CFPB Proposes Additional Servicing Rule Amendments

The Consumer Financial Protection Bureau recently issued a proposed rulemaking to amend various provisions of the mortgage servicing rules under Regulation X and Regulation Z. Comments are due 90 days from the date of publication in the Federal Register. Our Mortgage Banking Group will continue to analyze the proposal and work with our clients and industry groups on its impact.

The proposal runs nearly 500 pages and includes several notable proposals, including an exemption from the periodic statement requirement for charged-off loans, expanded requirements for borrowers in bankruptcy, and additional loss mitigation protections.

Periodic Statement Exemption for Charged-Off Loans

In a proposal we expect to be well-received by the industry, the amendments would create an express exemption from the periodic statement requirements for charged-off loans. The proposed exemption from § 1026.41 would apply if the servicer: (1) charges off the loan in accordance with loan-loss provisions and will not charge any additional fees or interest on the account; and (2) provides the borrower with a final periodic statement, meeting certain specific content requirements, within 30 days of charge-off.

Successors in Interest

The proposed amendment expands several of the provisions under Regulations X and Z to apply to “successors in interest” provided certain conditions are met. A successor in interest would be treated as the “borrower” for the purpose of the Regulation X mortgage servicing rules, or a “consumer” under Regulation Z, once a servicer confirms the individual’s identity and ownership interest in the property.

The procedural requirements under § 1024.38 also would include requirements for identifying and communicating with successors in interest.

Applicability of Periodic Statement and Early Intervention to Consumers in Bankruptcy

Partially repealing the exemptions added in the October 23, 2013, Interim Final Rule, the proposed amendments would reapply aspects of the periodic statement requirements under § 1026.41 and the early intervention requirements under § 1024.39 to borrowers in bankruptcy.

Regarding the early intervention provisions, the live contact requirements and written notice requirements would apply differently to borrowers in varying stages of bankruptcy. In general, the live contact requirements would still not be applicable, but the written notice requirements will apply depending on the circumstances of the bankruptcy and the loss mitigation options available. The proposal also would reapply the written notice requirement for borrowers who have invoked a cease communication request under the Fair Debt Collection Practices Act, to the extent loss mitigation options are available.

The periodic statement requirements would apply for consumers in bankruptcy in certain circumstances. The proposal also includes a required disclaimer and specifically tailored content requirements, depending on the bankruptcy status.

Loss Mitigation Protections for Subsequent Delinquencies

The proposed amendments alter the existing provisions regarding duplicative requests for loss mitigation assistance. Under the proposed language, a servicer would be required to comply with the loss mitigation procedures under § 1024.41 for a borrower who previously submitted a loss mitigation application, became current, and then experienced a subsequent delinquency. The requirement would not apply if the borrower has been delinquent at all times since the previous complete application.

Notice of Complete Application

The proposal adds a written notification requirement to the loss mitigation procedures in § 1024.41. Under the proposed rule, a servicer would be required to issue a written notice upon receipt of a complete loss mitigation application that must include certain information.

Foreclosure Service Provider Oversight

The proposed rules add guidance in the Staff Commentary regarding a servicer’s responsibility to ensure that once loss mitigation protections are triggered under §1024.41, that fact is properly conveyed to foreclosure counsel. The guidance also would address the steps a servicer must take to ensure that foreclosure counsel properly halt the foreclosure process in accordance with the requirements.

Additional Guidance on the “Reasonable Date” for Return of Loss Mitigation Information

The proposal includes additional guidance in the Staff Commentary for setting the reasonable date under § 1024.41(b)(2)(ii) for a borrower to submit information to complete their loss mitigation application.

Servicing Transfer Loss Mitigation Provisions

The proposal clarifies that transferee servicers must generally comply with the loss mitigation requirements under § 1024.41 under the same time frames that applied to the transferor servicer, based on the date the loss mitigation application was received by the transferor. The proposed language details requirements in the context of a servicing transfer for the various aspects of the § 1024.41 loss mitigation process, including acknowledgment, evaluation, appeal rights, and borrower acceptance. Some leeway is provided, however, from the application acknowledgment letter requirements, and from the 30-day evaluation requirement for certain “involuntary transfers” and instances when compliance is not practicable.

Expedited Short-Term Repayment Plans

The proposed amendments clarify that servicers may also offer certain short-term repayment plans based upon an incomplete loss mitigation application (i.e., without evaluating the borrower for all other available loss mitigation options). That exception from the “anti-evasion” provision currently applies to “forbearance programs,” which do not clearly encompass repayment plans. The proposal would clarify that this exemption applies to both the forbearance of future payments, and a plan for repayment of previously missed payments.

