Consumer Finance Insights
December 8, 2014

Foreclosure Protection is Back in the Spotlight: CFPB Proposes New Rules for Mortgage Servicers

The CFPB recently proposed additional amendments to its Mortgage Servicing Rules which, if implemented, would provide additional protections for mortgage borrowers facing default or foreclosure.  These amendments, which the CFPB announced on November 20, 2014, are the latest in a series of revisions to the Rules (which we have discussed in the past here and here).

Several of the proposed amendments include concrete changes affecting mortgage servicers’ foreclosure practices, requiring that servicers:

  • Provide borrowers with foreclosure protections more than once during the life of the loan.  Presently, servicers are required to offer foreclosure protections, like the right to be evaluated for options to avoid foreclosure, only once during the life of the loan.  The proposed amendments would obligate servicers to provide those foreclosure protections to a borrower again if the borrower has brought his or her loan current since the last loss mitigation application.
  • Notify borrowers when their loss mitigation applications are complete.  The proposed amendments would require servicers to notify borrowers in writing when the servicer receives a borrower’s complete loss mitigation application.
  • Provide additional information to borrowers in bankruptcy.  Under the proposed amendments, servicers would be obligated to provide borrowers in bankruptcy with periodic statements and loss mitigation information tailored to borrowers in bankruptcy. The proposed amendments would also require servicers to provide written early intervention notices to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act.

The proposed amendments also clarify and expand the scope of the existing foreclosure protections under the Mortgage Servicing Rules.  Specifically, the proposed amendments would:

  • Expand the definition of “successors in interest” entitled to consumer protections following the death of a borrower.  Under the proposed amendments, the definition of “successors in interest” would expand to include individuals who receive a 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 spouse or from a parent to a child.  The proposed amendments would also expand the protections afforded these individuals: the proposal would apply all of the Mortgage Servicing Rules to successors in interest.
  • Clarify transferee servicers’ obligations regarding loss mitigation applications.  The new amendments would require that, in the situation where a borrower’s loan is transferred to a new servicer while the borrower is in the process of applying for loss mitigation, the transferee servicer must comply with the loss mitigation requirements within the same timeframe as applied to the transferor servicer.
  • Set out steps servicers must take to prevent dual-tracking and to protect borrowers from wrongful foreclosure.  The proposed amendments would clarify the steps that must be taken to ensure that servicers do not inadvertently proceed to foreclosure on a loan once the servicer receives a complete loss mitigation application from a borrower.  The amendments would also provide that if a servicer does not follow these steps to delay the foreclosure sale, the servicer must dismiss the foreclosure action or take other action to avoid the sale.
  • Define “delinquency” under Regulations X and Z.  The proposed amendments would add a definition for “delinquency”; the date of delinquency would be the date a payment sufficient to cover principal, interest, and escrow (if applicable) becomes due and unpaid.

These proposed amendments are important for mortgage servicers to understand because the changes in the scope and requirements of the CFPB’s Mortgage Servicing Rules, if these amendments are implemented, would have a tangible effect on servicers’ business practices.

The full text of the proposed rule is available here.  The proposed amendments will be open for public comment for 90 days after their publication in the Federal Register.  LenderLaw Watch will continue to monitor the implementation progress for these new rules.

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