For All Borrowers: Getting Errors FixedSkip to issue
§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.
§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:
- Not accepting a payment that was made the way the servicer requires
- Not properly applying a payment to interest, principal, escrow or other charges
- Not crediting a payment on the day it is received, if this results in a late charge or negative credit report
- 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
- Charging the borrower a fee that the servicer “lacks a reasonable basis to impose”
- Not providing an accurate payoff balance (see Options For Avoiding Foreclosure § 3)
- Not providing accurate information to a borrower in trouble about loss mitigation options (see the Options For Avoiding Foreclosure post)
- Not promptly transferring accurate and current information about the borrower’s account to a new servicer (see the Who is Servicing Your Loan? post).
- 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.