[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Rules and Regulations]
[Pages 10695-10899]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01248]



[[Page 10695]]

Vol. 78

Thursday,

No. 31

February 14, 2013

Part II





Bureau of Consumer Financial Protection





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12 CFR Part 1024





Mortgage Servicing Rules Under the Real Estate Settlement Act 
(Regulation X); Final Rule

Federal Register / Vol. 78 , No. 31 / Thursday, February 14, 2013 / 
Rules and Regulations

[[Page 10696]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

[Docket No. CFPB-2012-0034]
RIN 3170-AA14


Mortgage Servicing Rules Under the Real Estate Settlement 
Procedures Act (Regulation X)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretations.

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SUMMARY: The Bureau of Consumer Financial Protection is amending 
Regulation X, which implements the Real Estate Settlement Procedures 
Act of 1974, and implementing a commentary that sets forth an official 
interpretation to the regulation. The final rule implements provisions 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
regarding mortgage loan servicing. Specifically, this final rule 
implements Dodd-Frank Act sections addressing servicers' obligations to 
correct errors asserted by mortgage loan borrowers; to provide certain 
information requested by such borrowers; and to provide protections to 
such borrowers in connection with force-placed insurance. Additionally, 
this final rule addresses servicers' obligations to establish 
reasonable policies and procedures to achieve certain delineated 
objectives; to provide information about mortgage loss mitigation 
options to delinquent borrowers; to establish policies and procedures 
for providing delinquent borrowers with continuity of contact with 
servicer personnel capable of performing certain functions; and to 
evaluate borrowers' applications for available loss mitigation options. 
Further, this final rule modifies and streamlines certain existing 
servicing-related provisions of Regulation X. For instance, this final 
rule revises provisions relating to mortgage servicers' obligation to 
provide disclosures to borrowers in connection with transfers of 
mortgage servicing, and mortgage servicers' obligation to manage escrow 
accounts, including restrictions on purchasing force-placed insurance 
for certain borrowers with escrow accounts and requirements to return 
amounts in an escrow account to a borrower upon payment in full of a 
mortgage loan. Concurrently with the issuance of this final rule, the 
Bureau is issuing a rule implementing amendments relating to mortgage 
servicing to the Truth in Lending Act in Regulation Z.

DATES: This final rule is effective on January 10, 2014.

FOR FURTHER INFORMATION CONTACT: 
    Regulation X (RESPA): Whitney Patross, Attorney; Jane Gao, Terry 
Randall or Michael Scherzer, Counsels; Lisa Cole or Mitchell E. 
Hochberg, Senior Counsels, Office of Regulations, at (202) 435-7700.
    Regulation Z (TILA): Whitney Patross, Attorney; Marta Tanenhaus or 
Mitchell E. Hochberg, Senior Counsels, Office of Regulations, at (202) 
435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

    The Bureau of Consumer Financial Protection (Bureau) is amending 
Regulation X, which implements the Real Estate Settlement Procedures 
Act of 1974, and implementing a commentary that sets forth an official 
interpretation to the regulation (the 2013 RESPA Servicing Final Rule). 
The final rule implements provisions of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act regarding mortgage loan 
servicing.\1\ Specifically, this final rule implements Dodd-Frank Act 
sections addressing servicers' obligations to correct errors asserted 
by mortgage loan borrowers; to provide certain information requested by 
such borrowers; and to provide protections to such borrowers in 
connection with force-placed insurance. Additionally, this final rule 
addresses servicers' obligations to establish reasonable policies and 
procedures to achieve certain delineated objectives; to provide 
information about mortgage loss mitigation options to delinquent 
borrowers; to establish policies and procedures for providing 
delinquent borrowers with continuity of contact with servicer personnel 
capable of performing certain functions; and to evaluate borrowers' 
applications for available loss mitigation options. Further, this final 
rule modifies and streamlines certain existing servicing-related 
provisions of Regulation X. For instance, this final rule revises 
provisions relating to mortgage servicers' obligation to provide 
disclosures to borrowers in connection with a transfer of mortgage 
servicing, and mortgage servicers' obligation to manage escrow 
accounts, including restrictions on purchasing force-placed insurance 
for certain borrowers with escrow accounts and requirements to return 
amounts in an escrow account to a borrower upon payment in full of a 
mortgage loan. Concurrently with the issuance of this final rule, the 
Bureau is issuing a rule implementing amendments relating to mortgage 
servicing to the Truth in Lending Act in Regulation Z (the 2013 TILA 
Servicing Final Rule).
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
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    On August 10, 2012, the Bureau issued proposed rules that would 
have amended Regulation X, which implements RESPA,\2\ as well as 
Regulation Z, which implements TILA,\3\ regarding mortgage servicing 
requirements.\4\ The Proposed Servicing Rules proposed to implement the 
Dodd-Frank Act amendments to TILA and RESPA with respect to, among 
other things, periodic mortgage statements, disclosures for ARMs, 
prompt crediting of mortgage loan payments, requests for mortgage loan 
payoff statements, error resolution, information requests, and 
protections relating to force-placed insurance. In the 2012 RESPA 
Servicing Proposal, the Bureau also proposed to use its authority to 
adopt requirements relating to servicer policies and procedures, early 
intervention with delinquent borrowers, continuity of contact, and 
procedures for evaluating and responding to loss mitigation 
applications.\5\ The proposals sought to address fundamental problems 
that underlie many consumer complaints and recent regulatory and 
enforcement actions, as set forth in more detail below.
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    \2\ See Press Release, U.S. Consumer Fin. Prot. Bureau, Consumer 
Financial Protection Bureau Proposes Rules to Protect Mortgage 
Borrowers (Aug. 10, 2012) available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-rules-to-protect-mortgage-borrowers/. The proposal 
was published in the Federal Register on September 17, 2012. 77 FR 
57200 (Sept. 17 2012) (2012 RESPA Servicing Proposal).
    \3\ See Press Release, U.S. Consumer Fin. Prot. Bureau, Consumer 
Financial Protection Bureau Proposes Rules to Protect Mortgage 
Borrowers (August 10, 2012) available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-rules-to-protect-mortgage-borrowers/. This proposal 
was also published in the Federal Register on September 17, 2012. 77 
FR 57318 (Sept. 17, 2012) (2012 TILA Servicing Proposal; and, 
together with the 2012 RESPA Servicing Proposal, the Proposed 
Servicing Rules).
    \4\ The 2013 RESPA Servicing Final Rule and the 2013 TILA 
Servicing Final Rule are referred to collectively as the Final 
Servicing Rules.
    \5\ For ease of discussion, this notice uses the term 
``discretionary rulemakings'' to refer to a set of regulations 
implemented using the Bureau's authorities under section 6(j), 
6(k)(1)(E), or 19(a) of RESPA to expand requirements beyond those 
explicit in RESPA. The ``discretionary rulemakings'' include 
requirements relating to servicer policies and procedures, early 
intervention with delinquent borrowers, continuity of contact, and 
procedures for evaluating and responding to loss mitigation 
applications, as set forth in Sec. Sec.  1024.38-41.
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    The Bureau is finalizing the Proposed Servicing Rules with respect 
to nine

[[Page 10697]]

major topics, as summarized below, as well as certain technical and 
streamlining amendments. The goals of the Final Servicing Rules are to 
provide better disclosure to consumers of their mortgage loan 
obligations and to better inform consumers of, and assist consumers 
with, options that may be available for consumers having difficulty 
with their mortgage loan obligations. The amendments also address 
critical servicer practices relating to, among other things, correcting 
errors, imposing charges for force-placed insurance, crediting mortgage 
loan payments, and providing payoff statements. The Bureau's final 
rules are set forth in two separate notices because some provisions 
implement requirements that Congress imposed under TILA while other 
provisions implement requirements Congress imposed under RESPA.\6\
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    \6\ Note that TILA and RESPA differ in their terminology. 
Whereas Regulation Z generally refers to ``consumers'' and 
``creditors,'' Regulation X generally refers to ``borrowers'' and 
``lenders.''
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A. Major Topics in the Final Servicing Rules

    1. Periodic billing statements (2013 TILA Servicing Final Rule). 
Creditors, assignees, and servicers must provide a periodic statement 
for each billing cycle containing, among other things, information on 
payments currently due and previously made, fees imposed, transaction 
activity, application of past payments, contact information for the 
servicer and housing counselors, and, where applicable, information 
regarding delinquencies. These statements must meet the timing, form, 
and content requirements provided in the rule. The rule contains sample 
forms that may be used. The periodic statement requirement generally 
does not apply to fixed-rate loans if the servicer provides a coupon 
book, so long as the coupon book contains certain information specified 
in the rule and certain other information specified in the rule is made 
available to the consumer. The rule also includes an exemption for 
small servicers as discussed below.
    2. Interest rate adjustment notices (2013 TILA Servicing Final 
Rule). Creditors, assignees, and servicers must provide a consumer 
whose mortgage has an adjustable rate with a notice between 210 and 240 
days prior to the first payment due after the rate first adjusts. This 
notice may contain an estimate of the new rate and new payment. 
Creditors, assignees, and servicers also must provide a notice between 
60 and 120 days before payment at a new level is due when a rate 
adjustment causes the payment to change. The current annual notice that 
must be provided for adjustable-rate mortgages (ARMs) for which the 
interest rate, but not the payment, has changed over the course of the 
year is no longer required. The rule contains model and sample forms 
that servicers may use.
    3. Prompt payment crediting and payoff statements (2013 TILA 
Servicing Final Rule). Servicers must promptly credit periodic payments 
from borrowers as of the day of receipt. A periodic payment consists of 
principal, interest, and escrow (if applicable). If a servicer receives 
a payment that is less than the amount due for a periodic payment, the 
payment may be held in a suspense account. When the amount in the 
suspense account covers a periodic payment, the servicer must apply the 
funds to the consumer's account. In addition, creditors, assignees, and 
servicers must provide an accurate payoff balance to a consumer no 
later than seven business days after receipt of a written request from 
the borrower for such information.
    4. Force-placed insurance (2013 RESPA Servicing Final Rule). 
Servicers are 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, as 
required by the loan agreement, and has provided required notices. An 
initial notice must be sent to the borrower at least 45 days before 
charging the borrower for force-placed insurance coverage, and a second 
reminder notice must be sent no earlier than 30 days after the first 
notice. The rule contains model forms that servicers may use. If a 
borrower provides proof of hazard insurance coverage, the servicer must 
cancel any force-placed insurance policy and refund any premiums paid 
for overlapping periods in which the borrower's coverage was in place. 
The rule also provides that charges related to force-placed insurance 
(other than those subject to State regulation as the business of 
insurance or authorized by Federal law for flood insurance) must be for 
a service that was actually performed and must bear a reasonable 
relationship to the servicer's cost of providing the service. Where the 
borrower has an escrow account for the payment of hazard insurance 
premiums, the servicer is prohibited from obtaining force-place 
insurance where the servicer can continue the borrower's homeowner 
insurance, even if the servicer needs to advance funds to the 
borrower's escrow account to do so. The rule against obtaining force-
placed insurance in cases in which hazard insurance may be maintained 
through an escrow account exempts small servicers, as discussed below, 
so long as any force-placed insurance purchased by the small servicer 
is less expensive to a borrower than the amount of any disbursement the 
servicer would have made to maintain hazard insurance coverage.
    5. Error resolution and information requests (2013 RESPA Servicing 
Final Rule). Servicers are required to meet certain procedural 
requirements for responding to written information requests or 
complaints of errors. The rule requires servicers to comply with the 
error resolution procedures for certain listed errors as well as any 
error relating to the servicing of a mortgage loan. Servicers may 
designate a specific address for borrowers to use. Servicers generally 
are required to acknowledge the request or notice of error within five 
days. Servicers also generally are required to correct the error 
asserted by the borrower and provide the borrower written notification 
of the correction, or to conduct an investigation and provide the 
borrower written notification that no error occurred, within 30 to 45 
days. Further, within a similar amount of time, servicers generally are 
required to acknowledge borrower written requests for information and 
either provide the information or explain why the information is not 
available.
    6. General servicing policies, procedures, and requirements (2013 
RESPA Servicing Final Rule). Servicers are required to establish 
policies and procedures reasonably designed to achieve objectives 
specified in the rule. The reasonableness of a servicer's policies and 
procedures takes into account the size, scope, and nature of the 
servicer's operations. Examples of the specified objectives include 
accessing and providing accurate and timely information to borrowers, 
investors, and courts; properly evaluating loss mitigation applications 
in accordance with the eligibility rules established by investors; 
facilitating oversight of, and compliance by, service providers; 
facilitating transfer of information during servicing transfers; and 
informing borrowers of the availability of written error resolution and 
information request procedures. 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. This section includes an exemption for small 
servicers as discussed below. The Bureau and

[[Page 10698]]

prudential regulators will be able to supervise servicers within their 
jurisdiction to assure compliance with these requirements but there 
will not be a private right of action to enforce these provisions.
    7. Early intervention with delinquent borrowers (2013 RESPA 
Servicing Final Rule). 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 rule contains model language servicers may 
use for the written notice. This section includes an exemption for 
small servicers as discussed below.
    8. Continuity of contact with delinquent borrowers (2013 RESPA 
Servicing Final Rule). Servicers are required to maintain reasonable 
policies and procedures with respect to providing delinquent borrowers 
with access to personnel to assist them with loss mitigation options 
where applicable. The policies and procedures must be reasonably 
designed to ensure that a servicer assigns personnel to a delinquent 
borrower by the time a servicer provides such borrower with the written 
notice required by the early intervention requirements, but in any 
event, by the 45th day of a borrower's delinquency. These personnel 
should be accessible to the borrower by phone to assist the borrower in 
pursuing loss mitigation options, including advising the borrower on 
the status of any loss mitigation application and applicable timelines. 
The personnel should be able to access all of the information provided 
by the borrower to the servicer and provide that information, when 
appropriate, to those responsible for evaluating the borrower for loss 
mitigation options. This section includes an exemption for small 
servicers as discussed below. The Bureau and the prudential regulators 
will be able to supervise servicers within their jurisdiction to assure 
compliance with these requirements but there will not be a private 
right of action to enforce these provisions.
    9. Loss Mitigation Procedures (2013 RESPA Servicing Final Rule). 
Servicers are required to follow specified loss mitigation procedures 
for a mortgage loan secured by a borrower's principal residence. If a 
borrower submits an application for a loss mitigation option, the 
servicer is generally required to acknowledge the receipt of the 
application in writing within five days and inform the borrower whether 
the application is complete and, if not, what information is needed to 
complete the application. The servicer is required to exercise 
reasonable diligence in obtaining documents and information to complete 
the application.
    For a complete loss mitigation application received more than 37 
days before a foreclosure sale, the servicer is required to evaluate 
the borrower, within 30 days, for all loss mitigation options for which 
the borrower may be eligible in accordance with the investor's 
eligibility rules, including both options that enable the borrower to 
retain the home (such as a loan modification) and non-retention options 
(such as a short sale). Servicers are free to follow ``waterfalls'' 
established by an investor to determine eligibility for particular loss 
mitigation options. The servicer must provide the borrower with a 
written decision, including an explanation of the reasons for denying 
the borrower for any loan modification option offered by an owner or 
assignee of a mortgage loan with any inputs used to make a net present 
value calculation to the extent such inputs were the basis for the 
denial. A borrower may appeal a denial of a loan modification program 
so long as the borrower's complete loss mitigation application is 
received 90 days or more before a scheduled foreclosure sale.
    The rule restricts ``dual tracking,'' where a servicer is 
simultaneously evaluating a consumer for loan modifications or other 
alternatives at the same time that it prepares to foreclose on the 
property. Specifically, the rule prohibits a servicer from making the 
first notice or filing required for a foreclosure process until a 
mortgage loan account is more than 120 days delinquent. Even if a 
borrower is more than 120 days delinquent, if a borrower submits a 
complete application for a loss mitigation option before a servicer has 
made the first notice or filing required for a foreclosure process, a 
servicer may not start the foreclosure process unless (1) the servicer 
informs the borrower that the borrower is not eligible for any loss 
mitigation option (and any appeal has been exhausted), (2) a borrower 
rejects all loss mitigation offers, or (3) a borrower fails to comply 
with the terms of a loss mitigation option such as a trial 
modification.
    If a borrower submits a complete application for a loss mitigation 
option after the foreclosure process has commenced but more than 37 
days before a foreclosure sale, a servicer may not move for a 
foreclosure judgment or order of sale, or conduct a foreclosure sale, 
until one of the same three conditions has been satisfied. In all of 
these situations, the servicer is responsible for promptly instructing 
foreclosure counsel retained by the servicer not to proceed with filing 
for foreclosure judgment or order of sale, or to conduct a foreclosure 
sale, as applicable.
    This section includes an exemption for small servicers as defined 
above. However, a small servicer is required to comply with two 
requirements: (1) A small servicer may not make the first notice or 
filing required for a foreclosure process unless a borrower is more 
than 120 days delinquent, and (2) a small servicer may not proceed to 
foreclosure judgment or order of sale, or conduct a foreclosure sale, 
if a borrower is performing pursuant to the terms of a loss mitigation 
agreement.
    All of the provisions in the section relating to loss mitigation 
can be enforced by individuals. Additionally, the Bureau and the 
prudential regulators can also supervise servicers within their 
jurisdiction to assure compliance with these requirements.

B. Scope of the Final Servicing Rules

    The Final Servicing Rules have somewhat different scopes, with 
respect to the types of mortgage loan transactions covered and the 
loans that are exempted. With respect to the 2013 TILA Servicing Final 
Rule, certain requirements, specifically the periodic statement and ARM 
disclosure requirements, only apply to closed-end mortgage loans, 
whereas other requirements, specifically the requirements for crediting 
of payments and providing payoff statements, apply to both open-end and 
closed-end mortgage loans. Reverse mortgage transactions and timeshare 
plans are exempt from the periodic statement requirement. ARMs with 
terms of one year or less are exempt from the ARM disclosure 
requirements.
    With respect to the 2013 RESPA Servicing Final Rule, certain 
requirements generally apply to federally related mortgage loans that 
are closed-end, with certain exemptions for loans on property of 25 
acres or more, business-purpose loans, temporary financing, loans 
secured by vacant land, and certain loan assumptions or conversions. 
Open-end lines of credit (home equity plans) are generally exempt from 
the requirements in the 2013 RESPA Servicing Final Rule. The general 
servicing policies, procedure, and requirements, early intervention, 
continuity of contact, and loss mitigation procedures provisions are 
generally inapplicable to servicers of

[[Page 10699]]

reverse mortgage transactions or to servicers of mortgage loans for 
which the servicers are also qualified lenders under the Farm Credit 
Act of 1971.
    In the 2013 TILA Servicing Final Rule, the Bureau is exercising its 
authority under TILA to provide an exemption from the periodic 
statement requirement for small servicers, defined as servicers that 
service 5,000 mortgage loans or less and only service mortgage loans 
the servicer or an affiliate owns or originated (small servicers). In 
this 2013 RESPA Servicing Final Rule, the Bureau has elected not to 
extend to these small servicers most provisions of the Final Rule that 
are not being promulgated to implement specific mandates in the Dodd-
Frank Act but are, instead, being issued by the Bureau, in the exercise 
of its discretion, pursuant to its discretionary rulemaking authority 
under RESPA, as amended by the Dodd-Frank Act, and title X of the Dodd-
Frank Act. The exemptions from the discretionary rulemakings include 
those relating to general servicing policies, procedures, and 
requirements; early intervention with delinquent borrowers; continuity 
of contact; and most of the requirements for evaluating and responding 
to loss mitigation applications. Further, the Bureau is not restricting 
small servicers from purchasing force-placed insurance for borrowers 
with escrow accounts for the payment of hazard insurance, so long as 
the cost to the borrower of the force-placed insurance obtained by a 
small servicer is less than the amount the small servicer would be 
required to disburse from the borrower's escrow account to ensure that 
the borrower's hazard insurance premium charges were paid in a timely 
manner. Small servicers are required to comply with limited loss 
mitigation procedure requirements. These include (1) a prohibition on 
making the first notice or filing required for a foreclosure process 
unless a borrower is more than 120 days delinquent and (2) a 
prohibition on making the first notice or filing or moving for 
foreclosure judgment or order of sale, or conducting a foreclosure 
sale, when a borrower is performing pursuant to the terms of a loss 
mitigation agreement. The exemptions applicable to small servicers in 
the 2013 TILA Servicing Rule and the 2013 RESPA Servicing Rule are also 
being extended to Housing Finance Agencies, without regard to the 
number of mortgage loans serviced by any such agency, and these 
agencies are included within the definition of small servicer.

II. Background

A. Overview of the Mortgage Servicing Market and Market Failures

    The mortgage market is the single largest market for consumer 
financial products and services in the United States, with 
approximately $10.3 trillion in loans outstanding.\7\ Mortgage 
servicers play a vital role within the broader market by undertaking 
the day-to-day management of mortgage loans on behalf of lenders who 
hold the loans in their portfolios or (where a loan has been 
securitized) investors who are entitled to the loan proceeds.\8\ Over 
60 percent of mortgage loans are serviced by mortgage servicers for 
investors.
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    \7\ Inside Mortg. Fin., Outstanding 1-4 Family Mortgage 
Securities, in 2 The 2012 Mortgage Market Statistical Annual 7 
(2012). For general background on the market and the recent crisis, 
see the 2012 TILA-RESPA Proposal available at http://www.consumerfinance.gov/knowbeforeyouowe/ (last accessed Jan. 10, 
2013).
    \8\ As of June 2012, approximately 36 percent of outstanding 
mortgage loans were held in portfolio; 54 percent of mortgage loans 
were owned through mortgage-backed securities issued by Federal 
National Mortgage Association (Fannie Mae) and the Federal Home Loan 
Mortgage Corporation (Freddie Mac), together referred to as the 
government-sponsored enterprises (GSEs), as well as securities 
issued by the Government National Mortgage Association (Ginnie Mae); 
and 10 percent of loans were owned through private label mortgage-
backed securities. Strengthening the Housing Market and Minimizing 
Losses to Taxpayers, Hearing Before the S. Comm. on Banking, Housing 
and Urban Affairs (2012) (Testimony of Laurie Goodman, Amherst 
Securities), available at http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Testimony&Hearing_ID=53bda60f-64c1-43d8-9adf-a693c31eb56b&Witness_ID=b06f2fb1-59dd-4881-86cb-1082464d3119. A securitization results in the economic separation of 
the legal title to the mortgage loan and a beneficial interest in 
the mortgage loan obligation. In a securitization transaction, a 
securitization trust is the owner or assignee of a mortgage loan. An 
investor is a creditor of the trust and is entitled to cash flows 
that are derived from the proceeds of the mortgage loans. In 
general, certain investors (or an insurer entitled to act on behalf 
of the investors) may direct the trust to take action as the owner 
or assignee of the mortgage loans for the benefit of the investors 
or insurers. See, e.g., Adam Levitin & Tara Twomey, Mortgage 
Servicing, 28 Yale J. on Reg. 1, 11 (2011) (Levitin & Twomey).
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    Servicers' duties typically include billing borrowers for amounts 
due, collecting and allocating payments, maintaining and disbursing 
funds from escrow accounts, reporting to creditors or investors, and 
pursuing collection and loss mitigation activities (including 
foreclosures and loan modifications) with respect to delinquent 
borrowers. Indeed, without dedicated companies to perform these 
activities, it is questionable whether a secondary market for mortgage-
backed securities would exist in this country.\9\ Given the nature of 
their activities, servicers can have a direct and profound impact on 
borrowers.
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    \9\ See, e.g., Levitin & Twomey, at 11 (``All securitizations 
involved third-party servicers * * * [m]ortgage servicers provide 
the critical link between mortgage borrowers and the SPV and RMBS 
investors, and servicing arrangements are an indispensable part of 
securitization.'').
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    Mortgage servicing is performed by banks, thrifts, credit unions, 
and non-banks under a variety of business models. In some cases, 
creditors service mortgage loans that they originate or purchase and 
hold in portfolio. Other creditors sell the ownership of the underlying 
mortgage loan, but retain the mortgage servicing rights in order to 
retain the relationship with the borrower, as well as the servicing fee 
and other ancillary income. In still other cases, servicers have no 
role at all in origination or loan ownership, but rather purchase 
mortgage servicing rights on securitized loans or are hired to service 
a portfolio lender's loans.\10\
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    \10\ See, e.g., Diane E. Thompson, Foreclosing Modifications: 
How Servicer Incentives Discourage Loan Modifications, 86 Wash. L. 
Rev. 755, 763 (2011) (``Thompson'').
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    These different servicing structures can create difficulties for 
borrowers if a servicer makes mistakes, fails to invest sufficient 
resources in its servicing operations, or avoids opportunities to work 
with borrowers for the mutual benefit of both borrowers and owners or 
assignees of mortgage loans. Although the mortgage servicing industry 
has numerous participants, the industry is highly concentrated, with 
the five largest servicers servicing approximately 53 percent of 
outstanding mortgage loans in this country.\11\ Small servicers 
generally operate in discrete segments of the market, for example, by 
specializing in servicing delinquent loans, or by servicing loans that 
they originate.\12\
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    \11\ See Top 100 Mortgage Servicers in 2012, Inside Mortg. Fin., 
Sept. 28, 2012, at 13 (As of the end of the fourth quarter of 2011, 
the top five largest servicers serviced $5.66 trillion of mortgage 
loans).
    \12\ Fitch Ratings, U.S. Residential and Small Balance 
Commercial Mortgage Servicer Rating Criteria, at 14-15 (Jan. 31, 
2011), available at http://www.fitchratings.com. (account required 
to access information).
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    Contracts between the servicer and the mortgage loan owner specify 
the rights and responsibilities of each party. In the context of 
securitized loans, the contracts may require the servicer to balance 
the competing interests of different classes of investors when 
borrowers become delinquent. Certain provisions in servicing contracts 
may limit the servicer's ability to offer certain types of loan 
modifications to borrowers. Such contracts also may limit the 
circumstances under which owners or assignees of mortgage loans can 
transfer servicing rights to a

[[Page 10700]]

different servicer. Further, servicer contracts govern servicer 
requirements to advance payments to owners of mortgage loans, and to 
recoup advances made by servicers, including from ultimate recoveries 
on liquidated properties.
    Compensation structures vary somewhat for loans held in portfolio 
and securitized loans,\13\ but have tended to make pure mortgage 
servicing (where the servicer has no role in origination) a high-
volume, low-margin business. Such compensation structures incentivize 
servicers to ensure that investment in operations closely tracks 
servicer expectations of delinquent accounts, and an increase in the 
number of delinquent accounts a servicer must service beyond that 
projected by the servicer strains available servicer resources. A 
servicer will expect to recoup its investment in purchasing mortgage 
servicing rights and earn a profit primarily through a net servicing 
fee (which is typically expressed as a constant rate assessed on unpaid 
mortgage balances), interest float on payment accounts between receipt 
and disbursement, and cross-marketing other products and services to 
borrowers. Under this business model, servicers act primarily as 
payment collectors and processors, and will have limited incentives to 
provide other customer service. Servicers greatly vary in the extent to 
which they invest in customer service infrastructure. For example, 
servicer staffing ratios have varied between approximately 100 loans 
per full-time employee to over 4,000 loans per full time employee.\14\ 
Servicers are generally not subject to market discipline from consumers 
because consumers have little opportunity to switch servicers. Rather, 
servicers compete to obtain business from the owners of loans--
investors, assignees, and creditors--and thus competitive pressures 
tend to drive servicers to lower the price of servicing and scale their 
investment in providing service to consumers accordingly.
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    \13\ At securitization, the cash flow that was part of interest 
income is bifurcated between the loan and the mortgage servicing 
right (MSR). The MSR represents the present value of all the cash 
flows, both positive and negative, related to servicing a mortgage. 
Prime MSRs are largely created by the GSE minimum servicing fee 
rate, which is calculated as 25 basis points (bps) per annum. The 
servicing fee rate is typically paid to the servicer monthly and the 
monthly amount owed is calculated by multiplying the pro rata 
portion of the servicing fee rate by the stated principal balance of 
the mortgage loan at the payment due date. Accounting rules require 
that a capitalized asset be created if the ``compensation'' for 
servicing (including float/ancillary) exceeds ``adequate 
compensation.'' For loans held in portfolio, there is no bifurcation 
of the interest income from the loan. The owner of the loan simply 
negotiates pricing, terms, and standards with the servicer, which, 
at larger institutions, is typically a separate affiliate or 
subsidiary of the owner of the loans. Keefe, Bruyette & Woods, Inc., 
PowerPoint Presentation, KBW Mortgage Matters: Mortgage Servicing 
Primer (Apr. 2012).
    \14\ Richard O'Brien, High Time for High-Touch, Mortg. Banking, 
Feb. 1, 2009, at 39. Industry participants generally indicated to 
the Bureau that servicers targeted a loan to employee ratio of 
1,000-1,200 mortgage loans per full time employee for mortgage loans 
that are current, and 125-150 mortgage loans per full time employee 
for mortgage loans that are delinquent. Between 1992 and 2000, as 
servicers sought to make their operations more efficient, loans 
serviced per full time employee increased from approximately 700 
loans in 1992 to over 1,200 loans by 2000. Michael A. Stegman et 
al., Preventative Servicing Is Good for Business and Affordable 
Homeownership Policy, 18 Housing Pol'y Debate 243, 274 (2007). As an 
example of current mortgage servicing staffing levels, Ocwen 
services 162 mortgage loans per servicing employee. See Morningstar 
Credit Ratings, LLC, Operational Risk Assessment--Ocwen Loan 
Servicing, LLC, at 7 (2012) available at http://www.ocwen.com/docs/Morningstar-Sept-2012.pdf.
---------------------------------------------------------------------------

    Servicers also earn revenue from fees assessed on borrowers, 
including fees on late payments, fees for obtaining force-placed 
insurance, and fees for services, such as responding to telephone 
inquiries, processing telephone payments, and providing payoff 
statements.\15\ As a result, servicers have an incentive to look for 
opportunities to impose fees on borrowers to enhance revenues.
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    \15\ See, e.g., Bank of America, Mortgage Servicing Fees, 
available at https://www8.bankofamerica.com/home-loans/mortgage-servicing-fees.go (last accessed Jan. 11, 2013); Metro Credit Union, 
Mortgage Servicing Fee Schedule, available at http://www.metrocu.org/home/fiFiles/static/documents/Mortgage_Servicing_Fee_Schedule.pdf (last accessed Jan. 6, 2013); Acqura Loan 
Services, Mortgage Loan Servicing Fee Schedule, available at http://www.acqurals.com/feeschedule.html (last accessed Jan. 11, 2013); 
Sovereign Bank, FAQ--What Are the Mortgage Loan Servicing Fees?, 
available at https://customerservice.sovereignbank.com/app/answers/
detail/a--id/22/~/what-are-the-mortgage-loan-servicing-fees%3F (last 
accessed Jan. 11, 2013).
---------------------------------------------------------------------------

    These attributes of the servicing market created problems for 
certain borrowers even prior to the financial crisis. For example, 
borrowers experienced problems with mortgage servicers even during 
regional mortgage market downturns that preceded the financial 
crisis.\16\ There is evidence that borrowers were subjected to improper 
fees that servicers had no reasonable basis to impose, improper force-
placed insurance practices, and improper foreclosure and bankruptcy 
practices.\17\
---------------------------------------------------------------------------

    \16\ See Problems in Mortgage Servicing from Modification to 
Foreclosure: Hearings Before the S. Comm. on Banking, Hous., & Urban 
Affairs, 111th Cong. 53-54 (2010) (statement of Thomas J. Miller, 
Iowa Att'y Gen.) (``Miller Testimony''). See also, Kurt Eggert, 
Limiting Abuse and Opportunism by Mortgage Servicers, 15 Housing 
Pol'y Debate 753 (2004), available at http://ssrn.com/abstract=992095.
    \17\ See Kurt Eggert, Limiting Abuse and Opportunism by Mortgage 
Servicers, 15 Housing Pol'y Debate 753 (2004), available at http://ssrn.com/abstract=992095 (collecting cases).
---------------------------------------------------------------------------

    When the financial crisis erupted, many servicers--and especially 
the larger servicers with their scale business models--were ill-
equipped to handle the high volumes of delinquent mortgages, loan 
modification requests, and foreclosures they were required to process. 
Mortgage loan delinquency rates nearly doubled between 2007 and 2009 
from 5.4 percent of first-lien mortgage loans to 9.4 percent of first-
lien mortgage loans.\18\ Many servicers lacked the infrastructure, 
trained staff, controls, and procedures needed to manage effectively 
the flood of delinquent mortgages they were forced to handle.\19\ One 
study of complaints to the HOPE Hotline reported that over half of the 
complaints (27,000 out of 48,000) were from borrowers who could not 
reach their servicers and obtain information about the status of 
applications they had submitted for options to avoid foreclosure.\20\
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    \18\ U.S. Census Bureau, Table 1194: Mortgage Originations and 
Delinquency and Foreclosure Rates: 1990 to 2010, in The 2012 
Statistical Abstract of the United States, (2012), available at 
http://www.census.gov/compendia/statab/2012/tables/12s1194.pdf (last 
accessed Jan. 6, 2013).
    \19\ See U.S. Dep't of the Treasury, Making Contact: The Path to 
Improving Mortgage Industry Communication With Homeowners, at 3 
(2012), available at http://www.treasury.gov/initiatives/financial-stability/reports/Documents/SPOC%20Special%20Report_Final.pdf (last 
accessed Jan. 6, 2013).
    \20\ See U.S. Gov't Accountability Office, GAO-10-634, Troubled 
Asset Relief Program: Further Actions Needed to Fully and Equitably 
Implement Foreclosure Mitigation Programs, at 15 (2010).
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    Consumer harm has manifested in many different areas, and major 
servicers have entered into significant settlement agreements with 
Federal and State governmental authorities. For example, in April 2011, 
the Office of the Comptroller of the Currency (OCC) and the Board of 
Governors of the Federal Reserve System (Board), following on-site 
reviews of foreclosure processing at 14 federally regulated mortgage 
servicers, found significant deficiencies at each of the servicers 
reviewed. As a result, the OCC and the Board undertook formal 
enforcement actions against several major servicers for unsafe and 
unsound residential mortgage loan servicing practices.\21\

[[Page 10701]]

These enforcement actions generally focused on practices relating to 
(1) filing of foreclosure documents without, for example, proper 
affidavits or notarizations; (2) failing to always ensure that loan 
documents were properly endorsed or assigned and, if necessary, in the 
possession of the appropriate party at the appropriate time; (3) 
failing to devote sufficient financial, staffing, and managerial 
resources to ensure proper administration of foreclosure processes; (4) 
failing to devote adequate oversight, internal controls, policies and 
procedures, compliance risk management, internal audit, third-party 
management, and training to foreclosure processes; and (5) failing to 
oversee sufficiently outside counsel and other third-party providers 
handling foreclosure-related services.\22\
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    \21\ Press Release, Office of the Comptroller of the Currency, 
NR 2011-47, OCC Takes Enforcement Action Against Eight Servicers for 
Unsafe and Unsound Foreclosure Practices (Apr. 13, 2011), available 
at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47.html; Press Release, Fed. Reserve Bd., Federal Reserve Issues 
Enforcement Actions Related to Deficient Practices in Residential 
Mortgage Loan Servicing (April 13, 2011) (``Fed Press Release''), 
available at http://www.federalreserve.gov/newsevents/press/enforcement/20110413a.htm. In addition to enforcement actions 
against major servicers, Federal agencies have also undertaken 
formal enforcement actions against major service providers to 
mortgage servicers.
    \22\ Press Release, Federal Reserve Bd., Federal Reserve Issues 
Enforcement Actions Related to Deficient Practices in Residential 
Mortgage Loan Servicing (April 13, 2011), available at http://www.federalreserve.gov/newsevents/press/enforcement/20110413a.htm. 
None of the servicers admitted or denied the OCC's or Federal 
Reserve Board's findings.
---------------------------------------------------------------------------

    Other investigations of servicers have found similar problems. For 
example, the Government Accountability Office (GAO) has found pervasive 
problems in broad segments of the mortgage servicing industry impacting 
delinquent borrowers, such as servicers who have misled, or failed to 
communicate with, borrowers, lost or mishandled borrower-provided 
documents supporting loan modification requests, and generally provided 
inadequate service to delinquent borrowers. It has been recognized in 
Inspector General reports, and the Bureau has learned from outreach 
with mortgage investors, that servicers may be acting to maximize their 
self-interests in the handling of delinquent borrowers, rather than the 
interests of owners or assignees of mortgage loans.\23\
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    \23\ See, e.g., Jody Shenn, PIMCO: This is who's actually going 
to be punished by the mortgage fraud settlement, Bloomberg News, 
February 10, 2012; cf., Office of Inspector Gen., Fed. Hous. Fin. 
Agency, Evaluation of FHFA's Oversight of Fannie Mae's Transfer of 
Mortgage Servicing Rights from Bank of America to High Touch 
Servicers, at 12 (Sept. 18, 2012) (``FHA OIG MSR Report''). The 
Inspector General for FHFA observed that ``Fannie Mae may have had 
(what one of its executives described as) a `misalignment of 
interests' with its servicers. As guarantor or loan holder, Fannie 
Mae could face significant losses from a default. However, a 
servicer earns only a fraction of a percent of the unpaid balance of 
a mortgage it services and, thus, the fees derived from any 
particular loan may not--at least for the servicer--provide adequate 
incentive to undertake anything more than the bare minimum of effort 
in order to prevent a default. This will typically include sending 
out delinquency notices to borrowers who have not made timely 
payments, telephoning delinquent borrowers, and, ultimately, 
initiating foreclosure proceedings.''
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    The mortgage servicing industry, however, is not monolithic. Some 
servicers provide high levels of customer service. Some of these 
servicers are compensated by investors in a way that incentivizes them 
to provide this level of service in order to optimize investor 
outcomes.\24\ Other servicers provide high levels of customer service 
because they are servicing loans of their own retail customers within 
their local community or (in the case of credit unions) membership 
base. These servicers seek to provide other products and services to 
consumers--and to others within the community or membership base--and 
thus have an interest in preserving their reputations and relationships 
with their consumers. For example, as discussed further below, small 
servicers that the Bureau consulted as part of a process required under 
the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) 
described their businesses as requiring a ``high touch'' model of 
customer service both to ensure loan performance and maintain a strong 
reputation in their local communities.\25\
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    \24\ For example, Fannie Mae rewards servicers that provide high 
levels of customer service by compensating them through (1) base 
servicing fees, (2) incentive payments for mortgage modifications, 
and (3) a performance payment based on the servicer's success as 
contrasted with that of a benchmark portfolio. See FHA OIG MSR 
Report at 12.
    \25\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking (Jun, 11, 2012) (``Small Business 
Review Panel Report''), available at www.consumerfinance.gov.
---------------------------------------------------------------------------

B. The National Mortgage Settlement and Other Regulatory Requirements

    In response to the unprecedented financial crisis and pervasive 
problems in mortgage servicing, including the systemic violation of 
State foreclosure laws by many of the largest servicers, State and 
Federal regulators have engaged in a number of individual servicing 
related enforcement and regulatory actions over the last few years and 
have begun discussions about comprehensive national standards.
    For example, the Federal government, joined by 49 State attorneys 
general,\26\ entered into settlements with the nation's five largest 
servicers in February 2012 (the National Mortgage Settlement).\27\ 
Exhibit A to each of the settlements is a Settlement Term Sheet, which 
sets forth standards that each of the five largest servicers must 
follow to comply with the terms of the settlement.\28\ The settlement 
standards contained in the Settlement Term Sheet are sub-divided into 
the following eight categories: (1) Foreclosure and bankruptcy 
information and documentation; (2) third-party provider oversight; (3) 
bankruptcy; (4) loss mitigation; (5) protections for military 
personnel; (6) restrictions on servicing fees; (7) force-placed 
insurance; and (8) general servicer duties and prohibitions.
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    \26\ Oklahoma elected not to participate in the National 
Mortgage Settlement and executed a separate settlement with the 
servicers that are parties to the National Mortgage Settlement. See 
State of Oklahoma, Oklahoma Mortgage Settlement Fact Sheet (Feb. 9, 
2012), available at http://www.oag.ok.gov/oagweb.nsf/0/
2737eec87426c427862579c10003c950/$FILE/
Oklahoma%20Mortgage%20Settlement%20FAQs.pdf (last accessed Jan. 10, 
2013).
    \27\ The National Mortgage Settlement is available at: http://www.nationalmortgagesettlement.com/. The five servicers subject to 
the settlement are Bank of America, JP Morgan Chase, Wells Fargo, 
CitiMortgage, and Ally/GMAC.
    \28\ See United States of America v. Bank of America Corp., at 
Appendix A, (National Mortgage Settlement), available at http://www.nationalmortgagesettlement.com.
---------------------------------------------------------------------------

    Apart from the National Mortgage Settlement, Federal regulatory 
agencies have also issued guidance on mortgage servicing and loan 
modifications,\29\ conducted coordinated reviews of the nation's 
largest servicers,\30\ and taken enforcement actions against individual 
companies.\31\ Further, the Bureau and other Federal agencies have been 
engaged since spring 2011 in informal

[[Page 10702]]

discussions about the potential development of national mortgage 
servicing standards through interagency regulations and guidance.
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    \29\ Office of the Comptroller of the Currency, OCC 2011-29, 
Foreclosure Management: Supervisory Guidance, OCC Bull., June 2011, 
available at http://www.occ.gov/news-issuances/bulletins/2011/bulletin-2011-29.html; Letter from Edward J. DeMarco, Acting Dir. of 
Fed. Hous. Fin. Agency, to Hon. Elijah E. Cummings, Ranking Member, 
Comm. on Oversight and Gov't Reform, U.S. H. of Rep. (Jan. 20, 
2012), available at http://www.fhfa.gov/webfiles/23056/PrincipalForgivenessltr12312.pdf; Fannie Mae, Program Guidance, Home 
Affordable Modification Program, available at https://www.hmpadmin.com/portal/programs/guidance.jsp. Fed. Hous. Fin. 
Agency, Frequently Asked Questions--Servicing Alignment Initiative, 
available at http://www.fhfa.gov/webfiles/21191/FAQs42811Final.pdf.
    \30\ See Fed. Reserve Sys., Office of the Comptroller of the 
Currency, & Office of Thrift Supervision, U.S. Dep't of the 
Treasury, Interagency Review of Foreclosure Policies and Practices 
(2011) (Interagency Foreclosure Report) (a joint review of 
foreclosure processing of 14 federally regulated mortgage servicers 
during the fourth quarter of 2010 by the Federal Reserve System, 
Office of the Comptroller of the Currency, and Office of Thrift 
Supervision), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.
    \31\ See Interagency Foreclosure Report, at 5; Press Release, 
Fed. Reserve Bd., Press Release (May 24, 2012), available at http://www.federalreserve.gov/newsevents/press/enforcement/20120524a.htm; 
Press Release, Fed. Reserve Bd. (Feb. 27, 2012), available at http://www.federalreserve.gov/newsevents/press/enforcement/20120227a.htm; 
OCC Press Release.
---------------------------------------------------------------------------

    Servicers are currently required to navigate overlapping 
requirements governing their servicing responsibilities. Servicers must 
comply with requirements established by owners or assignees of mortgage 
loans. These include, as applicable, (1) servicing guidelines required 
by Fannie Mae, Freddie Mac, and Ginnie Mae; (2) government insured 
program guidelines issued by the Federal Housing Administration (FHA), 
Department of Veterans Affairs (VA), and the Rural Housing Service; (3) 
contractual agreements with investors (such as pooling and servicing 
agreements and subservicing contracts); and (4) bank or institution 
policies.
    Servicers are also required to consider the impact of State and 
even local regulation on mortgage servicing. Significantly, New York, 
California, and Oregon have all adopted varying statutory or regulatory 
restrictions on mortgage servicers. For example, the Superintendent of 
Banks of the State of New York repeatedly adopted short-term emergency 
regulations governing mortgage servicers on a continuous basis since 
July 2010.\32\ These regulations impose obligations on servicers with 
respect to, among other things, consumer complaints and inquiries, 
statements of accounts, crediting of payments, payoff balances, and 
loss mitigation procedures.\33\ The California Homeowner Bill of 
Rights, which was enacted in 2012, imposes requirements on servicers 
with respect to evaluations of borrowers for loss mitigation options 
before various foreclosure documents may be filed for California's non-
judicial foreclosure process.\34\ Further, Oregon implemented 
regulations on mortgage servicers not to engage in unfair or deceptive 
conduct by: assessing fees for payments made on or before a payment due 
date; assessing or collecting fees not authorized by a security 
instrument or mortgage, misrepresenting information relating to a loan 
modification or set forth in an affidavit, declaration, or other sworn 
statement detailing a borrower's default and the servicer's right to 
foreclose; failing to comply with certain provisions of RESPA; or 
failing to deal with a borrower in good faith.\35\ Further, 
Massachusetts has recently proposed new regulations to protect 
consumers with respect to mortgage servicing practices, including with 
respect to loss mitigation procedures.\36\
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    \32\ New York State Department of Financial Services, 
Explanatory All Institutions Letter (October 7, 2012), available at 
http://www.dfs.ny.gov/legal/regulations/emergency/banking/ar419lt.htm (last accessed Dec. 7, 2012).
    \33\ 3 N.Y.C.R.R. 419.1 et seq.
    \34\ See Cal. Civ. Code Sec.  2923.6.
    \35\ OAR 137-020-0805. Notably, Oregon's regulations initially 
implemented mortgage servicing requirements with respect to open-end 
lines of credit (home equity plans) and, further, required servicers 
to comply with GSE guidelines for loan modifications. Oregon 
suspended these requirements and reissued the rule as OAR 137-020-
0805 on the basis that such suspension was necessary to facilitate 
compliance. See In the matter of: Suspension of OAR 137-020-0800 and 
Adoption of OAR 137-020-0805 (February 15, 2012), available at 
http://www.oregonmla.org/WebsiteAttachments/Misc%20Events%20Attachments/OAR%20137-020-0805%202%2015%2012%20AG%20Servicing%20Rules%20(00540177).pdf (last 
accessed Jan. 6, 2013).
    \36\ See Press Release, Massachusetts Division of Banks Proposes 
New Standards for Mortgage Servicing (Nov. 8, 2012), available at 
http://www.mass.gov/ocabr/docs/dob/standards-for-mort-servicing2012.pdf (last accessed Jan. 6, 2013).
---------------------------------------------------------------------------

C. RESPA and Regulation X

    Congress originally enacted the Real Estate Settlement Procedures 
Act of 1974 (RESPA) based on findings that significant reforms in the 
real estate settlement process were needed to ensure that consumers are 
provided with greater and more timely information on the nature and 
costs of the residential real estate settlement process and are 
protected from unnecessarily high settlement charges caused by certain 
abusive practices found by Congress. See 12 U.S.C. 2601(a). In 1990, 
Congress amended RESPA by adding a new section 6 covering persons 
responsible for servicing federally related mortgage loans and imposing 
on such servicers certain obligations.\37\ These included required 
disclosures at application concerning whether the lender intended to 
service the mortgage loan and disclosures upon an actual transfer of 
servicing rights.\38\ RESPA section 6 further imposed substantive and 
disclosure requirements for escrow account management and required 
servicers to respond to ``qualified written requests''--written error 
resolution or information requests relating to the ``servicing'' of the 
borrower's mortgage loan.\39\
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    \37\ Public Law 101-625, 104 Stat. 4079 (1990), sections 941-42.
    \38\ See 12 U.S.C. 2605(a) through (e).
    \39\ See 12 U.S.C. 2605(e) and 2609.
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    Section 19(a) of RESPA authorizes the Bureau (and formerly directed 
the Department of Housing and Urban Development (HUD)) to prescribe 
such rules and regulations, to make such interpretations, and to grant 
such reasonable exemptions for classes of transactions, as may be 
necessary to achieve the purposes of RESPA. See 12 U.S.C. 2617(a).
    Historically, Regulation X, 24 CFR part 3500, implemented RESPA. 
General rulemaking authority for RESPA transferred to the Bureau on 
July 21, 2011. See sections 1061 and 1098 of the Dodd-Frank Act. 
Pursuant to the Dodd-Frank Act and RESPA, as amended, the Bureau 
published for public comment an interim final rule establishing a new 
Regulation X, 12 CFR part 1024, implementing RESPA. 76 FR 78978 (Dec. 
20, 2011). The Bureau's Regulation X took effect on December 30, 2011. 
The requirements in section 6 of RESPA for mortgage servicing are 
implemented primarily by Sec.  1024.21.

D. The Dodd-Frank Act

    The Dodd-Frank Act imposes certain new requirements related to 
mortgage servicing. As set forth above, some of these new requirements 
are amendments to RESPA addressed in this final rule and others are 
amendments to TILA, addressed in the 2013 TILA Servicing Final Rule.
    Section 1463 of the Dodd-Frank Act added new sections 6(k), 6(l), 
and 6(m) to RESPA. 12 U.S.C. 2605. Sections 6(k)(1)(A), 6(k)(2), 6(l) 
and 6(m) impose restrictions on servicers with respect to force-placed 
insurance. Specifically, section 6(k)(1)(A) of RESPA provides that a 
servicer may not obtain force-placed hazard insurance with respect to 
any property secured by a federally related mortgage unless there is a 
reasonable basis to believe the borrower has failed to comply with the 
loan contract's requirement to maintain property insurance. Further, 
under section 6(l) of RESPA, a servicer is deemed not to have a 
reasonable basis for obtaining force-placed insurance, unless the 
servicer sends to the borrower, by first-class mail, two written 
notices. The first notice must be sent at least 45 days before imposing 
on the borrower any charge for force-placed insurance, and the second 
notice must be sent at least 30 days after the first written notice and 
at least 15 days before imposing on the borrower any charge for force-
placed insurance. The notices must remind borrowers of their obligation 
to maintain hazard insurance on the property, alert borrowers to the 
servicer's lack of evidence of insurance coverage, tell borrowers what 
they must do to provide proof of hazard insurance coverage, and state 
that the servicer may obtain coverage at the borrower's expense if the 
borrower fails to provide evidence of coverage. Under section 6(l)(3) 
of RESPA, within fifteen days of receipt by a servicer of a borrower's

[[Page 10703]]

existing insurance coverage, servicers must terminate force-placed 
insurance coverage and refund to the borrower any premiums charged 
during any period when the borrower had hazard insurance in place. 
Finally, section 6(m) of RESPA requires that all charges imposed on the 
borrower related to force-placed insurance, apart from charges subject 
to State regulation as the business of insurance, must be bona fide and 
reasonable.
    Section 1463 of the Dodd-Frank Act further added section 
6(k)(1)(B)-(D) of RESPA, which prohibits certain acts and practices by 
servicers of federally related mortgage loans with regard to responding 
to borrower assertions of error and requests for information. 
Specifically, section 6(k)(1)(B) of RESPA prohibits servicers from 
charging fees for responding to valid qualified written requests. 
Section 6(k)(1)(C) of RESPA provides that a servicer of a federally 
related mortgage loan must not fail to take timely action to respond to 
a borrower's requests to correct errors relating to: (1) Allocation of 
payments; (2) final balances for purposes of paying off the loan; (3) 
avoiding foreclosure; or (4) other standard servicer duties. Finally, 
section 6(k)(1)(D) provides that a servicer must respond within ten 
business days to a request from a borrower to provide the identity, 
address, and other relevant contact information about the owner or 
assignee of the loan. In addition, section 1463(c) amends section 6(e) 
of RESPA to reduce the amount of time within which servicers must 
correct errors and respond to requests for information. Section 1463(b) 
and (d) of the Dodd-Frank Act amended sections 6(f) and 6(g) of RESPA 
with respect to penalties for violation of section 6 of RESPA, and 
refund of escrow account balances, respectively.\40\
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    \40\ As set forth below, section 1463(d) is implemented by Sec.  
1024.34(b) of this rule. Section 1463(b), however, is not 
implemented by this rulemaking. Accordingly, pursuant to section 
1400(c) of the Dodd-Frank Act, the amendments to section 6(f) of 
RESPA in section 1463(b) of the Dodd-Frank Act are effective as of 
January 21, 2013.
---------------------------------------------------------------------------

    Finally, section 1463(a) of the Dodd-Frank Act adds section 
6(k)(1)(E) to RESPA, which provides that a servicer of a federally 
related mortgage loan must ``comply with any other obligation found by 
the [Bureau], by regulation, to be appropriate to carry out the 
consumer protection purposes of this Act.'' \41\ This provision 
provides the Bureau authority to establish prohibitions on servicers of 
federally related mortgage loans appropriate to carry out the consumer 
protection purposes of RESPA. As discussed below, in light of the 
systemic problems in the mortgage servicing industry discussed above, 
the Bureau is exercising this authority in this rulemaking to implement 
protections for borrowers with respect to mortgage servicing.
---------------------------------------------------------------------------

    \41\ 12 U.S.C. 2605(k)(1)(E).
---------------------------------------------------------------------------

    Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to 
prescribe rules ``as may be necessary or appropriate to enable the 
Bureau to administer and carry out the purposes and objectives of the 
Federal consumer financial laws, and to prevent evasions thereof[.]'' 
12 U.S.C. 5512(b)(1). RESPA and title X of the Dodd-Frank Act are 
Federal consumer financial laws. Accordingly, the Bureau proposed to 
exercise its authority under section 1022(b) of the Dodd-Frank Act to 
prescribe rules to carry out the purposes of RESPA and title X and 
prevent evasion of those laws.

III. Summary of the Rulemaking Process

A. Outreach and Consumer Testing

    The Bureau has conducted extensive outreach in developing the Final 
Servicing Rules. Prior to issuing the Proposed Servicing Rules on 
August 10, 2012, Bureau staff met with consumers, consumer advocates, 
mortgage servicers, force-placed insurance carriers, industry trade 
associations, other Federal regulatory agencies, and other interested 
parties to discuss various aspects of the statute, servicing industry 
operations, and consumer harm impacts. Outreach included meetings with 
numerous individual servicers to understand their operations and the 
potential benefits and burdens of the proposed mortgage servicing 
rules. As discussed above and in connection with section 1022 of the 
Dodd-Frank Act below, the Bureau has also consulted with relevant 
Federal regulators both regarding the Bureau's specific rules and the 
need for and potential contents of national mortgage servicing 
standards in general.
    Further, the Bureau solicited input from small servicers through a 
Small Business Review Panel (Small Business Review Panel) with the 
Chief Counsel for Advocacy of the Small Business Administration 
(Advocacy) and the Administrator of the Office of Information and 
Regulatory Affairs within the Office of Management and Budget 
(OMB).\42\ The Small Business Review Panel's findings and 
recommendations are contained in the Small Business Review Panel 
Report.\43\ The Bureau has adopted recommendations provided by the 
participants on the Small Business Review Panel and includes below a 
discussion of such recommendations in connection with the applicable 
requirement.
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    \42\ The Small Business Regulatory Enforcement Fairness Act of 
1996 requires the Bureau to convene a Small Business Review Panel 
before proposing a rule that may have a significant economic impact 
on a substantial number of small entities. See Public Law 104-121, 
tit. II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 110-28, 
sec. 8302 (2007)).
    \43\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking (June 11, 2012) (``SBREFA Final 
Report''), available at http://www.consumerfinance.gov.
---------------------------------------------------------------------------

    Further, prior to the issuing the Proposed Servicing Rules on 
August 10, 2012, the Bureau engaged ICF Macro (Macro), a research and 
consulting firm that specializes in designing disclosures and consumer 
testing, to conduct one-on-one cognitive interviews regarding 
disclosures connected with mortgage servicing. During the first quarter 
of 2012, the Bureau and Macro worked closely to develop and test 
disclosures that would satisfy the requirements of the Dodd-Frank Act 
and provide information to consumers in a manner that would be 
understandable and useful. These disclosures related to the force-
placed insurance notices set forth in this rule, as well as the ARM 
interest rate adjustment notices and the periodic statement disclosure 
set forth in the 2013 TILA Servicing Final Rule.
    Macro conducted three rounds of one-on-one cognitive interviews 
with a total of 31 participants in the Baltimore, Maryland metro area 
(Towson, Maryland), Memphis, Tennessee, and Los Angeles, California. 
Participants were all consumers who held a mortgage loan and 
represented a range of ages and education levels. Efforts were made to 
recruit a significant number of participants who had trouble making 
mortgage payments in the last two years. During the interviews, 
participants were shown disclosure forms for periodic statements, ARM 
interest rate adjustment notices, and force-placed insurance notices. 
Participants were asked specific questions to test their understanding 
of the information presented in each of the disclosures, how easily 
they could find various pieces of information presented in each of the 
disclosures, and how they would use the information presented in each 
of the disclosures. The disclosures were revised after each round of 
testing.
    After the Bureau issued the Proposed Servicing Rules, Macro 
conducted a fourth round of one-on-one cognitive interviews with eight 
participants in Philadelphia, Pennsylvania. Again, participants were 
consumers who held

[[Page 10704]]

a mortgage loan and represented a range of ages and education levels. 
During the interviews, participants were asked to review two different 
versions of a servicing transfer notice and early intervention model 
clauses, which relate to requirements the Bureau is implementing under 
RESPA. Participants were asked specific questions to test their 
reaction to and understanding of the content of the servicing transfer 
notice and the early intervention model clauses. This process was 
repeated for each of the five clauses being tested. Specific findings 
from the consumer testing are discussed in detail throughout where 
relevant.\44\
---------------------------------------------------------------------------

    \44\ ICF Int'l, Inc., Summary of Findings: Design and Testing of 
Mortgage Servicing Disclosures (Aug. 2012) (``Macro Report''), 
available at http://www.regulations.gov/#!documentDetail;D=CFPB-
2012-0033-0003.
---------------------------------------------------------------------------

    One commenter, identifying itself as a research organization, 
observed that the consumer testing the Bureau has conducted with 
respect to the mortgage servicing disclosures follows the path of 
evidence-based decision-making. This commenter asserted, however, that 
the Bureau should consider undertaking steps in evaluating the proposed 
forms, including possibly undertaking additional testing because other 
consumer financial disclosures, including the forms the Bureau proposed 
with the 2012 TILA-RESPA Proposal, have gone through more testing. At 
the same time, however, the commenter observed that the decreased level 
of testing might be justified on various grounds, such as, for example, 
the fact that studies have found that small numbers of individuals can 
identify the vast majority of usability problems, the fact that the 
testing was done with participants familiar with mortgages, and the 
fact that the Bureau is working on a tight schedule to finalize rules 
by January 21, 2013 when statutory provisions would go into effect.
    The Bureau believes that the testing it conducted is appropriate. 
The Bureau observes that the forms the Bureau proposed as part of the 
2012 TILA-RESPA Proposal contained significantly more complicated 
financial information than the forms finalized as part of the current 
rulemakings. Additionally, the 2012 TILA-RESPA Proposal, when 
finalized, would substantially change consumers' mortgage shopping 
experience; by contrast, the Final Mortgage Servicing Rules are 
intended to improve, but not substantially alter, consumers' experience 
with their mortgage servicers. These differences, in terms of level of 
complication and degree of change from current practice, justify the 
different levels of resources the Bureau allocated to the two different 
testing projects. Lastly, Macro's findings show that there was notable 
consistency across the different rounds of testing in terms of 
participant comprehension that, in combination with the Bureau's 
expertise and knowledge of consumer understanding and behavior, gave 
the Bureau confidence to rely on the forms that were developed and 
refined through testing as a basis for the model forms included in the 
Final Servicing Rules.
    The Bureau further emphasizes that it is not relying solely on the 
consumer testing to determine that any particular disclosure will be 
effective. The Bureau is also relying on its knowledge of, and 
expertise in, consumer understanding and behavior, as well as 
principles of effective disclosure design.

B. Small Business Regulatory Enforcement Fairness Act

    As required by SBREFA, the Bureau convened a Small Business Review 
Panel to assess the impact of the possible rules on small servicers and 
to help the Bureau determine to what extent it may be appropriate to 
consider adjusting these standards for small servicers, to the extent 
permitted by law. Thus, on April 9, 2012, the Bureau provided Advocacy 
with the formal notification and other information required under 
section 609(b)(1) of the Regulatory Flexibility Act (RFA) to convene 
the panel.
    In order to obtain feedback from small servicers, the Bureau, in 
consultation with Advocacy, identified five categories of small 
entities that may be subject to the proposed rule: Commercial banks/
savings institutions, credit unions, non-depositories engaged primarily 
in lending funds with real estate as collateral, non-depositories 
primarily engaged in loan servicing, and certain non-profit 
organizations. The Bureau, in consultation with Advocacy, selected 16 
representatives to participate in the Small Business Review Panel 
process from the categories of entities that may be subject to the 
Proposed Servicing Rules. The participants included representatives 
from each of the categories identified by the Bureau and comprised a 
diverse group of individuals with regard to geography and type of 
locality (i.e., rural, urban, suburban, or metropolitan areas), as 
described in chapter 7 of the Small Business Review Panel Report.
    On April 10, 2012, the Bureau convened the Small Business Review 
Panel. In order to collect the advice and recommendations of small 
entity participants, the Panel held an outreach meeting/teleconference 
on April 24, 2012 (Panel Outreach Meeting). To help the small entity 
participants prepare for the Panel Outreach Meeting, the Panel 
circulated briefing materials that summarized the proposals under 
consideration at that time, posed discussion issues, and provided 
information about the SBREFA process generally.\45\ All 16 small 
entities participated in the Panel Outreach Meeting either in person or 
by telephone. The Small Business Review Panel also provided the small 
entities with an opportunity to submit written feedback until May 1, 
2012. In response, the Small Business Review Panel received written 
feedback from 5 of the representatives.\46\
---------------------------------------------------------------------------

    \45\ The Bureau posted these materials on its Web site and 
invited the public to email remarks on the materials. Press Release, 
U.S. Consumer Fin. Prot. Bureau, Consumer Financial Protection 
Bureau Outlines Borrower-Friendly Approach to Mortgage Servicing 
(Apr. 9, 2012), available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-outlines-borrower-friendly-approach-to-mortgage-servicing/ (last accessed 
Jan. 6, 2013).
    \46\ This written feedback is attached as appendix A to the 
Small Business Review Panel Report.
---------------------------------------------------------------------------

    On June 11, 2012, the Small Business Review Panel submitted to the 
Director of the Bureau the written Small Business Review Panel Report, 
which includes the following: Background information on the proposals 
under consideration at the time; information on the types of small 
entities that would be subject to those proposals and on the 
participants who were selected to advise the Small Business Review 
Panel; a summary of the Panel's outreach to obtain the advice and 
recommendations of those participants; a discussion of the comments and 
recommendations of the participants; and a discussion of the Small 
Business Review Panel findings, focusing on the statutory elements 
required under section 603 of the RFA, 5 U.S.C. 609(b)(5).
    In connection with issuing the Proposed Servicing Rules, the Bureau 
carefully considered the feedback from the small entities participating 
in the SBREFA process and the findings and recommendations in the Small 
Business Review Panel Report. The section-by-section analyses for the 
Final Servicing Rules discuss this feedback and the specific findings 
and recommendations of the Small Business Review Panel, as applicable. 
The SBREFA process provided the Small Business Review Panel and the 
Bureau with an opportunity to identify and explore opportunities to 
mitigate the burden of the rule on small entities while achieving the 
rule's purposes. It is important to note, however, that the

[[Page 10705]]

Small Business Review Panel prepared the Small Business Review Panel 
Report at a preliminary stage of the proposal's development and that 
the report--in particular, the findings and recommendations--should be 
considered in that light. Any options identified in the Small Business 
Review Panel Report for reducing the proposed rule's regulatory impact 
on small entities were expressly subject to further consideration, 
analysis, and data collection by the Bureau to ensure that the options 
identified were practicable, enforceable, and consistent with RESPA, 
TILA, the Dodd-Frank Act, and their statutory purposes.

