Agency Proposal

By the Regulation Room team based on the NPRM

For All Borrowers: Getting Errors Fixed

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§1. Resolving complaints about errors

A borrower who thinks his/her mortgage servicer made a mistake about account status, crediting payments, payoff amount, etc. would have basically the same kind of rights to tell the servicer, and get a prompt response, as when he/she makes an information request. (For details, see the Asking for, and Getting, Information post). A very important change from current law is letting the borrower do this over the phone, rather than having to make a written request in a particular format. CFPB is not proposing to change the current rule that servicers don’t have to respond to error complaints written on payment coupons.

What this means for consumers. In general, the servicer must make a “reasonable investigation” and, within 30 business days (@ 6 calendar weeks) plus a possible extension of 15 business days (3 calendar weeks), either fix the error or explain why it thinks it didn’t make a mistake. Either way, the borrower would get a notice that includes a telephone number for getting more information. If the servicer decides there wasn’t a mistake, the borrower can get copies of any documents involved in the decision. Do these time limits seem reasonable?

The servicer would have to respond more quickly for two kinds of errors. If the borrower thinks he/she got an incorrect payoff balance, the servicer has 5 business days to respond. Claims about an erroneous foreclosure sale must be resolved before the sale occurs. These times could not be extended. CFPB thinks that quickly correcting these errors is important to help borrowers in trouble avoid foreclosure. Is it proposing a good balance between borrowers’ needs and servicers’ concerns about feasibility and cost? Small servicers are especially worried about the costs of trying to keep track of oral error claims. Should CFPB allow small servicers to respond only to written claims?

If the servicer finds another, or a different, mistake while investigating the borrower’s complaint, the servicer would have to fix it and tell the borrower.

What this means for servicers. CFPB wants to create mostly parallel requirements for information requests and error resolution. It emphasizes that servicers must treat a borrower’s communication as a request for correction even if it isn’t labeled ”notice of error” or similar language.

The servicer could ask the borrower to provide documents, but couldn’t require them before it will investigate. It would have to conduct a “reasonable investigation” even if the borrower doesn’t provide the documents. When no error is found, the borrower is entitled to copies of documents relied on to determine this, not all documents that might have been reviewed during the investigation. For entries in a collection system, the servicer should provide print-outs. No documents would have to be provided if the servicer corrects the error. Multiple error claims could be responded to individually or together.

As with information requests, the servicer need not send a separate acknowledgement if it corrects an error within 5 business days and tells the borrower (unlike information requests, this must be in writing). To prevent borrowers in trouble from using the new rules just to delay a foreclosure sale, a servicer who gets an error claim less than 7 days before the scheduled sale may respond orally or in writing, either correcting the error or explaining why no error occurred, before the sale. CFPB asks if there are other methods of alternative compliance it should consider.

Proposed new requirements that servicers must have “reasonable information management policies and procedures” mean being able to “investigate, respond to, and, as appropriate, correct errors asserted by borrowers… including asserted errors resulting from actions of service providers.” If there are “[m]ultiple covered errors [see next section]… with respect to the same or similar types of processes and a servicer does not modify its policies and procedures to seek to reduce the frequency or severity of such errors over a reasonable timeframe,” the servicer could be guilty of a “pattern and practice” of violations. This could mean liability for damages in an individual or class action lawsuit, as well as enforcement actions by federal or state agencies. A single incident of non-compliance would not be considered a violation, but a servicer could be in violation either because of repeated problems with a single borrower or similar incidents with a number of borrowers.

As part of a general expansion of the scope of Regulation X, the error-resolution requirements would apply to subordinate lien (as well as primary) closed-end mortgages.

Read what CFPB says in the NPRM about error resolution and reasonable information management.

Read CFPB’s analysis of the costs and benefits of error resolution (general; small business) and reasonable information management (general; small business).

