For Borrowers in Trouble: Reliable Contact with People Who Can HelpSkip to issue
§1. ”Continuity of Contact”
During the mortgage crisis, many borrowers in trouble couldn’t contact a customer service representative who knew what was going on, kept good records of contacts with the borrower, and had authority to help. Often, documents were lost or mishandled, conflicting or misleading information was given, and borrowers were handed off from one department to another and forced to explain their situation over and over. To help solve these problems for the future, CFPB is proposing that servicers must provide borrowers in trouble “continuity of contact” with someone who knows what’s going on and can help. This is a follow-up to the proposed new early intervention rules. See the Early Intervention Help post.
What does this mean for consumers? CFPB proposes that a borrower in trouble must have “readily available telephone access” to a customer service representative, or a team of representatives, designated to help him/her try to work out a way to avoid foreclosure. This person or team must be able to:
- explain what to do if the borrower thinks there has been an error (See the Getting Errors Fixed post)
- explain what options the borrower might have for avoiding foreclosure (called “loss mitigation options” (LMOs)) (See the Options for Avoiding Foreclosure post)
- tell the borrower what he/she needs to do to apply, including any deadlines he/she must meet
- have access to all the borrower’s payment history and all documents he/she submitted to apply for an LMO
- pass along this material to the people who actually make the decision
- tell the borrower what the status of his/her application is
- tell the borrower what the decision is, within 3 business days of when it’s made
- explain if, and how, the borrower can appeal if the LMO application is denied
- explain the circumstances under which the servicer can start foreclosure
Someone helping the borrower (like a housing counselor or a lawyer) must also have access to this person or team. Borrowers who call and don’t get a live response from their assigned representative must be able to leave a message — and get a call back within 3 business days. Will these new requirements give borrowers in trouble the support they need?
Once the borrower seems to be out of trouble, the servicer can stop providing “continuity of contact.” CFPB thinks a good sign of this is when the borrower has made 3 consecutive months of on-time payments under either the original mortgage terms (after making up all the missed payments) or the new plan that was worked out. Is this a good approach to defining when a borrower no longer needs this kind of help?
CFPB wants to avoid having the ball dropped if servicing rights are transferred. See the Who’s Servicing Your Loan? post. The new servicer must set up continuity of contact for the borrower with its own employees within 30 days of when the transfer takes effect. The old servicer cannot stop continuity of contact until 30 days after the transfer takes effect. Should the new servicer be given more time?
What does this mean for servicers? Servicers are required to start providing continuity of contact no later than 5 days after notifying (or making a good faith effort to notify) a borrower about early intervention. (See the Early Intervention Help post.) If a nondelinquent borrower contacts the servicer saying he/she expects to be late in making a payment, the servicer may, but is not required to, provide continuity of contact. The required “readily available telephone access” would mean “mak[ing] phone access available any time during the day when the servicer makes available personnel to receive borrower inquiries by telephone.” It’s up to the servicer to decide whether to assign a single staff person to the borrower through the whole time, or to use a team of people, so long as the required continuity is present.
CFPB thinks it’s important to have “objective standards” for how long the servicer must provide continuity of contact. In addition to the 3-months of consecutive payments test, other circumstances in which continuity-of-contact service can be terminated are: sale of the property through foreclosure or otherwise; refinancing the mortgage; paying off the mortgage; 30 days after servicing rights are transferred.
Servicers may take reasonable steps to determine if someone purporting to act for the borrower is authorized to do so.
As part of a general expansion of the scope of Regulation X, the continuity of contact requirements would apply to subordinate lien (as well as primary) closed-end mortgages.
Read what CFPB says in the NPRM about continuity of contact.
§2. Good information management practices
To make certain that customer service representatives actually have good information about the borrower’s situation, servicers would have to have recordkeeping practices that provide up-to-date, accurate information about the account. This includes information about what “service providers” (law firms, appraisers or inspectors, or other companies hired by the servicer) are doing.
What this means for consumers. Servicers would have to take whatever steps are needed so that the borrower (i) receives accurate, on-time information, (ii) gets errors corrected quickly; and (iii) doesn’t suffer negative actions, including foreclosure, based on inaccurate information.
What this means for servicers. A servicer does not have “reasonable information management policies and procedures” unless appropriate personnel “have access to accurate and timely information about a borrower’s account” and can give it to the borrower or another party (e.g., court in a foreclosure proceeding). Also, the servicer’s procedures must allow it to get information from, and oversee the actions of, service providers. CFPB wants to give servicers flexibility to implement practices that reflect the size, nature and scope of their particular operations, but compliance with the proposed new rules would require at least the following:
- maintaining for each borrower a “servicing file” that contains copies of the mortgage note and deed of trust, schedule of all payments credited or debited (including escrow and suspense accounts), any collection notes created by servicer personnel, report of any data fields created by an electronic system (e.g., telephone communications), and copies of material provided in response to information requests or notices of error (see the Requesting and Getting Information and Getting Errors Fixed posts).
- retaining a borrower’s records for at least a year after servicing rights have been transferred (see the Who’s Servicing Your Loan? post) or the loan paid off.
Also, if there has been a transfer of servicers, the designated contact staff must have access to any documents the borrower submitted to the prior servicer in seeking a loss mitigation option. See the Who’s Servicing Your Loan? post.
When information is not immediately available (e.g., payments haven’t been posted yet or documents from the borrower haven’t been processed), the servicer must respond “within a reasonable time” – which CPFB proposes to define as 3 business days. Should the servicer have longer to respond? Also, conditions beyond the servicer’s control (e.g., phone or computer service disruption; borrower delay in supplying information) can excuse failure to comply.
If the servicer’s personnel regularly cannot perform the tasks identified above, 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 for penalties 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.
Read what CFPB says in the NPRM about reasonable information management.
See the text of the proposed rule and CFPB commentary: § 1024.38