The Consumer Financial Protection Bureau ( CFPB ) has issued the much-anticipated final rules that implement residential mortgage reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank ). In a series of reports, PYA is analyzing the impact of each of these new rules, this week looking at the impact of the final mortgage-servicing rules set forth in two notices–one amending Regulation Z, which implements the Truth in Lending Act ( TILA ); and a second amending Regulation X, which implements the Real Estate Settlement Procedures Act ( RESPA ).
The mortgage-servicing rules take effect January 10, 2014, and include a number of exemptions which, in certain situations, will reduce the burden on most community banks and credit unions.
The rules cover nine major topics and implement certain mortgage-servicing provisions of Dodd-Frank that relate to:
1. Periodic-billing statements Creditors, assignees, and servicers must provide a periodic statement for each billing cycle containing the following information:
- Payments currently due
- Payments previously made
- Fees imposed
- Transaction activity
- Application of past payments
- Contact information for the servicer and housing counselors
- Information regarding delinquencies (if applicable)
The rule contains sample forms that may be used.
2. Interest-rate-adjustment notices for adjustable-rate mortgages ( ARMs ) Creditors, assignees, and servicers must provide a consumer whose mortgage has an adjustable rate with a notice between 210 and 240 days prior to the first payment due after the rate adjusts for the first time. Creditors, assignees, and servicers also must provide a notice between 60 and 120 days before payment at a new level is due when a rate adjustment causes the payment to change.
3. Prompt-payment crediting and payoff statements Servicers must promptly credit payments from borrowers as of the day of receipt, including principal, interest, and escrow. If a payment is received that is less than the amount due, the servicer may hold the payment in a suspense account until the amount in the suspense account covers the periodic payment. An accurate payoff balance must be provided to a consumer no later than seven business days after receipt of a written request for such information.
4. Force-placed insurance If a servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance, force-placed insurance may be charged to the borrower after the required notices have been provided. An initial notice must be sent to the borrower at least 45 days before charging the borrower for force-placed insurance coverage, and a second reminder notice must be sent no earlier than 30 days after the first notice and at least 15 days before charging the borrower for force-placed insurance coverage. If a borrower provides evidence of hazard insurance coverage, the servicer must cancel any force-placed insurance policy and refund any premiums paid for overlapping periods in which the borrower s coverage was in place.
5. Error resolution and information requests Servicers must comply with the error-resolution procedures for certain listed errors as well as any error relating to the servicing of a mortgage loan. Servicers are required to acknowledge the request or notice of error within five days. Servicers are required to correct the error and provide the borrower written notification within 30 to 45 days of the correction, or to conduct an investigation and provide the borrower written notification that no error occurred. In addition, servicers are required within 30 to 45 days to acknowledge borrower-written requests for information and either provide the information or explain why the information is not available.
6. General servicing policies, procedures, and requirements Servicers are required to establish policies and procedures reasonably designed to achieve objectives specified in the rule. Examples of specified objectives include:
- Accessing and providing accurate and timely information to borrowers, investors, and courts.
- Properly evaluating loss-mitigation applications in accordance with eligibility rules established by investors.
- Facilitating oversight of, and compliance by, service providers.
- Facilitating transfer of information during servicing transfers.
- Informing borrowers of the availability of written error resolution and information-request procedures.
7. Early intervention with delinquent borrowers Servicers must establish, or make good faith efforts to establish, live contact with borrowers by the 36th-day of their delinquency and promptly inform such borrowers that loss-mitigation options may be available. In addition, a servicer must provide a borrower a written notice with information about loss-mitigation options by the 45th-day of a borrower s delinquency.
8. Continuity of contact with delinquent borrowers Servicers are required to maintain reasonable policies and procedures pertaining to providing delinquent borrowers with access to personnel to assist them with loss-mitigation options where applicable. The servicer must assign personnel to a delinquent borrower by the 45th-day of a borrower s delinquency. These personnel should be accessible to the borrower by phone to assist the borrower in pursuing loss-mitigation options, including advising the borrower on the status of any loss-mitigation application and applicable timelines.
9. Loss-mitigation procedures Servicers will be required to follow specified loss-mitigation procedures for a mortgage loan secured by a borrower s principal residence, including:
- If a borrower submits an application for a loss-mitigation option, the servicer is required to acknowledge the receipt of the application in writing within five days and inform the borrower whether the application is complete and, if not, what information is needed to complete it.
- For a complete loss-mitigation application received more than 37 days before a foreclosure sale, the servicer is required to evaluate the borrower, within 30 days, for all loss-mitigation options for which the borrower may be eligible in accordance with the investor s eligibility rules, including both options that enable the borrower to retain the home (such as a loan modification) and non-retention options (such as a short sale). Servicers are able to follow waterfalls established by an investor to determine eligibility for particular loss-mitigation options. The servicer must provide a written decision, including the reasons for denial of a loan modification. A borrower may appeal a denial of a loan modification if the borrower s complete loss-mitigation application is received 90 days or more before a scheduled foreclosure sale.
- Dual tracking, where a servicer is simultaneously evaluating a consumer for loan modifications or other alternatives at the same time it prepares to foreclose on the property, is prohibited. The rule prohibits a servicer from making the first notice or filing required for a foreclosure process until a mortgage loan account is more than 120 days delinquent. When a borrower who is more than 120 days delinquent submits a complete application for a loss-mitigation option before a servicer has made the first notice or filing required for a foreclosure process, a servicer may not start the foreclosure process unless: (1) the servicer informs the borrower that the borrower is not eligible for any loss-mitigation options (and any appeal has been exhausted); (2) a borrower rejects all loss-mitigation offers; or (3) a borrower fails to comply with the terms of a loss-mitigation option such as a trial modification.
- If a borrower submits a complete application for a loss-mitigation option after the foreclosure process has commenced but more than 37 days before a foreclosure sale, a servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions noted is met.
View the final rules on mortgage servicing. To discuss the impact of the new mortgage rules on your institution, please contact the expert listed below at PYA, (800) 270-9629.
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