See the text of the proposed rule and CFPB commentary: §1024.35 ; §1024.38 ; §1024.31 (“mortgage loan”)

§2. What kinds of errors?

Servicers are very worried about the costs of keeping track of oral requests for error correction, but CFPB thinks too many errors will be uncorrected unless borrowers can complain on the phone as well as in writing. As a compromise, it proposes that the new requirements would apply to only 9 types of errors. CFPB thinks a specific list of “covered errors” will help servicers manage the costs of responding to error complaints – this helps borrowers as well, by making sure the servicer is focused on the errors that really matter.

What this means for consumers: Here is the proposed list:

  1. Not accepting a payment that was made the way the servicer requires
  2. Not properly applying a payment to interest, principal, escrow or other charges
  3. Not crediting a payment on the day it is received, if this results in a late charge or negative credit report
  4. For borrowers with an escrow account, not making on-time payments of taxes, insurance premiums, etc. or not refunding a balance in the escrow account
  5. Charging the borrower a fee that the servicer “lacks a reasonable basis to impose”
  6. Not providing an accurate payoff balance (see Options For Avoiding Foreclosure § 3)
  7. Not providing accurate information to a borrower in trouble about loss mitigation options (see the Options For Avoiding Foreclosure post)
  8. Not promptly transferring accurate and current information about the borrower’s account to a new servicer (see the Who is Servicing Your Loan? post).
  9. Not stopping a scheduled foreclosure sale once the borrower has completed an application for a loss mitigation option (see Options For Avoiding Foreclosure § 2)

Are there other kinds of errors that should be added to the list? Is having a set “covered error” list the right way for CFPB to go? Should there be a catch-all for other kinds of errors? (Please go to the Options For Avoiding Foreclosure post if you want to comment on whether mistakes about loss mitigation options should be included in the list of errors.)

What this means for servicers. Servicers will want to look at examples of what kinds of errors are not included in the proposed list. Note that Error # 5 would include charging for force-placed insurance that was not properly obtained under the proposed new rules. See the Force-Placed Insurance post.

As with information requests, servicers would not have to respond to error claims that are “overbroad or unduly burdensome,” or made more than a year after the loan has been transferred or paid off. (See Asking for, and Getting, Information § 2.) They would, however, have to respond to a claim previously considered if the borrower provides “new and material information” that was not reviewed before and is relevant to the error claim. A dispute about how the servicer interpreted information it reviewed is not “new and material information.” Also, if the servicer can identify a valid error clam within what is otherwise an overbroad or unduly burdensome request, it must respond to that claim.

Read what CFPB says in the NPRM about covered errors.

Read CFPB’s analysis of the costs and benefits of error resolution: general ; small business.

See the text of the proposed rule and CFPB commentary: §1024.35(b) ; §1024.38

People's Comments

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August 10, 2012 6:07 pm

Escrow accounts have entirely too many unexplained fees. Loan Servicers should be forced to explain every fee on an escrow account on a monthly basis so borrowers are made aware of what they are being charged and why.

Also the Loan Servicer should not be allowed to create an escrow account for borrowers with a non-escrow loan without explaining why.

In addition, a negative escrow account created by insurance (likely due to false placement of illegally and artificially inflated Force-Placed Insurance premiums) should not interfere with a borrower’s ability to pay their property taxes via escrow. The tax balance and insurance balance should (and can be practically accomplished within their software systems, whether they utilize AS/400, LPS, FIS, CCS, or any other loan servicing software)be… more »

…kept separate to prevent the borrower from being pushed into foreclosure for nonpayment of taxes due to the Loan Servicer’s erroneous placement of Force-Placed Insurance. « less
Use these buttons to endorse, share, or reply to the preceding comment by versability.
    August 11, 2012 12:30 pm

    Versability, thank you for your comment. The transparency of escrow account related fees is not covered in this proposed rule. (CFPB is working on another proposed rule that covers escrow account disclosures). However, charging the borrower a fee that the servicer “lacks a reasonable basis to impose” is listed as one of the errors that CFPB is covering with its proposal. What do you think of the list of 9 covered errors that CFPB has put forth? Can you think of other items to be included?

