Final Rule Highlights
Here are highlights from the two, related rules CFPB has adopted. (If you want to look at the entire final rule and CFPB’s explanation, click on Rule #1 or Rule #2 in the menu above.)
Periodic Billing Statements: CFPB is requiring that servicers and creditors provide a periodic statement every monthly billing period that provides information on payments, fees, account activity, contact information, and delinquency when appropriate. Small servicers will not have to meet this requirement, and neither will those servicing fixed rate mortgages.
Interest Rate Adjustment Notices for ARMs: Servicers must now issue two notices before the interest rate adjusts on a loan. The borrower will receive one 210 to 240 days before the first payment is due after the interest rate adjusts and the other 60 to 120 days before that adjustment.
Crediting Partial Payments: Servicers must now promptly credit a payment as soon as they receive it. If the money received does not reach the full amount due, the creditor may place that partial payment in a suspense account. Once the money in the suspense account reaches the amount of a full payment, the creditor must credit the earliest missed payment in full.
Force-Placed Insurance: Before charging for force-placed insurance, servicers must have a reasonable basis for believing that the borrower has failed to maintain appropriate hazard insurance. Servicers must give notice to the borrower 45, 30, and 15 days in advance of charging for force-place insurance. When a borrower provides proof of hazard insurance, a servicer must cancel the force-placed insurance and refund the amount charged for any overlapping coverage to the borrower. Where possible, the servicer should continue existing homeowner’s insurance through the borrower’s hazard insurance escrow account; this does not apply to small servicers so long as the force-placed insurance is less expensive than the maintenance of existing hazard insurance coverage.
Error Resolution: CFPB decided not to institute mandatory procedures for compliance with oral error complaints but did change the way servicers are to respond to written complaints. Within 5 days of receiving the written error complaint, the servicer must inform the borrower that the servicer received the complaint. Then within 30 to 45 days of receiving the complaint, the servicer must either conduct an investigation and explain that no error had occurred or resolve the error.
Information Requests: Like with the procedures for complying with error requests, CFPB decided not to create a specific framework which servicers must follow while dealing with oral information requests. However, for requests for information received in writing, servicers must acknowledge receipt of the request within 5 days. Then within 30 to 45 days of the request, servicers must provide the information requested or explain why it was not reasonably available.
Reasonable Servicing Procedures: Servicers must have reasonable policies and procedures that ensure they can evaluate borrowers for loss mitigation options accurately and quickly, provide accurate information to borrowers, investors, and courts, and comply with other requirements of the new rule. In addition, servicers are required to collect and maintain information regarding the mortgage loan in such a way that the servicer can compile it into a “servicing file” within five days. This is to allow for better error resolution and information request management, and to ensure more accurate transfers of information if the servicer sells the servicing rights to another company.
Early Intervention for Borrowers in Trouble: If a borrower is having trouble paying off their loan, the servicer is required to establish live contact the borrower before the 36th day of their delinquency and inform them if they have any helpful options available to them. By the 45th day, the servicer also must provide a written notice to the borrower of any loss mitigation options available to them.
Continuity of Contact for Borrowers in Trouble: Servicers must have policies and procedures reasonably designed to ensure personnel are able to assist a borrower with loss mitigation options and assign such personnel to help borrowers no later than the 45th day of a borrower’s delinquency. Small servicers are exempted from some of these requirements.
Loss Mitigation: When a borrower applies for a loss mitigation option, the servicer must respond in writing within 5 days to acknowledge receipt of the application and, if necessary, specify what documents are needed to complete the application. If the application is received 37 days or more before a foreclosure sale, the servicer has 30 days to evaluate the borrower for all loss mitigation options. The servicer must provide a written decision including the explanation for the denial, if applicable. The borrower may appeal if the application has been made 90 days or more before a foreclosure sale. The servicer may not pursue foreclosure until the borrower is 120 days delinquent, and must halt foreclosure actions once the borrower makes an application for loss mitigation. While small servicers are exempted from some of these requirements, they cannot 1) take action to foreclose until the borrower is 120 days delinquent and 2) obtain a final judgment or proceed with a foreclosure sale if the borrower is in compliance with the terms of a loss mitigation option.