Draft Summary of Discussion

By the Regulation Room team

For Borrowers in Trouble: “Early Intervention” Help

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§1. What’s going on here?

This is a summary of discussion on the “For Borrowers in Trouble: “Early Intervention” Help” post from August 10 to October 3, 2012. (On that date, the post was closed to further discussion.) It was written by the Regulation Room team. This version is a DRAFT. Please help make sure that nothing is missing, wrong, or unclear. You can propose changes to this version until October 8.

The goal is to give CFPB the best possible picture of the different views, concerns, and ideas that came out during the discussion. This is NOT the place to reargue your position or criticize a different one. Focus on whether anything is missing or unclear, not whether you agree or disagree.

On October 9, the Final Summary will be posted on Regulation Room and submitted to CFPB as a formal comment in the official rulemaking record. (October 9 is the last day of the official commenting period.)

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§2. Need for proposal; possibly, earlier trigger for requiring servicer attention

One commenter (consumer who got or refinanced a mortgage in the past 10 years) told of her experience:

“We were able to salvage our loan six years ago, but unanswered phone calls, lack of replies to mailing and requests for assistance plunged us deeper and deeper into debt. … At the beginning of our struggle all we wanted was to convert our option ARM loan to a 30 year fixed at a lower interest. Our calls were ignored for months and we were transferred to one person after another, each time we had to begin again with our explanation and information! When at last we had to get another loan to avoid the continuing financial slide, Countrywide sends us e-mails telling us what a good customer we were and offering us a 30 year fixed rate. Too little…too late.”

Another (self-identified as “consumer who was in the early stage of the financial crisis and all in all ended with short sale”) recounted his/her experience, implying that borrowers should not have to miss a payment in order to initiate discussions about loan modifications: “What do you do when all you wanted was a loan modification and Chase would not discuss/negotiate with us until we were behind in our payments, and the attorney we hired to help us told us we had to stop making payment before they could do anything?” (This same frustration appeared in stories told in discussion of other CFPB proposals.)

§3. Recurring themes

Two themes that can be found in other summaries appeared in this discussion of this proposal. The first is enforcement. One consumer commenter (who has had personal or family experience having a hard time making mortgage payments) wrote: “You can advise all you want, but without enforcement, nothing will occur. My bank is completely nonaccountable. They advertise that they are though.” The second is using technology better to solve or avoid problems. Comments on this theme are described in the next section.

§4. Mechanics of required notice and concerns of small servicers

As commenters discussed the details of the proposed notice, tensions emerged between those advocating additional outreach requirements and small servicers concerned about cost and allocation of responsibility. As one commenter working for a servicer whose customers are mostly from the local community put it, “These rules will be tough on a small lending firm. The consumer needs to take responsibility for his actions.”

1. Phone calls: One commenter (self-identified as having worked for the mortgage servicing industry in the past for a company whose customers come from across the country and/or from other countries) queried how the proposed 3-try standard would apply if “on the first call, the lender finds out the phone is disconnected or they have a wrong number.” S/he suggested that CFPB consider mirroring the Fair Debt Collection Act approach.

Another commenter (mortgage originator whose company’s customers are from all over the country and/or other countries) pointed out that existing automated call technology makes it possible to call a number “every day, 10 times a day if you want…until you make a connection.” This commenter strongly agreed with the importance of making personal contact: “8 out of 10 [times] I was able to find the underlying issue the client is having; was able to express my motivation to help them resolve the issue; [and] was able to rebuild the confidence and relationship with that client.”

2. Email and Texting:

The same commenter who suggested the Fair Debt Collection Act approach urged that emails and text messages be used in addition to (but should not replace) phone calls. S/he suggested that “a great customer service option” would be allowing the borrower to opt in to text messaging: e.g., ‘Your mortgage payment is now due. Payment must be received by (insert last day of grace period) to avoid any late fees or collection efforts. If you are unable to make your payment, please contact (servicer’s name) at (servicer’s phone #) for alternative options.’”

This commenter also proposed: “[I]f the loan servicer has an email address available, after the 3 phone calls, they should be required to try 3 emails.”