C. Summary of the Proposed Servicing Rule

    The 2012 RESPA Servicing Proposal contained numerous significant 
revisions to Regulation X. As a preliminary matter, the Bureau proposed 
to reorganize Regulation X to include three distinct subparts. Subpart 
A (General) would have included general provisions of Regulation X, 
including provisions that applied to both subpart B and subpart C. 
Subpart B (Mortgage settlement and escrow accounts) would have included 
provisions relating to settlement services and escrow accounts, 
including disclosures provided to borrowers relating to settlement 
services. Subpart C (Mortgage servicing) would have included provisions 
relating to obligations of mortgage servicers. The Bureau also proposed 
to set forth a commentary that included official Bureau interpretations 
of Regulation X.
    With respect to mortgage servicing-related provisions, the proposed 
rule would have amended existing provisions currently published in 12 
CFR 1024.21 that relate to disclosures of mortgage servicing transfers 
and servicer obligations to borrowers. The Bureau proposed to include 
these provisions within subpart C as Sec. Sec.  1024.33-1024.34. The 
Bureau also proposed to move certain clarifications in these provisions 
that were previously published in 12 CFR 1024.21 to the commentary to 
conform the organization of these provisions with the proposed 
additions to Regulation X.
    The proposed rule would have established procedures for 
investigating and resolving alleged errors and responding to requests 
for information. The proposed requirements were set forth in proposed 
Sec. Sec.  1024.35-1024.36. As proposed, these sections would have 
required servicers to respond to notices of error and information 
requests from borrowers, including qualified written requests. The 
Bureau's goal was to conform and consolidate the pre-existing 
requirements under RESPA applicable to qualified written requests, with 
the new requirements imposed by the Dodd-Frank Act through the addition 
of sections 6(k)(1)(C) and 6(k)(1)(D) of RESPA to respond to errors and 
information requests. The Bureau proposed to create a unified 
requirement for servicers to respond to notices of error and 
information requests provided by borrowers, without regard to whether 
the notices or requests constituted qualified written requests.\47\ To 
that end, the proposed rule would have implemented the Dodd-Frank Act 
amendments to RESPA section 6(e) by adjusting the timeframes applicable 
to respond to qualified written requests, as well as errors and 
information requests generally, to conform to the new requirements.
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    \47\ As discussed below, RESPA sets forth a ``qualified written 
request'' mechanism through which a borrower can assert an error to 
a servicer or request information from a servicer. Section 
6(k)(1)(C) and 6(k)(1)(D) of RESPA set forth separate obligations 
for servicers to correct certain types of errors asserted by 
borrowers and to provide information to a borrower regarding an 
owner or assignee of a mortgage loan without reference to the 
``qualified written request'' process. The 2012 RESPA Servicing 
Proposal would have integrated the new requirements under RESPA to 
respond to errors and information requests with RESPA's preexisting 
qualified written request process. Although a borrower would still 
have been able to submit a ``qualified written request,'' under the 
proposed rule, a ``qualified written request'' would have been 
subject to the same error resolution or information request 
requirements applicable to any other type of written error notice or 
information request to a servicer.
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    Proposed Sec.  1024.37 would have implemented limitations on 
servicers obtaining force-placed insurance. The proposed rule would 
have required servicers to provide notices to borrowers at certain 
timeframes before a servicer could impose a charge on a borrower for 
force-placed insurance. Further, the proposed rule would have required 
that charges related to force-placed insurance, other than charges 
subject to State regulation as the business of insurance or authorized 
by Federal flood laws, be bona fide and reasonable. Finally, the 
proposed rule sought to reduce the instances in which force-placed 
insurance would be needed by amending current Sec.  1024.17 to require 
that where a borrower has escrowed for hazard insurance, servicers must 
advance funds to, and disburse from, an escrow account to maintain the 
borrower's own hazard insurance policy even if the loan obligation is 
more than 30 days overdue. The proposed rule also would have 
implemented the Dodd-Frank Act amendment to RESPA section 6(g) in 
proposed Sec.  1024.34(b) by imposing requirements on servicers to 
refund or transfer funds in an escrow account when a mortgage loan is 
paid in full.
    The proposed rule would have imposed obligations on servicers in 
four additional areas not specifically required by the Dodd-Frank Act: 
(1) Servicer policies and procedures, (2) early intervention for 
delinquent borrowers, (3) continuity of contact, and (4) loss 
mitigation procedures. The policies and procedures provision would have 
required servicers to implement policies and procedures to manage 
documents and information to achieve defined objectives intended to 
ensure that borrowers are not harmed by servicers' information 
management operations. Further, the policies and procedures provision 
would also have imposed requirements on servicers regarding record 
retention and management of servicing file documents. The early 
intervention provision would have required servicers to contact 
borrowers at an early stage of delinquency and provide information to 
borrowers about available loss mitigation options and the foreclosure 
process. The continuity of contact provision would have required 
servicers to make available to borrowers direct phone access to 
personnel who could assist borrowers in pursuing loss mitigation 
options. The loss mitigation procedures would have required servicers 
that offer loss mitigation options to borrowers to evaluate complete 
and timely applications for loss mitigation options. Servicers would 
have been required to permit borrowers to appeal denials of timely loss 
mitigation applications for loan modification programs. A servicer that 
received a complete and timely application for a loss mitigation option 
would not have been able to proceed with a foreclosure sale unless (1) 
the servicer denied the borrower's application and the time for any 
appeal had expired; (2) the borrower had declined or failed to accept 
an offer of a loss mitigation option within 14 days of the offer; or 
(3) the borrower failed to comply with the terms of a loss mitigation 
agreement.

D. Overview of the Comments Received

    The Bureau received approximately 300 comments on the Proposed 
Servicing Rules. The comments came from individual consumers, consumer 
advocates, community banks, large bank holding companies, secondary 
market participants, credit unions, non-bank servicers, State and 
national trade associations for financial institutions in the mortgage 
business, local and national community groups, Federal

[[Page 10706]]

and State regulators, academics, and others. Commenters provided 
feedback on all aspects of the Proposed Servicing Rules. Most 
commenters tended to focus on specific aspects of the proposals. 
Accordingly, in general, the comments are discussed below in the 
section-by-section analysis.
    The majority of comments were submitted by mortgage servicers, 
industry groups representing servicers and businesses involved in the 
servicing industry. Large banks, community banks and credit unions, 
non-bank servicers, and industry trade associations submitted nearly 
all of these comments. The Small Business Administration Office of 
Advocacy submitted a comment and the remaining comments were submitted 
by vendors and attorney's representing industry interests. The Bureau 
also received a significant number of comments from consumer advocacy 
groups. The record also includes a 50-page comment by the Cornell e-
Rulemaking Initiative synthesizing submissions of 144 registered 
participants to Cornell's Regulation Room project. Regulation Room is a 
pilot project designed to use different web technologies and approaches 
to enhance public understanding and participation in Bureau rulemakings 
and to evaluate the advantages and disadvantages of these techniques. 
Finally, the Bureau also received comments from the Small Business 
Administration, the Federal Housing Finance Agency, the GSEs, and from 
vendors and attorneys representing industry interests.
    Industry commenters and their trade associations also provided 
comments regarding the rulemaking process, and those comments are 
addressed here.\48\ In that regard, community banks and their trade 
associations stated that the Bureau should consider cumulative burden 
when writing regulations, setting comment deadlines, and effective 
dates. These commenters believed that the combination of the Bureau's 
rules as well as the impact of Basel III requirements with respect to 
accounting for mortgage servicing rights in Tier I capital may cause 
disruptions across all mortgage market segments. A community bank trade 
association indicated that community banks are likely to feel the 
impact of the rules more acutely, as they cannot take advantage of 
economies of scale in mitigating the compliance burden. A community 
bank trade association stated that the Bureau should consider the wide 
diversity among servicer business models and adapt regulations to 
preserve diversity within the servicing industry. The commenter 
emphasized that community banks have strong reputation and performance 
incentives to ensure that consumers are provided a high level of 
service.
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    \48\ Some commenters provided comments strictly with respect to 
the rulemaking process. One trade association commented that small 
servicers that participated in the Small Business Review Panel 
process did not have adequate time to prepare for the panel 
discussion and provide appropriate data, while another trade 
association commented that because the Bureau's proposed rules are 
lengthy and because some rules have overlapping comment periods, 
each of which has been limited to 60 days, the trade association has 
had difficulty dedicating staff to comment on the Bureau's 
proposals. As set forth in this section, the Bureau has conducted 
the rulemaking process, including the SBREFA process and the public 
comment period, in a manner that provided as much flexibility as 
possible to receive feedback from the SBREFA participants and public 
commenters in light of the deadlines required for the rulemaking. 
The Bureau assisted the SBA in calls and outreach with small entity 
participants to obtain any comments not set forth during the panel 
outreach with the small entity representatives. Further, with 
respect to public comments, the Bureau believes that the public had 
a meaningful opportunity to comment, which is evidenced by the 
significant number of comments received and their length. The Bureau 
offered 61 days from August 10, 2012 through October 9, 2012, for 
comment; and 22 days after the proposal was published in the Federal 
Register on September 17.
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    A large bank and a number of trade association commenters stated 
that the Bureau should be cognizant of imposing requirements and 
standards potentially inconsistent with those required by settlement 
agreements, consent orders, and GSE or government insurance program 
requirements. One commenter stated that the Bureau should consider 
preempting State law mortgage servicing requirements to provide legal 
and regulatory certainty to industry participants that are evaluating 
the future desirability of maintaining servicing operations. A number 
of trade associations stated that the Bureau should not issue 
regulations that would impose requirements substantially similar to the 
National Mortgage Settlement on mortgage servicers that are not parties 
to the National Mortgage Settlement.
    The Bureau has considered each of these comments relating to the 
cumulative impact of mortgage regulation, including the mortgage 
servicing rules; the potential for inconsistent results with current 
servicing obligations, including State law and the National Mortgage 
Settlement; and comments regarding the diversity of servicing business 
models and servicer sizes. The Bureau's consideration of those comments 
is reflected below in the section-by-section analysis with respect to 
various determinations made in finalizing the 2012 RESPA Servicing 
Proposal, including the determination to create clear requirements, the 
determination to maintain consistency with current servicing 
obligations, including those imposed by State law and the National 
Mortgage Settlement, and the consideration of exemptions for small 
servicers.
    With respect to preemption of state law, the Final Servicing Rules 
generally do not have the effect of prohibiting state law from 
affording borrowers broader consumer protections relating to mortgage 
servicing than those conferred under the Final Servicing Rules. 
However, in certain circumstances, the effect of specific requirements 
of the Final Servicing Rules is to preempt certain limited aspects of 
state law. Specifically, as set forth below, Sec.  1024.41(f) bars a 
servicer from making the first notice or filing required for a 
foreclosure process unless a borrower is more than 120 days delinquent, 
notwithstanding that state law may permit any such filing. Further, 
Sec.  1024.33(d) incorporates a pre-existing provision in Regulation X 
that implements RESPA with respect to preemption of certain state law 
disclosures relating to mortgage servicing transfers. In other 
circumstances, the Bureau explicitly took into account existing 
standards (both State and Federal) and either built in flexibility or 
designed its rules to coexist with those standards. For example, as 
discussed below, the Bureau took into account the loss mitigation 
timelines and ``dual-tracking'' provisions in the National Mortgage 
Settlement and the California Homeowner Bill of Rights and designed 
timelines that are consistent with those standards. Similarly, in 
designing its early intervention provision the Bureau included a 
statement that nothing in that provision shall require a servicer to 
make contact with a borrower in a manner that would be prohibited under 
applicable law.
    A number of commenters provided comments regarding language access 
and community blight. Two national consumer groups urged the Bureau to 
take action to remove barriers borrowers with limited English-
proficiency face with respect to understanding the terms of their 
mortgages because such barriers might make these borrowers more 
vulnerable to bad servicing practices. One national consumer group 
urged the Bureau to mandate translation of all notices, documents, and 
bills going to borrowers. Another national consumer group urged the 
Bureau to consider requiring servicers to provide disclosures and 
services in a borrower's preferred language, noting that it

[[Page 10707]]

represents a population that speaks more than 100 different dialects. 
Finally, one commenter suggests that the Bureau should not only mandate 
disclosures in other languages but also should require servicers to 
provide language-capable staff to assist borrowers with limited English 
skills. With respect to neighborhood blight, a coalition of consumer 
advocacy groups and a consumer advocate that participated in outreach 
with the Bureau commented that the Bureau should consider implementing 
regulations to manage neighborhood blight by requiring servicers to 
maintain real estate owned (REO) property to decent, safe, and sanitary 
standards capable of purchase by borrowers with FHA financing.
    Although some of these specific requests exceed the scope of the 
rulemaking, the Bureau takes seriously the important considerations of 
avoiding neighborhood blight and language access. The Bureau recognizes 
the challenges borrowers with limited English proficiency face in 
understanding the terms of their mortgage. The Bureau believes that 
servicers should communicate with borrowers clearly, including in the 
borrower's native language, where possible, and especially when lenders 
advertise in the borrower's native language. The Bureau conducted 
Spanish testing to support proposed rules and forms combining the TILA 
mortgage loan disclosure with the Good Faith Estimate (GFE) and 
statement required under RESPA. See 77 FR 54843. That testing 
underscores both the value of disclosures in other languages but also 
the challenges in translating forms using English terms of art into 
other languages to assure that the foreign-language version of the form 
effectively communicates the required information to its readers.
    The Bureau has not had the opportunity to test the disclosures that 
the Bureau is adopting, or the pre-existing RESPA disclosures, in other 
languages. Accordingly, the Bureau is not imposing mandatory foreign 
language translation requirements or other language access requirements 
at this time with respect to the mortgage servicing disclosures and 
other requirements the Bureau is adopting under new subpart C. Although 
the Bureau declines at this time to implement requirements regarding 
language access, the Bureau will continue to consider language access 
generally in connection with developing disclosures and will consider 
further requirements on servicer communication with borrowers if 
appropriate. With respect to REO properties, the Bureau continues to 
consider whether regulations are appropriate to address the maintenance 
of properties owned by lenders and any potential resulting harm from 
community blight.

E. Other Dodd-Frank Act Mortgage-Related Rulemakings

    In addition to the Final Servicing Rules, the Bureau is adopting 
several other final rules and issuing one proposal, all relating to 
mortgage credit, to implement requirements of title XIV of the Dodd-
Frank Act. The Bureau is also issuing a final rule and planning to 
issue a proposal jointly with other Federal agencies to implement 
requirements for mortgage appraisals in title XIV. Each of the final 
rules follows a proposal issued in 2011 by the Board or in 2012 by the 
Bureau alone or jointly with other Federal agencies. Collectively, 
these proposed and final rules are referred to as the Title XIV 
Rulemakings.
     Ability to Repay: The Bureau recently issued a rule, 
following a May 2011 proposal issued by the Board (the Board's 2011 ATR 
Proposal),\49\ to implement provisions of the Dodd-Frank Act (1) 
requiring creditors to determine that a consumer has a reasonable 
ability to repay covered mortgage loans and establishing standards for 
compliance, such as by making a ``qualified mortgage,'' and (2) 
establishing certain limitations on prepayment penalties, pursuant to 
TILA section 129C as established by Dodd-Frank Act sections 1411, 1412, 
and 1414. 15 U.S.C. 1639c. The Bureau's final rule is referred to as 
the 2013 ATR Final Rule. Simultaneously with the 2013 ATR Final Rule, 
the Bureau issued a proposal to amend the final rule implementing the 
ability-to-repay requirements, including by the addition of exemptions 
for certain nonprofit creditors and certain homeownership stabilization 
programs and a definition of a ``qualified mortgage'' for certain loans 
made and held in portfolio by small creditors (the 2013 ATR Concurrent 
Proposal). The Bureau expects to act on the 2013 ATR Concurrent 
Proposal on an expedited basis, so that any exceptions or adjustments 
to the 2013 ATR Final Rule can take effect simultaneously with that 
rule.
---------------------------------------------------------------------------

    \49\ 76 FR 27390 (May 11, 2011).
---------------------------------------------------------------------------

     Escrows: The Bureau recently issued a rule, following a 
March 2011 proposal issued by the Board (the Board's 2011 Escrows 
Proposal),\50\ to implement certain provisions of the Dodd-Frank Act 
expanding on existing rules that require escrow accounts to be 
established for higher-priced mortgage loans and creating an exemption 
for certain loans held by creditors operating predominantly in rural or 
underserved areas, pursuant to TILA section 129D as established by 
Dodd-Frank Act sections 1461. 15 U.S.C. 1639d. The Bureau's final rule 
is referred to as the 2013 Escrows Final Rule.
---------------------------------------------------------------------------

    \50\ 76 FR 11598 (Mar. 2, 2011).
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     HOEPA: Following its July 2012 proposal (the 2012 HOEPA 
Proposal),\51\ the Bureau recently issued a final rule to implement 
Dodd-Frank Act requirements expanding protections for ``high-cost 
mortgages'' under the Homeownership and Equity Protection Act (HOEPA), 
pursuant to TILA sections 103(bb) and 129, as amended by Dodd-Frank Act 
sections 1431 through 1433. 15 U.S.C. 1602(bb) and 1639. The Bureau 
also is finalizing rules to implement certain title XIV requirements 
concerning homeownership counseling, including a requirement that 
lenders provide lists of homeownership counselors to applicants for 
federally related mortgage loans, pursuant to RESPA section 5(c), as 
amended by Dodd-Frank Act section 1450. 12 U.S.C. 2604(c). The Bureau's 
final rule is referred to as the 2013 HOEPA Final Rule.
---------------------------------------------------------------------------

    \51\ 77 FR 49090 (Aug. 15, 2012).
---------------------------------------------------------------------------

     Loan Originator Compensation: Following its August 2012 
proposal (the 2012 Loan Originator Proposal),\52\ the Bureau is issuing 
a final rule to implement provisions of the Dodd-Frank Act requiring 
certain creditors and loan originators to meet certain duties of care, 
including qualification requirements; requiring the establishment of 
certain compliance procedures by depository institutions; prohibiting 
loan originators, creditors, and the affiliates of both from receiving 
compensation in various forms (including based on the terms of the 
transaction) and from sources other than the consumer, with specified 
exceptions; and establishing restrictions on mandatory arbitration and 
financing of single premium credit insurance, pursuant to TILA sections 
129B and 129C as established by Dodd-Frank Act sections 1402, 1403, and 
1414(a). 15 U.S.C. 1639b, 1639c. The Bureau's final rule is referred to 
as the 2013 Loan Originator Final Rule.
---------------------------------------------------------------------------

    \52\ 77 FR 55272 (Sept. 7, 2012).
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     Appraisals: The Bureau, jointly with other Federal 
agencies,\53\ is issuing

[[Page 10708]]

a final rule implementing Dodd-Frank Act requirements concerning 
appraisals for higher-risk mortgages, pursuant to TILA section 129H as 
established by Dodd-Frank Act section 1471. 15 U.S.C. 1639h. This rule 
follows the agencies' August 2012 joint proposal (the 2012 Interagency 
Appraisals Proposal).\54\ The agencies' joint final rule is referred to 
as the 2013 Interagency Appraisals Final Rule. As discussed in that 
final rule, the agencies plan to issue a supplemental proposal 
addressing potential additional exemptions to the appraisal 
requirements. In addition, following its August 2012 proposal (the 2012 
ECOA Appraisals Proposal),\55\ the Bureau is issuing a final rule to 
implement provisions of the Dodd-Frank Act requiring that creditors 
provide applicants with a free copy of written appraisals and 
valuations developed in connection with applications for loans secured 
by a first lien on a dwelling, pursuant to section 701(e) of the Equal 
Credit Opportunity Act (ECOA) as amended by Dodd-Frank Act section 
1474. 15 U.S.C. 1691(e). The Bureau's final rule is referred to as the 
2013 ECOA Appraisals Final Rule.
---------------------------------------------------------------------------

    \53\ Specifically, the Board of Governors of the Federal Reserve 
System, the Office of the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, the National Credit Union 
Administration, and the Federal Housing Finance Agency.
    \54\ 77 FR 54722 (Sept. 5, 2012).
    \55\ 77 FR 50390 (Aug. 21, 2012).
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    The Bureau is not at this time finalizing proposals concerning 
various disclosure requirements that were added by title XIV of the 
Dodd-Frank Act, integration of mortgage disclosures under TILA and 
RESPA, or a simpler, more inclusive definition of the finance charge 
for purposes of disclosures for closed-end mortgage transactions under 
Regulation Z. The Bureau expects to finalize these proposals and to 
consider whether to adjust regulatory thresholds under the Title XIV 
Rulemakings in connection with any change in the calculation of the 
finance charge later in 2013, after it has completed quantitative 
testing, and any additional qualitative testing deemed appropriate, of 
the forms that it proposed in July 2012 to combine TILA mortgage 
disclosures with the good faith estimate (RESPA GFE) and settlement 
statement (RESPA settlement statement) required under the Real Estate 
Settlement Procedures Act, pursuant to Dodd-Frank Act section 1032(f) 
and sections 4(a) of RESPA and 105(b) of TILA, as amended by Dodd-Frank 
Act sections 1098 and 1100A, respectively (the 2012 TILA-RESPA 
Proposal).\56\ Accordingly, the Bureau already has issued a final rule 
delaying implementation of various affected title XIV disclosure 
provisions.\57\
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    \56\ 77 FR 51116 (Aug. 23, 2012).
    \57\ 77 FR 70105 (Nov. 23, 2012).
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Coordinated Implementation of Title XIV Rulemakings
    As noted in all of its foregoing proposals, the Bureau regards each 
of the Title XIV Rulemakings as affecting aspects of the mortgage 
industry and its regulations. Accordingly, as noted in its proposals, 
the Bureau is coordinating carefully the Title XIV Rulemakings, 
particularly with respect to their effective dates. The Dodd-Frank Act 
requirements to be implemented by the Title XIV Rulemakings generally 
will take effect on January 21, 2013, unless final rules implementing 
those requirements are issued on or before that date and provide for a 
different effective date. See Dodd-Frank Act section 1400(c), 15 U.S.C. 
1601 note. In addition, some of the Title XIV Rulemakings are required 
by the Dodd-Frank Act to take effect no later than one year after they 
are issued. Id.
    The comments on the appropriate effective date for this final rule 
are discussed in detail below in part VI of this notice. In general, 
however, consumer advocates requested that the Bureau put the 
protections in the Title XIV Rulemakings into effect as soon as 
practicable. In contrast, the Bureau received some industry comments 
indicating that implementing so many new requirements at the same time 
would create a significant cumulative burden for creditors. In 
addition, many commenters also acknowledged the advantages of 
implementing multiple revisions to the regulations in a coordinated 
fashion.\58\ Thus, a tension exists between coordinating the adoption 
of the Title XIV Rulemakings and facilitating industry's implementation 
of such a large set of new requirements. Some have suggested that the 
Bureau resolve this tension by adopting a sequenced implementation, 
while others have requested that the Bureau simply provide a longer 
implementation period for all of the final rules.
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    \58\ Of the several final rules being adopted under the Title 
XIV Rulemakings, six entail amendments to Regulation Z, with the 
only exceptions being the 2013 RESPA Servicing Final Rule 
(Regulation X) and the 2013 ECOA Appraisals Final Rule (Regulation 
B); the 2013 HOEPA Final Rule also amends Regulation X, in addition 
to Regulation Z. The six Regulation Z final rules involve numerous 
instances of intersecting provisions, either by cross-references to 
each other's provisions or by adopting parallel provisions. Thus, 
adopting some of those amendments without also adopting certain 
other, closely related provisions would create significant technical 
issues, e.g., new provisions containing cross-references to other 
provisions that do not yet exist, which could undermine the ability 
of creditors and other parties subject to the rules to understand 
their obligations and implement appropriate systems changes in an 
integrated and efficient manner.
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    The Bureau recognizes that many of the new provisions will require 
creditors to make changes to automated systems and, further, that most 
administrators of large systems are reluctant to make too many changes 
to their systems at once. At the same time, however, the Bureau notes 
that the Dodd-Frank Act established virtually all of these changes to 
institutions' compliance responsibilities, and contemplated that they 
be implemented in a relatively short period of time. And, as already 
noted, the extent of interaction among many of the Title XIV 
Rulemakings necessitates that many of their provisions take effect 
together. Finally, notwithstanding commenters' expressed concerns for 
cumulative burden, the Bureau expects that creditors actually may 
realize some efficiencies from adapting their systems for compliance 
with multiple new, closely related requirements at once, especially if 
given sufficient overall time to do so.
    Accordingly, the Bureau is requiring that, as a general matter, 
creditors and other affected persons begin complying with the final 
rules on January 10, 2014. As noted above, section 1400(c) of the Dodd-
Frank Act requires that some provisions of the Title XIV Rulemakings 
take effect no later than one year after the Bureau issues them. 
Accordingly, the Bureau is establishing January 10, 2014, one year 
after issuance of the Bureau's 2013 ATR, Escrows, and HOEPA Final Rules 
(i.e., the earliest of the title XIV Rulemakings), as the baseline 
effective date for most of the Title XIV Rulemakings. The Bureau 
believes that, on balance, this approach will facilitate the 
implementation of the rules' overlapping provisions, while also 
affording creditors sufficient time to implement the more complex or 
resource-intensive new requirements.
    The Bureau has identified certain rulemakings or selected aspects 
thereof, however, that do not present significant implementation 
burdens for industry. Accordingly, the Bureau is setting earlier 
effective dates for those final rules or certain aspects thereof, as 
applicable. Those effective dates are set forth and explained in the 
Federal Register notices for those final rules.

IV. Legal Authority

    The final rule was issued on January 17, 2013, in accordance with 
12 CFR 1074.1. The Bureau is issuing this final rule pursuant to its 
authority under RESPA and the Dodd-Frank Act. Section 1061 of the Dodd-
Frank Act transferred

[[Page 10709]]

to the Bureau the ``consumer financial protection functions'' 
previously vested in certain other Federal agencies, including HUD. The 
term ``consumer financial protection function'' is defined to include 
``all authority to prescribe rules or issue orders or guidelines 
pursuant to any Federal consumer financial law, including performing 
appropriate functions to promulgate and review such rules, orders, and 
guidelines.'' \59\ RESPA and certain provisions of Title XIV of the 
Dodd-Frank Act are Federal consumer financial laws.\60\ Accordingly, 
the Bureau has authority to issue regulations pursuant to RESPA and 
Title XIV of the Dodd-Frank Act, including implementing the additions 
and amendments to RESPA's mortgage servicing requirements made by Title 
XIV of the Dodd-Frank Act.
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    \59\ 12 U.S.C. 5581(a)(1).
    \60\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws'' and the provisions of title X of the 
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) 
(defining ``enumerated consumer laws'' to include RESPA), Dodd-Frank 
section 1400(b), 15 U.S.C. 1601 note (defining ``enumerated consumer 
laws'' to include certain subtitles and provisions of title XIV).
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    Section 1463 of the Dodd-Frank Act creates statutory mandates by 
adding new section 6(k) through (m) to RESPA. Section 1463 of the Dodd-
Frank Act also amends certain consumer protection provisions set forth 
in existing section 6(e) through (g) of RESPA.
    Regarding the statutory mandates, section 6(k) of RESPA contains 
prohibitions on servicers for servicing of federally related mortgage 
loans. Pursuant to section 6(k) of RESPA, servicers are prohibited 
from: (i) Obtaining force-placed insurance unless there is a reasonable 
basis to believe the borrower has failed to comply with the loan 
contract's requirements to maintain property insurance; (ii) charging 
fees for responding to valid qualified written requests; (iii) failing 
to take timely action to respond to a borrower's requests to correct 
certain types of errors; (iv) failing to respond within ten business 
days to a request from a borrower to provide certain information about 
the owner or assignee of a mortgage loan; or (v) failing to comply with 
any other obligation found by the Bureau to be appropriate to carry out 
the consumer protection purposes of RESPA. See RESPA section 6(k).
    Section 6(l) of RESPA sets forth specific requirements for 
determining if a servicer has a reasonable basis to obtain force-placed 
insurance coverage. Section 6(l) of RESPA requires servicers to provide 
written notices to a borrower before imposing on the borrower a charge 
for a force-placed insurance policy. Section 6(l) of RESPA also 
requires a servicer to accept any reasonable form of written 
confirmation from a borrower of existing insurance coverage. Section 
6(l) of RESPA further requires a servicer, within 15 days of the 
receipt of such confirmation, to terminate force-placed insurance and 
refund any premiums and fees paid during the period of overlapping 
coverage. Section 6(m) of RESPA requires that charges related to force-
placed insurance, other than charges subject to State regulation as the 
business of insurance, be bona fide and reasonable.
    The Dodd-Frank Act also amends existing section 6(e) through (g) of 
RESPA. Section 6(e) is amended by decreasing the response times 
currently applicable to a servicer's obligation to respond to a 
qualified written request. Section 6(f) is amended to increase the 
penalty amounts servicers may incur for violations of section 6 of 
RESPA. Further, section 6(g) is amended to protect borrowers by 
obligating servicers to refund escrow balances to borrowers when a 
mortgage loan is paid in full or to transfer the escrow balance in 
certain refinancing related situations.
    The Bureau observes that in addition to the specific statutory 
mandates and amendments the Dodd-Frank Act established in RESPA, by 
adding section 6(k)(1)(E) to RESPA, the Dodd-Frank Act authorizes the 
Bureau, through section 6(k), to prescribe regulations that are 
appropriate to carry out the consumer protection purposes of the title. 
RESPA is a remedial consumer protection statute and imposes obligations 
upon servicers of federally related mortgage loans. RESPA has 
established a consumer protection paradigm of requiring disclosures to 
consumers, and establishing servicer requirements and prohibitions, for 
the purpose of protecting borrowers from certain potential harms. The 
disclosures include, for example, disclosures regarding escrow account 
balances and disbursements, transfers of mortgage servicing among 
mortgage servicers, and force-placed insurance notices. The 
requirements and prohibitions include requirements for servicers to 
respond to qualified written requests from borrowers and with respect 
to escrow account payments. Servicers are subject to civil liability 
for failure to comply with such requirements and prohibitions.
    Considered as a whole, RESPA, as amended by the Dodd-Frank Act, 
reflects at least two significant consumer protection purposes: (1) To 
establish requirements that ensure that servicers have a reasonable 
basis for undertaking actions that may harm borrowers and (2) to 
establish servicers' duties to borrowers with respect to the servicing 
of federally related mortgage loans. Specifically, with respect to 
mortgage servicing, the consumer protection purposes of RESPA include 
responding to borrower requests and complaints in a timely manner, 
maintaining and providing accurate information, helping borrowers avoid 
unwarranted or unnecessary costs and fees, and facilitating review for 
foreclosure avoidance options. Each of the provisions adopted in this 
final rule is intended to achieve some or all of these purposes.
    The final rule also relies on the rulemaking and exception 
authorities specifically granted to the Bureau by RESPA and Title X of 
the Dodd-Frank Act, including the authorities discussed below:

RESPA

    Section 19(a) of RESPA authorizes the Bureau to prescribe such 
rules and regulations, to make such interpretations, and to grant such 
reasonable exemptions for classes of transactions, as may be necessary 
to achieve the purposes of RESPA, which includes the consumer 
protection purposes laid out above. 12 U.S.C. 2617(a). In addition, 
section 6(j)(3) of RESPA authorizes the Bureau to establish any 
requirements necessary to carry out section 6 of RESPA. 12 U.S.C. 
2605(j)(3)

Title X of the Dodd-Frank Act

    Dodd-Frank Act section 1022(b). Section 1022(b)(1) of the Dodd-
Frank Act authorizes the Bureau to prescribe rules ``as may be 
necessary or appropriate to enable the Bureau to administer and carry 
out the purposes and objectives of the Federal consumer financial laws, 
and to prevent evasions thereof[.]'' 12 U.S.C. 5512(b)(1). RESPA and 
Title X are Federal consumer financial laws. Accordingly, in adopting 
this final rule, the Bureau is exercising its authority under Dodd-
Frank Act section 1022(b) to prescribe rules to carry out the purposes 
and objectives of RESPA and Title X and prevent evasion of those laws.
    Dodd-Frank Act section 1032. Section 1032(a) of the Dodd-Frank Act 
provides that the Bureau ``may prescribe rules to ensure that the 
features of any consumer financial product or service, both initially 
and over the term of the product or service, are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to

[[Page 10710]]

understand the costs, benefits, and risks associated with the product 
or service, in light of the facts and circumstances.'' 12 U.S.C. 
5532(a). The authority granted to the Bureau in Dodd-Frank Act section 
1032(a) is broad, and empowers the Bureau to prescribe rules regarding 
the disclosure of the ``features'' of consumer financial products and 
services generally. Accordingly, the Bureau may prescribe rules 
containing disclosure requirements even if other Federal consumer 
financial laws do not specifically require disclosure of such features.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider 
available evidence about consumer awareness, understanding of, and 
responses to disclosures or communications about the risks, costs, and 
benefits of consumer financial products or services.'' 12 U.S.C. 
5532(c). Accordingly, in developing the final rule under Dodd-Frank Act 
section 1032(a), the Bureau has considered available studies, reports, 
and other evidence about consumer awareness, understanding of, and 
responses to disclosures or communications about the risks, costs, and 
benefits of consumer financial products or services. In addition, Dodd-
Frank Act section 1032(b)(1) provides that ``any final rule prescribed 
by the Bureau under this [section 1032] requiring disclosure may 
include a model form that may be used at the option of the covered 
person for provision of the required disclosures.'' 12 U.S.C. 
5532(b)(1). As required under Dodd-Frank Act section 1032(b)(3), the 
Bureau has validated model forms issued under Dodd-Frank Act section 
1032(b)(1) through consumer testing.
    The Bureau uses the specific statutory authorities set forth above, 
as well as the broader authorities set forth in sections 6(j)(3), 6(k), 
and 19(a) of RESPA, and in sections 1022 and 1032 of the Dodd-Frank Act 
discussed above in adopting this final rule.

Commentary

    The Bureau's final rule also includes official Bureau 
interpretations in a supplement to Regulation X. RESPA section 19(a) 
authorizes the Bureau to make such reasonable interpretations of RESPA 
as may be necessary to achieve the consumer protection purposes of 
RESPA. Good faith compliance with the interpretations would afford 
servicers protection from liability under section 19(b) of RESPA. The 
Bureau's adoption of these official Bureau interpretations in the 
supplement substitutes for the prior practice of HUD of publishing 
Statements of Policy with respect to interpretations of RESPA.\61\
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    \61\ The Bureau recognizes that the proposed supplement, which 
sets forth interpretations that relate to the proposed mortgage 
servicing rulemakings, is not inclusive of all interpretations of 
RESPA, including interpretations previously issued by the HUD. The 
Bureau does not intend that the publication of the supplement would 
withdraw or otherwise affect the status of any prior interpretations 
of RESPA not set forth in the supplement.
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V. Section-by-Section Analysis

Subpart A--General

    Existing Regulation X does not contain distinctive subparts. The 
Bureau proposed to create three distinct subparts within Regulation X. 
The Bureau did not receive any comments on the proposed reorganization 
of Regulation X. Therefore, the final rule adopts the reorganization as 
proposed.
    Subpart A, titled ``General,'' contains general provisions as well 
as provisions that would have been applicable to the other two subparts 
of Regulation X. The Bureau proposed to place current Sec. Sec.  1024.1 
through 1024.5 in subpart A and, as described below, proposed to make a 
number of largely technical corrections to those sections.
    Current Sec.  1024.2 sets forth defined terms that are applicable 
to transactions covered by Regulation X, including the defined term 
``Federally related mortgage loan'' that is referenced in the proposed 
defined term ``Mortgage loan'' in proposed subpart C. The Bureau 
proposed to retain most of current Sec.  1024.2 without change, except 
that the Bureau proposed deletions from the defined terms ``Federally 
related mortgage loan'' and ``Mortgage broker'' and additions to the 
defined terms ``Public Guidance Documents'' and ``Servicer.''
    Specifically, the Bureau proposed to modify the defined term 
``Federally related mortgage loan'' to eliminate the use of the short-
hand reference to ``mortgage loan'' as a substitute for ``Federally 
related mortgage loan'' in light of the fact that proposed Sec.  
1024.31 would have provided that the term ``mortgage loan'' for 
purposes of subpart C's mortgage servicing requirements is to be a 
defined term distinct from the defined term ``Federally related 
mortgage loan.'' The Bureau also proposed conforming edits that would 
have replaced references to ``mortgage loan'' with ``federally related 
mortgage loan'' in the defined terms ``Origination service,'' 
``Servicer,'' and ``Servicing'' set forth in current Sec.  1024.2 and 
in current Sec. Sec.  1024.7(f)(3), 1024.17(c)(8), 1024.17(f)(2)(ii), 
1024.17(f)(4)(iii), 1024.17(i)(2), and 1024.17(i)(4)(iii). The Bureau 
did not receive comments on the proposed revision to the defined term 
``Federally related mortgage loan'' or the conforming edits described 
above. The final rule adopts the proposed revision and conforming edits 
as proposed.
    The 2012 RESPA Servicing Proposal also would have removed a 
reference to loan correspondents that are approved under 24 CFR 202.8 
from the defined term ``Mortgage broker'' because the reference was 
made obsolete when HUD amended 24 CFR 202.8 on April 20, 2010, to 
eliminate the FHA approval process for loan correspondents after 
determining that loan correspondents would no longer be approved 
participants in FHA programs.\62\ The Bureau did not receive comments 
on the proposal to remove the reference to loan correspondents from the 
current defined term ``Mortgage broker,'' and the final rule adopts the 
proposed removal from the defined term ``Mortgage broker'' as proposed.
---------------------------------------------------------------------------

    \62\ See 75 FR 20718.
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    The proposal also would have modified the defined term ``Public 
Guidance Documents'' to clarify that such documents are available from 
the Bureau upon request and to provide an address for such requests. 
The Bureau did not receive comments on these proposed clarifications, 
and the final rule adopts the clarifications to the defined term 
``Public Guidance Documents'' as proposed.
    The proposal also would have added language to the defined term 
``Servicer'' to clarify the status of the National Credit Union 
Administration (NCUA) as conservator or liquidating agent of a servicer 
or in its role of providing special assistance to an insured credit 
union. The current definition of ``Servicer'' provides that the Federal 
Deposit Insurance Corporation (FDIC) is not a servicer (1) with respect 
to assets acquired, assigned, sold, or transferred pursuant to section 
13(c) of the Federal Deposit Insurance Act or as receiver or 
conservator of an insured depository institution; or (2) in any case in 
which the assignment, sale, or transfer of the servicing of the 
mortgage loan is preceded by commencement of proceedings by the FDIC 
for conservatorship or receivership of a servicer (or an entity by 
which the servicer is owned or controlled). The proposed addition to 
the defined term ``Servicer'' would have clarified similarly that the 
NCUA is not a servicer (1) with respect to assets acquired, assigned, 
sold, or transferred, pursuant to section 208 of the Federal Credit 
Union Act or as conservator or liquidating agent of an insured credit

[[Page 10711]]

union; or (2) in any case in which the assignment, sale, or transfer of 
the servicing of the mortgage loan was preceded by commencement of 
proceedings by the NCUA for appointment of a conservator or liquidating 
agent of a servicer (or an entity by which the servicer is owned or 
controlled). The Bureau does not believe there is a basis to impose on 
the NCUA, when it is providing assistance to an insured credit union or 
in its role as conservator or liquidating agent of an insured credit 
union, the obligations of a servicer. The Bureau did not receive any 
comments concerning the proposed language. Accordingly, the Bureau 
adopts the proposed addition to the defined term ``Servicer'' as 
proposed.
    The Bureau proposed to delete the text of current Sec.  1024.3 
concerning the process for the public to submit questions or 
suggestions regarding RESPA or to receive copies of Public Guidance 
Documents and to replaced it with the substance of the regulation 
concerning electronic disclosures set forth in current Sec.  1024.23. 
The Bureau did not believe a provision of Regulation X was needed to 
address the process for submitting questions and requesting documents. 
The public may contact the Bureau to request documents, suggest changes 
to Regulation X, or submit questions, including questions concerning 
the interpretation of RESPA by mail to the Associate Director, 
Research, Markets, and Regulations, Bureau of Consumer Financial 
Protection, 1700 G St. NW., Washington, DC 20552, or by email to CFPB_RESPAInquiries@cfpb.gov. Further, the final rule includes contact 
information to request copies of Public Guidance Documents in the 
defined term ``Public Guidance Documents'' in Sec.  1024.2, as 
discussed above.
    Current Sec.  1024.23 states that provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) permitting 
electronic disclosures to consumers if certain conditions are met apply 
to Regulation X. Because the Bureau believes that such E-Sign Act 
provisions are applicable to all provisions in Regulation X, it decided 
that the best place for the language was in Sec.  1024.3. In the 
process of moving the language in current Sec.  1024.23 to Sec.  
1024.3, the Bureau also made technical edits to conform the language to 
the language of other similar Bureau regulations. The Bureau did not 
receive comments on these revisions to current Sec. Sec.  1024.3 and 
1024.23. The Final rule adopts Sec.  1024.3 as proposed and removes 
Sec.  1024.23 as proposed.
    Current Sec.  1024.4 sets forth provisions relating to reliance 
upon rules, regulations, or interpretations by the Bureau. The Bureau 
proposed to remove current Sec.  1024.4(b) and redesignate current 
Sec.  1024.4(c) as proposed Sec.  1024.4(b). Current Sec.  1024.4(b) 
provides that the Bureau may, in its discretion, provide unofficial 
staff interpretations but that such interpretations do not provide 
protection under section 19(b) of RESPA and that staff will not 
ordinarily provide such interpretations on matters adequately covered 
by Regulation X, official interpretations, or commentaries. The 
Bureau's policy is to assist the public in understanding the Bureau's 
regulations, including, but not limited to, Regulation X. The Bureau 
believes that this provision, which states Bureau policy, is more 
appropriate for the commentary and, accordingly, proposed to include 
the substance of this provision in the introduction to the commentary. 
The Bureau did not receive comments on the proposed removal of current 
Sec.  1024.4(b) and re-designation of current Sec.  1024.4(c) as 
proposed Sec.  1024.4(b). The final rule adopts these revisions as 
proposed.
    Current Sec.  1024.5 sets forth exemptions with respect to the 
applicability of Regulation X. The Bureau proposed a technical 
correction to current Sec.  1024.5(b)(7) to reflect that mortgage 
servicing-related provisions of Regulation X will be included in new 
subpart C and will no longer be placed in current Sec.  1024.21. The 
Bureau did not receive comments on this technical correction, and the 
final rule adopts the technical correction to Sec.  1024.5 as proposed, 
with an additional technical change to clarify the applicability of 
subpart C to bona fide transfers in the secondary market.
    For reasons discussed below, current Sec.  1024.21 is deleted. In 
connection with the deletion of current Sec.  1024.21 as discussed 
below, the Bureau is also making a technical correction to a cross-
reference in current Sec.  1024.13(d) to language in current Sec.  
1024.21(h) that is being moved to Sec.  1024.33(d).

Subpart B--Mortgage Settlements and Escrow Accounts

    In connection with the Bureau's proposal to create three distinct 
subparts in Regulation X, the Bureau is organizing Sec. Sec.  1024.6 
through 1024.20 under new subpart B. These provisions generally relate 
to settlement services and escrow accounts. As described above, the 
Bureau is adopting the conforming edits the Bureau proposed relating to 
Sec. Sec.  1024.7(f)(3), 1024.17(c)(8), 1024.17(f)(2)(ii), 
1024.17(f)(4)(iii), 1024.17(i)(2), and 1024.17(i)(4)(iii).
Section 1024.17 Escrow Accounts
17(k) Timely Payments
    Section 6(g) of RESPA establishes that if the terms of any 
federally related mortgage loan require a borrower to make payments to 
a servicer of the loan for deposit into an escrow account for the 
purpose of assuring payment of taxes, insurance premiums, and other 
charges with respect to the property, the servicer shall make such 
payments from the borrower's escrow account in a timely manner as such 
payments become due. Existing Sec.  1024.21(g) provides that the 
requirements set forth in Sec.  1024.17(k) govern the payment of such 
charges. Existing Sec.  1024.17(k)(1) provides that if the terms of a 
federally related mortgage loan require a borrower to make payments to 
an escrow account, a servicer must pay the disbursements in a timely 
manner (specifically, on or before the deadline to avoid a penalty) 
unless a borrower's payment is more than 30 days overdue. Existing 
Sec.  1024.17(k)(2) requires servicers to advance funds if necessary to 
make the disbursements in a timely manner unless the borrower's 
mortgage payment is more than 30 days past due. Upon advancing funds to 
pay a disbursement, a servicer may seek repayment from a borrower for 
the deficiency pursuant to Sec.  1024.17(f).
    The Bureau proposed a new Sec.  1024.17(k)(5) to expand the scope 
of these obligations with regard to continuing a borrower's hazard 
insurance policy. Specifically, proposed Sec.  1024.17(k)(5) would have 
required that, notwithstanding Sec.  1024.17(k)(1) and (2), a servicer 
must make payments from a borrower's escrow account in a timely manner 
to pay the premium charge on a borrower's hazard insurance, as defined 
in Sec.  1024.31, unless the servicer has a reasonable basis to believe 
that a borrower's hazard insurance has been canceled or not renewed for 
reasons other than nonpayment of premium charges. Thus, proposed Sec.  
1024.17(k)(5) would have required a servicer to both advance funds to 
an escrow account and to disburse such funds to pay a borrower's hazard 
insurance notwithstanding that a borrower is more than 30 days 
delinquent.
    The proposed requirement would not have applied where a servicer 
had ``a reasonable basis to believe that such insurance has been 
canceled or not renewed for reasons other than nonpayment of premium 
charges'' because the Bureau recognized that there were situations 
where timely payment by a servicer would not be sufficient to continue 
a policy that had

[[Page 10712]]

already been canceled or was not renewed for other reasons, such as, 
for example, risks presented by the condition of the property.
    The Bureau also proposed commentary to clarify the requirements in 
Sec.  1024.17(k)(5). Specifically, the Bureau proposed to clarify in 
comment 17(k)(5)-1 that the receipt by a servicer of a notice of 
cancellation or non-renewal from the borrower's insurance company 
before the insurance premium is due provides a reasonable basis to 
believe that the borrower's hazard insurance has been canceled or not 
renewed for reasons other than nonpayment of premium charges. Comment 
17(k)(5)-2 would have provided three examples of situations in which a 
borrower's hazard insurance was canceled or not renewed for reasons 
other than the nonpayment of premium charges, including because the 
borrower cancelled the insurance policy, because the insurance company 
no longer writes the type of policy that the borrower carried or writes 
policies in the area where the borrower's property is located, or 
because the insurance company is no longer willing to maintain the 
borrower's individual policy to cover the borrower's property because 
of a change in risk affecting the borrower's property. Finally, 
proposed comment 17(k)(5)-3 would have clarified that a servicer that 
advances the premium payment as required by Sec.  1024.17(k)(5) may 
advance the payment on a month-to-month basis, if permitted by State or 
other applicable law and accepted by the borrower's hazard insurance 
company.
    The Bureau proposed Sec.  1024.17(k)(5) to protect consumers from 
the unwarranted force-placement of hazard insurance. Force-placed 
insurance generally provides substantially less coverage for a 
borrower's property at a substantially higher premium cost than a 
borrower-obtained hazard insurance policy, as discussed below in 
connection with Sec.  1024.37. Section 1463 of the Dodd-Frank Act 
demonstrates that Congress was concerned about the unwarranted or 
unnecessary force-placement of hazard insurance for mortgage borrowers. 
Section 6(k) of RESPA, as amended by section 1463 of the Dodd-Frank 
Act, evinces Congress's intent to establish reasonable protections for 
borrowers to avoid unwarranted force-placed insurance coverage. Section 
1024.17(k)(5), though articulated differently than the protections 
directly set forth in section 1463, draws directly from Congress's 
intent as set forth in section 1463 of the Dodd-Frank Act to protect 
borrowers from the force-placement of hazard insurance in situations 
where such force-placement is unwarranted and can be avoided. When a 
servicer is receiving bills for the borrower's hazard insurance in 
connection with administration of an escrow account, a servicer who 
elects not to advance to a delinquent borrower's escrow account to 
maintain the borrower's hazard insurance, allowing that insurance to 
lapse, and then advances a far greater amount to a borrower's escrow 
account to obtain a force-placed insurance policy unreasonably harms a 
borrower. Section 1024.17(k)(5) implements the purposes of section 1463 
of the Dodd-Frank Act to protect borrowers from the unwarranted force-
placement of insurance when a servicer does not have a reasonable basis 
to impose the charge on a borrower.
    Further, considered as a whole, one of the consumer protection 
purposes of RESPA, as amended by the Dodd-Frank Act, is a requirement 
that servicers must have a reasonable basis for undertaking actions 
that may harm borrowers, including delinquent borrowers. Section 
1024.17(k)(5) furthers this purpose by establishing that servicers may 
not unnecessarily obtain force-placed insurance in situations where 
such placement is not warranted, that is, when a servicer is able to 
maintain a borrower's current hazard insurance in force by advancing 
and disbursing funds to pay the premiums.
    The Bureau further reasoned that proposed Sec.  1024.17(k)(5) would 
not increase burdens on servicers generally, because the Bureau 
understood that many servicers already advance hazard insurance 
premiums for borrowers with escrow accounts even if the borrowers' 
mortgage payments are more than 30 days past due. The Bureau also 
understands that the proposed requirement would benefit owners or 
assignees of mortgage loans by preventing the placement of costly and 
unnecessary force-placed insurance policies, the higher costs for which 
may be recovered from an owner or assignee in the event the property is 
liquidated.
    The Bureau sought comment on all aspects of the proposed escrow 
advance provision including on whether there should be additional 
limitations on a servicer's duty to advance funds. For instance, the 
Bureau sought comments on an alternative approach under which a 
servicer could not charge a borrower who has an escrow account 
established to pay hazard insurance for force-placed insurance unless 
those charges would be less expensive than the charges for reimbursing 
the servicer for advancing funds to continue the borrower's hazard 
insurance policy. The Bureau further requested comment regarding 
whether to require further that any such force-placed insurance policy 
protect the borrower's interest. In addition, the Bureau observed in 
the proposal that Sec.  1024.17(k)(5) would only apply when a borrower 
has an escrow account established to pay hazard insurance, and also 
invited comments on whether a servicer should be required to pay the 
hazard insurance premiums on behalf of a borrower who has not 
established an escrow account to pay for such insurance. Finally, the 
Bureau further requested comment on whether a servicer should be 
required to ask such a borrower whether the borrower would consent to 
the servicer renewing the borrower's hazard insurance and, with the 
borrower's consent, be required to advance funds to pay such premiums.
    Industry commenters and their trade associations varied 
significantly in their comments with respect to Sec.  1024.17(k)(5). A 
number of commenters, including a force-placed insurance provider and 
two trade associations, stated that the proposed requirement was 
consistent with current industry practice and would not be onerous to 
implement. For example, one non-bank servicer indicated that it 
generally advanced funds to escrow and disbursed those funds to 
maintain hazard insurance so long as it viewed the advances as 
recoverable, notwithstanding the delinquency status of the borrower.
    Numerous other servicers and their trade associations, however, 
objected to the requirement that a servicer timely disburse funds from 
escrow to pay hazard insurance for borrowers who are delinquent and 
further that servicers should advance funds to escrow accounts that 
would then be disbursed to pay hazard insurance. Some industry 
commenters indicated that force-placed insurance is the appropriate 
means for insuring a property for a borrower that has not paid for 
hazard insurance. For example, a national trade association 
representing property and casualty insurers stated that the inclusion 
of limitations on force-placed insurance in section 1463(a) of the 
Dodd-Frank Act recognized that an appropriate role exists for force-
placed insurance. Some commenters indicated that the procedures for 
obtaining force-placed insurance, specifically notices provided to 
borrowers, spur borrower action to communicate with servicers and to 
obtain insurance. These commenters believe that the threat of forced 
placement of insurance causes borrowers to obtain hazard insurance to 
avoid force-placed insurance. If the threat is effective, they argue, 
servicers

[[Page 10713]]

should not have to advance funds to escrow accounts for delinquent 
borrowers. One commenter, a force-placed insurance provider, urged the 
Bureau to first evaluate the effectiveness of the notices and 
procedures required by the Dodd-Frank Act before adopting a final rule 
requiring a servicer to advance funds for borrowers whose mortgage 
payments were more than 30 days overdue. Finally, one commenter 
hypothesized that the proposed requirement was intended as a step 
toward potential future actions by the Bureau to eliminate the force-
placed insurance product market.
    Some servicers and their trade associations questioned the Bureau's 
authority to require servicers to advance funds to, and disburse from, 
an escrow account to maintain hazard insurance. These commenters stated 
that (1) the Bureau does not have the authority to impose the 
requirement because it is not specifically set forth in the Dodd-Frank 
Act, (2) section 6(g) of RESPA only applies to insurance required 
pursuant to the terms of a federally related mortgage loan, whereas the 
duty to advance funds appeared to apply even for insurance not required 
by the terms of the loan, and (3) the requirement was an unnecessary 
exercise of the Bureau's authority to impose additional obligations on 
servicers pursuant to sections 6(k)(1)(E) and 19(a) of RESPA. 
Commenters further objected that the requirement to advance funds would 
require a servicer to provide funds to maintain coverage obtained by a 
borrower that exceeded the coverage required by the lender, including, 
for example, coverage for borrower possessions or coverage beyond 
hazards the lender required to be covered.
    Some servicers and their trade associations further stated that the 
requirement to advance funds to, and disburse from, an escrow account 
to maintain hazard insurance would have adverse consequences for 
servicers, borrowers, and the insurance market. With respect to 
potential impact on servicers, some commenters indicated that the 
proposed requirement would create a disincentive to establish escrow 
accounts. These commenters also indicated that borrowers may 
incorrectly presume that servicers will advance to escrow accounts for 
delinquent borrowers to pay all escrow obligations, not just hazard 
insurance. Further, a credit union trade association commented that 
requiring disbursements for hazard insurance may deplete funds that may 
be available to pay other escrow obligations, such as tax liabilities. 
A commenter stated that a servicer may be responsible for a loss if a 
hazard insurance provider to whom it has advanced payments denies 
coverage because a property is vacant and is excluded from coverage; in 
such a situation, the commenter said that force-placed insurance is 
necessary because it would cover the loss.
    Some servicers stated that borrowers may be unjustly enriched at 
the expense of their servicers by cancelling hazard insurance and 
obtaining for themselves refunds of premiums that were paid by their 
servicers. Although the Bureau had attempted to address this concern, 
which also was raised during the Small Business Review Panel, through 
proposed comment 17(k)(5)-3, servicers disagreed on the solution. 
Importantly, one state banking association stated that the risk of 
moral hazard and unjust enrichment was mitigated by proposed comment 
17(k)(5)-3, which permitted the servicer to advance and disburse on a 
month-to-month basis, while another small bank commenter stated that 
the Bureau's comment permitting advancing on a month-to-month basis 
would increase its servicing costs because it would be paying a 
borrower's insurance twelve times per year.
    With respect to potential impact on borrowers, several commenters 
suggested that the proposal would result in an increase in incidents of 
a borrower being double-billed for hazard insurance. These commenters 
incorrectly interpreted the proposal to require a servicer to pay to 
maintain coverage even though the borrower had decided to cancel the 
insurance and pay a new insurer directly. These commenters stated that 
borrowers may be harmed because borrowers would be responsible for 
duplicative hazard insurance costs, whereas a borrower would be 
entitled to a refund for overlapping force-placed insurance, including 
pursuant to the Dodd-Frank Act.
    With respect to impacts on the insurance market, a number of 
commenters who are not insurance providers asserted that insurance 
providers generally view seriously delinquent borrowers as higher 
insurance risks compared to other borrowers. These commenters expressed 
concern that the Bureau's proposal could potentially mask this risk 
because the servicer would be required to advance premiums, even if a 
borrower is seriously delinquent. One commenter requested that the 
Bureau state that servicers may inform an insurance provider that a 
borrower is delinquent. In that regard, a commenter urged the Bureau to 
provide a form that servicers may provide to insurance providers 
stating that a lender is paying some identified portion of a borrower's 
insurance premium due to a deficiency in the borrower's escrow account.
    Small banks and credit unions, as well as their trade associations 
and other small non-bank servicers, indicated that the impact of 
proposed Sec.  1024.17(k)(5) would be particularly acute for small 
servicers. These commenters indicated that small servicers typically 
have different practices with regard to force-placed insurance than 
large servicers. Outreach with small servicers indicated that in 
certain circumstances, such servicers may not require borrowers to 
maintain insurance coverage, may self-insure, or may impose charges for 
collateral protection plans that may be less costly than advances to 
maintain a borrower's hazard insurance coverage. Further, commenters 
asserted that small servicers may be more significantly impacted by the 
cost of the funds required to be advanced to borrower escrow accounts.
    Certain commenters requested clarification regarding whether a 
servicer would be entitled to recoup any required advances and whether 
a servicer may be liable to a borrower for failing to advance funds to, 
and disburse from, an escrow account to maintain hazard insurance. 
Further, commenters requested clarification that advancing funds is 
only required if the owner or assignee of a mortgage loan requires the 
borrower to maintain hazard insurance.
    Finally, one credit union commenter requested that the Bureau 
exempt servicers of home equity lines of credit (HELOCs) from the 
proposed requirement in Sec.  1024.17(k)(5) to advance funds. The 
commenter asserted that HELOCs are largely in the subordinate-lien 
position and requiring a servicer of HELOCs to advance would generally 
be needless costly to such servicers because servicers servicing liens 
in the first position would also be advancing payment.
    The Bureau received numerous comments from consumers and consumer 
advocacy groups with respect to proposed Sec.  1024.17(k)(5). These 
commenters strongly supported all aspects of proposed Sec.  
1024.17(k)(5) as set forth in the proposal. These commenters generally 
stated, however that the Bureau should go farther than the proposal and 
implement requirements regarding advances and disbursements to maintain 
hazard insurance for delinquent borrowers that do not have escrow 
accounts.
    Commenters significantly disagreed regarding the merits of 
requiring advances and disbursements to maintain hazard insurance of 
borrowers

[[Page 10714]]

without escrow accounts. A number of consumer advocacy group commenters 
contended that the Bureau should make no distinction between homeowners 
that have escrow accounts and those that do not. Certain state attorney 
general commenters suggested instead that the Bureau should require a 
servicer, prior to force-placing insurance, to ask for a borrower's 
consent to renew voluntary coverage and to advance funds for the 
premium if the borrower gives consent to the creation of an escrow 
account. Industry commenters were nearly uniformly opposed to requiring 
servicers to advance funds for the hazard insurance premiums of 
borrowers who have not escrowed for hazard insurance, citing most often 
the impracticality for servicers to reinstate a lapsed policy without 
any gap in coverage.
    The Bureau is finalizing Sec.  1024.17(k)(5) as proposed with 
adjustments to address pertinent issues raised by the comments. 
Specifically, the Bureau is not requiring that a servicer advance funds 
to, or disburse funds from, an escrow account to maintain hazard 
insurance in all circumstances. Rather, the Bureau had adjusted the 
requirement in Sec.  1024.17(k)(5)(i) to provide that a servicer may 
not obtain force-placed insurance unless a servicer is unable to 
disburse funds from the borrower's escrow account to ensure that the 
borrower's hazard insurance is paid in a timely manner. Thus, for 
example, a servicer of a mortgage loan, including a HELOC, is not 
required to disburse funds from an escrow account to maintain a 
borrower's hazard insurance, so long as the servicer does not purchase 
force-placed insurance.
    Pursuant to Sec.  1024.17(k)(5)(ii)(A), a servicer is unable to 
disburse funds if the servicer has a reasonable basis to believe that a 
borrower's hazard insurance has been canceled or not renewed for 
reasons other than nonpayment of premium charges. Further, Sec.  
1024.17(k)(5)(ii)(B) states that a servicer is not considered unable to 
disburse funds solely because an escrow account contains insufficient 
funds. Section 1024.17(k)(5)(ii)(C) makes clear that a servicer may 
seek repayment from a borrower for funds advanced to pay hazard 
insurance premiums. Finally, the Bureau has determined to exempt small 
servicers, that is, servicers that service less than 5,000 mortgage 
loans and only service mortgage loans owned or originated by the 
servicer or an affiliate so long as any force-placed insurance 
purchased by the small servicer is less costly to a borrower than the 
amount that would be required to be disbursed to maintain the 
borrower's hazard insurance coverage. See Sec.  1024.17(k)(5)(iii). The 
Bureau is not implementing any requirement that a servicer advance 
funds to pay for a hazard insurance policy for a borrower that does not 
have an escrow account.
    The Bureau believes that a servicer should not obtain force-placed 
insurance when a servicer is able to make disbursements from an escrow 
account to maintain hazard insurance. As set forth above, unless a 
policy has been cancelled for reasons other than nonpayment, a 
borrower's delinquency should not cause a servicer to take actions (or 
make omissions) that would lead to the cancellation of the borrower's 
voluntary insurance policy and the potential replacement of that policy 
with a more expensive (and less protective) force-placed insurance 
policy. The Bureau acknowledges that in certain circumstances, force-
placed insurance is necessary. Section 1024.17(k)(5) does not prevent a 
servicer from obtaining force-placed insurance, subject to the 
requirements in Sec.  1024.37, when such a policy is appropriate, 
including, for instance, where a borrower's hazard insurance policy has 
been cancelled for reasons other than non-payment. In that situation, a 
servicer may impose a charge on a borrower for a force-placed insurance 
policy consistent with the requirements in Sec.  1024.37. However, as 
set forth above and in the proposal, the Bureau does not believe 
imposition of a charge for force-placed insurance is appropriate where 
a hazard insurance policy has not been cancelled and a servicer is able 
to disburse funds from an escrow account to maintain the borrower's 
preferred hazard insurance policy in force.\63\
---------------------------------------------------------------------------

    \63\ Notably, the National Mortgage Settlement includes a 
similar protection for borrowers. See e.g., National Mortgage 
Settlement: Consent Agreement A-37 (2012), available at http://www.nationalmortgagesettlement.com. (stating that ``For escrowed 
accounts, servicer shall continue to advance payments for the 
homeowner's existing policy, unless the borrower or insurance 
company cancels the existing policy.'').
---------------------------------------------------------------------------

    The Bureau is therefore adopting Sec.  1024.17(k)(5) in reliance on 
section 6(k)(1)(E) of RESPA, which authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. The Bureau has additional authority pursuant to 
section 6(j)(3) of RESPA to establish any requirements necessary to 
carry out section 6 of REPSA, including section 6(g) with respect to 
administration of escrow accounts, and has authority pursuant to 
section 19(a) of RESPA to prescribe such rules and regulations, and to 
make such interpretations, as may be necessary to achieve the consumer 
protection purposes of RESPA. The Bureau also has authority to 
establish consumer protection regulations pursuant to section 1022 of 
the Dodd-Frank Act. A consumer protection purpose of RESPA is to help 
borrowers avoid unwarranted or unnecessary costs and fees, and further, 
the amendments to section 6(k) of RESPA in section 1463 of the Dodd-
Frank Act evince Congress's intent to establish reasonable protections 
for borrowers to avoid unwarranted force-placed insurance coverage. 
Section 1024.17(k)(5) furthers these purposes and is therefore an 
appropriate regulation under section 6(j) and 6(k)(1)(E) and section 
19(a) of RESPA.\64\
---------------------------------------------------------------------------

    \64\ The Bureau notes that regulations established pursuant to 
section 6 of RESPA are subject to section 6(f) of RESPA, which 
provides borrowers a private right of action to enforce such 
regulations.
---------------------------------------------------------------------------

    The Bureau does not believe that Sec.  1024.17(k)(5) will have 
adverse consequences on servicers, borrowers, or the insurance market. 
With respect to impacts on servicers, Sec.  1024.17(k)(5) does not 
create significant disincentives to maintain escrow accounts for 
borrowers. Escrow accounts encourage borrowers to budget for costs of 
homeownership and to provide funds regularly to servicers to be used to 
pay those costs, including for insurance, taxes, and other obligations. 
Lenders include escrow requirements in mortgage contracts because the 
use of such an account reduces risk to an owner or assignee of a 
mortgage loan. Servicer also generally benefit from an escrow account 
both as a result of the improved performance of mortgage loans and also 
because of the opportunity to earn a return on funds held. Further, 
servicers manage the impact of an obligation to make advances to escrow 
accounts by ensuring that advances may be recouped from an owner or 
assignee of a mortgage loan in the event a property is foreclosed upon 
and liquidated. In the absence of Sec.  1024.17(k)(5), a servicer that 
obtains force-placed insurance might advance a greater amount of funds 
for the force-placed insurance policy and would seek to obtain 
repayment of those funds either from a borrower or ultimately from an 
owner or assignee of a mortgage loan if a property is foreclosed upon 
and liquidated. For these reasons, the Bureau is not persuaded that 
Sec.  1024.17(k)(5) creates an incentive that would materially affect 
whether servicers offer escrow accounts to borrowers.
    With respect to the ability of servicers to use funds in an escrow 
account to

[[Page 10715]]

pay obligations other than hazard insurance, the Bureau recognizes, of 
course, that escrow account funds are fungible and that payment of 
hazard insurance necessarily requires expending funds that would have 
been available for payment of other escrowed obligations, including tax 
obligations. Servicers, on behalf of owners or assignees of mortgage 
loans, currently manage this risk by advancing funds to escrow accounts 
to pay such obligations and seeking repayment from borrowers or 
ultimately from proceeds payable to the owners or assignees of mortgage 
loans. No contrary practice is required here. Further, such a practice 
does not create any new or enhanced risk for servicers. Further, the 
Bureau has clarified in Sec.  1024.17(k)(5)(ii)(C) that servicers may 
seek repayment of advances unless otherwise prohibited by applicable 
law. Servicers, as well as owners and assignees of mortgage loans, are 
capable of managing risks arising from other escrow account obligations 
by advancing funds to pay any such obligations as appropriate.
    The Bureau also does not believe that Sec.  1024.17(k)(5) presents 
a material risk to servicers from borrowers cancelling policies, 
receiving refunds, and, thus, becoming unjustly enriched at the expense 
of a servicer. A borrower that is current on a mortgage loan obligation 
but anticipates a future delinquency could engage in the same type of 
behavior during a period of an escrow account deficiency. Commenters 
have not demonstrated that such actions typically occur. Further, the 
Bureau has mitigated this risk by finalizing comment 17(k)(5)(ii)(C)-1, 
which provides that servicers may, but are not required to, advance 
payment on a month-to-month basis. Because such advancement is not 
required on a month-to-month basis, servicers may determine not to 
undertake that schedule for advances if it would impose greater costs 
on servicers with respect to maintaining a borrower's hazard insurance.
    The Bureau is not persuaded that requiring servicers to disburse 
funds for hazard insurance for borrowers that are more than 30 days 
overdue will create incentives for borrowers not to make mortgage loan 
payments or to fund escrow accounts. Nothing in Sec.  1024.17(k)(5), 
nor Regulation X generally, prevents servicers from charging borrowers 
late fees or reporting borrower failures to pay to a consumer reporting 
agency. These consequences to borrowers provide appropriate 
disincentives from obtaining the far more limited benefit of non-
cancellation of a hazard insurance policy.
    The Bureau is persuaded, however, by the comment that hazard 
insurance coverage may not provide similar protections as force-placed 
insurance. Many hazard insurance policies contain exclusions from 
coverage for properties that are vacant. In these circumstances, losses 
may not be covered by insurance for vacant properties. Delinquent 
borrowers may have a higher incidence of abandoning properties as 
vacant. Accordingly, the Bureau has adjusted Sec.  1024.17(k)(5)(ii) to 
provide that a servicer may be considered unable to disburse funds from 
escrow to maintain a borrower's hazard insurance policy if the servicer 
has a reasonable basis to believe the borrower's property is vacant.
    The Bureau does not believe that Sec.  1024.17(k)(5) will have 
adverse impacts on borrowers. The only borrower harm asserted by 
servicers and their trade associations is that the requirement will 
lead to an increase in double-billing when a borrower cancels hazard 
insurance and obtains a new policy for which the borrower pays the 
insurer directly. The commenters provide no reason to believe that 
borrowers that are more than 30 days overdue are more likely to cancel 
hazard insurance and pay insurance directly than borrowers that are 
current on a mortgage loan obligation or less than 30 days overdue. 
Further, if a servicer has a reasonable basis to believe that a 
borrower has cancelled a hazard insurance policy, a servicer is not 
required to disburse funds to pay for the hazard insurance policy. 
Finally, when a borrower has cancelled a policy, an insurance company 
is unlikely to credit the amounts paid by a servicer toward that policy 
after the date of cancellation.\65\
---------------------------------------------------------------------------

