Agency Proposal

By the Regulation Room team based on the NPRM

For Borrowers in Trouble: Partial Payments

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§1. What happens with partial payments

Full mortgage payments usually must be credited to the borrower’s account on the day they’re received. But borrowers in trouble often try to make a partial payment, and there haven’t been rules for what happens then. Some lenders won’t accept partial payments at all. Some hold onto them in special accounts (“suspense accounts,” sometimes called “unapplied funds accounts”) rather than crediting them immediately to the borrower’s loan. Some lenders don’t credit partial payments in the way that helps borrowers the most. This has been very confusing to borrowers, and sometimes makes the situation of a borrower in trouble worse. CFPB is proposing to change part of this: what happens with suspense accounts. It’s also proposing that partial payment information be highlighted on the periodic statement borrowers must get every payment cycle. (See the Periodic Statements post.)

What this means for consumers and servicers. Under CFPB’s proposal, lenders could still refuse to accept partial payments. But, if the lender accepts partial payments and puts them in a suspense account, it must:

  1. credit this money as a payment as soon as there’s enough money in the suspense account to make up a full payment; and
  2. apply this credit to the oldest missed payment so that overdue charges don’t continue to pile up for that payment

Is this a good approach to the partial payment issue?

Also lenders must make special disclosures about suspense accounts on the periodic statement they have to send in each billing cycle (look in the Past Payments Breakdown box):

Periodic Statement Sample 2

Will this be clear to borrowers? CFPB is not planning to require that a servicer who refuses to accept partial payments and returns them to the borrower must include this information on the periodic statement. Should this information be included? The Message section must include information on what the borrower must do to get the funds out of the suspense account.

An important question is what “full payment” means. CFPB proposes that a full payment covers (1) interest, (2) principal, and (3) escrow but not any late fees that are due. However, it specifically wants comments on whether it should let lenders include late fees in determining whether the borrower has made a full payment for purposes of accepting, or crediting, the payment.

Read what CFPB says in the NPRM about partial payments.

Read CFPB’s analysis of partial payment costs and benefits: general; small business.

See the text of the proposed rule: § 1026.36(c)(1)(iii)

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August 10, 2012 5:56 pm

If a partial payment is made, the representatives for the Loan Service should be trained in ALL escrow matters so they can inform the customer that the partial payment will create an escrow shortage that can lead to placement of Force-Placed Insurance, nonpayment of property taxes, and denial of a loan modification…all of which lead to foreclosure.

Use these buttons to endorse, share, or reply to the preceding comment by versability.
    August 14, 2012 1:05 pm

    Versability, how should consumers be notified about these consequences? Do you have specific suggestions for changes in the new Periodic Statement form, which deals with partial payments in several places? If, e.g., CFPB required something in the new Messages section, what should the message say?

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      August 14, 2012 1:12 pm

      The way the statement is broken down is fine (with the exception of the Escrow & Insurance transparencies I recommended in the Periodic Statements section). What I mean is that even though it’s provided on the statement, customer service reps (whether online, over the phone, or in person) need to be required to disclose the same information to borrowers. In today’s day and age of automatic payments and electronic transfers, it’s important that ALL lines of communication are treated the same. Few people use snail mail, and in another 20 years, it’ll likely be a thing of the past. Many of these regulation seem geared toward the past rather than the technological present and future.

      Also, why is there an app for everything except filing a consumer complaint with the appropriate government agency? Transparency is ALWAYS the answer.

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August 15, 2012 5:22 pm

I understand that at a certain point when a loan is past due if the lender is continuing the foreclosure process that they can not accept payments, however I do not understand why they can’t accept partial payments and apply them to the loan. By not accepting the payment unfortunately what happens is people pay something else that has to be paid. My previous employer serviced loans and we did all of the things being suggested, proactively called borrowers to setup a payment plan so they continued to receive funds. Most lender’s are not like this and won’t talk to you until you are delinquent and even tell you not to make the payment this is wrong and not helping the consumer that called prior to the loan being past due to try and resolve the situation. Lender’s should be ashamed.

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August 15, 2012 5:40 pm

Sorry I re-read by post and I meant to say I don’t understand why they can’t accept payments up to a point and then if foreclosure is emminent the serve the proper paperwork and notify the consumer that the foreclosure process can not be stopped unless the account is brought current.

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    August 16, 2012 3:30 pm

    Welcome to Regulation Room, reality. It sounds like you have a valuable perspective on this issue. How did your previous employer deal with partial payments? Did they include late fees in the total payment amount?

