CFPB: Mortgage Servicing Final Rules under RESPA (Regulation X)
by Wendy Walter
This article focuses on some of the possible changes to foreclosure practice under the Mortgage Servicing Final Rules released by the Consumer Financial Protection Bureau (CFPB) in January 2013. The rules will take effect on January 10, 2014.
Loss Mitigation: Additional Defenses to Outcome
In 12 CFR § 1024.41, Loss Mitigation Procedures, the CFPB imposed an application, review, and appeal period, which the CFPB itself has estimated to take approximately 90 days. While homeowner advocates pushed for detailed loss mitigation criteria, specified waterfalls, debt-to-income targets or net present value models or assumptions, they were unsuccessful. What Regulation X does is prescribe deadlines and time frames, enabling borrowers to sue servicers who fail to comply with these time frames when reviewing, evaluating, and deciding loss mitigation applications. Also, § 1024.41(a) prohibits a borrower from enforcing the terms of any agreement between a servicer and the owner or assignee of a mortgage loan. These might be effective arguments for those who have been defending lawsuits and claims that the borrower deserved a loan modification because of a certain net present value calculation presented during foreclosure mediation — assuming a judge is persuaded by the CFPB’s approach to loss mitigation regulation.
Clarity re Foreclosure Cases in Progress
Therefore, under § 1024.41(g), the submission of a complete loss mitigation application after the first notice or filing required by applicable law will bar the servicer from moving for dispositive judgment or taking any action to cause the foreclosure sale, but will not prohibit the servicer (and presumably its legal counsel) from continuing with mediation, publication, or any other non-dispositive motion that might be necessary to avoid a restart. This, of course, may be easier to accomplish in a nonjudicial state where counsel doesn’t have to deal with a court interested in keeping the docket moving along.
It is also interesting to note that the CFPB advises servicers to comply with the most restrictive of all loss mitigation processes to which they are subject, acknowledging that the national mortgage settlement and GSE requirements require a fast track review process for loss mitigation applications received 37 days or less before a foreclosure sale, whereas § 1024.41 does not. (For convenient reference, a link to the national mortgage settlement webpage is provided here.)
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