Definition of Delinquency

The proposed rules would define “delinquency” for purposes of the Regulation X servicing provisions as the period of time during which a borrower, and a borrower’s mortgage loan obligation, are delinquent. The definition also specifies that the delinquency begins on the date a periodic payment becomes due and unpaid, and continues until that outstanding payment is made. Notably, that definition of “delinquency” is not proposed for the purpose of the mortgage servicing rules under Regulation Z, such as the periodic statement requirement.

Early Intervention Requirements

The proposal clarifies the requirement that servicers engage in repeated early intervention activities (both live contact and written notice) during a borrower’s delinquency. Notably, the proposed commentary clarifies the requirement to provide the written notice upon subsequent delinquencies, every 180 days.

The full text of the proposed amendments can be found here.

- Reid F. Herlihy


CFPB Gives Guidance and Answers FAQ on the New Closing Disclosure

The CFPB staff and Federal Reserve Board co-hosted a webinar last month that addressed questions about the Final TILA-RESPA Integrated Disclosure Rule, which will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015. The webinar focused on the Closing Disclosure and addressed specific questions regarding the content of the Closing Disclosure.

The webinar is the fourth in a series to address implementation of the new rule. Topics covered in the past include an overview of the final rulefrequently asked questions, and the loan estimate form. Many of the issues covered were in response to questions received by the CFPB from mortgage industry stakeholders and technology vendors who need additional information to facilitate the development of compliance and quality control procedures and software.

During the webinar, the CFPB staff provided a high-level walk-through of the Closing Disclosure Form and addressed several issues, including the following:

  • For transactions with a seller, the staff advised that the sales price should be disclosed at the top of page 1, and that for transactions without a seller, such as a refinance, a creditor should disclose the appraised value and label it “appraised prop value” (assuming there is an appraisal). In addition, the CFPB staff referred to comment § 1026.38(a)(3)(vii)-1 and said that in cases where the creditor has not yet obtained an appraisal, the rule provides some degree of flexibility and allows creditors to disclose an estimated value as long as it is labeled “estimated prop value.”
  • The staff also said that although the categories identified on page 2 of the Closing Disclosure are the same as those on the Loan Estimate, the Closing Disclosure allows greater flexibility for revisions to the spacing. For example, the number of rows can be reduced or added by the creditor for each category based on need. According to the CFPB staff, if the rows provided are not sufficient to disclose all the items, page two may be broken into two pages—page 2(a) and page 2(b), with loan costs listed on 2(a) and other costs on 2(b). The CFPB staff noted that Form H-25(h) in Appendix H is an example of how to divide page 2 into separate pages. The staff referred to the CFPB’s TILA/RESPA Integrated Disclosure—Guide to the Loan Estimate and Closing Disclosure form that is available on its regulatory implementation website, along with sample forms, for additional guidance.
  • The staff advised that charges disclosed in one category of the Loan Costs section in the Loan Estimate may need to be disclosed in a different category of the section in the Closing Disclosure. For example, if title charges were disclosed in the “Services You Can Shop For” category of the Loan Costs section in the Loan Estimate and the borrower selected the title company identified by the creditor on the written list of providers, the title charges would have to be disclosed in the “Services Borrower Did Not Shop For” category of the Loan Costs section the Closing Disclosure (because the borrower would not have actually shopped for a provider under the rule).
  • The staff said that under “Other Costs” on page 2 of the Closing Disclosure, general lender credits not associated with any particular item must be listed at the bottom of the page as a negative number. The lender credit must be listed along with a narrative description if any refund is being provided by the creditor in accordance with the good faith analysis of charges. Notably, the CFPB staff said that lender credits associated with specific closing costs must be disclosed as paid by others and have an “L” for lender designation.
  • The CFPB staff pointed out that the Loan Estimate contains less detail regarding transfer taxes than the Closing Disclosure. The main difference between the two forms in this respect is that transfer taxes are itemized on the Closing Disclosure as opposed to aggregated into a single sum on the Loan Estimate. The itemization is for each tax and for each government entity because multiple taxes may be assessed by each government entity.

In addition to giving a detailed walk-through of the Closing Disclosure Form, the CFPB staff used the webinar as an opportunity answer a variety of questions posed by the industry. We have prepared below an unofficial summary of the questions addressed by the CFPB staff.

Q: How does the disclosure of recording fees differ between the Loan Estimate and the Closing Disclosure (compare § 1026.37(g)(1)(i) with § 1026.38(g)(1)(i))?

Similar to the Loan Estimate, the Closing Disclosure requires the sum of all recording fees to be disclosed as one item. See § 1026.37(g)(1)(i). However, the Closing Disclosure also requires the amount paid to record the deed and mortgage be itemized separately. Accordingly, the itemized recording fees for the deed and the mortgage should only include the amounts needed to record each of those documents. Note that recording fees associated with any other documents, except for the deed and the mortgage, are only included as part of the total recording fees and are not separately itemized. See § 1026.38(g)(1)(i).

