The Consumer Financial Protection Bureau (CFPB) recently issued a final rule for mortgage servicers. The intention is to protect struggling borrowers, surviving family members and borrowers in bankruptcy from the threat of a swift foreclosure. The new rule also protects homeowners when their mortgage is transferred to another servicer.
The following is an overview of the 9 new CFPB servicer requirements.
1. Successors in Interest
The CFPB is finalizing 3 sets of rule changes relating to successors in interest:
- Adopting definitions of successor in interest for purposes of Regulation X's subpart C and Regulation Z that are modeled on the categories of transfers protected under section 341(d) of the Garn-St. Germain Act
- Finalizing rules relating to how a mortgage servicer confirms a successor in interest's identity and ownership interest
- Applying the Regulation X and Z mortgage servicing rules to successors in interest once a servicer confirms the successor in interest's status
2. Definition of Delinquency
The CFPB is finalizing a general definition of delinquency that applies to all of the servicing provisions of Regulation X and the provisions regarding periodic statements for mortgage loans in Regulation Z. Delinquency means a period of time during which a borrower and a borrower's mortgage loan obligation are delinquent. A borrower and a borrower's mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid, until such time as no periodic payment is due and unpaid.
3. Requests for Information
The CFPB is finalizing amendments that change how a servicer must respond to requests for information asking for ownership information for loans in trust for which the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) is the owner of the loan or the trustee of the securitization trust in which the loan is held.
4. Force-Placed Insurance
The CFPB is finalizing amendments to the force-placed insurance disclosures and model forms to account for when a servicer wishes to force-place insurance when the borrower has insufficient, rather than expiring or expired, hazard insurance coverage on the property. Additionally, servicers now will have the option to include a borrower's mortgage loan account number on the notices required under § 1024.37. The Bureau also is finalizing several technical edits to correct discrepancies between the model forms and the text of § 1024.37.
5. Early Intervention
The CFPB is clarifying the early intervention live contact obligations for servicers to establish or make good faith efforts to establish live contact so long as the borrower remains delinquent. The Bureau is also clarifying requirements regarding the frequency of the written early intervention notices, including when there is a servicing transfer. In addition, regarding certain borrowers who are in bankruptcy or who have invoked their cease communication rights under the FDCPA, the Bureau is finalizing exemptions for servicers from complying with the live contact obligations but requiring servicers to provide written early intervention notices under certain circumstances.
6. Loss Mitigation
The CFPB is finalizing several amendments relating to the loss mitigation requirements. The final rule:
- Requires servicers to meet the loss mitigation requirements more than once in the life of a loan for borrowers who become current on payments at any time between the borrower's prior complete loss mitigation application and a subsequent loss mitigation application
- Modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the foreclosure action of a superior or subordinate lienholder
- Clarifies how servicers select the reasonable date by which a borrower should return documents and information to complete an application
- Clarifies that, if the servicer has
already made the first notice or filing, and a borrower timely submits a complete loss mitigation
- The servicer must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, even where the sale proceedings are conducted by a third party, unless one of the specified circumstances is met (i.e., the borrower's loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement)
- That absent one of the specified circumstances, conduct of the sale violates the rule
- That the servicer must instruct foreclosure counsel promptly not to make any further dispositive motion, to avoid a ruling or order on a pending dispositive motion, or to prevent conduct of a foreclosure sale, unless one of the specified circumstances is met
- That the servicer is not relieved from its obligations by counsel's actions or inactions
- Requires that servicers provide a written
notice to a borrower within five days (excluding Saturdays, Sundays, or legal holidays) after they
receive a complete loss mitigation application and requires that the notice:
- Indicate that the servicer has received a complete application
- Provide the date of completion, a statement that the servicer expects to complete its evaluation within 30 days from the date it received the complete application, and an explanation that the borrower is entitled to certain specific foreclosure protections and may be entitled to additional protections under State or Federal law
- Clarify that the servicer might need additional information later, in which case the evaluation could take longer and the foreclosure protections could end if the servicer does not receive the information as requested
