CFPB Issues 400 pages of proposed servicing rules
On August 9, 2012, the CFPB issued proposed mortgage servicing rules. The comment period expires October 9, 2012, and the CFPB hopes to issue the final rules by January 2013. Comments may be submitted at www.regulations.gov.
Regulation Z Changes
The proposed rules are split into two notices: one issued under TILA, Regulation Z and one under RESPA, Regulation X. Proposed rules under Regulation Z include a requirement that servicers of closed‐end mortgages (other than reverse mortgages) send a periodic statement for each billing cycle. The proposed rule contains sample forms. In addition, for ARM loans, servicers must provide the borrower a notice 60 to 120 days before an adjustment which causes the payment to change. The servicer will also have to provide an earlier notice 210 to 240 days prior to the first rate adjustment. This first notice may contain an estimate of the rate and payment change.
Servicers must promptly credit payments from borrowers generally on the day of receipt. If a servicer receives a payment that is less than a full payment, the payment may be held in suspense. When the amount in the suspense account covers a full payment, the servicer must apply the funds to the oldest outstanding payment. Servicers must provide payoff statements to borrowers no later than seven business days after receipt of a written request.
Regulation X Changes
Force Placed Insurance
A servicer is not permitted to charge a borrower for force‐placed insurance unless it has a “reasonable basis” to believe the borrower has failed to maintain hazard insurance and the servicer has provided the required notices to the borrower. The first notice must be sent at least 45 days before purchasing the force‐placed insurance, and a second notice is required at least 30 days after the first notice. The proposal contains model forms. If the borrower provides proof of insurance, then the servicer must cancel the force‐placed insurance and refund any premiums. If a servicer makes a payment for the insurance from an escrow account, a servicer must continue paying the premium rather than purchasing force‐placed insurance, even if there is insufficient money in the escrow account. The charges for such force placed insurance must bear a reasonable relationship to the servicer's costs of providing the service.
QWR and Error Resolution
Regulation X is also amended to add Error Resolution Procedures. In effect, this is an expansion of the current rules related to qualified written requests. Currently, not all notices from a borrower requesting information are QWRs. The intent of the proposed rule is to increase a servicer's obligation when it receives a “notice of error” or “information request.” A servicer's obligation will be triggered even if the borrower asserts an error verbally. Servicers can designate a specific phone number and address for borrowers to use. Servicers must acknowledge the request or complaint within five days. The servicer must correct or respond to the borrower generally within 30 to 45 days. A servicer is not required to delay a scheduled foreclosure sale if it receives an error notice unless the error relates to the servicers improperly proceeding with a foreclosure sale during a borrower's evaluation for loss mitigation. Borrowers currently raise this as a foreclosure defense. If this rule becomes final, we expect to see further increase in delays and litigation.
The proposed changes to Regulation X require servicers to notify borrowers of loss mitigation options if the borrower is 30 days late, and to assign dedicated employees to a borrower no later than five days after providing such loss mitigation notice to the borrower; however, this rule does not specifically require a Single Point of Contact. In addition, the servicer may be required to notify the borrower within five days of receiving an incomplete loss mitigation application. Within 30 days of receiving a complete application, the servicer must evaluate the borrower for all available options and provide the borrower with at least a 14 day period within which to appeal any denial. Appeals must be decided within 30 days by different personnel other than those responsible for the initial decision. The rules also limit a servicer's ability to have a foreclosure sale if the borrower is not notified of certain loss mitigation events, such as denial of application, right to appeal, results of the appeal, or the borrower's failure to comply with the terms of loss mitigation.