With the new mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulation X) ("RESPA") scheduled to go into effect January 10, 2014, the Consumer Financial Protection Bureau’s ("CFPB") decision to issue guidance on the existing servicing transfer regulations may have been unexpected by some. However, given the high volume of recent servicing rights transfers, the CFPB determined that the time was right to provide servicers with notice that their policies and procedures on servicing rights transfers will be closely scrutinized. The guidance serves as "advance notice" of what the CFPB’s examiners will be looking for with regard to transfers of mortgage servicing.
The current rules regarding mortgage servicing transfers, which will be replaced by the new servicing rules, can be found in Regulation X Section 1024.21. The requirements apply to both the transferor servicer and the transferee servicer of first lien mortgage loans. Both servicers are required to provide a written notice of servicing transfer containing specific information. A sample notice is included in the regulation. In addition, if the transferor servicer receives a payment within 60 days of the servicing transfer date, a late fee may not be imposed on the borrower.
In addition to the foregoing rules, the CFPB Guidance references the broad regulatory rubric that establishes its authority over servicers, including, among other things, the prohibitions on furnishing inaccurate information about consumers under the Fair Credit Reporting Act; the obligations on servicers to the extent they act as a debt collector under the Fair Debt Collection Act; the general prohibition against unfair, deceptive, abusive acts or practices; and the overall enforcement of federal consumer financial laws and regulations.
The CFPB Guidance focuses particularly on the negative effect servicing transfers can have on consumers who are in the midst of the loss mitigation process. The CFPB highlights a number of areas it intends to pay particular attention to when assessing whether servicers have appropriately addressed risks to consumers in connection with servicing transfers. These include the transferor servicer’s plans in preparation for the transfer, with particular focus on the transfer of information to the transferee servicer so as not to interrupt servicing to consumers; the transferee servicer’s plans for handling files transferred to it, with particular focus on the data transfer and the transferee servicer’s verification of the accuracy of such information; and the transferor servicer’s and transferee servicer’s processes and procedures for dealing with loans in the process of loss mitigation. The specific issues identified in each of these areas warrant review by all servicers.
In addition to the increased supervisory focus, the 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 consumer risks associated with the transfers. The written plans would require, among other things, a detailed description of the transaction and the system testing data, a description of the training plan for staff involved in handling the transferred loans, and a customer service plan for dealing with loss mitigation. The requirement by the CFPB to submit a plan does not mean that the CFPB has the right to approve the servicing transfer.
The guidance also provides more specifics as to what servicing policies and procedures should look like for the purposes of the mortgage servicing rules that take effect January 10, 2014, in particular as they relate to facilitating the transfer of information from transferor servicer to its transferee. The guidance cites Official Bureau Interpretations addressing electronic data transmissions, with particular emphasis on the obligations of both the transferee servicer and the transferor servicer to ensure accurate continuity of information flow reflecting the status of ongoing borrower loss mitigation, including any agreements with the borrower and any analysis by the servicer.
Through its Financial Industry Group and Global Regulatory Enforcement Group, Reed Smith is providing advice relating to (1) developing appropriate mortgage servicing policies and procedures and (2) representing mortgage owners, mortgage servicers, purchasers and subservicers in a variety of transactions, including mortgage servicing purchase and sales.