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      August 17, 2012 5:19 am

      There were late fees, they fee was $25 once the payment researched 10 days past due. The late fee was the last thing they collected and depending on the circumstances and the plan with the client to go foward many times the late fee was waived, their goal was to get the loan current and avoid foreclosure. A payment reminder and a call were made to the client after the account became past due 10 days, the servicer’s goal was to discuss the situation with the client and propose options to get the account back on track. A majority of people want to work this out, they need help. The plan this agreement was followed up in a letter to the client and/or depending on the changes made may require the client to sign documents, these items were all taken care of prior to the loan being 30… more »

      …days past due if the client was willing to work with the servicer. They encouraged people to be proactive.

      I can appreciate the comments I have read I had an instance where we had some medical things happen and I knew I was going to be late on a payment and called the servicer prior to the payment being due and was told there was nothing they could talk to me about and recommended I let the loan go past due! I had the funds to make 2/3′s of the payment but unless it was a full payment they wouldn’t accept it. I was horrified by this and the service I received. I know better because of my job but your everyday client doesn’t and they trust what they are being told. These large servicers have a racket going. They need to get back to the mentally they are their to help the customer not go past due and find ways restructure. I can’t believe there is a lender that would not wanted to receive additional dollars on an account and not go through the foreclosure process if possible. The cost of foreclosure for the lender is expensive, most times if you can work it would it is cheaper to work with the client. If the mentally was to correct and help clients work through their situation servicers would need people with more experience than they have which currently is a phone bank of people with canned answers. Off my soap box now, sorry « less

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August 21, 2012 8:33 am

The partial payment issue is a tricky one, they should be required to accept and post partial payments, becuse it reduces the amount of interest and other charges on the loan especially for FHA and other govt backed loans. Their failure to accept partial payments maximizes their insurance claim to the govt. There is no way this should be allowed, if you want govt insurance of mortgage loans, then you the lender must accept and post every dollar to that loan before, you would be allowed to make any claim, any lender not doing that should forfiet their right to make a claim on a govt backed mortgage, failure to do that after they received bailout funds from the governement means they are only interested in maximizing their profits and reducing their risk completely at the taxpayers expense. They… more »

…should have to credit them immediately, even if there is no negative reporting, because otherwise they are still engaging in harassing collection calls to borrowers(I was told I hadn’t made a payment even when I had, and that it “didn’t count” even tho there were 2 months of suspense fund payments present), rather than working to resolve the actual problem, they seem in some cases more interested in getting an insurance claim for your mortgage than curing the default right now because the claim is worth more than the forclosed property due to market value changes. As an aside item, most lenders are now calling from the frist day of the grace period, lenders should no longer be allowed to call 20 times a day claiming you are late, while in the grace period for a payment if the loan is otherwise current. « less
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August 21, 2012 3:24 pm

I studied the example Periodic Statment 2. If a lender will put a partial payment in a suspense account, why can’t the lender apply as much of the partial payment as is needed to bring a late payment up-to date. For instance, if the 3-1-12 payment could be made and some of the late charges paid, why does the full amount of the partial payment stay in the suspense account? To hold funds in the suspense account until the full amount is collected and fees are paid still hurts the borrower who is at least trying to catch up. Even paying interest and then the remainder to pricipal on a partial payment helps the borrower catch up. The lender will benefit from the additional interest on the principal that is paid down more slowly and the late charges. Otherwise, the suspense account should… more »

…at least pay interest on the funds equal to the interest on the loan so the borrower is not simply out until he or she can catch up completely while still amassing late charges and additional interest.
The portion of the funds that would be alloted to the escrow for taxes and insurance should be applied as well. Those items must be paid anyway and there is no reason for the bank to add them to the loan amount and charge interest when there was funds to cover them. Perhaps that should be done first. « less
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    August 23, 2012 12:02 pm

    Welcome to Regulation Room, onehome, and thanks for your comment. The first part of your comment discusses how lenders credit partial payments that don’t cover the full outstanding balance. CFPB hopes to minimize delinquent fees for borrowers making partial payments. If a borrower who owes $1000 in January and $1000 in February makes a partial payment of $500 in January, the $500 is held in a suspense account. If the borrower pays $500 again in February, the two payments are combined and applied to January. When the borrower makes partial payments totaling one full installment, the delinquency on the oldest overdue installment is satisfied first and the borrower no longer incurs late fees on that amount. In the example, at the end of February, the borrower will have paid the January… more »

    …debt in full and only be delinquent on his/her February payment. CFPB explains this process in more detail here (

