Alert September 17, 2013

CFPB Finalizes Clarifications to Mortgage Rules

In a continuing effort to resolve issues and answer questions "identified during the implementation process," the CFPB finalized revisions to the mortgage rules it published in January (see January 22, 2013 Alert) and subsequently amended in June 2013 (see June 25, 2013 Alert). While the final rules adopts many of the changes in its June 2013 proposal, the CFPB also added new sections and modified certain provisions to clarify interpretative issues and facilitate compliance. In particular, the final rule clarifies what action constitutes the "first notice or filing" for purposes of the general ban on proceeding to foreclose before a borrower is 120 days delinquent, and provides exemptions from the 120-day prohibition for foreclosures for certain reasons other than nonpayment. Under the revisions, a document is considered the "first notice or filing" on the basis of foreclosure procedure under applicable state law. The revision also adopts new commentary that more specifically addresses the different type of foreclosure procedures. For example, in judicial foreclosure states, a document is considered the first notice of filing if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding (e.g., complaint, order to docket); whereas in a non-judicial foreclosure state, the first notice or filing is the earliest document required to be recorded or published to initiate the foreclosure process. The CFPB also incorporated a new section to require that, if a borrower submits all missing information listed in the required early delinquent notice, or if no additional information is requested in the notice, the application is considered "facially complete" and will trigger borrower protections. Further, servicers are required to treat a facially complete application as complete for purposes of a borrower’s appeal rights and the borrower response timeline. The final rule also added a new provision clarifying what constitutes financing of credit insurance premiums by creditors. Financing occurs when a creditor treats a credit insurance premium as an amount owed and provides a consumer the right to defer payment of that obligation.