The October issue of Credit Union Magazine covered the Consumer Financial Protection Bureau’s (CFPB) Regulation X mortgage servicing final rule. This month’s article continues along those lines and covers the agency’s Reg Z (Truth in Lending) mortgage servicing final rule.
The CFPB issued its Reg Z mortgage servicing final rule Jan. 17, 2013, and it becomes effective Jan. 10, 2014.
The CFPB's Regulation Z final rule implements sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act that address initial interest-rate adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgages, prompt crediting of mortgage payments, and responses to requests for payoff amounts.
Until now, only open-end loans have required periodic statements. As required by the Dodd-Frank Act, the CFPB has expanded this requirement to cover most closed-end mortgages.
Creditors, assignees, and servicers must provide a periodic statement for each billing cycle containing, among other things, information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors, and, where applicable, delinquency information.
These statements must meet the timing, form, and content requirements provided in the rule.
The periodic statement requirement generally does not apply to fixed-rate loans if the servicer provides a coupon book. That’s true as long as the coupon book contains certain information specified in the rule, and other information specified in the rule is made available to the consumer in writing, in person, by telephone, or electronically.
The rule also includes an exemption for small servicers— institutions that service 5,000 or fewer mortgages in a calendar year, including those granted by affiliates.
A periodic statement must be sent each billing cycle, which corresponds to the frequency of payments. Therefore, if a loan requires the consumer to make monthly payments, that consumer will have a monthly billing cycle.
The periodic statement must be mailed or delivered within a “reasonably prompt” time after the payment due date or the end of any courtesy period provided for the previous billing cycle. “Reasonably prompt” generally means delivering, emailing, or placing the periodic statement in the mail within four days of the close of the courtesy period of the previous billing cycle (comment 1026.41[b]-1).
The “courtesy period” is the time after the payment due date in which the creditor does not impose a late fee. If there is no courtesy period, the creditor must send the periodic statement no later than four days after the payment due date.
A creditor will no longer have to send periodic statements when the loan is:
►Transferred to another servicer;
►Fully paid or paid off through a refinance or sale of the house; or
►Discharged in a foreclosure sale.
A creditor must continue to send periodic statements even when consumers are delinquent or in bankruptcy. The periodic statement must include:
►Amount due information, including the payment due date, amount of any late payment fee, the date the fee will be imposed if the payment has not been received, and the actual amount due.
►Explanation of amount due, including a breakdown showing how much will be applied to principal, interest, and escrow; total fees or charges imposed since the last statement; and any payment amount past due.
►Past payment breakdown. This includes the total of all payments received since the last statement and the current calendar year, including a breakdown showing the amount applied to principal, interest, escrow, fees, and charges, and the amount sent to suspense or unapplied funds accounts.
►Transaction activity since the last statement.
►Partial payment information.
►Contact information, including a toll-free telephone number and an electronic mailing address the borrower may use to obtain information about the account.
►Account information. This includes the amount of the outstanding principal, current interest rate, the date when the interest rate may change, the existence of a prepayment penalty, and a website address to access either the CFPB list or the Department of Housing and Urban Development list of home ownership counselors and counseling organizations and the agency’s toll-free telephone number to access those resources.
►Delinquency information if the borrower is more than 45 days delinquent. This includes the date on which the borrower became delinquent, notification of possible risks, expenses that may be incurred if the delinquency is not cured, and more.
Several of these disclosures are required to be listed either at the top of the first page or somewhere on the first page of the periodic statement.
NEXT: Coupon book exemption