    \65\ Notably, as discussed further below, the risk of double-
billing when a servicer is paying toward a policy that was currently 
in place is markedly different than the risk presented by a 
requirement that a servicer obtain or renew a previously cancelled 
policy, which would exist if a servicer were required to disburse 
funds to obtain a policy for a borrower that does not have an escrow 
account.
---------------------------------------------------------------------------

    Further, the Bureau does not believe that Sec.  1024.17(k)(5) will 
have adverse impacts on the insurance market. Section 1024.17(k)(5) 
does not, as commenters state, mask any risks presented by a borrower 
that is more than 30 days overdue on a mortgage loan obligation. 
Nothing in Sec.  1024.17(k)(5) prevents a servicer from reporting a 
borrower's payment history to a consumer reporting agency, and an 
insurance provider could, to the extent permitted by applicable law, 
obtaining borrower information it deems relevant to underwriting 
insurance, including a consumer report. In addition, if insurers are 
harmed by insuring borrowers who are delinquent on their mortgage 
loans, they face that same harm already for borrowers that do not have 
escrow accounts and pay hazard insurance premiums directly to their 
insurers. Section 1024.17(k)(5) does not present a different category 
of risk in that regard. With respect to one commenter's request that 
the Bureau issue a form for lenders and servicers to provide to 
insurance providers stating that a servicer is paying some identified 
portion of a borrower's insurance premium due to a deficiency in the 
borrower's escrow account, the Bureau declines. To the extent 
applicable law permits a lender or servicer to communicate such 
information to an insurance provider, the lender or servicer should not 
need the Bureau to develop a form for the communication.
    Finally, the Bureau believes that special treatment is warranted 
with respect to ``small servicers'' as defined in Sec.  1026.41(e)(4). 
As explained in the section by section discussion of Sec.  1024.30(b) 
and in the 2013 TILA Servicing Final Rule, the Bureau has identified a 
class of servicers, referred to as ``small servicers'' and defined by 
the combination of the number of loans they service and the servicer's 
relationship to those loans that sets those servicers apart. With 
respect to the requirements set forth in Sec.  1024.17(k)(5), outreach 
with small servicers indicates that small servicers' practices with 
respect to obtaining force-placed insurance tend to be less costly to 
borrowers than those utilized by larger servicers. For example, the 
Bureau understands that small servicers often obtain force-placed 
insurance in the form of collateral protection policies. The charges 
passed through to borrowers for such coverage, if any, may be less 
expensive than the costs of either maintaining a borrower's hazard 
insurance coverage or purchasing an individual force-placed insurance 
policy. At the same time, requiring such servicers to continue the 
borrower's hazard insurance in force, which may require advancing funds 
to the borrower's escrow, could cause these servicers to incur 
incremental expenses which, because of their size, would be burdensome 
for them. Because of this difference in practices, the Bureau believes 
it is appropriate to reduce the restrictions applicable to small 
servicers with respect to borrowers that have escrow accounts. 
Accordingly, the Bureau has exempted small servicers from the 
restriction in Sec.  1024.17(k)(5)(i) and

[[Page 10716]]

1024.17(k)(5)(ii)(B), so long any force-placed insurance that is 
purchased by the small servicer is less costly to a borrower than the 
amount that would be required to be disbursed to maintain the 
borrower's hazard insurance coverage. The Bureau believes this partial 
exemption sets an appropriate balance of effectuating consumer 
protections for borrowers with escrow accounts and considerations that 
may be unique to small servicers.
    After consideration of the comments received, the Bureau has also 
determined not to require servicers to continue hazard insurance 
policies and advance premium payments for borrowers who have not 
escrowed for hazard insurance. The Bureau understands the concern of 
the consumer groups that commented, but the Bureau is persuaded that it 
would generally be impracticable for servicers to renew the hazard 
insurance coverage obtained by a non-escrowed borrower without creating 
a significant risk of double-billing and/or a gap in coverage. For 
example, although the Bureau does not find concerns about double-
billing of borrowers persuasive with respect to situations in which 
insurance coverage is being paid via disbursement from an escrow 
account, the Bureau is concerned that a substantially different 
situation results where the borrower is making direct payments and a 
policy is allowed to lapse due to non-payment. In those cases, it is 
far more likely that a consumer may have switched insurance providers 
without notifying the servicer, and requiring a servicer to obtain a 
new policy (or to reinstate a previously cancelled policy) may result 
in borrower harm through the purchase of duplicative insurance and 
double-billing of a borrower. Further, when a borrower does not have an 
escrow account, the servicer may not have notice before a policy 
lapses, and no ability to maintain the policy in continuous force. Were 
the Bureau to impose a duty on the servicer to pay for hazard insurance 
in such circumstance, such a duty would not necessarily be to maintain 
a current policy in force. Rather, the duty could well be to reinstate 
a lapsed policy or to obtain a new policy on behalf of the borrower to 
replace the cancelled policy. Requiring a servicer to obtain a new 
insurance policy on behalf of a borrower that did not have an escrow 
account to pay for hazard insurance may be burdensome and complex, and 
may not be justified. Accordingly, the Bureau declines at this time to 
impose requirements to obtain insurance for borrowers that do not have 
escrow accounts but will continue to monitor the impact of the 
requirements set forth in Sec.  1024.37 with respect to force-placed 
insurance for any such borrowers.
    Two consumer groups submitted joint comments urging the Bureau to 
amend current Sec.  1024.17(k)(1) so that a servicer would be required 
to make timely disbursements with respect to any escrowed charge, not 
just hazard insurance, so long as the borrower's escrow account 
contained sufficient funds to do so. These consumer groups asserted 
that there is no reason to maintain the limitation for disbursements to 
borrowers that are less than 30 days overdue with respect to escrow 
obligations other than hazard insurance. For example, the commenters 
stated that the failure of a servicer to pay tax obligations in a 
timely manner would harm a borrower, and suggested that finalizing 
Sec.  1024.17(k)(5) in isolation could cause borrower confusion because 
borrowers may not understand that the rule applies only to hazard 
insurance.
    The Bureau understands the commenters' concern with respect to the 
impact on borrowers if an escrowed charge is not paid, but declines to 
amend Sec.  1024.17(k)(1) as part of this rulemaking. Section 
1024.17(k)(5), as adopted, is only a restriction on servicers' ability 
to obtain force-placed insurance. If a servicer will not be purchasing 
force-placed insurance, the servicer is not subject to the provisions 
of Sec.  1024.17(k)(5). For example, a servicer that does not require a 
borrower to maintain insurance is not required to disburse funds to 
maintain the borrower's hazard insurance coverage other than as 
required pursuant to Sec.  1024.17(k)(1). Because the Bureau is not 
imposing a blanket obligation to advance funds to escrow to pay hazard 
insurance premiums, the Bureau does not believe that it would be 
appropriate to impose such an obligation with respect to other payments 
to be made from escrow. Accordingly, the Bureau declines to amend Sec.  
1024.17(k)(1) as suggested.
    Finally, as discussed above, the Bureau requested comments on an 
alternative approach to Sec.  1024.17(k)(5), which would have added 
language to Sec.  1024.37 to provide that if a borrower has an escrow 
account established for hazard insurance, a servicer could not charge 
the borrower for force-placed insurance unless the force-placed 
insurance obtained by a servicer was less expensive to the borrower, 
for comparable coverage, than would be the servicer's advancing funds 
to continue the borrower's hazard insurance policy. The Bureau further 
requested comments on whether Sec.  1024.37 should additionally require 
that force-placed insurance purchased by a servicer under these 
circumstances protect a borrower's interests.
    One large force-placed insurance provider asserted that the 
proposed alternative is neither necessary or realistic because proposed 
Sec.  1024.17(k)(5) reflects general industry practice and because the 
cost of force-placed insurance is invariably more expensive to the 
borrower than the servicer advancing funds to continue a borrower's 
hazard insurance policy. On the other hand, another large force-placed 
insurance provider and a national trade association expressed a 
preference for the alternative compared to proposed Sec.  
1024.17(k)(5). These commenters preferred, however, that the 
alternative be placed in Sec.  1024.17(k), and not in Sec.  1024.37, 
because they believed that this alternative should only limit a 
servicer's force-placement of insurance in situations where an escrowed 
borrower's hazard insurance was canceled due to a servicer's failure to 
disburse funds to maintain a borrower's hazard insurance. Commenters 
further expressed a variety of views concerning how the scope of 
comparable coverage would be determined. While industry commenters 
acknowledged that the industry standard is to obtain force-placed 
coverage equal to the replacement cost of the property, two national 
trade associations and a large force-placed insurance provider argued 
that servicers must be given flexibility to determine coverage levels. 
In contrast, another large force-placed insurance provider suggested 
that the Bureau should require coverage at replacement cost value.
    After consideration of the comments received on the alternative, 
the Bureau believes that the alternative proposal's requirement 
regarding comparable coverage would add unnecessary complexity to the 
regulation. Whether a borrower may or may not benefit from any 
particular coverage level is dependent on the individual circumstances 
of the borrower. Further, differences between coverage provided for 
homeowners' insurance and force-placed insurance make a comparability 
determination and complex and difficult process. The Bureau declines to 
adopt the alternative proposal with respect to obtaining comparable 
coverage.
    Section 1024.17(k)(5), as adopted, however, is informed by the 
alternative and the comments received in response to the alternative. 
The Bureau has adjusted the requirement in

[[Page 10717]]

Sec.  1024.17(k)(5), consistent with the alternative, to reflect that a 
servicer's ability to disburse funds to maintain hazard insurance 
coverage serves as a restriction on the servicer's purchasing force-
placed insurance coverage. Thus, a servicer is not required in all 
instances to disburse funds to maintain hazard insurance coverage for 
borrowers that are more than 30 days overdue; instead, a servicer may 
not obtain force-placed insurance coverage unless the servicer is 
unable to disburse funds from the borrower's escrow account pursuant to 
Sec.  1024.17(k)(5). Further, the exemption for small servicers in 
Sec.  1024.17(k)(5)(iii) provides that a small servicer may obtain 
force-placed insurance, even if the small servicer is not unable to 
disburse funds from a borrower's escrow account, so long as the cost to 
the borrower is less than the amount the small servicer would need to 
disburse to maintain the borrower's hazard insurance, without 
consideration of the specific policy coverage provisions.
17(l) System of Recordkeeping
    The Bureau proposed to remove current Sec.  1024.17(l), which 
generally requires that a servicer maintain for five years records 
regarding the payment of amounts into and from an escrow account and 
escrow account statements provided to borrowers. Current Sec.  
1024.17(l) further provides that the Bureau may request information 
contained in the servicer's records for an escrow account and that a 
servicer's failure to provide such information may be deemed to be 
evidence of the servicer's failure to comply with its obligations with 
respect to providing escrow account statements to borrowers.
    As discussed in the proposal, the Bureau believed that the 
obligations set forth in current Sec.  1024.17(l) would no longer be 
warranted in light of the information management policies, procedures, 
and requirements that the Bureau proposed to impose under proposed 
Sec.  1024.38 and the substantially different authorities available to 
the Bureau with regard to requesting information from entities subject 
to Sec.  1024.17. No comments were received on the removal of current 
Sec.  1024.17(l). Accordingly, the Bureau is removing Sec.  1024.17(l) 
as proposed.
Section 1024.18 Validity of contracts and liens
    The Bureau is removing current Sec.  1024.18. Current Sec.  1024.18 
states that ``Section 17 of RESPA (12 U.S.C. 2615) governs the validity 
of contracts and liens under RESPA.'' 12 U.S.C. 2615 states ``Nothing 
in this Act shall affect the validity or enforceability of any sale or 
contract for the sale of real property or any loan, loan agreement, 
mortgage, or lien made or arising in connection with a federally 
related mortgage loan.'' The Bureau believes that RESPA clearly 
delineates the validity and enforceability of contracts and liens and 
that Sec.  1024.18 is an unnecessary restatement of the provisions of 
RESPA. Accordingly, in order to streamline the regulations, the Bureau 
is removing current Sec.  1024.18.\66\
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    \66\ Although the Bureau did not propose to remove Sec.  
1024.18, the Bureau finds there is good cause to finalize this 
aspect of the rule without notice and comment. Because Sec.  1024.18 
simply restates, verbatim, existing statutory text, its removal will 
have no impact on, or significance for, any person; notice and 
comment therefore would be unnecessary.
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Section 1024.19 Enforcement
    Similarly, the Bureau is removing Sec.  1024.19. The first sentence 
of Sec.  1024.19(a) states ``[i]t is the policy of the Bureau regarding 
RESPA enforcement matters to cooperate with Federal, state, or local 
agencies having supervisory powers over lenders or other persons with 
responsibilities under RESPA.'' The Bureau believes this statement, 
which reflects the Bureau's general policy to cooperate with 
counterpart agencies, is unnecessary. The second sentence of Sec.  
1024.19(a) states ``Federal agencies with supervisory powers over 
lenders may use their powers to require compliance with RESPA.'' Again, 
the Bureau believes this general statement of the supervisory authority 
of other federal agencies, which neither conveys authority nor creates 
limits or restrictions with respect to such authority, is unnecessary 
in Regulation X. Further, the third sentence of Sec.  1024.19(a) states 
``[i]n addition, failure to comply with RESPA may be grounds for 
administrative action by HUD under HUD regulation 2 CFR part 2424 
concerning debarment, suspension, ineligibility of contractors and 
grantees, or under HUD regulation 24 CFR part 25 concerning the HUD 
Mortgagee Review Board.'' Here the Bureau believes that the applicable 
regulations issued by HUD are controlling and whether RESPA may serve 
as grounds for any such enumerated action is based on those HUD 
regulations. Accordingly, the Bureau believes this provision, which 
repeats the scope of HUD regulations, is unnecessary. Section 
1024.19(a) states that ``[n]othing in this paragraph is a limitation on 
any other form of enforcement that may be legally available.'' Because 
the Bureau believes the other provisions of Sec.  1024.19(a) are 
unnecessary, this remaining sentence is no longer necessary. Finally, 
Sec.  1024.19(b) states that the Bureau's procedures for investigations 
and investigational proceedings are set forth in 12 CFR part 1080. A 
cross-reference to the location of the Bureau's regulations regarding 
investigations and investigational proceedings in Regulation X is 
unnecessary. Accordingly, Sec.  1024.19 is removed in its entirety.\67\
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    \67\ As with Sec.  1024.18, the Bureau finds there is good cause 
to remove Sec.  1024.19 without notice and comment. As the foregoing 
discussion demonstrates, Sec.  1024.19 has no impact on, or 
significance for, any person; notice and comment therefore would be 
unnecessary.
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Subpart C--Mortgage Servicing

    Section 6 of RESPA sets forth a number of protections for borrowers 
with respect to the servicing of federally related mortgage loans that 
are currently implemented through Regulation X in current Sec.  
1024.21. Section 1463 of the Dodd-Frank Act amended section 6 of RESPA 
by adding new section 6(k) through (m) to establish new obligations on 
servicers for federally related mortgage loans with respect to the 
purchase of force-placed insurance and responses to borrowers' requests 
to correct errors, among other things.\68\ The Bureau observes that 
section 6(k) also establishes the Bureau's authority to create 
obligations the Bureau finds appropriate to carry out the consumer 
protection purposes of RESPA.
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    \68\ Section 1463 uses the term ``federally related mortgage'' 
but it amends and expands section 6 of RESPA that uses the term 
``federally related mortgage loan.'' Accordingly, the Bureau 
interprets the ``federally related mortgage'' and ``federally 
related mortgage loan'' to be the same.
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    Section 1463 of the Dodd-Frank Act also amended existing provisions 
in section 6 of RESPA with respect to a servicer's obligation to 
respond to qualified written requests, a servicer's administration of 
an escrow account. Section 1463 also increased the dollar amounts for 
damages for which a servicer may be liable for violations of section 6 
of RESPA.
    In order to implement the amendments the Dodd-Frank Act added to 
RESPA in a consistent and clear manner, the Bureau proposed to 
reorganize Regulation X to combine current Regulation X provisions 
relating to mortgage servicing in existing Sec.  1024.21 with new 
mortgage servicing provisions the Bureau proposed to implement Dodd-
Frank Act's amendment of section 6 of RESPA in a newly created subpart 
C. As discussed above, no comments were received on the proposed 
reorganization of Regulation X into three subparts and the Bureau is 
adopting subpart C as

[[Page 10718]]

proposed as a separate subpart in Regulation X.
Section 1024.21 Mortgage Servicing Transfers
    To incorporate mortgage servicing-related provisions within subpart 
C, the proposed rule would have removed Sec.  1024.21 and would 
implement the provisions of Sec.  1024.21, subject to proposed changes 
as discussed below, in proposed Sec. Sec.  1024.31-1024.34 within 
subpart C. No comments were received on the removal of Sec.  1024.21 
and its incorporation within subpart C. The final rule adopts the 
removal of Sec.  1024.21 as proposed and implements the provisions of 
Sec.  1024.21, subject to changes adopted as discussed below, in 
Sec. Sec.  1024.31-1024.34 within subpart C.
Section 1024.22 Severability
    Current Sec.  1024.22 states that if any particular provision of 
Regulation X, or its application to any particular person or 
circumstance is held invalid, the remainder of Regulation X or the 
application of such provision to any other person or circumstance shall 
not be affected. The Bureau proposed removing current Sec.  1024.22 
because the Bureau believes the section may create unnecessary 
inconsistency with respect to other Bureau regulations that do not 
contain corresponding provisions. By removing Sec.  1024.22, the Bureau 
is not suggesting that the severability of Regulation X is changing or 
that the Bureau intends the new provisions to be non-severable. The 
Bureau intends that the provisions of Regulation X are severable and 
believes that if any particular provision of Regulation X, or its 
application to any particular person or circumstance is held invalid, 
the remainder of Regulation X or the application of such provision to 
any other provision or circumstance should not be affected. The 
Bureau's proposal to remove current Sec.  1024.22 should not be 
construed to indicate a contrary position. The Bureau did not receive 
comments on the proposed removal of current Sec.  1024.22, and 
accordingly, is adopting the removal of current Sec.  1024.22 as 
proposed.
Section 1024.23 E-Sign Applicability
    Current Sec.  1024.23 states that provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) permitting 
electronic disclosures to consumers if certain conditions are met apply 
to Regulation X. For reasons discussed above in the section-by-section 
analysis of Sec.  1024.3, the Bureau has concluded that the E-Sign Act 
provisions are applicable to all provisions in Regulation X. 
Accordingly, the Bureau decided that the best place for this language 
was in Sec.  1024.3. Having received no comments on the removal of 
Sec.  1024.3 or the placing of the E-Sign Act provisions in Sec.  
1024.3, the Bureau, as discussed above, is removing current Sec.  
1024.23 from Regulation X.
Section 1024.30 Scope
    The proposal would have defined the scope of subpart C as any 
mortgage loan, as that term is defined in Sec.  1024.31. A ``mortgage 
loan,'' as proposed would be any federally related mortgage loan, as 
defined in Sec.  1024.2, except for open-end loans (home equity plans) 
and except for loans exempt from RESPA and Regulation X pursuant to 
Sec.  1024.5(b). The Bureau received a significant number of comments 
relating to the scope of the mortgage servicing rules.
    Small servicer exemption. In the 2012 TILA Servicing Proposal, the 
Bureau proposed an exemption to the periodic statement requirement for 
small servicers, defined in the 2012 TILA Servicing Proposal as 
servicers that service 1,000 mortgage loans or fewer and only servicer 
mortgage loan that the servicer or an affiliate owns or originated. The 
Bureau requested comment in the 2012 TILA Servicing Proposal regarding 
that exemption and, in the 2012 RESPA Servicing Proposal, further 
requested comment regarding whether the Bureau should implement a small 
servicer exemption for any mortgage servicing requirements proposed in 
Regulation X.
    The Bureau received three comment letters from consumer advocacy 
groups with respect to a small servicer exemption from certain 
requirements in Regulation X. One comment from three consumer advocacy 
groups indicated that small servicers should be exempt from the loss 
mitigation procedures requirements in Sec.  1024.41 on the basis that 
these servicers already have an interest in mitigating any losses that 
might result from proceeding with foreclosure. Two other consumer 
advocacy groups, however, stated their view that if a servicer cannot 
afford to implement the required protections, the servicer should not 
be permitted to service mortgage loans. Further, a large bank joined in 
opposing an exemption for small servicers on the basis that such an 
exemption does not implement consumer protections for customers of 
small servicers and creates artificial distinctions that provide a 
competitive advantage to small servicers.
    The Bureau also received a significant number of comments from 
small banks, credit unions, and non-bank servicers, as well as their 
trade associations, that requested that the Bureau consider an 
exemption for small servicers from the mortgage servicing rules, 
including the discretionary rulemakings. The Bureau also received a 
comment letter from Advocacy urging the implementation of a small 
servicer exemption for requirements in Regulation X.
    Many of the small banks, credit unions, and non-bank servicers that 
provided comments stated that their business models necessarily 
facilitate communication with delinquent borrowers. Per the comments, 
such servicers have an incentive to work with borrowers to avoid losses 
because typically, for small servicers, either the mortgage loan is 
owned by the servicer (or an affiliate) or the servicer has a customer 
relationship with the borrower to consider. Community banks, credit 
unions, and Advocacy further stated that the servicing market should 
not be considered simplistically; small servicers have substantially 
different business practices than larger servicers, including with 
respect to considering borrowers for loss mitigation or managing force-
placed insurance. Further, such servicers have not been shown to have 
engaged in the servicing failures that contributed to the financial 
crisis, including poor oversight of third-party providers, lost 
documents and other process failures relating to loss mitigation 
evaluations, or wrongful filing of foreclosure documents that contain 
false information or fail to comply with applicable law.
    Comments from small banks, credit unions, non-bank servicers, and 
their trade associations, suggested various means for defining a small 
servicer. Most industry commenters indicated that the proposed 1,000 
mortgage loan threshold was inadequate because it would capture only 
the smallest servicers in the market. One trade association commenter 
stated that a 1,000-mortgage-loan threshold would cover only single-
employee servicing operations. Most commenters indicated that the small 
servicer exemption threshold should be raised to between 5,000 and 
15,000 mortgage loans. One commenter indicated that a small servicer 
threshold should be based on a delinquency percentage or foreclosure 
filing threshold, while a large community bank servicer stated that a 
small servicer exemption should include all but the top five servicers 
by market share.
    Small servicers indicated several components of the rulemaking that 
would have particularly problematic impacts on small servicers. For 
example, many small servicers and their trade associations raised 
concerns

[[Page 10719]]

regarding the appeal process set forth in Sec.  1024.41(h). Small 
servicers stated that required independent reviews for the appeal 
process would be difficult to implement because the size of a small 
servicer necessarily constrains the number of knowledgeable servicing 
personnel that would be able to conduct the independent review. Per the 
commenters, the resulting review would be without value because the 
independent review would be conducted by employees less familiar with, 
or skilled in, evaluating borrowers for loss mitigation options. Small 
servicers also indicated they would be burdened by implementing new 
notice requirements, including those set forth in Sec.  1024.39 and 
Sec.  1024.41, which, commenters believed, would only serve to require 
communications that are already occurring, but would impose the cost of 
requirements to track communications and demonstrate compliance to 
appropriate regulators.
    In addition to the comments, the Bureau reviewed the input gained 
through outreach with small servicers during the Small Business Review 
Panel process. As discussed throughout, in order to gain feedback on 
small servicer impacts, the Bureau participated in a Small Business 
Review Panel and conducted outreach with small entities that would be 
subject to the regulations. The Bureau solicited feedback from the 
small entities participating in the Small Business Review Panel on many 
elements of the loss mitigation process in conjunction with other 
elements of the servicing proposals, including impacts on loss 
mitigation processes of small servicers from proposed rules relating to 
error resolution, reasonable information management policies and 
procedures, early intervention for troubled or delinquent borrowers, 
and continuity of contact. In particular, the Bureau requested feedback 
from small servicers on the following: (1) A duty to suspend a 
foreclosure sale while a borrower is performing as agreed under a loss 
mitigation option or other alternative to foreclosure; (2) the ability 
to adopt policies and procedures to facilitate review of borrowers for 
loss mitigation options; (3) the ability to provide information 
regarding loss mitigation early in the foreclosure process to 
borrowers; and (4) the ability to provide borrowers with the 
opportunity to discuss evaluations for loss mitigation options with 
designated servicer contact personnel.\69\
---------------------------------------------------------------------------

    \69\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, appendix C at 19, 22, 24-26 (Jun, 
11, 2012), available at http://files.consumerfinance.gov/f/201208_cfpb_SBREFA_Report.pdf.
---------------------------------------------------------------------------

    The small entities generally informed the Small Business Review 
Panel that they engaged in individualized contact with borrowers early 
in the foreclosure process, that some servicers completed discussions 
of loss mitigation options with borrowers prior to a point in time when 
borrowers should receive significant foreclosure-related information, 
and that small servicers generally worked closely with foreclosure 
counsel such that foreclosure processes and loss mitigation could be 
easily conducted simultaneously without prejudice to the loss 
mitigation process. Further, the small entities explained that they 
were willing to communicate with borrowers about loss mitigation 
contemporaneously with the foreclosure process, and one small entity 
indicated that it would be willing to halt the foreclosure process, if 
appropriate, in order to consider a modification.\70\
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    \70\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, 26 (Jun, 11, 2012).
---------------------------------------------------------------------------

    The Bureau carefully considered the comments regarding requested 
exemptions for small servicers, including the comments received from 
Advocacy. In addition, the Bureau carefully considered the specific 
aspects of the rule that community banks, small credit unions, and 
other small servicers indicated would potentially impact those 
institutions most significantly. The analysis conducted by the Bureau 
is set forth below, as well as in the analyses required pursuant to 
section 1022 of the Dodd-Frank Act and the Regulatory Flexibility Act.
    In general, the Bureau is persuaded based on its experience, 
outreach, and the submission of the comments that the problematic 
practices that have plagued the servicing industry, particularly in 
recent years, are to a large extent a function of a business model in 
which servicing is viewed as a discrete line of business and profit 
center, and in which servicers compete to secure business from owners 
or assignees of mortgage loans based upon price. As discussed in 
greater detail in part II, such a model leads to a high volume, low 
margin business, in which servicers are not incentivized to invest in 
operations necessary to handle large numbers of delinquent borrowers. 
The significant weight of evidence of servicer failures of which the 
Bureau is aware involved large servicers following such a business 
model.
    In contrast, there is a segment of servicers who service a 
relatively small number of mortgage loans and do not purchase or hold 
mortgage servicing rights for mortgage loans they do not own or did not 
originate. Many community bank and small credit union servicers fit 
this model. For example, the Bureau estimates that 10,829 banks, 
thrifts, and credit unions service 5,000 or fewer loans. Of these, 
approximately 96 percent have assets of $1 billion or less, which is 
the traditional threshold for denoting a community bank. The Bureau is 
not aware of evidence indicating the performance of these types of 
institutions in servicing the mortgage loans they originate or own 
generally results in substantial consumer harm. To the contrary, data 
available to the Bureau indicates that such servicers achieve 
significantly reduced levels of borrowers rolling into 90 or more days 
of delinquency or having a mortgage loan charged-off when compared to 
the average for all banks. For example, in 2011, the 90+ delinquency 
rate for community banks was 0.27 percent compared with over 6 percent 
for all banks. Further, the net charge-off rate for community banks was 
0.66 percent against 1.31 percent for all banks. Community bank 
performance with respect to levels of delinquencies and charge-offs has 
also remained relatively stable through the financial crisis. From 2007 
through 2011, the 90+ delinquency rate fluctuated between 0.27 percent 
in 2007 to a high of only 0.31 percent in 2009. The equivalent metric 
for all banks showed the 90+ delinquency rate at 0.80 percent rising 
rapidly to a high of 6.29 percent in 2011.
    The reasons for this performance may lay in the fact that small 
servicers have very different incentives than large servicers. 
Servicers that service 5,000 or fewer mortgage loans and only service 
mortgage loans that the servicer or an affiliate owns or originated 
generally must be conscientious of the impact of servicing operations 
on the borrower. Any such servicer has an interest in maintaining a 
relationship with borrower as a customer of the bank or thrift or 
member of the credit union to provide other banking services. Further, 
such servicers must be conscientious of reputational consequences 
within a community or member base. Further, to the extent a servicer or 
an affiliate owns a mortgage loan, the servicer bears risk from the 
borrower's potential delinquency and default on the mortgage loan 
obligation and does not have an incentive to engage in practices

[[Page 10720]]

that may put the performance of the mortgage loan obligation at risk.
    All of these considerations, as well as the performance data 
discussed above, persuades the Bureau that the small servicers are 
generally achieving the goals of the discretionary rulemakings to 
protect delinquent borrowers. The Bureau recognizes, however, that 
these small servicers may be achieving these ends through procedures 
that differ from those mandated in Sec.  1024.39 and Sec.  1024.41, 
with respect to early intervention and loss mitigation procedures, and 
that while the practice of these small servicers are, in the main, 
achieving the objectives delineated in Sec.  104.38 and Sec.  1024.40, 
with respect to general servicing policies, procedures, and 
requirements and continuity of contact, these servicers may not have 
systems in place to document how they are achieving these results. 
Thus, the Bureau believes that subjecting the small servicers to these 
provisions would impose costs that they could find difficult to absorb.
    In sum, the Bureau is not persuaded at this time that the consumer 
protection purposes of RESPA necessarily would be furthered by 
requiring small servicers to comply with the discretionary rulemakings.
    Accordingly, a small servicer as defined pursuant to 12 CFR 
1026.41(e)(4), that is, a servicer that services 5,000 mortgage loans 
or less and only services mortgage loans that the servicer or an 
affiliate owns or originated, is exempt from the requirements of Sec.  
1024.38 through 41, with two exceptions.\71\ First, Sec.  1024.41(f) 
prohibits servicers from making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
unless a borrower's mortgage loan obligation is greater than 120 days 
delinquent. Second, Sec.  1024.41(g) prohibits a servicer from, among 
other things, proceeding with a foreclosure sale if the borrower is 
performing under an agreement on a loss mitigation option. The Bureau 
deems it highly unlikely, given the considerations discussed above, 
that a small servicer would initiate a foreclosure with respect to a 
borrower who is less than 120 days delinquent to conclude a foreclosure 
sale if a borrower was performing under a loss mitigation agreement. 
Nonetheless, the Bureau does not see any reason why these basic 
protections should not be extended to all borrowers or why subjecting 
small servicers to these prohibitions would create any burden for them. 
Accordingly, Sec.  1024.41(j) extends these two rules to small 
servicers. The analysis pursuant to section 1022 of the Dodd-Frank Act, 
set forth in part VII below, and the final regulatory flexibility 
analysis, set forth in part VIII below, provide significant additional 
discussion regarding the assumptions used in determining an appropriate 
small servicer exemption threshold of 5,000 mortgage loans.
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    \71\ The 5,000-loan threshold reflects the purposes of the 
exemptions that the rule establishes for these servicers and the 
structure of the mortgage servicing industry. The Bureau's choice of 
5,000 in loans serviced for purposes of Regulation X does not imply 
that a threshold of that type or of that magnitude would be an 
appropriate way to distinguish small firms for other purposes or in 
other industries.
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    The Bureau received comments from a nonprofit lender/servicer 
indicating that the mortgage servicing rules would be costly and 
difficult to implement, in light of the commenter's nonprofit mission 
and volunteer workforce. The commenter indicated that the Bureau should 
carry over the small servicer exemption proposed with respect to the 
periodic statement requirement in Regulation Z to the Regulation X 
requirements and should also implement a narrow exemption for nonprofit 
servicers. Although the Bureau declines to exempt nonprofit servicers 
separately, the Bureau believes that such servicers will likely fall 
within the small servicer exemption established by the Bureau.\72\ To 
the extent a nonprofit servicer services more than 5,000 mortgage loans 
or services mortgage loans that the servicer or an affiliate does not 
own or did not originate, then the Bureau believes any such servicer 
should be required to provide appropriate consumer protection by 
implementing the loss mitigation procedures, notwithstanding the non-
profit status of the servicer.
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    \72\ The nonprofit lenders/servicer did not object to the 
proposed 1,000-loan threshold; the Bureau infers that this nonprofit 
lender/servicer would qualify as a small servicer under that 
threshold, much less the 5,000-loan threshold that the Bureau has 
implemented pursuant to Sec.  1024.30.
---------------------------------------------------------------------------

    Other exemptions. In addition to requests for a small servicer 
exemption, the Bureau received comments that it should implement 
exemptions for housing finance agencies, reverse mortgage transactions, 
and servicers that are qualified lenders as defined in regulations 
established by the Farm Credit Administration. Housing finance agencies 
and their associations commented that the mission orientation of these 
agencies weighs in favor of exempting such agencies from certain of the 
proposed mortgage servicing rules. A comment from one such agency with 
respect to the Homeowners' Emergency Mortgage Assistance Program is 
instructive. That program assists a borrower experiencing hardship by 
extending a loan, secured by a subordinate lien on a borrower's 
property, to bring a borrower's first-lien mortgage loan current and, 
for certain borrowers, to provide continuing assistance. Absent an 
exemption, the servicing of the subordinate-lien mortgage loan that 
secures such assistance would be subject to mortgage servicing rules 
relating to loss mitigation, notwithstanding that the loan itself is a 
form of loss mitigation. In addition, the Bureau received comments from 
housing finance agencies indicating that the costs of certain of the 
rulemakings may be burdensome for housing finance agencies.
    The Bureau also received comments from a trade association for 
reverse mortgage lenders and servicers. The commenter stated that many 
of the rulemakings, including the discretionary rulemakings, are not 
appropriate for reverse mortgage transactions. For example, loss 
mitigation requirements in the proposed rule were based on days of 
delinquency, which is an imprecise and difficult concept with respect 
to a reverse mortgage transaction because of the structure of the 
transaction. Further, the vast majority of reverse mortgage 
transactions are subject to regulations implemented by FHA in 
connection with the Home Equity Conversion Mortgage Program.
    The Bureau received comments from lenders subject to regulations 
established by the Farm Credit Administration with respect to loss 
mitigation. These entities requested exemptions for mortgage loans for 
which a servicer is required to comply with Farm Credit Administration 
requirements on loss mitigation because those requirements differ 
markedly from those proposed by the Bureau.
    The Bureau agrees that additional exemptions are appropriate for 
certain of the rulemakings. As discussed in more detail below, the 
Bureau has determined not to implement these additional exemptions to 
those regulations that principally implement requirements set forth in 
the Dodd-Frank Act. These include the requirements in Sec. Sec.  
1024.35 (Error Resolution Procedures), 1024.36 (Information Requests), 
and 1024.37 (Force-Placed Insurance). With respect to error resolution 
procedures and information requests, those provisions build upon the 
existing Qualified Written Request procedures, which are currently 
applicable to the servicers discussed above. Providing an

[[Page 10721]]

exemption to these requirements would have removed a currently existing 
consumer protection.
    The Bureau is persuaded that imposing the requirements in the 
discretionary rulemakings on housing finance agencies does not further 
the goals of those requirements and imposes undue costs on housing 
finance agencies. Such agencies are engaged in programs that assist 
mortgage loan borrowers facing hardship under the auspices of state or 
local governments. The Bureau believes the mission of these agencies, 
as articulated by the agencies and their associations, clearly 
demonstrates that the interests of such agencies are aligned with those 
of borrowers, so that imposing the discretionary rulemakings on such 
agencies would not further the consumer protection purposes of RESPA. 
Accordingly, the Bureau exempts housing finance agencies from the 
requirements of Sec. Sec.  1024.38 through 1024.41 as well as the 
principal restrictions of Sec.  1024.17(k)(5). To effectuate this 
exemption, the Bureau simply uses the term ``small servicer,'' because 
Regulation Z, as amended by the 2013 TILA Servicing Rule, defines a 
housing finance agency as a small servicer without regard to the number 
of mortgage loans serviced by a housing finance agency.
    The Bureau also is persuaded that the discretionary rulemakings are 
not appropriate for reverse mortgage transactions. For example, many of 
the timing requirements in Sec.  1024.41 relate to the length of a 
borrower's delinquency, which is a concept that does not apply cleanly 
with respect to reverse mortgage transactions. Further, the vast 
majority of reverse mortgage transactions are subject to regulation by 
FHA pursuant to the Home Equity Conversion Mortgage program. These 
regulations provide many protections for borrowers that are appropriate 
for the specific circumstances of a reverse mortgage transaction. The 
Bureau continues to consider appropriate requirements for reverse 
mortgage transactions separately from the mortgage servicing 
rulemakings.
    Similarly, the Bureau finds that ``qualified lenders'' subject to 
Farm Credit Administration regulation of their loss mitigation 
practices should be exempt from compliance with Sec. Sec.  1024.38-41. 
The Bureau agrees with the commenters that the Farm Credit 
Administrations' regulations in this area offer consumer protections 
comparable to those in the mortgage servicing rules and subjecting such 
institutions to the new rules would subject such servicers to 
overlapping, and potentially inconsistent, regulatory requirements. 
Accordingly, the Bureau has determined to exempt a servicer with 
respect to any mortgage loan for which the servicer is a qualified 
lender as that term is defined in 12 CFR 617.7000 from the requirements 
of Sec. Sec.  1024.38 through 41.
    Finally, the Bureau has determined to revise the scope of certain 
sections. Section 1024.30(c) implements two limitations on the scope of 
subpart C. First, Sec.  1024.33(a) is only applicable to mortgage loans 
that are secured by first liens. This limitation excludes from coverage 
subordinate-lien mortgage loans. Section 1024.33(a) is based on the 
existing Sec.  1024.21, renumbered in accordance with the 
reorganization of Regulation X, and Sec.  1024.21 is already limited to 
first-lien mortgage loans. When the TILA-RESPA Integrated Disclosure 
rulemaking is finalized, the Bureau anticipates that rule will alter 
the requirements for servicers to comply with Sec.  1024.33(a). 
Accordingly, the Bureau does not believe it is beneficial to require 
servicers to begin implementing the requirements of Sec.  1024.33(a) 
for subordinate-lien mortgage loans, only to have to adjust compliance 
with Sec.  1024.33(a) upon finalization of the TILA-RESPA Integrated 
Disclosure rulemaking. Accordingly, the Bureau is not making a change 
to the scope of Sec.  1024.33(a) and retains the limitation on the 
scope of that requirement to mortgage loans that are secured by a first 
lien.
    The Bureau proposed to maintain the exclusion for open-end lines of 
credit (home-equity plans) covered by TILA and Regulation Z, including 
open-end lines of credit secured by a first lien, from the mortgage 
servicing requirements in subpart C of Regulation X. Open-end lines of 
credit, which may be federally related mortgage loans when secured by a 
first or subordinate lien on residential real property, have been 
historically excluded from regulations applicable to mortgage servicing 
under Regulation X. See current Sec.  1024.21(a) (defining ``mortgage 
servicing loan''). Further, open-end lines of credit are already 
regulated under Regulation Z. Certain provisions of Regulation Z would 
substantially overlap with the servicer obligations that would be set 
forth in subpart C, including, for example, billing error resolution 
procedures. See 12 CFR 1026.13. The Bureau requested comment regarding 
whether to maintain an exemption for open-end lines of credit for the 
requirements in subpart C.
    To the extent industry commenters responded to the Bureau's 
request, they supported the continued exclusion of open-end lines of 
credit (home-equity plans). Two consumer advocacy groups, however, 
jointly commented that open-end credit transactions secured by a 
borrower's principal residence should be fully covered by RESPA. The 
two commenters stated that consumer protections for open-end lines of 
credit (home equity plans) are less robust than consumer protections 
for closed-end credit, particularly in the area of disclosures, error 
resolution, information requests, and penalties for violation. They 
expressed concerns that the Bureau has failed to appreciate these 
differences and the potential for consumer harm when predatory lenders 
exploit these differences. Additionally, the commenters questioned the 
Bureau's authority to exempt open-end lines of credit (home-equity 
plans) when the statutory definition of the term ``federally related 
mortgage loan'' does not include such an exemption.
    The Bureau believes it is necessary and appropriate at this time 
not to apply the requirements in subpart C to open-end credit (home 
equity lines). Open-end lines of credit secured by a first or 
subordinate lien on residential real property can constitute a 
federally related mortgage loans. As stated in the proposal, home 
equity lines of credit (HELOCs) tend to reflect better credit quality 
than subordinate-lien closed-end mortgage loans and share risk 
characteristics more similar to other open-end consumer financial 
products, such as credit cards, because of the access to additional 
unutilized credit provided by a HELOC.\73\ The Bureau understands from 
discussions with servicers and industry representatives that the 
servicing of HELOCs tends to differ significantly from closed-end 
mortgage loans, including with respect to information systems used, 
lender remedies (including restricting access to the line of credit), 
and borrower behavior. Further, the Bureau understands that although a 
household may finance a property solely with an open-end line of 
credit, the proportion that do so is very small.\74\
---------------------------------------------------------------------------

    \73\ See Donghoon Lee et al., A New Look at Second Liens, 3, 19 
(Feb. 2012), available at http://ssrn.com/abstract=2014570 (chapter 
in Housing and the Financial Crisis, Edward Glaeser and Todd Sinai, 
eds.)
    \74\ See, e.g., Julapa Jagtiani and William W. Lang, Strategic 
Default on First and Second Lien Mortgages During The Financial 
Crisis, at n.5 (Federal Reserve Bank of Philadelphia, Working Paper 
No. 11-3, Dec. 9, 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1724947.
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    In addition, the protections proposed in subpart C of Regulation X 
are not necessary for open-end lines of credit. As set forth above, 
separate error resolution and information request

[[Page 10722]]

requirements exist under Regulation Z for open-end lines of credit. 
Further, the Bureau understands from servicers of open-end lines of 
credit that such servicers typically do not maintain escrow accounts 
for open-end lines of credit, require borrowers to maintain insurance 
for properties secured by open-end lines of credit, or force-place 
insurance for such borrowers. The Bureau believes that it would 
contravene the consumer protection purposes of RESPA for servicers to 
expend resources complying with overlapping or unnecessary requirements 
that would not benefit consumers.
    Further, open-end lines of credit perform differently from closed-
end mortgages with respect to loss mitigation. A borrower is in control 
of an open-end line of credit and can draw from that line as necessary 
to meet financial obligations. Many borrowers who have become 
delinquent on a first lien closed-end mortgage loan keep current on 
payments for subordinate lien open-end lines of credit in order to 
maintain their access to the line of credit.\75\ Conversely, when 
borrowers experience difficulty meeting their obligations, lenders have 
the ability to cut off access to unutilized draws from the open-end 
line of credit. These features of open-end lines of credit weigh 
against imposing the requirements set forth for early intervention with 
delinquent borrowers, continuity of contact, and loss mitigation 
procedures on servicers for open-end lines of credit. Further, open-end 
lines of credit tend to differ from closed-end mortgage loans with 
respect to servicing information systems utilized.
---------------------------------------------------------------------------

    \75\ See, e.g., Julapa Jagtiani and William W. Lang, Strategic 
Default on First and Second Lien Mortgages During The Financial 
Crisis, at n.11 (Federal Reserve Bank of Philadelphia, Working Paper 
No. 11-3, Dec. 9, 2010).
---------------------------------------------------------------------------

    For the reasons set forth above, the Bureau believes it is 
necessary and appropriate to achieve the purposes of RESPA to maintain 
the current exemption, which HUD originally adopted as 24 CFR 3500.21 
nearly 20 years ago. Accordingly, this exemption is authorized under 
section 19(a) of RESPA.
    In addition, Sec.  1024.30(c)(2) limits the scope of Sec. Sec.  
1024.39 through 41 to mortgage loans that are secured by a borrower's 
principal residence. The purpose of the early intervention requirement, 
the continuity of contact requirement, and the loss mitigation 
procedures is to help borrowers stay in their principal residences, 
where possible, while mitigating the losses of loan owners and 
assignees, by ensuring that servicers use clear standards of review for 
loss mitigation options. The Bureau does not believe that this purpose 
is furthered by extending those protections to mortgage loans for 
investment, vacation, or other properties that are not principal 
residences. For example, in such circumstances, the protections set 
forth in Sec. Sec.  1024.39-41 may only serve to assist a non-occupying 
borrower to maintain cash flow from rental revenue during a period of 
delinquency. Further, for certain properties that are not principal 
residences, there is a significant risk that a property may not be 
maintained and may present hazards and blight to local communities. 
Thus, for investment or vacation properties, the lack of borrower 
occupancy, and the potential rental income obtained by the borrower, 
vitiates the justifications for ensuring that a foreclosure process is 
not undertaken unless the borrower has the opportunity for review for a 
loss mitigation option. Finally, this limitation is consistent with the 
California Homeowner Bill of Rights and the National Mortgage 
Settlement, and its incorporation here furthers the goal of creating 
uniform standards.\76\ Accordingly, the Bureau has limited the scope of 
Sec. Sec.  1024.39 through 41 to mortgage loans that are secured by 
properties that are borrowers' principal residences.
---------------------------------------------------------------------------

    \76\ See Cal. Civ. Code Sec.  2923.6; see also Attorneys Gen. et 
al., National Mortgage Settlement: Consent Agreement A-1 (2012), 
available at http://www.nationalmortgagesettlement.com stating 
``[t]he provisions outlined below are intended to apply to loans 
secured by owner-occupied properties that serve as the primary 
residence of the borrower unless otherwise noted herein'').
---------------------------------------------------------------------------

Section 1024.31 Definitions
    For purposes of subpart C, proposed Sec.  1024.31 would have 
provided definitions of the following terms: ``Consumer reporting 
agency,'' ``Day,'' ``Hazard insurance,'' ``Loss mitigation 
application,'' ``Loss mitigation options,'' ``Master servicer,'' 
``Mortgage loan,'' ``Qualified written request,'' ``Reverse mortgage 
transaction,'' ``Subservicer,'' ``Service provider,'' ``Transferee 
servicer,'' and ``Transferor servicer.'' For the reasons set forth 
below, and except as otherwise discussed, Sec.  1024.31 is adopted as 
proposed.
    ``Consumer reporting agency''; ``Day''; ``Reverse mortgage 
transaction''; ``Master servicer''; ``Transferee servicer''; 
``Transferor servicer.'' The Bureau proposed to move the definitions of 
``Master servicer,'' ``Transferee servicer,'' and ``Transferor 
servicer'' from current Sec.  1024.21(a) to proposed Sec.  1024.31 
without change. The Bureau also proposed to add new defined terms for 
``Reverse mortgage transaction'' and ``Consumer reporting agency,'' in 
proposed Sec.  1024.31 by adopting the same definition for those terms 
as is already provided in current Regulation Z and section 503 of the 
Fair Credit Reporting Act, 15 U.S.C. 1681a, respectively. The Bureau 
proposed to add a new defined term ``Day'' in proposed Sec.  1024.31. 
The Bureau proposed to define ``Day'' to mean a calendar day because 
the Bureau believed that Congress intended that the term ``day'' by 
itself includes legal public holidays, Saturdays, and Sundays for 
purposes of RESPA. No comments were received on these proposed defined 
terms. The final rule adopts these terms as proposed.
    ``Hazard insurance.'' As discussed in the section-by-section 
analyses concerning Sec. Sec.  1024.17(k)(5) and 1204.37, section 
1463(a) of the Dodd-Frank Act amended section 6 of RESPA to establish 
new servicer duties with respect to the purchase of force-placed 
insurance on a property securing a federally related mortgage. The 
statute generally defines ``force-placed insurance'' as hazard 
insurance coverage obtained by a servicer of a federally related 
mortgage when the borrower has failed to maintain or renew hazard 
insurance on such property as required of the borrower under the terms 
of the mortgage.'' See section 6(k)(2). Thus, the statutory definition 
of ``force-placed insurance'' indicates that Congress intended the term 
``force-placed insurance'' to mean a type of ``hazard insurance.'' 
However, neither the statute nor current Regulation X defines ``hazard 
insurance.'' The Bureau believed that it was necessary to define 
``hazard insurance'' in order to implement the statute.
    The Bureau proposed to add new defined term ``Hazard insurance'' in 
proposed Sec.  1024.31 to mean insurance on the property securing a 
mortgage loan that protects the property against loss caused by fire, 
wind, flood, earthquake, theft, falling objects, freezing, and other 
similar hazards for which the owner or assignee of such loan requires 
insurance. The Bureau modeled the definition of ``hazard insurance'' on 
the definition of ``property insurance'' in typical mortgage loan 
contracts, in light of the fact that the statute generally prohibits 
servicers from obtaining force-placed insurance ``unless there is a 
reasonable basis to believe the borrower has failed to comply with the 
loan contract's requirement to maintain property

[[Page 10723]]

insurance.'' See section 6(k)(1)(A). The Bureau thus interpreted the 
statute to mean that ``force-placed hazard insurance'' refers to 
``property insurance'' that the borrower has failed to maintain as 
required by the borrower's mortgage loan contract.
    The Bureau sought comment on the definition in general and in 
particular on the proposed inclusion of insurance to protect against 
flood loss. Although including flood insurance is consistent with the 
way typical mortgage loan contracts define ``property insurance,'' the 
Bureau did not believe that the Bureau's force-placed insurance 
regulations should apply to servicers when they are required by the 
Flood Disaster Protection Act of 1973 (FDPA) to purchase hazard 
insurance to protect against flood loss. The FDPA provides an extensive 
set of restrictions on flood insurance provision, and the Bureau was 
concerned that overlapping regulatory restrictions would be unduly 
burdensome and produce little consumer benefit. The Bureau thus 
proposed to include flood insurance as part of the general definition 
of ``Hazard insurance,'' but to exclude flood insurance that is 
required under the FDPA from the definition of ``force-placed 
insurance'' in proposed Sec.  1024.37(a)(2)(i).
    The Bureau did not receive comments from consumer groups or 
industry commenters on the proposed defined term ``Hazard insurance'' 
other than with respect to the treatment of flood insurance. On that 
topic, most industry commenters believed that simply excluding flood 
insurance obtained by a servicer as required by the FDPA from the 
definition of the term ``force-placed insurance'' in proposed Sec.  
1024.37(a)(2)(i) was workable and adequately mitigated the risk of a 
servicer having to comply with both regulations under the FDPA and the 
Bureau's force-placed insurance regulations. But one large bank 
servicer and one large force-placed insurance provider urged the Bureau 
to exclude flood insurance from the defined term ``Hazard insurance'' 
in Sec.  1024.31 instead.
    The large bank servicer expressed concern that the proposed 
definitions of ``hazard insurance'' and ``force-placed insurance'' 
would effectively require a servicer to strictly monitor any potential 
change in a mortgage's property's flood zone designation because 
whether the FDPA requires a servicer to obtain hazard insurance to 
protect against flood loss depends, among other things, on whether a 
property is located in an area designated as a Special Flood Hazard 
Area (SFHA). The commenter thus worried that the force-placed insurance 
requirements of Sec.  1024.37 would become applicable instantaneously 
after a change in SFHA designations if that change meant that flood 
insurance was no longer required under the FDPA for a particular 
property. The Bureau, however, does not interpret Sec.  1024.37 to 
apply in this way. Compliance with Sec.  1024.37 would be required if 
the servicer decides to renew or replace a flood insurance policy that 
had been previously been required under the FDPA with a new policy 
after the property's SFHA designation had changed. As discussed above, 
the Bureau proposed to exclude hazard insurance required by the FDPA 
from the definition of ``force-placed insurance'' because the Bureau 
believes that the FDPA and other related Federal laws adequately 
regulated this activity. However, if a servicer chooses to renew or 
replace hazard insurance to protect against flood loss even though the 
insurance the renewal or replacement is no longer required by the FDPA, 
then the FDPA would not apply. The Bureau's force-placed insurance 
regulations are intended to fill precisely this gap to ensure that 
consumers have basic procedural and substantive protections in the 
absence of FDPA coverage. Thus, a servicer would have to check a 
property's flood zone designation when a servicer is about to renew or 
replace hazard insurance to protect against flood loss that the 
servicer originally obtained pursuant to the FDPA to determine whether 
the status has changed such that Sec.  1024.37 would apply going 
forward. The Bureau believes that this presents minimal if any burden 
on servicers and is justified to avoid imposing unnecessary costs on 
borrowers.
    The large force-placed insurance provider urged the same result 
based on statutory interpretation grounds, asserting that Congress had 
not intended to include flood insurance as a type of hazard insurance 
that would potentially be subject to the force-placed insurance 
requirements because section 1461 of the Dodd-Frank Act, which governs 
the establishment of escrow accounts for certain higher-priced mortgage 
loans, contains separate definitions for ``hazard insurance'' and 
``flood insurance.'' The commenter acknowledged that section 1461 is 
distinct from section 1463 and amends different underlying statutes, 
TILA and RESPA respectively. Nonetheless, it asserted that both address 
insurance for which premiums could be paid through the establishment of 
escrow accounts and therefore should be interpreted in tandem.
    Again, the Bureau declines to make this change. The Bureau does not 
believe that Congress intended the statutory definition of ``flood 
insurance'' and ``hazard insurance'' in section 1461 to control the 
interpretation of ``hazard insurance'' for purposes of section 1463(a). 
Indeed, section 1461 expressly limits its scope by stating that ``For 
purposes of this section, the following definitions [of ``flood 
insurance'' and ``hazard insurance''] shall apply.'' In light of this 
language, the Bureau does not believe that section 1461 controls. 
Section 1463(a) itself demonstrates that Congress expected the force-
placed insurance provisions to apply to flood insurance other than that 
required by the FDPA. Section 6(l)(4) of RESPA states that nothing in 
the force-placed insurance provisions shall be construed as prohibiting 
a servicer from providing simultaneous or concurrent notice of a lack 
of flood insurance pursuant to the FDPA. This provision would have 
little impact if flood insurance could never be considered force-placed 
insurance within the meaning of section 1463. Thus, the Bureau believes 
its interpretation of the statutory terms to apply the force-place 
insurance requirements to flood insurance that is not required by the 
FDPA and thus not subject to that statute's extensive regulation is 
consistent with the statutory language, congressional intent, and 
consumers' interests. Accordingly, the Bureau adopts the proposed 
defined term ``Hazard insurance'' as proposed.
    ``Loss mitigation application.'' Proposed Sec.  1024.31 would have 
defined a loss mitigation application as a submission from a borrower 
requesting evaluation for a loss mitigation option in accordance with 
procedures established by the servicer for the submission of such 
requests. As discussed below with respect to Sec.  1024.41, the Bureau 
received comments from large bank servicers regarding the application 
of the loss mitigation requirements on pre-qualification and informal 
oral communications with borrowers.
    Based on the consideration of those comments, the Bureau has 
determined to revise the definition of a loss mitigation application. 
The Bureau believes that a loss mitigation application differentiates a 
communication or inquiry from a borrower regarding loss mitigation 
options from a borrower's request for consideration for a loss 
mitigation option. When a borrower, orally or writing, expresses an 
interest in a loss mitigation option and provides any

[[Page 10724]]

information that would be evaluated by a servicer, that communication 
should be considered a loss mitigation application. A servicer must 
then determine whether the loss mitigation application is complete or 
incomplete pursuant to the requirements of Sec.  1024.41(b). This 
definition of a loss mitigation application is similar to framework 
established in Regulation B with respect to an application for credit.
    Accordingly, Sec.  1024.31 states that a loss mitigation 
application means an oral or written request for a loss mitigation 
option that is accompanied by any information required by a servicer 
for evaluation for a loss mitigation option.
    ``Loss mitigation option.'' Pursuant to the Bureau's authorities 
under RESPA sections 6(k)(1)(E), 6(j)(3), and 19(a), the Bureau 
proposed rules on error resolution (proposed Sec.  1024.35), 
information management (proposed Sec.  1024.38), early intervention 
(proposed Sec.  1024.39), continuity of contact (proposed Sec.  
1024.40), and loss mitigation (proposed Sec.  1024.41) that would have 
set forth servicer duties with respect to ``Loss mitigation options.''
    The Bureau proposed to define ``Loss mitigation options'' at new 
Sec.  1024.31 as ``alternatives available from the servicer to the 
borrower to avoid foreclosure.'' The Bureau also proposed to clarify 
through comment 31 (Loss mitigation options)-1 that loss mitigation 
options include temporary and long-term relief, and options that allow 
borrowers to remain in or leave their homes, such as, without 
limitation, refinancing, trial or permanent modification, repayment of 
the amount owed over an extended period of time, forbearance of future 
payments, short-sale, deed-in-lieu of foreclosure, and loss mitigation 
programs sponsored by a State or the Federal Government. The Bureau 
also proposed to clarify through comment 31 (Loss mitigation options)-2 
that loss mitigation options available from the servicer include 
options offered by the owner or assignee of the loan that are made 
available through the servicer.
    Several industry commenters addressed the Bureau's proposed 
definition of ``Loss mitigation options.'' One industry commenter 
recommended that the term ``Loss mitigation options'' should be defined 
as alternatives available ``from the investor through the servicer to 
the borrower'' to avoid foreclosure, in light of the general industry 
practice that loss mitigation options are generally authorized by 
investors rather than servicers. While one industry trade group 
supported the proposed definition, other commenters were concerned that 
the breadth of the definition could conflict with servicers' 
delinquency management programs because the definition would subject 
short-term cures to the same procedural requirements as more permanent 
options. Similarly, industry commenters were concerned that the 
proposed definition would be inconsistent with requirements under 
existing loss mitigation programs, such as Farm Credit Administration 
rules and portions of the National Mortgage Settlement.
    In light of comments and upon further consideration, the Bureau is 
adopting a definition of the term ``Loss mitigation option'' 
substantially as proposed, but that incorporates the substance of 
proposed comment 31 (Loss mitigation options)-2 into the regulatory 
text. Accordingly, the final rule defines the term ``Loss mitigation 
option'' as an alternative to foreclosure offered by the owner or 
assignee of a mortgage loan that is made available through the servicer 
to the borrower.
    The Bureau proposed to define ``Loss mitigation options'' as 
alternatives available ``from the servicer'' to reflect the practical, 
day-to-day relationship between borrowers and servicers, in which 
servicers pursue loss mitigation activities with respect to delinquent 
borrowers on behalf of the owners or assignees of the mortgage loans. 
The Bureau had proposed to add comment 31 (Loss mitigation options)-2 
to clarify that the proposed definition should be read to include 
options offered by the owner and assignee and made available through 
the servicer in light of the actual legal relationship between 
servicers and owners or assignees, in which the owner or assignee 
authorizes the offering of loss mitigation options. Upon further 
consideration, the Bureau believes that the text of the definition 
should reflect the underlying legal relationship between servicers and 
owners or assignees to avoid confusion over whether servicers may be 
able to authorize loss mitigation options independent of the owner or 
assignee of the mortgage loan. Accordingly, the Bureau is not adopting 
comment 31 (Loss mitigation options)-2 as proposed, but instead is 
amending the proposed definition to incorporate the substance of 
proposed comment 31 (Loss mitigation option)-2.
    The definition of the term ``Loss mitigation option'' is broad to 
account for the wide variety of options that may be available to a 
borrower, the availability of which may vary depending on the 
underlying loan documents, any servicer obligations to the lender or 
assignee of the loan, the borrower's particular circumstances, and the 
flexibility the servicer has in arranging alternatives with the 
borrower. Accordingly, the Bureau is adopting proposed comment 31 (Loss 
mitigation option)-1 substantially as proposed to set forth examples of 
loss mitigation options ``without limitation.'' The Bureau has revised 
proposed comment 31 (Loss mitigation option)-1 to clarify that loss 
mitigation options include programs sponsored by ``a locality'' as well 
as a State or the Federal government and other non-substantive 
revisions describing options that allow borrowers ``who are behind on 
their mortgage payments to remain in their homes or to leave their 
homes without a foreclosure.''
    While the Bureau has developed a broad definition of loss 
mitigation options in order to accommodate the variety of loss 
mitigation programs, the Bureau does not intend for the provisions of 
Regulation X that use the term ``Loss mitigation option'' to require 
servicers to offer options that are inconsistent with any investor or 
guarantor requirements. Thus, under the Bureau's definition, an 
alternative that is not made available by the owner or assignee of the 
mortgage loan would not be a loss mitigation option for purposes of the 
final rule. The Bureau discusses the final rules that use the term 
``Loss mitigation option'' in the applicable section-by-section 
analysis below.
    The final rule includes new language in comment 31 (Loss mitigation 
option) -2, which explains that a loss mitigation option available 
through the servicer refers to an option for which a borrower may 
apply, even if the borrower ultimately does not qualify for such 
option. The Bureau has included this comment to clarify that the 
regulatory text's reference to options ``available'' to borrowers is 
not intended to restrict the definition to options for which a borrower 
ultimately qualifies, but instead refers to options for which a 
borrower may apply.
    ``Mortgage loan.'' As discussed in detail in the section-by-section 
analysis of Sec.  1024.30, the Bureau proposed to add a new defined 
term ``Mortgage loan'' in proposed Sec.  1024.31 to mean any federally 
related mortgage loan, as that term is defined in Sec.  1024.2, subject 
to the exemptions in Sec.  1024.5(b), but does not include open-end 
lines of credit (home equity plans). For the reasons discussed in the 
section-by-section analysis of Sec.  1024.30, the Bureau is adopting 
the proposed definition to the defined term ``Mortgage loan'' as 
proposed.
    ``Qualified written request.'' The Bureau proposed to adopt the 
defined

[[Page 10725]]

term ``Qualified written request'' included in current Sec.  1024.21(a) 
in proposed Sec.  1024.31 without change, except to add related 
commentary, proposed 31 (qualified written request) -1, that would have 
explained that: (1) A qualified written request is a written notice a 
borrower provides to request a servicer either correct an error 
relating to the servicing of a loan or to request information relating 
to the servicing of the loan; and (2) a qualified written request is 
not required to include both types of requests. For example, a 
qualified written request may request information relating to the 
servicing of a mortgage loan but not assert that an error relating to 
the servicing of a loan has occurred.
    One commenter suggested that the Bureau should clarify that the 
policies, procedures, and penalties related to a qualified written 
request are the same as those related to error resolution and 
information requests under Sec. Sec.  1024.35 and 1024.36. The Bureau 
agrees that it would be helpful to clarify that the error resolution 
and information request requirements in Sec. Sec.  1024.35 and 1024.36 
apply as set forth in those sections irrespective of whether the 
servicer receives a qualified written request, and accordingly, is 
adopting new comment 31 (qualified written request)-2 for that purpose. 
However, the Bureau does not believe it is appropriate to discuss a 
servicer's penalties for violation of the Bureau's regulations in 
either the regulation or the commentary.
    In addition, the Bureau has made slight modifications to the 
proposed definition of ``qualified written request'' so it more closely 
tracks the definition included in section 6(e)(1) of RESPA. The final 
rule defines ``qualified written request'' to mean a written 
correspondence from the borrower to the servicer that includes, or 
otherwise enables the servicer to identify, the name and account of the 
borrower, and either: (1) States the reasons the borrower believes the 
account is in error; or (2) provides sufficient detail to the servicer 
regarding information relating to the servicing of the mortgage loan 
sought by the borrower.
    ``Service provider.'' The Bureau proposed to add new defined term 
``Service provider'' in proposed Sec.  1024.31 to mean any party 
retained by a servicer that interacts with a borrower or provides a 
service to the servicer for which a borrower may incur a fee. The 
Bureau proposed related commentary, comment 31 (service provider)-1, 
that would have clarified that service providers may include attorneys 
retained to represent a servicer or an owner or assignee of a mortgage 
loan in a foreclosure proceeding, as well as other professionals 
retained to provide appraisals or inspections of properties. Two 
industry groups representing appraisal professionals submitted joint 
comments that objected to the inclusion of appraisal professionals in 
the Bureau's proposed comment 31 (service provider)-1. The commenters 
sought clarification from the Bureau about the circumstances under 
which appraisers are ``service providers'' and what their obligations 
would be. The Bureau believes that comment 31 (service provider)-1 is 
clear in describing the circumstances under which appraisal 
professionals are ``service providers'' and thus feels no further 
explanation is required. While acknowledging that the Bureau's mortgage 
servicing rules do not directly regulate real estate appraisal 
services, the commenters claimed that individual appraisers and small 
appraisal firms would experience costly and unnecessary hardship if 
they were considered ``service providers.'' The Bureau disagrees. The 
definition of the term ``service provider'' in Sec.  1024.31, by its 
terms, applies only for purposes of subpart C, and the term ``service 
provider'' appears only in Sec.  1024.38 of subpart C. Section 1024.38 
requires servicers maintain policies and procedures reasonably designed 
to ensure that they can exercise reasonable oversight of their service 
providers. The Bureau does not believe that requiring servicers to 
exercise reasonable oversight of their service providers will lead to 
costly and unnecessary hardship on individual appraisers and small 
appraisal firms.
    ``Subservicer.'' The Bureau proposed to adopt the defined term 
``Subservicer'' included in current Sec.  1024.21(a) in proposed Sec.  
1024.31 without change. The proposed defined term ``Subservicer'' 
provides that a ``subservicer'' is any servicer who does not own the 
right to perform servicing, but who performs servicing on behalf of the 
master servicer.
    One commenter suggested that the Bureau should replace the 
reference to ``master servicer'' in the definition of ``subservicer'' 
with ``servicer'' to accommodate circumstances where there are multiple 
levels of subservicing. The example the commenter provided is one where 
there is one master servicer, but also a primary servicer and multiple 
subservicers. It appears that the commenter's concern is that people 
might be confused by thinking ``primary servicers'' would not be 
considered ``subservicers'' for purposes of subpart C of Regulation X. 
Based on the example provided by the commenter, the Bureau understands 
that a primary servicer is performing servicing on behalf of the master 
servicer, who owns the right to perform servicing. Because the primary 
servicer is not the owner of the right to perform servicing, it would 
be a ``subservicer'' pursuant to the proposed definition to the defined 
term ``Subservicer.'' Although industry practice may differentiate 
between levels of subservicing by referring to a servicer that directly 
performs servicing on behalf of a master servicer as the ``primary 
servicer,'' and servicers performing on behalf of the ``primary 
servicer'' as ``subservicers,'' for purposes of subpart C, any servicer 
that does not own the servicing right but performs servicing on behalf 
of a servicer that owns the servicing right is a subservicer. 
Accordingly, the Bureau believes the proposed definition to the defined 
term ``Subservicer'' adequately captures situations where there are 
multiple levels of subservicing and the defined term ``Subservicer'' is 
adopted as proposed.
Section 1024.32 General Disclosure Requirements
    The Bureau set forth requirements applicable to disclosures 
required by subpart C in proposed Sec.  1024.32. Specifically, proposed 
Sec.  1024.32(a)(1) would have required that disclosures provided by 
servicers be clear and conspicuous, in writing, and in a form the 
consumer may keep. This standard is consistent with disclosure 
standards applicable in other regulations issued by the Bureau, 
including, for example, Regulation Z. See, e.g., 12 CFR 1026.17(a)(1). 
Proposed Sec.  1024.32(a)(2) would have permitted disclosures to be 
provided in languages other than English, so long as disclosures are 
made available in English upon a borrower's request. Further, proposed 
Sec.  1024.32(b) would have permitted disclosures required under 
subpart C to be combined with disclosures required by applicable laws, 
including State laws, as well as disclosures required pursuant to the 
terms of an agreement between the servicer and a Federal or State 
regulatory agency.
    The Bureau is adopting the final rule as proposed, with minor 
changes to Sec.  1024.32(a)(1) to replace the term ``consumer,'' with 
``recipient'' as applicable and to improve the clarity of Sec.  
1024.32. Two commenters representing industry trade groups suggested 
that the clarity of Sec.  1024.32(a) could be enhanced if the final 
rule could remove the term ``consumer'' where permissible because the 
term ``consumer'' is more appropriate in the context of disclosures 
provided prior to

