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From Banking and Finance Law Daily, October 15, 2013

Interim final rule clarifies mortgage servicing rules

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has issued an interim final rule that is intended to provide clarity to the 2013 Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) Servicing Final Rules that will take effect on Jan. 10, 2014. The CFPB simultaneously released guidance on the implementation of the rules (CFPB Bulletin 2013-12).

CFPB Director Richard Cordray said in a bureau release that the CFPB heard from “many sources” that these issues should be addressed prior to implementation of the servicing rules. “When mortgage servicers better understand the rules they have to follow, that is better for consumers,” he said.

Clarification of servicing issues. The interim final rule responds to requests for clarification on three servicing issues. The first is the requirement that mortgage servicers have policies and procedures in place to ensure that they promptly identify and communicate with family members, heirs, or other parties who have a legal interest in the home.

The CFPB guidance provides examples of such servicer policies and procedures, including allowing for continued payment on the mortgage as well as evaluating the assumption of the mortgage and, if appropriate, for loss mitigation measures.

The second clarification addresses the requirement under the rules that servicers must attempt contact with borrowers each time they miss a payment to provide important information that can help them get on track. The guidance explains that this requirement may be met through other contact that servicers have with such borrowers, for example, when evaluating them for loss mitigation or during collection calls. Also, the method of attempted contact may vary depending on how long a borrower is delinquent or on whether the borrower has responded to earlier servicer attempts to communicate.

Third, the bureau noted that it had received many questions as to the interaction between the mortgage servicing rules, the Bankruptcy Code, and the Fair Debt Collection Procedures Act (FDCPA). Both the FDCPA and bankruptcy law provide significant protections for consumers who decide to invoke them and restrict certain types of communications regarding their debts. The CFPB is clarifying that even if delinquent borrowers have instructed servicers to stop communicating with them pursuant to the FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Act are still required. Servicers must communicate with the borrower with regard to requests for:

  • loss mitigation;
  • information requests;
  • error resolution;
  • force-placed insurance;
  • initial interest rate adjustment of adjustable-rate mortgages; and
  • periodic statements.

Servicers are not required to provide certain early intervention contacts or ongoing notices of interest rate adjustments to delinquent borrowers who have instructed the servicer to stop communicating with them.

In addition, servicers are not required to provide periodic account statements and certain early intervention contacts with borrowers who are in bankruptcy. The bureau said that it will further assess how bankruptcy protections intersect with these servicing requirements and how to ensure that the servicing communications do not confuse consumers regarding the status of their loans.

Housing counseling. The interim final rule also clarifies regulations issued in January 2013 to implement a provision of the Dodd-Frank Act that requires consumers to receive housing counseling before taking out a high-cost mortgage. The rule specifies which federally required disclosure must be used as the basis for counseling for a small subset of closed-end loans that are not subject to the Real Estate Settlement Procedures Act.

MainStory: TopStory CFPB DebtCollection DoddFrankAct Mortgages TruthInLending

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