Developments in CFPB Servicing Rules and Enforcement Trends
Panel:
Michelle Garcia Gilbert: Gilbert Garcia Group, P.A.
Rose Marie Brook, Fabrizio & Brook, P.C.
Stephen Hladik, Hladik, Onorato & Federman, LLP
CFPB Mortgage Servicing Rules Issued Jan. 17, 2013, Effective Jan. 10, 2014, Amended Aug. 2016
• Since Jan. 2014, CFPB received industry and consumer suggestions, especially regarding borrowers in bankruptcy and successors in interest
• August 2016 amendments effective Oct. 2017 and April, 2018
• URGENT: Development of policies and procedures; implementation of technology, operations processes and training
• CFPB not imposing mandatory language translation but emphasizes importance of communicating in “non-discriminatory manner” with limited English proficiency borrowers
CFPB Mortgage Servicing Rules Issued Jan. 17, 2013, Amended August, 2016
• Final rule effective October 19, 2017:• Definition of delinquency• Requests for information• Force-placed insurance• Early intervention• Loss mitigation• Prompt payment crediting• Periodic statements
• Final rule effective April 19, 2018• Successor in interest• Periodic statements during bankruptcy
Sources:
CFPB Executive Summary of the 2016 Mortgage Servicing Rule
Federal Register
Successor in Interest: History• CPFB 2013 rules required polices & procedures that upon notification of
borrower death, identify & communicate with successor in interest
• CFPB Oct. 2013 Servicing Bulletin further provided guidance about this requirement
• Housing counselors & consumer advocates reported issues to CFPB- no information about loan, rejection of payments, no loss mitigation options
• Vulnerable consumer group: lien limits action, loss of home and equity, income disruption
• More comments about SII than any other proposal, increase with baby boomers
Successor in Interest
• CPFB finalized 3 sets of rule changes• Added similar definitions of “successor in interest” to subpart C of Regulation
X (Real Estate Settlement Procedures Act- RESPA) and Regulation Z (Truth in Lending Act- TILA)
• Added requirements regarding how a servicer confirms a successor in interest’s identity and ownership in real property securing mortgage loan
• Added that a confirmed successor in interest be considered borrower for RegX- RESPA and consumer for Reg Z- TILA
Successor in Interest: Number One
• Definition: a person is successor in interest if borrower transfers ownership interest as follows:• Transfer by devise (by will), descent (by inheritance), or operation of law on
death of joint tenant or tenant by the entirety
• Transfer to relative resulting from death of borrower
• Transfer where spouse or children of borrower becomes owner of property
• Transfer into inter vivos trust in which borrower is a beneficiary and does not relate to transfer of rights of occupancy in property
• Person does not need to assume or be liable on mortgage loan to be successor in interest
Successor in Interest: Number Two
• How servicer determines who is successor in interest:
• Must respond to written request if request includes name of borrower and information to identify loan
• Response must include written description of documents servicer reasonably requires to confirm person’s identity and ownership interest in property
• Response must contain contact information for further assistance• Must have policies and procedures to
• promptly provide potential successor with description of documents the servicer reasonably requires to confirm person’s identity and ownership interest
• promptly notify potential successor in interest about servicer’s determination after receiving documents
• Not required to proactively search for SIIs, no private right of action for inaccurate determination, but no safe harbor for UDAAP• A real life example…
Successor in Interest: Number Three
• Effect of determination of a confirmed successor in interest:
• Borrower for purposes of Regulation X’s mortgage servicing requirements, including servicing transfer, error resolution, request for information, early intervention, continuity of contact, loss mitigation, force-placed insurance and escrow provisions
• Consumer for purposes of Regulation Z’s mortgage servicing requirements, including periodic statement requirements, provisions on interest rate adjustments notices, payment processing and payment statement requirements and mortgage transfer notice requirement
• Confirmation of SII does not reset the 180 day early intervention rule or the 120 day first legal rule
Successor in Interest: Implementation-Communication
• RESPA & TILA rights apply to confirmed successors in interest in same way that they would apply to any borrower or consumer
• Small servicer exemptions still apply
• Servicer must respond to a confirmed SII’s request for information but may omit location, contact and personal financial information, other than mortgage loan’s terms, status and payment history-Gramm-Leach-Bliley Act
• Servicer is not required to send written disclosure or notice to confirmed SII if sent to another borrower or consumer, unless SII requests it
• Servicer is not required to comply with early intervention requirements to confirmed SII if complying with another borrower or consumer, unless SII requests it
Successor in Interest: Implementation-Communication
• Confirmed SIIs not liable for debt until assumed under state law, but they are entitled to loan information in order to consider options
• Providing periodic statements and other servicing notices are required pursuant to Regulations X & Z, so not prohibited by FDCPA, section 805(b)
• CFPB recognized that model notices could suggest recipient is liable, so suggested modifications:• Remove language suggesting liability
• Add additional disclosure that disclaims SII liability
• Provide optional notice with written acknowledgement from SII
Successor in Interest: Implementation-Loss Mitigation
• Servicers must evaluate a confirmed successor in interest for loss mitigation, even if they do not assume the loan