[[Page 10726]]

the consummation of the mortgage loan transaction.
Section 1024.33 Mortgage Servicing Transfers
    RESPA section 6(a) through (d) sets forth disclosure requirements 
for servicing transfers that are currently implemented in Sec.  
1024.21(b) through (d) of Regulation X. 12 U.S.C. 2605(a) through (d). 
As part of the Bureau's proposed reorganization of Regulation X, which 
would have created a new subpart C to contain the Bureau's mortgage 
servicing rules, the Bureau proposed to move the disclosure provisions 
in Sec.  1024.21(b) through (d) to new Sec.  1024.33 and new Regulation 
X official interpretations. The Bureau also proposed to move the 
existing State law preemption provision in Sec.  1024.21(h) to Sec.  
1024.33(d). In addition to these conforming amendments, the Bureau 
proposed to add certain new provisions to Sec.  1024.33 and official 
commentary to Sec.  1024.33, as discussed in more detail below.\77\
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    \77\ Further, the Bureau proposed to move and amend provisions 
in Sec.  1024.21(e) (pertaining to servicer responses to borrower 
inquiries) to new Sec.  1024.35 (error resolution) and Sec.  1024.36 
(information requests). The Bureau's proposal also would have 
removed current Sec.  1024.21(f) (damages), which had restated the 
damages and costs provision in RESPA section 6(f). The Bureau is 
removing this provision from Regulation X, which is no longer 
accurate following amendments to RESPA section 6(f) by section 
1463(b) of the Dodd-Frank Act. The Bureau believes the damages and 
costs provision is more appropriate as a statutory provision.
---------------------------------------------------------------------------

    Section 1024.21(b) through (d) currently requires that borrowers 
receive two notices related to mortgage servicing: (1) A servicing 
disclosure statement provided at application notifying the applicant 
whether the servicing of the loan may be transferred at any time (Sec.  
1024.21(b) and (c)); and (2) if servicing is transferred, a notice of 
transfer provided by the transferor and transferee servicer around the 
time of the transfer (Sec.  1024.21(d)).
33(a) Servicing Disclosure Statement
    RESPA section 6(a) generally sets forth requirements for persons 
making federally related mortgage loans to disclose to loan applicants, 
at the time of application, whether servicing of the loan may be 
assigned, sold, or transferred to any other person at any time while 
the loan is outstanding. 12 U.S.C. 2605(a). Current Sec.  1024.21(b) 
and (c) implements requirements in RESPA section 6(a) related to the 
servicing disclosure statement. The Bureau's proposed Sec.  1024.33(a) 
would have made certain changes to the requirements currently set forth 
in Sec.  1024.21(b) and (c) pertaining to the servicing disclosure 
statement, including changes to the scope of applicability and delivery 
of the servicing disclosure statement, and certain other non-
substantive technical revisions.
    The Bureau proposed to limit the scope of the servicing disclosure 
statement to closed-end reverse mortgage transactions to conform Sec.  
1024.33(a) to the comprehensive amendments to consumer mortgage 
disclosures proposed by the Bureau in the 2012 TILA-RESPA Proposal.\78\ 
Because the Bureau intended to incorporate the servicing disclosure 
statement requirements of RESPA section 6(a) into the consolidated 
disclosure forms for the TILA-RESPA Integrated Disclosure rulemaking, 
the Bureau had proposed to limit the scope of the servicing disclosure 
statement provisions in new Sec.  1024.33 to closed-end reverse 
mortgage transactions because those transactions would not be covered 
by the 2012 TILA-RESPA Proposal.
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    \78\ The Bureau issued the 2012 TILA-RESPA Proposal on July 9, 
2012.
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    After additional consideration, because the Bureau will not be 
finalizing the 2012 TILA-RESPA Proposal until after this final rule, 
the Bureau has decided not to finalize the language in proposed Sec.  
1024.33(a) that would have limited the scope of the provision to 
closed-end reverse mortgage transactions. Instead, the Bureau is 
finalizing Sec.  1024.33(a) by conforming the scope to ``mortgage 
loans'' other than subordinate-lien mortgage loans, as discussed in the 
section-by-section analysis of Sec.  1024.30(c) above. The Bureau is 
excluding subordinate liens in order to maintain the current coverage 
of the servicing disclosure statement requirement in Regulation X.\79\ 
HUD initially implemented this exemption in reliance on its authority 
under section 19(a) of RESPA; \80\ the Bureau relies on the same 
authority to maintain the current exemption. Accordingly, in the final 
rule, the Bureau has added language to Sec.  1024.33(a) so that 
applicants for ``first-lien mortgage loans'' must receive the servicing 
disclosure statement, as indicated at Sec.  1024.30(c)(1). Thus, 
applicants for both reverse and forward mortgage loans must receive the 
servicing disclosure statement. The Bureau expects to harmonize the 
scope of Sec.  1024.33(a) in the final rule implementing the TILA-RESPA 
integrated disclosures and to provide for consolidated disclosure forms 
at that time.
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    \79\ The Bureau notes that it proposed in the 2012 TILA-RESPA 
Proposal to implement the servicing disclosure requirement in RESPA 
section 6(a) through a disclosure appearing on the Bureau's proposed 
Loan Estimate for both first and subordinate liens See 2012 TILA-
RESPA Proposal, 77 FR 51116, 51230 (2012) and proposed Sec.  
1026.19(e)(1)(i).
    \80\ See 59 FR 65442, 65443 (1994).
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    The Bureau also proposed to add comment 33(a)(1)-2 to Sec.  
1024.33(a) to clarify that the servicing disclosure statement need only 
be provided to the ``primary applicant.'' Current Sec.  1024.21(b) 
requires that the servicing disclosure statement be provided to 
mortgage servicing loan applicants, and current Sec.  1024.21(c) 
provides that if co-applicants indicate the same address on their 
application, one copy delivered to that address is sufficient, but that 
if different addresses are shown by co-applicants on the application, a 
copy must be delivered to each of the co-applicants. The Bureau 
proposed to implement through commentary to Sec.  1024.33(a) a 
clarification relating to providing a servicing disclosure statement 
for co-applicants--that when an application involves more than one 
applicant, notification need only be given to one applicant but must be 
given to the primary applicant when one is readily apparent. A credit 
union trade association supported this proposed change.
    In its proposal, the Bureau explained that the modified requirement 
would reduce burdens on servicers without significantly reducing 
consumer protections, given that the Bureau proposed to apply the 
regulation only to closed-end reverse mortgage transactions. The Bureau 
explained that such transactions are typically only conducted with 
regard to a borrower's principal residence and do not involve ongoing 
consumer payments for the life of the loan, so that contact with 
servicers is generally quite minimal. The Bureau also observed that 
amending the current requirement would be consistent with disclosure 
requirements applicable to other Bureau regulations, such as the 
adverse action notice required under Regulation B (Equal Credit 
Opportunity Act).\81\
---------------------------------------------------------------------------

    \81\ See 12 CFR 1002.9(f).
---------------------------------------------------------------------------

    Because the Bureau is not limiting Sec.  1024.33(a) to closed-end 
reverse mortgage transactions in the final rule, as originally 
proposed, the Bureau is not adopting proposed comment 33(a)(1)-2 as 
proposed and is not amending the existing requirement in Sec.  
1024.21(c), under which the servicing disclosure statement must be 
provided to co-applicants if different addresses are shown by co-
applicants. Instead, comment 33(a)-2 contains the same guidance that 
originally appeared in Sec.  1024.21(c): That if co-applicants

[[Page 10727]]

indicate the same address on their application, one copy of the 
servicing disclosure statement delivered to that address is sufficient; 
and that if different addresses are shown by co-applicants on the 
application, a copy must be delivered to each of the co-applicants.
    Finally, in addition to proposing changes about the scope of the 
rule, the Bureau proposed in Sec.  1024.33(a) to make certain non-
substantive changes to language from current Sec.  1024.21(b) and (c) 
to clarify the circumstances under which the servicing disclosure 
statement must be provided and the proper use of appendix MS-1, which 
provides a model form for the servicing disclosure statement. For 
example, Sec.  1024.21(b) currently provides that the servicing 
disclosure statement must be provided ``[a]t the time an application 
for a mortgage servicing loan is submitted, or within three days after 
submission of the application.'' The Bureau's proposed Sec.  1024.33(a) 
stated that the servicing disclosure statement must be provided 
``[w]ithin three days (excluding legal public holidays, Saturdays, and 
Sundays) after a person applies [.]'' The Bureau also proposed to 
incorporate some of the language currently in Sec.  1024.21(b) and (c) 
into new Regulation X official commentary. For example, the Bureau 
proposed to move Sec.  1024.21(b)(1), which explained use of appendix 
MS-2, to new comment 33(a)-1; the Bureau also included generally 
applicable instructions for use of model forms and clauses in 
commentary to appendix MS. The Bureau did not receive comment on this 
aspect of the proposal and adopts these revisions substantially as 
proposed, other than with respect to the scope of the rule, discussed 
above.
    In the final rule, the Bureau has replaced the phrase ``table 
funding mortgage broker'' with the phrase ``mortgage broker who 
anticipates using table funding,'' which the Bureau believes is clearer 
and better conforms to the term that currently appears in Sec.  
1024.21(b)(1). In addition, the Bureau has consolidated proposed 
comments 33(a)(2)-1, -2, and -3 into comment 33(a)-3, which contains 
disclosure preparation instructions currently in Sec.  
1024.21(b)(2).\82\ Comment 33(a)-3 explains that, if the lender, 
mortgage broker who anticipates using table funding, or dealer in a 
first lien dealer loan knows at the time of the disclosure whether it 
will service the mortgage loan for which the applicant has applied, the 
disclosure should, as applicable, state that such entity will service 
such loan and does not intend to sell, transfer, or assign the 
servicing of the loan, or that such entity intends to assign, sell, or 
transfer servicing of such mortgage loan before the first payment is 
due. The comment also provides that, in all other instances, a 
disclosure that states that the servicing of the loan may be assigned, 
sold, or transferred while the loan is outstanding complies with Sec.  
1024.33(a).
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    \82\ The disclosure preparation instructions in current Sec.  
1024.21(b)(2) refer to ``table funding mortgage broker.'' In 
implementing these instructions through comment 33(a)-3, the Bureau 
has replaced that phrase with the phrase ``mortgage broker who 
anticipates using table funding'' to better conform to the language 
in Sec.  1024.33(a).
---------------------------------------------------------------------------

    The final rule also makes a technical revision to the last sentence 
of proposed Sec.  1024.33(a). The final rule provides that the 
servicing disclosure statement is not required to be delivered if ``a 
person who applies for a first-lien mortgage loan is denied credit'' 
within the three-day period.
33(b) Notice of Transfer of Loan Servicing
    RESPA section 6(b) and (c) sets forth the general requirement for 
the transferor and transferee servicers of a federally related mortgage 
loan to notify the borrower in writing of any assignment, sale, or 
transfer of servicing. 12 U.S.C. 2605(b) and (c). These statutory 
requirements are implemented through current Sec.  1024.21(d). The 
Bureau had proposed to move and adopt substantially all of these 
requirements to new Sec.  1024.33(b), with a few exceptions, as 
explained in the section-by-section analysis below. The Bureau's 
proposal also would have made certain non-substantive revisions to 
current Sec.  1024.21(d) to clarify existing servicing transfer 
requirements.\83\ New Sec.  1024.33(b)(1) sets forth the general 
requirement to provide the servicing transfer notice. New Sec.  
1024.33(b)(2) sets forth the transfers for which a servicing transfer 
is not required. New Sec.  1024.33(b)(3) sets forth the timing 
requirements of the notice. New Sec.  1024.33(b)(4) sets forth the 
content requirements for the servicing transfer notice. The Bureau is 
generally adopting these provisions as proposed, except as noted in the 
section-by-section analysis below.
---------------------------------------------------------------------------

    \83\ For example, the Bureau changed ``consumer inquiry 
address,'' under Sec.  1024.21(d)(3)(ii) to an address ``that can be 
contacted by the borrower to obtain answers to servicing transfer 
inquiries,'' under Sec.  1024.33(b)(4)(ii). The Bureau also changed 
the provision in Sec.  1024.21(d)(3)(v) regarding ``[i]nformation 
concerning any effect the transfer may have'' on the terms of the 
continued availability of mortgage life or disability insurance, to 
a requirement in Sec.  1024.33(d)(3)(v) to include information 
``[w]hether the transfer will affect'' the terms or the continued 
availability of mortgage life or disability insurance.
---------------------------------------------------------------------------

33(b)(1) Requirements for Notice and 33(b)(2) Certain Transfers 
Excluded
    RESPA section 6(b)(1) and (c)(1) sets forth the general 
requirements for the transferor and transferee servicers to provide a 
notice of servicing transfer for any federally related mortgage loan 
that is assigned, sold, or transferred. 12 U.S.C. 2605(b)(1) and 
(c)(1). Current Sec.  1024.21(d)(1)(i) implements the general 
requirement for the transferor and transferee servicers to provide the 
notice of transfer, which the Bureau proposed to move to new Sec.  
1024.33(b)(1). Unlike the servicing disclosure statement that the 
Bureau proposed in Sec.  1024.33(a) to apply only to closed-end reverse 
mortgage transactions,\84\ the Bureau proposed that the servicing 
transfer notice be provided with respect to the transfer of a 
``mortgage loan,'' including forward and reverse mortgage loans.
---------------------------------------------------------------------------

    \84\ As noted in the section-by-section analysis of Sec.  
1024.33(a), the Bureau is finalizing the servicing disclosure 
statement requirement for first-lien mortgage loans, including 
forward and reverse mortgage loans.
---------------------------------------------------------------------------

    The Bureau proposed to include in Sec.  1024.33(b)(1) a statement 
that appendix MS-2 contains a model form for the notice. The reference 
to appendix MS-2 was previously located in Sec.  1024.21(d)(4). Section 
1024.21(d)(4) also contained language indicating that servicers could 
make minor modifications to the sample language but that the substance 
of the sample language could not be omitted or substantially altered. 
Similar language now appears in a general comment to appendix MS in 
comment MS-2, discussed below in the section-by-section analysis of 
appendix MS. The Bureau did not receive comment on these proposed 
provisions and is adopting them in the final rule.
    Current Sec.  1024.21(d)(i) exempts certain transactions from the 
requirement to provide the notice of transfer (if there is no change in 
the payee, address to which payment must be delivered, account number, 
or amount of payment due): Transfers between affiliates, transfers 
resulting from mergers or acquisitions of servicers or subservicers, 
and transfers between master servicers where the subservicer remains 
the same. The Bureau did not receive comment on these proposed 
provisions and is adopting them in the final rule.
    Current Sec.  1024.21(d)(ii) exempts the FHA from the requirement 
to provide a transfer notice where a mortgage insured under the 
National Housing Act

[[Page 10728]]

is assigned to the FHA. The Bureau proposed to move this provisions to 
new Sec.  1024.33(b)(2)(i)(ii). HUD initially implemented this 
exemption in reliance on its authority under section 19(a) of RESPA; 
\85\ the Bureau relies on the same authority to maintain the current 
exemption. The Bureau did not receive comment on this proposed 
provision and is adopting it in the final rule.
---------------------------------------------------------------------------

    \85\ See 59 FR 65442, 65443 (1994).
---------------------------------------------------------------------------

33(b)(3) Time of the Notice
33(b)(3)(i) In General
Timing of the Transferor and Transferee Notices
    RESPA section 6(b)(2)(A) requires that the transferor's notice be 
provided not less than 15 days before the effective date of transfer of 
servicing, except as provided in RESPA section 6(b)(2)(B) and (C), 
which provides that the notice may be provided under different 
timeframes in certain cases. 12 U.S.C. 2605(b)(2)(A). RESPA section 
6(c)(2)(A) requires that the transferee's notice be provided not more 
than 15 days after the effective date of transfer, except as provided 
in RESPA section 6(c)(2)(B) and (C). 12 U.S.C. 2605(c)(2)(A). Current 
Sec.  1024.21(d)(2)(i) implements these requirements and provides that, 
except as provided in paragraph (d)(1)(i) or (d)(2)(ii), the notice of 
transfer must be provided by the transferor not less than 15 days 
before the effective date of the transfer and by the transferee not 
more than 15 days after the effective date of the transfer. The Bureau 
proposed to move these requirements to new Sec.  1024.33(b)(3)(i).
    Several individual consumers suggested that a 15-day timeframe was 
too short a period for borrowers to make adjustments with respect to 
whom they should direct their mortgage payments. They recommended that 
transferees should be required to provide the transfer notice 30 to 45 
days in advance of the effective date of transfer. In its final rule, 
the Bureau is not adjusting the exiting timing requirements. The 15-day 
time period was established by Congress, which reasonably concluded 
that this time period provides borrowers with sufficient time to make 
adjustments to any automated payment systems. In addition, the Bureau 
believes that there is minimal risk to borrowers who may be unable to 
send payments to the proper servicer after a transfer. Pursuant to 
Sec.  1024.33(c)(1), servicers generally may not treat a payment as 
late for 60 days after a transfer if a borrower makes a timely but 
misdirected payment to the transferee servicer.
    Delivery. Subparagraphs (b)(1) and (c)(1) of RESPA section 6 
require that the transferor and transferee servicer notify ``the 
borrower'' of any assignment, sale, or transfer of servicing. Current 
Sec.  1024.21(d)(1)(i) implements these requirements by requiring that 
notices be delivered to ``the borrower.'' However, unlike as set forth 
in current Sec.  1024.21(c) with respect to the servicing disclosure 
statement, current Sec.  1024.21(d) does not contain specific delivery 
instructions for delivering servicing transfer notice under Sec.  
1024.21(d) to multiple borrowers. The Bureau proposed comment 33(b)(3)-
2 to clarify that a notice of transfer should be delivered to the 
mailing address listed by the borrower in the mortgage loan documents, 
unless the borrower has notified the servicer of a new address pursuant 
to the servicer's requirements for receiving a notice of a change of 
address. Proposed comment 33(b)(3)-2 further clarified that when a 
mortgage loan has more than one borrower, the notice of transfer need 
only be given to one borrower, but must be given to the primary 
borrower when one is readily apparent.
    The Bureau did not receive comment on the language in proposed 
comment 33(b)(3)-2 clarifying that a servicer deliver the notice of 
transfer to the mailing address listed by the borrower in the mortgage 
loan documents unless the borrower has notified the servicer of a new 
address pursuant to the servicer's requirements for receiving a notice 
of a change in address. However, the Bureau did receive comment on the 
proposed language clarifying that servicers may provide the transfer 
notice to the ``primary'' borrower. Industry commenters supported the 
proposed limitation to provide the transfer notice only to the primary 
borrower. One industry commenter indicated, however, that servicers 
generally will not know who the primary borrower is, noting that 
servicers would likely rely on the owner's or a prior servicer's 
designation in servicer transfer instructions, or the party that is 
listed first on the note. The industry commenter recommended that the 
Bureau permit such reliance.
    Two consumer advocacy groups recommended that the Bureau omit this 
comment. These commenters were concerned that providing notice to only 
one party would not ensure that multiple obligors, or even the party 
who is actually making payments on the mortgage, would receive it. For 
example, in the event of a divorce or separation, a ``primary'' 
borrower could be a spouse who is no longer living at home but who has 
submitted a change-of-address notice to the servicer. In another 
scenario, a borrower not living at home could be under a family court 
order to make mortgage payments even though the borrower is not a 
``primary'' borrower. In these types of cases, the consumer groups were 
concerned that borrowers not considered ``primary'' would not receive 
the transfer notice. The consumer groups also raised concern about the 
lack of a definition of ``primary'' borrower and observed that, even if 
a definition were provided, a servicer's original designation of 
``primary'' may become inaccurate over time if the obligors' 
relationship changes or other changed circumstances arise. The consumer 
groups also noted that sending two notices is not costly, would 
simplify compliance, and would reduce the risk that an interested 
borrower would not receive the notice.
    In light of comments received, the Bureau is not adopting the 
proposed comment 33(b)(3)-2 regarding delivery to ``primary'' 
borrowers. The Bureau recognizes that a party who may be ``primary'' at 
application could change over time without the servicer's knowledge, 
which could be problematic for borrowers responsible for making ongoing 
payments to their servicer. The Bureau believes that servicers should 
be responsible for providing a notice to the address listed by the 
borrower in the mortgage loan documents or different addresses they 
have received through their own procedures, consistent with Sec.  
1024.11 \86\ and applicable case law.\87\ The Bureau has otherwise 
retained proposed comment 33(b)(3)-2 substantially as proposed. The 
Bureau has omitted the comment limiting delivery to ``primary'' 
borrowers, added parenthetical language about providing the notice to 
``addresses,'' and has renumbered the comment as 33(b)(3)-1 because of 
the deletion of proposed comment 33(b)(3)-1 discussed above. Comment 
33(b)(3)-1 explains that a servicer mailing the notice of transfer

[[Page 10729]]

must deliver the notice to the mailing address (or addresses) listed by 
the borrower in the mortgage loan documents, unless the borrower has 
notified the servicer of a new address (or addresses) pursuant to the 
servicer's requirements for receiving a notice of a change in address.
---------------------------------------------------------------------------

    \86\ Section 1024.11 provides that ``the provisions of [part 
1024] requiring or permitting mailing of documents shall be deemed 
to be satisfied by placing the document in the mail (whether or not 
received by the addressee) addressed to the addresses stated in the 
loan application or in the other information submitted to or 
obtained by the lender at the time of loan application or submitted 
or obtained by the lender or settlement agent, except that a revised 
address shall be used where the lender or settlement agent has been 
expressly informed in writing of a change in address.''
    \87\ See Rodriguez v. Countrywide Homes et al., 668 F. Supp. 2d 
1239, 1245 (E.D. Ca. 2009) (``Countrywide submits, and the Court 
agrees, that RESPA requires a lender to send a Good Bye letter to 
the Mailing Address listed by the borrower in the loan documents. 
When the borrower submits an express change of mailing address, the 
lender is required to send the Good Bye letter to the new 
address.'').
---------------------------------------------------------------------------

33(b)(3)(ii) Extended Time
    RESPA section (b)(2)(B) and (c)(2)(B) contains exemptions from the 
general requirements that the transferor notice be provided not less 
than 15 days before the effective date of transfer and that the 
transferee notice be provided not more than 15 days after the effective 
date of transfer. 12 U.S.C. 2605(b)(2)(B) and (c)(2)(B). Paragraphs 
(b)(2)(B) and (c)(2)(B) permit these notices to be provided not more 
than 30 days after the effective date of assignment, sale, or transfer 
that is preceded by the termination of a servicing contract for cause, 
a servicer's bankruptcy, or the commencement of proceedings by the FDIC 
for conservatorship or receivership of the servicer. These exemptions 
to the general timing requirements are currently set forth in Sec.  
1024.21(d)(2)(ii).
    The Bureau had proposed to adopt the existing exemptions and add 
Sec.  1024.33(b)(3)(ii)(D), which would extend the current 30-day 
exemption to situations in which the transfer of servicing is preceded 
by commencement of proceedings by the NCUA for appointment of a 
conservator or liquidating agent of the servicer or an entity that owns 
or controls the servicer. The Bureau did not receive comment on this 
aspect of the proposal and is adopting new Sec.  1024.33(b)(3)(ii)(D) 
as proposed.
    As is evident by RESPA section 6(b)(2)(B) and (c)(2)(B), one of the 
purposes of RESPA is to provide exemptions from the general transfer 
notice timing requirements for servicing transfers occurring in the 
context of troubled institutions involving the appointment of an agent 
by a Federal agency, such as those in which a servicing transfer is 
preceded by the commencement of proceedings by the FDIC for 
conservatorship or receivership of the servicer (or an entity by which 
the servicer is owned or controlled). The Bureau does not believe that 
the timing for providing a servicing transfer disclosure should differ 
for an insured credit union in the process of conservatorship of 
liquidation by the NCUA compared to an insured depository institution 
in the process of conservatorship or receivership by the FDIC. Thus, 
because the Bureau believes institutions for which the NCUA has 
commenced proceedings to appoint a conservator or liquidating agent 
should be treated similarly to those for which the FDIC has commenced 
proceedings to appoint a conservator or receiver, the Bureau believes 
Sec.  1024.33(b)(3)(ii)(D) is necessary to achieve the purposes of 
RESPA. Accordingly, the Bureau exercises its authority under RESPA 
section 19(a) to grant reasonable exemptions for classes of 
transactions necessary to achieve the purposes of RESPA.
33(b)(3)(iii) Notice Provided at Settlement
    RESPA section 6(b)(2)(C) and (c)(2)(C) generally provides that the 
timing requirements of the transferor and transferee notices at RESPA 
section 6(b)(2)(A) and (B), and (c)(2)(A) and (B) do not apply if the 
person making the loan provides a transfer notice to the borrower at 
settlement. Current Sec.  1024.21(d)(2)(iii) implements these 
provisions and provides that notices of transfer delivered at 
settlement by the transferor servicer and transferee servicer, whether 
as separate notices or as a combined notice, satisfy the timing 
requirements of Sec.  1024.21(d)(2). The Bureau proposed to move this 
provision to new comment 33(b)(3)-1 substantially as in the 
original.\88\ The Bureau did not receive comment on this aspect of the 
proposal. The Bureau is adopting the substance of the language in the 
proposed commentary but is placing the language in new Sec.  
1024.33(b)(3)(iii) instead of official commentary to more closely track 
the requirements of the statute.
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    \88\ Whereas Sec.  1024.21(d)(2)(iii) describes a notice of 
transfer ``delivered'' at settlement, Sec.  1024.33(b)(3)(iii) 
describes a notice of transfer ``provided'' at settlement. The 
Bureau has made this change to conform to the language of RESPA 
section 6(b)(2)(C) and (c)(2)(C) and other similar technical 
amendments throughout Regulation X.
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33(b)(4) Contents of Notice
Overview
    RESPA section 6(b)(3) sets forth content requirements for the 
transferor notice, and RESPA section 6(c)(3) requires that the 
transferee notice contain the same content required by RESPA section 
6(b)(3). 12 U.S.C. 2605(b)(3) and (c)(3). RESPA section 6(b)(3)(A) 
through (G) requires that the transferor and transferee notice contain 
the effective date of transfer, contact information for the transferee 
servicer, the name of an individual or department of the transferor and 
transferee servicer who may be contacted for borrower inquiries, the 
date on which the transferor will stop accepting payments and the date 
on which the transferee servicers will begin accepting payments, any 
information about the effect of the transfer on the availability of 
insurance, and a statement that the transfer will not affect any term 
or condition of the mortgage loan, other than servicing. These 
requirements are currently implemented by Sec.  1024.21(d)(3)(i) 
through (vi). Section 1024.21(d)(3)(vii) also requires servicers to 
include a statement of the borrower's rights in connection with 
complaint resolution, including the information set forth in Sec.  
1024.21(e), as illustrated by current appendix MS-2.
    The Bureau proposed to adopt most of the existing content 
requirements from current Sec.  1024.21(d)(3), with the exception of 
the complaint resolution statement in Sec.  1024.21(d)(3)(viii) and 
certain other changes discussed in more detail below. Except as 
otherwise discussed below, the Bureau is adopting Sec.  1024.33(b)(4) 
as proposed. Accordingly, Sec.  1024.34(b)(4) sets forth content 
requirements for the transfer notice, including the effective date of 
the servicing transfer; the name, address, and telephone number for the 
transferor and transferee servicers to answer inquiries related to the 
transfer of servicing; the date on which the transferor will stop 
accepting payments and the date the transferee will begin accepting 
payments, as well as the address for the transferee servicer to which 
borrower payments should be sent; information about whether the 
transfer will affect the terms or availability of insurance coverage; 
and a statement indicating that the transfer does not affect any of the 
mortgage loan terms other than servicing.
    Information about loan status. Two consumer advocacy groups also 
requested that the Bureau require that transfer notices provide 
information about the default status of the loan and include a full 
payment history. The groups explained that many servicing problems 
occur at or near the time of transferring servicing records and that 
errors involving one or two payments can spiral into a threatened 
foreclosure despite borrower efforts to prove that payments were in 
fact made. Thus, the consumer groups recommended that the transfer 
notices should advise if the homeowner is current and whether there are 
any unpaid fees, and the status of loss mitigation options being 
considered. They also recommended that a full payment history, 
including allocation of the payments to interest, principal, late fees, 
and other fees should be included by both the old and the new servicer, 
so that the homeowner may promptly ascertain if there is a discrepancy 
in the records. These commenters also requested that the

[[Page 10730]]

Bureau require that fees not listed in a payment history provided at 
the transfer of servicing be waived.
    The Bureau recognizes the problems that can arise when servicing is 
transferred, especially in the case of a borrower who is not current at 
the time of transfer. However, requiring individualized information 
about each borrower's loan could significantly affect the time required 
to produce the notice as well as the cost. Moreover, the Bureau 
believes that other new provisions being finalized in Regulation X and 
Regulation Z will adequately address borrowers' interests in ensuring 
the accuracy of transferred records concerning their payment history. 
First, borrowers will be able to obtain information about their current 
payment status on a monthly basis on the periodic statement required 
under the Regulation Z provision that the Bureau is finalizing in the 
2013 TILA Mortgage Servicing Final Rule. That statement will show, 
among other things, the payment amount due, the amount of any late 
payment fee, the total sum of any fees or charges imposed since the 
last statement, the total of all payments received since the last 
statement, the total of all payments received since the beginning of 
the current calendar year, transaction activity since the last 
statement, the outstanding principal balance, the borrower's 
delinquency status, amounts past due from previous billing cycles, and 
the total payment amount needed to bring the account current. As a 
result, if there are discrepancies between the last statement provided 
by the prior servicer and the first statement provided by the new 
servicer, those discrepancies will be apparent on the face of the 
statements. Second, borrowers will also be able to assert errors and 
request information about their payment history and current status 
through the new error resolution and information request provisions of 
Regulation X Sec. Sec.  1024.35 and 1024.36; and new Sec.  
1024.38(b)(1)(iii) requires servicers to maintain policies and 
procedures reasonably designed to ensure that the servicer can provide 
a borrower with accurate and timely information and documents in 
response to the borrower's requests for information with respect to the 
servicing of the borrower's mortgage loan account. Third, new Sec.  
1024.38(b)(4) generally requires servicers to maintain policies and 
procedures reasonably designed to ensure (as a transferor servicer) the 
timely transfer of all information and documents in a manner that 
ensures the accuracy of information and documents transferred, and (as 
a transferee servicer) identify necessary documents or information that 
may not have been transferred by a transferor servicer and obtain such 
documents from the transferor servicer. Fourth, new Sec.  1024.38(c)(2) 
generally requires, among other things, that servicers maintain a 
schedule of all transactions credited or debited to the mortgage loan 
account, including any escrow account defined in Sec.  1024.17(b) and 
any suspense account and data in a manner that facilitates compiling 
such documents and data into a servicing file within five days. In 
light of these provisions, the Bureau does not believe that the cost of 
providing the default status of the loan or a full payment history with 
the servicing transfer notice for all borrowers would be justified.
    Statement of borrower's rights in connection with the complaint 
resolution process. Although not specifically required by RESPA section 
6(b)(3), current Sec.  1024.21(d)(3)(vii) requires that the transfer 
notice include a statement of the borrower's rights in connection with 
the complaint resolution process. The Bureau proposed to remove this 
requirement from the servicing transfer notice in new Sec.  
1024.33(b)(4). Two consumer advocacy groups requested that the Bureau 
retain the current requirement, noting that borrowers would benefit 
from being informed of their rights related to errors and information 
requests. They asserted that retaining an existing disclosure would not 
add new burden. Further, they asserted that omitting the disclosure 
would not significantly reduce burden because the language in the 
proposed revised model notice (without the complaint resolution 
statement) at appendix MS-2 would likely only comprise one page, and 
that adding a paragraph about the error resolution and information 
rights might at most extend some of the information to the back side of 
the notice, but would not require an additional page or increased 
postage.
    After considering the comments received, the Bureau has decided to 
adopt Sec.  1024.33(b)(4) without a requirement to provide information 
about complaint resolution, as proposed. The Bureau believes that 
borrowers are best served by providing a notice that clearly and 
concisely explains that the servicing of their mortgage is being 
transferred, and that detailed information about the error resolution 
and information request process may not always be optimally located in 
the transfer notice. Additionally, as a result of amendments to the 
error resolution and information request procedures that the Bureau is 
finalizing in this rule, the existing disclosure in current appendix 
MS-2 would no longer be completely accurate.
    The Bureau agrees that borrowers should be notified of their rights 
in connection with errors and inquiries, but the Bureau believes that 
borrowers should be informed of the error resolution and information 
request process through mechanisms that do not necessarily depend on 
the transfer of servicing. To address this, the Bureau is adding a 
requirement in Sec.  1024.38(b)(5) that servicers maintain policies and 
procedures reasonably designed to ensure that servicers inform 
borrowers of procedures for submitting written notices of error set 
forth in Sec.  1024.35 and written information requests set forth in 
Sec.  1024.36. New comment 38(b)(5)-1 explains, among other things, 
that a servicer may comply with Sec.  1024.38(b)(5) by including in the 
periodic statement required pursuant to Sec.  1026.41 a brief statement 
informing borrowers that borrowers have certain rights under Federal 
law related to resolving errors and requesting information about their 
account, and that they may learn more about their rights by contacting 
the servicer, and a statement directing borrowers to a Web site that 
provides the information about the procedures set forth in Sec. Sec.  
1024.35 and 1024.36.\89\
---------------------------------------------------------------------------

    \89\ During the fourth round of consumer testing in 
Philadelphia, Pennsylvania, the Bureau tested a brief statement 
informing borrowers that they have rights associated with resolving 
errors. While participants generally understood the meaning of the 
clause, the Bureau is not finalizing model language for a statement 
informing borrowers of their rights to resolve errors and request 
information.
---------------------------------------------------------------------------

    The Bureau believes that a requirement to establish policies and 
procedures to achieve the objective of notifying borrowers of the 
written error resolution and information request procedures set forth 
in Sec. Sec.  1024.35 and 36 will provide servicers with more 
flexibility to the time and in a manner in which to notify borrowers 
about the written error resolution and information request procedures. 
Specifically, the Bureau expects that servicers may decide to inform 
borrowers about these procedures at a time and in a manner that 
borrowers are more likely to find beneficial than at the time of 
servicing transfer. Further, as described in more detail in the 
section-by-section analysis of Sec.  1024.40, pursuant to Sec.  
1024.40(b)(4), servicers must have policies and procedures reasonably 
designed to ensure that continuity of contact personnel assigned to 
assist delinquent borrowers provide such borrowers with information 
about the procedures for

[[Page 10731]]

submitting a notice of error pursuant to Sec.  1024.35 or an 
information request pursuant to Sec.  1024.36.
    Finally, the Bureau believes borrowers are most likely to raise 
questions and complaints with servicers outside of the formal process 
outlined in Sec. Sec.  1024.35 and 36. To ensure that servicers have 
systems in place for responding to errors and information requests 
through informal means, the Bureau believes servicers should have 
reasonable policies and procedures in place for responding to errors 
and information requests that fall outside of the required error 
resolution and information request procedures set forth in Sec. Sec.  
1024.35 and 36. Accordingly, as discussed in more detail in the 
section-by-section analysis of Sec.  1024.38(b)(1), the Bureau is 
adopting Sec.  1024.38(b)(1)(ii) and (iii), which generally requires 
that servicers maintain policies and procedures that are reasonably 
designed to ensure that the servicer can investigate, respond to, and, 
as appropriate, make corrections in response to borrower complaints, 
and provide accurate and timely information and documents in response 
to borrower information requests. Therefore, for the reasons discussed 
above, the Bureau is adopting the proposal to remove the requirement 
that the servicing transfer notice describe the complaint resolution 
statement currently set forth in Sec.  1024.21(d)(3)(vii).
33(b)(4)(ii) and (b)(4)(iii)
    RESPA section 6(b)(3)(C) and (D) requires that the transferor and 
transferee notices include the name and a toll-free or collect call 
telephone number for an individual employee or the department of the 
transferor and transferee servicers that can be contacted by the 
borrower to answer inquiries relating to the transfer of servicing. 12 
U.S.C. 2605(b)(3)(C) and (D). The Bureau proposed to implement these 
requirements, currently in Sec.  1024.21(d)(3)(ii) and (iii), through 
new Sec.  1024.33(b)(4)(ii) and (iii).
    The Bureau's proposal would have retained the requirement to 
provide contact information for ``an employee or department'' of the 
transferor and transferee servicers. The Bureau had also proposed in 
Sec.  1024.33(b)(4)(ii) and (iii) to remove the requirement that the 
transferor and transferee servicers provide collect call telephone 
numbers, but to retain the requirement to provide toll-free telephone 
numbers. Accordingly, proposed Sec.  1024.33(b)(4)(ii) and (iii) would 
have required that servicers provide only a toll-free telephone number 
for an employee or department of the transferee servicer that can be 
contacted by the borrower to obtain answers to servicing transfer 
inquiries. The Bureau's proposal also would have required that the 
transferor notice include the address for an employee or department of 
the transferor servicer that can be contacted by the borrower to obtain 
answers to servicing transfer inquiries. Current Sec.  
1024.21(d)(3)(iii) requires only that the notice list telephone contact 
information to reach an employee or department of the transferor 
servicer.
    One industry commenter indicated that providing an individual 
employee name may not be appropriate in all cases because individuals 
can change roles within a servicer's organization. The commenter 
requested that only contact information for a servicing department be 
required. One individual consumer recommended requiring that the notice 
of transfer identify the owner or assignee of the loan, without contact 
information, in addition to contact information for the transferor and 
transferee servicers. Another individual consumer also recommended that 
the transfer notice include a plain language explanation of what 
``owning'' and ``servicing'' a loan mean.
    The Bureau is adopting the requirements in proposed Sec.  
1024.33(b)(4)(ii) and (iii) substantially as proposed. However, the 
Bureau is retaining the option to include a collect call number 
because, upon further consideration, the Bureau believes some servicers 
may continue to use collect call numbers. The Bureau is also retaining 
the requirement to provide contact information for either an employee 
or department in the final rule. Neither the statute nor the regulatory 
provision requires servicers to list specific employees but instead 
gives servicers the option of listing personnel or a department contact 
number. The Bureau believes servicers should be able to determine the 
most appropriate point of contact within their organizations. While the 
Bureau recognizes that servicer personnel may change over time, the 
Bureau does not believe that there is significant risk from the 
potential that contact information may be inaccurate because servicers 
are required under Sec.  1024.38 to have policies and procedures in 
place to achieve the objective of providing accurate information to 
borrowers. Servicers may choose to provide department-level contacts to 
ease their own compliance. The Bureau believes borrowers would likely 
benefit from the disclosure of specific employees to the extent the 
servicer decides to list them.
    The Bureau has considered the recommendation to require that the 
servicing transfer notice identify the owner or assignee of the loan in 
addition to contact information for the transferor and transferee 
servicer but is not adopting such a requirement in the final rule. 
First, the Bureau notes that the servicing disclosure statement 
provided at application pursuant to Sec.  1024.33(a) already provides 
information about whether the lender, mortgage broker who anticipates 
using table funding, or dealer may assign, sell, or transfer the 
mortgage servicing to any other person at any time. Additionally, the 
Bureau believes the language in the model form at appendix MS-2, 
explaining that a new servicer will be collecting the borrower's 
mortgage loan payments and that nothing else about the borrower's 
mortgage loan will change, will avoid potential confusion about what 
the transfer of servicing means for a borrower's loan. Additionally, as 
explained above, the Bureau believes that borrowers are best served by 
a transfer notice that sets forth the most relevant information related 
to the transfer of servicing of their loan and who should receive their 
payments requiring additional information in the notice about the owner 
or the loan may be confusing. Finally, the servicing transfer notice 
will include contact information for the transferor and transferee 
servicer that the borrower may contact with any questions.\90\
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    \90\ Pursuant to Sec.  1024.36(d)(2)(i)(A), a servicer generally 
must respond within 10 days to borrower requests for information 
about the identify or, and address or relevant contact information 
for, the owner or assignee of the borrower's mortgage loan.
---------------------------------------------------------------------------

33(b)(4)(iv)
    RESPA section 6(b)(3)(E) requires that the transferor and 
transferee notices provide the date on which the transferor will cease 
to accept payments relating to the loan and the date on which the 
transferee servicer will begin to accept such payments. 12 U.S.C. 
2605(b)(3)(E). This requirement is currently in Sec.  
1024.21(d)(3)(iv), which the Bureau proposed to implement through 
proposed Sec.  1024.33(b)(4)(iv).
    Several individual consumers indicated that the transfer notice 
could provide clearer instructions for how borrowers should submit 
payments after the effective date of transfer date. One individual 
consumer recommended that the notice should list the Web site address 
for transferee servicer and the proper address to submit electronic 
payments. Other consumers recommended that the notice explain which 
servicer is responsible for making payments from any escrow account for

[[Page 10732]]

property taxes and insurance and the effective date of such payments.
    Current Sec.  1024.21(d)(3)(i) requires and the current model form 
in appendix MS-2 include a statement directing borrowers to send all 
payments due on or after the effective date of transfer to the new 
servicer.\91\ The Bureau's proposed amendments to the model notice 
contained similar language but included space for the transferee 
servicer's payment address.\92\ The Bureau is adopting this change to 
the model form in the final rule. See appendix MS-2. The Bureau 
believes this change to the model form will provide clear instructions 
to borrowers for the submission of future payments to the transferee.
---------------------------------------------------------------------------

    \91\ Appendix MS-2 currently states, ``Send all payments due on 
or after that date to your new servicer.''
    \92\ The Bureau proposed to amend appendix MS-2 to state, ``Send 
all payments due on or after [Date] to [Name of new servicer] at 
this address: [New servicer address].''
---------------------------------------------------------------------------

    The Bureau does not believe it is necessary to amend the regulatory 
text of Sec.  1024.33(b)(4)(iv) because the Bureau believes servicers 
have an incentive to instruct borrowers where to send future payments, 
and the Bureau is concerned that a regulatory requirement to identify 
payment instructions, including electronic payment instructions, could 
be overly prescriptive. Moreover, Sec.  1024.33(b)(ii) and (iii) 
requires transferor and transferee servicers to provide the contact 
information for borrowers to obtain answers to inquiries about the 
transfer; the Bureau believes that borrowers requiring further 
instruction about submitting payments would make use of this contact 
information.
33(c) Borrower Payments During Transfer of Servicing
33(c)(1) Payments Not Considered Late
    RESPA section 6(d) provides that, during the 60-day period 
beginning on the effective date of transfer of servicing of any 
federally related mortgage loan, a late fee may not be imposed on the 
borrower with respect to any payment on such loan and no such payment 
may be treated as late for any other purposes, if the payment is 
received by the transferor servicer (rather than the transferee 
servicer who should properly receive the payment) before the due date 
applicable to such payment. This provision is implemented through Sec.  
1024.21(d)(5). The Bureau proposed to retain that general requirement 
in new Sec.  1024.33(c) by making a clarifying revision to the 
regulatory text--i.e., that such misdirected payment may not be treated 
as late ``for any purpose.''
    The Bureau also proposed to add a qualification to that general 
prohibition to conform new Sec.  1024.33(c)(1) with the requirements in 
new Sec.  1024.39 by clarifying that a borrower's account may be 
considered late for purposes of contacting the borrower for early 
intervention. Proposed Sec.  1024.39 would have required servicers to 
provide oral and written notices to borrowers about the availability of 
loss mitigation options within 30 and 40 days after a missed payment, 
respectively.
    The Bureau did not receive comment on this aspect of the proposal 
and is adopting Sec.  1024.33(c)(1) substantially as proposed, except 
with respect to the statement referencing Sec.  1024.39. The Bureau is 
adding new comment 33(c)(1)-1, to clarify that the prohibition on 
treating a payment as late for any purpose in Sec.  1024.33(c)(1) 
includes a prohibition on imposing a late fee on the borrower with 
respect to any payment on the mortgage loan, with a cross-reference to 
RESPA section 6(d) in order to clarify that the statutory prohibition 
on charging late fees remains in effect notwithstanding the change to 
the language of the regulatory provision.
    In the final rule, the Bureau is not adopting the proposed 
qualifying language regarding Sec.  1024.39 as regulatory text, but 
instead is adopting this language as new comment 33(c)(1)-2. New 
comment 33(c)(1)-2 clarifies that a transferee servicer's compliance 
with 1024.39 during the 60-day period beginning on the effective date 
of a servicing transfer does not constitute treating a payment as late 
for purposes of Sec.  1024.33(c)(1). The Bureau believes this provision 
is more appropriately located as commentary than regulatory text 
because it is an interpretation of the prohibition on treating a 
payment as late.
    The early intervention rules are new requirements designed to 
inform delinquent borrowers about loss mitigation options. While a 
borrower who has made a timely but misdirected payment is not likely to 
benefit from information about early intervention, transferee servicers 
may not know the reasons for a missed payment if they are unable to 
establish live contact with borrowers pursuant to Sec.  1024.39(a) 
(requiring that servicers establish live contact or make good faith 
efforts to do so by the 36th day of a borrower's delinquency). In the 
face of this uncertainty, transferee servicers may decide the best 
course of action is to comply with Sec.  1024.39, as applicable. In 
these situations, the Bureau does not believe a servicer complying with 
Sec.  1024.39 is treating a borrower as late within the meaning of 
RESPA section 6(d).
33(c)(2) Treatment of Payments
    The Bureau also proposed to add a requirement in proposed Sec.  
1024.33(c)(2) that, in connection with a servicing transfer, a 
transferor servicer shall promptly either transfer a payment it has 
received incorrectly to the transferee servicer for application to a 
borrower's mortgage loan account or return the payment to the person 
that made the payment to the transferor servicer. The Bureau explained 
that many servicers already transfer misdirected payments to the 
appropriate servicer in connection with a servicing transfer, and the 
Bureau requested comment regarding whether the option to return the 
payment to the borrower should be eliminated.
    One industry commenter supported the proposed provision, but two 
consumer advocacy groups and a number of individual consumers requested 
that the Bureau require the transferring servicer to forward all 
payments received from borrowers after the transfer date to the 
appropriate servicer. Consumer groups and individual consumers were 
concerned that returning misdirected payments to the borrower would 
lead to confusion, defaults, unnecessary fees, and potentially more 
foreclosures. Consumer groups believed that the transferor servicer 
could easily pass payments on to the transferee servicer, reducing the 
opportunity for unnecessary harm to borrowers. Similarly, one 
individual consumer suggested that the borrower should be permitted to 
make payments to the transferor servicer during the 60 days after the 
transfer date. Another individual consumer recommended that the 
transferee servicer should be responsible for collecting payments from 
the transferor servicer. Another consumer recommended that transferee 
servicer should be required to take steps to remind the borrower to 
send payments to the new servicer.
    After consideration of the comments received, the Bureau has 
decided to adopt Sec.  1024.33(c)(2) substantially as proposed. As 
discussed in more detail below, the Bureau believes that this 
requirement is necessary and appropriate to achieve the consumer 
protection purposes of RESPA, including ensuring the avoidance of 
unnecessary and unwarranted charges and the provision of accurate 
information to borrowers. Accordingly, the provision is authorized 
under sections 6(j)(3), 6(k)(1)(E), and 19(a) of RESPA.

[[Page 10733]]

    The Bureau has added clarifying language to Sec.  1024.33(c)(2) and 
has made conforming edits to Sec.  1024.33(c)(2)(i) and (ii) to clarify 
the circumstances under which the transferor servicer must take action 
with respect to misdirected payments. Section 1024.33(c)(2) now 
provides that, beginning on the effective date of transfer of the 
servicing of any mortgage loan, with respect to payments received 
incorrectly by the transferor servicer (rather than the transferee 
servicer that should properly receive the payment on the loan), the 
transferor servicer shall promptly take action described in either 
paragraph (c)(2)(i) or (c)(2)(ii). The Bureau has modeled this language 
on the language of Sec.  1024.33(c)(1) (payments not considered late). 
The Bureau does not intend any substantive difference from proposed 
Sec.  1024.33(c)(2).
    The Bureau has also added language to Sec.  1024.33(c)(2)(ii) to 
provide that if a servicer does not transfer a misdirected payment to 
the transferee servicer, the servicer must return the payment to the 
person that made the payment to the transferor servicer and notify the 
payor of the proper recipient of the payment. The Bureau believes Sec.  
1024.33(c)(2) will ensure that transferor servicers take some action 
with respect to misdirected payments; otherwise, transferor servicers 
may claim that they had no obligation with respect to misdirected 
payments. The Bureau also believes it is reasonable to permit 
transferors to either return a misdirected payment to the payor or 
transmit the payment to the transferee servicer because there may be 
circumstances in which a borrower would want to be notified that the 
payment had been mailed to the wrong servicer, recoup the misdirected 
payment, and forward it to the correct servicer. In addition, there may 
be situations in which a transferor servicer receives a payment from a 
party it does not recognize as the borrower associated with the 
mortgage loan account. In such situations, the Bureau believes 
servicers may reasonably determine the best course of action is to 
return such a payment to the payor. Moreover, the Bureau does not 
believe there is significant potential for borrower harm associated 
with Sec.  1024.33(c)(2) because Sec.  1024.33(c)(1) permits a 60-day 
grace period in which timely but misdirected payments to the transferor 
servicer may not be considered late for any purpose. In addition, Sec.  
1024.33(c)(2) requires the transferor servicer to take action with 
respect to the misdirected payment ``promptly.'' The Bureau does not 
agree with individual consumers who suggest that borrowers should be 
permitted to make payments to the transferor during the 60 days after 
the transfer date, or that the transferee servicer should collect 
payments from the transferor. While Sec.  1024.33(c)(1) would prevent 
timely but misdirected payments from being treated as late, the 
transferor servicer's contractual right to collect payments from the 
borrower would likely end after a servicing transfer.
    In the final rule, the Bureau has added language to Sec.  
1024.33(c)(2)(ii) to require the transferor servicer to notify the 
payor of the proper recipient of payment. Although the servicing 
transfer notice will provide some notice to the borrower of a transfer, 
there may be situations in which the payor may be a different party 
than the borrower who received the transfer notice. In addition, the 
fact that the payment was sent to the transferor servicer would suggest 
that the transfer notice sent pursuant to Sec.  1024.33(b) did not 
achieve its intended purpose. Thus, the Bureau believes it is 
appropriate to instruct the payor of the proper recipient of the 
payment and that borrowers will be better served by this requirement 
than by requiring the transferor to redirect the payment to the 
transferee.
33(d) Preemption of State Laws
    RESPA section 6(h) generally provides that a person who makes a 
federally related mortgage loan or a servicer shall be considered to 
have complied with the provisions of any such State law or regulation 
requiring notice to a borrower at the time of application for a loan or 
transfer of the servicing of a loan if such person or servicer complies 
with the requirements under RESPA section 6 regarding timing, content, 
and procedures for notification of the borrower. 12 U.S.C. 2605(h). 
Current Sec.  1024.21(h) implements RESPA section 6(h) and was 
finalized as part of a HUD's 1994 final rule implementing RESPA section 
6, which was added by section 921 of the Cranston-Gonzalez National 
Affordable Housing Act.\93\
---------------------------------------------------------------------------

    \93\ See 59 FR 65442, 65443 (1994).
---------------------------------------------------------------------------

    Current Sec.  1024.21(h) provides that a lender who makes a 
mortgage servicing loan or a servicer shall be considered to have 
complied with any State law or regulation requiring notice to a 
borrower at the time of application or transfer of servicing if the 
lender or servicer complies with the requirements of Sec.  1024.21. The 
provision further states that any State law requiring notice to the 
borrower at application or transfer of servicing is preempted and that 
lenders and servicers shall have no other disclosure requirements. 
Finally, Sec.  1024.21(h) provides that provisions of State law, such 
as those requiring additional notices to insurance companies or taxing 
authorities, are not preempted by RESPA section 6 or Sec.  1024.21 and 
that this additional information may be added to a notice provided 
under Sec.  1024.33 if permitted under State law.
    The Bureau proposed to move Sec.  1024.21(h) to new Sec.  
1024.33(d), along with several non-substantive amendments. The language 
of the Bureau's proposed preemption provision is substantially similar 
to the existing preemption provision with respect to the types of 
provisions of State laws or regulations preempted--i.e., those 
requiring notices to the borrower at application or transfer of 
servicing where the servicer or lender complies with the Bureau's 
servicing transfer notice provisions. The Bureau notes, however, that 
consistent with the discussion above, the Bureau's proposal would have 
expanded the coverage of the preemption provision to cover subordinate-
lien mortgage loans by replacing the term ``mortgage servicing loan'' 
in the current language with references to the term ``mortgage loans.'' 
The Bureau notes that expanded coverage of the preemption provision to 
subordinate-lien loans is consistent with the scope of statutory 
preemption provision in RESPA section 6(h), which applies to ``person 
who makes a federally related mortgage loan or a servicer.'' As 
discussed above, the term ``federally related mortgage loan'' includes 
subordinate-lien loans. 12 U.S.C. 2602(1)(A).
    The Bureau received one comment from an organization of State bank 
regulators that requested that the Bureau omit Sec.  1024.33(d). The 
organization asserted that proposed Sec.  1024.33(d) is broader than 
the statutory preemption provision in RESPA section 6(h) because the 
proposed rule would have invalidated State laws rather than having 
provided that any State requirements were fulfilled by compliance with 
the Federal regime. The organization explained it believes RESPA 
section 6(h) is sufficient to address the issue of duplicative or 
conflicting State laws, without promulgation of implementing 
regulations.
    Specifically, the organization objected to language in proposed 
Sec.  1024.33(d) stating that State laws requiring notices to borrowers 
were preempted, ``and there shall be no additional borrower disclosure 
requirements.'' The commenter asserted that RESPA section 6(h) provides 
State notice laws are

[[Page 10734]]

considered satisfied if the RESPA timing, content, and notice procedure 
requirements are met--not that State laws are invalidated. The 
commenter asserted that RESPA section 6(h) allows State laws to apply 
where the or servicer has not satisfied the RESPA requirements, and 
that State examination processes would be hampered by an interpretation 
that simply invalidates State law requirements.
    The Bureau is finalizing Sec.  1024.33(d) as proposed. The Bureau 
has considered these objections but disagrees that the language of 
Sec.  1024.33(d) as proposed is broader than the language of RESPA 
section 6(h) or will introduce new difficulties for State bank 
examiners. By adopting Sec.  1024.33(d), the Bureau is maintaining 
substantially all of the language of Sec.  1024.21(h), which was 
originally adopted by HUD through its final rule implementing RESPA 
section 6(h). By implementing RESPA section 6(h) through Sec.  
1024.33(d), the Bureau intends to maintain the current coverage of 
Sec.  1024.21(h) as it has existed for many years. Accordingly, the 
Bureau disagrees that Sec.  1024.33(d) will introduce any new 
complications into the State examination process.
    The commenter was also concerned that, by implementing RESPA 
section 6(h) through language similar but not identical to the 
statutory provision, proposed Sec.  1024.33(d) would broaden the 
classes of State laws that are subject to RESPA section 6(h). The 
commenter focused on the omission in proposed Sec.  1024.33(d) of the 
word ``such'' from the statutory phrase ``complied with the provisions 
of any such State law''; and the omission of the phrase limiting the 
scope of RESPA section 6(h) to the ``timing, content, and procedures'' 
for notification to the borrower under RESPA section 6.\94\
---------------------------------------------------------------------------

    \94\ RESPA section 6(h) provides, in full: ``Notwithstanding any 
provision of any law or regulation of any State, a person who makes 
a federally related mortgage loan or a servicer shall be considered 
to have complied with the provisions of any such State law or 
regulation requiring notice to a borrower at the time of application 
for a loan or transfer of the servicing of a loan if such person or 
servicer complies with the requirements under this section regarding 
timing, content, and procedures for notification to the borrower'' 
(emphasis added). Section 1024.33(d) provides, in relevant part: ``A 
lender who makes a mortgage loan or a servicer shall be considered 
to have complied with the provisions of any State law or regulation 
requiring notice to a borrower at the time of application for a loan 
or transfer of servicing of a loan if the lender or servicer 
complies with the requirements of this section.''
---------------------------------------------------------------------------

    The Bureau disagrees with the commenter's assertion that, by 
eliminating ``such'' from the statutory provision of ``complied with 
the provisions of any such State law'' (emphasis added), the Bureau has 
broadened the scope of the preemption from specific State laws 
requiring notice to broad classes of law. Section 1024.33(d) makes 
clear that the State laws at issue are those requiring notice to 
borrower at the time of application for a loan or transfer of servicing 
of a loan, which the Bureau believes is consistent with the types of 
notices identified in RESPA section 6(h). The Bureau also disagrees 
with the commenter's assertion that, by eliminating the statutory 
phrase, ``regarding timing, content, and procedures for notification of 
the borrower'' from the description of the requirements under section 6 
with which a servicer must comply to trigger preemption, the Bureau has 
broadened the preemption provision. Section 1024.33(d) indicates that 
State laws and regulations are considered to be complied with if the 
lender or servicer complies with the requirements of ``this section,'' 
which refers to the regulatory section (1024.33) containing 
requirements regarding timing, content, and procedures for notifying 
borrowers about servicing transfers. Accordingly, the omission of the 
phrase regarding timing, content, and procedures does not substantively 
alter the meaning of section 6(h) of RESPA.
    Finally, the commenter suggested there may be tension between Sec.  
1024.33(d) and Sec.  1024.32(b), which provides that servicers can 
combine disclosures required by other laws or the terms of an agreement 
with a Federal or State regulatory agency with the disclosures required 
by subpart C. The Bureau does not believe these provisions are in 
conflict. Paragraph 33(d) applies by its terms only to notification 
provisions in Sec.  1024.33. To the extent Sec.  1024.32(b) generally 
provides that servicers can combine disclosures required by other laws 
or the terms of an agreement with a Federal or State regulatory agency 
with the disclosures required by subpart C, the Bureau believes that 
servicers would understand that the more specific rule overrides the 
general rule with regard to servicing transfer disclosures.
Section 1024.34 Timely Escrow Payments and Treatment of Escrow Account 
Balances In General
    In the 2012 RESPA Mortgage Servicing Proposal, the Bureau proposed 
to move the substance of current Sec.  1024.21(g) to new Sec.  
1024.34(a) to require a servicer to pay amounts owed for taxes, 
insurance premiums, and other charges from an escrow account in a 
timely manner, pursuant to the requirements of current Sec.  
1024.17(k). The Bureau also proposed in new Sec.  1024.34(a) to make 
certain non-substantive amendments to the language of current Sec.  
1024.21(g). Further, the Bureau proposed to add new Sec.  1024.34(b) to 
implement Dodd-Frank Act amendments to section 6(g) of RESPA. The 
Bureau is adopting Sec.  1024.34 substantially as proposed, except as 
where noted in the section-by-section analysis below.
34(a) Timely Escrow Disbursements Required
    RESPA section 6(g) provides that, if the terms of any federally 
related mortgage loan require the borrower to make payments to the 
servicer of the loan for deposit into an escrow account for the purpose 
of assuring payment of taxes, insurance premiums, and other charges 
with respect to the property, the servicer shall make payments from the 
escrow account for such taxes, insurance premiums, and other charges in 
a timely manner as such payments become due. 12 U.S.C. 2605(g). Current 
Sec.  1024.21(g) implements this provision by replicating the statutory 
nearly verbatim. Current Sec.  1024.21(g) uses the term ``mortgage 
servicing loan'' in place of the statutory term ``federally related 
mortgage loan'' and includes a cross-reference to Sec.  1024.17(k), 
which sets forth more detailed requirements for how escrow payments are 
made in a timely manner.
    The Bureau proposed to incorporate the substance of current Sec.  
1024.21(g) into new Sec.  1024.34(a) to provide that, if the terms of a 
mortgage loan require the borrower to make payments to the servicer of 
the mortgage loan for deposit into an escrow account to pay taxes, 
insurance premiums, and other charges for the mortgaged property, the 
servicer shall make payments from the escrow account in a timely 
manner, that is, on or before the deadline to avoid a penalty, as 
governed by the requirements in Sec.  1024.17(k).
    As discussed above, the Bureau proposed to expand the scope of 
current Sec.  1024.21(g); proposed Sec.  1024.34(a) would have replaced 
the term ``mortgage servicing loan'' with the term ``mortgage loan,'' 
which includes subordinate-lien loans. Other than this change in scope, 
the Bureau proposed several non-substantive technical revisions to the 
current provision. One commenter indicated that subordinate-lien, 
closed-end loans typically do not have escrow accounts. The commenter 
asked that the Bureau clarify whether these rules would apply to 
subordinate-lien loans to avoid confusion.

