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CFPB Issues New Mortgage Servicing Regulations

September 5, 2012

 

On August 10, 2012, the Consumer Financial Protection Bureau (CFPB or Bureau) proposed revisions to Truth in Lending Act (TILA) Regulation Z[1] and Real Estate Settlement Procedures Act (RESPA) Regulation X[2] that would implement national mortgage servicing standards. The new standards incorporate several components of the multistate attorney general settlement and impose several new servicing requirements. Comments to the proposals must be received by October 9, 2012.

Several provisions of the proposed regulations would extend certain provisions of the National Mortgage Settlement or consent orders with the Office of the Comptroller of the Currency (OCC) to non-party servicers. The Bureau’s proposed amendments to the TILA and RESPA regulations are part of its broader and largely untested effort to impose new mortgage industry standards through the rulemaking process. In connection with this effort, the Bureau previously released proposed rules combining the TILA mortgage loan disclosures with the Good Faith Estimate and settlement statements required under RESPA;[3] rules relating to “high-cost” mortgage loans,[4] a proposed amendment to the Equal Credit Opportunity Act Regulation B requiring creditors to provide free copies of written appraisals and valuations developed in connection with applications for loans secured by a first lien on a dwelling,[5] and rules relating to originator compensation.[6] The Bureau also plans to release rules relating to underwriting guidelines and escrow accounts.

As summarized by the Bureau, the voluminous proposed RESPA and TILA regulations fall within nine major categories:

  • 1. Periodic billing statements. The proposed regulations impose new requirements relating to the timing, form, and content of monthly billing statements for closed-ended mortgages (other than reverse mortgages). The Bureau provided a sample statement. The new rules generally would not apply to fixed-rate loans if the servicer provides a coupon book containing substantially similar information to that specified in the periodic statement. Small servicers who service their own loans and service 1,000 or fewer loans would be exempted from compliance.
  • 2. Adjustable-rate mortgage interest-rate adjustment notices. Servicers would be required to provide rate change notices 60-120 days in advance, and 210-240 days in advance for the first adjustment. Other than the first notice, servicers would no longer be required to provide an annual notice if the rate adjustment does not result in an increase in the monthly payment. The Bureau provided sample notices.
  • 3. Prompt payment crediting and payoff payments. As in the OCC consent orders, the proposed new rules would require servicers to “promptly” credit full payments from borrowers, generally on the day of receipt. Partial payments would be permitted to be held in suspense until the amount in the suspense account covers a full installment of principal interest and escrow. The proposed rules would require the servicer to apply the funds to the oldest outstanding payment. Servicers would also be required to provide a payoff statement within seven business days of a borrower’s request.
  • 4. Lender-placed insurance. Servicers would be required to send borrowers written notice at least 45 days before placing insurance, and to send a second notice no earlier than 30 days after the first notice. The Bureau provided model forms. If hazard insurance is paid through an escrow account, the servicer would be required to continue the borrower’s lapsed policy, as opposed to placing a servicer-selected policy, even if there are insufficient funds in the escrow account to cover the premium.
  • 5. Error resolution and information requests. Servicers would be required to acknowledge borrower requests or complaints regarding a servicer error within five days, and must correct the error, or respond to the borrower with the result of an investigation within 30 to 45 days. If, however, the borrower’s complaint related to the calculation of a payoff balance, the servicer would be required to respond within five days.
  • 6. Information management policies and procedures. Servicers would be required to establish “reasonable” information management policies and procedures. In addition, a servicer would be required to retain records relating to each mortgage until one year after the mortgage is discharged or servicing is transferred, and to create a servicing file for each loan containing certain specified documents and information.
  • 7. Early intervention with delinquent borrowers. If a borrower is 30 days late, the servicer would be required to make a “good faith effort” to notify the borrower orally and to inform the borrower of available loss mitigation options. If the borrower is 40 days late, the servicer would be required to provide the borrower with a written notice regarding available loss mitigation options and information about the foreclosure process. The Bureau has provided a model form of the written notice.
  • 8. Continuity of contact with delinquent borrowers. As in the OCC consent orders, the proposed new rules would require servicers to assign dedicated contact personnel to assist delinquent borrowers with loss mitigation options within five days after providing the early intervention notice. Servicers would be required to establish reasonable policies and procedures to ensure that servicer personnel perform certain specified functions where applicable, such as accessing borrower records and providing the borrower with information about how and when to apply for a loss mitigation option and about the status of the application.
  • 9. Loss mitigation procedures. The proposal implements several provisions of the multistate attorney general settlement, including a requirement that loss mitigation applications be evaluated before proceeding to foreclosure, and an appeal process that must be exhausted before proceeding with foreclosure.

The Bureau is seeking comment as to the effective date of the final rules and as to potential exemptions from, or modifications to, the rules for small servicers. Again, comments must be received by October 9, 2012.

Elizabeth L. McKeen  (949) 823-7150 emckeen@omm.com  
Ben Jones  (415) 984-8840 bjones@omm.com  
Ashley Pavel  (949) 823-7138 apavel@omm.com  
Edgar Martinez (949) 823-7143 emartinez@omm.com

[1] The full text of the CFPB’s 2012 Truth in Lending Act (Regulation Z) Mortgage Servicing Proposal is available here.
[2] The full text of the CFPB’s 2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage Servicing Proposal is available here.
[3] The full text of the proposed rule is available here.
[4] The full text of the proposed rule is available here.
[5] The full text of the proposed rule is available here.
[6] The full text of the proposed rule is available here.