- Sets forth how servicers must attempt to obtain information not in the borrower's control and evaluate a loss mitigation application while waiting for third party information; requires servicers to exercise reasonable diligence to obtain the information and prohibits servicers from denying borrowers solely because a servicer lacks required information not in the borrower's control, except under certain circumstances; requires servicers in this circumstance to complete all possible steps in the evaluation process within the 30 days, notwithstanding the lack of the required third-party information; requires that servicers promptly provide a written notice to the borrower if the servicer lacks required third party information 30 days after receiving the borrower's complete application and cannot evaluate the application in accordance with applicable requirements established by the owner or assignee of the mortgage loan; and requires servicers to notify borrowers of their determination on the application in writing promptly upon receipt of the third party information it lacked
- Permits servicers to offer a short-term repayment plan based upon an evaluation of an incomplete loss mitigation application
- Clarifies that servicers may stop collecting documents and information from a borrower for a particular loss mitigation option after receiving information confirming that, pursuant to any requirements established by the owner or assignee, the borrower is ineligible for that option; and clarifies that servicers may not stop collecting documents and information for any loss mitigation option based solely upon the borrower's stated preference but may stop collecting documents and information for any loss mitigation option based on the borrower's stated preference in conjunction with other information, as prescribed by requirements established by the owner or assignee of the mortgage loan
- Addresses and clarifies how loss mitigation procedures and timelines apply when a transferee servicer receives a mortgage loan for which there is a loss mitigation application pending at the time of a servicing transfer.
7. Prompt Payment Crediting
The CFPB is clarifying how servicers must treat periodic payments made by consumers who are performing under either temporary loss mitigation programs or permanent loan modifications. 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, while periodic payments made pursuant to a permanent loan modification must be credited under the terms of the permanent loan agreement.
8. Periodic Statements
The CFPB is finalizing several requirements relating to periodic statements. The final rule:
- Clarifies certain periodic statement disclosure requirements relating to mortgage loans that have been accelerated, are in temporary loss mitigation programs, or have been permanently modified, to conform generally the disclosure of the amount due with the Bureau's understanding of the legal obligation in each of those circumstances, including that the amount due may only be accurate for a specified period of time when a mortgage loan has been accelerated
- Requires servicers to send modified periodic statements (or coupon books, where servicers are otherwise permitted to send coupon books instead of periodic statements) to consumers who have filed for bankruptcy, subject to certain exceptions, with content varying depending on whether the consumer is a debtor in a chapter 7 or 11 bankruptcy case, or a chapter 12 or 13 bankruptcy case; and includes proposed sample periodic statement forms that servicers may use for consumers in bankruptcy to ensure compliance with § 1026.41
- Exempts servicers from the periodic statement requirement for charged-off mortgage loans if the servicer will not charge any additional fees or interest on the account and provides a periodic statement including additional disclosures related to the effects of charge-off
9. Small Servicer
The CFPB is finalizing certain changes to the small servicer determination. The small servicer exemption generally applies to servicers who service 5,000 or fewer mortgage loans for all of which the servicer is the creditor or assignee. The final rule excludes certain seller-financed transactions and mortgage loans voluntarily serviced for a non-affiliate, even if the non-affiliate is not a creditor or assignee, from being counted toward the 5,000 loan limit, allowing servicers that would otherwise qualify for small servicer status to retain their exemption while servicing those transactions. In addition to the changes discussed above, the final rule also makes technical corrections and minor clarifications to wording throughout several provisions of Regulations X and Z that generally are not substantive in nature.
How Servicers Can Ensure CFPB Compliance
Our QC servicing audit is the solution to assist in meeting these new CFPB requirements and your loan servicing quality control needs overall.
Our Servicing QC audit not only provides feedback on compliance with guidelines and regulations, but delivers state of the art reporting. We believe the industry standard of just delivering a PDF report has passed and that technology now provides a better way to interact with our QC data. Our Servicing QC Audit delivers data not only the industry standard PDF, but also pushes all the Servicing QC data to our QLink mortgage audit software. Our QLink portal allows you to view and sort your findings, trend your reports quarter over quarter, and find the root cause of your issues.