3. New mandates exist on how to service consumer mortgages, but some requirements exempt “small servicers.” Consistent with the CFPB’s acknowledgment that smaller institutions didn’t cause the financial crisis, the bureau includes in its new mortgage servicing regulations a “small servicer” exemption.
A credit union that services 5,000 or fewer mortgages where it’s the creditor or assignee will be exempt from certain (not all) of the requirements (as noted in the following).
But if a credit union servicing 5,000 or fewer loans uses a subservicer that services more than 5,000 mortgages, the subservicer must comply with all the requirements and the credit union is liable if the subservicer doesn’t comply.
The mortgage servicing rule generally applies to closed-end consumer loans secured by a dwelling. The rules address the following mortgage servicing requirements under both Regulations Z and X: Reg Z:
• Periodic billing statements: Until now, only openend loans have required periodic statements. CFPB has expanded this requirement to cover most closedend mortgages, unless the lender provides a coupon book that contains very extensive information specified in the regulation. Small servicers are exempt.
• Interest-rate adjustment notices for ARMs: Currently, lenders are required to provide disclosures to borrowers with variable-rate mortgages each time an adjustment results in a corresponding payment change and at least once each year during which an interest-rate adjustment is implemented without a corresponding payment change.
The new regulation amends the format and content of rate adjustment disclosures and requires earlier disclosures, such as seven to eight months before the first payment is due aft er the initial rate adjustment. Lenders, assignees, and servicers also must provide a notice between two to four months before payment at a new level is due when a rate adjustment causes the payment to change.
All servicers are subject to this requirement.
• Prompt crediting of mortgage payments and providing payoff balance statements: For closedend mortgages and HELOCs, all servicers must promptly credit payments from borrowers, generally on the day of receipt, and the regulation dictates how to handle partial payments.
Also, servicers must send an accurate payoff balance to a borrower within seven business days aft er receipt of a written request from the borrower.
Reg X—Real Estate Settlement Procedures Act (RESPA):
• Forced-placed insurance: This provision adds detailed notice requirements before credit unions can charge the borrower for adding forced-placed insurance to the mortgage aft er they receive notice that a borrower failed to maintain hazard insurance on the property.
Small servicers receive a restricted exemption, depending on the cost of the forcedplaced insurance.
• Error resolution and information requests: All servicers must follow specific procedures and timing requirements for responding to written complaints about errors or requests for information.
• Servicing policies and procedures: Large servicers must establish policies and procedures to meet the objective of the new rules, such as providing accurate and timely information to borrowers, evaluating loss mitigation applications, and facilitating the transfer of information during servicing transfers. Small servicers are exempt from this requirement.
• Early intervention with delinquent borrowers: Large servicers must make a good faith effort to establish live contact with borrowers by the 36th day of their delinquency and promptly inform them of available loss mitigation options.
And they must provide a written notice with loss mitigation information by the 45th day of the borrower’s delinquency. Small servicers are exempt.
• Continuity of contact for delinquent borrowers: Large servicers must assign personnel to a delinquent borrower by the time the borrower receives an early intervention notice, or by the 45th day of the borrower’s delinquency.
The personnel should be accessible by phone to assist the borrower with loss mitigation options and applications. The servicer can determine how to assign staff to comply with this requirement. Small servicers are exempt.
• Loss mitigation procedures: There are extensive requirements if a borrower applies to the servicer for consideration of a loss mitigation option, such as acknowledging receipt within five days, informing the borrower if information is missing, providing a written decision and reasons if denied, and providing an appeals process.
The rule restricts a servicer from simultaneously evaluating a borrower for a loan modification while pursuing foreclosure on the property. Small servicers are exempt from many of the procedural requirements, but can’t initiate the foreclosure process unless a borrower is more than 120 days delinquent or proceed to a foreclosure judgment or sale if the borrower is following the terms of a loan mitigation agreement.
NEXT: Home Ownership and Equity Protection Act
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