On January 10, 2014, new CFPB amendments to Regulation X (implementing the Real Estate Settlement Procedures Act) and Regulation Z (implementing the Truth in Lending Act) became effective, imposing new requirements on loan servicers to respond to inquiries from residential mortgage loan borrowers within statutorily-specified time periods. An understanding of these amendments is important to minimize compliance and litigation risk for loan servicers.
Among the changes included in the CFPB amendments are the following:
- Payoff Statements. Requiring servicers to provide payoff statements within seven business days of receiving borrowers’ requests for the same (12 C.F.R. § 1026.36(c)(3)).
- Qualified Written Requests. Additional guidelines for responding to qualified written requests which allege certain statutorily-defined servicing errors. See 12 C.F.R. § 1024.35(b). Although servicers must still investigate and respond to most qualified written requests within 30 business days (12 C.F.R. § 1024.35(e)(3)(C)), servicers must respond to complaints relating to alleged erroneous payoff statements within seven business days (12 C.F.R. § 1024.35(e)(3)(A)) and are required to investigate alleged foreclosure proceeding irregularities before foreclosure sales may be held (12 C.F.R. § 1024.35(e)(3)(B)).
- Loss Mitigation. If a borrower sends a loss mitigation application to a servicer at least 45 calendar days before a scheduled foreclosure sale, the servicer must inform the borrower within five business days whether the borrower’s loss mitigation application is complete. 12 C.F.R. § 1024.41(b)(2)(B). If the borrower’s loss mitigation application is incomplete, the servicer must specifically inform the borrower what additional documents are required to complete the application. Id. If the servicer receives a completed loss mitigation application at least 37 calendar days before the foreclosure sale, it must decide whether the borrower is eligible for any loss mitigation options within 30 calendar days. 12 C.F.R. § 1024.41(c). Once the servicer determines whether the borrower qualifies for any loss mitigation option, the servicer must permit the borrower a minimum of seven calendar days to either accept the proffered loss mitigation option or appeal the servicer’s denial of the same. 12 C.F.R. § 1024.41(e). The regulations prohibit a foreclosure sale from taking place until after the servicer has denied the loss mitigation option and the either the time for the borrower to appeal the servicer’s decision has lapsed or the servicer has considered and rejected the borrower’s appeal. 12 C.F.R. § 1024.41(g)-(h).
In the coming months, these new rules are likely to lead to additional causes of action asserted against servicers by borrowers seeking to avoid foreclosure. However, due preparation in the form of updated compliance procedures and staff training, for example, could go some way towards minimizing litigation and compliance risks.