Q: How should creditors disclose the name of the government entity to whom a transfer tax amount is distributed (§ 1026.38(g)(1)(ii))?

Creditors must disclose the name of the entity assessing the transfer tax. This is the case even if the entity that is assessing the transfer tax is different than the payee of the check cut by the settlement agent.

Q: Is a lender required to choose only one of the three options for the Partial Payments disclosure required by § 1026.38(l)(5), or is it possible to check multiple boxes?

It depends. A creditor may check multiple boxes in certain circumstances. A creditor should check the first and second box if the creditor accepts partial payment and applies it to the loan balance in some circumstances. However, a creditor should not check the third box if it accepts partial payment in any circumstance that is applicable to the borrower’s loan. In this case, the creditor should only check the third box and not check the first or second boxes.

Q: What constitutes an anti-deficiency law for the purposes of the anti-deficiency disclosure?

State law that protects the consumer against liability for the unpaid balance of the loan after a foreclosure is considered an anti-deficiency law for the purposes of the anti-deficiency disclosure. For example, this includes state laws that forbid creditors from seeking deficiency judgments and state laws that limit the amount a creditor may collect or limit the availability of deficiency judgments to certain circumstances.

Q: Do statutes of limitations on obtaining or collecting a deficiency judgment count as anti-deficiency protections for the purposes of this disclosure?

No. According to comment § 1026.38(p)(3)-1, a statute of limitations that only limits the time frame a creditor may seek redress does not constitute an anti-deficiency protection for the purposes of the disclosure. Therefore, state laws that allow for deficiency judgments, but require creditors to file a motion or seek a judgment within a prescribed time period, would not be considered anti-deficiency protections based solely on the time limitation for obtaining or collecting a deficiency judgment. Note that if these statutes provide consumers protection for the availability of an unpaid balance, such provisions must be separately analyzed to determine whether they are considered anti-deficiency protection.

Q: How should a creditor make the anti-deficiency disclosure if a state anti-deficiency law could apply to the loan, but whether it ultimately would apply depends on facts and circumstances at the time of foreclosure?

Generally, if a state anti-deficiency law could apply at the time of foreclosure, but whether it will actually apply is unknown, it should be disclosed by a creditor as an anti-deficiency law that may apply. The rule does not require a creditor to predict future facts or circumstances and whether an anti-deficiency rule may ultimately apply to a loan may depend on facts and circumstances that will not be known until there is a foreclosure. This may include factors such as the fair market value or appraised value at the time of the foreclosure or whether the property is owner occupied at the time of a foreclosure. Section 1026.38(p)(3) requires a disclosure to the consumer that a state anti-deficiency law may apply to the loan, that is whether the law could apply at a future date. If it could, then the first box on the form should be checked, which includes a statement that the borrower should consult an attorney.

Q: What should creditors do if the information required to be disclosed does not fit in the space allotted on the form?

In the event that all the information required to be disclosed does not fit in the space allotted on the form, the additional information may be disclosed on a separate page with the Closing Disclosure. Note that this is not a general rule. Creditors must look to each section in § 1026.38 to see when the rule requires the information to be provided on an additional page. In addition, there is a provision for customary recitals and information used locally in real estate settlements. The commentary to § 1026.38(t)(5)(ix) lists several examples pertaining to this information.

Q: Is there a model or sample of an addendum for the additional information?

No. There are no required forms for an addendum. No sample or model is provided in the rule or in any other documents.

Q: Is there anything creditors are required to include on the addendum? (§ 1026.17(a)(1))

The information that must be included on the addendum depends on the requirements for the original disclosure of the information. For example, if a creditor is using an additional page to list several other sellers that could not fit onto the first page of the Closing Disclosure, the names and addresses of the those sellers that would not fit would be included on the additional page with the label “sellers.” See comment § 1026.38(a)(4)-1. In addition, the creditor may want to include information or statements that would indicate that the additional pages relate to the Closing Disclosure to ensure that the additional pages are clear and conspicuous to the consumer in accordance with § 1026.17(a)(1).

Q: What are the formatting requirements for the addendum? (Comment § 1026.38(t)(5)-5)

Generally, information that is required or permitted to be disclosed on a separate page with the Closing Disclosure should be formatted similarly to the Closing Disclosure. The additional information should be consolidated on as few pages as necessary to minimize the total number of pages. The additional pages should not affect the substance, clarity, or meaningful sequence of the Closing Disclosure.

A full recording of the webinar can be accessed here.

- Marc D. Patterson


CFPB’s Ombudsman’s Office Issues Third Annual Report

The CFPB’s Ombudsman’s Office recently issued its third annual report covering the Office’s activities during fiscal year 2014 (October 1, 2013, through September 30, 2014). The role of the Ombudsman’s Office is to assist in the resolution of individual and systemic issues that a depository entity, non-depository entity, or consumer has with the CFPB.

