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Georgia: New Mortgage Servicing Rules

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Nicholas A. Rolader and Tomiya S. Lewis

McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut, Florida, Georgia, Illinois)

Many states have shown an inclination to adopt rules either mirroring or sometimes even eclipsing those promulgated by the federal Consumer Financial Protection Bureau (CFPB), and Georgia is now jumping on the bandwagon. Effective July 19, 2017, Mortgage Servicing Standards (MSS) (GA Reg. 80-11-6, et seq.) adopted by the Georgia Department of Banking and Finance implement new standards that servicers must follow when handling delinquent accounts.

The new standards apply to any person or company that services loans within the state of Georgia, except, significantly to any bank or credit union “authorized to engage in business … under the laws of the United States” (O.C.G.A. § 7-1-1001(a)(1)). National banks and federal credit unions are therefore entirely exempt from the purview of the new standards, while those entities meeting the CFPB definition of a “small servicer” are also relieved from certain obligations.

Similarities to CFPB Rules
Generally, the standards require that servicers act with “reasonable skill, care, and diligence.” Though there is at present no precedent to further clarify this requirement, the majority of rules are far more specific and in line with CFPB rules. No fees may be charged for handling borrower disputes; facilitating routine collections; arranging repayment or forbearance plans; sending notice of non-payment; or updating records to reinstate a mortgage loan. (Note: The Georgia Department of Banking and Finance clarified in subsequent informal communications that servicer fees for updating internal systems or administrative tasks are prohibited; they confirmed that transactional costs such as recording costs and title costs are not prohibited.) All borrowers must be entitled to an error resolution process, which includes acknowledgment for receipt of notices of error within five business days of receipt, reasonable investigations, and a correction of error or determination of no error within 45 days.

The new MSS also closely mimic CFPB rules regarding loss mitigation, with two important exceptions. The standards, as currently written, prohibit conducting a foreclosure sale before evaluating complete loss mitigation applications when a complete application is received after the foreclosure process has commenced. However, the Georgia Department of Banking and Finance has advised that its intention was to track the cutoff period prescribed by the CFPB, whereby receipt of a complete loss mitigation package need not halt a foreclosure process if received 37 days or fewer before a scheduled sale. The department further intimated an intention to enforce the rule in accordance with the CFPB stipulations and to later clarify the language of the rule. Formal clarification of the rule has not been published to date. Secondly, this standard requires an appeal process for all forms of loss mitigation applications. While the CFPB rule governs review of loan modifications upon appeal, Georgia will require that any form of loss mitigation dispute be reviewed by personnel different than those who provided previous evaluations.

Other familiar CFPB regulations can also be found within the new MSS. Servicers may not “dual-track,” meaning commence foreclosure while a complete loss mitigation application is under evaluation; nor may servicers apply payments to anything other than principal and interest first, or impose force-placed insurance unless necessary and of a reasonable charge. Still, two final distinctions from the CFPB rules merit attention.

Differences from CFPB Rules
While the CFPB and the Georgia MSS both require a servicer acquiring rights to servicing a mortgage loan to provide contact information in its standard “welcome letter,” the Georgia rules depart from the CFPB rules in also mandating inclusion of a complete and current schedule of servicing fees and a statement setting forth the servicer standards described in this article. This disclosure must specifically include a description of the servicer’s process for appeal of loss mitigation denials. As best practice, it may be easiest for a servicer’s disclosures to specify its own policies and practices, but otherwise mirror the exact standards as set forth in Paragraph 2 of GA Reg. 80-11-6-.02.

Finally, where the CFPB has thus far been nebulous in describing requirements for self-reporting and remediating violations, the Georgia Department of Banking and Finance has attempted to define its expectations more clearly. The standards require that a servicer generally mitigate harm to the borrower when any violation is discovered while also maintaining a record of such violation. Where the violation, at the time of discovery, could result in aggregate financial harm to the borrower in excess of $1,000, the violation must be reported to the Department of Banking and Finance within ten days of discovery. After discussions with the department, it is the view of these authors’ firm that adequate compliance could consist of an internal audit system for quality control processes that would lead to reporting of any applicable violations discovered via periodic random sampling.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

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