[[Page 10735]]

    The Bureau is adopting this provision as proposed. RESPA section 
6(g), and both current Sec.  1024.21(g) and new Sec.  1024.34(a), limit 
the applicability of the provision, among other things, to loans whose 
terms require the borrower to make payments to the servicer of the loan 
for deposit into an escrow account to pay taxes, insurance premiums, 
and other charges for the mortgaged property. Thus, if a subordinate-
lien mortgage loan does not require borrowers to make payments into an 
escrow account, Sec.  1024.34(a) would not apply.
34(b) Refunds of Escrow Balance
34(b)(1) In General
    As noted above, RESPA section 6(g) generally requires a servicer to 
make payments from an escrow account in a timely manner as payments 
become due. 12 U.S.C. 2605(g). Section 1463(d) of the Dodd-Frank Act 
amended RESPA section 6(g) by adding a provision requiring that any 
balance in any such account that is within the servicer's control at 
the time the loan is paid off be promptly returned to the borrower 
within 20 business days or credited to a similar account for a new 
mortgage loan to the borrower with the ``same lender.'' The Bureau 
proposed to add Sec.  1024.34(b)(1) through (2) to implement this 
amendment to RESPA section 6(g).
    Proposed Sec.  1024.34(b)(1) would have provided that, within 20 
days (excluding legal public holidays, Saturdays, and Sundays) of a 
borrower's payment of a mortgage loan in full, any amounts remaining in 
the escrow account shall be returned to the borrower. The Bureau 
explained in its proposal that the Bureau interprets the 20-day 
allowance in RESPA section 6(g) to apply only if the servicer refunds 
the escrow account balance to the borrower (and not if the servicer 
credits a new account with the same lender, as provided in proposed 
Sec.  1024.34(b)(2)).
    Several industry associations and a community bank commenter 
recommended that the Bureau permit servicers to net escrow funds 
against the payoff amount. These commenters noted that community banks 
frequently net escrow funds against a payoff balance, and they observed 
that requiring servicer to obtain a full payoff and then refund the 
escrow is costly and does not provide a benefit to the borrower. 
Another industry association commenter requested that the Bureau 
clarify that the borrower may direct how the escrow account funds 
should be applied.
    Based on these comments and upon further consideration, the Bureau 
has decided to revise the proposed regulatory text and commentary. To 
clarify the relationship between Sec.  1024.33(b)(1) and (b)(2), the 
Bureau has amended Sec.  1024.34(b)(1) to provide that, ``[e]xcept as 
provided in paragraph (b)(2),'' a servicer shall return escrow funds to 
the borrower. Paragraph (b)(2) continues to give the servicer the 
option of applying the escrow account to the new loan in specified 
circumstances. Accordingly, servicers shall generally refund escrow 
amounts to the borrower, unless the servicer applies the escrow balance 
to a new account, as permitted under Sec.  1024.33(b)(2). In addition, 
the Bureau has added language referring to amounts remaining in an 
escrow account ``that is within the servicer's control'' to replicate 
language appearing in the statutory provision. The Bureau has also made 
minor technical wording clarifications, but is otherwise adopting the 
text of Sec.  1024.34(b)(1) as proposed.
    The Bureau has also included comment 34(b)(1)-1 to clarify that 
Sec.  1024.34(b)(1) does not prohibit a servicer from netting any 
remaining funds in an escrow account against the outstanding balance of 
the borrower's mortgage loan. The Bureau interprets RESPA section 6(g), 
as amended by the Dodd-Frank Act, as only requiring servicers to return 
escrow balances or credit a new account after the mortgage loan is paid 
off. The Bureau does not believe the Dodd-Frank Act amendment to RESPA 
section 6(g) was intended to affect the manner in which the loan is 
paid off. Accordingly, the Bureau has added comment 34(b)(1)-1 to 
clarify that servicers are not prohibited under Sec.  1024.34(b)(1) 
from netting any remaining funds in an escrow account against the 
borrower's outstanding loan balance.
34(b)(2) Servicer May Credit Funds to a New Escrow Account
    As amended by the Dodd-Frank Act, RESPA section 6(g) permits a 
servicer to credit the escrow account balance to an escrow account for 
a new mortgage loan to the borrower with the same lender if the 
servicer does not return the balance to the borrower within 20 business 
days. 12 U.S.C. 2605(g). To implement this provision, the Bureau 
proposed to add new Sec.  1024.34(b)(2) to provide that a servicer may 
credit funds in an escrow account balance to an escrow account for a 
new mortgage loan as of the date of the settlement of the new mortgage 
loan if the new mortgage loan is provided to the borrower by a lender 
that: (i) Was also the lender to whom the prior mortgage loan was 
initially payable; (ii) is the owner or assignee of the prior mortgage 
loan; or (iii) uses the same servicer that serviced the prior mortgage 
loan to service the new mortgage loan.\95\ Thus, if the servicer 
credits the funds in the escrow account to an escrow account for a new 
mortgage loan, the credit should occur as of the settlement of the new 
mortgage loan. The Bureau proposed to add comment 34(b)(2)-1 to clarify 
that a servicer is not required to credit an escrow account balance to 
a new mortgage loan in any circumstance in which it would be permitted 
to do so. Thus, a servicer would have been permitted, in all 
circumstances, to return funds in an escrow account to the borrower 
pursuant to proposed Sec.  1024.34(a).
---------------------------------------------------------------------------

    \95\ As the Bureau explained in its proposal, the Bureau 
interprets the language ``account with the same lender'' consistent 
with secondary market practices. In addition, ``lender'' is defined 
in Regulation X to mean, generally, the secured creditor or 
creditors named in the debt obligation and document creating the 
lien. For loans originated by a mortgage broker that closes a 
federally related mortgage loan in its own name in a table funding 
transaction, the lender is the party to whom the obligation is 
initially assigned at or after settlement.
---------------------------------------------------------------------------

    Several industry commenters supported proposed comment 34(b)(2)-1. 
However, several industry associations requested that the rule include 
an option for the borrower to direct how the escrow account funds 
should be applied. One industry trade association expressed concern 
that RESPA section 6(g) and proposed Sec.  1024.34 contained an 
ambiguity regarding the ability of a servicer to transfer funds 
retained in the escrow account to a new lender with the borrower's 
consent. This commenter noted that, while neither RESPA section 6(g) 
nor Sec.  1024.34 explicitly prohibits this practice, the use of the 
term ``same lender'' in the statute and proposed Sec.  1024.34 creates 
uncertainty over whether a servicer may credit any excess escrow 
account balances to a new escrow account for a new mortgage loan with a 
new lender with the borrower's consent.
    Section 1024.34(b)(2) provides that, notwithstanding Sec.  
1024.34(b)(1), if the borrower agrees, a servicer may credit any 
amounts remaining in an escrow account that is within the servicer's 
control to an escrow account for a new mortgage loan as of the date of 
the settlement of the new mortgage loan if the new mortgage loan is 
provided to the borrower by a lender specified in Sec.  
1024.34(b)(2)(i) through (iii). As in the proposal, these lenders are 
(i) the lender to whom the prior mortgage loan was initially payable; 
(ii) the lender that is the owner or assignee of the prior mortgage 
loan; or (iii) the lender that uses the same servicer that serviced the

[[Page 10736]]

prior mortgage loan to service the new mortgage loan.
    The Bureau has considered commenters' recommendations to revise 
Sec.  1024.34 to permit servicers to credit escrow accounts for loans 
with a new lender with the borrower's consent, but the Bureau declines 
to further amend proposed Sec.  1024.34(b)(2) to expand the types of 
lenders with whom a borrower's new mortgage loan may be credited. The 
Dodd-Frank Act amended RESPA section 6(g) to require that servicers 
either return remaining escrow account balances to the borrower within 
20 days or credit a new escrow account for a new mortgage loan with the 
``same lender,'' which the Bureau has interpreted to be (i) the lender 
to whom the prior mortgage loan was initially payable; (ii) the lender 
that is the owner or assignee of the prior mortgage loan; or (iii) the 
lender that uses the same servicer that serviced the prior mortgage 
loan to service the new mortgage loan. The Bureau believes an 
additional exception to permit servicers to apply remaining escrow 
balances to lenders who are not the ``same lender'' within the meaning 
of RESPA section 6(g) would subsume the statutory provision. Moreover, 
the Bureau believes that the provision in Sec.  1024.34(b)(1) 
(generally requiring servicers to return remaining escrow balances to 
borrowers within 20 days of loan payoff) provides borrowers with 
sufficient flexibility to apply their funds as they wish.
    In addition, the Bureau has revised proposed Sec.  1024.34(b)(2) to 
add the phrase ``if the borrower agrees'' to require servicers to 
obtain the borrower's consent before crediting an escrow balance to a 
new escrow account for a new mortgage loan. The Bureau has added this 
language to ensure borrowers are informed of and agree to a servicer's 
actions with respect to any remaining escrow balances if the servicer 
does not return the balance within 20 days under Sec.  1024.34(b)(1). 
Moreover, unlike the 20-day period in which the servicer must otherwise 
refund escrow balances in Sec.  1024.34(b)(1), Sec.  1024.34(b)(2) does 
not require that funds be credited within a particular time frame; the 
Bureau believes it is appropriate to include a requirement in Sec.  
1024.34(b)(2) that the borrower agrees before the servicer takes an 
action that could delay the disposition of the borrower's escrow 
account balance. The Bureau also believes it is appropriate to include 
a requirement that borrowers agree to servicer actions under Sec.  
1024.34(b)(2) to avoid potential borrower confusion that might 
otherwise arise if a servicer did not refund an escrow balance within 
20 days, as required under Sec.  1024.34(b)(1). Accordingly, the Bureau 
believes that the addition of the requirement that a borrower must 
agree under Sec.  1024.34(b)(2) is necessary and appropriate to achieve 
the consumer protection purposes of RESPA, including to achieve the 
purposes of RESPA section 6(g) and to ensure responsiveness to borrower 
requests. This change is therefore authorized under sections 6(j)(3), 
6(k)(1)(E), and 19(a) of RESPA. The Bureau has also made technical 
revisions to proposed Sec.  1024.34(b)(2) to clarify its relationship 
to Sec.  1024.34(b)(1), in light of the Bureau's revision to Sec.  
1024.34(b)(1) in this final rule.\96\
---------------------------------------------------------------------------

    \96\ The Bureau has added the following language to Sec.  
1024.34(b)(2): ``Notwithstanding paragraph (b)(1) of this section * 
* *''
---------------------------------------------------------------------------

    To ensure servicers can easily credit funds to a new account, the 
Bureau has added comment 34(b)(2)-2, which explains that a borrower may 
provide consent either orally or in writing. The Bureau has also added 
language to Sec.  1024.34(b)(2), referring to amounts remaining in an 
escrow account ``that is within the servicer's control,'' to replicate 
language appearing in the statutory provision. Finally, the Bureau is 
adopting comment 34(b)(2)-1 substantially as proposed to clarify that a 
servicer is not required to credit funds in an escrow account to an 
escrow account for a new mortgage loan and may, in all circumstances, 
comply with the requirements of Sec.  1024.34 by refunding the funds in 
the escrow account to the borrower pursuant to Sec.  1024.34(b)(1).\97\
---------------------------------------------------------------------------

    \97\ The Bureau has made a technical correction to comment 
34(b)(2)-1 to replace the proposed comment's reference to ``Sec.  
1024.34(a)'' with a corrected reference to ``Sec.  1024.34(b)(1).''
---------------------------------------------------------------------------

Section 1024.35 Error Resolution Procedures
    Section 6(e) of RESPA requires servicers to respond to borrowers' 
``qualified written requests'' that relate to the servicing of a loan, 
and Sec.  6(k)(1)(B) of RESPA, added by the Dodd-Frank Act, separately 
prohibits servicers from charging fees for responding to valid 
qualified written requests. Section 1463(a) of the Dodd-Frank Act 
amended RESPA to add new servicer prohibitions regarding borrowers' 
assertions of error and requests for information. Specifically, section 
1463(a) of the Dodd-Frank Act added section 6(k)(1)(C) to RESPA, which 
states that a servicer shall not ``fail to take timely action to 
respond to a borrower's requests to correct errors relating to 
allocation of payments, final balances for purposes of paying off the 
loan, or avoiding foreclosure, or other standard servicer's duties.'' 
In addition, section 1463(a) of the Dodd-Frank Act added section 
6(k)(1)(D) to RESPA which states that a servicer shall not fail to 
provide information regarding the owner or assignee of a borrower's 
loan within ten business days of a borrower's request. Neither Dodd-
Frank Act provision suggests that a borrower request to correct an 
error or for information regarding the owner or assignee of the 
borrower's loan must be in the form of a ``qualified written request'' 
to trigger the new servicer prohibitions.
    As explained in the proposal, the Bureau believed that both 
borrowers and servicers would be best served if the Bureau were to 
clearly define a servicer's obligation to correct errors or respond to 
information requests as required by RESPA sections 6(k)(1)(C) and (D) 
and the RESPA provisions regarding qualified written requests. Thus, 
the Bureau proposed to establish comprehensive, parallel requirements 
for servicers to respond to specified notices of error and information 
requests. The Bureau proposed Sec.  1024.35 to set forth the error 
resolution requirements that servicers would be required to follow to 
respond to errors asserted by borrowers. The Bureau proposed Sec.  
1024.36 to set forth the information request requirements that 
servicers would be required to follow to respond to requests for 
information from borrowers. In doing so, the Bureau intended to 
establish servicer procedural requirements for error resolution and 
information requests that are consistent with the requirements 
applicable to a ``qualified written request'' that relates to the 
servicing of a loan under RESPA. Rather than create overlapping regimes 
that might confuse and frustrate both borrowers and servicers alike, 
the Bureau intended to create a uniform regulatory regime by subsuming 
the qualified written request rules in the new regime established and 
authorized by the Dodd-Frank Act for notices of error and requests for 
information more generally. The Bureau believed such a single 
regulatory regime would reduce the burden on both borrowers and 
servicers who otherwise would expend wasteful resources navigating 
between two separate regulatory regimes and parsing form requirements 
applicable to qualified written requests. To that end, the Bureau 
proposed to delete current Sec.  1024.21(e), the existing regulations 
concerning qualified written requests, and provide instead that a 
qualified written request asserting an error or

[[Page 10737]]

requesting information regarding the servicing of a mortgage loan would 
be subject to the new provisions governing notices of error and 
information requests, as applicable.\98\
---------------------------------------------------------------------------

    \98\ Notably, a notice of error may also constitute a direct 
dispute under Regulation V, which implements the Fair Credit 
Reporting Act, if it complies with the requirements in 12 CFR 
1022.43.
---------------------------------------------------------------------------

    Because the Bureau understands that the majority of borrower 
complaints are submitted orally, the Bureau proposed that both written 
and oral notices of error would be subject to the error resolution 
provisions. At the same time, the Bureau recognized that permitting 
oral error notices would significantly expand servicers' responsibility 
to respond to notices of error. To enable servicers to allocate 
resources to respond to errors in a manner that would benefit 
borrowers, the Bureau proposed a limited list of errors to which the 
error resolution provisions would apply. As discussed in more detail 
below, industry commenters were unanimously opposed to applying error 
resolution requirements under proposed Sec.  1024.35 to errors asserted 
orally. Consumer advocacy group commenters expressed support for 
applying the requirements under Sec.  1024.35 to oral error notices, 
but were strongly opposed to the proposal to limit those errors subject 
to error resolution procedures under proposed Sec.  1024.35 to a finite 
list. Industry commenters supported inclusion of a limited list. Based 
on the Bureau's consideration of these comments and the analysis below, 
the final rule does not require servicers to comply with error 
resolution procedures under Sec.  1024.35 for oral notices of error. At 
the same time, the final rule includes a catch-all provision that 
defines as an error subject to the error resolution procedures under 
Sec.  1024.35 errors relating to the servicing of a borrower's mortgage 
loan. Moreover, the final rule provides that a servicer's policies and 
procedures should be reasonably designed to provide information to 
borrowers who are not satisfied with the resolution of a complaint or 
request for information submitted orally of the procedures for 
submitting written notices of error and information requests.
    Some credit unions, community banks and their trade associations 
asserted that the Bureau should exempt small servicers from error 
resolution requirements under Sec.  1024.35 and information request 
requirements under Sec.  1024.36. Commenters argued that small 
servicers effectively communicate with borrowers regarding complaints 
and information requests, and especially disfavored the proposed 
requirement that small servicers respond to oral notices of error and 
information requests. In contrast, a consumer advocacy group commenter 
asserted that exempting small servicers would be inappropriate, as all 
servicers should be capable of complying with error resolution and 
information request requirements. Having carefully considered these 
comments, the Bureau declines to exempt small servicers from error 
resolution procedures under Sec.  1024.35 and information request 
procedures under Sec.  1024.36. As discussed above, Sec. Sec.  1024.35 
and 1024.36, as finalized, do not require servicers to comply with such 
procedures for oral submissions by borrowers. In light of this 
adjustment, final Sec. Sec.  1024.35 and 1024.36 primarily provide 
clarification as to existing obligations under RESPA and Regulation X. 
Moreover, the burden on all servicers is significantly mitigated. For 
these reasons, and the reasons discussed below, the Bureau declines to 
exempt small servicers from error resolution and information request 
procedures.
Legal Authority
    Section 1024.35 implements section 6(k)(1)(C) of RESPA, and to the 
extent the requirements are also applicable to qualified written 
requests, sections 6(e) and 6(k)(1)(B) of RESPA. Pursuant to the 
Bureau's authorities under sections 6(j), 6(k)(1)(E), and 19(a) of 
RESPA, the Bureau is also adopting certain additions and certain 
exemptions to these provisions. As explained in more detail below, 
these additions and exemptions are necessary and appropriate to achieve 
the consumer protection purposes of RESPA, including ensuring 
responsiveness to consumer requests and complaints and the provision 
and maintenance of accurate and relevant information.
35(a) Notice of Error
    Section 6(k)(1)(C) of RESPA, as added by section 1463(a) of the 
Dodd-Frank Act, prohibits servicers from failing to take timely action 
to respond to requests of borrowers to correct certain errors. However, 
unlike section 6(e) of RESPA, which sets forth specific rules for 
submission of and response to ``qualified written requests,'' section 
6(k)(1)(C) of RESPA does not specify that borrowers' requests to 
correct errors must be submitted in any particular format to trigger 
the new prohibition.
    Proposed Sec.  1024.35(a) stated that a servicer must comply with 
the requirements of Sec.  1024.35 for a notice of error made either 
orally or in writing and that included the name of the borrower, 
information that enabled a servicer to identify the borrower's mortgage 
loan account, and the error the borrower believed had occurred. Section 
1024.35(a) was intended to implement RESPA section 6(k)(1)(C), with 
respect to borrower requests to assert errors generally, and RESPA 
section 6(e), with respect to qualified written requests by borrowers 
to correct errors, by defining what constituted a proper borrower 
request within the meaning of these provisions. The Bureau received 
comment on proposed Sec.  1024.35(a) and is finalizing it with changes 
as discussed below.
Substance Over Form
    The proposal included proposed comment 35(a)-2, which would have 
clarified that the substance of the notice of error would determine the 
servicer's obligation to comply with the error resolution requirements, 
information request requirements, or both, as applicable. Proposed 
comment 35(a)-2 stated that no particular language (such as ``qualified 
written request'' or ``notice of error'') is necessary to set forth a 
notice of error. The Bureau did not receive comment regarding proposed 
comment 35(a)-2 and is adopting it as proposed.
Qualified Written Requests
    Proposed Sec.  1024.35(a) would have required a servicer to treat a 
qualified written request that asserts an error relating to the 
servicing of a loan as a notice of error subject to the requirements of 
Sec.  1024.35. The Bureau intended to propose servicer obligations 
applicable to qualified written requests that were the same as 
requirements applicable to other notices of error that met the 
requirements for assertions of error under Sec.  1024.35(a). One 
consumer group commenter expressed support for the proposal because it 
dispensed with technicalities about whether an assertion of error 
constituted a valid qualified written request. A trade association 
commenter said the Bureau failed to define a valid qualified written 
request and said that proposed Sec.  1024.35 does not fully integrate 
section 6(e) of RESPA into the proposed error resolution procedures. 
Another trade association of private mortgage lenders said the proposal 
did not make clear what constitutes a qualified written request and to 
what extent servicers must continue to comply with existing law 
regarding qualified written requests. Having considered these comments, 
the Bureau notes that final Sec.  1024.31 defines the term ``qualified 
written request.'' In addition, as

[[Page 10738]]

discussed above, the Bureau has added new comment 31 (qualified written 
request)-2, which clarifies that the error resolution and information 
request requirements in Sec. Sec.  1024.35 and 1024.36 apply as set 
forth in those sections irrespective of whether the servicer receives a 
qualified written request. Finally, the Bureau has revised proposed 
Sec.  1024.35(a) to make clear in the final rule that a qualified 
written request that asserts an error relating to the servicing of a 
mortgage loan is a notice of error for purposes of Sec.  1024.35 for 
which a servicer must comply with all requirements applicable to a 
notice of error.
Oral Notices of Error
    The Bureau proposed to require servicers to comply with the 
requirements under Sec.  1024.35 for errors asserted by a borrower 
either orally or in writing. The Bureau believed this approach was 
warranted because, based on its discussions with consumers, consumer 
advocates, servicers, and industry trade associations during outreach, 
the Bureau learned that the vast majority of borrower complaints are 
asserted orally rather than in writing. The proposal solicited comment 
regarding whether servicers should be required to comply with the error 
resolution requirements under Sec.  1024.35 for notices of error 
received orally.
    The Bureau received a number of comments from both consumer groups 
and various industry members on this question. Consumer advocacy group 
commenters reiterated their support for applying the requirements under 
Sec.  1024.35 to notices of error made orally, noting that consumers 
most often assert errors and request information orally rather than in 
writing. In contrast, consumer commenters on Regulation Room disfavored 
the proposal's application of the error resolution requirements under 
Sec.  1024.35 to notices of error received orally. Consumer commenters, 
citing their negative experiences attempting to request information 
from servicers orally, were concerned that encouraging an oral process 
would weaken consumer protections. Industry commenters also opposed the 
proposal's application of the error resolution requirements under Sec.  
1024.35 to oral notices of error, albeit for different reasons. 
Industry commenters asserted that applying error resolution 
requirements to oral notices of error would create new burdens for 
servicers regarding tracking the notices of error and monitoring 
borrowers' receipt of written acknowledgements and responses. Industry 
commenters further stressed that a written process would provide more 
clarity and certainty as to the nature of the error the borrower 
asserted and the communications from the servicer to the borrower 
during the conversation. Further, industry commenters asserted, written 
notices of error would help avoid situations in which the borrower and 
servicer have differing recollections as to the content of the 
borrower's notice of error and the servicer's response during the 
conversation. Absent a written record, commenters said, servicers would 
need to record conversations with borrowers to minimize the significant 
litigation risk. The commenters asserted that recording conversations 
could be especially costly for small servicers and would require the 
borrower's consent in many jurisdictions. Some industry commenters also 
noted their belief that RESPA requires that borrowers assert errors in 
writing.
    Many of the concerns articulated by industry commenters were 
consistent with those expressed by small entity representatives with 
whom the Small Business Review Panel conducted outreach in advance of 
the proposal. The Small Business Review Panel recommended that the 
Bureau consider requiring small servicers to comply with the error 
resolution procedures under Sec.  1024.35 only when borrowers asserted 
errors in writing.\99\ The Small Business Review Panel also recommended 
that the Bureau consider adopting a more flexible process for tracking 
errors and demonstrating compliance that could be used by small 
servicers.\100\
---------------------------------------------------------------------------

    \99\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, 30 (Jun, 11, 2012).
    \100\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, 30 (Jun, 11, 2012).
---------------------------------------------------------------------------

    The Bureau had anticipated many of these comments and had proposed 
to delimit the category of issues that could be raised through the 
error process to mitigate the challenges of identifying oral assertions 
of error. Nonetheless, after consideration of these comments and the 
comments received with respect to the Bureau's definition of error as 
discussed below, the Bureau is amending proposed Sec.  1024.35(a) to 
apply the error resolution requirements under Sec.  1024.35 solely to 
notices of error received in writing, and the Bureau is broadening the 
definition of error as well. While borrowers may continue to assert 
errors orally, servicers will not be required to comply with the formal 
error resolution requirements outlined in Sec.  1024.35 for such 
assertions of errors. Instead, the Bureau has added Sec.  
1024.38(b)(1)(ii), which generally requires that servicers maintain 
policies and procedures that are reasonably designed to ensure that the 
servicer can investigate, respond to, and, as appropriate, make 
corrections in response to complaints, whether written or oral, 
asserted by borrowers. In addition, the Bureau has added a requirement 
in Sec.  1024.38(b)(5) that servicers establish policies and procedures 
reasonably designed to achieve the objective of informing borrowers of 
the procedures for submitting written notices of error set forth in 
Sec.  1024.35 and written information requests set forth in Sec.  
1024.36.
    The Bureau believes that imposing the formal requirements under 
Sec.  1024.35 only to written notices of error and addressing oral 
notices of error instead through the policies and procedures 
requirements under Sec.  1024.38 strikes the appropriate balance 
between ensuring responsiveness to consumer requests and complaints and 
mitigating the burden on servicers of following and demonstrating 
compliance with specific procedures with respect to oral notices of 
error. The Bureau believes that the need to provide additional 
flexibility to servicers with respect to responding to oral notices of 
error is particularly necessary in light of the Bureau's further 
decision, as discussed below, to expand the list of covered errors 
under Sec.  1024.35 to include a catch-all provision for errors 
relating to the servicing of mortgage loans. On the one hand, the 
Bureau is persuaded, for the reasons discussed further below, that it 
should not delimit the set of issues that consumers should be able to 
raise within the error resolution process. On the other hand, the 
Bureau also is persuaded that determining from a telephone call from a 
borrower to a servicer whether the borrower is asserting an error 
rather than simply, for example, posing a question can be challenging. 
Drawing this line--and triggering the investigation and response 
requirement with respect to errors--would be exponentially more 
difficult if any concern relating to the servicing of the borrower's 
mortgage loan could constitute an error.
    The final rule will thus require servicers to maintain policies and 
procedures reasonably designed to ensure that servicers investigate, 
respond to and, as appropriate, resolve oral complaints on a more 
informal basis, without having to follow the formal error resolution 
requirements, so long as the servicer has policies and procedures 
reasonably designed to

[[Page 10739]]

ensure that borrowers are informed of the written error resolution 
procedures. At the same time, the final rule will provide a broader 
definition of errors subject to the requirements of Sec.  1024.35.
Borrower's Representative
    Proposed comment 35(a)-1 would have clarified that a notice of 
error submitted by an agent of the borrower is considered a notice of 
error submitted by the borrower. Proposed comment 35(a)-1 would have 
further permitted servicers to undertake reasonable procedures to 
determine if a person who claims to be an agent of a borrower has 
authority from the borrower to act on the borrower's behalf. Several 
industry commenters said it would be costly and burdensome to determine 
whether a third party has authority to act on a borrower's behalf. Many 
requested clarification as to what the Bureau believes constitutes 
acting on the borrower's behalf. Further, some industry commenters 
expressed concern about potential liability for the improper release of 
information, including the risk of violating State or Federal privacy 
laws, as well as what commenters perceived to be increased risk of 
identity theft and fraud. Finally, a few industry commenters took the 
position that only the borrower, but not the borrower's agent, should 
be permitted to assert notices of error.
    Section 6(e)(1)(A) of RESPA states that a qualified written request 
may be provided by a ``borrower (or an agent of the borrower).'' Thus, 
one consumer advocacy group commenter noted that the proposal to permit 
borrowers' agents to submit notices of error is consistent with the 
statutory requirement. Consumer groups also requested that the Bureau 
clarify that the timelines for error resolution will not toll during 
the period in which the servicer attempts to validate through 
reasonable policies and procedures that a third party purporting to act 
on a borrower's behalf is, in fact, an agent of the borrower.
    Having considered these comments, the Bureau is amending proposed 
comment 35(a)-1 to address servicers' concerns about potential 
liability for the improper release of information. The final comment 
clarifies that servicers may have reasonable procedures to determine if 
a person that claims to be an agent of a borrower has authority from 
the borrower to act on the borrower's behalf, for example, by requiring 
purported agents to provide documentation from the borrower stating 
that the purported agent is acting on the borrower's behalf. Upon 
receipt of such documentation, the servicer shall treat a notice of 
error as having been submitted by the borrower. The Bureau acknowledges 
that requiring servicers to respond to error notices submitted by 
borrowers' agents is more costly than limiting the requirement to 
borrowers' notices, but notes that this approach is consistent with 
section 6(e)(1)(A) of RESPA with respect to a qualified written 
request. The Bureau believes that it is necessary and appropriate to 
achieve the consumer protection purposes of RESPA, including ensuring 
responsiveness to borrower requests and complaints, to apply this 
requirement to all written notices of error, especially since borrowers 
who are experiencing difficulty in making their mortgage payments or in 
dealing with their servicer may turn, for example, to a housing 
counselor or other knowledgeable persons to assist them in addressing 
such issues. The Bureau declines to define further the term ``agent.'' 
The concept of agency has historically been defined under State or 
other applicable law. Thus, it is appropriate for the definition to 
defer to applicable State law regarding agents.
35(b) Scope of Error Resolution
    Section 6(e) of RESPA requires servicers to respond to ``qualified 
written requests'' asserting errors or requesting information relating 
to the servicing of a federally-related mortgage loan. Section 1463(a) 
of the Dodd-Frank Act amended RESPA to add section 6(k)(1)(C), which 
states that a servicer shall not ``fail to take timely action to 
respond to a borrower's request to correct errors relating to 
allocation of payments, final balances for purposes of paying off the 
loan, or avoiding foreclosure, or other standard servicer's duties.'' 
The Bureau believes that standard servicer duties are those typically 
undertaken by servicers in the ordinary course of business. Such duties 
include not only the obligations that are specifically identified in 
section 6(k)(1)(C) of RESPA, but also those duties that are defined as 
``servicing'' by RESPA, as implemented by this rule, as well as duties 
customarily undertaken by servicers to investors and consumers in 
connection with the servicing of a mortgage loan. These standard 
servicer duties are not limited to duties that constitute 
``servicing,'' as defined in this rule, and include, for example, 
duties to comply with investor agreements and servicing program guides, 
to advance payments to investors, to process and pursue mortgage 
insurance claims, to monitor coverage for insurance (e.g., hazard 
insurance), to monitor tax delinquencies, to respond to borrowers 
regarding mortgage loan problems, to report data on loan performance to 
investors and guarantors, and to work with investors and borrowers on 
options to mitigate losses for defaulted mortgage loans.\101\
---------------------------------------------------------------------------

    \101\ In providing these examples, the Bureau is making no 
judgment regarding whether they fall within the meaning of 
``servicing'' as defined in this rule.
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Limited List
    The Bureau proposed Sec.  1024.35(b) to implement section 
6(k)(1)(C) of RESPA. Proposed Sec.  1024.35(b) set forth a limited list 
of errors to which the error resolution provisions would apply. The 
Bureau proposed a limited list because it believed such a list would 
provide certainty to both borrowers and servicers regarding the types 
of errors that are subject to the error resolution process. Further, as 
discussed above, the Bureau believed a limited list would enable 
servicers to allocate resources to respond to errors in a manner that 
would ultimately benefit borrowers. The Bureau also considered that it 
was proposing to require servicers to respond to both oral and written 
error notices and information requests in compressed time periods. 
Finally, the Bureau considered the feedback the Small Business Review 
Panel received from small entity representatives regarding whether the 
error resolution procedures should include a catch-all provision to the 
enumerated list of errors. In general, small entity representatives 
commented favorably on the Bureau's proposal to delimit the list of 
errors.
    The Bureau solicited comment regarding whether the list of errors 
to which error resolution procedures would apply should include a 
catch-all provision or be limited to an enumerated list. Industry 
commenters supported the establishment of a limited list of errors, 
noting certainty, clarity, and notice as its primary benefits. Consumer 
group commenters generally opposed limiting notices of error to an 
enumerated list. Consumer advocates asserted that the proposal was a 
departure from and offered fewer consumer protections than the existing 
qualified written request process under section 6 of RESPA, which 
incorporates a catch-all provision for errors relating to the servicing 
of a borrower's mortgage loan. Some consumer advocates noted the 
reference in section 6(k)(1)(C) of RESPA to ``standard servicer's 
duties,'' and argued that the catch-all provision should likewise cover 
all errors relating to ``standard servicer's duties.'' In addition, 
some consumer group commenters noted the fluid nature of

[[Page 10740]]

mortgage servicing and cautioned that a limited list of covered errors 
lacks the flexibility necessary to ensure that consumers will be 
adequately protected as servicing practices evolve.
    After consideration of these comments, and as discussed further 
below, the Bureau has decided to revise proposed Sec.  1024.35(b) to 
include a catch-all that includes as an error errors relating to the 
servicing of a borrower's mortgage loan. In addition, as discussed 
below, final Sec.  1024.35(b) substantively retains the enumerated 
errors listed in the proposal. The Bureau believes revising proposed 
Sec.  1024.35(b) in this manner is necessary and appropriate to achieve 
the consumer protection purposes of RESPA, including ensuring 
responsiveness to consumer requests and complaints in light of the 
fluidity of the mortgage market and the inability to anticipate in 
advance and delineate all types of errors related to servicing that 
borrowers may encounter, and which should be subject to the error 
resolution process under Sec.  1024.35 to prevent borrower harm. At the 
same time, the Bureau believes that the costs and burdens created by 
having a more expansive definition of the term error are significantly 
mitigated because, as discussed above, the final rule applies error 
resolution requirements under Sec.  1024.35 only to written assertions 
of error. Moreover, the final rule implements an error resolution 
process that is consistent with the existing process for responding to 
qualified written requests under RESPA section 6, which includes a 
catch-all for servicing-related errors.
Covered Errors
    The Bureau proposed comment 35(b)-1, which would have clarified 
that a servicer would not be required to comply with the requirements 
of proposed Sec.  1024.35(d) and (e) if a notice related to something 
other than one of the types of errors in proposed Sec.  1024.35(b). The 
proposed comment provided examples of categories of excluded errors 
that would not be considered covered errors pursuant to proposed Sec.  
1024.35(b). These included matters relating to the origination or 
underwriting of a mortgage loan, matters relating to a subsequent sale 
or securitization of a mortgage loan, and matters relating to a 
determination to sell, assign, or transfer the servicing of a mortgage 
loan.
    Industry commenters supported the proposed exclusion, noting that 
the categories the Bureau proposed to exclude are unrelated to 
servicing and largely beyond servicers' knowledge. Some consumer group 
commenters objected that the proposed exclusions were overly broad. The 
Bureau believes that a mortgage servicer is generally not in a position 
to investigate or resolve borrower complaints regarding potential 
errors that may have occurred during an origination, underwriting, 
sale, or securitization process. Accordingly, the Bureau is adopting 
comment 35(b)-1 substantially as proposed. The final comment clarifies 
that, in addition to Sec.  1024.35(d) and (e), servicers need not 
comply with Sec.  1024.35(i) with respect to a borrower's assertion of 
an error that is not defined as an error in Sec.  1024.35(b). Final 
comment 35(b)-1 also includes a clarification that the failure to 
transfer accurately and timely information relating to a borrower's 
loan account to a transferee servicer is an error for purposes of Sec.  
1024.35, while matters relating to an initial determination to transfer 
servicing are not.
    A trade association of reverse mortgage lenders also commented 
regarding the scope of the error resolution procedures, urging the 
Bureau to exclude reverse mortgages from the scope of covered error. 
Having considered this comment, the Bureau notes that servicers of 
reverse mortgage transactions are already subject to the qualified 
written request procedures set forth in section 6(e) of RESPA and Sec.  
1024.21(e) of Regulation X. Likewise, pursuant to final Sec.  1024.30, 
the error resolution requirements under Sec.  1024.35 apply to reverse 
mortgage transactions that are mortgage loans, as that term is defined 
in final Sec.  1024.31. Accordingly, to the extent that a borrower 
asserts an error under Sec.  1024.35 that is applicable to such a 
reverse mortgage, the servicer shall comply with error resolution 
procedures as to the error. For example, because Sec.  1024.30 
generally excludes servicers of reverse mortgage transactions from 
Sec.  1024.41, errors asserted under Sec.  1024.35(b)(9) and (10), 
discussed below, are not applicable to reverse mortgage transactions.
35(b)(1)
    Proposed Sec.  1024.35(b)(1) would have included as a covered error 
a servicer's failure to accept a payment that conforms to the 
servicer's written requirements for the borrower to follow in making 
payments. The Bureau proposed Sec.  1024.35(b)(1) to implement, in 
part, section 6(k)(1)(C) of RESPA with respect to borrower requests to 
correct errors relating to allocation of payments for a borrower's 
account and ``other standard servicer's duties.''
    A failure to accept a proper payment will necessarily have 
implications for the correct application of borrower payments. The 
Bureau further believes that proper acceptance of payments is a 
standard servicer duty. Moreover, proper acceptance of payments is, by 
definition, servicing, and already subject to the qualified written 
request procedure set forth in section 6(e) of RESPA and current Sec.  
1024.21(e) of Regulation X. The Bureau did not receive comment 
regarding proposed Sec.  1024.35(b)(1) and is adopting it as proposed.
35(b)(2)
    Proposed Sec.  1024.35(b)(2) would have included as an error a 
servicer's failure to apply an accepted payment to the amounts due for 
principal, interest, escrow, or other items pursuant to the terms of 
the mortgage loan and applicable law. The Bureau proposed Sec.  
1024.35(b)(2) to implement, in part, section 6(k)(1)(C) of RESPA with 
respect to borrower requests to correct errors relating to the 
allocation of payments for a borrower's account and other standard 
servicer duties. Proper allocation of payments is also, by definition, 
servicing, and already subject to the qualified written request 
procedures set forth in section 6(e) of RESPA and current Sec.  
1024.21(e) of Regulation X. The Bureau did not receive comment 
regarding proposed Sec.  1024.35(b)(2) and is adopting it as proposed.
35(b)(3)
    Proposed Sec.  1024.35(b)(3) would have included as an error a 
servicer's failure to credit a payment to a borrower's mortgage loan 
account as of the date of receipt, where such failure results in a 
charge to the consumer or the furnishing of negative information to a 
consumer reporting agency. The Bureau proposed Sec.  1024.35(b)(3) to 
implement, in part, section 6(k)(1)(C) of RESPA with respect to 
borrower requests to correct errors relating to the allocation of 
payments for a borrower's account and other standard servicer duties. A 
failure to credit a payment as of the date of receipt may have 
implications for the correct application of borrower payments. A 
servicer's failure to credit a payment promptly may cause the servicer 
to report to a borrower improper information regarding the amounts owed 
by the borrower and may cause a servicer to misapply other payments 
received by the borrower. Further, a servicer's failure to credit 
borrower payments promptly may generate improper late fees and other 
charges. The Bureau further believes that prompt crediting of borrower 
payments is a standard servicer duty as set forth in section 6(k)(1)(C) 
of RESPA. The Bureau also observes that prompt crediting of borrower 
payments is, by definition,

[[Page 10741]]

servicing and, therefore, is subject to the qualified written request 
procedure set forth in section 6(e) of RESPA.
    As the Bureau noted in the 2012 RESPA Servicing Proposal, prompt 
crediting of payments to consumers is required by section 129F of TILA, 
which was added by section 1464 of the Dodd-Frank Act and will be 
implemented by Sec.  1026.36(c)(1) in the 2013 TILA Servicing Final 
Rule. For a mortgage loan secured by a principal dwelling, TILA section 
129F mandates that servicers shall not fail to credit a payment to a 
consumer's loan account as of the date of receipt, except when a delay 
in crediting does not result in any charge to the consumer, or in the 
furnishing of negative information to a consumer reporting agency. See 
15 U.S.C. 1639f. TILA section 129F provides a specific exception for 
payments that do not conform to a servicer's written requirements, but 
nonetheless are accepted by the servicer, in which case the servicer 
shall credit the payment as of five days after receipt. See 15 U.S.C. 
1639f(b). Servicers of mortgage loans covered by TILA section 129F have 
a duty to comply with that provision.
    A credit union and a non-bank servicer commented on proposed Sec.  
1024.35(b)(3). The credit union requested greater flexibility as to 
payments received outside of the servicer's operating hours or at the 
end of the business day. The non-bank servicing company requested 
clarification that the proposal was not intended to impact servicers' 
ability as to scheduled interest loans to credit an account as of the 
receipt date and apply payment as of the scheduled due date. The Bureau 
believes Sec.  1024.35(b)(3) as proposed would have provided servicers 
sufficient flexibility to credit payments, as it would have limited 
errors to where the failure to credit a payment as of the date of 
receipt results in a charge to consumers or furnishing of negative 
information to a credit reporting agency. Nevertheless, the Bureau 
recognizes that there would be little consumer benefit to subjecting 
servicers to potentially overlapping standards as to prompt crediting 
of borrowers' accounts. At the same time, for those loans that are not 
subject to TILA section 129F, the Bureau believes that it would be 
inappropriate to extend the requirements of that provision beyond the 
scope mandated by Congress, as implemented by Sec.  1026.36(c)(1) of 
the 2013 TILA Servicing Final Rule. Accordingly, the Bureau is revising 
the proposed language in final Sec.  1024.35(b)(3) to make clear that a 
servicer's failure to credit a payment to a borrower's mortgage loan 
account as of the date of receipt is an error only in those 
circumstances in which the failure to credit as of the date of receipt 
would contravene Sec.  1026.36(c)(1). Final Sec.  1024.35(b)(3) defines 
as an error the failure to credit a payment to a borrower's mortgage 
loan account as of the date of receipt in violation of 12 CFR 
1026.36(c)(1). Because servicers will already be required to comply 
with Sec.  1026.36(c)(1) with respect to certain mortgage loans they 
service, the Bureau does not believe that defining their failure to do 
so as an error imposes additional burden on servicers.
35(b)(4)
    Proposed Sec.  1024.35(b)(4) would have included as an error a 
servicer's failure to make disbursements from an escrow account for 
taxes, insurance premiums, or other charges, including charges that the 
borrower and servicer have voluntarily agreed that the servicer should 
collect and pay, as required by current Sec.  1024.17(k) and proposed 
Sec.  1024.34(a), or to refund an escrow account balance in a timely 
manner as required by proposed Sec.  1024.34(b). The Bureau proposed 
Sec.  1024.35(b)(4) to implement, in part, section 6(k)(1)(C) of RESPA 
with respect to borrower requests to correct errors relating to the 
allocation of payments for a borrower's account and other standard 
servicer duties.
    In the normal course of business, servicers typically engage in 
collecting payments from borrowers to fund escrow accounts and disburse 
payments from escrow accounts to pay borrower obligations for taxes, 
insurance premiums, and other charges. Servicers typically undertake 
this obligation on behalf of investors because a borrower's maintenance 
of an escrow account reduces risk for investors that unpaid taxes may 
generate tax liens that are higher in priority than a lender's mortgage 
lien and that unpaid insurance may cause lapses in insurance coverage 
that present risk for investors in the event of a loss. Servicers are 
required to make disbursements from escrow accounts in a timely manner 
pursuant to section 6(g) of RESPA and are required to account for the 
funds credited to an escrow account pursuant to section 10 of RESPA. In 
addition, the proper disbursement of escrow funds is, by definition, 
servicing and, therefore, is currently subject to the qualified written 
request procedure set forth in section 6(e) of RESPA and current Sec.  
1024.21(e) of Regulation X. A credit union commenter agreed that 
proposed Sec.  1024.35(b)(4) should constitute an error. For the 
reasons set forth above and in the proposal, the Bureau is adopting 
Sec.  1024.35(b)(4) as proposed.
35(b)(5)
    Proposed Sec.  1024.35(b)(5) would have included as an error a 
servicer's imposition of a fee or charge that the servicer lacks a 
reasonable basis to impose upon the borrower. The Bureau proposed Sec.  
1024.35(b)(5) to implement, in part, section 6(k)(1)(C) of RESPA with 
respect to standard servicer duties. The Bureau believes that it is a 
typical servicer duty, both to the borrower and to the servicer's 
principal, to ensure that the servicer has a reasonable basis to impose 
a charge on a borrower.
    The Bureau believes that servicers should not impose fees on 
borrowers that are not bona fide--that is, fees that a servicer does 
not have a reasonable basis to impose upon a borrower. Examples of non-
bona fide charges include such common sense errors as late fees for 
payments that were not late, default property management fees for 
borrowers that are not in a delinquency status that would justify the 
charge, charges from service providers for services that were not 
actually rendered with respect to a borrower's mortgage loan account, 
and charges for force-placed insurance in circumstances not permitted 
by final rule Sec.  1024.37.
    Improper fees harm both mortgage loan borrowers and the investors 
that are mortgage servicers' principals. Improper and uncorrected fees 
harm borrowers by taking funds that may otherwise be used to keep a 
mortgage loan current. Further, improper fees reduce recovery values 
available to investors from foreclosures or loss mitigation activities. 
Servicers that operate in good faith in the normal course of business 
refrain from imposing charges on borrowers that the servicer does not 
have a reasonable basis to impose and correct errors relating to those 
fees when they arise.
    Industry commenters asserted that the term ``reasonable basis'' is 
open to interpretation and thus urged the Bureau to further define the 
term or to otherwise provide additional clarification. One credit union 
trade association suggested that the Bureau prohibit fees for which the 
servicer lacks a legal basis. Having considered these comments, the 
Bureau believes it is appropriate to provide more clarity as to what 
constitutes a fee for which a servicer lacks a reasonable basis. 
Accordingly, the Bureau has added new comment 35(b)-2, which provides 
examples of fees that a servicer lacks a reasonable basis to impose. 
The Bureau

[[Page 10742]]

is otherwise adopting Sec.  1024.35(b)(5) as proposed.
35(b)(6)
    Proposed Sec.  1024.35(b)(6) would have included as an error a 
servicer's failure to provide an accurate payoff balance to a borrower 
upon request pursuant to 12 CFR 1026.36(c)(3). The Bureau intended 
through this provision to implement TILA section 129G, which was added 
by section 1464 of the Dodd-Frank Act and which requires that a 
creditor or servicer of a home loan send an accurate payoff balance 
amount to the borrower within a reasonable time, but in no case more 
than seven business days after the receipt of a written request for 
such balance from or on behalf of a borrower. The Bureau proposed Sec.  
1024.35(b)(6) to implement, in part, section 6(k)(1)(C) of RESPA with 
respect to borrower requests to correct errors relating to a final 
balance for purposes of paying off a mortgage loan and standard 
servicer duties.
    Servicers already have an obligation to comply with the timing 
requirements of section 129G of TILA with respect to any mortgage loan 
that constitutes a ``home loan'' as used in section 129G of TILA.\102\ 
The Bureau proposed Sec.  1024.35(b)(6) because it believed, consistent 
with TILA section 129G, that borrowers require accurate payoff 
statements to manage their mortgage loan obligations. A payoff 
statement is necessary any time a borrower repays a mortgage loan, and 
servicers routinely provide payoff statements for borrowers to 
refinance or pay in full their mortgage loan obligations. However, 
consumer advocates have indicated that servicers have failed, or 
refused, to provide payoff statements to certain borrowers or have 
required borrowers to make a payment on a mortgage loan as a condition 
of fulfilling the borrower's request for a payoff statement.\103\ Any 
such conduct has the perverse effect of impeding a borrower's ability 
to pay a mortgage loan obligation in full.
---------------------------------------------------------------------------

    \102\ In the Bureau's 2013 TILA Servicing Final Rule, the Bureau 
interpreted the use of the term ``home loans'' to include consumer 
credit transactions secured by a consumer's dwelling.
    \103\ See, e.g., Mortgage Servicing: An Examination of the Role 
of Federal Regulators in Settlement Negotiations and the Future of 
Mortgage Servicing Standards: Joint Hearing Before the Subcomm. on 
Fin. Inst. & Consumer Credit & Subcomm. on Oversight & 
Investigations of the Hous. Fin. Serv. Comm., 112th Cong. 76 (July 
7, 2011) (statement of Mike Calhoun, President, Center for 
Responsible Lending).
---------------------------------------------------------------------------

    The Bureau did not receive comment regarding proposed Sec.  
1024.35(b)(6) but is revising the proposed language in the final rule 
to make clear that the failure to provide a payoff balance is an error 
only in those circumstances in which TILA section 129G, as implemented 
by Sec.  1026.36(c)(3) of the 2013 TILA Servicing Final Rule, applies. 
The Bureau recognizes that there would be little consumer benefit to 
subjecting servicers to potentially overlapping standards under TILA 
and RESPA as to the provision of a payoff statement. At the same time, 
for those loans that are not subject to TILA section 129G, the Bureau 
believes that it would be inappropriate to extend the requirements of 
the provision beyond the scope mandated by Congress, as implemented by 
Sec.  1026.36(c)(3).
    Final Sec.  1024.35(b)(6) defines as an error the failure to 
provide an accurate payoff balance amount upon a borrower's request in 
violation of section Sec.  1026.36(c)(3). Because servicers will 
already be required to comply with the timeframes set forth in Sec.  
1026.36(c)(3) with respect to certain mortgage loans they service, the 
Bureau does not believe that defining their failure to do so as an 
error imposes additional burden on servicers.
35(b)(7)
    Proposed Sec.  1024.35(b)(7) would have included as an error a 
servicer's failure to provide accurate information to a borrower with 
respect to loss mitigation options available to the borrower and 
foreclosure timelines that may be applicable to the borrower's mortgage 
loan account, as required by proposed Sec. Sec.  1024.39 and 1024.40. 
The Bureau proposed Sec.  1024.35(b)(7) to implement, in part, section 
6(k)(1)(C) of RESPA with respect to borrower requests to correct errors 
relating to avoiding foreclosure, as well as errors relating to 
standard servicer duties.
    In order to pursue loss mitigation options that may benefit both 
the borrower and the owner or assignee of the borrower's mortgage loan, 
a borrower requires accurate information about the loss mitigation 
options available to the borrower, the requirements for receiving an 
evaluation for any such loss mitigation option, and the applicable 
timelines relating to both the evaluation of the borrower for the loss 
mitigation options and any potential foreclosure process.
    The Bureau believes that borrowers may benefit from asserting 
errors with respect to a servicer's failure to provide information 
regarding loss mitigation options that may be available to the borrower 
but for which the servicer has not provided information to the 
borrower. By correcting such errors and providing the borrower with 
accurate information regarding such loss mitigation options, a servicer 
can help a borrower receive an evaluation for available loss mitigation 
options pursuant to Sec.  1024.41 and to potentially receive an offer 
of such an option, which may be mutually beneficial to the borrower and 
the owner or assignee of the borrower's mortgage loan.
    Further, the Bureau believes that the National Mortgage Settlement, 
servicer participation in Home Affordable Modification Program (HAMP) 
sponsored by the U.S. Department of the Treasury (Treasury) and HUD, 
and servicer participation in other loss mitigation programs required 
by Fannie Mae and Freddie Mac demonstrate that, at present, servicers 
typically provide borrowers with information regarding loss mitigation 
options and foreclosure and that providing such information to 
borrowers is a standard servicer duty.
    One non-bank servicer and one credit union commented on proposed 
Sec.  1024.35(b)(7). Both advocated against inclusion of a servicer's 
failure to provide information regarding loss mitigation options as an 
error subject to error resolution procedures under Sec.  1024.35. The 
credit union asserted that lenders are incentivized to provide accurate 
loss mitigation information, as they try to avoid foreclosing upon 
properties.
    The Bureau believes it is critical for borrowers to have 
information regarding available loss mitigation options and requiring 
that a servicer comply with error resolution procedures as to a 
borrower assertion that a servicer failed to provide such information 
is important to ensure that borrowers receive this information. The 
Bureau does not believe there is significant risk that the rule will 
result in servicers limiting options offered to consumers, as investors 
and guarantors dictate the loss mitigation options available to 
borrowers. Further, the Bureau notes that the failure of a servicer to 
provide accurate information will create liability under this section 
only if the servicer fails to correct the error when called to its 
attention. Accordingly, the Bureau is adopting Sec.  1024.35(b)(7) as 
proposed, except that the Bureau has removed the reference to Sec.  
1024.40 in light of other changes to the proposed rule.
35(b)(8)
    Proposed Sec.  1024.35(b)(8) would have included as an error a 
servicer's failure to accurately and timely transfer information 
relating to a borrower's mortgage loan account to a transferee 
servicer. The Bureau proposed Sec.  1024.35(b)(8) to implement, in 
part, section 6(k)(1)(C) of RESPA with respect to borrower requests to 
correct errors relating to standard servicer duties.

[[Page 10743]]

    The Bureau believes that the accurate and timely transfer of 
information relating to a borrower's mortgage account is a standard 
servicer duty. In the normal course of business, servicers typically 
anticipate that they will be required to transfer servicing for some 
mortgage loans they service. Owners or assignees of mortgage loans 
typically have rights to transfer servicing for a mortgage loan 
pursuant to the requirements set forth in mortgage servicing 
agreements. Servicers generally are required to develop capacity for 
transferring information to transferee servicers in order to comply 
with such obligations to owners or assignees of mortgage loans. 
Further, servicers generally are required to develop capacity to 
download data for transferred mortgage loans onto the servicer's 
servicing platform. Borrowers may be harmed, however, if information 
that is transferred to transferee servicers is not accurate, current, 
or is not properly captured by a transferee servicer. In certain 
circumstances, such failure may cause errors to occur relating to 
allocating payments, calculating final balances for purposes of paying 
off a mortgage loan, or avoiding foreclosure.
    Accordingly, the 2013 RESPA Servicing Final Rule requires servicers 
to maintain policies and procedures reasonably designed to achieve the 
objective of facilitating servicing transfers. Specifically, Sec.  
1024.38(b)(4)(i) provides that as a transferor servicer, a servicer 
must maintain policies and procedures reasonably designed to ensure the 
timely transfer of all information and documents in the possession or 
control of the servicer relating to a transferred mortgage loan to a 
transferee servicer in a form and manner that ensures the accuracy of 
the information and enables a transferee servicer to comply with its 
obligations to the owner or assignee of the mortgage loan and 
applicable law.
    Under proposed Sec.  1024.35(b)(8), a servicer's failure to 
accurately and timely transfer information relating to a borrower's 
mortgage loan account to a transferee servicer would constitute an 
error. The Bureau believes that by defining an error in this way, a 
borrower will have a remedy to ensure that a transferor servicer 
provides information to a transferee servicer that accurately reflects 
the borrower's account consistent with the obligations applicable to a 
servicer's general servicing policies and procedures. The Bureau did 
not receive comment regarding Sec.  1024.35(b)(8) and is adopting it as 
proposed.
35(b)(9) and 35(b)(10)
    Proposed Sec.  1024.35(b)(9) would have included as an error a 
servicer's failure to suspend a foreclosure sale in the circumstances 
described in proposed Sec.  1024.41(g). The Bureau proposed Sec.  
1024.35(b)(9) to implement, in part, section 6(k)(1)(C) of RESPA with 
respect to borrower requests to correct errors relating to avoiding 
foreclosure and other standard servicer duties.
    Proposed Sec.  1024.41(g) provided that a servicer that offers loss 
mitigation options to borrowers in the ordinary course of business 
would be prohibited from proceeding with a foreclosure sale when a 
borrower has submitted a complete application for a loss mitigation 
option by a specified date unless the servicer denies the borrower's 
application for a loss mitigation option (including any appeal 
thereof), the borrower rejects the servicer's offer of a loss 
mitigation option, or the borrower fails to perform on a loss 
mitigation agreement. These requirements are discussed in more detail 
in the section-by-section analysis for Sec.  1024.41 below.
    A credit union commenter asserted that failure to suspend a 
foreclosure sale in the circumstances described in proposed Sec.  
1024.41(g) should not be considered an error subject to the error 
resolution requirements under Sec.  1024.35 because, the commenter 
reasoned, a lender will delay foreclosure when there is a legitimate 
need to do so. Having considered the comment, and as explained with 
respect to Sec.  1024.41, the Bureau continues to believe it is 
appropriate to prohibit a servicer from completing the foreclosure 
process until after a borrower has had a reasonable opportunity to 
submit an application for a loss mitigation option and the servicer has 
completed the evaluation of the borrower for a loss mitigation option, 
and that a borrower should be able to assert an error where a servicer 
fails to comply with these procedures.
    The Bureau, however, is revising proposed Sec.  1024.35(b)(9) in 
light of changes to proposed Sec.  1024.41. Final Sec.  1024.35(b)(9) 
defines as an error subject to error resolution requirements under 
Sec.  1024.35 making the first notice or filing required by applicable 
law for any judicial or non-judicial foreclosure process in violation 
of Sec.  1024.41(f) or (j). The Bureau has also added new Sec.  
1024.35(b)(10) which defines as an error moving for foreclosure 
judgment or order of sale, or conducting a foreclosure sale in 
violation of Sec.  1024.41(g) or (j).
35(b)(11)
    New Sec.  1024.35(b)(11) includes a catch-all that applies error 
resolution procedures to errors relating to the servicing of a 
borrower's mortgage loan. As discussed above, the Bureau solicited 
comment regarding whether the list of covered errors should include a 
catch-all provision. The Bureau also requested comment as to whether to 
add additional specific errors to the list of errors under Sec.  
1024.35. In particular, the Bureau solicited comment regarding whether 
to include as an error a servicer's failure to correctly evaluate a 
borrower for a loss mitigation option.
    Industry commenters supported the inclusion of a limited list of 
errors, citing certainty, clarity, and notice as its primary benefits. 
Consumer group commenters generally opposed limiting notices of error 
to a finite list. Consumer advocates asserted that the proposal was a 
departure from and offered fewer consumer protections than the existing 
qualified written request process under section 6 of RESPA, which 
applies to all errors relating to servicing. In addition, some consumer 
group commenters noted the fluid nature of mortgage servicing and 
cautioned that a finite list lacks the flexibility necessary to ensure 
that consumers will be adequately protected as servicing practices 
evolve.
    As to whether the Bureau should add additional specific errors to 
the list of covered errors, some consumer groups suggested the addition 
of specific errors, including errors relating to escrow accounts, 
servicing transfer, disclosures, and loss mitigation, while also 
reiterating their support for a broad catch-all provision. While most 
industry commenters said the proposed list of covered errors was 
adequate, a credit union commenter suggested that the Bureau add 
requests to cancel liens once accounts have been paid in full. Both 
consumer groups and industry commented regarding whether to include a 
servicer's failure to correctly evaluate a borrower for a loss 
mitigation option as an error. One consumer group urged the Bureau to 
do so, asserting that because the Dodd-Frank Act requires servicers to 
take timely action to correct errors relating to avoiding foreclosure, 
the plain language of the statute suggests that borrowers should be 
able to assert errors related to loss mitigation before they get to the 
point of a foreclosure sale. The commenter further contended that the 
appeals process set forth in proposed Sec.  1024.41(h) will not hold 
servicers sufficiently accountable for uncorrected errors. The 
commenter said that borrowers need a statutory remedy for uncorrected 
errors. Another

[[Page 10744]]

consumer group advocated for a catch-all sufficiently broad to capture 
the array of servicer loss mitigation duties. An industry association 
took the opposing view, citing concerns about the inability to 
objectively measure whether a servicer evaluated a borrower for an 
option correctly. The industry commenter requested that should the 
Bureau add this category as a covered error, the Bureau also clarify 
that a servicer who complies with Sec.  1024.41 has not committed the 
error.
    As noted in the proposal, the Bureau believes that the appeals 
process set forth in Sec.  1024.41(h) provides an effective procedural 
means for borrowers to address issues relating to a servicer's 
evaluation of a borrower for a loan modification program. For this 
reason, and the reasons stated below with respect to loss mitigation 
practices, the Bureau declines to add a servicer's failure to correctly 
evaluate a borrower for a loss mitigation option as a covered error in 
the final rule.
    The Bureau is, however, adding new Sec.  1024.35(b)(11), which 
includes a catch-all that defines as an error subject to the 
requirements of Sec.  1024.35 errors relating to the servicing of a 
borrower's mortgage loan. The Bureau believes that any error related to 
the servicing of a borrower's mortgage loan also relates to standard 
servicer duties. The Bureau also agrees with consumer advocacy 
commenters that the mortgage market is fluid and constantly changing 
and that it is impossible to anticipate with certainty the precise 
nature of the issues that borrowers will encounter. The Bureau, 
therefore, believes that it is necessary and appropriate to achieve the 
purposes of RESPA to craft error resolution procedures that are 
sufficiently flexible to adapt to changes in the mortgage market and to 
encompass the myriad and diverse types of errors that borrowers may 
encounter with respect to their mortgage loans. At the same time, the 
Bureau believes the costs and burdens created by having a more 
expansive definition of error are significantly mitigated because, as 
discussed above, under the final rule the requirements under Sec.  
1024.35 apply only to written notices of error. Moreover, the final 
rule adopts a process that is consistent with the existing process for 
responding to qualified written requests under RESPA section 6, which 
likewise includes a catch-all for servicing-related errors. The Bureau 
declines to add additional covered errors beyond the catch-all.
35(c) Contact Information for Borrowers To Assert Errors
    The Bureau proposed Sec.  1024.35(c), which would have permitted a 
servicer to establish an exclusive telephone number and address that a 
borrower must use to assert an error. If a servicer chose to establish 
a separate telephone number and address for receiving errors, the 
proposal would have required the servicer to provide the borrower a 
notice that states that the borrower may assert an error at the 
telephone number and address established by the servicer for that 
purpose. Proposed comment 35(c)-1 would have clarified that if a 
servicer has not designated a telephone number and address that a 
borrower must use to assert an error, then the servicer will be 
required to comply with the error resolution requirements for any 
notice of error received by any office of the servicer. Proposed 
comment 35(c)-2 would have further clarified that the written notice to 
the borrower may be set forth in another written notice provided to the 
borrower, such as a notice of transfer, periodic statement, or coupon 
book. Proposed comment 35(c)-2 would have further clarified that if a 
servicer establishes a telephone number and address for receipt of 
notices of error, the servicer must provide that telephone number and 
address in any communication in which the servicer provides the 
borrower with contact information for assistance from the servicer.
    The Bureau proposed to allow servicers to establish a telephone 
number and address that a borrower must use to assert an error in order 
to allow servicers to direct oral and written errors to appropriate 
personnel that have been trained to ensure that the servicer responds 
appropriately. As the proposal noted, at larger servicers with other 
consumer financial service affiliates, many personnel simply do not 
typically deal with mortgage servicing-related issues. For instance, at 
a major bank servicer, a borrower might assert an error to local bank 
branch staff, who likely would not have access to the information 
necessary to address their error. Thus, the Bureau reasoned, if a 
servicer establishes a telephone number and address that a borrower 
must use, a servicer would not be required to comply with the error 
resolution requirements for errors that may be received by the servicer 
through a different method.
    Most industry commenters favored allowing servicers to designate an 
address and telephone number to which borrowers must direct error 
notices. At the same time, such commenters asserted that creating an 
exclusive intake portal was not sufficient to offset the burdens 
inherent in permitting oral error notices to which error resolution 
requirements apply. Some commenters said that designating telephone 
lines for error notices could be especially costly for small servicers. 
Thus, one community bank trade association argued that the proposal 
favored large institutions. Two industry commenters requested 
clarification regarding how servicers must treat error notices sent to 
the wrong address. Finally, one credit union commenter asserted that 
servicers should only be required to include designated telephone 
numbers and addresses in regular forms of communication to borrowers, 
such as the periodic statement. In contrast, consumer group commenters 
suggested that to the extent a servicer designates a telephone line or 
address, the servicer should be required to post such information on 
its Web site and to include it in mailed notices.
    Because the final rule removes the requirement that servicers 
comply with error resolution requirements under Sec.  1024.35 for oral 
notices of error, the Bureau believes that it is no longer necessary to 
regulate the circumstances under which servicers may direct oral errors 
to an exclusive telephone number that a borrower must use to assert an 
error. However, for written error notices, the Bureau continues to 
believe that it is reasonable to permit servicers to designate a 
specific address for the intake of notices of error. Allowing a 
servicer to designate a specific address is consistent with current 
requirements of Regulation X with respect to qualified written 
requests. Current Sec.  1024.21(e)(1) permits a servicer to designate a 
``separate and exclusive office and address for the receipt and 
handling of qualified written requests.'' Moreover, the Bureau believes 
that identifying a specific address for receiving errors and 
information requests will benefit consumers. By providing a specific 
address, servicers will identify to consumers the office capable of 
addressing errors identified by consumers.
    The Bureau believes it is critical for servicers to publicize any 
designated address to ensure that borrowers know how properly to assert 
an error and to avoid evasion by servicers of error resolution 
procedures. This is especially important because, as noted in the 
proposal, servicers who designate a specific address for receipt of 
error notices are not required to comply with error resolution 
procedures for notices sent to the wrong address. Accordingly, final 
Sec.  1024.35(c) requires servicers that

[[Page 10745]]

designate an address for receipt of notices of error to post the 
designated address on any Web site maintained by the servicer if the 
Web site lists any contact address for the servicer. In addition, final 
comment 35(c)-2 retains the clarification that servicers that establish 
an address that a borrower must use to assert an error, must provide 
the address to the borrower in any communication in which the servicer 
provides the borrower with contact information for assistance. The 
Bureau is otherwise adopting Sec.  1024.35(c) and comments 35(c)-1 and 
35(c)-2 as proposed, except that the Bureau has revised the provisions 
permitting servicers to designate a telephone number that a borrower 
must use to assert an error and clarified that the notice to the 
borrower must be written.
Multiple Offices
    Proposed Sec.  1024.35(c) also included language that would have 
required a servicer to use the same telephone number and address it 
designates for receiving notices of error for receiving information 
requests pursuant to proposed Sec.  1024.36(b), and vice versa. 
Further, the Bureau proposed comment 35(c)-3, which would have 
clarified that any telephone numbers or address designated by a 
servicer for any borrower may be used by any other borrower to submit a 
notice of error. For instance, if a servicer set up regional call 
centers, it would have had to assist any borrowers who called in to a 
particular center to complain about an error, regardless of whether the 
borrower called the correct region.
    One non-bank servicer expressed concern about the proposal's 
requirement to designate the same address and telephone number for 
notices of error and information requests. The commenter explained that 
it assigns separate teams to address information requests and error 
notices. Thus, the commenter asserted, proposed Sec.  1024.35(c) would 
negatively impact customer service. Having considered this comment, the 
Bureau notes that it proposed Sec.  1024.35(c) because it was concerned 
that designating separate telephone numbers and addresses for notices 
of error and information requests could impede borrower attempts to 
submit notices of error and information requests to servicers due to 
debates over whether a particular communication constituted a notice of 
error or an information request. For the reasons set forth above and in 
the proposal, final Sec.  1024.35(c) maintains the requirement that 
servicers designate the same address for receipt of notices of error 
and information requests. In addition, the Bureau is adopting comment 
35(c)-3 as substantially as proposed, except that the Bureau has 
removed references to error notices received by telephone.
    The Bureau proposed comment 35(c)-5 to further clarify that a 
servicer may use automated systems, such as an interactive voice 
response system, to manage the intake of borrower calls. The proposal 
provided that prompts for asserting errors must be clear and provide 
the borrower the option to connect to a live representative. Because 
the final rule does not require servicers to comply with error 
resolution procedures for oral error notices, the Bureau is withdrawing 
proposed comment 35(c)-5 from the final rule.
Internet Intake of Notices of Error
    The Bureau proposed comment 35(c)-4 to clarify that a servicer 
would not be required to establish a process for receiving notices of 
error through email, Web site form, or other online methods. Proposed 
comment 35(c)-4 was intended to further clarify that if a servicer 
establishes a process for receiving notices of error through online 
methods, the servicer can designate it as the only online intake 
process that a borrower can use to assert an error. A servicer would 
not be required to provide a written notice to a borrower in order to 
gain the benefit of the online process being considered the exclusive 
online process for receiving notices of error. Proposed comment 35(c)-4 
would have further clarified that a servicer's decision to accept 
notices of error through an online intake method shall be in addition 
to, not in place of, any processes for receiving error notices by phone 
or mail.
    One consumer group commenter advocated requiring servicers to 
establish on online process for receipt of error notices. The Bureau 
agrees that online processes have significant promise to facilitate 
faster, cheaper communications between borrowers and servicers. 
However, the Bureau believes that this suggestion raises a broader 
issue around the use of electronic media for communications between 
servicers (and other financial service providers) and borrowers (and 
other consumers). The Bureau believes it would be most effective to 
address this issue in that larger context after study and outreach to 
enable the Bureau to develop principles or standards that would be 
appropriate on an industry-wide basis. The Bureau is therefore, at this 
time, finalizing language to permit, but not require, servicers to 
elect whether to adopt such a process. The Bureau intends to conduct 
broader analyses of electronic communications' potential for 
disclosure, error resolution, and information requests after the rule 
is released. Accordingly, the Bureau is adopting comment 35(c)-4 as 
proposed, with minor technical amendments, and the Bureau has removed 
references to error notices received by telephone.
35(d) Acknowledgment of Receipt
    The Bureau proposed Sec.  1024.35(d), which would have required a 
servicer to provide a borrower an acknowledgement of a notice of error 
within five days (excluding legal public holidays, Saturdays, and 
Sundays) of receiving a notice of error. Proposed Sec.  1024.35(d) 
would have implemented section 1463(c) of the Dodd-Frank Act, which 
amended the current acknowledgement deadline of 20 days for qualified 
written requests to five days. Proposed Sec.  1024.35(d) would have 
further implemented the language in section 6(k)(1)(C) of RESPA 
prohibiting the failure to take timely action to respond to requests to 
correct errors by applying the same timeline applicable to a qualified 
written request to any notice of error.
    Industry commenters, including multiple credit union associations, 
requested that the Bureau lengthen the acknowledgment time period, 
asserting that five days is unreasonable, especially for smaller 
institutions. A nonprofit mortgage servicer said the timeframe is 
insufficient for its small volunteer staff. An industry trade 
association commenter argued that the acknowledgment requirement 
creates unnecessary paperwork and should be removed from the final rule 
altogether. In contrast, consumer group commenters were generally 
supportive of the acknowledgment requirement, noting that the timeline 
in the proposal was consistent with that in the Dodd-Frank Act for 
qualified written requests.
    The Bureau believes that acknowledgment within five days is 
appropriate given that the Dodd-Frank Act expressly adopts that 
requirement for qualified written requests and differentiating between 
the two regimes would increase operational complexity. Moreover, the 
burden on servicers is significantly mitigated by the fact that the 
error resolution procedures are only applicable to written notices of 
error. The Bureau further notes that the contents of the acknowledgment 
are minimal. In addition, servicers need not provide an acknowledgment 
if the servicer corrects the error identified by the borrower and 
notifies the borrower of that correction in writing within five days of 
receiving the error notice.

