The Consumer Financial Protection is proposing a number of changes to the servicing rules and how distressed loans are handled.
Amendments are being proposed by the bureau to the Mortgage Servicing Rules under Regulation X, which implements the Real Estate Settlement Procedures Act, and Regulation Z, which implements the Truth in Lending Act.
Details about the proposed amendments are spelled out in 12 CFR Parts 1024 and 1026, [Docket No. CFPB-2014-0033], RIN 3170-AA49.
Revised force-placed insurance disclosures being proposed would account for when a servicer force places insurance because the borrower has insufficient — instead of expiring or expired — hazard insurance coverage. Servicers would have an option to include the borrower’s account number.
Three sets of rule changes are being proposed for successors in interest — or people who inherit or receive a property while it is still financed. In addition to passing on all servicing rule protections to the successor owner, the CFPB proposes to specify how servicers confirm succession. In addition, the regulator wants to prohibit acceleration when the ownership is transferred in this manner.
Under the CFPB’s proposal, the definition of successors in interest includes homeowners who acquire the property through a family trust or inherit it from a family member or upon the death of a joint tenant. It will also include owners who acquire it after a divorce or legal separation and people who receive it through a transfer from a spouse or from a parent to a child.
The CFPB is proposing to define delinquency as when “a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid, and the borrower remains delinquent until such time as the payment is made.”
Once delinquency is established, the agency wants to clarify live contact and written early intervention notice obligations. Early intervention notices are also being proposed for bankrupt borrowers and borrowers who invoked their cease communication rights under the Fair Debt Collection Practices Act.
Loss-mitigation requirements are being proposed requiring written notice when the complete loss mitigation application is received. Servicers would have the flexibility to establish reasonable date for borrowers to return documents that complete an application.
If a servicer lacks a third-party verification 30 days after the complete application is received, then the application can’t be denied. Instead, the borrower must be notified about the delay in writing, and the servicer must quickly complete the evaluation when the third-party information is received.
When an incomplete application is received, servicers would be allowed to offer short-term repayment plan that catches up past-due payments over time.
If information is received indicating that a borrower won’t qualify for a loss mitigation option, no further documentation needs to be collected.
Servicers would be required to evaluate borrowers for loss mitigation under the rules more than once during the life of the loan when borrowers have brought their loans current at any time since the last loss mitigation application.
Subordinate lienholders would be able to join a foreclosure action filed by the senior lienholder even if the junior lienholder’s loan is not 120 days past due.
Servicers are already prohibited from moving forward on a foreclosure what a complete loss mitigation package is received. When they do move forward, a set of steps will be are being clarified to avoid wrongful foreclosure. Servicers that don’t take all reasonable affirmative steps to delay a sale must dismiss the foreclosure action, if necessary, to avoid the sale.
Proposed changes will clarify that a borrower’s foreclosure protections won’t be affected by a servicing transfer. The new servicer will be given an additional five days to provide an acknowledgement notice and will have up to 30 days after the transfer to evaluate the application, or 45 days in the case of an involuntary transfer.
While borrowers are under temporary loss mitigation programs, payments will be applied according to the contract. But on permanent loan modification, payments are applied as specified in the loan modification and cannot be applied as partial payments.
The CFPB is clarifying periodic statement disclosure requirements on loans that have been accelerated, in a temporary loss mitigation program or permanently modified.
On accelerated loans where servicers will accept less than the accelerated balance to reinstate the loan, that amount must be identified on the statement. For loans in temporary loss mitigation, servicers can identify either the contract payment or the temporary payment. With some exceptions, bankrupt borrowers would need to receive periodic statements — though specific forms would be used. Charged-off loans won’t require statements if no further fees or interest will be charged and a final notice of charge off was sent.
Servicers seeking to the small servicer exemption won’t need to count seller-financed transactions toward the 5,000 threshold.
On securitized Fannie Mae or Freddie Mac loans, the CFPB wants to allow servicers to respond to requests for information about the owner or assignee of the loan directly with Fannie’s or Freddie’s contact information.
Public comment on the proposal will be accepted for 90 days once the proposal is published in the Federal Register.