• Servicers/investors maintain ability to determine loss mitigation options
• For example, confirmed SII who does not assume loan cannot agree to loan modification
• Pending confirmation, servicers must keep loss mitigation application and evaluate it promptly upon confirmation
Loss Mitigation Requirements: Effective Oct. 19, 2017
• Requires servicers to accept loss mitigation application more than once for borrowers current from prior complete package and subsequent package
• Modifies existing 120 day prohibition to allow servicer to join foreclosure action of superior or subordinate lienholder, if borrower ceases communication and servicer is debt collector under FDCPA
• Clarifies how servicers select reasonable date for receipt of loss mitigation application, acknowledgment notice within 5 business days providing 30 days out, except no date later than next milestone unless next milestone is less than 7 days away- a real life example…
Loss Mitigation Requirements: Effective Oct. 19, 2017
• Clarifies servicers’ obligations if complete loss mitigation application submitted more than 37 days before foreclosure sale: must not move for judgment or sale, even if third party conducts sale, unless:• Application denied
• Application withdrawn
• Borrower fails to perform
• Absent one of these 3 circumstances, sale violates Reg. X/RESPA• Must promptly instruct foreclosure counsel to stop action• Counsel’s failure to follow instructions does not relieve servicers of liability
Loss Mitigation Requirements: Effective Oct. 19, 2017
• Requires servicers to exercise reasonable diligence to obtain documents or information not in borrower’s control and prohibits servicers from denying borrowers solely due to this lack, except in limited circumstances
• Requires servicers to promptly provide notice to borrower if servicer lacks third party information within 30 days after receiving borrower’s complete application and cannot determine loss mitigation options
Loss Mitigation Requirements: Effective Oct. 19, 2017
• Clarifies that servicers may offer short-term payment forbearance or repayment plan with incomplete loss mitigation application if:• Plan allows for repayment of no more than 3 months of past due payments
• Plan is structured to bring loan current in no more than 6 months, and
• Servicer gives prompt written notice after making offer, with specific repayment terms and other disclosures
• Clarifies that servicers can stop collecting documents and information for particular loss mitigation option after confirming borrower is ineligible, but cannot stop due solely to borrower’s preference- a real life example
New Requirements and Clarification to Address Conflicts with Federal Bankruptcy Rules and RESPA / FDCPA
Live Contact / Early Intervention Notice(Changes effective October 19, 2017)
Periodic statements(Changes effective April 19, 2018)
Both are currently not required if borrower files bankruptcy or invokes cease communication right under FDCPA.
Final rules require modified early intervention notice & modified periodic statement with specific information targeted to bankruptcy.
General Application and Definition
Principal Residence:
Regulation X applies to a mortgage loan that is secured by property that is a borrower’s principal residence.
Delinquency:
• Begins on day periodic payment is due & unpaid until such time as no periodic payment is due and unpaid.
• Periodic payment refers to a payment sufficient to cover principal, interest & escrow (if applicable).
• Payment tolerance (partial payment accepted) - relevant to calculating date of first delinquency.
• Grace period - not relevant to calculating date of delinquency.
• Rolling delinquency may be created because of method of payment application with an extended delinquency never exceeding 120 days.
Live Contact / Early Intervention Notice
Live Contact (w/in 36 days delinquency)NOT required if any borrower:
• is in bankruptcy
• personal liability has been discharged thru bk
• Invoked cease communication rights under FDCPA (unless borrower initiates request for loss mit options)
Early intervention notice (w/in 45 days delinquency)
NOT required if any borrower:
• no loss mitigation option available,
• borrower files chapter 11 bankruptcy, or
• borrower invokes cease communication rights
Modified early intervention notice is required
• for borrowers in bankruptcy (except Ch11) or if
• personal liability has been discharged thru bk
What is a Modified Early Intervention Notice?
Modified Notice:• Does not include request for payment.• includes statement encouraging borrower to contact servicer• Provides example of loss mitigation options that may be available• Includes statement that servicer may, or will, pursue foreclosure
Model language (from 2016 Final Rule) :
This is a legally required notice. We are sending this notice to you because you are behind on your mortgagepayment. We want to notify you of possible ways to avoid losing your home. We have a right to invokeforeclosure based on the terms of your mortgage contract. Please read this letter carefully.
Periodic Statements / Coupon BooksFor Borrower in Bankruptcy (Effective April 2018)
• Modified statement is required for borrowers in bankruptcy who wish to retain home
• Not required for borrowers in bankruptcy whose plan provides for surrender or avoidance of lien
• Not required for borrowers in bankruptcy whose statement of intention is to surrender home & no payments made since filing
• Not required if stay is lifted or lien avoided
• Not required for borrowers w discharged personal liability on loan & not making payments
• Borrower in bankruptcy may opt out of receiving statement, may also opt in if exemption applies & they still want statement
• Exempt from sending modified statement for a single billing cycle if due date is less than 14 days after bankruptcy filing.
What is a Modified Periodic Statement?
