For All Borrowers: Periodic StatementsSkip to issue
§1. Basic information for ALL borrowers
The mortgage crisis showed that consumers didn’t always get clear and current information about the status of their mortgage accounts. Now, servicers must send borrowers “periodic statements” containing this information. The proposed new rules would settle what specific information must be included and, based on CFPB’s consumer testing, how this information must be organized and presented. Two important proposed exceptions are described in the last sections of this post.
What this means for consumers. CFPB wants borrowers to get the information they need to manage their mortgage loan, without being overwhelmed. Some information would have to go on all periodic statements. (For information that depends on individual borrowers’ circumstances, see the next section). Take a look at the new form for all statements:
How will borrowers benefit from having this information? Servicers will probably have to spend money on new software and other systems to produce this information in the form CFPB wants to require. Those costs might be passed along to consumers. Are borrowers likely, on balance, to come out ahead?
What this means for servicers (and creditors and assignees): The periodic statement rules would cover owners, including the original lender and assignees, as well as servicers (unless they no longer own or service the loan). The servicer and the owner can coordinate to send only one statement to the borrower. Loans covered are closed-end residential mortgages, but reverse mortgages, construction loans, and time shares would be excluded.
Servicers don’t have to use the sample form, but the information must be arranged in the required groupings. Boxes, lines, or white space must set off each group. Other information (e.g., logo, payment methods, details on escrow accounts) can be included so long as the required disclosures remain “clear and conspicuous.“ Servicers can use different terminology than CFPB uses (e.g., “impound account” instead of “escrow”) if that would be clearer for borrowers in some regions.
CFPB proposes a change to providing housing counselor information. Rather than listing specific organizations with contact numbers, the periodic statement would have to give the website and phone number for the HUD Approved Counseling Agencies list or a list that CFPB will develop, as well as the state housing finance authority for where the borrower resides. CFPB has several concerns about servicers’ directing borrowers to specific agencies.
CFPB wants to know how servicers who now provide a combined statement for mortgage loan and other financial products (e.g., checking account; credit card) would handle the proposed new requirements. For example, if both mortgage loan disclosure and credit card disclosures must be on the first page of the statement, how would that look?
What are the likely costs to servicers of storing and accessing the loan-specific information required by the proposal? How far are those costs likely to be offset by (i) borrowers not needing to contact the servicer as often to ask questions, (ii) borrowers managing their loan payments better as they get better information about e.g., late fees, effect of partial payments, etc., or (iii) other changes in borrower behavior? What strategies could servicers use to lower periodic statement costs (e.g., smaller servicers using outside vendors)?
Under the new rules, servicers would be required to have “reasonable information management policies and practices” to ensure that they can “provide accurate and timely disclosures to borrowers.” If notices to borrowers regularly contain inaccurate information or are not provided on time, 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.
§2. Info depending on borrowers’ circumstances
CFPB thinks that borrowers having certain kinds of mortgages will benefit from getting additional information. This information can help a borrower who is getting into trouble keep track of the status of his/her loan. (See the posts on Borrowers in Trouble for other new proposals.)
What this means for consumers. Some mortgages penalize borrowers for paying off the loan early (e.g., by refinancing). The periodic statement would have to say if such “prepayment penalties” apply. (Should the statement have to give the actual amount of the penalty?) If the mortgage is an adjustable rate mortgage (ARM), the statement has to give the date the interest rate will reset. (For more new proposals on ARMs, see the Adjustable Rate Mortgages post).
For borrowers having trouble, information about what the servicer is doing with partial payments would have to be included. You can read about, and comment on, this part of the periodic statement in the Partial Payments post. If the borrower is more than 45 days overdue (a timeframe CPFB chose because it usually means 2 consecutive missed payments) the statement must contain a “delinquency notice.” Take a look at
Would any changes help make this clearer to borrowers? Are there other kinds of information that should be included in the “Messages” section: e.g., a notice if the borrower’s regular payments cover only interest not principal (interest-only loan), or don’t even the cover the interest (a negative amortization loan); or disclosure of whether the borrower could stop paying for private mortgage insurance .
