The FRB issued a Consumer Affairs letter concluding that, under certain circumstances, adverse action notices under Regulation B are required for mortgage loan modifications, including modifications under the federal Making Home Affordable Modification Program. The letter analyzes modifications to determine if there is (1) an extension of credit, (2) an application, (3) an adverse action on the application, and (4) a borrower delinquency or default on the loan. Using a hypothetical HAMP modification, the letter opines that (1) the extension of the right to defer payment is an extension of credit, (2) where a borrower submits sufficient information for the servicer to evaluate the borrower for a modification, it qualifies as an application for an extension of credit, (3) if a servicer evaluates a borrower's information according to HAMP's guidelines and declines the request, then the servicer has taken an adverse action, and (4) adverse action notices are required for borrowers whose mortgage loans are not currently delinquent or in default. Click here for the letter.
Alert December 15, 2009