This suggestion got a very negative response from one industry commenter (regulatory compliance officer whose company’s customers are mostly from a single state):

“Let’s be realistic here, the borrower needs to take some responsibility since they should know they are delinquent on their loan. I think three phone calls on three separate days is more than a good faith effort. If the consumer fails to notify the bank that they changed their phone number, it once again points to the negligence of the consumer. These rules are so restrictive that new systems and staff training has to be implemented. This is going to drive up the costs and fees associated with getting a mortgage in the first place.

One phone call or contact of some sort should be more than enough effort on the lender’s side. The consumer knows they are delinquent and needs to take some responsibility for their actions.”

Another commenter (consumer whose household makes less than $100,000/year) added:

“Maybe the answer is to have the consumer set up their account with an email alert. Most of the larger servicers offer internet access to your account, so set up the alert. If this is left to the servicer to send emails, I can just see the next round. Say a couple gets divorced, the servicer only has the wife’s email address, she is not happy doesn’t inform husband who is living in the house. Husband sues servicer for no contact via email. We all need to take a deep breath and realize that the consumer has to take some responsibility here. If you know you[r] house payment is due and the 1st and you don’t pay it – you’re late! And don’t forget not everyone has a computer or cares to get one, what to do about them, at least sending a notice in writing is keeping the postal service somewhat alive.”

The commenter who originally made the suggestion responded that the cost of email is very low and that “loan servicing software already produces delinquency reports” which could trigger a template email.

A consumer commenter (got or refinanced a mortgage in past 10 years; personal or family experience having a hard time making payments; household makes less than $100,000/year) reacted to the interchange: “Although some of these regulations are burdensome, email notification and communication is paramount in this age. My servicer does not allow me to communicate via email which makes record keeping difficult for me – unilateral for them since the conversations are recorded.”

Part of the more general theme of using technology better to reduce problems in mortgage servicing, this commenter continued:

“My comment about email is a more a general one, that it should be a required form of communication due to the prolific use of email at this time. Not sure of the cost but I imagine that most correspondence is boiler plate. Sending an email is less expensive than postal mail. I think our laws lag in this area due to the alleged strain it would put on customer service departments. In my opinion most organizations have divested in this area and consumers experience huge gaps in this area.”

3. Other loans. The commenter who urged the use of email and texting also suggested that “if a borrower has a HELOC, 2nd mortgage, or is listed as a co-borrower any other property, they should all be considered together at the time of the initial call. These accounts should all be linked so that a borrower facing default on 3 loans for the same property is not overwhelmed, confused, etc.”

4. Ensuring coordination around LMO status: This same commenter urged that “servicing systems need to be updated (or c/s [customer service] reps trained) to ensure that once a borrower accepts a loss mitigation option, these notification options are properly updated. For example, there’s no need to keep calling someone to say their payment is late if they’ve already begun the forbearance process, the loan term change should update the contact dates, etc.”

The small-servicer commenter who had disagreed about additional outreach requirements did agree with this suggestion.

§5. Follow-up written notice

One consumer commenter (got or refinanced a mortgage in past 10 years; personal or family experience having a hard time making payments; household makes less than $100,000/year) reiterated warnings that appear elsewhere in the larger discussion about the importance of a written record: “Phone calls are great but in my experience, the caller does not document accounts thoroughly if at all. All correspondence regarding past due mortgages should be in writing via email or letter. It should be dated and time stamped and posted to view by both parties on the customer’s account. Everything would be there in black and white.”

The commenter who urged use of email and text messaging felt that the proposed model notices “are as clear as they can be” (although s/he expressed skepticism that about borrowers’ understanding them and emphasized that “the biggest thing is to ensure [borrowers] know who they can contact and make sure the c/s reps are fully trained on proper options and disclosures.”) This commenter continued: “I would definitely recommend that a written notice of confirmation is sent to the borrower for any changes made to their account as well. While it may not fully assist them, and they may choose to ignore the letters, it will help an attorney in discovering useful foreclosure defense information if it gets to that point.” S/he reiterated that the technology for generating individualized letters from templates is “built into loan servicing software suites.”

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