Covering the CFPB’s new mortgage servicing standards
The Consumer Financial Protection Bureau released final rules establishing new national mortgage servicing standards. Taking effect in January 2014, the rules amend the Truth in Lending Act (Regulation Z) and the Real Estate Settlement Procedures Act (Regulation X).
Here, Ron Haynie, ICBA’s senior vice president, mortgage finance policy, answers questions about the servicing standards, which include blanket requirements for all services as well as some exemptions for small servicers.
Q: What is the scope of the rules?
Haynie: The rules apply to all first-lien consumer mortgages, regardless of whether the loans are retained in portfolio by the originator or sold into the secondary market. However, the rules do not apply to reverse mortgages, bridge loans, construction phase loans or loans for business purposes secured by a dwelling. They also do not apply to mortgages secured by farm or agricultural properties issued by lenders qualified under the Farm Credit Act of 1971.
The CFPB also has created an exemption category for small servicers, defined as companies (and their affiliates) that annually service 5,000 or fewer mortgages that they own or originated. However, small servicers are not exempt entirely from the standards.
Q: What are the new requirements for borrower monthly statements?
Haynie: Except for small servicers, all mortgage servicers must send “reasonably prompt” billing statements, which the CFPB generally considers to be within four days after the close of any grace period for the previous billing cycle. Statements can be delivered electronically or by mail. However, delinquency notices must be delivered separately in writing.
Additionally, except for small servicers, periodic statements must include a breakdown of specific information, including information about the monthly principal; interest and escrow amounts; the total of all payments received; any past-due amounts or other amounts owed; and on any payments held in suspense. Statements must also include a total of loan transaction activity and a total of any fees or charges applied to the account and the date when they occurred.
Lenders that use coupon books are exempt from some billing statement provisions for fixed-rate and fixed-payment mortgages.
If a borrower pays off his or her mortgage, the servicer must provide an accurate payoff balance statement within seven business days of receipt of a written request.
Q: What has changed for issuing force-placed insurance?
Haynie: All servicers, including small servicers, cannot charge a borrower for force-placed coverage unless it has reason to believe the borrower has allowed coverage to lapse. The servicer must send two rounds of notices within set time periods before charging a borrower for force-placed insurance.
For loans that are escrowed, servicers must continue to advance premiums and cannot obtain force-placed insurance.
Small servicers are exempt, provided the cost of the force-placed coverage they impose is less than any disbursement from the escrow account they would have made to maintain the borrower’s insurance coverage.
Q: What has changed in regard to error-resolution procedures?
Haynie: The CFPB says all servicers must respond to error notices quickly. All servicers must correct errors within 30 days after receiving a written notice from a borrower, and they must acknowledge corrected errors within 30 days.
For written error notices from borrowers, five days after receipt is the standard response for all mortgage servicers (unless the error is corrected beforehand). Such responses must be made in writing.
Q: What is the new “continuity of contact” standard?
Haynie: Servicers, except small servicers, must allow delinquent borrowers to contact staff who are qualified to assist with available loss-mitigation options. That staff must be available by phone, informed about available loss-mitigation options and able to access all of a borrower’s records.
Borrowers who are 45 days late in making a mortgage payment must be assigned a specific contact person to continue to handle the loss-mitigation process for their loan.
All servicers, including small servicers, must adhere to two loss-mitigation restrictions. First, they may not file a first notice for foreclosure unless the borrower is more than 120 days delinquent; second, they may not proceed to foreclosure or sale if a borrower is performing under the terms of a loss-mitigation agreement.
Except for small servicers, the CFPB has outlined specific procedures for loss mitigation that include several documentation requirements.
Q: When can a servicer move forward with a foreclosure?
Haynie: All servicers can move forward with foreclosure only when the borrower is not eligible for loss-mitigation options and all appeals have been exhausted; when the borrower rejects all loss-mitigation options; or when the borrower fails to comply with the terms of any loss-mitigation option.