Proposed Mortgage Servicing Rules Issued by CFPB
The CFPB today issued two proposals to implement provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding servicing of mortgage loans. Comments will be accepted until October 9, 2012, and the rules are slated to be finalized in January 2013. The agency held an off the record conference call yesterday on the proposals in which CUNA participated. Here are links to the information the agency released today, including the proposals. CUNA already has identified a number of problem issues and concerns with the proposals and will be working with our Housing Finance Reform Task Force, Consumer Protection Subcommittee, the leagues and the CUNA Lending Council to develop our complete list of recommendations regarding the proposals.
Key Points in the Proposals
The proposals cover nine major topics and include model forms where appropriate.
- Periodic billing statements (TILA proposal): The Dodd-Frank Act generally mandates that servicers of closed-end residential mortgage loans (other than reverse mortgages) must send a periodic statement for each billing cycle. The periodic statement requirement generally would not apply for fixed-rate loans if the servicer provides a coupon book, if certain requirements are met. An exception from these requirements is proposed for small servicers that service 1000 or fewer mortgage loans but only for loans that they originated or where they retain the servicing rights.
- Adjustable-rate mortgage interest-rate adjustment notices (TILA proposal): Servicers would have to provide a notice 210 to 240 days prior to the first rate adjustment (which could be an estimate of the rate and payment change) and subsequent notices to consumers 60 to 120 days before a payment change adjustment. Servicers would no longer be required to provide an annual notice if a rate adjustment does not result in an increase in the monthly payment.
- Prompt payment crediting and payoff payments (TILA proposal): Servicers must promptly credit payments from borrowers, generally on the day of receipt. If a payment is less than a full contractual payment, the payment may be held in a suspense account. When the amount in the suspense account covers a full installment of principal, interest, and escrow (if applicable) the servicer would be required to apply the funds to the oldest outstanding payment owed. An accurate payoff balance must be provided to a consumer no later than seven business days after receipt of a written request from the borrower for such information.
- Force-placed insurance (RESPA proposal): Servicers would not be permitted to charge a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and the servicer has provided required notices. One notice to the borrower would be required at least 45 days before charging for force-placed insurance coverage and a second notice would be required no earlier than 30 days after the first notice. If a borrower provides proof of hazard insurance coverage, then the servicer would be required to cancel any force-placed insurance policy and refund any premiums paid under the forced-placed policy. In addition, if a servicer makes payments for hazard insurance from a borrower’s escrow account, a servicer would be required to continue those payments rather than force-placing a separate policy, even if there is insufficient money in the escrow account. Charges related to forced place insurance (other than those subject to state regulation as the business of insurance or authorized by federal law for flood insurance) must relate to a service that was performed and bear a reasonable relationship to the servicer’s cost of providing the service.
- Error resolution and information requests (RESPA proposal): Servicers would be required to meet certain procedural requirements for responding to information requests or complaints of errors. The proposal defines specific types of claims which constitute an error, such as a claim that the servicer misapplied a payment or assessed an improper fee. A borrower could assert an error either orally or in writing. Servicers could designate a specific phone number and address for borrowers to use. Servicers would be required to acknowledge the request or complaint within five days. The servicer would have to correct or respond to the borrower with the results of the investigation, generally within 30 to 45 days. Further, servicers generally would be required to acknowledge borrower requests for information and either provide the information or explain why the information is not available within a similar amount of time. A servicer would generally not be required to delay a scheduled foreclosure sale to consider a notice of error.
- Information management policies and procedures (RESPA proposal): Servicers would be required to establish reasonable information management policies and procedures taking into account the servicer’s size, scope, and nature of its operations. A servicer’s policies and procedures would satisfy the rule if the servicer regularly achieves the document retention and servicing file requirements, as well as certain objectives specified in the rule. A servicer must retain records relating to each mortgage until one year after the mortgage is discharged or servicing is transferred and must create a mortgage servicing file for each loan containing certain specified documents and information.
- Early intervention with delinquent borrowers (RESPA proposal): Servicers would be required to make good faith efforts to notify delinquent borrowers of loss mitigation options. If a borrower is 30 days late, the proposal would require servicers to make a good faith effort to notify the borrower orally and to let the borrower know that loss mitigations options may be available. If the borrower is 40 days late, the servicer would be required to provide the borrower with a written notice with certain specific information, including examples of loss mitigation options available, if applicable, and information about the foreclosure process.
- Continuity of contact with delinquent borrowers (RESPA proposal): Servicers would be required to have staff available to help delinquent borrowers with loss mitigation options where applicable and no later than five days after providing the early intervention notice. Servicers would be required to establish reasonable policies and procedures designed to ensure that the servicer personnel perform certain specified functions where applicable.
- Loss mitigation procedures (RESPA proposal): Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure Within 30 days of receiving a borrower’s complete application, the servicer would be required to evaluate the borrower for all available options, and, if the denial pertains to a requested loan modification, notify the borrower of the reasons for the servicer’s decision, and provide the borrower with at least a 14-day period within which to appeal. Appeals would have to be decided within 30 days by different personnel than those responsible for the initial decision. Additional requirements would apply when a complete application is received.