of these sections below.
Section A: General Transfer-Related Policies and Procedures
Section A of the Bulletin notes that CFPB mortgage servicing examinations now include reviews for compliance with the new servicing rule2 and notes that among other things, that the rule requires servicers to maintain policies and procedures that are reasonably designed to achieve the objective of facilitating the transfer of information during mortgage servicing transfers. The Bulletin sets forth a number of examples of policies and procedures that CFPB may consider regarding whether a servicer has met these objectives, such as policies which ensure that contracts require the transferor servicer to provide all necessary documents and information at loan boarding. The Bulletin also states that CFPB may also consider certain post-transfer policies and procedures for transferee servicers as also contributing to meeting these objectives, such as Implementing a post-transfer process for validating data to ensure it transferred correctly and is functional, as well as developing procedures for identifying and in fact addressing data errors for inbound loans.
Section A also notes that the servicing rule requires servicers, among other things, to maintain policies and procedures that are reasonably designed to achieve the objective of properly evaluating loss mitigation applications and notes that there is a heightened risk inherent in transferring loans in loss mitigation, including the risk that documents and information are not accurately transferred. Accordingly, the Bulletin states that CFPB will therefore pay particular attention to servicers’ handling of loss mitigation in the context of transfers and sets forth a number of examples of policies and procedures that it believes may contribute to meeting this requirement. Importantly, CFPB also lists a number of practices that it has identified during it mortgage servicing examinations which indicate that a servicer's policies and procedures are not reasonably designed to achieve the servicing rule's objectives of facilitating transfer of information during transfers or properly evaluating loss mitigation applications.
Section A concludes with a specific point regarding the transfer of relevant data or documents post-loan boarding and states that it will carefully scrutinize the policies and procedures of any institution that regularly waits until after loan boarding to transfer information that it had in its possession prior to boarding. The CFPB states that it recognizes that servicers may not legally be able to provide certain information prior to the sale date in which even the CFPB will expect that servicers will still make every effort to transfer information prior to loan boarding, subject to those limitations.
Section B: Applicability of the New Servicing Rules to Transfers
In addition to the transfer-related policies and procedures set forth in Section A, Section B notes various other requirements that may be implicated under the servicing rule and gives examples of each in the context of transfers, including:
- Error Resolution Procedures and Requests for Information. The servicing rule contains certain procedural requirements for responding to notices of error and written information requests.
- Force-placed Insurance. The servicing rule provides that before a servicer assesses any premium charge or fee related to force-placed insurance on a borrower, the servicer must comply with certain requirements, including sending notices to the borrower.
- Early Intervention. The servicing rule requires a servicer to establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency.
- Continuity of Contact. Servicers are required to maintain policies and procedures that are reasonably designed to achieve certain objectives related to personnel assigned to assist delinquent borrowers under the servicing rule.
- Loss Mitigation. As noted, the Bulletin provides that CFPB will pay particular attention to servicers’ handling of loss mitigation in the context of transfers. The Bulletin sets forth a number of ways to mitigate risk of non-compliance with the loss mitigation requirements under the servicing rule.
Section C: Protections under Federal Consumer Financial Law
Section C notes that other federal consumer financial laws may also apply in the transfer context and notes requirements under those laws, including the Fair Credit Reporting Act ("FCRA"), the Fair Debt Collection Practices Act ("FDCPA"), and the Dodd-Frank Act's prohibitions on unfair, deceptive, or abusive acts or practices ("UDAAP"). Under FCRA, the Bulletin notes servicers' obligations to implement reasonable written policies and procedures regarding the accuracy and integrity of information furnished to consumer reporting agencies as well as their duties to investigate credit reporting disputes. Under FDCPA, the Bulletin specifically notes the failure of a number of entities to provide the verification of debt notice and also notes that the FDCPA prohibits deceptive, harassing or abusive conduct in connection with debt collection. Finally, the Bulletin notes that servicers must avoid engaging in UDAAPs and notes that conduct that may not necessarily violate another law may nonetheless constitute a UDAAP.
Section C also sets forth CFPB expectation that all servicers under its jurisdiction maintain a robust Compliance Management System and also its expectation that servicers that identify any potential violations during a transfer will undertake all necessary corrective measures.
The Bulletin states that if the CFPB determines that a servicer has engaged in any acts or practices that violate any of the foregoing laws, it will take appropriate supervisory and enforcement actions to address violations and seek all appropriate corrective measures, including remediation of any harm to consumers. The Bulletin states that in determining the appropriate action, the CFPB will consider a variety of factors, including the timeliness of identification and the timeliness and scope of remediation of the violation by the servicer.
Section D: Plans for Handling Servicing Transfers
Finally, the Bulletin states that as part of its efforts to focus supervisory attention on the foregoing topics, CFPB will, in appropriate cases, require servicers engaged in significant servicing transfers to prepare and submit written plans to the CFPB detailing how they will manage the associated consumer risks. While CFPB notes that specific required information would depend on the particular transfer, Section D sets forth certain baseline items that it would ask be addressed in the written plan.