In their letter commenting on the CFPB’s mortgage servicing proposal, Americans for Financial Reform and numerous other consumer advocacy groups, including Consumers Union, have asked the CFPB to consider withdrawing and reissuing the portions of the proposal that deal with loss mitigation and error resolution.

With regard to error resolution, the groups criticize the CFPB for limiting the types of claims that trigger the resolution procedures and urge the CFPB to add as a trigger “a general ground that covers any borrower request to avoid foreclosure or address other ‘standard servicer dut[y].'”  In the area of loss mitigation, the groups take issue with the proposal’s allowance of “dual tracking” by servicers (meaning the ability of servicers to proceed with foreclosure while evaluating a home owner for loss mitigation).  The groups assert that dual-tracking should not be allowed and list nine issues they want the loss mitigation rules to address.

Other changes to the servicing proposal sought by the groups include protections from forced placement of insurance for borrowers without escrow accounts and requirements for servicers to provide borrowers “with verification of the servicer’s right to foreclose before initiating [a foreclosure]” and “detailed information about all of the loss mitigation strategies employed by the servicer, the eligibility requirements, and the steps required for homeowners to apply for these options.”

The approach that the consumer groups want the CFPB to take stands in stark contrast to the approach urged by the American Bankers Association in its comment letter on the servicing proposal.  In that letter, the ABA asks the CFPB not to adopt “servicing rules that significantly diverge from the express requirements of the Dodd-Frank Act” or additional requirements patterned on the national mortgage settlement.  The Mortgage Bankers Association also submitted comments on the servicing proposal in which the MBA indicated that many aspects of the proposal are in need of improvement.


After reviewing the CFPB’s proposed mortgage servicing regulations, our basic observation is that the proposals follow the script contained in the CFPB’s exam guidelines, the fact sheet issued by the CFPB in April outlining what the proposals would contain, and the March settlement of high profile servicing-related enforcement actions by the federal government and state attorneys general.  We have prepared a legal alert that provides details on the proposals.   

Much work will need to be done during the comment period to ensure that the final rules truly reflect the industry’s concerns and the operational realities of mortgage servicing.  Ballard Spahr’s Mortgage Banking Group will provide ongoing analysis of the CFPB’s efforts to reset the way mortgage servicing is conducted. On September 6,  from 11:00 AM – 12:00 PM ET,  the group will be conducting a webinar: “The Evolution of Mortgage Servicing: How the CFPB’s Proposed Servicing Rules Will Affect the Industry.” Information about the webinar and a link to register can be found here.


The CFPB has released its proposed mortgage servicing rules.  The proposals consist of a 250-page Real Estate Settlement Procedures Act (Regulation X) rule and a 178-page Truth in Lending Act (Regulation Z) rule.  Comments on the proposals will be due by October 9, 2012.  

While the proposals’ page count may seem modest compared to the CFPB’s nearly 1,100 page proposal integrating RESPA/TILA disclosures, the servicing proposals are untypically single-spaced rather than double-spaced.  

We are reviewing the proposals and will share our thoughts in a subsequent blog post, legal alert and webinar.


Two recent notices published by the CFPB in the Federal Register shed some light on the CFPB’s plans for testing the mortgage servicing disclosures it’s developing and for collecting information about the potential compliance costs of its proposals.

A notice published on May 11 seeks comments on the CFPB’s plans to qualitatively test mortgage servicing related model forms and disclosures. The research is to primarily be conducted by “an external contractor employing cognitive psychological testing methods,” an approach that, according to the CFPB, has been shown to be “feasible and valuable” in developing disclosures. Comments are due by July 10, 2012.

Another notice published on May 15 seeks comments on the CFPB’s request for “generic clearance” from the Office of Management and Budget of the CFPB’s efforts to collect “qualitative information on the potential costs of complying with potential new regulations and other effects the rules may have for providers and consumers.” The CFPB states that, through its collection of such information, it “seeks to ensure that it has considered the compliance burdens and costs before completing a rulemaking action.”