Modified content for consumers in bankruptcy with disclosures & modifications to mitigate risk of violating automatic stay and/or discharge order (content varies w chapter of bankruptcy)
Content for all bankruptcy types must:• Identify the consumer’s status as a debtor in bankruptcy or the discharged status of the mortgage loan • Contain statement that this statement is for informational purposes only • Remove any reference to delinquency or late payments
CFPB suggested language:
Our records show that you are a debtor in bankruptcy or you discharged personal liability for your mortgage loan in bankruptcy.
We are sending this statement to you for informational and compliance purposes only.
It is not an attempt to collect a debt against you.
If you want to stop receiving statements, write to us.
Varied Modifications Required
Bankruptcy depending on chapter:
• Chapter 7 or 11
• Chapter 12 or 13
Non-Bankruptcy:
• Short term repayment plan / trial modification
• Permanent modification
• Charged off Loan
• Accelerated Loan
Periodic Statements / Coupon BooksFor Borrowers With…
Short term repayment plan or trial modification:
• Amount due section may show either temporary payment or contractual payment
• If amount due shows temporary payment, contractual payment must be included in explanation of amount due somewhere on the statement.
Permanent modification:
• Amount due section must show only modified payment
Accelerated Loan:
• Accelerated amount MUST show on periodic statement
• Generally in amount due section
• If servicer is willing to accept a reinstatement amount less than accelerated amount, lesser amount MUST be shown as amount due / accelerated amount must still be shown on periodic statement
• Reinstatement amount may include ‘good through’ or ‘as of’ date
Periodic Statements / Coupon BooksFor Borrowers With…
Charged off Loan:
• periodic statement not required if:
No additional fees/interest will be owed and;
Notice of charge off is sent within 30 days of charge off or most recent statement
Notice of charge off must be clearly & conspicuously labeled:
“Suspension of Statements & Notice of Charge Off – Retain this Copy for your Records”
• Notice of charge off must include statement that:• Mortgage loan has been charged off;
• Servicer will no longer provide a periodic statement for each billing cycle;
• Lien remains in place & consumer remains liable for the loan and any obligations including property taxes;
• Balance is not being canceled or forgiven and consumer may be required to pay balance on the account in the future;
• Loan may be purchased, assigned or transferred
Later Implementation Date for Modified Periodic Statement Requirement
DevelopTest Systems
Train Employees
Servicing TransfersPer the CFPB, “Servicing transfers should be seamless for borrowers. Generally, transferee servicers must comply with the loss mitigation
requirements of the servicing rules within the same timeframes that were applicable to the prior servicer.”
The 2016 amendments define what constitutes the “transfer date.”
From, “2016 Amendments to the Mortgage Servicing Rules, Ginnie Mae Users Conference – September 2016, by the CFPB.
What is a “Transfer Date?”
• The CFPB defines the “Transfer Date” as being the date that the transferee servicer will begin accepting payments on a mortgage loan which is transferred.
Date Extensions
• Per the CFPB:
• 1. 5 Day Acknowledgment Notice: if the servicer receives a borrower’s application for loss mitigation within five (5) days prior to the transfer date, and the transferor servicer did not provide the acknowledgment notice prior to transfer, the transferee servicer MUST provide the notice within ten (10) days after the transfer date, excluding any legal public holidays, Saturdays or Sundays.
• 2. Complete Application: if the transferor servicer received a complete loss mitigation application prior to the loan transfer, and the application remains pending as of the transfer date, the transferee servicer MUST complete its evaluation of the application and provide written notice of its decision to the borrower within thirty (30) calendar days of the transfer date.
Pending Loss Mitigation Offers and Appeals
• Pending Offers: The transfer of servicing does not affect the borrower’s ability to accept or reject an offer of loss mitigation. A transferee servicer MUST allow a borrower to accept, reject or when applicable, appeal, a loss mitigation offer that has been extended by the transferor servicer during the unexpired time that is stated in the offer or allowable by regulation.
• Appeals: If during a servicing transfer, a borrower submits a timely appeal of a loss mitigation decision, the transferee servicer must provide notice of its determination on the borrower’s appeal by the later of:
A. Thirty (30) days from the date the borrower appealed, or
B. Thirty (30) days from the transfer date.
Recent Litigation Issues Regarding Servicing Rules
• Do borrowers have standing to assert violations of the rules as defenses to foreclosure?
• Do borrowers have the ability to initiate private actions against lenders and servicers for alleged violations of servicing rules?
• Will state attorney generals increase enforcement under the servicing rules?
• Can debtors in a chapter 13 use the servicing rules to prevent relief from the automatic stay?
CFPB Enforcement
• CFPB looking at how servicers handle the mortgage servicing process (i.e., sending accurate monthly statements, properly crediting payments and handling taxes and insurance). CFPB v. Ocwen Financial Corp., U.S.D.C. S.D. Fl., docket number 9:17-CV-80495.
• CFPB examines whether servicer is providing mortgage borrowers with the protections against foreclosure that are required by law. CFPB v. Fay Servicing, Consent Order, CFPB Docket Number 2017-CFPB-0014.
Thank You
Michelle Garcia Gilbert: Gilbert Garcia Group, P.A.
Rose Marie Brook, Fabrizio & Brook, P.C.
Stephen Hladik, Hladik, Onorato & Federman, LLP
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