Final CFPB Mortgage Servicing Rule Includes Exemption for HFAs
On January 17, the Consumer Financial Protection Bureau released a final rule that sets new standards for how mortgage servicers handle borrower accounts and provide consumers information about their loans. The rule imposes new requirements on servicers designed to ensure that they keep consumers informed about the status their loan and provide homeowners facing foreclosure an opportunity to remain in their home.
In the final rule, CFPB expands the rule’s small servicer exemption, which exempts those firms that service fewer than 5,000 loans from most of the rule’s requirements, to include all HFAs, regardless of the size of their servicing portfolios. NCSHA requested such an exemption in its comments on CFPB’s proposed servicing rule last year, arguing that HFAs’ superior customer service, limited resources, and government or quasi-government status clearly justified an exemption. CFPB cites some of these arguments when explaining its rationale for extending the exemption to HFAs.
The following summary of the rule provides more details on its requirements, organized by sections including those provisions that are applicable to HFAs and those from which HFAs are exempt. NCSHA will continue to review the rule in more detail and provide additional information as necessary. In the meantime, if you have any questions and/or comments, please contact NCSHA’s Greg Zagorski. The rule takes effect on January 10, 2014.
Requirements Applicable to HFAs
Notices for Borrowers with Adjustable-Rate Mortgages (ARMs). The rule requires servicers to provide consumers with ARMs a notice warning them of a rate change between 60 and 120 days before the change takes effect. For the first rate adjustment, servicers would have to provide an earlier initial notice between 210 and 240 days before the change takes effect. The original proposed rule would have required that the initial ARM interest-rate notice provide borrowers with contact information for the appropriate state HFA. NCSHA’s comments on the proposed rule asked that HFA contact information not be included on the form because it would be likely to increase consumer confusion and prompt borrowers to contact HFAs even though the HFAs may be unable to help them. Noting these arguments, CFPB did not include this requirement in the final rule.
Prompt Payments. Servicers will be required to promptly credit payments received from borrowers, generally on the day they receive them. If a borrower makes a partial payment, servicers are permitted to hold those funds in a suspense account. Once the amount in the suspense account equals one full monthly payment, the servicer has to apply the amount to the earliest delinquent payment.
Forced-place Hazard Insurance. Servicers will be prohibited from charging a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance. In addition, servicers must send a notice to borrowers at least 45 days before they begin charging the borrower for force-placed insurance, and again no earlier than 30 days before the first notice. These notices must give the borrower a good-faith estimate of how much force-placed insurance would cost. Servicers will have to accept any reasonable confirmation from the borrower that they have purchased insurance. If a borrower provides proof of hazard insurance coverage, then the servicer will have to cancel any force-placed insurance policy and refund any premiums paid for periods in which the borrower’s policy was in place. HFAs and small servicers are exempt from one major hazard insurance restriction, with an important caveat, that is discussed below.
Error Resolution and Information Requests. The rule establishes a timeline by which servicers must respond to a borrower’s written request for information or error complaints. Specifically, if a borrower informs their servicer of a possible error, the servicer has to acknowledge the borrower’s complaint within five days and respond to the complaint generally within 30 to 45 days. Similar, servicers are required to acknowledge receiving a borrower’s written request for information within five days and to respond to that request no later than 30 days after receiving the request. If the borrower request is for information about the owner or assignee of their mortgage, servicers will have to reply to the request within ten days.
The final rule does not include a provision, included in the proposed rule, which would have required servicers to respond to oral as well as written requests and error notifications. As NCSHA argued in our other comment letter on this proposed rule, requiring servicers to respond to oral requests would make the process more uncertain and increase servicers’ liability costs.
Foreclosure Restrictions. Small servicers and HFAs are exempt from most of the foreclosure and loss mitigation mandates promulgated under the final rule, except for two: 1) A prohibition on servicers beginning foreclosure proceedings on a home until the borrower is more than 120 days delinquent; and, 2) Small servicers and HFAs will not be allowed to foreclose on a property if a borrower is performing pursuant to the terms of a loss mitigation agreement.
Requirements That Do Not Apply to HFAs
Periodic Billing Statements. Mortgage servicers must provide borrowers with clear monthly mortgage statements. These statements will have to include a breakdown of payments by principal, interest, fees, and escrow; the amount and due date of the next payment; recent transaction activity; and warnings about potential late fees. CFPB provides sample disclosure forms that servicers could use to meet this requirement. This requirement does not apply to fixed-rate loans if the servicer provides a coupon book. As with the initial ARM interest-rate adjustment notice, CFPB initially proposed that these forms include contact information for the state HFA where the home is located. This proposal was not included in the final rule.
Using Escrow Account to Pay Hazard Insurance. If a borrower’s hazard insurance lapses and the servicer maintains an escrow account to pay the borrower’s insurance premiums, the servicer will be required to continue making the borrower’s insurance payments from that fund, and not purchase force-placed coverage until the account has been depleted. It is important to note that while HFAs and small servicers are exempt from this mandate, this exemption only applies if force-placed insurance purchased by the small servicer is less expensive to a borrower than the amount the servicer would have paid to maintain hazard insurance coverage.
Reasonable Policies and Procedures. Servicers are obligated to design “reasonable “policies and procedures designed to ensure that they are capable of providing accurate and timely information to borrowers. In addition, servicers are required to retain records relating to each mortgage loan until one year after the mortgage loan is discharged or servicing is transferred, and to maintain certain documents and information for each mortgage loan in a manner that enables the services to compile it into a servicing file within five days.
Point of Contact for Delinquent Borrowers. Servicers will be required to provide delinquent borrowers with access to a group of personnel that is capable of assisting them with loss mitigation options. Such personnel must be assigned to the borrower by the 45th day of a borrower’s delinquency. Borrowers must be able to contact the designated personnel by phone, and such personnel must be capable of accessing all the information they need to assist the borrower.
Early Intervention for Delinquent Borrowers. Servicers must establish or make good faith efforts to establish live contact with borrowers by the 36th day of their delinquency and promptly inform such borrowers, where appropriate, that loss mitigation options may be available. In addition, a servicer must provide a borrower a written notice with information about loss mitigation options by the 45th day of a borrower’s delinquency. The proposed rule would have required this written notice to include contact information for the HFA for the state in which the property was located. That requirement was not included in the final rule.
Loss-Mitigation Procedures. Servicers will be required to respond to a borrower’s application for a loan modification, if it is received at least 37 days before the borrower’s home is scheduled for a foreclosure sale, within 30 days. Servicers are also prohibited from foreclosing on a home until they have completely reviewed a borrower’s application.