The Consumer Financial Protection Bureau’s (CFPB) revisions to the mortgage servicing rule demonstrate the agency’s attentiveness to lenders’ concerns.
That’s the good news.
The bad news: The final rule keeps changing, making compliance by Jan. 10, 2014, challenging, if not impossible.
The CFPB published its final mortgage servicing rule, approximately 1,000 pages, on Feb. 14, 2013, and finalized clarifications on July 24. But on July 2, the CFPB proposed additional clarifications. At press time, these clarifications hadn’t been finalized, so expect some revisions to the requirements summarized in this article.
Two regulations implement the new rule, as they address different types of loans. Regulation X, the Real Estate Settlement Procedures Act (RESPA), applies to closed-end federally related mortgages. Regulation Z, the Truth in Lending Act (TILA), applies to a broader definition of mortgages, including closedend mortgages and home equity lines of credit (HELOCs).
So, not only must you know the new mortgage servicing rule, you must know the types of mortgages affected by each specific provision.
This article addresses the provisions Reg X implements. We’ll cover the Reg Z provisions next month.
Reg X applies to credit unions offering first and subordinate liens, but doesn’t apply to open-end lines of credit, property of 25 acres or more, business purpose loans, temporary financing, or loans secured by vacant land.
Small servicer exemption
The CFPB exempts “small servicers” from several of Reg X mortgage servicing provisions, including:
General policies and procedures;
Most requirements for evaluating and responding to loss mitigation applications; and
Early intervention with delinquent borrowers.
Also, small servicers aren’t restricted from purchasing force-placed insurance for borrowers with escrow accounts, as long as the cost to the borrower is less than the amount the borrower would’ve been charged through their escrow account.
For a credit union to qualify as a small servicer it must—with any affiliates— have 5,000 or fewer mortgage loans, and service only mortgage loans for which the credit union or an affiliate is the owner or originator.
Policies and procedures
The CFPB allows mortgage servicers to be flexible with their specific policies and procedures, taking into consideration the size, nature, and scope of their mortgage servicing operations.
The new rule requires, at a minimum, policies and procedures to address how you will:
Provide timely and accurate information to your borrowers;
Evaluate loss mitigation applications;
Transfer information during a mortgage servicing transfer;
Inform borrowers of their rights to Error Resolution and Information Requests;
Assign personnel to delinquent borrowers; and
Provide oversight of and compliance from your service providers.
Servicers must retain records relating to each mortgage until one year after discharging the mortgage or transferring service, and must maintain certain information for each mortgage so they can compile a servicing file within five days.
Error notices and info requests
To ensure responsiveness to borrowers’ requests and complaints, the mortgage servicing rule includes requirements addressing how credit unions will investigate and respond to such inquiries—and when appropriate, make corrections or provide requested information.
Credit unions must acknowledge receipt of an error notice or information request within five days, and respond within 30 days. But a mortgage servicer can extend the time limit by 15 days if, before the end of the 30-day period, the servicer notifies the borrower of the extension—and the reasons for it—in writing.
This marks a significant change from the existing “qualified written request” rule that allowed 20 days to acknowledge receipt of a notice and 60 days to respond.
To ease the compliance burden, exceptions to this requirement include duplicative, overbroad and untimely notices, and error corrections within five days of notification. Servicers can designate a specific address that borrowers must use to submit error notices and information requests.
The new rule requires mortgage servicers, within five days of receiving a loss mitigation application, to acknowledge receipt and notify borrowers whether the application is complete. For incomplete applications, the notice must state what information is lacking.
For a complete loss mitigation application received more than 37 days before a foreclosure sale, the servicer must evaluate the borrower— within 30 days of receipt of the application—for all loss mitigation options for which the borrower might be eligible. The servicer must provide the borrower a written decision, including the reasons for denying the borrower any loan modification option.
A borrower may appeal a denial of a loan modification program, as long as the servicer receives the borrower’s complete loss mitigation application at least 90 days before a scheduled foreclosure sale.
The rule prohibits a servicer from making the first notice or filing required for a foreclosure process until a mortgage account is more than 120 days delinquent.
The CFPB allows a credit union to establish application requirements and decide the type and amount of information it will require from borrowers applying for loss mitigation options.
The CFPB defines a loss mitigation application expansively, classifying any “prequalification”—such as a borrower expressing interest and providing information to evaluate— as a loss mitigation application.
The rule exempts small servicers from all but two requirements of this provision. A small servicer must not:
Make the first notice or filing required for a foreclosure process unless a borrower is more than 120 days delinquent, and
Proceed to foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing under the terms of a loss mitigation agreement.
Servicers must establish live contact with borrowers in person or over the phone by the 36th day of their delinquency—or make a good faith effort to do so—and promptly inform them loss mitigation options might be available.
By the 45th day of the borrower’s delinquency, a servicer must provide a written notice about, and assign personnel to assist with, all loss mitigation options. Such personnel should be accessible to the borrower by phone and be able to access all information the borrower has provided the servicer regarding the mortgage.
The rule prohibits servicers from charging a borrower for force-placed insurance coverage unless the servicer has reasonable grounds to believe the borrower has failed to maintain hazard insurance.
Before a servicer can purchase force-place insurance, it must send an initial notice 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.
If a borrower provides proof 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. If the borrower maintains an escrow account for the payment of hazard insurance premiums, the servicer is prohibited from obtaining force-placed insurance when the servicer can continue the borrower’s homeowner insurance, even if the servicer needs to advance funds to the borrower’s escrow account to do so.
Look for Part 2 of the mortgage servicing rules in next month’s Credit Union Magazine. We’ll address the Reg Z provisions, such as periodic payments, interest-rate adjustment notices for adjustable-rate mortgages, and prompt crediting of mortgage payments.
For credit unions, the Electronic Signatures in Global and National Commerce Act of 2000 means information required to be made available can be delivered electronically, as long as the credit union complies with its requirements.
While the DOD has affirmed the Military Lending Act’s effective date for credit card accounts of Oct. 3, CUNA is engaged with legislators to build support for efforts to exempt credit unions from the rule.