    Use these buttons to endorse, share, or reply to the preceding comment by Moderator.
      August 11, 2012 12:53 pm

      The list looks fine on the surface, but I’m not fully versed on all possible loan servicing abuses. I only know what I’ve seen. I don’t like the idea of a set “covered error” list, but right now I can’t think of a better solution. I’ll spend some time pondering and let you know if I come up with any suggestions on this front.

      Use these buttons to endorse, share, or reply to the preceding comment by versability.
August 10, 2012 6:08 pm

All phone calls should be tracked & recorded, regardless of the Servicer’s size. Customer Service is Customer Service. It is not a borrower’s responsibility to judge the size of the company serving them.

Use these buttons to endorse, share, or reply to the preceding comment by versability.
    August 14, 2012 1:13 pm

    CFPB is particularly interested in discussion of a small-servicer exemption. If the new rules cost small servicers too much, CFPB is afraid they will get out of the market, leaving only large companies to service residential mortgages. Would this be a bad thing? What are the costs to small servicers?

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      August 14, 2012 2:19 pm

      The cost to enter the market or remain in the market shouldn’t be a consideration. That’s all between the investor and the servicers. If the investor (largely FNMA & FMAC) want to provide options for smaller servicers, that is up to their discretion.

      If you leave a small servicer exception, it will be used as a loophole for the larger banks to create subsidiaries and exploit these, much like they do with taxes.

      If a company in any industry can’t handle the costs of that industry, then they have no business being in that industry. If there ends up not being enough servicers to service the loans, then that’s something the investors need to look at. From my perspective, you’re trying to fix the effects rather than the cause.

      Use these buttons to endorse, share, or reply to the preceding comment by versability.
August 21, 2012 9:53 pm

Consumers are already challenged in their efforts to get the credit reporting agencies to resolve errors on their credit report. One of the main reasons for this is the failure of the Fair Credit Reporting Act to define “reasonable investigation”. I would hate to see the same problem repeated in the rule making for mortgage servicers. I believe it would beneficial for the new rules to provide a minimum definition of “reasonable investigation” so there is no room for ambiguity or conflicting expectations.

Use these buttons to endorse, share, or reply to the preceding comment by reneydubose.
    August 22, 2012 11:23 am

    Thanks for your comment, reneydubose. To ensure that lenders make a good faith effort to determine whether an error exists and fix the error, CFPB is proposing that lenders turn over all documentation used to make their determination to the borrower. Do you think this is sufficient to safeguard against your concerns about ambiguity? What would you like to see required for a reasonable investigation?

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August 28, 2012 4:03 pm

I am a consumer with an usual mortgage where the interest rate is 8.05% for the first 5 years and then adjusts to LIBOR + 2.25% rounded to the nearest .125%. The first adjustment date is Sep 1 2012. After the first adjustment date, subsequent adjustments are subject to a 2% interest rate change cap.

The loan servicer, Green Tree, maintains that the 2% interest rate change cap also applies to the first change date, despite the fact that the mortgage documentation clearly states otherwise. In other words, Green Tree states that the new rate will fall to 6.05% on 9/1/2012, when in fact it should fall to 3%.

I have filed a complaint with the CFPB which has been forwarded to Green Tree, and we await their reply. Thank you very much for your service!

My comment is: When calling Green Tree… more »

…to discuss the dispute outlined above, their customer service representatives are quite clearly trained to argue with the consumer. They are not forthcoming with the fact that Green Tree will only act on disputes when they are submitted in writing, to a fax number that is not published on its web site or its mortgage statements.