Borrowers with payment-option loans must be able to see each payment option. Take a look at
Would any changes help make this information clearer to borrowers?
What this means for servicers. Servicers will want to look at the proposed definition of prepayment penalty, which tries to reconcile somewhat different approaches CFPB has taken in its other recent proposals. Questions include what to do with a minimum finance charge (currently, included) and loan-guarantee fees (currently excluded).
Is it possible to disclose the prepayment penalty amount or, because the amount might depend on circumstances, should CFPB require disclosure of the maximum possible amount?
The borrower-specific information in the Delinquency Notice complements the proposed new “early intervention” notices. (See the Early Intervention Help post). The Notice must include the date delinquency started because this matters to some loss mitigation options. If the borrower has been accepted into any loan modification program, or if the loan has been referred to foreclosure, this must be stated in the Notice.
Read what CFPB says in the NPRM about these parts of the periodic statement.
See the text of the proposed rule and CFPB commentary: §1026.41(d)
§3. When and how
In general, a periodic statement would have to be sent for each billing cycle: put in the mail, or delivered electronically, no more than 4 days after the grace period ends for the previous cycle. Borrowers want their statements to show their most recent payment, including whether a late fee was charged because the payment arrived after the grace period. So, the next statement can’t be sent too early. (Servicers are generally required to credit payments on the date received.) On the other hand, if the statement is sent too late, it may not arrive before the due date of the next payment. Has CFPB come up with the best balance?
If the borrower agrees, the periodic statement can be provided electronically . Should servicers have to get separate consent if consumers already receive electronic statements? How about from consumers who already have their payments deducted automatically from their bank account? Should the servicer have to make sure that the borrower in fact has electronic access to information?
Read what CFPB says in the NPRM about timing and delivery of periodic statements.
See the text of the proposed rule and CFPB commentary: §1026.41(a),(b),(c)
§4. The coupon-book exception
Some borrowers make mortgage payments using a coupon book that usually has a year’s worth of coupons. Rather than require a periodic statement plus the coupon book, CFPB proposes a compromise: information that remains the same will have to be included on the coupons, and the borrower can get information that changes (e.g., payments for the year; breakdown of how payments are applied) by asking the servicer. The coupon book would have to explain how to get this information. For borrowers more than 45 days behind at the beginning of a billing cycle, the servicer would have to send a separate written Delinquency Notice. Is this a good solution for consumers? For the mortgage industry? Is there a better alternative?
This exemption would apply only to coupon books for fixed-rate mortgages. (See the Adjustable Rate Mortgages post for new disclosure proposals for ARMs.)
Read what CFPB says in the NPRM about coupon books.
Read CFPB’s analysis of coupon book costs and benefits.
See the text of the proposed rule and CFPB commentary: §1026.41(e)(3)
§5. The “small servicer” exception
CFPB is proposing that small servicers would not have to send periodic statements. A small servicer is one who:
- services only mortgages that it (or an affiliate) currently owns or was the original lender for AND
- services no more than 1,000 closed-end mortgages
CFPB estimates that this would exempt about 7,500 banks, savings and loans, and credit unions, but these companies service less than 1% of all residential mortgages.
The idea behind the proposed exemption is that it might be so expensive for small servicers to set up the systems needed to create and send periodic statements with all the required information that they would stop servicing loans. This would reduce options for borrowers who are looking for a mortgage that will be serviced by a bank or credit union that keeps their loan. These servicers are likely to have ongoing customer relationships with the borrowers who, for example, have checking accounts, debit cards, etc. with them. This should motivate them to stay in touch with borrowers and provide quality service, as compared with large servicers who don’t have the same relationships and whose business is focused more on making money from servicing fees.
Should there be a small servicer exception? If so, is CFPB using the right tests for which servicers should qualify? In particular, should affiliates be included? What about servicers that were the original lender but don’t still own the loan?
Commenters in the industry will want to look at the details of qualifying as a small servicer, including treatment of sub-servicers.
Read what CFPB says in the NPRM about the small servicer exemption.
Read CFPB’s analysis of small servicer costs and benefits.
See the text of the proposed rule and CFPB commentary: §1026.41(e)(4)