February 6, 2013
by Donna M. Case-Rossato
USFN Member (Connecticut)
The Consumer Financial Protection Bureau, or CFPB, was empowered by the Dodd-Frank Wall Street Reform and Consumer Protection Act to enforce new requirements upon servicers, including default servicers, and to promulgate rules to effectuate the enforcement. To that end, the CFPB proposed rules, invited comment on those rules, and then released final mortgage servicing rules in January 2013.
The rules themselves are designed to ensure increased accountability and transparency of the servicing practices they address. CFPB announced the final rules at the time this article went to print. Accordingly, please see http://files.consumerfinance.gov/f/201301_cfpb_servicing-rules_summary.pdf and http://www.consumerfinance.gov/regulations/2013-real-estate-settlement-procedures-act-regulation-x-and-truth-in-lending-act-regulation-z-mortgage-servicing-final-rules/; there are links to each on the USFN website.
The rules are grouped in two categories: Issues related to the Real Estate Settlement Procedures Act (RESPA) and those related to the Truth in Lending Act (TILA). While the TILA-related proposed rules address items such as the timely crediting of payments and a time frame to deliver payoff quotes (with violations subjecting servicers to damages and attorneys’ fees), the proposed RESPA-related rules may have a larger direct impact on the default servicing departments.
The proposed RESPA-related rules address expansion of qualified written requests (QWRs) and error resolution; issuance of force-placed insurance; establishment of information management procedures and policies; and early intervention via loss mitigation, including a dedicated contact for the customer. Changes proposed for QWRs originally included oral requests as well as written ones. The rule, 12 CFR 1024.34, as passed, includes written requests only. Error has been defined to include:
- Failure to accept a payment that conforms to servicer’s written requirements;
- Failure to apply an accepted payment pursuant to the terms of the mortgage loan and applicable law;
- Failure to timely credit a payment to the mortgage loan;
- Failure to timely pay for escrowed charges;
- Imposing a fee or charge without a reasonable basis;
- Failure to timely provide an accurate payoff balance;
- Failure to provide accurate loss mitigation options and foreclosure information;
- Failure to provide accurate and timely information regarding transferring of mortgage loan servicing;
- Failure to appropriately file the first notice as required by state law;
- Failure to appropriately move for foreclosure judgment or order of sale; and
- Any other error relating to the servicing of a mortgage loan.
The time to acknowledge the request was shortened to five days of receipt of notice, excluding legal public holidays and weekends. Additional time frames are provided for additional communications. Requests for information are similarly provided for in 12 CFR 1024.36.
Changes to the timing of force-placed insurance notices have also been promulgated in 12 CFR 1024.37. Specifically, the first notice of imposition of force-placed insurance shall be at least 45 days prior to charging for force-placed insurance. The second notice cannot be any earlier than 30 days after the initial notice. The CFPB has provided guidance for the content of the letter, to include:
- Date of notice;
- Servicer’s name and mailing address;
- Borrower’s name and mailing address;
- A request that the borrower provide hazard insurance information for the borrower’s property and identify the property by its physical address;
- Notification that the borrower’s hazard insurance is expiring or has expired, and that the servicer does not have evidence of hazard insurance coverage past the expiration date and that, if applicable, identifies the type of hazard insurance for which the servicer lacks evidence of coverage;
- Notification that hazard insurance is required on the borrower’s property and that the servicer has purchased or will purchase such insurance at the borrower’s expense;
- A request that the borrower promptly provide the servicer with insurance information;
- Describe the requested insurance information and how the borrower may provide that information and, if applicable, a statement that the information must be in writing;
- Notice that insurance the servicer has purchased or purchases:
o May cost significantly more than hazard insurance purchased by the borrower;
o Not provide as much coverage as hazard insurance purchased by the borrower;
- The servicer’s telephone number for borrower inquiries; and
- If applicable, a statement advising the borrower to review additional information provided in the notice.
Prior to issuing the notice, the servicer must have a “reasonable” basis to believe that a customer has failed to maintain insurance. This should not be too dissimilar to the present basis if the servicer is a loss payee on the existing policy. In general, the insurer will notify a loss payee if a policy lapses. From there, the servicer will need to exercise a measure of due diligence to verify the lapse, as they should be doing presently.
Many of the concerns related to the above changes are rooted in the perception that a servicer may have inadequate management policies and procedures. The CFPB has promulgated rules to address this perceived inadequacy. See 12 CFR 1024.38. The policies must be reasonable for the scope, size, and nature of the servicer’s operations, though the CFPB does not define “reasonable.” The success of policies and procedures may be measured by considering whether the servicer regularly provides timely and accurate information to borrowers and courts or whether servicer personnel have prompt access to documents and information submitted in relation to loss mitigation efforts.
Loss mitigation as a whole is examined and addressed by the CFPB at 12 CFR 1024.41. This section does not impose a duty on the servicer to provide a specific loss mitigation option. Nor does it provide the borrower a right to enforce the terms of an agreement between the owner or holder of the loan and the servicer regarding loss mitigation options. Early intervention and a dedicated contact are encouraged. See 12 CFR 1024.39. There must be a good faith effort to notify a delinquent customer of their loss mitigation options. Provisions are made for the timing of applications and responses based upon the stage of the foreclosure itself, specifically as it relates to the foreclosure sale.
Reasonable policies and procedures covering loss mitigation personnel, access to borrower’s records, the providing of loss mitigation options and the status of loss mitigation applications will need to be developed. This is an attempt by the CFPB to address a common complaint of customers that the loss mitigation process is too segmented. Complete loss mitigation applications must be reasonably evaluated before proceeding with a foreclosure sale. Timetables are provided for contacting the borrower based upon a number of contingencies: receiving an incomplete package; reviewing the completed package; issuing denials; and appeals of the denials.
What remains to be seen is how these requirements will interface with state-mandated foreclosure mediation programs, whose timetables may differ greatly from the above, as well as how those conflicts will be resolved.
Impact on the day-to-day operations of servicers will be monumental, but the benefits to their customers well worth the effort.
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Winter 2013 USFN Report