On November 20, 2014, the Consumer Financial Protection Bureau (CFPB) proposed several important amendments to their Mortgage Servicing Rules under Regulation X and Regulation Z. These amendments are geared towards addressing issues that remain after the January 10, 2014, effective date of the CFPB’s rule enactments pursuant to its authority under the Dodd-Frank Act.
One important proposal is to add a general definition of delinquency that will apply to all of the servicing provisions of Regulation X and the periodic statement provisions of Regulation Z. Many of the consumer protections under the CFPB’s rules depend on how long a customer has been delinquent on the mortgage. M&P and its clients have sought clarification on this issue since the new rules went into effect. Under the proposed definition, delinquency begins on the day a borrower fails to make a periodic payment (sufficient to cover principal, interest, and if applicable, escrow) and remains delinquent until such time as the payment is made. Thus, if a borrower misses a payment but later makes it up and the servicer applies that payment to the oldest outstanding periodic payment, the date of the delinquency advances.
The newly proposed amendments would also affect loss mitigation procedures that servicers must follow for mortgage loans secured by a borrower’s principal residence. The proposal would require servicers to notify borrowers in writing when they receive a complete loss mitigation application so that borrowers know the status of the application and their protections. Also, the proposal would require servicers to evaluate borrowers for loss mitigation under the CFPB’s rules more than once in the life of the loan for borrowers who have brought loans current at any time since the last loss mitigation application. Next, the proposal would allow a servicer who is a subordinate lien holder to join a foreclosure action filed by a senior lien holder, even if the borrower is not 120 days delinquent on the subordinate lien. Finally, the proposal would address and clarify how loss mitigation procedures and timelines would apply when a mortgage is transferred from one servicer to another during the loss mitigation process.
The CFPB has also proposed three sets of rule changes with respect to successors in interest – persons who inherit or receive property when there is still an outstanding mortgage loan. First, the CFPB is proposing that all of the existing Mortgage Servicing Rules will apply to the successor once the bank confirms that they are, in fact, a successor in interest. Second, the proposed amendments state how the determination of whether a person is a successor is made. Third, the proposal ensures that those confirmed as successors generally receive the same protections under the CFPB’s Mortgage Servicing Rules as the original borrower. Most importantly, the new definition of successor in interest would include homeowners who receive property through inheritance from a family member or upon the death of a joint tenant, after a divorce or legal separation, through a family trust, or through a transfer from a parent to a child.
Also worth specific mention is a proposal relating to force-placed insurance disclosures. The amendment would require a servicer to account for situations in which it wishes to force-place insurance because the borrower has insufficient, rather than lapsed or expiring, hazard insurance coverage. Other topics addressed in the proposed amendments include efforts to avoid dual-tracking and prevent wrongful foreclosures, efforts to provide more information to borrowers in bankruptcy, additional clarifications and requirements regarding servicers’ obligations to provide periodic statements under the Mortgage Servicing Rules, and changes to the small servicer definition to exclude certain seller financed transactions from being counted toward the mortgage loan limit.
The proposed rules and disclosures will be open for public comment for 90 days from the date of their publication in the Federal Register. A copy of the proposed rule, which includes information on how to submit comments, is available at http://files.consumerfinance.gov/f/201411_cfpb_proposed-rule_mortgage-servicing.pdf.