The Consumer Financial Protection Bureau (“CFPB”) has proposed mortgage servicing rules that would establish new requirements for periodic statements for residential mortgage loans, initial rate adjustment notices for adjustable-rate mortgages, and crediting of mortgage payments and responses to requests for payoff amounts. The August 10 proposals generally would apply to all mortgage loan servicers, regardless of the size of the institution or the size of the portfolio being serviced. However, certain small servicers would be exempt from the Truth in Lending periodic statement requirements and the CFPB has requested input from the public on whether to exempt small servicers from other requirements or modify certain requirements for small servicers. Among other new requirements, the proposed rules would require servicers to provide regular statements that must include a summary of principal, interest, fees and escrow payments, the amount of and due date of the next payment, recent transaction activity, and warnings about fees. Servicers would be required to provide earlier notices before the interest rate adjusts for most adjustable-rate mortgages, and disclosures about alternatives and counseling resources if the new payment is unaffordable. The new rules would require servicers to give advance notice and pricing information before charging consumers for force-placed insurance and make good faith efforts to contact delinquent borrowers and inform them of their options to avoid foreclosure. The proposed rules would also impose requirements for handling consumer accounts, correcting errors, and evaluating borrowers for options to avoid foreclosure. Comments on the proposed rules are due by October 9.
Nutter Notes: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd Frank Act”) amended the Truth in Lending Act and the Real Estate Settlement Procedure Act to impose a number of new consumer protections related to mortgage servicing that would be implemented by the proposed rules. Some of the new statutory requirements become effective on January 21, 2013, unless final rules are issued by the CFPB on or before that date. The proposed rules generally would apply to closed-end mortgage loans, with certain exceptions. Under the proposed amendments to the rules implementing the Real Estate Settlement Procedure Act (Regulation X), open-end lines of credit and certain other loans, such as construction loans, are excluded. Under the proposed amendments to the rules implementing the Truth in Lending Act (Regulation Z), periodic statement and adjustable-rate mortgage disclosure requirements apply only to closed-end mortgage loans, but prompt crediting and payoff statement requirements apply both to open-end and closed-end mortgage loans. Reverse mortgages and timeshares are excluded from the periodic statement requirements, and certain construction loans are excluded from the adjustable-rate mortgage disclosure requirements. The small servicer exemption to the Truth in Lending periodic statement requirements would apply to a servicer that services 1,000 or fewer mortgage loans and that only services loans for which the servicer or an affiliate originated the loan or is the owner or assignee.