[[Page 10746]]

Accordingly, the Bureau is adopting Sec.  1024.35(d) substantially as 
proposed, except that the Bureau has revised the provision to clarify 
that the acknowledgment must be written.
35(e) Response to Notice of Error
    The Bureau proposed Sec.  1024.35(e) to set forth requirements on 
servicers for responding to notices of error. As discussed in more 
detail below, proposed Sec.  1024.35(e) would have implemented the 
response requirement in section 6(e)(2) of RESPA applicable to a 
qualified written request, including section 1463(c) of the Dodd-Frank 
Act, which changed the deadline for responding to qualified written 
requests from 60 days to 30 days. Proposed Sec.  1024.35(e) would have 
further implemented section 6(k)(1)(C) of RESPA by applying the same 
requirements and timeline applicable to a qualified written request to 
any notice of error.
35(e)(1) Investigation and Response Requirements
    Proposed Sec.  1024.35(e)(1) would have required a servicer to 
correct an error within 30 days unless the servicer concluded after a 
reasonable investigation that no error occurred and notified the 
borrower of that finding. As discussed below, the Bureau maintains the 
30-day timeline in the final rule.
Notices to Borrower
    Proposed Sec.  1024.35(e)(1)(i)(A) would have required a servicer 
that does not determine after a reasonable investigation that no error 
occurred as set forth under Sec.  1024.35(e)(1)(i)(B), to correct the 
error identified by the borrower, and provide the borrower with 
notification that indicates that the error was corrected, the date of 
the correction, and contact information the borrower can use to get 
further information. One industry commenter asserted that RESPA does 
not require that servicers provide correction dates and questioned the 
utility of such a requirement. The commenter further requested 
clarification as to whether the date of correction was equivalent to 
the effective date of the correction.
    The Bureau did not intend the reference to the date of correction 
in Sec.  1024.35(e)(1)(i)(A) to refer to the date the correction was 
made by the servicer, but rather to the date the correction is made 
effective. Accordingly, the Bureau is amending proposed Sec.  
1024.35(e)(1)(i)(A) to add the word ``effective'' to the final rule in 
order to clarify that the date servicers must provide is the effective 
date of the correction. The Bureau believes that providing the 
effective date of the correction is meaningful information for a 
borrower to assess whether the servicer has satisfactorily corrected 
the error, particularly in cases involving changes to the balance of 
the borrower's account. Commenters did not comment on other aspects of 
proposed Sec.  1024.35(e)(1)(i)(A), and the Bureau is adopting Sec.  
1024.35(e)(1)(i)(A) as proposed, except that the Bureau has revised the 
final rule to clarify that the notification must be provided in writing 
and the servicer's contact information must include a telephone number.
    Proposed Sec.  1024.35(e)(1)(i)(B) would have required a servicer 
that determines after conducting a reasonable investigation that no 
error occurred to provide the borrower a notice stating that the 
servicer has determined that no error has occurred, the reason(s) the 
servicer believes that no error has occurred, and contact information 
for servicer personnel that can provide further assistance. The 
proposal would have also required the servicer to inform the borrower 
in the notice that the borrower may request documents relied on by the 
servicer in reaching its determination and how the borrower can request 
such documents. In contrast, proposed Sec.  1024.35(e)(1)(i)(A) would 
not have required a servicer who determines that an error has occurred 
and corrects the error to provide a statement in the notice to the 
borrower about requesting documents that were the basis for that 
determination.
    One consumer group commenter requested that the Bureau amend the 
proposed rule to address situations in which servicers make inaccurate 
determinations that no error occurred. The Bureau believes that, as 
proposed, the rule adequately addresses such scenarios by requiring 
disclosures about borrowers' rights to request the information on which 
the servicer relied, so as to facilitate the borrower's opportunity to 
review and consider further action as appropriate. The Bureau believes 
that the rule will facilitate the timely correction of errors and that 
borrowers are less likely to need documents and information when errors 
are corrected per the borrower's requests. Accordingly, the Bureau is 
adopting Sec.  1024.35(e)(1)(i)(B) as proposed, except that the Bureau 
has revised the provision to clarify that the notification must be 
written and the servicer's contact information must include a telephone 
number.
Multiple Responses
    The Bureau proposed comment 35(e)(1)(i)-1 to clarify that if a 
notice of error asserts multiple errors, a servicer may respond to 
those errors through a single or separate written responses that 
address the alleged errors. The Bureau believes that the purpose of the 
rule, which is to require timely resolution of errors, is facilitated 
by allowing a servicer to respond to multiple errors set forth in a 
single notice of error through separate communications. For example, a 
servicer could correct one error and send a notice regarding the 
correction of that error, while an investigation is in process 
regarding another error that is the subject of the same notice of 
error. The Bureau did not receive any comments regarding proposed 
comment 35(e)(1)(i)-1 and is adopting it as proposed.
Different or Additional Error
    The Bureau proposed Sec.  1024.35(e)(1)(ii), which provided that if 
a servicer, during the course of a reasonable investigation, determines 
that a different or additional error has occurred, the servicer is 
required to correct that different or additional error and to provide a 
borrower a written notice about the error, the corrective action taken, 
the effective date of the corrective action, and contact information 
for further assistance. Because the servicer would be correcting an 
error, a servicer would not be required to provide a notice to the 
borrower about requesting documents that were the basis for that 
determination for the reasons discussed above. Proposed comment 
35(e)(1)(ii)-1 would have clarified that a servicer may provide the 
response required by Sec.  1024.35(e)(1)(ii) in the same notice that 
responds to errors asserted by the borrower pursuant to Sec.  
1024.35(e)(1)(i) or in a separate response that addresses the different 
or additional errors identified by the servicer. The Bureau did not 
receive any comments regarding proposed Sec.  1024.35(e)(1)(ii) and 
comment 35(e)(1)(ii)-1 and is adopting both substantially as proposed.
    As discussed above, the Bureau believes that a consumer protection 
purpose of RESPA is to facilitate the timely correction of errors. 
Where a servicer discovers an actual error, this purpose is best served 
by requiring the servicer to correct that error subject to the same 
procedures that would have applied had the borrower asserted the same 
error through a qualified written request or notice of error. 
Accordingly, the Bureau finds that Sec.  1024.35(e)(1)(ii) is necessary 
and appropriate to achieve the consumer protection purposes of RESPA, 
including of facilitating the timely correction of errors.

[[Page 10747]]

35(e)(2) Requesting Information From Borrower
    Proposed Sec.  1024.35(e)(2) would have permitted a servicer to 
request that a borrower provide documentation if needed to investigate 
an error but would not have permitted a servicer to require the 
borrower to provide such documentation as a condition of investigating 
the asserted error. Further, proposed Sec.  1024.35(e)(2) would have 
prohibited a servicer from determining that no error occurred simply 
because the borrower failed to provide the requested documentation. The 
Bureau proposed Sec.  1024.35(e)(2) to allow servicers to obtain 
information that may assist in resolving notices of error.
    Several industry commenters stressed the importance of permitting 
reasonable requests for information from borrowers. Commenters said 
that limiting servicers' access could impede the early resolution of 
errors. One industry commenter asked that the Bureau clarify that 
servicers may request documents so long as they do not condition 
investigation on the receipt of documents. Other commenters requested 
clarification that requiring a borrower to provide specific information 
about what the borrower is requesting does not constitute requiring a 
borrower to provide information as a condition of conducting the 
investigation.
    Having considered these comments, the Bureau believes the proposed 
rule strikes the right balance by permitting servicers to request 
documents from borrowers so long as the servicer's investigation and 
conclusion that no error occurred is not dependent on the receipt of 
documents. As stated in the proposal, the Bureau believes that the 
process for servicers to obtain information from borrowers should not 
prejudice the ability of the borrower to seek the resolution of the 
error. Accordingly, the Bureau is adopting Sec.  1024.35(e)(2) as 
proposed with minor technical amendments.
35(e)(3) Time Limits
35(e)(3)(i)
    The Bureau proposed Sec.  1024.35(e)(3)(i), which would have 
required a servicer to respond to a notice of error not later than 30 
days (excluding legal public holidays, Saturdays, and Sundays) after 
the borrower notifies the servicer of the asserted error, with two 
exceptions: Errors relating to accurate payoff balances and errors 
relating to failure to suspend a foreclosure sale where a borrower has 
submitted a complete application for a loss mitigation option. As 
discussed further below, the proposal would have required servicers to 
respond to errors relating to payoff balances within five days 
(excluding legal public holidays, Saturdays, and Sundays) after the 
servicer receives the notice of error. The Bureau believed this 
shortened timeframe was appropriate because a servicer's failure to 
correct such an error may prevent a borrowing from pursuing options in 
the interim, such as a refinancing transaction. The proposal would have 
also required servicers to respond to errors relating to the failure to 
suspend a foreclosure sale where a borrower has submitted a complete 
application the earlier of within 30 days (excluding legal public 
holidays, Saturdays, and Sundays) after the servicer receives the error 
notice or prior to the foreclosure sale. The Bureau believed the 
shorter timeline was appropriate because delaying the response and 
investigation until after the foreclosure sale could cause irreparable 
harm to the borrower.
    While several industry commenters asserted that 30 days was 
insufficient for error notices, one credit union stated that the 
timeline was reasonable. Similarly, a consumer group commenter noted 
that the timeline was consistent with the time period for qualified 
written requests required by the Dodd-Frank Act. Consumer commenters on 
Regulation Room asserted that the timelines were too generous. The 
Bureau believes that the 30-day timeframe proposed is appropriate given 
that the Dodd-Frank Act expressly changed the timeframe for qualified 
written requests from 60 days to 30 days and differentiating between 
two regimes would increase operational complexity as well as burden on 
borrowers and servicers. Accordingly, the final rule adopts the 30-day 
timeline as proposed.
Shortened Time Limit To Correct Errors Relating to Payoff Balances
    Proposed Sec.  1024.35(e)(3)(i)(A) would have provided that if a 
borrower submits a notice of error asserting that a servicer has failed 
to provide an accurate payoff balance as set forth in proposed Sec.  
1024.35(b)(6), a servicer must respond to the notice of error not later 
than five days (excluding legal public holidays, Saturdays, and 
Sundays) after the borrower notifies the borrower of the alleged error. 
The Bureau proposed the accelerated timeframe because it believed that 
a 30-day deadline for responding to this type of notice of error would 
not provide adequate protection for borrowers because the servicer's 
failure to correct the error promptly may prevent a borrower from 
pursuing options in the interim such as a refinancing transaction. 
Moreover, discussions with servicers during outreach suggested that a 
five day timeframe would be reasonable for a servicer to correct an 
error with respect to calculating a payoff balance.
    Industry commenters noted the complexity involved in calculating 
payoff balances, especially where servicers need to collect information 
from third parties, such as fee information from vendors or prior 
servicers. In light of the complexity involved, industry commenters 
asserted that the timeframe was insufficient.
    While the Bureau continues to believe it is important to have an 
accelerated timeline for errors associated with payoff balances, the 
Bureau acknowledges that in some circumstances the need to collect 
information from third parties may pose timing challenges. Accordingly, 
the Bureau has revised proposed Sec.  1024.35(e)(3)(i)(A) to provide 
that a servicer must respond to a borrower's notice of error asserting 
that a servicer has failed to provide an accurate payoff balance as set 
forth in Sec.  1024.35(b)(6) not later than seven days (excluding legal 
public holidays, Saturdays, and Sundays) after the borrower notifies 
the servicer of the alleged errors. The Bureau believes that this 
modest increase in the timeline strikes the right balance between 
prompt provision of payoff information to consumers and the need for 
servicers to have sufficient time to access the required information. 
Moreover, the Bureau also notes that section 129G of TILA requires 
servicers to provide accurate payoff balance amounts to consumers 
within a reasonable time, but in no case more than seven business days. 
Otherwise, the Bureau is adopting Sec.  1024.35(e)(3)(i)(A) as 
proposed, with minor technical amendments.
Shortened Time Limit To Correct Certain Errors Relating to Foreclosure
    Proposed Sec.  1024.35(e)(3)(i)(B) would have provided that if a 
borrower submits a notice of error asserting, under Sec.  
1024.35(b)(9), that a servicer has failed to suspend a foreclosure 
sale, a servicer would be required to investigate and respond to the 
notice of error by the earlier of 30 days (excluding legal public 
holidays, Saturdays, and Sundays) or the date of a foreclosure sale. 
Proposed comment 35(e)(3)(i)(B)-1 would have clarified that a servicer 
could maintain a 30-day timeframe to respond to the notice of error if 
it cancels or postpones the foreclosure sale and a subsequent sale is 
not

[[Page 10748]]

scheduled before the expiration of the 30-day deadline.
    The Bureau believes the shortened timeframe is appropriate because, 
given the complexity of the process, servicers may mistakenly fail to 
suspend a foreclosure. Thus, the Bureau believes borrowers may 
reasonably benefit from the opportunity to have servicers investigate 
and respond to notices of error regarding such failures before the 
foreclosure sale. The Bureau believes that a timeframe that allowed a 
servicer to investigate and respond to the notice of error after the 
date of a foreclosure sale would cause irreparable harm to a borrower. 
Accordingly, the Bureau is adopting Sec.  1024.35(e)(3)(i)(B) and 
comment 35(e)(3)(i)(B)-1 as proposed, except for minor technical 
amendments and that the Bureau has revised Sec.  1024.35(e)(3)(i)(B) to 
reference both Sec.  1024.35(b)(9) and (10).
Extensions of Time Limit
    Proposed Sec.  1024.35(e)(3)(ii) would have permitted, subject to 
certain exceptions discussed below, a servicer to extend the time 
period for investigating and responding to a notice of error by 15 days 
(excluding legal public holidays, Saturdays, and Sundays) if, before 
the end of the 30-day period set forth in proposed Sec.  
1024.35(e)(3)(i)(C), the servicer notifies the borrower of the 
extension and the reasons for the delay in responding. Proposed comment 
35(e)(3)(ii)-1 would have clarified that if a notice of error asserts 
multiple errors, a servicer may extend the time period for 
investigating and responding to those errors for which extensions are 
permissible pursuant to proposed Sec.  1024.35(e)(3)(ii).
    While some consumer groups generally objected to the proposed 
extension, one industry commenter urged the Bureau to permit two 
automatic 15-day extensions. The Bureau does not believe that 
permitting a second 15-day extension would promote timely resolution of 
errors. Section 1463(c)(3) of the Dodd-Frank Act amended section 6(e) 
of RESPA to provide one 15-day extension of time with respect to 
qualified written requests, and the Bureau believes that 
differentiating between two regimes would increase operational 
complexity.
    The Bureau did not propose to apply the extension allowance of 
proposed Sec.  1024.35(e)(3)(ii) to investigate and respond to errors 
relating to a servicer's failure to provide an accurate payoff 
statement or to suspend a foreclosure sale. As discussed above, the 
final rule applies a shortened timeframe for responding to such errors 
in light of special statutory provisions and special considerations at 
the foreclosure stage. Permitting a 15-day extension of those 
timeframes would negate these shortened response periods and undermine 
the purposes served by shortening them. For the reasons set forth above 
and in the proposal, the Bureau is adopting Sec.  1024.35(e)(3)(ii) and 
comment 35(e)(3)(ii)-1 substantially as proposed.
35(e)(4) Copies of Documentation
    Proposed Sec.  1024.35(e)(4) would have required that, where a 
servicer determines that no error occurred and a borrower requests the 
documents the servicer relied upon, the servicer must provide the 
documents within 15 days of the servicer's receipt of the borrower's 
request. The Bureau proposed comment 35(e)(4)-1 to clarify that a 
servicer would need only provide documents actually relied upon by the 
servicer to determine that no error occurred, not all documents 
reviewed by a servicer. Further, the proposed comment stated that where 
a servicer relies upon entries in its collection systems, a servicer 
may provide print-outs reflecting the information entered into the 
system.
    Some industry commenters questioned the utility of providing 
documents relied upon to borrowers, noting that borrowers may not 
understand how to interpret the documents printed from servicers' 
systems. Industry commenters said providing such documents will be 
burdensome, and one commenter added that the Dodd-Frank Act neither 
requires nor contemplates such a requirement. One commenter urged the 
Bureau to clarify that servicers need only provide borrowers a summary 
of information that is stored electronically and not in a producible 
format. And several industry commenters urged the Bureau to limit 
servicers' responsibility to provide documents that reflect trade 
secrets or other sensitive information.
    The Bureau believes the proposed rule strikes the right balance in 
that it does not subject servicers to undue paperwork burden but 
assures that borrowers will have access to underlying documentation if 
necessary. In certain cases, a borrower may determine that the 
servicer's response resolves an issue and that reviewing documents 
would be unnecessary. Thus, the Bureau believes that requiring a 
servicer to provide documents only upon a borrower's request limits 
burden. The Bureau understands that servicers may store information 
electronically and not in a readily producible format. Accordingly, the 
Bureau is adopting final comment 35(e)(4)-1, which clarifies that 
servicers may provide a printed screen capture in such situations, as 
proposed with minor technical amendments. In addition, the Bureau 
acknowledges industry commenters' concern regarding providing 
confidential or sensitive information to borrowers. Accordingly, the 
Bureau has revised proposed Sec.  1024.35(e)(4) to provide that 
servicers need not produce to borrowers documents reflecting 
confidential, proprietary or privileged information. Final Sec.  
1024.35(e)(4) further provides that if a servicer withholds documents 
relied upon because such documents reflect confidential, proprietary or 
privileged information, the servicer must notify the borrower of its 
determination in writing. The Bureau is otherwise adopting Sec.  
1024.35(e)(4) as proposed.
35(f) Alternative Compliance
    Proposed Sec.  1024.35(f) provided that a servicer would not be 
required to comply with the timing and process requirements of 
paragraphs (d) and (e) of proposed Sec.  1024.35 in two situations. 
First, a servicer that corrects the error identified by the borrower 
within five days of receiving the notice of error, and notifies the 
borrower of the correction in writing, would not be required to comply 
with the acknowledgment, notice and inspection requirements in 
paragraphs (d) and (e). Because such errors are corrected, an 
investigation would not be required. Second, a servicer that receives a 
notice of error for failure to suspend a foreclosure sale, pursuant to 
Sec.  1024.35(b)(9), seven days or less before a scheduled foreclosure, 
would not be required to comply with paragraphs (d) and (e), if, within 
the time period set forth in paragraph (e)(3)(i)(B), the servicer 
responds to the borrower, orally or in writing, and corrects the error 
or states the reason the servicer has determined that no error has 
occurred.
35(f)(1) Early Correction
    The Bureau proposed Sec.  1024.35(f)(1) to permit alternative 
compliance as to errors resolved within the first five days. This 
provision is consistent with section 6(e)(1)(A) of RESPA, which 
requires servicers to provide written acknowledgment of a qualified 
written request within five days (excluding legal public holidays, 
Saturdays, and Sundays) ``unless the action requested is taken within 
such period.'' In addition, the alternative compliance mechanism in 
proposed Sec.  1024.35(f)(1) was based on feedback from servicers 
during outreach, and especially small servicers, which indicated that 
the majority of

[[Page 10749]]

errors are addressed promptly after a borrower's communication and 
generally within five days. Small entity representatives communicated 
to the Small Business Review Panel that small servicers have a high-
touch customer service model, which made it very easy for borrowers to 
report errors or make inquiries, and to receive real-time responses. 
The Bureau believed the alternative compliance method was necessary and 
appropriate to reduce the unwarranted burden of an acknowledgement and 
other response requirements on servicers, and especially small 
servicers, that are able to correct borrower errors within five days 
consistent with the Small Business Review Panel recommendation that the 
Bureau consider requirements that provide flexibility to small 
servicers.
    Industry commenters supported the proposal's exemption of servicers 
from complying with paragraphs (d) and (e) where the servicer corrects 
the error identified by the borrower within five days of receiving the 
notice of error. However, industry commenters opposed the requirement 
that servicers notify borrowers of the correction in writing. 
Commenters reasoned that a significant number of errors are asserted 
and quickly resolved in a single telephone call. Accordingly, 
commenters argued that the requirement to advise borrowers of the 
correction in writing would be burdensome.
    The Bureau believes that because the final rule subjects written 
but not oral notices to error resolution requirements under Sec.  
1024.35, the commenters' concerns regarding written notice of 
correction has been significantly mitigated. To the extent that a 
borrower asserts an error in writing which the servicer resolves within 
five days, the Bureau believes the borrower will benefit from receiving 
the written notification. For these reasons, the Bureau adopts Sec.  
1024.35(f)(1) as proposed, except that the Bureau has revised the 
provision to make clear that the servicer must provide such 
notification within five days of receiving the notice of error.
35(f)(2) Errors Asserted Before Foreclosure Sale
    As explained in proposed Sec.  1024.35(f)(2), the Bureau believes 
that it is appropriate to streamline acknowledgment and response 
requirements when servicers receive a notice of error that may impact a 
foreclosure sale less than seven days before a foreclosure sale. 
Notices of errors identified in Sec.  1024.35(b)(9) and (10), which 
focus on the failure to suspend a foreclosure sale in the circumstances 
described in Sec.  1024.41(f), (g), or (j), implicate this concern. 
Numerous entities, including other federal agencies and small entity 
representatives during the Small Business Review Panel outreach, 
expressed concern about borrower use of error resolution requirements 
as a procedural tool to impede proper foreclosures and promote 
litigation.\104\
---------------------------------------------------------------------------

    \104\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, 30 (Jun, 11, 2012).
---------------------------------------------------------------------------

    Industry commenters reiterated concerns heard during pre-proposal 
outreach that borrowers could use the error resolution requirements to 
halt foreclosure sales, including minutes before a foreclosure sale. 
One industry commenter stressed that in some circumstances, whether to 
proceed with foreclosure will be beyond the servicer's control, as some 
courts will not cancel foreclosure after a certain date and Freddie Mac 
can override a servicer's request to postpone or cancel a sale. Thus, 
two commenters urged the Bureau to exempt from liability servicers 
required by an investor, insurer, guarantor or legal requirement to 
proceed with a foreclosure sale. Another industry commenter requested 
an exception for those borrowers who have had their claims heard by a 
court, asserting that servicers need finality and that extending 
foreclosure timelines is costly. In contrast, consumer group commenters 
opposed the alternative compliance option for errors asserted within 
seven days of a foreclosure sale. Consumer groups asserted that 
servicers should be required to communicate with borrowers in writing. 
In addition, some consumer group commenters reasoned that because 
proposed Sec.  1024.35(f)(2) would exempt the servicer from the 
requirement to conduct an investigation or provide the borrower with 
the documents relied upon in reaching its determination that no error 
occurred, it would effectively permit servicers to ignore valid 
requests for postponement so long as the servicer sends a letter 
stating that no error occurred.
    Having considered these comments, the final rule provides that for 
error notices submitted seven days or less before a foreclosure sale 
that assert an error identified in Sec.  1024.35(b)(9) or (10), 
servicers are not required to comply with the requirements for 
acknowledgement and response to notices of error, but must make a good 
faith attempt to respond to borrowers, orally or in writing, and to 
either correct the error or state the reason the servicer has 
determined no error occurred. As stated in the proposal, the Bureau 
believes that reducing the procedural requirements for servicers to 
follow for such notices mitigates the concern that borrowers may use 
error resolution procedures to impede foreclosure, while maintaining 
protection for consumers. The Bureau believes that this alternative 
compliance method is also consistent with the Small Business Review 
Panel recommendation that the Bureau provide flexibility to small 
servicers and responds to small entity representatives' concern that 
error resolution procedures may be used in unwarranted litigation. 
Further, the Bureau understands the timing to be consistent with the 
GSE requirement that servicers conduct account reviews to document that 
all required actions have occurred at least seven days prior to a 
foreclosure sale. The Bureau declines to revise the proposal to require 
that servicers communicate with borrowers in writing, as the Bureau 
believes servicers require flexibility in communicating with borrowers 
close in time to a foreclosure sale.
35(g) Requirements Not Applicable
    The Bureau proposed Sec.  1024.35(g) to set forth the types of 
notices of error to which the error resolution requirements would not 
apply.
35(g)(1) In General
    Proposed Sec.  1024.35(g)(1) would have provided that a servicer is 
not required to comply with the error resolution requirements set forth 
in Sec.  1024.35(d) and (e) if the servicer reasonably makes certain 
determinations specified in Sec. Sec.  1024.35(g)(1)(i), (ii), or 
(iii). Specifically, subject to certain exceptions, a servicer need not 
comply with error resolution requirements with respect to a notice of 
error that asserts an error that is substantially the same as an error 
asserted previously by or on behalf of the borrower, that is overbroad 
or unduly burdensome, or that is untimely. A servicer would be liable 
to the borrower for its unreasonable determination that any of the 
listed categories apply and resulting failure to comply with proposed 
Sec.  1024.35(d) and (e), however. Industry commenters generally 
favored the proposed exclusions, but requested that the Bureau expand 
the categories for which servicers would not be required to comply with 
error resolution requirements. Except as discussed below, the Bureau 
declines to do so. The Bureau has, however, revised proposed Sec.  
1024.35(g)(1) to state that, in addition to Sec.  1024.35(d) and (e), a 
servicer is not required to comply with Sec.  1024.35(i) if

[[Page 10750]]

a servicer reasonably determines that Sec. Sec.  1024.35(g)(i), (ii), 
or (iii) apply.
35(g)(1)(i)
    Proposed Sec.  1024.35(g)(1)(i) would have provided that a servicer 
is not required to comply with the notice of error requirements in 
proposed Sec.  1024.35(d) and (e) with respect to a notice of error to 
the extent that the asserted error is substantially the same as an 
error asserted previously by or on behalf of the borrower for which the 
servicer had previously complied with its obligation to respond to the 
notice of error pursuant to Sec.  1024.35(e)(1), unless the borrower 
provides new and material information. The proposed rule would have 
defined new and material information as information that was not 
reviewed by the servicer in connection with investigating the prior 
notice of error and was reasonably likely to change a servicer's 
determination with respect to the existence of an error.
    As stated in the proposal, the Bureau believes that both elements 
of this requirement are important. First, the information must not have 
been reviewed by the servicer. If the information was reviewed by the 
servicer, then such information is not new and requiring a servicer to 
re-open an investigation will create unwarranted burden and delay. 
Second, even if the information is new, it must be material to the 
asserted error. A servicer may not have reviewed information because 
the information may not have been material to the error asserted by the 
borrower. The Bureau proposed Sec.  1024.35(g)(1)(i) to ensure that a 
servicer is not required to expend resources conducting duplicative 
investigations of notices of error unless there is a reasonable basis 
for re-opening a prior investigation because of new and material 
information.
    The Bureau proposed comment 35(g)(1)(i)-1 to further clarify that a 
dispute regarding whether a servicer previously reviewed information or 
whether a servicer properly determined that information reviewed was 
not material to its determination of the existence of an error, will 
not itself constitute new and material information and, consequently, 
does not require a servicer to re-open a prior, resolved investigation 
of a notice of error.
    While industry commenters supported the proposed exclusion, some 
consumer groups expressed concern. One consumer group commenter argued 
that the proposal effectively requires that borrowers describe alleged 
errors with more specificity than is appropriate, given that borrowers 
often do not fully understand the nature of the alleged error. Another 
consumer group commenter urged the Bureau to require servicers to 
inform borrowers that servicers will reconsider a duplicative error 
notice to the extent that the borrower is able to more concisely 
describe an alleged error. Another commenter asserted that the proposed 
exclusion shields servicers from the consequences of incompletely 
addressing a notice of error the first time it is received. Finally, an 
anonymous commenter questioned the Bureau's authority to create the 
exclusion altogether.
    Having considered these comments, the Bureau believes that Sec.  
1024.35(g)(1)(i), as proposed, strikes the appropriate balance in that 
it requires servicers to respond to duplicative error notices only to 
the extent that such notices present new and material information. The 
Bureau recognizes that borrowers will assert errors in lay terms, and 
this section is not intended to require any particular level of 
specificity in the errors that borrowers assert. All that this section 
provides is that if a borrower submits a second error claim that the 
servicer reasonably determines is substantially the same as a previous 
submission, the servicer is not obligated to go back through the 
investigative process unless the borrower has presented new and 
material information. Thus, to the extent that a borrower initially 
lacks sufficient information to articulate clearly an alleged error but 
is later privy to new and material information that enables the 
borrower to describe the error more clearly, proposed Sec.  
1024.35(g)(1)(i) requires a servicer to reconsider new and material 
information subsequently put forward by the borrower. Thus, for the 
reasons outlined in the proposal and set forth above, the Bureau is 
adopting Sec.  1024.35(g)(1)(i) and comment 35(g)(1)(i)-1 as proposed, 
with minor technical amendments.
    The Bureau's authority for Sec.  1024.35 is addressed above. 
Moreover, the Bureau finds that Sec.  1024.35 is necessary and 
appropriate to achieve the purposes of RESPA, including ensuring 
responsiveness to consumer requests and complaints because the Bureau 
believes that this purpose will best be met if servicers are not 
required to waste resources responding to duplicative requests that 
will not benefit consumers, but rather are allowed to focus their 
resources on responding to error requests where such responses are most 
likely to result in consumer benefit.
35(g)(1)(ii)
    Proposed Sec.  1024.35(g)(1)(ii) would have provided that a 
servicer is not required to comply with the notice of error 
requirements in proposed Sec.  1024.35(d) and (e) with respect to a 
notice of error that is overbroad or unduly burdensome. The proposed 
rule would have defined ``overbroad'' and ``unduly burdensome'' for 
this purpose. It would have provided that a notice of error is 
overbroad if a servicer cannot reasonably determine from the notice of 
error the specific covered error that a borrower asserts has occurred 
on a borrower's account. The proposed rule would have provided that a 
notice of error is unduly burdensome if a diligent servicer could not 
respond to the notice of error without either exceeding the maximum 
timeframe permitted by Sec.  1024.35(e)(3)(ii) or incurring costs (or 
dedicating resources) that would be unreasonable in light of the 
circumstances. The proposed rule would have further clarified that if a 
servicer can identify a proper assertion of a covered error in a notice 
of error that is otherwise overbroad or unduly burdensome, a servicer 
is required to respond to the covered error submissions it can 
identify. Finally, the Bureau proposed comment 35(g)(1)(ii)-1 to set 
forth characteristics that may indicate if a notice of error is 
overbroad or unduly burdensome.
    During pre-proposal outreach, consumers, consumer advocates, 
servicers, and servicing industry representatives indicated to the 
Bureau that consumers do not typically use the current qualified 
written request process to resolve errors. During the Small Business 
Review Panel outreach, small entity representatives expressed that 
typically qualified written requests received from borrowers were vague 
forms found online or forms used by advocates as a form of pre-
litigation discovery. Servicers and servicing industry representatives 
indicated that these types of qualified written requests are 
unreasonable and unduly burdensome. Small entity representatives in the 
Small Business Review Panel outreach requested that the Bureau consider 
an exclusion for abusive requests, or requests made with the intent to 
harass the servicer.
    The Bureau requested comment regarding whether a servicer should 
not be required to undertake the error resolution procedures in 
proposed Sec.  1024.35(d) and (e) for notices of error that are 
overbroad or unduly burdensome. Industry commenters supported the 
exclusion, but urged the Bureau to remove the requirement that 
servicers identify valid assertions of error in submissions that are 
otherwise overbroad or unduly burdensome. Industry commenters said 
servicers

[[Page 10751]]

should not be required to parse through such submissions to locate a 
clear assertion of error. One large trade association of mortgage 
servicers said that the requirement effectively subsumes the exclusion. 
Consumer group commenters generally disfavored the exclusion. One 
commenter questioned the assertion that borrowers primarily use 
qualified written requests to obtain prelitigation discovery. One 
consumer group said the exclusion gives servicers too much discretion. 
Another said it requires borrowers to state the basis for their alleged 
error with too much specificity. An anonymous consumer advocate said a 
request from a single borrower should not be so voluminous as to be 
burdensome for servicers to respond. Another consumer group commenter 
requested that the Bureau address situations in which the servicer 
erroneously determines that a submission is overbroad or unduly 
burdensome. Finally, one consumer group commenter said the proposed 
exclusion for unduly burdensome notices of error leaves borrowers 
unprotected as to errors that are especially egregious or complex.
    In proposing Sec.  1024.35(g)(1)(ii), the Bureau did not intend to 
frustrate consumers' ability to assert actual complex errors and to 
have such errors investigated and corrected, as appropriate, by 
servicers. The Bureau believes it is critical that consumers have a 
mechanism by which to have complex errors addressed. Accordingly, the 
Bureau has revised proposed Sec.  1024.35(g)(1)(ii) and proposed 
comment 35(g)(1)(ii)-1 to remove references to unduly burdensome 
notices of error. At the same time, the Bureau proposed Sec.  
1024.35(g)(1)(ii), in part, because the Bureau believes that requiring 
servicers to respond to overbroad notices of error from some borrowers 
may cause servicers to expend fewer resources to address other errors 
that may be more clearly stated and more clearly require servicer 
attention. As discussed above, the Bureau expands the definition of 
errors subject to the requirements of Sec.  1024.35 to contain a catch-
all for all errors relating to the servicing of the borrower's loan. 
Given the breadth of the errors subject to the requirements of Sec.  
1024.35, the Bureau continues to believe that a requirement for 
servicers to respond to notices of error that are overbroad may harm 
consumers and frustrate servicers' ability to comply with the new error 
resolution requirements. The Bureau does not believe that the error 
resolution procedures are the appropriate forum for borrowers to 
prosecute wide-ranging complaints against mortgage servicers that are 
more appropriate for resolution through litigation. Accordingly, the 
Bureau is adopting Sec.  1024.35(g)(1)(ii) and comment 35(g)(1)(ii)-1 
substantially as proposed, except that the Bureau has revised the 
provisions to remove references to unduly burdensome notices of error.
35(g)(1)(iii)
    Proposed Sec.  1024.35(g)(1)(iii) would have provided that a 
servicer is not required to comply with the notice of error 
requirements in proposed Sec.  1024.35(d) and (e) for an untimely 
notice of error--that is, a notice of error received by a servicer more 
than one year after either servicing for the mortgage loan that is the 
subject of the notice of error was transferred by that servicer to a 
transferee servicer or the mortgage loan amount was paid in full, 
whichever date is applicable. The Bureau proposed this provision to set 
a specific and clear time that a servicer may be responsible for 
correcting errors for a mortgage loan.
    Moreover, the Bureau proposed Sec.  1024.35(g)(1)(iii) to achieve 
the same goal that currently exists in Regulation X with respect to 
qualified written requests. Specifically, current Sec.  
1024.21(e)(2)(ii) states that ``a written request does not constitute a 
qualified written request if it is delivered to a servicer more than 
one year after either the date of transfer of servicing or the date 
that the mortgage servicing loan amount was paid in full, whichever 
date is applicable.''
    One industry trade association expressed support for proposed Sec.  
1024.35(g)(1)(iii). A credit union commenter requested that the Bureau 
impose an additional time limitation on borrowers' ability to assert 
errors, noting that it often services mortgages for the life of the 
loan. A consumer advocacy group commenter disagreed with proposed Sec.  
1024.35(g)(1)(iii) and asserted that borrowers should be permitted to 
raise errors with their current servicer regardless of whether the 
servicer was responsible for the error. Having considered these 
comments, the Bureau declines to impose additional time limits on a 
borrower's ability to assert errors, as borrowers may discover errors 
long after such errors were made. In addition, the Bureau does not 
believe that Sec.  1024.35(g)(1)(iii), as proposed, prohibits a 
borrower from raising errors with the borrower's current servicer. 
Thus, for the reasons set forth above, the Bureau is adopting Sec.  
1024.35(g)(1)(iii) as proposed with a minor technical amendment.
35(g)(2) Notice to Borrower
    Proposed Sec.  1024.35(g)(2) would have required that if a servicer 
determines that it is not required to comply with the notice of error 
requirements in proposed Sec.  1024.35(d) and (e) with respect to a 
notice of error, the servicer must provide a notice to the borrower 
informing the borrower of the servicer's determination. The servicer 
must send the notice not later than five days (excluding legal public 
holidays, Saturdays, and Sundays) after its determination and the 
notice must set forth the basis upon which the servicer has made the 
determination, noting the applicable provision of proposed Sec.  
1024.35(g)(1).
    One credit union trade association disfavored the proposed 
requirement that a servicer send a notice informing the borrower that 
an error falls into one of the enumerated exceptions. The commenter 
suggested that the Bureau permit servicers to send a standard notice 
informing borrowers that the servicer received the notice of error and 
is not required to respond.
    The Bureau proposed Sec.  1024.35(g)(2) because it believes that 
borrowers should be notified that a servicer does not intend to take 
any action on the asserted error. The Bureau also believes borrowers 
should know the basis for the servicer's determination. By providing 
borrowers with notice of the basis for the servicer's determination, a 
borrower will know the servicer's basis and will have the opportunity 
to bring a legal action to challenge that determination where 
appropriate. Accordingly, having considered the comment, the Bureau is 
adopting Sec.  1024.35(g)(2) as proposed.
35(h) Payment Requirements Prohibited
    Proposed Sec.  1024.35(h) would have prohibited a servicer from 
charging a fee, or requiring a borrower to make any payment that may be 
owed on a borrower's account, as a condition of investigating and 
responding to a notice of error. Proposed comment 35(h)-1 would have 
clarified that Sec.  1024.35(h) does not alter or otherwise affect a 
borrower's obligation to make payments owed pursuant to the terms of 
the mortgage loan. The Bureau proposed Sec.  1024.35(h) for three 
reasons. First, section 1463(a) of the Dodd-Frank Act added section 
6(k)(1)(B) to RESPA, which prohibits a servicer from charging fees for 
responding to valid qualified written requests. Proposed Sec.  
1024.35(h) would implement that provision with respect to qualified 
written requests. Second, the Bureau believes that a

[[Page 10752]]

servicer's practice of charging for responding to a notice of error 
impedes borrowers from pursuing valid notices of error and that the 
prohibition is therefore necessary and appropriate to achieve the 
consumer protection purposes of RESPA, including ensuring 
responsiveness to borrower requests and complaints. Third, the Bureau 
understands that, in some instances, servicer personnel have demanded 
that borrowers make payments before the servicer will correct errors or 
provide information requested by a borrower. The Bureau believes that a 
servicer should be required to correct errors notwithstanding the 
payment status of a borrower's account. A consumer advocacy group 
commenter noted, without elaborating, that it supported the fee 
prohibition reflected in proposed Sec.  1024.35(h). For the reasons set 
out above, the Bureau is adopting Sec.  1024.35(h) and comment 35(h)-1 
as proposed.
35(i) Effect on Servicer Remedies
Adverse Information
    Proposed Sec.  1024.35(i)(1) would have provided that a servicer 
may not furnish adverse information regarding any payment that is the 
subject of a notice of error to any consumer reporting agency for 60 
days after receipt of a notice of error. RESPA section 6(e) sets forth 
this prohibition on servicers with respect to a qualified written 
request that asserts an error. Proposed Sec.  1024.35(i)(1) would 
implement section 6(e) of RESPA with respect to qualified written 
requests and would apply the same requirements to other notices of 
error.
    The Bureau proposed to maintain the prohibition regarding supplying 
adverse information for the 60-day timeframe set forth in section 
6(e)(3) of RESPA with respect to qualified written requests and to 
apply it to all notices of error. Even though a notice of error may be 
resolved by no later than 45 days after it is received pursuant to 
proposed Sec.  1024.35(e)(3)(ii), the Bureau reasoned that the 60-day 
timeframe is appropriate in the event that there are follow-up 
inquiries or additional information provided to the borrower.
    Industry commenters strongly objected to the 60-day reporting 
prohibition. Commenters said the proposal undermines the accuracy and 
integrity of credit reports. One commenter said the Fair Credit 
Reporting Act already governs credit reporting. One large bank 
commenter asserted that because credit reporting is a safety and 
soundness protection, banks have a duty to accurately report 
delinquencies. Several industry commenters also noted a concern that, 
based on prior experience, borrowers may use the reporting prohibition 
to manipulate the system by disputing legitimate delinquencies in order 
to apply for credit without derogatory marks on credit reports. The 
Bureau acknowledges the concerns expressed but notes that Congress 
specifically imposed the 60-day reporting prohibition with respect to 
qualified written requests in section 6(e) of RESPA. As discussed 
above, the Bureau believes it is necessary to achieve the consumer 
protection purposes of RESPA, including to ensure responsiveness to 
borrower requests and complaints and the provision of accurate and 
relevant information to borrowers, to apply the same procedures to all 
notices of error as applicable to qualified written requests. 
Otherwise, borrowers and servicers must expend wasteful resources 
parsing the form requirements applicable to qualified written requests 
and navigating between two separate regulatory regimes. As detailed 
above, the Bureau believes that the interests of borrowers and 
servicers are best served and the purposes of RESPA are best met 
through a single regulatory regime applicable to both qualified written 
requests and other notices of error. The Bureau is therefore adopting 
Sec.  1024.35(i)(1) as proposed, as it is consistent with the 60-day 
reporting prohibition for qualified written requests required by 
section 6(e) of RESPA.
Ability To Pursue Foreclosure
    Proposed Sec.  1024.35(i)(2) stated that, with one exception, a 
servicer's obligation to comply with the requirements of proposed Sec.  
1024.35 would not prohibit a lender or servicer from pursuing any 
remedies, including proceeding with a foreclosure sale, permitted by 
the applicable mortgage loan instrument. The Bureau proposed one 
exception to Sec.  1024.35(i)(2) where a borrower asserts an error 
under paragraph (b)(9) based on a servicer's failure to suspend a 
foreclosure sale in the circumstances described in proposed Sec.  
1024.41(g). The Bureau proposed Sec.  1024.35(i)(2) to clarify that, in 
general, a notice of error could not be used to require a servicer to 
suspend a foreclosure sale.
    A consumer group commenter asserted that proposed Sec.  
1024.35(i)(2) should be amended to prohibit a lender or servicer from 
pursuing a foreclosure sale upon receipt of any notice of error that 
disputes a servicers' ability to foreclose. As stated in the proposal, 
the Bureau believes that the purpose of RESPA of ensuring 
responsiveness to borrower requests and complaints would be impeded by 
allowing a notice of error to obstruct a lender's or servicer's ability 
to pursue remedies permitted by the applicable mortgage loan 
instrument.
    The requirements in proposed Sec.  1024.41 establish procedures 
that servicers must follow for reviewing loss mitigation applications. 
Servicers are capable of complying with the requirements prior to a 
foreclosure sale. Nothing in this proposed requirement affects the 
validity or enforceability of the mortgage loan or lien. Further, a 
servicer has the opportunity to retain its remedies when a borrower 
submits a completed application for a loss mitigation option. A 
servicer may establish a deadline by which a borrower must submit a 
completed application for a loss mitigation option, and, so long as the 
servicer fulfills its duty to evaluate the borrower for a loss 
mitigation option before the date of a foreclosure sale, a servicer may 
comply with the requirements of Sec.  1024.35 without suspending the 
foreclosure sale. For the reasons set forth above and in the proposal, 
the Bureau is adopting Sec.  1024.35(i)(2) as proposed, except that the 
Bureau has revised the provision to reference both paragraphs (b)(9) 
and (10).
Section 1024.36 Requests for Information
    Section 6(e) of RESPA requires servicers to respond to ``qualified 
written requests'' that relate to the servicing of a loan. Section 
1463(a) of the Dodd-Frank Act amended RESPA to add section 6(k)(1)(B), 
which prohibits servicers from charging fees for responding to valid 
qualified written requests (as defined in regulations to be issued by 
the Bureau). In addition, section 1463(a) of the Dodd-Frank Act amended 
RESPA to add section 6(k)(1)(D), which states that a servicer shall not 
fail to provide information regarding the owner or assignee of a 
mortgage loan within ten business days of a borrower's request.
    Proposed Sec.  1024.36 set forth requirements servicers would be 
required to follow to respond to information requests from borrowers 
with respect to their mortgage loans. The Bureau proposed Sec.  1024.36 
to implement the servicer prohibitions set forth in section 6(k)(1)(B) 
and 6(k)(1)(D) of RESPA, as well as the requirements applicable to 
qualified written requests set forth in section 6(e) of RESPA. In 
addition, as discussed above with respect to Sec.  1024.35, the Bureau 
believed that it served the interests of

[[Page 10753]]

borrowers and servicers alike to establish a uniform regulatory regime, 
parallel to that applicable to notices of error under Sec.  1024.35, 
applicable to borrower requests for information relating to their 
mortgage loan irrespective of whether such requests were made in the 
form of a qualified written request. In the Bureau's view, such 
requirements are necessary to ensure that servicers respond to 
borrowers' requests and complaints and timely provide borrowers with 
relevant and accurate information about their mortgage loans.
Legal Authority
    Section 1024.36 implements section 6(k)(1)(D) of RESPA, and to the 
extent the requirements are also applicable to qualified written 
requests, sections 6(e) and 6(k)(1)(B) of RESPA. Pursuant to the 
Bureau's authorities under sections 6(j), 6(k)(1)(E), and 19(a) of 
RESPA, the Bureau is also adopting certain additions and certain 
exemptions to these provisions. As explained in more detail below, 
these additions and exemptions are necessary and appropriate to achieve 
the consumer protection purposes of RESPA, including ensuring 
responsiveness to consumer requests and complaints and the provision 
and maintenance of accurate and relevant information.
36(a) Information Requests
    Proposed Sec.  1024.36(a) would have required a servicer to comply 
with the requirements of proposed Sec.  1024.36 for an information 
request from a borrower that includes the borrower's name, enables the 
servicer to identify the borrower's mortgage loan account, and states 
the information the borrower is requesting for the borrower's mortgage 
loan account. The Bureau received no comment on this aspect of proposed 
Sec.  1024.36, and is finalizing these requirements as proposed. The 
Bureau is otherwise finalizing proposed Sec.  1024.36 as discussed 
below.
Qualified Written Requests
    Similar to the proposed requirements for notices of error, proposed 
Sec.  1024.36(a) would have required a servicer to treat a qualified 
written request that requests information relating to the servicing of 
a loan as an information request subject to the requirements of Sec.  
1024.36. The Bureau intended to propose servicer obligations applicable 
to qualified written requests that were the same as requirements 
applicable to information requests under Sec.  1024.36(a). One consumer 
group commenter expressed support for the proposal because it dispensed 
with technicalities about whether an information request constituted a 
valid qualified written request. One trade association commenter said 
the Bureau failed to define a valid qualified written request and said 
that proposed Sec.  1024.36 does not fully integrate section 6(e) of 
RESPA into the proposed information request procedures. Another trade 
association of private mortgage lenders said the proposal did not make 
clear what constitutes a qualified written request and to what extent 
servicers must continue to comply with existing law regarding qualified 
written requests. Having considered these comments, the Bureau notes 
that final Sec.  1024.31 defines the term ``qualified written 
request.'' In addition, as discussed above, the Bureau has added new 
comment 31 (qualified written request)-2, which clarifies that the 
error resolution and information request requirements in Sec. Sec.  
1024.35 and 1024.36 apply as set forth in those sections irrespective 
of whether the servicer receives a qualified written request. Finally, 
the Bureau has revised proposed Sec.  1024.36(a) to make clear in the 
final rule that a qualified written request that requests information 
relating to the servicing of a mortgage loan is a request for 
information for purposes of Sec.  1024.36 for which a servicer must 
comply with all requirements applicable to a request for information.
Oral Information Requests
    The Bureau proposed to require servicers to comply with information 
request procedures under Sec.  1024.36 for information requests made by 
borrowers orally or in writing. The Bureau believed this approach was 
warranted, in part, because discussions with consumers, consumer 
advocates, servicers, and industry trade associations during outreach 
suggested that the vast majority of borrowers orally request 
information from servicers.
    As was the case for notices of error, the Bureau believed that a 
requirement that an information request be in writing would serve as a 
barrier that could unduly restrict the ability of borrowers to have 
errors resolved and requests fulfilled. At the same time, the Bureau 
recognized the burdens on servicers to ensure compliance with the 
proposed rule with respect to oral information requests. The Bureau 
believed that elements of the proposed rule would assist in mitigating 
servicer burden. For example, the Bureau considered that the proposal 
allowed servicers to designate a specific telephone number for 
receiving oral information requests and included an alternative 
compliance provision that allows a servicer to provide information 
orally if the information is provided within five days of the 
borrower's request.
    In addition, the Bureau learned from pre-proposal discussions with 
servicers, including the small entity representatives in the Small 
Business Review Panel outreach, that most information requests are 
responded to by servicers either on the same telephone call with the 
borrower or within an hour of a borrower's communication. The Bureau 
believed that allowing servicers to respond to information requests 
orally would significantly reduce the burden associated with the 
proposed information request requirements on servicers. Further, the 
Bureau believed that this requirement provided flexibility for small 
servicers consistent with the recommendations of the Small Business 
Review Panel and mitigates concerns by the small entity representatives 
regarding compliance costs.
    The Bureau solicited comment regarding whether servicers should be 
required to comply with information request procedures for information 
requests asserted orally. The Bureau received a number of comments from 
both consumer groups and various industry members. Consumer group 
commenters reiterated their support for applying the information 
request provisions to requests made orally, noting that consumers most 
often request information orally rather than in writing. Consumer 
commenters on Regulation Room disfavored the proposal's application of 
the information request procedures under Sec.  1024.36 to information 
requests received orally. Consumer commenters, citing their negative 
experiences attempting to request information from servicers orally, 
were concerned that encouraging an oral process would weaken consumer 
protections. Industry commenters also opposed the proposal's 
application of the information request requirements to oral information 
requests. Commenters said doing so would create new burdens for 
servicers regarding tracking the information requests and monitoring 
that a borrower receives written acknowledgements and responses. 
Industry commenters further stressed that a written process would 
provide more clarity and certainty as to the nature of the request and 
what the servicer communicated to the borrower during the conversation. 
Further, industry commenters asserted, requiring written information 
requests would help avoid situations in which the borrower

[[Page 10754]]

and servicer have differing recollections as to the borrower's request 
and the servicer's response during the conversation. Absent a written 
record, commenters said, servicers would need to record conversations 
with borrowers to minimize the significant litigation risk. The 
commenters asserted that recording conversations could be especially 
costly for small servicers and would require the borrower's consent in 
many jurisdictions.
    After consideration of these comments, the Bureau is amending 
proposed Sec.  1024.36(a) to require servicers to comply with Sec.  
1024.36 solely with respect to written requests for information. While 
borrowers may continue to raise information requests orally, servicers 
will not be required to comply with the formal requirements outlined in 
Sec.  1024.36 for such requests. Instead, the Bureau has added to the 
final rule Sec.  1024.38(b)(1)(iii), which generally requires that 
servicers maintain policies and procedures that are reasonably designed 
to ensure that servicers provide borrowers with accurate and timely 
information and documents in response to borrowers' requests for 
information. In addition, the Bureau has added a requirement in Sec.  
1024.38(b)(5) that servicers establish policies and procedures 
reasonably designed to achieve the objective of informing borrowers 
about the availability of procedures for submitting written notices of 
error set forth in Sec.  1024.35 and written information requests set 
forth in Sec.  1024.36.
    The Bureau believes that eliminating the requirement under proposed 
Sec.  1024.36(a) for servicers to comply with the requirements under 
Sec.  1024.36 with respect to oral requests for information from 
borrowers and instead requiring servicers to develop policies and 
procedures to ensure responsiveness to such oral requests and inform 
borrowers about the availability of the written process, strikes the 
appropriate balance between providing prompt responses to borrower 
requests and mitigating servicer burden. The final rule will thus 
require servicers to maintain policies and procedures reasonably 
designed to assure that the servicers respond to oral information 
requests on a more informal basis, without having to comply with all of 
the required steps for a formal information request under Sec.  
1024.36. As discussed more fully below, because only written 
information requests will be subject to the procedures outlined in 
Sec.  1024.36, the Bureau believes it is logical and appropriate to 
require servicers to respond to such written requests in writing.
Borrower's Representative
    Section 6(e)(1)(A) of RESPA states that a qualified written request 
may be provided by a ``borrower (or an agent of the borrower).'' See 
RESPA section 6(e)(1)(A). The Bureau proposed comment 36(a)-1 to 
clarify that this standard applies to all information requests, 
irrespective of whether they are qualified written requests. 
Specifically, proposed comment 36(a)-1 would have clarified that a 
servicer should treat an information request submitted by a person 
acting as an agent of the borrower as if it received the request 
directly from the borrower. Further, proposed comment 36(a)-1 stated 
that servicers may undertake reasonable procedures to determine if a 
person that claims to be an agent of a borrower has authority from the 
borrower to act on the borrower's behalf.
    Several industry commenters said it would be costly and burdensome 
to determine whether a third party has authority to act on a borrower's 
behalf. Many requested clarification as to what the Bureau believes 
constitutes acting on the borrower's behalf. Further, some industry 
commenters expressed concern about potential liability for the improper 
release of information, including the risk of violating State or 
Federal privacy laws, as well as what commenters perceived to be 
increased risk of identity theft and fraud. Finally, a few industry 
commenters took the position that only the borrower, but not the 
borrower's agent, should be permitted to request information pursuant 
to Sec.  1024.36.
    One consumer advocacy group noted that the proposal to permit 
borrowers' agents to submit information requests is consistent with the 
statutory language. Consumer groups also requested that the Bureau 
clarify that the timelines will not toll during the period in which the 
servicer attempts to validate through reasonable policies and 
procedures that a third party purporting to act on a borrower's behalf 
is, in fact, an agent of the borrower.
    Having considered these comments, the Bureau is amending proposed 
comment 36(a)-1 to address servicers' concerns about potential 
liability for the improper release of information. The final comment 
clarifies that servicers may have reasonable procedures to determine if 
a person that claims to be an agent of a borrower has authority from 
the borrower to act on the borrower's behalf, for example, by requiring 
that purported agents provide documentation from the borrower stating 
that the purported agent is acting on the borrower's behalf. Upon 
receipt of such documentation, the servicer shall treat a request for 
information as having been submitted by the borrower. The Bureau 
acknowledges that requiring servicers to respond to information 
requests submitted by borrowers' agents is more costly than limiting 
the requirement to borrowers' requests, but notes that this approach is 
consistent with section 6(e)(1)(A) of RESPA with respect to a qualified 
written request. The Bureau finds that it is necessary and appropriate 
to achieve the consumer protection purposes of RESPA, including 
ensuring responsiveness to borrower requests and complaints, to apply 
this requirement to all written information requests, especially since 
borrowers who are experiencing difficulty in making their mortgage 
payments or dealing with their servicer may turn, for example, to a 
housing counselor or other knowledgeable persons to assist them in 
addressing such issues. The Bureau declines to further define the term 
``agent.'' The concept of agency has historically been defined in State 
and other applicable law. Thus, it is appropriate for the definition to 
defer to applicable State law regarding agents.
Information Subject to Information Request Procedures
    Section 6(e)(1)(A) of RESPA requires servicers to respond to 
qualified written requests that request information relating to the 
servicing of a loan. Proposed Sec.  1024.36(a) would have provided that 
any information requested by a borrower with respect to the borrower's 
mortgage loan is subject to the information request requirements in 
proposed Sec.  1024.36 other than as provided in proposed Sec.  
1024.36(f), which defined specific circumstances in which a servicer is 
not obligated to comply with information request procedures.
    One industry commenter expressed concern that borrowers or their 
attorneys may abuse the information request process. The commenter said 
that borrowers may request information that should already be in the 
borrower's possession, such as information received at closing. The 
commenter also urged the Bureau not to require that servicers produce 
the servicing file in response to a borrower's information request. The 
commenter said that such information will be of limited utility to 
borrowers and often reflects privileged communications. Having 
considered these comments, the Bureau notes that final Sec.  1024.36, 
like the proposal, has mechanisms in place to limit abuse and to 
protect confidential communications. Specifically, as discussed more 
fully

[[Page 10755]]

below, Sec.  1024.36(f) lists circumstances under which servicers need 
not comply with information request requirements under Sec.  1024.36. 
To the extent that a borrower requests a servicing file, the servicer 
shall provide the borrower with a copy of the information contained in 
the file subject to the limitations set forth in Sec.  1024.36(f).
    Another commenter requested clarification as to whether consumers 
may use the information request process to request payoff statements. 
The Bureau is amending proposed Sec.  1024.36(a) to make clear that 
servicers need not treat borrowers' requests for payoff balances as 
requests for information for which servicers must comply with the 
information request procedures set forth in Sec.  1024.36. The Bureau 
believes that this revision is appropriate, as borrowers already have a 
mechanism by which to request payoff balances under section 129G of 
TILA with respect to home loans. For those loans that are not subject 
to section 129G of TILA, the Bureau believes that it would be 
inappropriate to extend the requirements of that provision beyond the 
scope mandated by Congress, as implemented by Sec.  1026.36(c)(3) of 
the 2013 TILA Servicing Final Rule.
Owner or Assignee
    Section 1463(a) of the Dodd-Frank Act amended RESPA to add section 
6(k)(1)(D), which states that a servicer shall not fail to provide 
information regarding the owner or assignee of a mortgage loan within 
ten business days of a borrower's request. Proposed comment 36(a)-2 
would have clarified that if a borrower requests information regarding 
the owner or assignee of a mortgage loan, a servicer complies with its 
obligations to identify the owner or assignee of the mortgage loan by 
identifying the entity that holds the legal obligation to receive 
payments from a mortgage loan. Proposed comments 36(a)-2.i and 36(a)-
2.ii would have provided examples of which party is the owner or 
assignee of a mortgage loan for different forms of mortgage loan 
ownership. These include situations when a mortgage loan is held in 
portfolio by an affiliate of a servicer, when a mortgage loan is owned 
by a trust in connection with a private label securitization 
transaction, and when a mortgage loan is held in connection with a GSE 
or Ginnie Mae guaranteed securitization transaction. The Bureau 
believes that it would not provide additional consumer protection to 
impose an obligation on a servicer to identify entities that may have 
an interest in a borrower's mortgage loan other than the owner or 
assignee of the mortgage loan, as such information would be of limited 
utility.
    During outreach, servicers generally did not express concerns to 
the Bureau regarding the obligation to provide borrowers with the type 
of information subject to the information request requirements. 
Specifically, in the Small Business Review Panel outreach, small entity 
representatives indicated that they felt fairly comfortable with the 
types of information that would be subject to the requirements, 
indicating that this information was generally in the borrower's 
mortgage loan file.
    The small entity representatives did express concern regarding the 
obligation to provide information regarding the owner or assignee of a 
mortgage loan. The small entity representatives stated that servicers 
may not have contact information for owners or assignees of mortgage 
loans, that such owners or assignees are not prepared to handle calls 
from borrowers, and that a typical servicer duty is to handle customer 
complaints so that owners or assignees of mortgage loans do not have to 
handle that responsibility. Certain owners, assignees, and guarantors 
of mortgage loans, including other federal agencies, have expressed 
similar concerns to the Bureau.
    Industry commenters expressed similar concerns in response to the 
proposal. One industry trade association suggested that the Bureau 
amend proposed comment 36(a)-2 to require that servicers identify the 
name of the trustee rather than the name of the legal entity that holds 
the legal right to receive payments. The commenter argued that the 
information that the Bureau proposes servicers provide would not be 
meaningful to borrowers, as the trust itself cannot act. Moreover, the 
commenter asserted that servicers do not typically track the trust name 
with the account, as such information is rarely used. One large bank 
commenter urged the Bureau to amend the comment to replace the 
reference to ``obligation'' with ``right'' as the commenter asserted 
the former is not technically accurate.
    As outlined in the proposal, the Bureau understands the concerns 
asserted by servicers, owners, assignees, guarantors, and other federal 
agencies that requiring servicers to provide the proposed information 
to borrowers may confuse borrowers and lead to attempts to communicate 
with owners or assignees that are unprepared or unwilling to engage in 
such communications. The requirement that servicers identify to the 
borrower the owner or assignee of a mortgage loan was added as section 
6(k)(1)(D) of RESPA by the Dodd-Frank Act. Section 6(k)(1)(D) requires 
that information regarding the owner or assignee of a mortgage loan 
must be provided to borrowers. The Bureau believes that the benefit to 
borrowers of obtaining the information, which was required by Congress, 
justifies any concerns about the potential for confusion. As to 
commenters' concern that trustee information is more relevant than 
trust information, the Bureau notes that proposed comment 36(a)-2 
provided that where a trust is the owner or assignee of a loan, a 
servicer must provide the name of both the trustee and the trust. Also, 
for clarification purposes, the Bureau is revising proposed comment 
36(a)-2 to state that when a borrower requests information regarding 
the owner or assignee of a mortgage loan, a servicer complies by 
identifying the person on whose behalf the servicer receives payments 
from the borrower. Otherwise, the Bureau is adopting comment 36(a)-2 
substantially as proposed.
36(b) Contact Information for Borrowers To Request Information
    The Bureau proposed Sec.  1024.36(b), which would have permitted a 
servicer to establish an exclusive telephone number and address that a 
borrower must use to request information in accordance with the 
procedures in Sec.  1024.36. If a servicer chose to establish a 
separate telephone number and address for information requests, the 
proposal would have required the servicer to provide the borrower a 
notice that states that the borrower may request information using the 
telephone number and address established by the servicer for that 
purpose. Proposed comment 36(b)-1 would have clarified that if a 
servicer has not designated a telephone number and address that a 
borrower must use to request information, then the servicer will be 
required to respond to an information request received at any office of 
the servicer. Proposed comment 36(b)-2 would have further clarified 
that the written notice to the borrower may be set forth in another 
written notice provided to the borrower, such as a notice of transfer, 
periodic statement, or coupon book. Proposed comment 36(b)-2 would have 
further clarified that if a servicer establishes a telephone number and 
address for receipt of information requests, the servicer must provide 
that telephone number and address in any communication in which the 
servicer provides the borrower with contact information for assistance 
from the servicer.