A new section of the annual report titled “The Ombudsman in Practice” lists issues the Ombudsman heard in FY 2014 from consumer and trade groups and individual inquiries and raised with the CFPB as part of its regular internal meetings with various CFPB offices and divisions. Those issues included:

  • A need for more clarity on CFPB points of contact for industry and an understanding of how CFPB staff learns of industry developments
  •  A desire for more clarity on regulatory compliance for business planning and operations
  • Concern about broad examination information requests
  • Differences in language between consent orders and corresponding CFPB press releases (which the Ombudsman undertakes to review independently in FY 2015). This is something we have questioned in the past.

Among the issues raised with the Ombudsman by industry in individual inquiries were:

  • A need for understanding the intersection between the supervision and enforcement processes, such as how the two work together and what to expect or not to expect
  • A lack of knowledge about where to obtain regulatory interpretations
  • Unanticipated outcomes from regulations

The report includes a section titled “Perspectives on Industry: How the CFPB Learns about Developments in Industry” that focuses on the steps taken by the Ombudsman to address industry’s concerns about the issues noted above.  The report discusses the Ombudsman’s review of how information is shared with and within the CFPB and CFPB initiatives “that may address some of the issues highlighted to the Ombudsman by industry.”

One such initiative noted by the Ombudsman is that the CFPB “has routine cross-Bureau product meetings and coordinates meetings with industry that bring in representatives from offices across the agency.” In an attempt to provide “helpful” information to companies and trade groups “who do not always know who to contact” at the CFPB, the report contains a list of “CFPB connection points.” (Except for discussing the issue addressed in this section and stating that the Ombudsman intends to review differences in consent order and press release language, the report does not indicate how the Ombudsman plans to address the other issues noted in the bullet points above.)

In the section of the report dealing with the Ombudsman’s review of systemic issues, the Ombudsman updates several issues raised in previous annual reports. Among such issues were how the CFPB shares information about its activities, events, and services, and financial entities’ experiences with the examination process.

Regarding information sharing, the report indicates that the CFPB is engaged in a project to “refresh” its website that will include the addition of a digest to all website updates, creation of a single location for users to subscribe to all available CFPB online “sign-ups,” creation of an aggregated place on the CFPB’s website for CFPB events, and the addition of instructions on how to request a CFPB speaker.

On the examination process, the Ombudsman claims that the CFPB’s Division of Supervision, Enforcement, and Fair Lending (SEFL) adopted all of the recommendations made in the Ombudsman’s FY 2013 annual report to address concerns involving how a financial entity can elevate concerns about an examination and what can be expected during the examination life cycle. As a result, “the Ombudsman now views the FY 2013 recommendations on this topic as closed.”

The report sets forth the Ombudsman’s understanding that “the cover letter accompanying the initial information request now includes: the contact information for the examination team through the Regional Director; information about contacting the EIC to address questions or concerns about data format, data scope, or follow-up information requests; a link to the examination manual; and information on what to expect at the end of the examination.” The report also indicates that the SEFL “shared a new policy for examiners to contact the financial entity no less than once each month after the onsite portion of the examination” and “to ensure that the appeals bulletin is readily accessible, the Ombudsman understands that the appeals bulletin will be co-located with the examination manual” on the CFPB’s website.

Among the Ombudsman’s FY 2015 plans is the launch of a new focus group program “to provide another forum for consumer, trade, and other groups to share feedback.”

- Barbara S. Mishkin


Massachusetts Issues FAQs and Sample Form for Flood Insurance Disclosure

Massachusetts Issues FAQs and Sample Form for Flood Insurance Disclosure

The Massachusetts Division of Banks recently released Frequently Asked Questions (FAQs) to provide guidance on complying with Chapter 177 of the Acts of 2014, “An Act Further Regulating Flood Insurance” (Chapter 177). Chapter 177 was signed into law on July 23, 2014, and went into effect on November 20, 2014. It amends Massachusetts General Laws Chapter 183 by adding Section 69, which prohibits creditors and creditors' representatives (persons who have the authority to approve the terms of and modify mortgage loans or servicers who have the authority to do so) from requiring the following in a one- to four-family residential mortgage transaction:

  • Flood insurance coverage in an amount greater than the balance of a residential mortgage loan
  • Contents coverage
  • A deductible of less than $5,000

In addition, Section 69 requires that creditors, creditors' representatives, and insurance producers provide borrowers with a notice about flood insurance coverage before it is purchased. The FAQs note that the Division of Banks will include a Model Notice to be issued to the purchaser or owner of a residential property as part of the implementing regulations that will be issued at a later date. Until the implementing regulations and the Model Notice are finalized, the FAQs provide a sample form that may be used as the flood insurance disclosure if the creditor or creditor's representative wants to send the notice as a stand-alone form.

- Marc D. Patterson


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