CFPB Clarifies Mortgage Servicing Rules
by: Anna DeSimone
On October 15, 2013 the Consumer Financial Protection Bureau (CFPB) released a bulletin and interim final rule to provide greater clarity to the market concerning mortgage servicing rules that take effect in January 2014 in an effort to resolve interpretive issues prior to the January implementation. The clarifications address communications with borrowers, including delinquent loans and borrower and certain protections under the Fair Debt Collection Practices Act.
In January 2013, the CFPB issued rules to establish new, stronger protections for homeowners, including those facing foreclosure. The recent clarifications respond to requests for further explanation on three servicing issues:
Home retention efforts after a borrower dies
In cases in which a borrower dies, the rules the CFPB issued in January require servicers to have policies and procedures in place to ensure that they promptly identify and communicate with family members, heirs, or other parties who have a legal interest in the home. Today’s bulletin provides examples of such servicer policies and procedures, including allowing for continued payment on the mortgage as well as evaluating the heir (or whomever the legal interest in the home passes to) for assumption of the mortgage and, if appropriate, for loss mitigation measures.
Early intervention requirement to contact delinquent borrowers
The CFPB’s new rules require servicers to attempt contact with borrowers each time they miss a payment to provide important information that can help get them on track. Today’s bulletin clarifies that this requirement may be met through other contact that servicers have with such borrowers, for example, when evaluating them for loss mitigation or during collection calls. Also, the method of attempted contact may vary depending on how long a borrower is delinquent or on whether the borrower has responded to earlier servicer attempts to communicate.
Interplay between the servicing rules, bankruptcy code, and the Fair Debt Collection Practices Act (FDCPA)
Both the FDCPA and bankruptcy law provide significant protections for consumers who decide to invoke them and restrict certain types of communications regarding their debts. The Bureau has received a large number of questions about how these other protections intersect with the servicing rules and how to communicate effectively with borrowers who have invoked their other rights. Among the clarifications the CFPB is responding to today, the CFPB is:
- Clarifying that even if delinquent borrowers have instructed servicers to stop communicating with them pursuant to the FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act are still required. Specifically, servicers must communicate with the borrower with regard to requests for loss mitigation, information requests, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages, and periodic statements. However, servicers will not be required to provide certain early intervention contacts or ongoing notices of interest rate adjustments to delinquent borrowers who have instructed the servicer to stop communicating with them.
- Exempting servicers from being required to provide periodic account statements and certain early intervention contacts with borrowers who are in bankruptcy. The Bureau believes further assessment is warranted regarding how bankruptcy protections intersect with these servicing requirements and how to ensure that the servicing communications do not confuse consumers regarding the status of their loans.
Among other things, the interim final rule also clarifies regulations issued by the Bureau in January to implement a provision of the Dodd-Frank Act that requires consumers to receive housing counseling before taking out a high-cost mortgage. The rule specifies which federally required disclosure must be used as the basis for counseling for a small subset of closed-end loans that are not subject to the Real Estate Settlement Procedures Act.
The bulletin is available at: http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf
About the Author
Anna DeSimone is President and Founder of Bankers Advisory, Inc. She can be reached at anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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