[[Page 10756]]

    The Bureau proposed to allow servicers to establish a telephone 
number and address that a borrower must use to request information in 
order to allow servicers to direct oral and written requests to 
appropriate personnel that have been trained to ensure that the 
servicer responds appropriately. As the proposal noted, at larger 
servicers with other consumer financial service affiliates, many 
personnel simply do not typically deal with mortgage servicing-related 
issues. For instance, at a major bank servicer, a borrower might 
request information from a local bank branch staff, who likely would 
not have access to the information necessary to respond to the request. 
Thus, the Bureau reasoned, if a servicer establishes a telephone number 
and address that a borrower must use, a servicer would not be required 
to comply with the information request requirements set forth in Sec.  
1024.36 for requests that may be received by the servicer through a 
different method.
    Most industry commenters favored allowing servicers to designate an 
address and telephone number to which borrowers must direct information 
requests. At the same time, such commenters asserted that the proposal 
constituted an insufficient remedy to the burdens inherent in 
permitting oral information requests. Some commenters said that 
designating telephone lines for information requests could be 
especially costly for small servicers. Thus, one community bank trade 
association argued that the proposal favored large institutions. Two 
industry commenters requested clarification regarding how servicers 
must handle information requests sent to the wrong address. Finally, 
one credit union commenter asserted that servicers should only be 
required to include designated telephone numbers and addresses in 
regular forms of communication to borrowers, such as the periodic 
statement. In contrast, consumer group commenters suggested that to the 
extent a servicer designates a telephone line or address, the servicer 
should be required to post such information on its Web site and to 
include it in mailed notices.
    Because the final rule removes the requirement that servicers 
comply with information request requirements under Sec.  1024.36 for 
oral information requests, the Bureau believes that it is no longer 
necessary to regulate the circumstances under which servicers may 
direct oral information requests to an exclusive telephone number that 
a borrower must use to request information. However, for written 
information requests, the Bureau continues to believe that it is 
reasonable to permit servicers to designate a specific address for the 
intake of information requests. Allowing a servicer to designate a 
specific address is consistent with current requirements of Regulation 
X with respect to qualified written requests. Current Sec.  
1024.21(e)(1) permits a servicer to designate a ``separate and 
exclusive office and address for the receipt and handling of qualified 
written requests.'' Moreover, the Bureau believes that identifying a 
specific address for receiving information requests will benefit 
consumers. By providing a specific address, servicers will identify to 
consumers the office capable of addressing requests made by consumers.
    The Bureau believes it is critical for servicers to publicize any 
designated address to ensure that borrowers know how properly to 
request information and to avoid evasion by servicers of information 
request procedures. This is especially important because, as noted in 
the proposal, servicers who designate a specific address for receipt of 
information requests are not required to comply with information 
request procedures for notices sent to the wrong address. Accordingly, 
final Sec.  1024.36(b) requires servicers that designate addresses for 
receipt of requests for information to post the designated address on 
any Web site maintained by the servicer if the servicer lists any 
contact address for the servicer. In addition, final comment 36(b)-2 
retains the clarification that servicers that establish an address that 
a borrower must use to request information, must provide the address to 
the borrower in any communication in which the servicer provides the 
borrower with contact information for assistance. The Bureau is 
otherwise adopting Sec.  1024.36(b) and comments 36(b)-1 and 36(b)-2 as 
proposed, except that it has revised the provisions permitting 
servicers to designate a telephone number that a borrower must use to 
request information and clarified that the notice must be written.
Multiple Offices
    Proposed Sec.  1024.36(b), similar to proposed Sec.  1024.35(c) for 
notices of error, would have required a servicer to use the same 
telephone number and address it designates for receiving notices of 
error for receiving information requests pursuant to proposed Sec.  
1024.36(b), and vice versa. Further, proposed comment 36(b)-3 would 
have clarified that any telephone numbers or addresses designated by a 
servicer for any borrower may be used by any other borrower to submit 
an information request. This clarifies that a servicer may not 
determine that an information request is invalid if it was received at 
any telephone number or address designated by the servicer for receipt 
of information requests just because it was not received by the 
specific phone number or address identified to a specific borrower.
    One non-bank servicer expressed concern about the proposal's 
requirement to designate the same address and telephone number for 
notices of error and information requests. The commenter explained that 
it assigns separate teams to address information requests and error 
notices. Thus, the commenter asserted, proposed Sec.  1024.36(b) would 
negatively impact customer service. Having considered this comment, the 
Bureau notes that it proposed Sec.  1024.36(b) because it was concerned 
that designating separate telephone numbers and addresses for notices 
of error and information requests could impede borrower attempts to 
submit notices of error and information requests to servicers due to 
debates over whether a particular communication constituted a notice of 
error or an information request. For the reasons set forth above and in 
the proposal, final Sec.  1024.36(b) retains the requirement that 
servicers designate the same address for receipt of information 
requests and notices of error. In addition, the Bureau is adopting 
comment 36(b)-3 substantially as proposed, except that the Bureau has 
removed references to information requests received by telephone.
    Proposed comment 36(b)-5 would have further clarified that a 
servicer may use automated systems, such as an interactive voice 
response system, to manage the intake of borrower calls. The proposal 
provided that prompts for requesting information must be clear and 
provide the borrower the option to connect to a live representative. 
Because the final rule does not require servicers to comply with 
information request procedures for oral requests, the Bureau is 
withdrawing proposed comment 36(b)-5 from the final rule.
Internet Intake of Information Requests
    The Bureau proposed comment 36(b)-4 to clarify that a servicer 
would not be required to establish a process for receiving information 
requests through email, Web site form, or other online methods. 
Proposed comment 36(b)-4 was intended to further clarify that if a 
servicer establishes a process for receiving information requests 
through online methods, the servicer can designate it as the only 
online intake process that a borrower can use to request information. A 
servicer would not be required to provide a written

[[Page 10757]]

notice to a borrower in order to gain the benefit of the online process 
being considered the exclusive online process for receiving information 
requests. Proposed comment 36(b)-4 would have further clarified that a 
servicer's decision to accept requests for information through an 
online intake method shall be in addition to, not in place of, any 
processes for receiving information requests by phone or mail.
    One consumer group commenter advocated requiring servicers to 
establish an online process for receipt of information requests. The 
Bureau agrees that online processes have significant promise to 
facilitate faster, cheaper communications between borrowers and 
servicers. However, the Bureau believes that this suggestion raises a 
broader issue around the use of electronic media for communications 
between servicers (and other financial services providers) and 
borrowers (and other consumers). The Bureau believes it would be most 
effective to address this issue in that larger context after study and 
outreach to enable the Bureau to develop principles or standards that 
would be appropriate on an industry-wide basis. The Bureau is 
therefore, at this time, finalizing language to permit, but not 
require, servicers to elect whether to adopt such a process. The Bureau 
intends to conduct broader analyses of electronic communications' 
potential for disclosure, error resolution, and information requests 
after the rule is released. Accordingly, the Bureau is adopting comment 
36(b)-4 as proposed, with minor technical amendments, and having 
removed references to information requests received by telephone.
36(c) Acknowledgment of Receipt
    Proposed Sec.  1024.36(c) would have required a servicer to provide 
a borrower an acknowledgement of an information request within five 
days (excluding legal public holidays, Saturdays, and Sundays) of 
receiving an information request. Proposed Sec.  1024.36(c) would have 
implemented section 1463(c) of the Dodd-Frank Act, which amended the 
current acknowledgement deadline of 20 days for qualified written 
requests to five days. Proposed Sec.  1024.36(c) would have further 
applied the same timeline applicable to a qualified written request to 
any information request.
    Industry commenters, including multiple credit union trade 
associations, requested that the Bureau lengthen the acknowledgment 
time period, asserting that five days was unreasonable, especially for 
smaller institutions. A nonprofit mortgage servicer said the timeframe 
was insufficient for its small volunteer staff. An industry trade 
association commenter argued that the acknowledgment requirement 
creates unnecessary paperwork and should be removed from the final rule 
altogether. In contrast, consumer group commenters were generally 
supportive of the acknowledgment requirement, noting that the timeline 
in the proposal was consistent with that in the Dodd-Frank Act for 
qualified written requests.
    The Bureau believes acknowledgment within five days is appropriate 
given that the Dodd-Frank Act expressly adopts that requirement for 
qualified written requests and differentiating between two regimes 
would increase operational complexity. Moreover, the burden on 
servicers is significantly mitigated by the fact that the information 
request procedures are only applicable to written requests. The Bureau 
further notes that the contents of the acknowledgment are minimal. 
Moreover, servicers need not provide an acknowledgment if the servicer 
provides the information requested within five days. Accordingly, the 
Bureau is adopting Sec.  1024.36(c) as proposed.
36(d) Response to Information Request
    The Bureau proposed Sec.  1024.36(d) to set forth requirements on 
servicers for responding to information requests. As discussed in more 
detail below, proposed Sec.  1024.36(d) would have implemented the 
response requirement in section 6(e)(2) of RESPA applicable to a 
qualified written request, including section 1463(c) of the Dodd-Frank 
Act, which amended certain deadlines for responses to qualified written 
requests. Proposed Sec.  1024.36(d) would have further implemented the 
ten business day timeline in section 6(k)(1)(D) of RESPA by applying 
the timeline to requests for information about the owner or assignee of 
the loan.
36(d)(1) Investigation and Response Requirements
    Proposed Sec.  1024.36(d)(1) would have required a servicer to 
respond to an information request within 30 days by either (i) 
providing the borrower with the requested information and contact 
information for further assistance, or (ii) conducting a reasonable 
search for the requested information and providing the borrower with a 
written notification that states that the servicer has determined that 
the requested information is not available or cannot reasonably be 
obtained by the servicer, as appropriate, the basis for the servicer's 
determination, and contact information for further assistance. The 
proposal would have only required a servicer to provide a written 
notice to the borrower in response to the information request if the 
information requested by the borrower is not available or cannot 
reasonably be obtained by the servicer. The proposal would have 
permitted a servicer to respond either orally or in writing to the 
borrower if the servicer is providing the information requested by the 
borrower. The Bureau proposed to allow servicers to respond orally 
because it believed that the goal of providing information to borrowers 
would be furthered by allowing servicers to respond orally. 
Additionally, the Bureau believed that allowing the servicer to respond 
orally would reduce the burden on servicers.
    One consumer advocacy group commenter urged the Bureau to require 
that servicers respond to information requests in writing. The 
commenter argued that servicers regularly provide borrowers 
inconsistent and inaccurate information, which necessitates a written 
response. Because, as discussed above, the final rule requires 
borrowers to submit information requests in writing in order to gain 
the benefit of the information request procedures set forth in Sec.  
1024.36, the Bureau now believes it is appropriate and effectuates the 
consumer protection purposes of RESPA to require that servicers respond 
to borrowers' information requests in writing. Doing so will help 
ensure that there is a written record of both the borrower's request 
and the servicer's response, which the Bureau believes will reduce 
confusion regarding the accuracy of the information provided. For these 
reasons, the Bureau is adopting Sec.  1024.36(d)(1) substantially as 
proposed, except that it has removed references to a servicer's oral 
response and clarified that the servicer's contact information must 
include a telephone number.
Information Not Available
    Proposed comment 36(d)(1)(ii)-1 would have clarified that 
information should not be considered as available to a servicer if the 
information is not in the servicer's possession or control or the 
servicer cannot retrieve the information in the ordinary course of 
business through reasonable efforts.
    The purpose of the information request requirements is to provide 
an efficient means for borrowers to obtain information regarding their 
mortgage loan accounts and the Bureau believes that imposing 
obligations on servicers to provide information in response to an 
information request is an efficient means of achieving the goal of 
providing a borrower with access to requested information. However, the 
Bureau

[[Page 10758]]

proposed comment 36(d)(1)(ii)-1 because it believes that burden for 
information requests will increase greatly if a servicer is required to 
undertake an investigation for documents that are not in a servicer's 
possession or control. The same inefficiency exists even if information 
is in a servicer's possession or control but, for appropriate business 
reasons, is stored in a medium that is not accessible by a servicer in 
the ordinary course of business. The Bureau believes that the marginal 
benefit of having additional information available to borrowers is not 
justified by the significant burdens that such investigations may 
incur. Moreover, the Bureau believes that it would frustrate the 
consumer protection purposes of RESPA to require that servicers devote 
considerable resources, which could otherwise be spent on responding to 
information requests that would benefit borrowers, to locating 
inaccessible information.
    One mortgage servicer commented on proposed comment 36(d)(1)(ii)-1. 
The commenter requested that the Bureau provide examples in the 
commentary of what it considers to be unavailable information. Proposed 
comment 36(d)(1)(ii)-2 provides examples of when documents should and 
should not be considered to be available to a servicer in response to 
an information request, and such examples are reflected in the final 
comment as well. For the reasons discussed in the proposal and above, 
the Bureau is adopting comments 36(d)(1)(ii)-1 and 36(d)(1)(ii)-2 
substantially as proposed.
36(d)(2) Time Limits
36(d)(2)(i)
    Section 1463(b) of the Dodd-Frank Act amended section 6(e)(2) of 
RESPA to require a servicer to investigate and respond to a qualified 
written request within 30 days (excluding legal public holidays, 
Saturdays, and Sundays). Prior to the Dodd-Frank Act, servicers had 60 
days to investigate and respond to a borrower's qualified written 
request. The Bureau proposed Sec.  1024.36(d)(2)(i) to implement 
section 6(e)(2) of RESPA with respect to qualified written requests, 
and to impose the same timeframe on other requests for information from 
borrowers. Specifically, proposed Sec.  1024.36(d)(2)(i) would have 
required a servicer to respond to an information request not later than 
30 days (excluding legal public holidays, Saturdays, and Sundays) after 
the servicer receives the information request, with one exception 
discussed below.
    While several industry commenters asserted that 30 days was 
insufficient, one credit union opined that the timeline was reasonable. 
Similarly, a consumer group commenter noted that the timeline was 
consistent with the time period for qualified written requests required 
by the Dodd-Frank Act. Consumer commenters on Regulation Room asserted 
that the timeline was too generous. The Bureau believes that the 30-day 
timeframe proposed is appropriate given that the Dodd-Frank Act 
expressly changed the timeframe for qualified written requests from 60 
days to 30 days and differentiating between two regimes would increase 
operational complexity as well as burden on borrowers and servicers. 
Accordingly, the Bureau is adopting the 30-day timeline as proposed.
Shortened Time Limit To Provide Information Regarding the Identity of 
the Owner or Assignee
    Section 1463(a) of the Dodd-Frank Act added section 6(k)(1)(D) to 
RESPA, which sets forth a ten business day limitation on a servicer to 
respond to a borrower's request for information regarding the owner or 
assignee of a mortgage loan. The Bureau proposed Sec.  
1024.36(d)(2)(i)(A) to implement this provision of RESPA. Proposed 
Sec.  1024.36(d)(2)(i)(A) would have provided that if a borrower 
submits a request for information regarding the identity of, and 
address or relevant contact information for, the owner or assignee of a 
mortgage loan, a servicer shall respond to the information request with 
ten days (excluding legal public holidays, Saturdays, and Sundays). 
Proposed Sec.  1024.36(d)(2)(i)(A) would have required a servicer to 
provide the requested information within ten days (excluding legal 
public holidays, Saturdays, and Sundays) instead of ``10 business 
days,'' as the Bureau interprets the ``10 business day'' requirement in 
section 6(k)(1)(D) of RESPA to mean ten calendar days with an exclusion 
for intervening legal public holidays, Saturdays, and Sundays, and 
proposes to implement that interpretation in proposed Sec.  
1024.36(d)(2)(i)(A).
    Two non-bank servicers commented that ten days is insufficient for 
those circumstances in which a servicer needs to obtain documentation 
confirming ownership, such as information contained in the collateral 
file. The Bureau acknowledges the concerns expressed but, as discussed 
in the proposal, the Bureau does not believe that the burden of 
obtaining this information for any borrower will be significant enough 
to justify additional time beyond the ten days (excluding legal public 
holidays, Saturdays, and Sundays) established by Congress for 
responding to borrower requests for information regarding the owner or 
assignee of the loan. Servicers generally have access to the 
identification of investors as that information is necessary to 
determine where to direct mortgage loan payments and reports with 
respect to the performance of serviced assets. The benefit to the 
borrower of obtaining the information, which Congress required, 
justifies the costs to servicers of complying within ten days 
(excluding legal public holidays, Saturdays, and Sundays). Accordingly, 
the Bureau is adopting Sec.  1024.36(d)(2)(i)(A) as proposed.
Extensions of Time Limits
    Section 1463(c)(3) of the Dodd-Frank Act amended section 6(e) of 
RESPA to permit servicers to extend the time for responding to a 
qualified written request by 15 days if, before the end of the 30-day 
period, the servicer notifies the borrower of the reasons for the 
extension. The Bureau proposed Sec.  1024.36(d)(2)(ii) to implement 
this provision with respect to qualified written requests, and to 
impose the same timeframe with respect to other requests for 
information. Proposed Sec.  1024.36(d)(2)(ii) would have permitted a 
servicer to extend the time period for responding to an information 
request by 15 days (excluding legal public holidays, Saturdays, and 
Sundays) if, before the end of the 30-day period set forth in proposed 
Sec.  1024.36(d)(2)(i)(B), the servicer notifies the borrower of the 
extension and the reasons for the delay in responding. For the reasons 
discussed above, the Bureau did not propose to apply the extension 
allowance of proposed Sec.  1024.36(d)(2)(ii) to information requests 
with respect to the owner or assignee of a mortgage loan. Permitting a 
15-day extension of that timeframe would negate the shortened response 
period and undermine the purpose served by shortening it. While some 
consumer groups disfavored the extension, for the reasons discussed 
above and in the proposal, the Bureau is adopting Sec.  
1024.36(d)(2)(ii) as proposed with minor technical amendments.
36(e) Alternative Compliance
    Proposed Sec.  1024.36(e) would have provided that a servicer is 
not required to comply with the requirements of paragraphs (c) and (d) 
of proposed Sec.  1024.36 if the information requested by a borrower is 
provided to the borrower within five days along with

[[Page 10759]]

contact information the borrower can use for further assistance. This 
provision was consistent with section 6(e)(1)(A) of RESPA, which 
requires servicers to provide written acknowledgment of a qualified 
written request within five days (excluding legal public holidays, 
Saturdays, and Sundays) ``unless the action requested is taken within 
such period.'' Proposed Sec.  1024.36(e) would have permitted a 
servicer to provide the information requested either orally or in 
writing. Proposed comment 36(e)-1 would have permitted servicers that 
provide information orally to demonstrate compliance by, among other 
things, including a notation in the servicing file that the information 
requested was provided or maintaining a copy of a recorded telephone 
conversation.
    Because, as discussed above, the final rule requires borrowers to 
submit information requests in writing in order to gain the benefit of 
the information request procedures set forth in Sec.  1024.36, the 
Bureau now believes it is appropriate and consistent with the consumer 
protection purposes of RESPA to require that servicers respond to 
borrowers' information requests in writing. Doing so will help ensure 
that there is a written record of both the borrower's request and the 
servicer's response, which the Bureau believes will reduce confusion 
regarding the accuracy of the information provided. The Bureau did not 
receive comment regarding proposed Sec.  1024.36(e) and, for the 
reasons set forth above, is adopting Sec.  1024.36(e) substantially as 
proposed, except that it no longer permits servicers to respond orally 
and clarifies that the contact information must include a telephone 
number. The Bureau is removing proposed comment 36(e)-1 from the final 
rule.
36(f) Requirements not Applicable
    The Bureau proposed Sec.  1024.36(f) to set forth the types of 
information requests to which the information request requirements 
would not apply.
36(f)(1) In General
    Proposed Sec.  1024.36(f)(1) would have provided that a servicer is 
not required to comply with the information request requirements set 
forth in Sec.  1024.36(c) and (d) if the servicer reasonably makes 
certain determinations specified in Sec. Sec.  1024.36(f)(1)(i), (ii), 
(iii), (iv) or (v). Specifically, subject to certain exceptions, a 
servicer would not be required to comply with information request 
requirements under Sec.  1024.36 as to information requests that are 
duplicative, overbroad or unduly burdensome, or untimely, as well as 
requests for confidential, proprietary, general corporate or irrelevant 
information. A servicer would be liable to the borrower for its 
unreasonable determination that any of the listed categories apply and 
resulting failure to comply with proposed Sec.  1024.36(c) and (d).
36(f)(1)(i)
    Proposed Sec.  1024.36(f)(1)(i) would have provided that a servicer 
is not required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) with respect to an information 
request that requests information that is substantially the same as 
information previously requested by or on behalf of the borrower, and 
for which the servicer has previously complied with its obligation to 
respond to the information request. Proposed comment 36(f)(1)(i)-1 
would have clarified that a borrower's request for a type of 
information that can change over time should not be considered 
substantially the same as a previous request for the same type of 
information. The Bureau proposed Sec.  1024.36(f)(1)(i) to ensure that 
a servicer is not required to expend resources conducting duplicative 
searches for documents, as such a requirement could divert resources 
from responding to other requests.
    One anonymous commenter urged the Bureau to withdraw proposed Sec.  
1024.36(f)(1)(i), claiming that the Bureau lacked authority to narrow 
the requirements listed in RESPA. The Bureau's authority for Sec.  
1024.36 is discussed above. In addition, the Bureau believes that it 
would frustrate the consumer protection purposes of RESPA to require 
that servicers devote resources, which could otherwise be spent on 
responding to information requests that would benefit consumers, to 
respond to duplicative information requests. The Bureau therefore 
believes that Sec.  1024.36(f)(1)(i) is necessary to achieve the 
purposes of RESPA, including of ensuring responsiveness to consumer 
requests and complaints and the provision and maintenance of accurate 
and relevant information. Accordingly, for the reasons set forth in the 
proposal and above, the Bureau is adopting Sec.  1024.36(f)(1)(i) and 
comment 36(f)(1)(i)-1 substantially as proposed.
36(f)(1)(ii)
    Proposed Sec.  1024.36(f)(1)(ii) would have provided that a 
servicer is not required to comply with the information request 
requirements in proposed Sec.  1024.36(c) and (d) with respect to an 
information request that requests confidential, proprietary, or general 
corporate information of a servicer. The Bureau proposed Sec.  
1024.36(f)(1)(ii) because it believed that the purpose of providing 
borrowers with a means to request information regarding a borrower's 
mortgage loan account would be frustrated by permitting borrowers to 
request confidential, proprietary, or general corporation information 
of a servicer. Proposed comment 36(f)(1)(ii)-1 would have provided 
examples of confidential, proprietary, or general corporate 
information. These include information requests regarding: management 
and profitability of a servicer; other mortgage loans than the 
borrower's; investor reports; compensation, bonuses, and personnel 
actions for servicer personnel; the servicer's training programs; 
investor agreements; the evaluation or exercise of any owner or 
assignee remedy; the servicer's servicing program guide; investor 
instructions or requirements regarding loss mitigation options, 
examination reports, compliance audits or other investigative 
materials.
    Industry commenters expressed support for proposed Sec.  
1024.36(f)(1)(ii), but urged the Bureau to make clear that servicers 
need not turn over privileged documents. Multiple industry commenters 
said that servicers should not be required to produce pooling and 
servicing agreements, as such agreements are confidential, proprietary 
and also costly to mail. In contrast, one consumer advocate commenter 
said that such agreements are not typically confidential or 
proprietary, yet important because servicers rely on such documents to 
make erroneous claims that they are not authorized to offer certain 
loan modifications. Consumer advocacy groups also asserted that 
proposed Sec.  1024.36(f)(1)(ii), as a whole, gives servicers too much 
discretion which may increase servicers' nonresponsiveness. An 
anonymous commenter said it was unclear which information falls into 
proposed Sec.  1024.36(f)(1)(ii) and also questioned the Bureau's 
authority to narrow the requirements of RESPA.
    Having considered these comments, the Bureau is amending proposed 
Sec.  1024.36(f)(1)(ii) to provide that servicers need not provide 
borrowers with information that is confidential, proprietary or 
privileged, as the Bureau believes that permitting information requests 
for such information could impede the ability of servicers to operate 
effectively. In addition, the Bureau believes that it would frustrate 
the consumer protection purposes of RESPA to require that servicers 
devote

[[Page 10760]]

resources, which could otherwise be spent responding to information 
requests that would benefit consumers, to determining how to respond to 
information requests for confidential, proprietary, or privileged 
information that generally would not directly benefit the borrower, but 
might pose considerable disclosure risk to the servicer.
    The final rule further removes the reference to general corporate 
information, and references to such information have been removed from 
the examples listed in final comment 36(f)(1)(ii)-1 as well. For 
example, because the Bureau does not believe that pooling and servicing 
agreements are typically kept confidential, final comment 36(f)(1)(ii)-
1 no longer lists such agreements as examples. However, the Bureau 
notes that to the extent that a borrower requests such agreements, a 
servicer is not required to comply with the requirements of Sec.  
1024.36(c) or (d) if the servicer reasonably determines that any of the 
exclusions set forth in Sec.  1024.36(f) apply. The Bureau's authority 
for Sec.  1024.36 is addressed above.
36(f)(1)(iii)
    Proposed Sec.  1024.36(f)(1)(iii) would have provided that a 
servicer is not required to comply with the information request 
requirements in proposed Sec.  1024.36(c) and (d) with respect to 
information requests that are not directly related to the borrower's 
mortgage loan account. The Bureau proposed Sec.  1024.36(f)(1)(iii) 
because it believes the protection in it is appropriate to fulfill the 
purpose of the proposed rule, which is to provide a means for borrowers 
to obtain information from servicers regarding their own mortgage loan 
accounts.
    A consumer group commenter argued that the proposal requires that 
borrowers state the information requested with too much specificity, 
arguing that a general request for information about the status of the 
borrower's loan should suffice. An anonymous commenter asserted that 
the Bureau proposes to improperly narrow the scope of information 
requests. The commenter reasoned that section 6(e)(1)(B) of RESPA 
requires servicers to respond to qualified written requests for 
information relating to the servicing of the loan. The commenter argued 
that the Bureau proposes to narrow that definition by adding the 
requirement that such requests must ``directly'' relate to the 
``mortgage loan account'' for the loan.
    By relieving servicers of the duty to respond to requests for 
information that are not directly related to the borrower's mortgage 
loan account, the Bureau does not intend to impose an obligation on 
borrowers to identify with specificity the precise document or data 
point the borrower is seeking. Rather, the point of this section is to 
assure that servicers' resources are focused on securing relevant 
information for borrowers by excluding requests for information that 
are not relevant to the borrower's account. For the reasons discussed 
above, the Bureau finds that Sec.  1024.36(f)(1)(iii) is necessary to 
achieve the purposes of RESPA by ensuring that servicer resources that 
could be devoted to responding to information requests that benefit 
borrowers are not diverted to responding to information requests that 
would not result in consumer benefit. Accordingly, for the reasons set 
forth in the proposal and above, the Bureau is adopting Sec.  
1024.36(f)(1)(iii) as proposed. The Bureau is also adopting new comment 
36(f)(1)(iii)-1, which includes examples of information that is not 
directly related to a borrower's loan account.
36(f)(1)(iv)
    Proposed Sec.  1024.36(f)(1)(iv) would have provided that a 
servicer is not required to comply with the request for information 
requirements in proposed Sec.  1024.36(c) and (d) with respect to a 
request for information that is overbroad or unduly burdensome. The 
proposed rule would have defined ``overbroad'' and ``unduly 
burdensome'' for this purpose. It would have provided that an 
information request is overbroad if a borrower requests a servicer 
provide an unreasonable volume of documents or information to a 
borrower. The proposed rule stated that an information request is 
unduly burdensome if a diligent servicer could not respond to the 
request without either exceeding the maximum timeframe permitted by 
Sec.  1024.36(d)(2)(ii) or incurring costs (or dedicating resources) 
that would be unreasonable in light of the circumstances. The proposed 
rule would have further clarified that if a servicer can identify a 
valid information request in a submission that is otherwise overbroad 
or unduly burdensome, the servicer is required to respond to the 
information request that it can identify. Finally, the Bureau proposed 
comment 36(f)(1)(iv)-1 to set forth characteristics that may indicate 
if an information request is overbroad or unduly burdensome.
    As discussed above for proposed Sec.  1024.35(g)(1)(ii), during 
pre-proposal outreach, consumers, consumer advocates, servicers, and 
servicing industry representatives indicated to the Bureau that 
consumers do not typically use the current qualified written request 
process to request information. During the Small Business Review Panel 
outreach, small entity representatives expressed that typically 
qualified written requests received from borrowers were vague forms 
found online or forms used by advocates as a form of pre-litigation 
discovery. Servicers and servicing industry representatives indicated 
that these types of qualified written requests are unreasonable and 
unduly burdensome. Small entity representatives in the Small Business 
Review Panel outreach requested that the Bureau consider an exclusion 
for abusive requests, or requests made with the intent to harass the 
servicer.
    The Bureau requested comment regarding whether a servicer should 
not be required to undertake the information request requirements in 
proposed Sec.  1024.36(c) and (d) for information requests that are 
overbroad or unduly burdensome. Industry commenters supported the 
exclusion, but urged the Bureau to remove the requirement that 
servicers identify valid information requests in submissions that are 
otherwise overbroad or unduly burdensome. Industry commenters said 
servicers should not be required to parse through such submissions to 
locate a clear information request. One large trade association of 
mortgage servicers said that the requirement effectively subsumes the 
exclusion. Consumer group commenters generally disfavored the 
exclusion. One commenter questioned the assertion that borrowers 
primarily use qualified written requests to obtain prelitigation 
discovery. One consumer group said the exclusion gives servicers too 
much discretion. Another said it requires borrowers to state their 
information requests with too much specificity. An anonymous consumer 
advocate said a request from a single borrower should not be so 
voluminous as to be burdensome for servicers to respond. Another 
consumer group commenter requested that the Bureau address situations 
in which the servicer erroneously determines that a submission is 
overbroad or unduly burdensome.
    The Bureau proposed Sec.  1024.36(f)(1)(iv), in part, because the 
Bureau believes that requiring servicers to respond to overbroad or 
unduly burdensome information requests from some borrowers may cause 
servicers to expend fewer resources to address requests that may be 
more clearly stated and more clearly require servicer attention. The 
Bureau was especially

[[Page 10761]]

concerned about this in light of the proposed rule's requirement that 
servicers respond to an expanded universe of information requests, 
including requests for information that do not specifically relate to 
``servicing'' as defined in RESPA, as implemented by this rule, as well 
as information requests asserted orally. While the final rule does not 
require that servicers undertake the information request procedures in 
Sec.  1024.36(c) and (d) for oral submissions, it does not limit 
information requests to those related to servicing. Thus, the Bureau 
continues to believe that a requirement for servicers to respond to 
information requests that are overbroad or unduly burdensome may harm 
consumers and frustrate servicers' ability to comply with the new 
information request requirements. Finally, as stated in the proposal, 
the Bureau does not believe that the information request procedures 
should replace or supplant civil litigation document requests and 
should not be used as a forum for pre-litigation discovery. 
Accordingly, the Bureau is adopting Sec.  1024.36(f)(1)(iv) and comment 
36(f)(1)(iv)-1 substantially as proposed.
36(f)(1)(v)
    Proposed Sec.  1024.36(f)(1)(v) would have provided that a servicer 
is not required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) for an untimely information request--
that is, an information request delivered to the servicer more than one 
year after either servicing for the mortgage loan that is the subject 
of the request was transferred by that servicer to a transferee 
servicer or the mortgage loan amount was paid in full, whichever date 
is applicable. The Bureau proposed this provision to set a specific and 
clear time that a servicer may be responsible for responding to 
information requests for a mortgage loan.
    Moreover, the Bureau proposed Sec.  1024.36(f)(1)(v) to achieve the 
same goal that currently exists in Regulation X with respect to 
qualified written requests. Specifically, current Sec.  
1024.21(e)(2)(ii) states that ``a written request does not constitute a 
qualified written request if it is delivered to a servicer more than 
one year after either the date of transfer of servicing or the date 
that the mortgage servicing loan amount was paid in full, whichever 
date is applicable.''
    One industry trade association expressed support for proposed Sec.  
1024.36(f)(1)(v). Consumer advocacy groups did not comment on proposed 
Sec.  1024.36(f)(1)(v). For the reasons set forth above, the Bureau is 
adopting Sec.  1024.36(f)(1)(v) as proposed with a minor technical 
amendment.
36(f)(2) Notice to Borrower
    Proposed Sec.  1024.36(f)(2) would have required that if a servicer 
determines that it is not required to comply with the information 
request requirements in proposed Sec.  1024.36(c) and (d) with respect 
to an information request, the servicer must provide a notice to the 
borrower informing the borrower of the servicer's determination. The 
servicer must send the notice not later than five days (excluding legal 
public holidays, Saturdays, and Sundays) after its determination and 
the notice must set forth the basis upon which the servicer has made 
the determination, noting the applicable provision of proposed Sec.  
1024.36(f)(1).
    One credit union trade association disfavored the proposed 
requirement that a servicer send a notice informing the borrower that 
an information request falls into one of the enumerated exclusions. The 
commenter suggested that the Bureau permit servicers to send a standard 
notice informing borrowers that the servicer received the information 
request and is not required to respond.
    The Bureau proposed Sec.  1024.36(f)(2) because it believes that 
borrowers should be notified that a servicer does not intend to take 
any action on the information request. The Bureau also believes 
borrowers should know the basis for the servicer's determination. By 
providing borrowers with notice of the basis for the servicer's 
determination, a borrower will know the servicer's basis and will have 
the opportunity to bring a legal action to challenge that determination 
where appropriate. Accordingly, having considered the comment, the 
Bureau is adopting Sec.  1024.36(f)(2) as proposed.
36(g) Payment Requirement Limitations
    Proposed Sec.  1024.36(g)(1) would have prohibited a servicer from 
charging a fee, or requiring a borrower to make any payment that may be 
owed on a borrower's account as a condition of responding to an 
information request. Proposed Sec.  1024.36(g)(2) would have, however, 
permitted fees for providing payoff statements or beneficiary notices 
under applicable law. The Bureau proposed Sec.  1024.36(g)(1) and (2) 
for three reasons. First, section 1463(a) of the Dodd-Frank Act added 
section 6(k)(1)(B) to RESPA, which prohibits a servicer from charging 
fees for responding to valid qualified written requests. Proposed Sec.  
1024.36(g) would have implemented that provision with respect to 
qualified written requests for information relating to the servicing of 
a mortgage loan. Second, the Bureau believes that a servicer practice 
of charging for responding to an information request impedes borrowers 
from pursuing valid information requests, and that the prohibition is 
therefore necessary and appropriate to achieve the consumer protection 
purposes of RESPA, including ensuring responsiveness to borrower 
requests and complaints. Third, the Bureau learned from outreach with 
consumer advocates that, in some instances, servicers have demanded 
that borrowers make payments before the servicer will provide a 
borrower with information requested by the borrower or will correct 
errors identified by a borrower. The Bureau believes that a servicer is 
required to provide a borrower with information about the borrower's 
mortgage loan account notwithstanding the payment status of a 
borrower's account.
    Some consumer advocacy group commenters expressed support for the 
fee prohibition, stating that the prohibition is statutorily required. 
In contrast, a large credit union trade association opposed the 
prohibition, noting that it bars fees for items for which credit unions 
routinely charge, such as fees for copies of cancelled checks and 
periodic statements. The trade association argued that the proposed 
rule should take the fact that a fee is legally permissible into 
account. A law firm that represents servicers argued that it would be 
unfair and economically burdensome to prohibit servicers from charging 
fees for duplicate statements, such as year-end statements and tax 
forms.
    Having considered these comments, for the reasons stated above and 
in the proposal, the Bureau is adopting Sec.  1024.36(g) as proposed, 
except that Sec.  1024.36(g)(2) no longer references payoff statements. 
The Bureau has removed the reference to payoff statements, as the final 
rule excludes such statements from information request requirements 
under Sec.  1024.36 altogether.
36(h) Servicer Remedies
    Proposed Sec.  1024.36(h) would have provided that the existence of 
an outstanding information request does not prohibit a servicer from 
furnishing adverse information to any consumer reporting agency or from 
pursuing any remedies, including proceeding with a foreclosure sale, 
permitted by the applicable mortgage loan instrument. The proposed 
requirement is consistent with section 6(e)(3) of RESPA which

[[Page 10762]]

prohibits servicers from furnishing adverse information only as to 
qualified written requests that assert an error with respect to the 
borrower's payments, but not to a qualified written request that 
requests information. Moreover, the Bureau does not believe that the 
consumer protection purposes of RESPA would be furthered by permitting 
borrowers to evade consumer reporting by submitting an information 
request. The Bureau did not receive comment regarding proposed Sec.  
1024.36(h) and is adopting it as proposed.
Section 1024.37 Force-Placed Insurance
    Section 1463(a) of the Dodd-Frank Act amended section 6 of RESPA to 
establish new servicer duties with respect to servicers' purchase of 
force-placed insurance on a property securing a federally related 
mortgage loan. The statute generally defines ``force-placed insurance'' 
as hazard insurance coverage obtained by a servicer of a federally 
related mortgage loan when the borrower has failed to maintain or renew 
hazard insurance on such property as required of the borrower under the 
terms of the mortgage loan. New Sec.  6(k)(1)(A) of RESPA states that a 
servicer shall not obtain force-placed insurance unless there is a 
reasonable basis to believe the borrower has failed to comply with the 
loan contract's requirements to maintain property insurance. New 
section 6(l) of RESPA further states that servicers must: (1) provide 
two written notices to a borrower over a notification period lasting at 
least 45 days before imposing a charge for force-placed insurance on 
the borrower; (2) accept any reasonable form of written confirmation 
from a borrower of existing insurance coverage; and (3) within 15 days 
of the receipt of confirmation of a borrower's existing insurance 
coverage, terminate force-placed insurance and refund all force-placed 
insurance premiums paid by the borrower during any period during which 
the borrower's insurance coverage and the force-placed insurance 
coverage were both in effect, as well as any related fees charged to 
the borrower's account with respect to force-placed insurance during 
such period. Section 6(l) of RESPA additionally states that no 
provisions of section 6(l) shall be construed as prohibiting a servicer 
from providing simultaneous or concurrent notice of a lack of flood 
insurance pursuant to section 102(e) of the Flood Disaster Protection 
Act of 1973. Section 6(m) of RESPA states that all charges related to 
force-placed insurance imposed on a borrower by or through a servicer, 
other than charges subject to State regulation as the business of 
insurance, must be bona fide and reasonable.
    The Bureau proposed Sec.  1024.37 to implement the new servicer 
duties established by section 1463(a) of the Dodd-Frank Act in section 
6(k) through (m) of RESPA. Force-placed insurance was created by the 
insurance industry to provide mortgage loan owners and investors with a 
hazard insurance product that would protect the value of their 
investment by insuring properties securing mortgage loans when hazard 
insurance obtained by a borrower lapsed. In recent years, however, 
force-placed insurance has become a consumer protection concern and has 
attracted the attention of lawmakers, enforcement officials, and 
Federal and State regulators.\105\ First, a force-placed insurance 
policy typically provides less coverage than the typical homeowners' 
insurance policy because force-placed insurance has been designed to 
provide coverage limited to protecting the value of the dwelling, but 
not personal property, personal liabilities for injuries on site, and 
other types of loss included in the scope of coverage of a typical 
homeowners' insurance policy. Second, although a force-placed insurance 
policy generally provides less coverage than a homeowners' insurance 
policy, force-placed insurance policy premiums are generally 
substantially more expensive than homeowners' insurance policy 
premiums. One large force-placed insurance provider estimates that the 
force-placed policies it writes cost, on average, 1.5 to 2 times more 
than the prior hazard insurance purchased by a borrower.\106\ But at 
the same time, it has been reported that an individual force-placed 
policy could cost 10 times as much as a homeowners' insurance 
policy.\107\ Explanations for the cost of force-placed insurance 
differ. Industry stakeholders generally attribute the substantially 
higher cost of force-placed insurance (relative to homeowners' 
insurance) to the fact that force-placed insurance: (1) Can be 
purchased for every mortgage loan in a servicer's portfolio (including 
vacant properties and other properties that homeowners' insurance 
providers will not insure); (2) ensures continuous coverage as of the 
date a homeowners' insurance policy lapses or is canceled; and (3) can 
be canceled by a servicer at any time, with a full refund back to the 
date of placement.
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    \105\ See e.g., H.R. Rep. 111-94, at 55 (calling the force-
placement of insurance without a reasonable basis a problematic 
method used by some servicers to increase revenue); see also 
further, Compl., United States of America et al. v. Bank of America 
Corp., et al. at ] 51 (alleging that the defendant servicers engaged 
in unfair and deceptive practices in the discharge of their loan 
servicing activities by imposing force-placed insurance without 
properly notifying the borrowers and when borrowers already had 
adequate coverage) (filed on March 14, 2012); see further, N.Y. 
Orders `Force-Placed' Insurers to Submit New Lower Rate Proposals, 
Ins. J., June 13, 2012 (describing that New York State's Department 
of Financial Services ordered three force-placed insurance providers 
to submit new force-placed insurance premium rates after determining 
that the insurers overcharged New York homeowners).
    \104\ See Assurant Specialty Property, Lender-Placed Insurance, 
available at http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News.
    \106\ See Assurant Specialty Property, Lender-Placed Insurance, 
available at http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News.
    \107\ See Jeff Horowitz, Ties to Insurers Could Land Mortgage 
Servicers in More Trouble, Am. Banker (Nov. 9, 2010.)
---------------------------------------------------------------------------

    Consumer groups, however, assert that the higher cost of force-
placed insurance can be largely explained by market mechanisms that 
drive force-placed insurance providers to compete for business from 
servicers. Consumer groups argue that the cost of force-placed 
insurance is inflated by incentives like commissions to servicers (or 
their affiliates) that are licensed to engage in insurance 
transactions, no-cost or below-cost insurance tracking and monitoring 
services to servicers because the actual cost is passed on to borrowers 
in the force-placed insurance premium charge a force-placed insurance 
provider assesses on a borrower through the servicer, and payments for 
entering into reinsurance arrangements with servicers (or their 
affiliates) that are licensed to engage in insurance transactions. 
Consumer groups and mortgage investors have alleged that servicers have 
frequently improperly placed force-placed insurance, in some instances 
to receive lucrative commissions or reinsurance fees, or other 
consideration.\108\ In some

[[Page 10763]]

cases, consumer groups have asserted that the higher cost of force-
placed insurance can drive borrowers, particularly those already facing 
financial hardship, into default.
---------------------------------------------------------------------------

    \108\ See e.g., The Need for National Mortgage Servicing 
Standards: Hearing Before the Subcomm. on Hous., Transp., & Comm. 
Affairs of the Senate Comm. on Banking and Urban Affairs, 112th 
Cong. 126 (2011)(statement of Laurie Goodman, Amherst Securities) 
(testifying that incentives to obtain force-placed insurance are 
such that it would be ``unrealistic to expect a servicer to make an 
unbiased decision on when to buy [force-placed insurance],'' and 
hence, national servicing standards should be established to require 
servicers to maintain a borrower's hazard insurance ``as long as 
possible.''); see also, N.Y. State Dep't of Fin. Services, Public 
Hearings on Force-Placed Insurance (2012) (statement of Alexis 
Iwanisziw, Neighborhood Economic Development Advocacy Project) 
(testifying that problems like mortgage servicers imposing force-
placed insurance when homeowners have voluntary market policies 
persist because mortgage servicers receive commissions, reinsurance 
contracts, free insurance tracking and other kickbacks when they 
purchase force-placed insurance); see further, Compl., United States 
of America et al v. Bank of America Corp., et al at ] 51 (alleging 
that the defendant servicers engaged in unfair and deceptive 
practices in the discharge of their loan servicing activities by 
imposing force-placed insurance without properly notifying the 
borrowers and when borrowers already had adequate coverage) (filed 
on March 14, 2012).
---------------------------------------------------------------------------

    As discussed above, RESPA is a remedial consumer protection statute 
and imposes obligations upon the servicing of federally related 
mortgage loans that are intended to protect borrowers. The Bureau 
believes that the obligations the Dodd-Frank Act established with 
respect to servicers' purchase of force-placed insurance were intended 
to impose, at minimum, (1) a duty to help borrowers avoid unwarranted 
and unnecessary charges related to force-placed insurance through both 
direct limitations on certain charges and several procedural 
safeguards; and (2) a duty to provide borrowers with reasonably 
accurate information about servicers' grounds for purchasing force-
placed insurance and the financial impact that such purchase could have 
on the borrowers, in order to encourage borrowers to take appropriate 
steps to maintain their hazard insurance policies.
Legal Authority
    Section 1024.37 implements section 6(k)(1)(A), 6(k)(2), 6(l), and 
6(m) of RESPA. Pursuant to the Bureau's authorities under sections 
6(j), 6(k)(1)(E), and 19(a) of RESPA, the Bureau is also adopting 
certain additions and certain exemptions to these provisions. As 
explained in more detail below, these additions and exemptions are 
necessary and appropriate to achieve the consumer protection purposes 
of RESPA, including the avoidance of unnecessary and unwarranted 
charges and fees and the provision to borrowers of accurate and 
relevant information.
37(a) Definition of Force-Placed Insurance
37(a)(1) In General
    As added by the Dodd-Frank Act, section 6(k)(2) of RESPA states 
that for purposes of section 6(k) through (m) of RESPA, force-placed 
insurance means hazard insurance coverage obtained by a servicer of a 
federally related mortgage loan when the borrower has failed to 
maintain or renew hazard insurance on such property as required of the 
borrower under the terms of the mortgage. The Bureau proposed Sec.  
1024.37(a)(1) to implement section 6(k)(2) of RESPA. The proposed 
provision stated that in general, for purposes of Sec.  1024.37, the 
term ``force-placed insurance'' means hazard insurance obtained by a 
servicer on behalf of the owner or assignee of a mortgage loan on a 
property securing such loan.
    Proposed Sec.  1024.37(a)(1) did not incorporate language from the 
statute referring to a borrower's failure to maintain or renew hazard 
insurance as required under the terms of the mortgage. As explained in 
the proposal, the Bureau was concerned that adopting that language 
might raise questions whether the Dodd-Frank Act protections applied to 
situations in which a borrower did, in fact, have hazard insurance in 
place but the borrower's servicer obtained force-placed insurance 
anyway. The Bureau noted that borrowers in such a situation are most in 
need of protection from unwarranted and unnecessary charges related to 
force-placed insurance. Indeed, in other respects, the force-placed 
insurance provisions added to RESPA by the Dodd-Frank Act expressly 
contemplate that the protections apply in circumstances where a 
borrower, in fact, has hazard insurance in place. For example, the 
notice to the borrower required under RESPA section 6(l)(1)(A) is 
required to include a statement of the procedures by which the borrower 
may demonstrate insurance coverage, and under RESPA section 6(l)(3), 
which provides that upon receipt by a servicer of confirmation that a 
borrower has hazard insurance in place, a servicer must terminate 
force-placed insurance and refund to the borrower all force-placed 
premiums and related charges for periods of overlapping coverage. Thus, 
notwithstanding the phrase ``when the borrower has failed to maintain 
or renew hazard insurance,'' the Bureau interprets the definition of 
force-placed insurance to include situations in which a servicer 
obtains hazard insurance coverage on a property where the borrower has 
in fact maintained the borrower's own hazard insurance. The Bureau also 
proposed to add language to the definition of the term ``force-placed 
insurance'' in proposed Sec.  1024.37(a)(i) to describe the insurance 
as being obtained by a servicer ``on behalf of the owner or assignee of 
a mortgage loan on a property securing such loan.'' This language was 
intended to distinguish force-placed insurance from situations in which 
a servicer renews borrowers' own hazard insurance policies as described 
in Sec.  1024.17 or otherwise. The Bureau observes that a servicer is 
simply renewing a borrower's own hazard insurance under these 
circumstances and does not interpret such insurance as hazard insurance 
``obtained'' by a servicer within the statutory definition of ``force-
placed insurance'' set forth in section 6(k)(2) of RESPA. The Bureau 
did not receive comments on the proposed definition of the term 
``force-placed insurance'' set forth in proposed Sec.  1024.37(a)(1). 
Accordingly, the Bureau is adopting Sec.  1024.37(a)(1) as proposed.
37(a)(2) Types of Insurance Not Considered Force-Placed Insurance
37(a)(2)(i)
    Proposed Sec.  1024.37(a)(2)(i) would have provided that hazard 
insurance to protect against flood loss obtained by a servicer as 
required by the Flood Disaster Protection Act of 1973 is not force-
placed insurance for the purposes of Sec.  1024.37. The Bureau proposed 
to exclude flood insurance that is required under the Flood Disaster 
Protection Act of 1973 (FDPA) from the definition of the term ``force-
placed insurance,'' because, as discussed above in the section-by-
section analysis of the defined term ``Hazard insurance,'' the Bureau 
believed and continues to believe that the Bureau's force-placed 
insurance regulations should not apply to servicers when they are 
required by the FDPA to purchase flood insurance. As discussed above, 
the FDPA provides an extensive set of restrictions on a servicers' 
purchase of flood insurance required by the FDPA, and the Bureau was 
concerned that subjecting servicers to overlapping regulatory 
restrictions would be unduly burdensome and might result in consumer 
confusion.
    Several consumer groups suggested that the Bureau should only 
exempt servicers from the Bureau's force-placed insurance regulations 
to the extent they purchase force-placed flood policies from the 
National Flood Insurance Program (NFIP) because the FDPA can reasonably 
be interpreted to require servicers to purchase force-placed flood 
insurance through the NFIP. The consumer groups further asserted that 
it was important to ensure that RESPA's consumer protections with 
respect to force-placed insurance apply when servicers force-place 
private flood insurance because private force-placed insurance policies 
are more expensive than the NFIP flood policies. As discussed above, 
industry commenters generally said that the proposed exclusion of 
hazard insurance to protect against flood loss obtained by a servicer 
as required by the FDPA from the definition of the term ``force-placed

[[Page 10764]]

insurance'' was workable and adequately mitigated the risk of a 
servicer having to comply with both regulations under the FDPA and the 
Bureau's force-placed insurance regulations.
    The Bureau has carefully considered these comments and is adopting 
proposed Sec.  1024.37(a)(2)(i) as proposed. The Bureau does not 
administer the FDPA, and accordingly declines to opine on whether the 
FDPA requires servicers to purchase flood insurance policies from the 
NFIP. The Bureau, however, observes that there is existing guidance 
from Federal agencies that administer the FPDA that suggests that a 
servicer may reasonably interpret the FDPA to permit servicers to 
satisfy their obligations under the statute through the purchase of 
private flood insurance.\109\
---------------------------------------------------------------------------

    \109\ See Interagency Questions and Answers Regarding Flood 
Insurance, 74 FR 35914, 35944 (July 21, 2009) (question 63 & 64 
provide guidance on the circumstances under which lenders could rely 
on private flood insurance policies to meet their obligations to 
maintain adequate flood insurance coverage); see also, Fed. 
Emergency Mgmt. Agency, Mandatory Purchase of Flood Insurance 
Guidelines 42 (September 2007)(stating that a lender has the option 
of force placing flood insurance through a private (non-NFIP) 
insurer).
---------------------------------------------------------------------------

    Moreover, the consumer groups did not suggest that the consumer 
protections in the FDPA do not apply to a servicer's purchase of 
private flood insurance, and the Bureau has no reason to believe that 
they do not. Accordingly, the Bureau believes that if the Bureau were 
to adopt the consumer groups' suggestion to exclude from the definition 
of the term ``force-placed insurance'' only policies purchased under 
the NFIP, a servicer who purchased private flood insurance to comply 
with its obligations under the FDPA would have to comply with both the 
Bureau's regulations and regulations under the FDPA. As discussed 
above, this result would impose unnecessary compliance burdens and 
frustrate the consumer protection purposes of RESPA's force-placed 
insurance provisions. For the reasons discussed above, Sec.  
1024.37(a)(2)(i) is necessary and appropriate to avoid undermining the 
consumer protection purposes of RESPA's force-placed provisions and is 
thus authorized under sections 6(k)(1)(E), 6(j)(3), and 19(a) of RESPA.
37(a)(2)(ii) and (iii)
    The Bureau proposed Sec.  1024.37(a)(2)(ii) to clarify that hazard 
insurance obtained by a borrower but renewed by the borrower's servicer 
as required by Sec.  1024.17(k)(1), (2), or (5) is not force-placed 
insurance for purposes of Sec.  1024.37. The Bureau proposed Sec.  
1024.37(a)(2)(iii) to clarify that hazard insurance renewed by the 
servicer at its discretion if the servicer is not required to renew the 
borrower's hazard insurance as required by Sec.  1024.17(k)(1), (2), or 
(5) is also not force-placed insurance for purposes of Sec.  1024.37. 
As discussed above, the Bureau observes that a servicer is simply 
renewing a borrower's own hazard insurance under these circumstances 
and does not interpret such insurance as hazard insurance ``obtained'' 
by a servicer within the statutory definition of ``force-placed 
insurance'' set forth in section 6(k)(2) of RESPA. Other than a large 
bank servicer commending the Bureau for the exclusion from the 
definition of ``force-placed insurance'' of hazard insurance renewed at 
the servicer's discretion for non-escrowed borrowers, the Bureau did 
not receive comments on either proposed Sec.  1024.37(a)(2)(ii) or 
(iii). Accordingly, proposed Sec.  1024.37(a)(2)(ii) and (iii) are 
adopted as proposed, except the Bureau has made technical revisions to 
proposed Sec.  1024.37(a)(2)(ii) consistent with changes to the 
language of Sec.  1024.17(k)(5), and adopts Sec.  1024.37(a)(2)(iii) 
with the clarification that Sec.  1024.37(a)(2)(iii) applies to the 
extent the borrower agrees. The Bureau believes it is appropriate to 
create incentives for servicers to work with non-escrowed borrowers to 
renew hazard insurance originally obtained by these borrowers, but not 
for servicers to renew such insurance without borrower consent.
    One state housing finance agency commenter suggested that the 
Bureau should allow collateral protection plans as an acceptable 
alternative to force-placed insurance for subordinate liens. The 
Bureau's force-placed insurance regulations are not intended to 
regulate the type of hazard insurance a servicer obtains on behalf of 
the owner or assignee of a mortgage loan to insure the property 
securing such loan. But if a servicer attempts to seek payment from a 
borrower for such insurance, the Bureau's force-placed regulations will 
apply.
37(b) Basis for Charging a Borrower for Force-Placed Insurance
    Section 6(k)(1)(A) of RESPA states that a servicer of a federally 
related mortgage loan shall not obtain force-placed insurance unless 
there is a reasonable basis to believe the borrower has failed to 
comply with the loan contract's requirements to maintain property 
insurance. The Bureau proposed Sec.  1024.37(b) to implement section 
6(k)(1)(A) of RESPA. Proposed Sec.  1024.37(b) stated that a servicer 
may not obtain force-placed insurance unless the servicer has a 
reasonable basis to believe that the borrower has failed to comply with 
the mortgage loan contract's requirement to maintain hazard insurance.
    The Bureau also proposed related commentary to provide illustrative 
examples of ``a reasonable basis to believe'' that a borrower has 
failed to maintain hazard insurance. Proposed comment 37(b)-1 would 
have provided two examples in the context of a borrower with an escrow 
account established to pay for hazard insurance premiums. Proposed 
comment 37(b)-2 would have provided an example of a borrower who has 
not established an escrow account to pay for hazard insurance premiums. 
During pre-proposal outreach, servicers and force-placed insurance 
providers told the Bureau that their process of verifying the existence 
of insurance coverage before obtaining force-placed insurance for 
borrowers with escrow and borrowers without escrow was different. 
Accordingly, the Bureau believed that it was appropriate to provide 
different examples based on whether the borrower had escrowed for 
hazard insurance.
    Several consumer groups and a number of industry commenters 
suggested that the Bureau make changes to proposed Sec.  1024.37(b). 
Consumer group commenters expressed the concern that proposed Sec.  
1024.37(b) would be too weak to motivate servicers to change their 
practices with respect to the purchase of force-placed insurance. 
Several consumer groups recommended that that the Bureau replace the 
proposed commentary to 1024.37(b) with a collective standard that would 
determine whether the servicer had a reasonable basis for obtaining 
force-placed insurance based on whether the percentage of cases in 
which borrowers receive a full refund for force-placed insurance 
charges exceed five percent per calendar year.
    In contrast, a number of industry commenters suggested that 
proposed Sec.  1024.37(b) was too limiting and might unduly chill 
servicer's use of force-placed insurance to protect a lender's 
collateral. A number of industry commenters requested that the Bureau 
change proposed Sec.  1024.37(b) so that the reasonable basis standard 
in Sec.  1024.37(b) would be defined solely by compliance with the 
procedural requirements enumerated in section 6(l) of RESPA and Sec.  
1024.37(c) and (d) \110\

[[Page 10765]]

or, in the alternative, would provide a safe harbor for servicers that 
meet such requirements. One large force-placed insurance provider and 
one large bank servicer said that if the Bureau did not change proposed 
Sec.  1024.37(b), then the Bureau should expressly state in commentary 
to Sec.  1024.37(b) that the examples are illustrative and do not 
provide the only situations in which a servicer has a reasonable basis 
to believe that the borrower's hazard insurance has lapsed. One 
national trade association representing federal credit unions suggested 
that the Bureau provide a safe harbor for servicers acting in good 
faith when they obtained force-placed insurance.
---------------------------------------------------------------------------

    \110\ Section 6(l) provides that a servicer of a federally 
related mortgage shall not be construed as having a reasonable basis 
for obtaining force-placed insurance unless the requirements of 
section 6(l) of RESPA have been met.
---------------------------------------------------------------------------

    After careful review of these comments and further consideration, 
the Bureau is adopting Sec.  1024.37(b) with changes. First, the Bureau 
has concluded that when a servicer purchases force-placed insurance but 
does not charge a borrower for such insurance, the servicer does not 
``obtain'' force-placed insurance within the meaning of section 
6(k)(1)(A) of RESPA. The Bureau arrived at this conclusion after re-
evaluating the connection between section 6(k)(1)(A) and (l). As 
described above, section 6(k)(1)(A) establishes that a servicer of a 
federally related mortgage loan shall not obtain force-placed insurance 
unless there is a reasonable basis to believe the borrower has failed 
to comply with the loan contract's requirements to maintain property 
insurance. Section 6(l) establishes that a servicer of a federally 
related mortgage loan shall not be construed as having a reasonable 
basis for obtaining force-placed insurance unless the requirements of 
section 6(l) have been met. But one of the requirements is that a 
servicer must terminate force-placed insurance within 15 days of the 
servicer receiving confirmation of a borrower's existing insurance 
coverage. The Bureau believes that this provision expressly 
contemplates that a servicer may purchase force-placed insurance before 
meeting the requirements of section 6(l). Accordingly, where 
``obtaining'' is used in section 6(l), the Bureau interprets the 
statute to mean ``charging.'' Because ``obtain'' appears in section 
6(k)(1)(A) and 6(l), the Bureau has changed Sec.  1024.37(b) to reflect 
more clearly the statutory prohibition against ``charging.'' 
Accordingly, as finalized, Sec.  1024.37(b) provides that a servicer 
may not assess on a borrower a premium charge or fee related to force-
placed insurance unless the servicer has a reasonable basis to believe 
that the borrower has failed to comply with the mortgage loan 
contract's requirement to maintain hazard insurance.
    The Bureau has also changed commentary intended to explain the 
circumstances that provide a servicer with a ``reasonable basis to 
believe'' for purposes of Sec.  1024.37(b). The Bureau has decided not 
to provide specific examples of ``a reasonable basis to believe.'' 
Instead, as adopted, comment 37(b)-1 provides that information about a 
borrower's hazard insurance received by a servicer from a borrower, the 
borrower's insurance provider or insurance agent, may provide a 
servicer with a reasonable basis to believe that the borrower has 
failed to comply with the loan contract's requirement to maintain 
hazard insurance. The Bureau believed that sometimes the absence of 
information may provide a servicer with a reasonable basis to believe 
that the borrower has failed to comply with the loan contract's 
requirement to maintain hazard insurance. Accordingly, proposed comment 
37(b)-1 would have clarified that a servicer had a reasonable basis to 
believe that a borrower with an escrow account established for hazard 
insurance has failed to maintain hazard insurance if the servicer had 
not received a renewal bill within a reasonable time prior to the 
expiration date of the borrower's hazard insurance. Upon further 
consideration, the Bureau believes that the comment may convey that the 
absence of information would provide a servicer with a safe harbor. The 
Bureau believes that a safe harbor based on the absence of information 
would not adequately ensure that borrowers are protected from 
unwarranted and unnecessary charges related to force-placed insurance. 
Accordingly, the Bureau is adopting commentary to provide that in the 
absence of receiving information about a borrower's hazard insurance, a 
servicer may satisfy the reasonable basis to believe standard if a 
servicer acts with reasonable diligence to ascertain a borrower's 
hazard insurance status, and does not receive, from the borrower or 
otherwise have evidence of insurance coverage as provided in Sec.  
1024.37(c)(1)(iii).
    The Bureau has concluded that a servicer following the notification 
procedure established by section 6(l) of RESPA has acted with 
reasonable diligence to ascertain a borrower's hazard insurance status, 
but compliance with those procedural elements alone are not sufficient 
to provide a safe harbor. The statute prohibits a servicer from 
imposing any charge on a borrower for force-placed insurance if the 
servicer has received demonstration of hazard insurance coverage by the 
end of the notification process. Accordingly, comment 37(b)-1, as 
adopted, explains that an example of acting with reasonable diligence 
is one in which a servicer complies with the notification requirements 
set forth in Sec.  1024.37(c)(1)(i) and (ii), and if after complying 
with such requirements, the servicer does not receive, from the 
borrower or otherwise, evidence of insurance coverage as provided in 
Sec.  1024.37(c)(1)(iii).
    The Bureau does not believe that it is necessary to provide a 
separate safe harbor for servicers acting in good faith because the 
Bureau believes the standard set forth in Sec.  1024.37(b) provides 
sufficient flexibility for servicers to balance their obligations to 
owners and assignees of mortgage loans to ensure that a property is 
adequately insured and to protect borrowers from unwarranted and 
unnecessary charges and fees. The Bureau also declines to adopt a 
collective standard to evaluate whether a servicer's purchase of force-
placed insurance is proper. The Bureau believes that the percentage of 
cases in which a borrower receives a full refund for force-placed 
insurance charges may be relevant in assessing whether a servicer is 
maintaining reasonable policies and procedures to ensure that a 
servicer is maintaining accurate information about a borrower's 
mortgage loan. But the Bureau believes that section 6(k)(1)(A) of RESPA 
established a loan-level standard. Using a collective standard to 
evaluate whether a servicer has satisfied the reasonable basis to 
believe requirement in section 6(k)(1)(A) would not be appropriate 
because the standard would be overbroad and might discourage a servicer 
from obtaining force-placed insurance even though a servicer has actual 
information that a borrower has failed to comply with the loan 
contract's requirements to maintain property insurance.
    A state trade association representing banks and one of its member 
banks urged the Bureau to eliminate proposed Sec.  1024.37(b). They 
expressed concern that the reasonable basis standard, in combination 
with the prohibition on charging a borrower for insurance in proposed 
Sec.  1024.37(c)(1) for at least 45 days, would increase the likelihood 
that homes go uninsured for a significant period of time. The Bureau 
declines to eliminate Sec.  1024.37(b) because the Bureau believes the 
provision is necessary to implement RESPA's force-placed provisions. In 
addition, the Bureau believes that the commenters' concern is 
unwarranted, in particular, because Sec.  1024.37(b) has been revised 
to

[[Page 10766]]

reframe the prohibition as one on charging the borrower for, rather 
than purchasing, force-placed insurance.
    Lastly, a state trade association representing banks and thrifts 
expressed concern that servicers may rely on information from an 
insurance provider that later turns out to be incorrect about the 
status of a borrower's hazard insurance coverage to purchase force-
placed insurance. For example, the commenter said that insurance 
providers may send notices of cancellation to servicers before a 
borrower's insurance actually lapses. The Bureau recognizes that 
servicers may sometimes wrongly conclude that there is a reasonable 
basis to charge borrowers for force-placed insurance, even after 
complying with the procedures steps in Sec.  1024.37(c)(1). But whether 
Sec.  1024.37(b) is violated turns on whether or not a servicer had a 
reasonable basis to reach its conclusion based on the information the 
servicer has at the time the servicer charges a borrower for force-
placed insurance.
37(c) Requirements for Charging Borrower Force-Placed Insurance
37(c)(1) In General
    Section 6(l)(1) of RESPA, added by section 1463(a) of the Dodd-
Frank Act, states that a servicer may not impose any charge on a 
borrower for force-placed insurance with respect to any property 
securing a federally related mortgage unless the servicer (1) sends a 
written notice by first-class mail to a borrower that contains 
disclosures about a borrower's obligation to maintain hazard insurance, 
a servicer's lack of evidence that a borrower has such insurance, a 
clear and conspicuous statement of how the borrower may demonstrate 
coverage, and a statement that a servicer may obtain insurance coverage 
at a borrower's expense if the borrower does not provide demonstration 
of coverage in a timely manner (see section 6(1)(1)(A)(i) through 
(iv)); (2) sends a second written notice by first-class mail containing 
the same disclosures to a borrower at least 30 days after mailing the 
first written notice (see section 6(l)(1)(B)); and (3) does not receive 
any demonstration of hazard insurance coverage by the end of the 15-day 
period beginning on the date the second written notice was sent to the 
borrower (see section 6(l)(1)(C)).
    The Bureau proposed Sec.  1024.37(c)(1) to implement section 
6(l)(1). Proposed Sec.  1024.37(c)(1) would have provided that a 
servicer may not charge a borrower for force-placed insurance unless: 
(1) A servicer delivers to the borrower or places in the mail a written 
notice with the disclosures set forth in Sec.  1024.37(c)(2) at least 
45 days before the premium charge or any fee is assessed; (2) it 
delivers to such borrower or places in the mail a written notice in 
accordance with Sec.  1024.37(d)(1), which would have prohibited a 
servicer from delivering or placing in the mail this second notice 
until 30 days have passed after the servicer has delivered or placed in 
the mail the first written notice required by Sec.  1024.37(c)(1)(i); 
and (3) during the 45-day notice period, the servicer has not received 
verification that such borrower has hazard insurance in place 
continuously. Proposed Sec.  1024.37(c)(1)(iii) also stated that 
determining whether the borrower has hazard insurance in place 
continuously, the servicer shall take account of any grace period 
provided under State or other applicable law. The Bureau proposed to 
permit a servicer to choose between delivering the written notice to 
the borrower or mailing the written notices established by section 
6(l)(1)(A) and (B) of RESPA because the Bureau believed it was 
necessary and proper to achieve the purposes of RESPA to provide 
servicers with flexibility to either deliver or mail the required 
notices, since delivery will often be faster than transmittal by mail.
    Proposed comment 37(c)(1)-1 would have clarified the minimum length 
of the notice period. It stated that notice period set forth in Sec.  
1024.37(c)(1) begins on the day that the servicer delivers or mails the 
notice to the borrower and expires 45 days later, and that the servicer 
may assess the premium charge and any fees for force-placed insurance 
beginning on the 46th day if the servicer has fulfilled the 
requirements of Sec.  1024.37(c) and (d). The comment further stated 
that if not prohibited by State or other applicable law, the servicer 
may retroactively charge a borrower for force-placed insurance obtained 
during the 45-day notice period. Proposed comment 37(c)(1)(iii)-1 would 
have provided examples of borrowers having hazard insurance in place 
continuously.
    Two non-bank servicers stated that they supported proposed Sec.  
1024.37(c)(1) and related commentary. One of the commenters observed 
that the Bureau's proposal reflects its current practice. This is 
consistent with feedback from small servicers with whom the Small 
Business Review Panel conducted outreach in advance of the proposal. 
One participant stated that it currently provides two notices that are 
very similar to the ones that would be required, and another 
participant stated that it currently exceeds the number of notices that 
would be required.
    The Bureau received comments on various aspects of proposed Sec.  
1024.37(c)(1). Except as discussed below, the majority of industry 
commenters did not raise concerns with the notification aspect of 
proposed Sec.  1024.37(c)(1). The majority of industry commenters only 
sought clarification. First, they requested the Bureau clarify that a 
servicer may retroactively charge a borrower for force-placed insurance 
back to the date that a borrower's hazard insurance lapsed, even if the 
servicer sends the first notice after the date of lapse. Second, a 
number of industry commenters requested that the Bureau clarify how a 
servicer should account for grace periods when determining whether a 
borrower has hazard insurance in place continuously. They observed that 
a grace period under a typical hazard insurance policy extends a 
policyholder's insurance coverage past the expiration date only if the 
policyholder pays the past-due premium during such period. A bank 
servicer requested the Bureau clarify that ``grace period'' used in 
proposed Sec.  1024.37 refer to grace periods applicable to the 
borrower's hazard insurance, and not grace periods applicable to the 
borrower's loan during which the borrower pays the mortgage payment 
after the due date without incurring a late charge. One large bank 
servicer sought clarification of whether the notice period could exceed 
45 days.
    A minority of industry commenters opposed the notification aspect 
of proposed Sec.  1024.37(c)(1). One credit union contended that the 
proposed notices would be duplicative, unnecessary, and add to the 
overall cost of lending because borrowers already receive multiple 
notices from their insurers prior to cancellation. A trade association 
representing retail banks asserted that if a borrower's hazard 
insurance coverage lapses before the second notice is provided, then a 
servicer should be able to obtain force-placed insurance without having 
to send the second notice. A bank servicer argued that rather than 
requiring a servicer to send a second notice at least 15 days prior to 
charging a borrower for force-placed insurance, the Bureau should 
instead permit a servicer to simply provide a notice within five days 
of purchasing force-placed insurance. One state credit union league 
expressed concern about the aggregate notice burden servicers would be 
required to bear if the mortgage servicing rules are finalized as 
proposed and suggested that the burden could be reduced if the Bureau 
combines the first and second written notice into a single notice. One

