The CFPB issued a proposed rulemaking last week to amend various provisions of the mortgage servicing rules under Regulation X and Regulation Z. Comments are due 90 days from the date of publication in the Federal Register. Ballard Spahr’s Mortgage Banking Group will continue to analyze the proposal and work with our clients and industry groups on its impact.
The proposal runs nearly 500 pages and includes several notable proposals, including an exemption from the periodic statement requirement for charged-off loans, expanded requirements for borrowers in bankruptcy, and additional loss mitigation protections.
Periodic Statement Exemption for Charged-Off Loans
In what we expect to be a well-received proposal by the industry, the amendments would create an express exemption from the periodic statement requirements for charged-off loans. The proposed exemption from § 1026.41, would apply if the servicer: (1) charges off the loan in accordance with loan-loss provisions and will not charge any additional fees or interest on the account; and (2) provides the borrower with a final periodic statement, meeting certain specific content requirements, within 30 days of charge-off.
Successors in Interest
The proposed amendment expands several of the provisions under Reg. X and Reg. Z to apply to “successors in interest” provided certain conditions are met. A successor in interest would be treated as the “borrower” for the purpose of the Reg. X mortgage servicing rules, or a “consumer” under Reg. Z, once a servicer confirms the individual’s identity and ownership interest in the property.
The procedural requirements under § 1024.38 also would include requirements for identifying and communicating with successors in interest.
Applicability of Periodic Statement and Early Intervention to Consumers in Bankruptcy
Partially-repealing the exemptions added in the October 23, 2013 Interim Final Rule, the proposed amendments would re-apply aspects of the periodic statement requirements under § 1026.41 and the early intervention requirements under § 1024.39 to borrowers in bankruptcy.
With respect to the early intervention provisions, the live contact requirements and written notice requirements would apply differently to borrowers in varying stages of bankruptcy. In general, the live contact requirements would still not be applicable, but the written notice requirements will apply depending on the circumstances of the bankruptcy and the loss mitigation options available. The proposal also would re-apply the written notice requirement for borrowers who have invoked a cease communication request under the FDCPA, to the extent loss mitigation options are available.
The periodic statement requirements would apply for consumers in bankruptcy, in certain circumstances. The proposal also includes a required disclaimer, and specifically-tailored content requirements depending on the bankruptcy status.
Loss Mitigation Protections for Subsequent Delinquencies
The proposed amendments alter the existing provisions regarding duplicative requests for loss mitigation assistance. Under the proposed language, a servicer would be required to comply with the loss mitigation procedures under § 1024.41 for a borrower who previously submitted a loss mitigation application, became current, and then experienced a subsequent delinquency. The requirement would not apply if the borrower has been delinquent at all times since the previous complete application.
Notice of Complete Application
The proposal adds a written notification requirement to the loss mitigation procedures in § 1024.41. Under the proposed rule, a servicer would be required to issue a written notice upon receipt of a complete loss mitigation application that must include certain information.
Foreclosure Service Provider Oversight
The proposed rules add guidance in the Staff Commentary regarding a servicer’s responsibility to ensure that once loss mitigation protections are triggered under §1024.41 that fact is properly conveyed to foreclosure counsel. The guidance also would address the steps a servicer must take to ensure that foreclosure counsel properly halt the foreclosure process in accordance with the requirements.
Additional Guidance on the “Reasonable Date” for Return of Loss Mitigation Information
The proposal includes additional guidance in the Staff Commentary for setting the reasonable date under § 1024.41(b)(2)(ii) for a borrower to submit information to complete their loss mitigation application.
Servicing Transfer Loss Mitigation Provisions
The proposal clarifies that transferee servicers must generally comply with the loss mitigation requirements under § 1024.41 under the same time frames that applied to the transferor servicer, based on the date the loss mitigation application was received by the transferor. The proposed language details requirements in the context of a servicing transfer for the various aspects of the § 1024.41 loss mitigation process, including acknowledgment, evaluation, appeal rights and borrower acceptance. Some leeway is provided, however, from the application acknowledgment letter requirements, and from the 30-day evaluation requirement for certain “involuntary transfers” and instances when compliance is not practicable.
Expedited Short-Term Repayment Plans
The proposed amendments clarify that servicers may also offer certain short-term repayment plans based upon an incomplete loss mitigation application (i.e. without evaluating the borrower for all other available loss mitigation options). That exception from the “anti-evasion” provision currently applies to “forbearance programs”, which do not clearly encompass repayment plans. The proposal would clarify that this exemption applies to both the forbearance of future payments, and a plan for repayment of previously missed payments.
Definition of Delinquency
The proposed rules would define “delinquency” for purposes of the Regulation X servicing provisions as the period of time during which a borrower, and a borrower’s mortgage loan obligation, are delinquent. The definition also specifies that the delinquency begins on the date a periodic payment becomes due and unpaid, and continues until that outstanding payment is made. Notably, that definition of “delinquency” is not proposed for the purpose of the mortgage servicing rules under Regulation Z, such as the periodic statement requirement.
Early Intervention Requirements
The proposal clarifies the requirement that servicers engage in repeated early intervention activities (both live contact and written notice) during a borrower’s delinquency. Notably, the proposed commentary clarifies the requirement to provide the written notice upon subsequent delinquencies, every 180 days.
The full text of the proposed amendments can be found here.