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CFPB Publishes Final Mortgage Servicing Rule

Posted By Rachel Ramirez, Tuesday, December 12, 2017
Updated: Thursday, December 14, 2017

December 12, 2017

by Ronald Scott and Reginald Corley
Scott & Corley, PA – USFN Member (South Carolina)

The recent update by the CFPB, in regards to mortgage servicing rules, aims at moving servicers to a higher level of compliance with fair lending laws, as well as targets problems most extensively found in the area of loss mitigation. A general overview of the major issues that are imposed by § 1024.41,1 which became effective on October 19, 2017, include updating acknowledgement notices; updating practices for reviewing and responding to borrowers’ loss mitigation applications in a timely manner; decreasing deceptive and misleading loss mitigation offers and related communications; adjusting loan modification denial notices; and setting guidelines for servicing transfers during the loss mitigation process.

In order for the servicer to initiate the foreclosure action, the loan must be greater than 120 days delinquent,3 or after the borrower submits a complete loss mitigation application which is subsequently denied for failure to perform, failure to accept, or ineligibility. If this requirement is not met, it directly violates Regulation X and RESPA and the foreclosure action must be immediately stopped. The servicer must exercise reasonable diligence in obtaining documents and information to complete loss mitigation, as well as properly audit the application for completeness and possible options available to the borrower.4 

A complete application means that the servicer has received all of the information that the servicer requires from a borrower necessary for evaluating applications for the loss mitigation options available. Additionally, servicers (aside from exercising reasonable diligence to obtain information needed for the completion of a loss mitigation application) must take reasonable efforts to obtain information not readily available to the borrower and in the control of a third-party. If the servicer is unable to gain the information from a third-party, the servicer must promptly provide a written notice to the borrower stating the information that was not able to be obtained. There is a 5-day notice standard for servicers to determine whether a loss mitigation application is complete or incomplete.5 

Complete Applications

If the application is complete, servicers must provide the date of completion and inform the applicant of certain information, including an explanation that the borrower is entitled to specific foreclosure protections and may be entitled to additional protections under state or federal law.

After a servicer receives the complete loss mitigation application, the servicer shall have 30 days to evaluate all loss mitigation options available to the borrower.6 Following this determination, the servicer must state which loss mitigation options (if any) it will offer; the amount of time the borrower has to accept or reject an offer of a loss mitigation program; and a notification (if applicable) that the borrower has the right to appeal the denial of any loan modification option, as well as the amount of time the borrower has to file such an appeal and any requirements for making an appeal.

When the servicer receives a complete loss mitigation package, it is precluded from completing the following: first foreclosure notice or filing, moving for foreclosure judgment, moving for an order of sale, or completing a foreclosure sale.7 This is in effect until the application is properly denied, withdrawn, or the borrower fails to perform on the loss mitigation agreement.

Incomplete Applications
If a loss mitigation application is incomplete, a notice must be submitted to the borrower specifying the additional documents and information that the borrower must submit to make the loss mitigation application complete, as well as the applicable date. (A statement that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options is of use.)The regulation also provides that a servicer may offer a short-term payment forbearance program to a borrower based upon an evaluation of an incomplete loss mitigation application. A servicer shall not make the first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process, and shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale if a borrower is performing pursuant to the terms of a short-term payment forbearance program offered pursuant to this section.9 

Loss Mitigation Denials
When a loss mitigation application is denied, the notice to the borrower must provide the specific reasons for the servicer’s determination that the borrower did not meet the requirements for accepting a trial loan modification plan.10 Additionally, a borrower who submits a complete loss mitigation application more than 90 days before a foreclosure sale may appeal the denial of a loan modification option, which must be reviewed 37 days prior to foreclosure, allotting the borrower 7 days prior to foreclosure to accept or reject the offer. Moreover, servicers must meet the loss mitigation requirements more than once in the life of a loan for borrowers who become current on payments at any time between the borrower’s prior complete loss mitigation application and a subsequent loss mitigation application.

Transfers
In regards to loans that are transferred between servicers during which a borrower’s loss mitigation application is outstanding, a transferee servicer (in compliance with § 1024.41) must obtain documents and information submitted by a borrower in connection with a loss mitigation application during the servicing transfer. A servicer that obtains the servicing of a mortgage loan, for which an evaluation of a complete loss mitigation option is in process, should continue the evaluation to the extent practicable. Documents and information transferred from a transferor servicer to a transferee servicer may constitute a loss mitigation application to the transferee servicer and may cause a transferee servicer to be required to comply with the requirements of § 1024.41, with respect to a borrower’s mortgage loan account. The transferee servicer must consider documents and information received from a transferring servicer (constituting a complete loss mitigation application for the transferee servicer) as though they were received as of the date such documents/info were provided to the transferring servicer.

 


Real Estate Settlement Procedures Act (Regulation X), 12 C.F.R. § 1024.41 (2017).
Deep Keel, LLC v. Atlantic Private Equity Group, LLC, 773 S.E.2d 607, 413 S.C. 58 (Ct. App. 2015) (stating business records exception was valid for offering evidence of past servicing record whereas current transferred servicer’s testimony was not able to be admitted as evidence).
12 C.F.R. § 1024.41(f)(1).
See id. § 1024.41(b)(1).
See id. § 1024.41(b)(2).
See id. § 1024.41(c)(1).
See id. § 1024.41(g).
See id. § 1024.41(c)(2).
See id. § 1024.41(c)(2)(iii) (offering a short-term forbearance or repayment plan to borrowers in light of incomplete loss mitigation applications if: repayment of no more than three months of past-due payments; plan is structured to bring the loan current in no more than six months; servicer gives prompt written notice after making an offer, with specific repayment terms and other disclosures).
10 See id. § 1024.41(d).


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