I don’t know if Green Tree is a “small servicer”, but clearly their practice is to deflect and obfuscate any attempt by their customers to obtain a response to a concern, and to act by the letter of the law and not its spirit, when profits are in any way at stake. I applaud these proposed rules and thank you for allowing the public to comment so easily. « less

Use these buttons to endorse, share, or reply to the preceding comment by seanerwin92056.
    August 28, 2012 6:27 pm

    Seanerwin, welcome to Regulation Room and thank you for sharing your experience. Do you think CFPB should add another error to the covered error list to better address interest rate disputes? You might also want to read what CFPB says about adjustable rate mortgages

    Use these buttons to endorse, share, or reply to the preceding comment by Moderator.
      August 29, 2012 10:29 pm

      Thank you Moderator. I am but one consumer, one data point, and hesitant to extrapolate my experience into public policy proposals. But ARMs are indeed confusing, and there is a great variety of types of ARMs. My experience is that a mortgage servicer will seek to interpret an ARM’s language to its greatest benefit. One way this is done, in my experience, is to incorrectly calculate an interest rate at a change date. I would be happy to see another error added to better address interest rate disputes, as this may well be one type of deceptive practice the industry employs.

      Use these buttons to endorse, share, or reply to the preceding comment by seanerwin92056.
September 13, 2012 7:09 am

I recently refied a mortgage through a small firm in Charlotte, NC. They informed me that my mortgage would be sold. During the waiting period, I had to make payments to them and the payments were recorded correctly without any problem. Approximately 30 days ago, I received a letter from Citi that they bought my mortgage. The balance stated was wrong as I had made extra principle payments. I then received a statement from them and the history of the account was totally blank other than one payment. I have called Citi and talked with Supervisors in their Tuscon office. I was informed that it was my problem and I should have not made the payments to the Charlotte Company. It is my understanding from the Citi letter that any payment made before 9/1/12, the payment was to go to the Charlotte… more »

…Company. Looking at my mortgage balance on the Citi website, Citi is showing a mortgage balance of close to $10,000. more than what is owed. I have even faxed them the history from the Charlotte Company for them to check and review the problem. Nothing has been done. No phone calls, no email, no acknowledgement by Citi of the reported problem. In today’s world where banks can post transactions daily, provide ACH transfers, allow high frequency trading, why is it so hard for someone at Citi to pick up the phone and resolve this issue. The system is broken and the link is that big banks can not perform simple functions. « less
Use these buttons to endorse, share, or reply to the preceding comment by kaz2700.
September 24, 2012 9:54 pm

24 CFR 3500.17(C) should be amended to explicitly prohibit collection of an amount greater than that needed to pay taxes and insurance. CHASE is demanding that the impound account balance equal a MINIMUM of the amounts needeed PLUS a two month impound account cushion AT ALL TIMES. This equates to an interest free loan to the servicer for the life of the loan. AND CHASE THREATENED TO FORECLOSE after admitting the money was not needed to pay the impounds. This is extortion. I would be happy to share my lenghthy correspondence with Chase over this. I then refinanced.

FAILURE TO PAY IMPOUND EXPENSES: A prior lender, Bank of America let my homeowners’ insurance lapse — despite collecting the money, and my forwarding 3 notices that the insurance would be, and then was being… more »

…cancelled for non-payment. After it was cancelled, B of A said that I would have to pay to reinstate, and they would eventually reimburse me. There needs to be a penalty for EVERY TIME this occurs. I refinanced. « less
Use these buttons to endorse, share, or reply to the preceding comment by nadondavis.
    September 25, 2012 12:28 am

    Welcome to Regulation Room, nadondavis, and thank you for your comment. The transparency of fees related to escrow accounts is not covered in this proposed rule, but you can use CFPB’s complaint form to tell them more about the problems you faced.

    However, failing to pay insurance premiums on time through an escrow account would be covered under CFPB’s proposed list of errors. Do you think CFPB’s proposal does enough to address errors like this?

    Use these buttons to endorse, share, or reply to the preceding comment by Moderator.