1 How We Got Here: 2008 to Present 2008 - FRB attempts to address abusive servicing 2010 - Congress gets into the act - Dodd-Frank Act 2011 - Who needs laws and regulations? OCC/FRB Consent Orders 2012 - Global foreclosure settlement continues to make regulation through enforcement and raises the ante 2013 - CFPB adopts Final Rule establishing national mortgage servicing standards
2 9 Major Topics Covered by Final Rule 1) Periodic Billing - TILA 2) ARM Notices - TILA 3) Payment Crediting and Payoff - TILA 4) Force-Placed Insurance - RESPA 5) Error Resolution & Information Requests - RESPA 6) General Servicing Policies, Procedures and Requirements (P&P Requirements) - RESPA 7) Early Intervention - RESPA 8) Continuity of Contact - RESPA 9) Loss Mitigation - RESPA
3 Nuts and Bolts: Remedies RESPA : Except for P&P Requirements and Continuity of Contact, a “servicer” may face liability for: Actual damages Statutory damages up to $2,000 for an individual action or $2,000 per member of a class not to exceed the lesser $1,000,000 or 1% net worth of servicer, upon showing of a pattern of noncompliance Attorneys fees and costs TILA : For alleged violations of the regulations implementing TILA, a “creditor” may face liability for: Actual damages Statutory damages of up to $4,000 in an individual action or in a class action up to $1,000,000 or 1% of the creditor’s net worth Attorneys fees and costs
4 Nuts and Bolts: RESPA Effective Date and Applicability Effective Date : January 10, 2014 RESPA : Applies to a “federally related mortgage loan” (closed-end loans secured by 1-4 family residential real property) but note: Open-end loans generally exempt from new servicing standards (but not escrow requirements) Reverse mortgage loans are not subject to P&P Requirements, Early Intervention, Continuity of Contact and Loss Mitigation Exclusion for temporary financing and business purpose loans Early Intervention, Continuity of Contact, and Loss Mitigation apply only to loans on a borrower’s principal residence
5 Nuts and Bolts: TILA Effective Date and Applicability Effective Date : January 10, 2014 TILA : Applies with respect to: Prompt Payment Crediting and Payoff: closed- and open-end consumer credit transaction secured by a consumer's principal dwelling Periodic Billing: closed-end consumer credit transaction secured by a dwelling, excluding reverse mortgages and timeshares ARM Disclosures: closed-end consumer credit transaction secured by consumer’s principal dwelling where APR may increase after consummation (except ARMs with term of 1 year or less)
6 Nuts and Bolts: Exemption and Preemption Exemptions: A “small servicer” - one who either services 5,000 or fewer mortgage loans, for all of which the servicer or an affiliate is the creditor or assignee or is a HFA - is exempt from P&P Requirements, Early Intervention, Continuity of Contact, and (most of) Loss Mitigation Preemption: States can provide borrowers broader consumer protections relating to servicing except the Final Rule: Bars a servicer from making the first notice/filing required for a foreclosure process until the borrower is more than 120 days delinquent Preserves preexisting preemption of certain state mortgage servicing transfer disclosures
7 TILA Requirements Payment crediting and payoff statements Revises ARM Disclosures: Initial adjustment notice Payment adjustment notice Non-payment change annual notice is eliminated Periodic Billing Statement: Within a reasonably prompt time (i.e., 4 days) after the due date or end of the courtesy or grace period provided for the previous billing cycle, servicers (including creditor, assignee or servicer) must provide, for each billing cycle, a periodic statement Statements may be sent electronically, with borrower consent Coupon book alternative for fixed-rate loans if certain conditions are met
8 Error Resolution and Borrower Requests for Information Error resolution (1024.35) and information request requirements (1024.36) are structured similarly to: Define the scope of written communications to which a servicer must respond Set out timelines and notice requirements for responding to qualifying borrower communications Carve out certain requests (i.e., duplicative, overbroad or untimely) Allow the servicer to establish one or more addresses which borrowers must use to submit notices of errors and requests for information Limit the fees a servicer may charge for responding to a notice of error or request for information Subsume QWR requirements Note: Servicers should not rely on the borrower’s classification of a request as a notice of error or a request for information. It could be both!
9 Error Resolution: Notice of Error Generally, a servicer must comply with the error resolution requirements for any written notice from the borrower that asserts an error and includes the borrower’s name, information sufficient to identify the borrower’s mortgage loan account, and the error the borrower believes has occurred (but not the reasons for his/her belief).
