Alert January 22, 2013

CFPB Finalizes Mortgage Servicing Rules

The CFPB finalized its mortgage servicing rules amending Regulation Z, the implementing regulation for the Truth in Lending Act, and Regulation X, the implementing regulation for the Real Estate Settlement Procedures Act. The final rules mirror, for the most part, the proposed rules that were issued in August of last year (see August 21, 2012 Alert), and the CFPB has published a summary and factsheet on the amendments to Regulations X and Z. A few key differences are noted below:

General servicing obligations. The information request provisions only concern written requests for information, as opposed to the oral requests that were included in the proposed rule.

Interest-rate adjustment notices for adjustable-rate mortgages. The provisions governing interest rate adjustment notices do not apply to adjustments occurring in loan modifications for loss mitigation purposes, but do apply to any subsequent adjustments that occur as a result of a loan modification contract. Also, for ARMs without a prepayment penalty, the section on prepayment penalties can either be excluded or replaced with the word “None.”

Periodic billing statements. While consumers cannot opt of out receiving periodic billing statements, consumers who receive electronic notifications that their billing statements are ready for viewing can opt-out of receiving such notifications.

Error resolution. The final rules expand the definition of “error” to include “any other error relating to the servicing of the borrower’s mortgage loan.”

Force-placed insurance. The final rule decreases the amount of time servicers must wait to receive documentation that a borrower has had continuous hazard insurance in place from 45 days to 15 days.

Early intervention with delinquent borrowers. Servicers must establish or make a good faith effort to establish live contact, such as by telephone or meeting in-person, with the borrower by the 36th day of the borrower’s delinquency, as opposed to 30 days put forward in the proposed rules. In addition, within 45 days (compared to 40 days in the proposed rule) of a borrower’s delinquency, the servicer must provide the borrower with a written notice of loss mitigation options. Moreover, the final rules no longer require the written notice to include a statement regarding the foreclosure process.

Loss mitigation procedures. The final rule creates a private right of action, pursuant to 12 U.S.C. § 2605(f), which sets forth the damages for violations of the Real Estate Settlement Procedures Act, for failure to comply with the loss mitigation provisions.

Small servicers, servicers that service 5,000 or less mortgage loans and only service mortgage loans the servicer or an affiliate owns or originated, are exempt from certain requirements under the final rules; however, small servicers are prohibited from engaging in dual tracking. The final rules are effective January 10, 2014.