    You suggest that, when a borrower makes a partial payment that is less than one full installment, CFPB should still require lenders to credit the payment to the amount the borrower owes or hold the partial payment in a suspense account that earns interest. So, using the prior example, the $500 paid in January would be used to reduce the amount the borrower owes by $500, even if it’s less than a full installment or the borrower would receive interest on the $500 until a full installment was paid to the lender. The interest on the suspense account would be used to offset any penalties tied to the $500 partial payment that was made. It’s not clear how easy it is for servicers to keep track of and make these kinds of calculations on payment amounts that are less than a full installment. If CFPB does not adopt your proposal and borrowers continue to get no credit for partial payments, do you think borrowers would still make partial payments? Would it be helpful if CFPB instead requires servicers to return partial payments or be clearer that money in a suspense account earns no interest and does not reduce penalties or fees? « less

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August 28, 2012 9:24 am

Regulation Room Research Team,

The borrower should certainly know that a partial payment is not credited to their benefit if that is the case. In all honesty, as a consumer, why would I give a partial payment and receive no benefit until I can make the rest of the payment? I have better uses for those funds (especially if I am in a financial bind) or I can put them in a savings account. Also, if a partial payment is returned to the borrower as in the case of some lenders, doesn’t that encourage the borrower to spend those funds to pay for something else? If payment was tendered, even a partial payment, the borrower was attempting to fulfill his or her obligation and should receive some credit for the attempt. It has been my experience that consumers who are encouraged to work… more »

…with their lenders often do a better job of fulfilling their obligations.

As for the recordkeeping issue for servicers of the accounts, my guess would be that partial payments could be programmed into the bookkeeping program and the allocations made automatically or nearly so. The additional time would be minimal compared to the benefit to the consumer. It certainly wouldn’t be any more difficult than keeping track of the partial payments in a suspense account.

« less

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September 6, 2012 9:20 am

Should the late charge be included as part of what is considered a full monthly payment?

The answer to this question needs to be guided by the long history of contract law in America. If the customer makes his payment after the grace period has expired, then the customer is contractually obligated to pay the late charge. So the answer is yes, the customer must pay the late charge before the monthly payment is to be considered fully paid.

The CFPB should not be issuing a rule which over-rides a legal contractual obligation of the borrower to the lender.

Excluding the late charge is arbitrary and not based on any solid legal foundation. It just feels good. The rule could just as well exclude the principal portion of the payment and include only the past due interest. Why not? Excluding… more »

…the principal portion is no more arbitrary than excluding the late charge.

Please make rules which are based on the legal contractual obligation between the borrower and the lender, not based upon a feel good approach that views lenders and loan servicers as evil and borrowers as angels that are never in the wrong and have no responsibilities to live up to. « less

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October 1, 2012 8:23 pm

By eliminating partial payments or storing partial payments off to the side is creating another problem for borrowers when partial payments can be part of the solution and maybe even the determining factor in bringing the borrowers loan current by allowing additional time. If a checking account can have over “draft protection”. Then why can a property insurance policy not have the same system? “Bank auto draft protection” on the insurance policy. If the insurance company does not receive the monthly payment within a 5 day grace period after the due date bank auto pay kicks in, preventing a lapse in coverage and preventing the need for other policies that are largely based on fraud, racketeering and inflated fees that prevent borrower recovery. The bank can charge… more »

…the same interest for the insurance draft protection money that they charge on the loan money. If the homeowner gets 3 months behind on any combo of principle, interest or property insurance foreclosure can start. If the homeowner makes 50% payments on their loan, it will give them a full 6 months to get 3 months behind. This system gives borrowers two options to get back on their feet after a job loss or medical issue. A three month recovery until foreclosure starts or a 6 month chance of a recovery with a 50% payment for example. No late penalty allowed for three months and then it is a flat fee $25.00 per month. I have one other suggestion and that is to give all loans an option for the first 10 years of paying interest only or interest and principle each month. A lot of loans already have this feature. How many people could have kept their home if they could have paid interest only when they ran into a bump in the road? Or at least make a law that if someone falls under financial difficulty they can fill out a form and switch to interest only for 6 months or 1 year. More important than anything here, is the importance of remembering that just making new laws will not solve the issues. We have laws now and the banks are ignoring them. The solution requires “Transaction Activity” on the monthly statement to be transparent and include all activity in order for borrowers to even know what is being done to them. Banks have to be stopped from using an, “as busted” system to return money when caught. It is currently easy to keep the refunds to a minimum, by limiting information available to the borrower. « less
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