10 Error Resolution: 11 Covered Errors in Final Rule vs. 9 in Proposed Rule Eight covered errors in Final Rule substantially track proposed rule: Failure to accept a payment that conforms to the servicer’s written requirements to follow in making payments Failure to apply an accepted payment to principal, interest, escrow, or other charges under the terms of the mortgage loan and applicable law Failure to credit a payment to a borrower’s mortgage loan account as of date of receipt in violation of TILA Failure to pay taxes, insurance premiums, or other charges, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect in a timely manner or to refund an escrow account balance Imposition of a fee or charge that the servicer lacks a reasonable basis to impose upon a borrower Failure to provide an accurate payoff balance amount upon a borrower’s request in those circumstances in which TILA Section 129G applies Failure to provide accurate information to a borrower regarding loss mitigation options and foreclosures, as required by the early intervention requirements Failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer
11 Error Resolution: New Covered Errors – including “Catch-all” Making the first foreclosure notice or filing in violation of § 1024.41(f) or (j) Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of § 1024.41(g) or (j) Any other error relating to the servicing of a borrower’s mortgage loan Broad but not all consuming. Does not include matters relating to: Origination or underwriting Subsequent sale or securitization Sell, assign or transfer the servicing (but failure to transfer accurate and timely information to a borrower’s loan account is an error)
12 Error Resolution: Timing & Response Requirements Timing requirements generally follow QWR: Provide written acknowledgment of receipt within 5 business days (unless servicer corrects error(s) within that time frame) Respond to notice of error within 30 business days (shorter time frames for certain types of errors; possibly 15 day extension) by: correcting the error (and providing written notification with the effective date of correction and contact information), or conducting a reasonable investigation and determining that no error occurred (and providing written notification of the basis for the conclusion and the borrower’s right to request documents the servicer relied on, and contact information)
13 Error Resolution: Additional Procedural Provisions A servicer must: Correct any additional errors a servicer finds during its investigation and provide written notification to the borrower Provide at no cost and within 15 business days of borrower’s request, copies of documents relied on in making a “no error” determination (unless they are “confidential, proprietary or privileged information”) Not charge a fee or require a borrower payment as a condition of responding to a notice of error Not furnish adverse information regarding any payment subject to valid notice of error to a CRA for 60 days after receipt of error notice (unless duplicative, overbroad or untimely)
14 Information Request: Timing & Response Requirements A servicer must: Respond to any written information request (other than payoff balance) that includes the borrower’s name, sufficient information to identify the account and states the information the borrower is requesting by: providing the borrower with the requested information, or conducting a reasonable search for the requested information (and notify borrower why information is unavailable) Acknowledge receipt of a request for information within 5 business days of receiving such request (unless the servicer provides the borrower with the information requested within that time frame) Respond to information requests: within 10 business days of a request for the identity of, and contact information for, the owner or assignee for all other information requests, within 30 business days (possibly 15 day extension)
15 Request for Information – Fees A servicer shall not charge a fee or require a borrower to make any payment that may be owed on a borrower’s account as a condition of investigating and responding to a valid information request Fee for providing beneficiary notice is specifically permitted, as allowed under applicable state law The CFPB did not amend the rule in light of industry comments arguing that it would be unfair and economically burdensome to prohibit a servicer from charging certain fees for providing documents in connection with borrower inquiries, such as duplicate statements
16 Exceptions to Error Resolution/Information Request Requirements A servicer is not required to acknowledge, investigate, or respond to an error notice or information request or suspend credit reporting if servicer reasonably determines that the request is: Duplicative Overbroad Untimely Additionally, a servicer is not required to acknowledge, investigate or respond to a request for information if the servicer reasonably determines that the information requested is: Confidential, proprietary, privileged information Irrelevant Unduly burdensome If an exception applies, servicer must notify borrower in writing of its determination and the basis upon which the servicer relied within 5 business days of its determination
17 P&P Requirements A servicer must maintain policies and procedures (P&P) that are reasonably designed to manage information and documents and achieve certain objectives to comply with servicing requirements Whether P&P are reasonable will be judged in light of the size, nature and scope of the servicer’s operations Whereas proposed rule indicated a servicer’s failure to maintain reasonable policies will be judged on a “pattern or practice basis,” Final Rule does not contain that limitation A private right of action is not contemplated. CFPB will evaluate whether servicers are achieving the objectives through enforcement and supervision
18 Five Broad Objectives Policies and procedures must be reasonably designed to ensure that the servicer can: Access and provide timely and accurate information Properly evaluate loss mitigation applications Facilitate oversight of, and compliance by, service providers Facilitate transfer of information during servicing transfers Inform borrowers of the written error resolution and information request procedures Each objective has a subsequent list of objectives that need to be satisfied
19 P&P Requirements: Record Retention A servicer shall retain records that document actions taken by the servicer with respect to a borrower’s mortgage loan account until 1 year after the date the loan is discharged or servicing of the loan is transferred by the servicer to a transferee servicer Beginning on or after January 10, 2014, a servicer must maintain the following documents in a manner that facilitates compiling such documents and data into a servicing file within 5 calendar days: a schedule of all transactions posted to the account a copy of the security instrument servicer notes a report of any data fields relating to the borrower’s loan account (to the extent applicable) copies of documents provided to the borrower in accordance with error resolution and loss mitigation requirements
20 Force-Placed Insurance & Escrow Accounts Generally, if a borrower who has established an escrow account is more than 30 days past due, a servicer may not purchase force-placed insurance unless a servicer is unable to disburse funds from the borrower’s account (including, by advancing its own funds). Servicer is not required to advance premiums to the insurance company on a non-escrowed loan. Prior to charging a borrower for force-placed insurance, servicer must have a “reasonable basis to believe” that the borrower has failed to comply with his or her contractual obligations to maintain insurance.