The CFPB notes that it’s “particularly interested” in collecting information on the impact of its proposals on the unit costs of delivering specific consumer financial services and products because this will help it determine whether a proposal has “unncessary costs for providers or consumers.” The CFPB intends to obtain cost information through structured interviews, focus groups, conference calls, written questionnaires, and online surveys. The CFPB also states that because it recognizes that burdens are not the same for all institutions or all products and services offered, it will attempt to sample providers “that are representative of affected markets.” Comments are due by June 19, 2012.

The CFPB has announced that it is working on a mortgage servicing rules proposal that it plans to issue this summer and adopt by January 21, 2013, with an implementation date still under consideration.

Aspects of the rules under consideration include:

  • Requiring monthly mortgage statements that include detailed payment information and, for delinquent borrowers, alerts and information about counselors who can assist in working with servicers and avoiding foreclosure.
  • Requiring disclosures before the interest rate changes on an adjustable rate mortgage, including when the change will take effect and alternatives the consumer may pursue if the new mortgage payment will not be affordable.
  • Additional rights for consumers in connection with the force-placement of hazard insurance by servicers, including a requirement that services provide advance notice and pricing information before charging borrowers for the insurance.
  • Requiring servicers to make good faith efforts to contact delinquent borrowers and inform them of foreclosure alternatives.
  • Requiring various policies and procedures for the handing of borrower accounts, including prompt crediting of payments, maintaining accurate account information, prompt resolution of borrower claims of errors, and direct, easy and on-going access for delinquent borrowers to the servicer’s foreclosure prevention team.

Various concepts noted by the CFPB already exist under current law and/or in the mortgage provisions of the Dodd-Frank Act.

The CFBP also will seek input on the servicing rules from a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA) that will address cost of credit matters.

It is likely that elements of the federal banking agency April 2011 consent orders with financial institutions, and the servicing standards in the national mortgage settlement with the five major servicers that was just approved by the court, will play a material role in the development of the CFPB’s servicing rule proposal.

The CFPB’s Mortgage Servicing Examination Procedures, which I wrote about recently, cover lots of interesting topics.  Today, I want to focus on the section of the procedures that deals with a servicer’s consumer complaint handling process. 

The CFPB intends to assess the quality of servicers’ systems for receiving and dealing with complaints, including aspects of customer service phone lines like the ease of getting to a live person, the average hold times, and the abandonment rate of phone calls.  The CFPB also plans to track the average time to respond to complaints, and to examine a sampling of complaints to see how they were resolved.  It even plans to listen to some of the phone calls to hear how the servicer interacts with borrowers. 

One might react to this focus on customer service and complaint-handling with some skepticism, since it is fairly removed from any of the consumer protection laws that the CFPB administers.  But leaving that aside, I think that the emphasis on evaluating these aspects of a servicer’s operations could be very positive for the servicers themselves. 

I’m convinced that customer complaints to regulatory agencies are one of the primary driving forces that may spur a regulatory investigation or enforcement action.  I expect the CFPB to be driven by complaints, much like state AGs and the FTC have been.  That being the case, it follows that one of the best things that any consumer financial services company can do to reduce the risk of incurring the CFPB’s ire is to capture and resolve as many consumer complaints as possible before they make their way to the CFPB or some other regulator.  Viewed in this light, time and money spent on customer service and customer complaint handling is an investment in avoiding regulatory enforcement.  And I think it is generally a wise investment. 

By detailing specific procedures for evaluating mortgage servicers’ customer complaint procedures, the CFPB is adding to the incentives for servicers to examine and enhance those procedures.  In doing so, the CFPB is encouraging complaints and disputes to be resolved long before they can form the foundation for some sort of enforcement proceeding.  It won’t make the same kind of headlines as a big investigation, but this kind of emphasis will help both consumers and servicers in a very real way. (For more information on the procedures, see our legal alert.)