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From Banking and Finance Law Daily, March 8, 2018

Rule on mortgage servicer communications with borrowers in bankruptcy adopted

By Richard A. Roth, J.D.

The Consumer Financial Protection Bureau is amending the rule that governs when a mortgage loan servicer should change the periodic statements provided to borrowers who are in, or who leave, bankruptcy. The amendments to Reg. Z—Truth in Lending (12 CFR Part 1026) is intended to make it easier for servicers to provide required periodic statements, according to the Bureau. The amendment takes effect April 19, 2018.

In general, Reg. Z requires servicers to send a borrower a periodic statement each payment period. However, when a borrower files for bankruptcy, or when a borrower’s bankruptcy case is finished, the required periodic statement contents may change. Information such as the amount due, the possible consequences of delinquency may be omitted, and bankruptcy-related statements must be added, when a borrower files for bankruptcy. When the borrower emerges from bankruptcy, normal periodic statements must be resumed (see 12 CFR 1026.41).

Currently, a servicer is exempt from the normal periodic statement requirements for one payment cycle if the payment date is no more than 14 days after the bankruptcy filing or final order, and must resume normal statements according to the same schedule. In an effort to provide more clarity, the amendment provides that the change in requirements applies to the periodic statement (or coupon) that relates to the payment period that immediately follows the filing or final order.

New staff comment sections provide examples to illustrate how to apply the changed requirement.

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