21 Force-Placed Insurance: Notices Before charging a borrower for force-placed insurance, the servicer must send an initial notice (at least 45 days before the fee or premium is assessed) and, if applicable, a reminder notice (at least 30 days later) and must not have received verification that the borrower has had insurance in place continuously. For the initial notice, do not need to provide an estimate of fees, but such information is needed for the reminder notice. Commentary notes that a servicer may require a copy of the borrower’s declarations page. Before charging a borrower for renewing or replacing force-placed insurance, the servicer must send a written renewal notice at least 45 days before the fee or premium is assessed and not have received verification that the borrower has obtained hazard insurance.
22 Force-Placed Insurance: Cancellation and Charges Within 15 days of receiving verification that the borrower has hazard insurance in place, a servicer must cancel the force- placed insurance and for any period of overlapping coverage, refund to the borrower all related fees and charges. Generally, all charges must be “bona fide and reasonable.” The CFPB did not provide a standard for the amount of coverage (i.e., replacement value vs. last known amount of coverage vs. outstanding loan balance). A servicer may assess charges for force-placed insurance retroactively to the first day of any period in which the borrower did not have hazard insurance in place, if not prohibited by state law.
23 Scope of Default Servicing Standards The CFPB expands the default servicing standards (early intervention, continuity of contact, loss mitigation) beyond the global settlement to apply to first- and second-lien loans. But, unlike the proposed rule, the Final Rule’s default provisions only apply to loans on the borrower’s principal residence. Default servicing standards would generally not apply to small servicers and reverse mortgage loans. The CFPB withdrew its proposal to impose a duty to identify senior or subordinate lienholders once a servicer receives a complete loss mitigation application.
24 Early Intervention: Live Contact Servicers are required to establish or make good faith efforts to establish live contact with a delinquent borrower by the 36 th day of delinquency. No specific “good faith effort” standard. Commentary says that servicer must take “reasonable steps under the circumstances.” For purposes of this section, a borrower performing on a loss mitigation plan is not “delinquent.” After establishing live contact, must notify delinquent borrower of loss mitigation options, if appropriate (according to servicer’s reasonable discretion).
25 Early Intervention: Written Notice Not later than the 45 th day after a missed payment, the servicer must provide borrower with a prescribed written notice. The content of the notice must include, among other items, examples of loss mitigation options available, if applicable, and information on how to obtain more loss mitigation information. Only need to provide one notice in any 180-day period. Final Rule provides model notices - serve as a safe harbor for compliance. Do not need to establish live contact or send written notice if prohibited by applicable law.
26 Continuity of Contact Requires servicers to have policies and procedures in place that are reasonably designed to assign personnel to a delinquent borrower by the time the borrower receives the written early intervention notice, but no later than 45 days after delinquency May be a team of personnel. Like general P&P requirements, CFPB will evaluate whether servicers are achieving the continuity of contact objectives through enforcement and supervision – no private right of action.
27 Continuity of Contact Servicer must have policies and procedures in place to: Make personnel available to the borrower via telephone Ensure that personnel perform certain specified functions including, among others: accessing the borrower’s records; and providing the borrower with information about how and when to apply for a loss mitigation option and about the status of the application. Continue until borrower has made two consecutive mortgage payments under a permanent modification or is no longer delinquent. Obligation to assign personnel exists even if borrower is non- responsive or borrower is in bankruptcy.
28 Loss Mitigation: Scope and Enforcement While a borrower may enforce the loss mitigation requirements through private litigation, the rule specifically states that it does not require servicers to offer specific forms of loss mitigation at all or on any specific terms. Servicers will not be required to evaluate borrowers for any programs for which a borrower does not qualify based on eligibility criteria established by investors or guarantors. Does not create a right for a borrower to enforce the terms of a servicing agreement. Does not mandate outcomes of the loss mitigation process, based on, for example, a “positive NPV.”
