Summary of CFPB Proposed Servicing Rules

From Housing Wire and Dechert Law Firm:

A note from law firm Dechert to clients bring out several points on the CFPB’s latest salvo to reconstruct mortgage finance.

The CFPB is seeking to comprehensively modify residential mortgage servicing practices in the nation. The CFPB action, they say, is “reminiscent of the activism of the 1970s when our current federal consumer protection laws were first established.”

Particularly of note is the manner in which the CFPB is taking the rule-making reigns under the Truth in Lending Act and the Real Estate Settlement Procedures Act.

“The proposed rules would affect lenders that retain mortgage servicing rights, third-party mortgage servicers and issuers of and investors in mortgage-backed securities,” the note states. “In many instances, model forms or model language is provided.”

But what I found to be especially useful is the nine-point outline in the Dechert note to clients that provides a quick overview of the proposed changes. The full, 177-page report can be accessed by clicking here for the HousingWire coverage of the initial announcement.

The CFPB proposed rules, expected to be adopted no later than January 21, 2013, would revise Regulation Z under TILA and Regulation X under RESPA in nine major areas.

Here are the nine-points mortgage finance professionals need to know:

1: Periodic Billing Statements

Content, format and timing requirements for periodic billing statements are established, and model forms are provided. Entities that service no more than 1,000 mortgage loans, all of which they originated or own, are exempt.

2: ARM Adjustment Notices

When an adjustment in an interest rate causes a change in a borrower’s payment obligations, the servicer must notify the borrower of the adjustment between 60 and 120 days before it takes effect. Prior to the first such adjustment, the servicer must give the borrower between 210 and 240 days’ notice.

3: Prompt Payment Crediting and Payoff Information

Mortgage servicers generally must credit borrowers for payments on the day of receipt, but they may place insufficient payments in a suspense account and, when a sufficient payment is accumulated, credit it to the oldest outstanding payment owed.

4: Force-Placed Insurance

The ability of mortgage servicers to arrange for property insurance is restricted. Among other things, the servicer must have a reasonable basis to believe that the required insurance is not being maintained, and any force-placed insurance must be cancelled and unearned premiums must be refunded to a borrower’s account after the borrower provides proof of coverage.

5: Error Resolution

For specific types of complaints, servicers generally must correct or respond to a complaint and provide requested information or explain why such information is not available within 30 to 45 days.

6: Information Management

Mortgage servicers must establish policies and procedures for information management, including document retention and information retrieval goals, that are consistent with the size, scope and nature of their operations.

7: Early Intervention

Mortgage servicers must make good faith efforts to notify delinquent borrowers of the foreclosure process and of available loss mitigation options, including how to obtain additional information regarding those options.

8: Borrower Contact

Mortgage servicers must make dedicated personnel available to assist borrowers regarding their loss mitigation options, no later than five days after providing early intervention notice.

9: Loss Mitigation

Mortgage servicers that offer loss mitigation options must implement procedures to ensure that complete applications for loss mitigation are reasonably evaluated in a timely manner before proceeding with a scheduled foreclosure sale.

Comment period on these nine points closes on October 9.

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