29 Loss Mitigation: Sliding Scale Approach Five categories of borrower’s rights/servicer’s obligations: Borrowers who submit applications before the 121st day of delinquency or first notice or filing of foreclosure; Borrowers who submit applications after first notice but 90 days or more before foreclosure sale; Borrowers who submit applications 89 to 45 days before foreclosure sale; Borrowers who submit complete applications 44 to 38 days before foreclosure sale; and Borrowers who submit complete applications 37 days or less before foreclosure sale. (In this instance, servicer has no obligations under the loss mitigation section of Regulation X, but is still required to follow investor requirements.) A borrower is only entitled to an evaluation based on a single complete application.
30 Dual Tracking: Foreclosure Referral A servicer (including a small servicer) is prohibited from initiating the foreclosure process unless a borrower is more than 120 days delinquent. A servicer may not make the first notice or filing of foreclosure if a borrower has submitted a complete loss mitigation application unless: the servicer has rejected the application and appeal process is not applicable, the borrower has not requested an appeal within allowed time frame or borrower’s appeal has been denied; the borrower rejects the servicer’s offer; or the borrower fails to perform under the loss mitigation option.
31 Dual Tracking: Foreclosure Sale If a borrower submits a complete loss mitigation application after the servicer has initiated foreclosure but more than 37 days before a foreclosure sale, a servicer may not move for foreclosure judgment or order of sale, or conduct a foreclosure sale if a borrower has submitted a complete loss mitigation application until: the servicer has rejected the application and appeal process is not applicable, the borrower has not requested an appeal within required time frame or the appeal has been denied; borrower rejects the servicer’s offer; or the borrower fails to perform under the loss mitigation option.
32 Loss Mitigation: Complete Applications A complete loss mitigation application means an application in connection with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower. Servicer has flexibility to establish its own application requirements and to decide the type and amount of information it will require. Considered complete when the borrower provides all information required within the borrower’s control.
33 Loss Mitigation: Incomplete Applications A servicer shall exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application. If incomplete, the acknowledgment notice must state the additional documents and information the borrower must submit to make it complete. Must also disclose the application “deadline” (the earliest remaining date of): The date by which any document or information submitted by a borrower will be considered stale or invalid; The date that is the 120 th day of the borrower’s delinquency; The date that is 90 days before a foreclosure sale; or The date that is 38 days before a foreclosure sale. The “deadline” is the date the borrower should complete the application, not when the borrower “must” complete the application.
34 Loss Mitigation: Acknowledgment of Applications If a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, a servicer must: Review the loss mitigation application to determine if the loss mitigation application is complete; and Send borrower an acknowledgment notice within 5 days (excluding public holidays and weekends) after receiving the loss mitigation application that the servicer has determined that the loss mitigation application is either complete or incomplete. The notice must include a statement that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options.
35 Loss Mitigation: Evaluation If a servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale, then, within 30 days of receiving application, a servicer must: Evaluate the borrower for all loss mitigation options available to the borrower (offered by an owner or assignee of borrower’s mortgage loan); and Provide the borrower with a written notice of which loss mitigation options, if any, it will offer to the borrower. “All loss mitigation options” include home retention and non-home retention options (short sales/DILs). Can evaluate borrowers based on owner/assignee’s loss mitigation hierarchy (“waterfall”)
36 Loss Mitigation: Denials of Loan Modifications If borrower’s complete application is denied for any trial or permanent modification, a servicer must state in the notice: If applicable, that the borrower may appeal the servicer’s determination, the deadline to make an appeal, and any requirements for making an appeal; and The specific reasons for the servicer’s determination for each such trial or permanent loan modification option.
37 Loss Mitigation: Acceptance/Rejection by Borrower Borrower has the following days to accept or reject the offer or appeal (if applicable): 14 days if the complete application is received 90 days or more from the foreclosure sale. 7 days if the complete application is received less than 90 days but more than 37 days before the foreclosure sale. If borrower appeals the denial of a loan modification, borrower must get at least 14 days from receiving appeal notice from servicer. If borrower does not satisfy the servicer’s requirements for accepting a trial modification, but submits the trial payment within deadline established above, servicer must provide a “reasonable period of time” to fulfill obligations.
38 Loss Mitigation: Appeal Process If a servicer receives a complete application 90 days or more before a foreclosure sale (or before first notice or filing of foreclosure), servicer must permit borrower to appeal loan modification denial. A borrower must be given 14 days from receiving denial notice to appeal. Appeals must be decided within 30 days by different personnel than those responsible for the initial decision. Must send borrower a notice explaining the determination. No further appeal.
39 Interplay between Final Rule and FHA Servicing Requirements Servicers of FHA-insured loans will need to comply with both FHA requirements and the requirements in the Final Rule. Two areas HUD is focused on in the Final Rule: Communication with Borrowers – Drafting a Mortgagee Letter updating FHA requirements for communications with delinquent borrowers. Dual Tracking – Drafting a Mortgagee Letter that will address FHA requirements for conducting loss mitigation during the foreclosure process. HUD is working with the CFPB to ensure that these requirements do not differ from the Final Rule.
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