[[Page 10767]]

credit union asserted that the Bureau should allow a servicer to 
include the proposed force-placed insurance notices with the periodic 
statement because multiple documents mailed to the borrower could 
decrease the probability of the borrower actually paying attention to 
the information.
    Several industry commenters urged the Bureau to reconsider the 
aspect of the proposal that would have required servicers to wait at 
least 45 days to charge a borrower for force-placed insurance. The 
commenters contended that servicers, especially small servicers, would 
incur significant costs because servicers would have to advance force-
placed insurance charges for borrowers. One state credit union trade 
association urged the Bureau to exercise its exception authority to 
exempt small servicers from the requirements of Sec.  1024.37(c). In 
addition to the cost of advancement, the commenter also asserted that 
it would be costly for small servicers to send the notices. One non-
bank servicer suggested the Bureau shorten the notice period to 30 
days, while a bank servicer urged the Bureau to shorten the notice 
period to 10 days. One bank servicer also requested the Bureau to 
preempt Texas law that addresses notification requirements that apply 
to creditors' purchase of force-placed insurance for residential 
mortgages.
    One bank servicer commented that a rule requiring servicers to 
provide notices like the proposed periodic statement or force-placed 
insurance notices to borrowers would be a waste of servicer resources 
without a corresponding benefit to consumers in situations involving a 
borrower whom the servicer has referred to foreclosure, a borrower who 
has declared bankruptcy, or a borrower who has made no payment or 
contacted the servicer for more than six months and whom the servicer 
has determined to have vacated the property. It sought an exemption 
from compliance with any force-placed insurance notification 
requirements with regard to those three categories of borrowers. One 
national trade association representing credit unions and a credit 
union commenter expressed concern that credit union members may believe 
that they should only be charged from the date that they received the 
first notice. Lastly, some industry commenters stated that a servicer 
should not be subject to a waiting period of 45 days to obtain force-
placed insurance because it leaves collateral exposed and increases the 
risk to the borrower.
    In contrast, one consumer advocacy group urged the Bureau to 
strengthen the notification requirement so that a servicer would be 
required to provide the first notice within 15 days of placing force-
placed insurance. It further asserted that it would be unreasonable to 
permit a servicer to retroactively charge a borrower for more than 60 
days of force-placed insurance because it is a servicer's 
responsibility to identify lapses in insurance and notify borrowers of 
such lapses in a timely fashion.
    Lastly, several industry commenters requested the Bureau clarify 
what ``verification'' means because they were concerned that the 
proposal would have required servicers to accept any insurance 
information they received from borrowers. The commenters noted that the 
traditional means of establishing proof of insurance is by requiring a 
borrower to provide a copy of an insurance policy declaration page, a 
certificate of insurance, or the insurance policy. The commenters 
expressed concern that without any of these, servicers may might 
potentially not be able to provide mortgage investors with the proof 
such investors require as evidence of coverage.
    After careful consideration of these comments and further 
consideration, the Bureau is adopting Sec.  1024.37(c)(1) with several 
adjustments. With respect to the notification aspect of Sec.  
1024.37(c)(1), the Bureau notes that RESPA establishes a very detailed 
scheme for any servicer (without consideration of the servicer's size) 
to follow before a servicer imposes a charge on any borrower for force-
placed insurance. The Bureau believes that the prescriptive nature of 
the statutory scheme suggests that Congress believed that each step was 
necessary to achieve the consumer protection purpose of RESPA's force-
placed insurance provisions. The notification procedures the Bureau 
proposed in Sec.  1024.37(c)(1) mirror the prescriptive statutory 
scheme because they were necessary to achieve the intent of Congress. 
The Bureau declines to adopt suggestions received from commenters, 
which ranged from creating exemptions for small servicers and 
unresponsive borrowers to changing various aspects of the notification 
requirements, because they would make Sec.  1024.37(c)(1) depart from 
the statutory scheme Congress established.
    The Bureau has also worked to craft effective notices through 
consumer testing, and the results of those tests suggest that borrowers 
will in fact welcome and respond to the notices. The Bureau further 
believes that some of the commenters' concerns are addressed by the 
fact that the Bureau is interpreting the statutory language to allow 
charges to be assessed retroactively for any period in which coverage 
was not maintained continuously once the procedural and substantive 
statutory criteria are met. Moreover, the Bureau believes that it is 
unnecessary to set limitations on a servicer's right to assess on 
borrowers charges retroactively because the statute establishes that a 
borrower has an unconditional right to a full refund of force-placed 
insurance premium charges and related fees the borrower has paid for 
any period in which the borrower's hazard insurance and the force-
placed insurance were both in place.
    With respect to the request for preemption, the Bureau observes 
that based on the way in which the commenter described Texas law, it 
does not appear that compliance with Texas law would prevent a servicer 
from complying with the Bureau's force-placed insurance notification 
requirements. Accordingly, the Bureau believes preemption is not 
appropriate based on the information provided.
    The Bureau is making several changes to Sec.  1024.37(c)(1) for 
clarification purposes. The Bureau is adopting new comment Sec.  
1024.37(c)(1)(i) to clarify that a servicer may charge a borrower for 
force-placed insurance a servicer purchased, retroactive to the first 
day of any period in which the borrower did not have hazard insurance 
in place. The Bureau is clarifying the role of a grace period under 
applicable law in determining whether a borrower has hazard insurance 
in place continuously in new comment 37(c)(1)(iii)-1. The Bureau is 
adopting Sec.  1024.37(c)(1)(iii) to clarify what ``receiving 
verification'' means by replacing the phrase ``received verification 
that the borrower has hazard insurance in place continuously'' in 
proposed Sec.  1024.37(c)(1)(iii) with the phrase ``received, from the 
borrower or otherwise, evidence demonstrating that the borrower has had 
in place continuously hazard insurance coverage that complies with the 
loan contract's requirements to maintain hazard insurance.''
    The Bureau has concluded that putting the responsibility entirely 
on a servicer to verify a borrower's hazard insurance coverage by 
requiring a servicer to accept any written information from a borrower 
as long as it contains the insurance policy number, and the name, 
mailing address and phone number of the borrower's insurance company or 
the borrower's insurance agency as evidence of insurance would impose 
too large of a burden on a servicer to determine whether the property 
is in fact insured

[[Page 10768]]

in accordance with the terms and conditions of a borrower's loan 
contract. Accordingly, in new comment 1024.37(c)(1)(iii)-2, the Bureau 
is explaining that as evidence of continuous hazard insurance coverage 
that complies with the loan contract's requirements to maintain hazard 
insurance, a servicer may require a copy of the borrower's hazard 
insurance policy declaration page, the borrower's insurance 
certificate, the borrower's insurance policy, or other similar forms of 
written confirmation because the Bureau interprets the statutory 
language ``reasonable form of written confirmation of existing 
insurance coverage'' in section 6(l)(2) of RESPA to mean documents 
servicers typically require borrowers to provide to establish proof of 
coverage. Further, comment 37(c)(1)(iii)-2 provides that a servicer may 
reject evidence of hazard insurance coverage submitted by the borrower 
if neither the borrower's insurance provider nor insurance agent 
provides confirmation of the insurance information submitted by the 
borrower, or if the terms and conditions of the borrower's hazard 
insurance policy do not comply with the borrower's loan contract 
requirements because the Bureau interprets section 6(l)(3) of RESPA to 
permit a servicer to separately confirm insurance information that a 
borrower has proffered to establish proof of coverage and the statutory 
language in section 6(k)(1)(A) to permit a servicer to charge a 
borrower force-placed insurance when the servicer has a reasonable 
basis to believe that the borrower has failed to comply with the loan 
contract's requirements to maintain property insurance.
    With respect to the request to clarify that the 45-day notification 
period set forth in proposed Sec.  1024.37(c)(1) establishes the 
minimum amount of time that must lapse between the time a servicer 
sends a borrower the first written notice required by section 6(l)(1) 
and the time a servicer imposes a premium charge or fee related to 
force-placed insurance, the Bureau believes that the fact that the 
Bureau intended the 45 days to be the minimum amount of time was clear 
in the proposal and thus, does not believe additional clarification in 
the final rule is necessary.
37(c)(2) Content of Notice
    As discussed in the section-by-section analysis of Sec.  
1024.37(c)(1), section 6(l)(1)(A)(i) through (iv) of RESPA establishes 
the disclosures that a servicer of a federally related mortgage loan 
must provide in the written notices it sends to borrowers. The Bureau 
proposed Sec.  1027.37(c)(2) to implement section 6(l)(1)(A)(i) through 
(iv). Proposed Sec.  1024.37(c)(2) would have required a servicer to 
set forth, in the notice that would have been required under proposed 
Sec.  1024.37(c)(1)(i), certain information about force-placed 
insurance. Specifically, proposed Sec.  1024.37(c)(2)(i) through (iv) 
would have required a servicer to disclose the following information: 
(1) The date of the notice; (2) the servicer's name and mailing 
address; (3) the borrower's name and mailing address; and (4) a 
statement that requests the borrower to provide hazard insurance 
information for the borrower's property and identifies the property by 
its address. Proposed Sec.  1024.37(c)(2)(v) would have required that a 
servicer provide a statement that the borrower's hazard insurance is 
expiring or expired, as applicable, and that the servicer does not have 
evidence that the borrower has hazard insurance coverage past the 
expiration date. For a borrower that has more than one type of hazard 
insurance on the property, the servicer must identify the type of 
hazard insurance for which the servicer lacks evidence of coverage. 
Proposed comment 37(c)(2)(v)-1 would have explained that if a borrower 
has purchased a homeowners' insurance policy and a separate hazard 
insurance policy to insure loss against hazards not covered under his 
or her homeowners' insurance policy, the servicer must disclose whether 
it is the borrower's homeowners' insurance policy or the separate 
hazard insurance policy for which it lacks evidence of coverage to 
comply with Sec.  1024.37(c)(2)(v). Proposed Sec.  1024.37(c)(2)(vi) 
would have required that a servicer provide a statement that hazard 
insurance is required on the borrower's property and that the servicer 
has obtained or will obtain, as applicable, insurance at the borrower's 
expense.
    Proposed Sec.  1024.37(c)(2)(vii) would have required that the 
initial notice to the borrower contain a statement requesting the 
borrower to promptly provide the servicer with the insurance policy 
number and the name, mailing address and phone number of the borrower's 
insurance company or the borrower's insurance agent. Proposed Sec.  
1024.37(c)(2)(viii) would have required the notice to contain a 
description of how the borrower may provide the information requested 
pursuant to Sec.  1024.37(c)(2)(vii).
    Finally, Sec.  1024.37(c)(2)(ix) and (x) would have required 
information regarding the relative costs and scope of coverage of 
force-placed insurance versus hazard insurance obtained by the 
borrower, specifically: (1) The cost of the force-placed insurance, 
stated as an annual premium, or as a good faith estimate if actual 
pricing is not available; and (2) a statement that insurance the 
servicer obtains may cost significantly more than hazard insurance 
obtained by the borrower and may not provide as much coverage as hazard 
insurance obtained by the borrower. Proposed Sec.  1024.37(c)(2)(xi) 
would have required that a servicer provide the servicer's telephone 
number for borrower questions.
    The disclosures regarding the potential cost and scope of coverage 
for force-placed insurance were not specifically required under the 
Dodd-Frank Act, but the Bureau believed that it was appropriate to 
propose them pursuant to the Bureau's RESPA section 6(k)(1)(E) 
authority in order to provide borrowers with critical information about 
the benefits, costs, and risks of the insurance that would be imposed 
if they failed to act. The Bureau noted in the proposal that the Bureau 
tested the force-placed insurance disclosures established by the Dodd-
Frank Act in three rounds of consumer testing. Participant response in 
consumer testing suggested that knowing about higher cost of force-
placed insurance could motivate borrowers to act promptly and thus 
avoid being charged for force-placed insurance. All participants said 
upon receipt of the notice, they would immediately contact their 
insurance provider to find out whether or not their hazard insurance 
had expired or purchase new hazard insurance because they would not 
want to pay for the higher cost of force-placed insurance.
    The Bureau proposed comment 37(c)(2)(ix)-1 to clarify that the good 
faith estimate of the cost of the force-placed insurance the servicer 
may obtain should be consistent with the best information reasonably 
available to the servicer at the time the disclosure is provided. The 
proposed comment stated that differences between the amount of the 
estimated cost disclosed under Sec.  1024.37(c)(2)(ix) and the actual 
cost do not necessarily constitute a lack of good faith, so long as the 
estimated cost was based on the best information reasonably available 
to the servicer at the time the disclosure was provided. The Bureau 
believed that its proposed good faith standard would provide 
significant safeguards against the risk that some servicers might 
intentionally underestimate the cost of force-placed insurance while 
providing sufficient flexibility to account for the fact that costs may 
change due to legitimate reasons between the time the disclosure

[[Page 10769]]

is made and the time the borrower is charged.
    Several consumer groups applauded the content requirements the 
Bureau proposed, but with one caveat. They expressed concern that the 
proposed disclosure concerning the fact that force-placed insurance may 
not provide as much coverage as borrower-obtained hazard insurance was 
too generic, and thus would not provide information meaningful enough 
to alert the borrower to the risks of force-placed insurance and prompt 
the borrower to act. They suggested adding additional disclosures that 
force-placed insurance would not cover damage to the borrower's 
personal property, personal liability for injuries to others while they 
are on the borrower's property, or living expenses while the borrower's 
home is under repair. The Bureau has considered the consumer groups' 
concern but is reluctant to add further information without consumer 
testing in light of the risk that information overload could adversely 
impact the effectiveness of the notice. The Bureau also notes that 
results of the testing of the model forms suggest that the existing 
disclosures will prompt recipients of the force-placed insurance 
notices to act promptly. As summarized by Macro in its report on the 
consumer testing of mortgage servicing disclosures during the pre-
proposal stage, all subjects who were shown samples of force-placed 
insurance notices said they would act immediately in response to 
receiving such notices, even though the samples did not contain 
detailed description of potential coverage differences.
    One consumer group suggested that a statement informing a borrower 
of the availability of State-created hazard insurance programs should 
be a required disclosure because these programs are designed to make 
hazard insurance available to borrowers who have trouble qualifying for 
insurance from traditional sources. Again, the Bureau has considered 
the issue but is reluctant to add further information without consumer 
testing in light of the risks of information overload. The Bureau is 
also concerned that a completely generic notice that State programs 
``may'' be available without contact information would not be very 
useful to consumers, and that tailoring the notices to particular 
States would be burdensome to servicers. Accordingly, the Bureau 
declines to implement the comment. The commenter also urged the Bureau 
to require servicers to include force-placed insurance charges in 
regular invoice statements that are sent to a borrower so that a 
borrower is constantly reminded of how much of the borrower's payments 
are going toward paying for such insurance. Another consumer group 
submitted similar comments recommending that the Bureau require 
servicers to identify force-placed insurance charges specifically in 
proposed periodic statements so that borrowers could easily recognize 
when force-placed insurance has been obtained. The Bureau notes that 
servicers will be required to list force-placed insurance charges like 
any other charge, in the periodic statement that the Bureau is 
finalizing in the 2012 TILA Servicing Final Rule.
    Consumer advocates and some industry commenters praised the 
proposal to require actual cost information or estimated costs in the 
mandatory disclosures. A force-placed insurance commenter, for 
instance, stated that it currently provides its borrowers with such 
estimates and that it has proven successful in convincing borrowers of 
the benefit of obtaining their own coverage. Some industry commenters, 
however, opposed the proposed disclosure as unnecessary because the 
Bureau separately proposed to require servicers to inform borrowers 
that force-placed insurance may cost significantly more than borrower-
obtained hazard insurance. One force-placed insurance provider further 
observed that the existing practice of most servicers is to provide a 
binder of the force-placed insurance coverage with the second notice to 
make borrowers aware of the cost of such insurance. These commenters 
and a large bank servicer further noted that the National Mortgage 
Settlement did not include a required disclosure about the cost of 
force-placed insurance and urged the Bureau to refrain from requiring 
more disclosures than required by the settlement.
    Commenters also asserted that a servicer might not have enough 
information to provide an estimate of force-placed insurance costs 
because the first notice would be provided to a borrower at a point 
where a servicer might not have obtained the premium information. 
Estimates are also complicated by the fact that the cost of insurance 
is determined by factors not within the servicer's control (e.g., 
insurers' pricing formulas, the number of days a borrower is delinquent 
on the mortgage loan). Two national trade associations representing the 
mortgage industry asserted that if a servicer does not rely on a third 
party to track a borrower's hazard insurance, the servicer would not 
have the information necessary to make good faith estimates of 
insurance premiums until the force-placed insurance is actually issued. 
One of the commenters asserted that this problem is likely to be most 
acute for small servicers because they often do not hire third parties 
to track a borrower's hazard insurance. The two commenters also 
questioned whether a servicer could be held liable for differences 
between an estimate and the actual cost under a theory that the 
differences were caused by unfair, deceptive, or abusive practices. 
They also questioned whether a servicer would have the authority to 
provide the estimate because for an estimate to be binding, an 
insurance binder from a licensed insurance agent or provider is 
required. The two commenters and a force-placed insurance provider also 
expressed concern that the potential inaccuracies with estimate costs 
may lead to customer confusion and complaints. Lastly, several industry 
commenters expressed concern with the use of the phrase ``good faith 
estimate'' because the phrase is a defined term in existing Regulation 
X with a different meaning than the meaning set forth in proposed 
comment 37(c)(2)(ix)-1.
    After considering these comments, the Bureau is withdrawing the 
requirement to provide the cost of force-placed insurance (or a good 
faith estimate of the cost) in the notice required by Sec.  
1024.37(c)(1)(i), but keeping the requirement for purposes of the 
reminder notice required by Sec.  1024.37(c)(1)(ii). The Bureau 
believes that this will reduce compliance burden concerns while 
continuing to assure that borrowers receive specific prices or 
estimates that are likely to provide strong motivation to renew their 
homeowners' insurance policies. Additionally, the regulatory text is 
changed to refer to a ``reasonable estimate'' rather than a ``good 
faith estimate,'' and the commentary is changed to clarify what a 
``reasonable estimate'' means.
    A number of industry commenters recommended that the Bureau allow 
servicers to provide a borrower with additional information about 
force-placed insurance. They stated that servicers currently provide a 
number of disclosures in addition to the information the Bureau has 
proposed in response to State disclosure requirements, class action 
litigation, and industry best practices. Commenters expressed concern 
that the failure by servicers to include additional information may 
subject servicers to further litigation and extensive potential 
liability. Some commenters suggested that the Bureau permit servicers 
to include additional information and the required information in one 
document.

[[Page 10770]]

One large bank servicer suggested an alternative approach where a 
servicer would be permitted to include additional information in the 
same transmittal that is used to provide notices containing the 
required information.
    The Bureau believes that providing additional information in the 
same notice as the required information could obscure the most 
important information or tend to create information overload. For 
instance, one industry commenter provided a list of additional 
information that included 10 specific pieces of information and a 
catch-all category for disclosures related to force-placed insurance 
imposed by other State or Federal law. The Bureau believes it would be 
better if servicers have latitude to provide the additional information 
on separate pieces of paper in the same transmittal. Accordingly, the 
Bureau is adopting new Sec.  1024.37(c)(4) to provide that a servicer 
may not include any information other than information required by 
Sec.  1024.37(c)(2) in the written notice required by Sec.  
1024.37(c)(1)(i), but that a servicer may provide such additional 
information to a borrower in the same transmittal as the transmittal 
used to provide the notice required by Sec.  1024.37(c)(1)(i) but on 
separate pieces of paper. The Bureau is adopting parallel provisions in 
Sec.  1024.37(d) and (e), numbered as Sec.  1024.37(d)(4) and (e)(4), 
respectively. The Bureau has also revised Sec.  1024.37(c)(2) to permit 
the notice required by Sec.  1024.37(c)(1)(i) to include, if 
applicable, a statement advising a borrower to review additional 
information provided in the same transmittal. The Bureau has adopted 
parallel provisions in Sec.  1024.37(d) and (e).
37(c)(3) Format
    As previously discussed, section 6(l)(1) of RESPA establishes that 
a servicer must provide a borrower with two written notices before 
charging a borrower for force-placed insurance. To implement this 
provision, the Bureau proposed Sec.  1024.37(c)(3) and (d)(3) in 
parallel. Proposed 1024.37(c)(3) stated that disclosures set forth in 
proposed Sec.  1024.37(c)(2) must be in a format substantially similar 
to form MS-3(A), set forth in appendix MS-3. Disclosures made pursuant 
to Sec.  1024.37(c)(2)(vi) and (c)(2)(ix) must be in bold text. 
Disclosure made pursuant to Sec.  1024.37(c)(2)(iv) must be in bold 
text, except that the physical address of the borrower's property may 
be in regular text. The Bureau believed the use of bold text to bring 
attention to important information would make it easier for borrowers 
to identify promptly the purpose of the notice and to find the 
information quickly and efficiently. Additionally, the Bureau stated in 
the proposal that the Bureau believed that it was important to bring 
attention to the cost of force-placed insurance so borrowers have a 
clear understanding of the cost to them of the service that servicers 
provide in obtaining force-placed insurance. The Bureau further noted 
that it believed that it was important for borrowers to understand that 
the servicer's purchase of force-placed insurance arises from the 
borrower's obligation to maintain hazard insurance. Although the notice 
contains additional information that is important, the Bureau believes 
the usefulness of highlighting in focusing a borrower's attention on 
important information decreases if highlighting is used unsparingly.
    One large bank servicer commended the Bureau for the model forms 
the Bureau proposed. It observed that the forms were thoughtfully 
designed and should be readily understandable to consumers. Another 
large bank servicer agreed with the Bureau's rationale that model forms 
facilitate compliance with the new Dodd-Frank Act requirements 
concerning force-placed insurance disclosures and the Bureau's proposed 
supplemental disclosures, but sought clarification that servicers may 
use the model forms as guidance but are not required to demonstrate 
strict adherence to the language of the forms. One non-bank servicer 
argued that disclosure forms should generally be open-ended to allow 
the servicer to provide all the content required by the Bureau while 
allowing the servicer to tailor the form to its needs; however, the 
commenter stated that it did not have concerns with the model force-
placed insurance forms the Bureau proposed.
    In consideration of the comments received and based on further 
consideration, the Bureau is changing Sec.  1024.37(c)(3) to no longer 
require a servicer to provide the information required by Sec.  
1024.37(c)(2) in a form ``substantially similar'' to form MS-3A, as set 
forth in appendix MS-3. As adopted, Sec.  1024.37(c)(3) provides that a 
servicer may use form MS-3A in appendix MS-3 to comply with the 
requirements of Sec.  1024.37(c)(1)(i) and (2). However, the Bureau is 
adopting a final Sec.  1024.37(c)(3) that generally contains the 
highlighting requirements set forth in the proposal.
37(d) Reminder Notice
37(d)(1) In General
    As discussed above, section 6(l)(1) of RESPA, added by section 
1463(a) of the Dodd-Frank Act, states that a servicer must send two 
written notices to the borrower prior to charging the borrower for 
force-placed insurance. Specifically, RESPA section 6(l)(1)(B) requires 
servicers to use first-class mail to send a second written notice to 
the borrower, at least 30 days after mailing initial the notice 
required by RESPA section 6(l)(1)(A), that contains all the information 
described in section 6(l)(1)(A)(i) through (iv) of RESPA.
    The Bureau proposed Sec.  1024.37(d)(1) to implement section 
6(l)(B) of RESPA. Proposed Sec.  1024.37(d)(1) stated that one written 
notice in addition to the written notice required pursuant to Sec.  
1024.37(c)(1)(i) must be delivered to the borrower or placed in the 
mail prior to a servicer charging a borrower for force-placed 
insurance. It further stated that the servicer may not deliver or place 
this second written notice under Sec.  1024.37(d)(1) in the mail until 
30 days after delivering to the borrower or placing in the mail the 
first written notice under Sec.  1024.37(c)(1)(i). Proposed Sec.  
1024.37(d)(1) would also have mandated that a servicer that receives no 
insurance information after delivering or placing in the mail the 
written notice required pursuant to in Sec.  1024.37(c)(1)(i) must 
provide the disclosures set forth in Sec.  1024.37(d)(2)(i), while a 
servicer that does receive insurance information but is unable to 
verify that the borrower has hazard insurance coverage continuously 
must provide the disclosures set forth in Sec.  1024.37(d)(2)(ii).
    Proposed comment 37(d)(1)-1 would have explained the content of the 
reminder notice will vary depending on the insurance information the 
servicer has received from the borrower. Two national trade 
associations representing the mortgage industry urged the Bureau to 
permit servicers to use the same letter they sent to a borrower to 
comply with the first written notice requirement to comply with the 
second written notice requirement.
    As the Bureau noted in the proposal, section 6(k)(1)(B) of RESPA 
can be read to require a servicer to provide the same disclosures a 
borrower has previously received. However, where a borrower responds to 
the first notice by providing insurance information, the Bureau 
believed that the reminder notice would be more useful if it contained 
an acknowledgement of the information these borrowers provided in 
response to the first notice and informed these

[[Page 10771]]

borrowers that the information provided was not sufficient for a 
servicer to verify that they had continuous coverage in place. The 
Bureau observed in the proposal that simply repeating the same content 
as the first notice might cause borrowers to become frustrated and 
confused by the fact that they are receiving another notice asking for 
insurance information when they thought they had already provided such 
information.
    As discussed above in the section-by-section analysis of Sec.  
1024.37(c)(1), some industry commenters urged the Bureau to withdraw 
the requirement that a servicer send a borrower a second notice before 
charging a borrower for force-placed insurance. As the Bureau observed 
in the section-by-section analysis of Sec.  1024.37(c)(1), Congress 
specifically required that two notices be provided before a servicer 
charges a borrower for force-placed insurance. For reasons discussed 
above, the Bureau does not believe that varying from this statutory 
scheme is appropriate. Further, comments from two large force-placed 
insurance providers suggest that at least by the time of the second 
notice, servicers will be able to provide borrowers with a reasonable 
estimate of the cost of the force-placed insurance, so that the second 
notice will complement the first.\111\ Accordingly, the Bureau is 
adopting Sec.  1024.37(d)(1) as proposed with an adjustment to 
emphasize that a servicer may not charge a borrower for force-placed 
insurance unless it has delivered or mailed the second written notice 
at least 15 days prior to imposing such charge.
---------------------------------------------------------------------------

    \111\ The commenters suggested that if the Bureau was going to 
adopt the requirement that servicers must provide the actual cost 
(or good faith estimate of the cost) of force-placed insurance, the 
requirement should be limited to the second notice.
---------------------------------------------------------------------------

37(d)(2) Content of Reminder Notice
    The Bureau proposed Sec.  1024.37(d)(2) to address the content of 
the second required notice. Proposed Sec.  1024.37(d)(2)(i) would have 
set forth the information that a servicer must provide in the written 
notice established by section 6(l)(1)(B) of RESPA to a borrower from 
whom the servicer has not received any insurance information. Proposed 
Sec.  1024.37(d)(2)(ii) would have set forth the information required 
where the servicer received insurance information from the borrower 
within 30 days after delivering to the borrower or placing in the mail 
the written notice set forth Sec.  1024.37(c)(1)(i), but not was not 
able to verify that the borrower has hazard insurance in place 
continuously.
    Proposed Sec.  1024.37(d)(2)(i) would have required that if a 
servicer that has not received any insurance information from the 
borrower within 30 days after delivering or placing in the mail the 
notice required pursuant to Sec.  1024.37(c)(1)(i), the servicer must 
provide a reminder notice that contains the disclosures forth in Sec.  
1024.37(c)(2)(ii) to (c)(2)(xi), the date of the notice, and a 
statement that the notice is the second and final notice. The Bureau 
explained in the proposal that it believes that the date of the notice 
and a statement that the notice is the second and final notice helps to 
distinguish the notice from the notice required pursuant to Sec.  
1024.37(c)(1)(i). Moreover, because the servicer would not have 
received any insurance information, the Bureau believed it would be 
appropriate to require the servicer to provide the disclosures set 
forth in Sec.  1024.37(c)(2)(ii) to (c)(2)(xi) in the second written 
notice sent to a borrower who has not sent the servicer any insurance 
information in response to the first written notice.
    Proposed Sec.  1024.37(d)(2)(ii) would have required that if a 
servicer has received insurance information from the borrower within 30 
days after delivering to the borrower or placing in the mail the 
written notice set forth in Sec.  1024.37(c)(1)(i), but has not been 
able to verify that the borrower has hazard insurance in place 
continuously, then the servicer must deliver or place in the mail a 
written notice that contains the following: (1) The date of the notice; 
(2) a statement that the notice is the second and final notice; (3) the 
disclosures set forth in Sec.  1024.37(c)(2)(ii), (c)(2)(iii), 
(c)(2)(iv), and (c)(2)(xi); (4) a statement that the servicer has 
received the hazard insurance information that the borrower provided; 
(5) a statement that indicates to the borrower that the servicer is 
unable to verify that the borrower has hazard insurance in place 
continuously; and (6) a statement that the borrower will be charged for 
insurance the servicer obtains for the period of time where the 
servicer is unable to verify hazard insurance coverage unless the 
borrower provides the servicer with hazard insurance information for 
such period.
    As described above in the section-by-section analysis of Sec.  
1024.37(c)(2), a number of industry commenters requested the Bureau to 
withdraw the requirement to provide the cost of force-placed insurance 
(or a good faith estimate of the cost) and to permit servicers to 
include additional information in the force-placed insurance notices 
the Bureau proposed. For reasons discussed above, the Bureau is keeping 
the requirement to provide the cost of force-placed insurance (revised 
to refer to a ``reasonable estimate'' rather than a ``good faith 
estimate'') in the second notice and not permitting a servicer to 
include additional information in a second reminder notice. The Bureau 
has also added new comment 37(d)(2)(i)(D)-1 to clarify what a 
``reasonable estimate'' means.
37(d)(3) Format
    As previously discussed, the Bureau proposed new Sec. Sec.  
1024.37(c)(3) and (d)(3) in parallel to implement section 6(l)(1). 
Proposed Sec.  1024.37(d)(3) would have provided that the disclosures 
set forth in proposed Sec.  1024.37(d)(2)(i) must be in a format 
substantially similar to form MS-3(B), and the disclosures set forth in 
Sec.  1024.37(d)(2)(ii) must be in a format be substantially similar to 
form MS-3(C). Proposed Sec.  1024.37(d)(3) would have provided that 
disclosures required by Sec.  1024.37(d)(2)(i)(B), (d)(2)(ii)(B), and 
(d)(2)(ii)(F) must be in bold text. The Bureau observed in the proposal 
that the reasons the Bureau provided for requiring the use of 
highlighting (bold text) for purposes of Sec.  1024.37(c)(3) also 
applied to Sec.  1024.37(e)(3). As discussed above, the Bureau has made 
changes to Sec.  1024.37(c)(3) in adopting Sec.  1024.37(c)(3), and the 
Bureau is making conforming changes to Sec.  1024.37(d)(3).
37(d)(4) Updating Notice With Borrower Information
    The Bureau proposed Sec.  1024.37(d)(4) to provide that if a 
servicer receives hazard insurance information from a borrower after 
the second written notice required pursuant to Sec.  1024.37(d)(1) has 
been put into production, the servicer is not required to update the 
notice so long as the notice was put into production within a 
reasonable time prior to the servicer delivering the notice to the 
borrower or placing the notice in the mail. The Bureau proposed related 
commentary, comment 37(d)(4)-1, that would have provided that five days 
prior to the delivery or mailing of the second notice is a reasonable 
time and invited comments on whether, in certain circumstances, a 
longer time frame is reasonable.
    As discussed above, the Bureau observes that one of the minimum 
consumer protection purposes Congress intended to establish by creating 
new servicer duties with respect to a servicer's purchase of force-
placed insurance is to provide a borrower with reasonably accurate 
information about a servicer's grounds for purchasing force-placed 
insurance. The Bureau believes that a servicer has a duty to ensure 
that

[[Page 10772]]

the second notice contains reasonably accurate information about an 
individual borrower's hazard insurance status. Therefore, the Bureau 
believes that a servicer has a duty to update the second notice if it 
receives new insurance information about a borrower after sending the 
first written notice to the borrower. The Bureau, however, observed in 
the proposal that a servicer might have to prepare the written notice 
in advance of sending it. Accordingly, the Bureau explained that it 
believed that it was appropriate to create a safe harbor of five days 
to protect a servicer acting diligently from exposure to potential 
litigation if the information the servicer provided in the second 
notice turns out to be, in fact, inaccurate, due to information about a 
borrower's hazard insurance it receives subsequent to putting the 
second notice into production.
    One force-placed insurance provider and two national trade 
associations representing the mortgage industry recommended the Bureau 
withdraw proposed Sec.  1024.37(d)(4) or, in the alternative, expand 
the safe harbor to 10 days, excluding legal holidays, Saturdays and 
Sundays, because some servicers use third-party service providers to 
prepare force-placed insurance notices and need a period of longer than 
5 days to prepare the notices. The force-placed insurance provider 
contended that servicers are going to update the second notice or not 
send the second notice at all if they have received verification of a 
borrower's hazard insurance because they would not want to send their 
customers unnecessary notices. Two other force-placed insurance 
providers also recommended that the safe harbor be expanded to 10 days 
from the date that a borrower's insurance is verified, but did not 
indicate whether 10 days should exclude legal holidays, Saturdays, and 
Sundays.
    The Bureau observes that as discussed above, the intent of Sec.  
1024.37(d)(4) is to create a safe harbor to protect servicers who are 
diligent in ensuring that borrowers receive reasonably accurate 
information from potential litigation risk. Accordingly, the Bureau is 
concerned that a 10-day safe harbor, even one that includes legal 
public holidays, Saturdays and Sundays, would be overbroad and give the 
benefit of the safe harbor to servicers who are not diligent in 
ensuring that borrowers receive accurate information. But the Bureau 
has concluded that servicers that use third-party service providers to 
prepare force-placed insurance notices could reasonably require more 
than 5 days to prepare the second written notice in a timely manner, 
especially a five-day period that includes a legal public holiday, 
Saturday, or Sunday. Accordingly, the Bureau is adopting proposed 
comment 37(d)(4)-1 with a change to clarify that the 5-day period 
excludes legal public holidays, Saturdays, and Sundays. The Bureau 
believes this adjustment strikes the right balance between achieving 
the consumer protection of providing a borrower with accurate 
information about a servicer's grounds for purchasing force-placed 
insurance and providing diligent servicers with a safe harbor from 
potential litigation risk.
37(e) Renewal or Replacement of Force-Placed Insurance
    The Bureau proposed Sec.  1024.37(e) to prohibit a servicer from 
charging a borrower for the replacement or renewal of an existing 
force-placed insurance policy unless certain procedural requirements 
are followed as specified in proposed Sec.  1024.37(e). The Bureau 
proposed the requirements because pre-proposal outreach suggested that 
there is no widespread industry standard that applies to renewal 
procedures for force-placed insurance. Moreover, commissions and 
reinsurance agreements may create strong incentives at renewal as well 
as at original placement. The Bureau believes that the renewal notice 
is authorized under RESPA section 6(l), which provides that a servicer 
does not have a reasonable basis to obtain force-placed insurance 
unless certain notice requirements are met, and does not limit such 
requirements to the first time a servicer obtains and charges a 
borrower for force-placed insurance. The Bureau has, however, made 
certain adjustments to the notice and procedure requirements set forth 
in RESPA section 6(l), as described below, to account for the fact that 
in the case of the renewal of forced-placed insurance, the borrower 
already will have received at least two prior force-placed insurance 
notices. Section 1024.37(e) is further authorized under sections 
6(j)(3), 6(k)(1)(E), and 19(a) of RESPA as necessary and appropriate to 
achieve the consumer protection purposes of RESPA, including avoiding 
unwarranted charges and fees and ensuring the provision to borrowers of 
accurate and relevant information. As discussed below, the Bureau is 
adopting proposed Sec.  1024.37(e) generally as proposed with a few 
changes to address issues that were raised in comments.
37(e)(1) In general
    The Bureau proposed Sec.  1024.37(e)(1) to provide that that a 
servicer may not charge a borrower for renewing or replacing existing 
force-placed insurance unless: (1) The servicer delivers or places in 
the mail a written notice to the borrower with the disclosures set 
forth in Sec.  1024.37(e)(2) at least 45 days before the premium charge 
or any fee is assessed; and (2) during the 45-day notice period, the 
servicer has not received evidence that the borrower has obtained 
hazard insurance. The Bureau stated in the proposal that it believed 
that the procedures it proposed concerning renewal and replacement 
would provide advance notice to allow a borrower the time the borrower 
may need to buy hazard insurance before being charged again for the 
cost of force-placed insurance at renewal or replacement.
    The Bureau did not believe a servicer should have to wait until the 
end of the notice period before charging a borrower for the cost of 
renewing the force-placed insurance if a borrower has confirmed that 
there was a gap in coverage with respect to a borrower who obtains 
hazard insurance after receiving the renewal notice. Accordingly, the 
Bureau proposed Sec.  1024.37(e)(1)(iii) to permit a servicer who has 
renewed or replaced existing force-placed insurance during the notice 
period to charge a borrower for such renewal or replacement promptly 
after a servicer receives verification that the hazard insurance 
obtained by a borrower did not provide a borrower with insurance 
coverage for any period of time following the expiration of the 
existing force-placed insurance, notwithstanding Sec.  1024.37(e)(1)(i) 
and (e)(1)(ii). The Bureau proposed comment 37(e)(1)(iii)-1 to provide 
an example of what this means.
    Two national trade associations representing the mortgage industry 
observed that it is common industry practice for a servicer to send 
renewal notice to borrowers but urged that the Bureau permit servicers 
to charge a borrower for the renewal of existing force-placed insurance 
at the time of purchase because a servicer should not have to incur the 
burden of not being able to impose a charge on a borrower related to 
force-placed insurance at the time of renewal or replacement. The 
Bureau declines to modify the proposal because the Bureau believes 
imposing a notice period during which a servicer is prohibited from 
charging a borrower for force-placed insurance is appropriate and 
necessary to help a borrower avoid the cost associated with the 
borrower's servicer renewing or replacing the borrower's hazard 
insurance. The Bureau further notes that a servicer can provide the 45-
day notice in advance of the expiration of the current forced

[[Page 10773]]

place coverage, and accordingly, disagrees that Sec.  1024.37(e)(1) 
would invariably prohibit a servicer from imposing a charge on a 
borrower related to force-placed insurance at the time of renewal or 
replacement. Accordingly, the Bureau is adopting Sec.  1024.37(e)(1) as 
proposed, except technical changes to clarify what evidence of 
borrower's coverage means for Sec.  1024.37(e)(1). New comment 
37(e)(1)-1 clarifies that a servicer may require a borrower to provide 
a form of written confirmation as described in comment 37(c)(1)(iii)-3 
and may reject evidence of coverage submitted by the borrower for the 
reasons described in comment 37(c)(1)(iii)-2. Comment 37(e)(1)(iii) is 
adopted as proposed.
37(e)(2) Content of Renewal Notice
    Proposed Sec.  1024.37(e)(2) would have required a servicer to 
provide a number of the disclosures set forth in in proposed Sec.  
1024.37(c)(2) in the renewal notice. The Bureau explained in the 
proposal that the main differences between the disclosures set forth in 
proposed Sec.  1024.37(c)(2) and proposed Sec.  1024.37(e)(2) are that 
in proposed Sec.  1024.37(e)(2), servicers must provide a statement 
that: (1) The servicer previously obtained insurance on the borrower's 
property and assessed the cost of the insurance to the borrower because 
the servicer did not have evidence that the borrower had hazard 
insurance coverage for the property; and (2) the servicer has the right 
to maintain insurance by renewing or replacing the insurance it 
previously obtained because insurance is required. The Bureau believes 
the differences are necessary to distinguish the notice required 
pursuant to proposed Sec.  1024.37(e)(1) from the notice required 
pursuant to proposed Sec.  1024.37(c)(1). The proposed requirement in 
Sec.  1024.37(c)(2)(ix) concerning provision of the cost of the force-
placed insurance, stated as an annual premium, or a good faith estimate 
of such cost, would have been replicated in proposed Sec.  
1024.37(e)(2)(vii), with related commentary that would have explained 
that the good faith requirement set forth in Sec.  1024.37(e)(2)(vii) 
is the same good faith requirement set forth in Sec.  
1024.37(c)(2)(ix).
    The comments the Bureau received with respect to the content of the 
force-placed insurance notices under Sec.  1024.37(c)(2) (i.e., 
comments about the requirement to provide a good-faith estimate and 
requests to be allowed to provide additional information) also apply to 
proposed Sec.  1024.37(e)(2). The Bureau believes that the burden of 
providing a good faith estimate is lower for purposes of Sec.  
1024.37(e)(2) than for purposes of providing such an estimate for 
purposes of Sec.  1024.37(c)(2) because a servicer can provide such an 
estimate based on the amount of current premiums. Accordingly, the 
Bureau is adopting this requirement in the final rule (revised to refer 
to a ``reasonable estimate'') and made technical changes in related 
commentary to reflect this revision. For reasons discussed above, the 
Bureau is not permitting a servicer to include additional information 
in the notice required by Sec.  1024.37(e)(1). But, as discussed above, 
the Bureau is adopting new Sec.  1024.37(e)(4) to permit servicers to 
provide additional information in the same transmittal the servicer 
uses to provide the replacement or renewal notice.
37(e)(3) Format
    Proposed Sec.  1024.37(e)(3) would have provided that that the 
disclosures set forth in Sec.  1024.37(e)(2) must be in a format 
substantially similar to form MS-3(D), set forth in appendix MS-3. It 
also stated that disclosures made pursuant to Sec.  
1024.37(e)(2)(vi)(B) and 37(e)(2)(vii) must be in bold text, and 
disclosures made pursuant to Sec.  1024.37(e)(2)(iv) must be in bold 
text, except that the physical address of the property may be in 
regular text. Because proposed Sec.  1024.37(e)(3) paralleled proposed 
Sec. Sec.  1024.37(c)(3) and (d)(3), the Bureau is adopting Sec.  
1024.37(e)(3) with change to conform to changes made in Sec.  
1024.37(c)(3) and (d)(3).
37(e)(4) Compliance
    Proposed Sec.  1024.37(e)(4) would have provided that before the 
first anniversary of a servicer obtaining force-placed insurance on a 
borrower's property, the servicer shall deliver to the borrower or 
place in the mail the notice required by Sec.  1024.37(e)(1). Further, 
proposed Sec.  1024.37(e)(4) would have provided that a servicer is not 
required to comply with Sec.  1024.37(e)(1) before charging a borrower 
for renewing or replacing existing force-placed insurance more than 
once every 12 months.
    The Bureau explained that the Bureau did not believe receiving more 
than one renewal or replacement notice in a 12-month period was 
necessary because borrowers should be able to retain the first notice 
under proposed Sec.  1024.37(e)(1), including the cost or estimate 
information, for future reference. The Bureau also noted that some 
small servicers who participated in the Small Business Review Panel 
expressed concerns about the cost of sending renewal notices over a 12-
month period because unlike large servicers, a number of small 
servicers purchase force-placed insurance policies that would have to 
be renewed monthly. The Bureau, however, solicited comments on whether 
providing the renewal or replacement notice once during a 12-month 
period would adequately inform borrowers about the costs, benefits, and 
risks associated with servicers' renewal or replacement of existing 
force-placed insurance.
    One large force-placed insurance provider commented that one notice 
per year is sufficient to remind borrowers without overly burdening the 
servicer or potentially inundating borrowers with multiple and 
repetitive notices. In contrast, a state consumer group asserted that 
one notice over a 12-month period may not be enough to adequately 
inform borrowers of the costs, benefits, and risks of servicer's 
renewal or replacement of force-placed insurance and urged the Bureau 
to require a servicer to provide at least two renewal notices over a 
12-month period to inform borrowers of the force-placed insurance 
premium they would be charged.
    The Bureau has further considered the issue but continues to 
believe for the reasons stated in the proposal that one annual renewal 
notice will adequately inform borrowers of the costs, benefits, and 
risks of servicer's renewal or replacement of force-placed insurance. 
Additionally, the Bureau notes that in conjunction with the Bureau's 
periodic statement rule, most borrowers whose servicers are charging 
them for force-placed insurance will be made aware of that fact because 
a servicer will be required to list force-placed insurance charges on 
periodic statements. Accordingly, the Bureau is adopting proposed Sec.  
1024.37(e)(4) as proposed, renumbered as Sec.  1024.37(e)(5) in the 
final rule.
37(f) Mailing the Notices
    Section 6(l)(1) of RESPA, discussed previously, establishes that 
servicers must use first-class mail to send the notices established by 
section 6(l)(1)(A) and (B) of RESPA. The Bureau proposed to implement 
this aspect of section 6(l)(1) of RESPA by adding new Sec.  1024.37(f) 
to provide that if a servicer mails a notice required pursuant to Sec.  
1024.37(c)(1)(i), (d)(1), or (e)(1) of this section, a servicer must 
use a class of mail not less than first-class mail.
    As discussed above, the Bureau believes that it is necessary and 
appropriate to achieve the purposes of RESPA to allow servicers to 
transmit the force-placed notices required under Sec.  1024.37 by a 
class of mail better than

[[Page 10774]]

first. The Bureau observed in the proposal that although the notice 
required by proposed Sec.  1024.37(e)(1) is not required by RESPA, 
applying the same mailing requirements to all notices under Sec.  
1024.37 would facilitate compliance by promoting consistency. The 
Bureau did not receive any comments on proposed Sec.  1024.37(f) and is 
adopting Sec.  1024.37(f) as proposed.
37(g) Cancellation of Force-Placed Insurance
    Section 1463(a) added new section 6(l)(3) to RESPA, which states 
that within 15 days of receipt by a servicer of confirmation of a 
borrower's existing insurance coverage, the servicer must: (1) 
Terminate the force-placed insurance; and (2) refund to the borrower 
all force-placed insurance premium charges and related fees paid by the 
borrower during any period in which the borrower's insurance and the 
force-placed insurance were both in effect. The Bureau proposed Sec.  
1024.37(g)(1) and (2) to implement section 6(l)(3) of RESPA. Section 
1024.37(g)(1) and (2) would have provided that within 15 days of 
receiving verification that the borrower has hazard insurance in place, 
a servicer must cancel force-placed insurance obtained for a borrower's 
property and for any period during which the borrower's hazard 
insurance was in place, refund to the borrower all force-placed 
insurance premium charges and related fees paid by the borrower for 
such period. Proposed Sec.  1024.37(g)(2) would have also required a 
servicer to remove all force-placed insurance charges and related fees 
that the servicer has assessed to the borrower for any period during 
which the borrower's hazard insurance was in place from the borrower's 
account. The Bureau believes that Congress, by establishing the duty to 
provide a full refund of the force-placed insurance premium and related 
charges paid by a borrower for any period of time during which the 
borrower's hazard insurance coverage and the force-placed insurance 
coverage were both in effect, also intended to establish the duty to 
remove a premium charge or fee related to force-placed insurance for 
such period. Accordingly, the Bureau interprets the statutory duty to 
provide such refund to include the duty to remove all force-placed 
insurance premium charges and related fees charged to a borrower's 
account for any period during which the borrower's hazard insurance 
coverage and the force-placed insurance coverage were both in effect.
    Several industry commenters asserted that a borrower should not 
have an unconditional right to receive a refund for all force-placed 
insurance premium charges and related fees paid by the borrower during 
any period of overlapping coverage. They asserted that it would not be 
reasonable for a servicer to absorb the cost of the refund if a 
borrower does not provide evidence of insurance in a timely manner or 
if a servicer had a reasonable basis to purchase force-placed 
insurance. Some commenters asserted that an unconditional right to a 
refund would encourage borrowers to act irresponsibly by not providing 
evidence of insurance in a timely manner. One state housing finance 
agency and a force-placed insurance provider suggested that servicers 
needed 15 business days to cancel force-placed insurance and provide a 
borrower with refunds in an orderly manner and asked the Bureau to 
adjust the timelines accordingly.
    The Bureau is finalizing Sec.  1024.37(g) as proposed, with 
adjustments to the regulatory language for clarity. While a number of 
commenters indicated that they understood ``receiving verification that 
the borrower has hazard insurance in place'' meant receiving evidence 
of insurance coverage, just as the Bureau has adjusted the text of 
Sec. Sec.  1024.37(c)(1)(iii), (d)(2)(ii), and (e)(1)(iii), to clarify 
what ``receiving verification'' means, the Bureau has made similar 
revisions to enhance the clarity of Sec.  1024.37(g).
    Additionally, in finalizing Sec.  1024.37(g)(2), the Bureau has 
replaced the proposed phrase ``for any period during which the 
borrower's hazard insurance was in place'' with the phrase ``for any 
period of overlapping insurance coverage'' because the Bureau believes 
the language ``periods of overlapping coverage'' more closely aligns 
with the statutory language ``any period during which the borrower's 
insurance coverage and the force-placed insurance coverage were each in 
effect'' in RESPA section 6(l)(3). The Bureau is adopting new comment 
37(g)(2)-1 to explain what ``period of overlapping insurance coverage'' 
means for purposes of Sec.  1024.37(g)(2). The Bureau, however, is not 
adopting proposed comment 37(g)-1 because upon further consideration, 
the Bureau believes that further elaboration on what a servicer must do 
to comply with Sec.  1024.37(g) is not required.
    With respect to commenters asserting that a borrower should not 
have an unconditional right to a full refund of force-placed insurance 
premiums and related fees paid by the borrower, the Bureau notes that 
section 6(l)(3) of RESPA expressly establishes that a borrower's right 
to a full refund for any period during which the borrower's hazard 
insurance and the force-placed insurance were both in effect is an 
unconditional one. Moreover, based on consumer testing and other 
outreach, the Bureau is skeptical that the statutory regime will cause 
borrowers to be less diligent in responding to notices from their 
servicers asking them to provide evidence demonstrating insurance 
coverage and result in servicers having to absorb significant costs.
    As discussed above, across all rounds of testing, participants 
uniformly understood the timeliness of their response upon the receipt 
of force-placed insurance notices affected whether or not they would 
have to pay for force-placed insurance. All participants said they 
would take immediate action because they did not want to bear the 
expense of force-placed insurance.\112\ The uniformity of the responses 
supports the Bureau's belief that the substantially higher cost of 
force-placed insurance provides borrowers with a natural incentive to 
provide their servicers with evidence of insurance coverage in a timely 
manner.
---------------------------------------------------------------------------

    \112\ ICF Int'l, Inc., Summary of Findings: Design and Testing 
of Mortgage Servicing Disclosures 24-29 (Aug. 2012) (``Macro 
Report''), available at  http://www.regulations.gov/#!documentDetail;D=CFPB-2012-0033-0003.
---------------------------------------------------------------------------

    Further, based on outreach the Bureau has done with force-placed 
insurance providers and servicers, as well as based on public 
statements made by these entities and comment letters the Bureau has 
received from industry, the Bureau observes that the typical force-
placed insurance on the market provides for flat cancellation (i.e., 
the force-placed insurance provider provides a full refund of force-
placed insurance premiums paid by the borrower for any period of time 
where the force-placed insurance and the borrower's hazard insurance 
coverage were both in effect).\113\ Accordingly, the Bureau does

[[Page 10775]]

not believe that servicers will have to absorb significant costs.
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    \113\ See e.g., N.Y. State Dep't of Fin. Services, Testimony of 
John Frobose, President of American Security Insurance Company 
(ASIC) 6 (describing that if ASIC receives proof that there was no 
gap in hazard insurance coverage on a borrower's property, ASIC 
refunds all force-placed insurance premiums paid); see also, N.Y. 
State Dep't of Fin. Services, Written Testimony of Nicholas Pastor 
and Matthew Freeman on behalf of QBE Insurance Corporation and QBE 
FIRST Insurance Agency 15 (stating that if the borrower provides 
proof of voluntary insurance such that there was no lapse in the 
voluntary coverage, all premiums paid by a borrower or deducted from 
a borrower's escrow account are refunded, regardless of when the 
borrower provided the proof of voluntary coverage): See further, 
N.Y. State Dep't of Fin. Services, Written Testimony of Justin 
Crowley on behalf of Select Portfolio Servicing, Inc, Pelatis 
Insurance Agency Corp. and Pelatis Insurance Limited 5 (stating that 
it provides a full refund equal to the total amount of force-placed 
insurance premiums charged to the borrower's account for any period 
during which the borrower maintained his or her own homeowners' 
coverage) (copies of the aforementioned testimonies are available at 
http://www.dfs.ny.gov/insurance/hearing/fp_052012_testimony.htm).
---------------------------------------------------------------------------

    The Bureau further declines to adjust the timeline a servicer must 
follow to cancel fore-placed insurance and refund force-place premium 
charges and related fees paid by the borrower. As discussed above in 
the section-by-section analysis of the defined term ``Day'' in Sec.  
1024.31, the Bureau believes that Congress intended the term ``day'' by 
itself to mean a calendar day for purposes of RESPA. The 15-day 
timeline for cancellation and refund is expressly established by 
section 6(l)(3) of RESPA.
    Further, based on the Bureau's outreach and public statements made 
by force-placed insurance providers and servicers, the Bureau 
understands that servicers' purchase of force-placed insurance is 
generally a rare occurrence. If the volume of force-placement is small 
to begin with, then the Bureau is skeptical that requiring servicers to 
follow the statutorily-prescribed timeline would overwhelm a servicer 
or otherwise impose too large of a burden. Accordingly, the Bureau does 
not believe it is appropriate to deviate from the statutory-determined 
timeline set forth in section 6(l)(3).
    A large force-placed insurance provider, a state trade association 
representing mortgage lenders, and a bank servicer expressed concern 
that Sec.  1024.37(g), as proposed, would be construed as requiring a 
servicer to cancel force-placed insurance and provide a full refund 
even if a borrower's hazard insurance policy does not meet the loan 
contract's requirements. Although the Bureau does not believe that it 
was reasonable to construe proposed Sec.  1024.37(g) to require a 
servicer to cancel force-placed insurance and provide a full refund 
even if a borrower's hazard insurance policy does not meet the loan 
contract's requirements, the Bureau believes that in any event, the 
commenters' concern is adequately addressed by Sec.  1024.37(g), which, 
as adopted, clarifies that ``receiving verification'' in proposed Sec.  
1024.37(g) means receiving evidence demonstrating that the borrower has 
had hazard insurance in place that complies the loan contract's 
requirements to maintain hazard insurance.
    Lastly, one large bank servicer expressed concern that the 
obligation to refund a borrower for force-placed insurance premiums and 
related fees paid by the borrower triggers a subsequent escrow analysis 
disclosure set forth in current Sec.  1024.17(c)(3), which requires a 
servicer to perform an escrow account analysis at the completion of the 
escrow account computation year, which is defined in current Sec.  
1024.17(b) as ``a 12-month period that a servicer establishes for the 
escrow account beginning with the borrower's initial payment date.'' 
Providing a refund to a borrower in accordance with Sec.  1024.37(g), 
by itself, does not trigger the obligation to perform an escrow account 
analysis required by current Sec.  1024.17(c)(3).
37(h) Limitation on Force-Placed Insurance Charges
    Section 1463(a) of the Dodd-Frank Act amended RESPA section 6 by 
adding new section 6(m) to RESPA, which states that apart from charges 
subject to State regulation as the business of insurance, all charges 
related to force-placed insurance imposed on the borrower by or through 
the servicer must be bona fide and reasonable. Proposed Sec.  
1024.37(h)(1) generally mirrored the statutory language by providing 
that except for charges subject to State regulation as the business of 
insurance and charges authorized by the Flood Disaster Protection Act 
of 1973, all charges related to force-placed insurance assessed to a 
borrower by or through the servicer must be bona fide and reasonable. 
Proposed Sec.  1024.37(h)(2) would have provided that a bona fide and 
reasonable charge is a charge for a service actually performed that 
bears a reasonable relationship to the servicer's cost of providing the 
service, and is not otherwise prohibited by applicable law.
    The Bureau noted in the proposal that the Flood Disaster Protection 
Act of 1973 establishes that notwithstanding any Federal or State law, 
any servicer for a loan ``secured by improved real estate or a mobile 
home'' may charge a reasonable fee for determining whether the building 
or mobile home securing the loan is located or will be located in a 
special flood hazard zone. See 42 U.S.C. 4012a(h). As discussed in the 
proposal and explained above, the Bureau was concerned about issuing 
regulations that would overlap with regulations issued pursuant to the 
FDPA, and believed that borrowers would be confused by receiving 
overlapping notices under the two regimes with respect to the same 
flood insurance policy. Accordingly, as discussed above, the Bureau 
used its authority under section 19(a) of RESPA to exempt hazard 
insurance to protect against flood loss obtained by a servicer as 
required by the FDPA from the definition of force-placed insurance. 
Consistent with this exemption and for the same reasons, the Bureau 
believed that it was necessary to achieve the purposes of RESPA's 
force-placed insurance provisions to use it authority under section 
19(a) of RESPA to exempt charges authorized by the FDPA from proposed 
Sec.  1024.37(h). The Bureau received no comments on the exemption and 
is adopting this aspect of Sec.  1024.37(h)(1) as proposed.
    With respect to proposed Sec.  1024.37(h)(2), which would have set 
forth the Bureau's proposed definition of ``bona fide and reasonable 
charge,'' the Bureau noted in the proposal that the Bureau believed it 
was important that servicers do not try to inflate the already-high 
cost of force-placed insurance by assessing charges to borrowers that 
are not for services actually performed, do not bear a reasonable 
relationship to the servicer's cost of providing the service, or are 
prohibited by applicable law.
    One non-bank servicer commended the proposed definition of ``bona 
fide and reasonable charge'' and predicted that the Bureau's proposal 
would stop many of the abusive servicer practices that have damaged the 
industry's reputation over the past few years. But a national trade 
association representing the consumer credit industry contended that 
the proposed definition would create an ambiguous standard that would 
expose lenders to class action lawsuits and infringe on state insurance 
departments' sole authority to regulate insurance rates.
    Other comments received from a national trade association 
representing realtors and several consumer groups urged the Bureau to 
go further in regulating charges related to force-placed insurance that 
a servicer imposes on a borrower. The realtors association urged the 
Bureau to mandate affordable force-placed insurance premiums. One 
consumer group urged the Bureau to ban servicers or their affiliates 
from receiving any fee, commission, kickback, reinsurance contract, or 
any other thing of value for a force-placed insurance provider in 
exchange for purchasing force-placed insurance, and to prohibit a 
servicer from obtaining an amount of force-placed insurance coverage 
greater than the replacement cost value of the borrower's property. Two 
national consumer groups suggested that the Bureau should expressly 
exclude unreasonable costs and other costs unrelated to the provision 
of force-placed insurance. Two other national consumer groups asserted 
that the Bureau should expressly exclude commissions or other

[[Page 10776]]

compensation paid by a force-placed insurance provider or its agent to 
a servicer or any affiliate of the servicer, costs associated with 
insurance tracking, cost for activities for which a servicer is being 
reimbursed by the owner of the mortgage, costs associated with the 
administration of reinsurance programs, cost to subsidize unrelated 
servicer activities, and any cost that is not directly related to the 
provision of force-placed insurance. They also urged the Bureau to 
provide guidance about prohibited fees that is consistent with Fannie 
Mae's proposed changes to its servicing guidelines on force-placed 
insurance.\114\ These commenters further asserted that State insurance 
regulators have no authority over a charge that a servicer imposes on a 
borrower for force-placed insurance because a servicer is not an entity 
regulated by state insurance regulators.
---------------------------------------------------------------------------

    \114\ Fannie Mae issued a servicing announcement stating that 
any servicer requesting reimbursement of force-placed insurance 
premiums must exclude any lender-placed insurance commission earned 
on that policy by the servicer or any related entity, costs 
associated with insurance tracking or administration, or any other 
costs beyond the actual cost of the lender-placed insurance policy 
premium. See Fannie Mae, Updates to Lender-Placed Property Insurance 
and Hazard Insurance Claims Processing (Mar. 14, 2012), available at 
https://www.fanniemae.com/content/announcement/svc1204.pdf. The 
Bureau observes that Fannie Mae followed up in May of 2012 with a 
public statement announcing that it has postponed the implementation 
date of these guidelines until further notice. Fannie Mae, Effective 
Date for Lender-Placed Property Insurance Requirements, available at 
https://www.fanniemae.com/content/announcement/ntce052312.pdf.
---------------------------------------------------------------------------

    After consideration of the comments submitted, the Bureau believes 
it is appropriate to finalize Sec.  1024.37(h)(2) as proposed. The 
Bureau believes Sec.  1024.37(h) appropriately implements RESPA 6(m)'s 
``bona fide and reasonable'' requirement in a way that does not overlap 
with state insurance departments' authority to regulation insurance 
rates. Further, the Bureau believes Sec.  1024.37(h) provides clear 
guidance for servicers by unambiguously prohibiting a servicer from 
charging a borrower for a service it did not perform, or charging a 
borrower a fee that does not bear a reasonable relationship to the 
servicer's cost of providing the service, or that would be otherwise 
prohibited by applicable law.
    With respect to the request that the Bureau should revise the 
definition of ``bona fide and reasonable charges'' to exclude 
unreasonable costs, other costs unrelated to the provision of force-
placed insurance, and cost to subsidize servicing activities unrelated 
to the provision of force-placed insurance, the Bureau believes that 
the proposed and final definition already exclude such charges.
    With respect to requests that the Bureau mandate affordable force-
placed insurance premiums, prohibit servicers from receiving commission 
or similar fees or things of value, prohibit fees associated with the 
cost of administration of reinsurance programs or insurance tracking, 
the Bureau recognizes the concerns, but believes the provisions of 
Sec.  1024.37 provide adequate safeguards to borrowers and consistent 
with the regulatory scheme mandated by Congress.
    With respect to the request that the Bureau prohibit servicers from 
charging borrowers for costs that could be reimbursed by the owner of 
the mortgage loan, the Bureau believes that where a servicer charges a 
borrower for first-placed insurance in accordance with the requirements 
under Sec.  1024.37, it is reasonable for the borrower, rather than the 
owner or assignee of the mortgage loan, to bear the costs of such 
insurance. With respect to the request that the Bureau exclude costs 
not directly related to force-placed insurance from the definition of 
``bona fide and reasonable charges,'' the Bureau believes that the bona 
fide and reasonable standard provides adequate protection to borrowers 
without distinguishing between whether a charge is ``directly'' or 
``indirectly'' related to force-placed insurance. Such a standard would 
thus inject addition complexity without concomitant consumer benefit.
    With respect to the request that the Bureau provide guidance about 
prohibited fees that is consistent with Fannie Mae's proposed changes 
to its servicing guidelines, the Bureau carefully reviewed Fannie Mae's 
servicing announcement and concluded that it would not be appropriate 
to provide similar guidance. The draft guidance simply informs 
servicers that Fannie Mae no longer plans to reimburse a servicer for 
certain servicer expenses related to servicer's purchase of force-
placed insurance and importantly, it offers no guidance on the charges 
a servicer may impose on a borrower with respect to a servicer's 
purchase of force-placed insurance. Additionally, the Bureau believes 
that the prohibitions and requirements with respect to force-placed 
insurance under Sec.  1024.37 provide adequate protection to borrowers 
and that there is no reason to depart from the scheme established by 
Congress to regulate force-placed insurance by importing Fannie Mae's 
guidance regarding prohibited fees into the final rule.
    Lastly, with regard to the argument that no charge imposed by a 
servicer is subject to State regulation as the business of insurance 
because a servicer is not regulated by State insurance regulators, the 
Bureau believes the language of section 6(m) of RESPA clearly 
contemplates that servicers may pass through charges that are subject 
to State regulation as the business of insurance to a borrower, and the 
fact that such charge is passed through by the servicer does not mean 
that such charge is no longer subject to State regulation as the 
business of insurance. For the foregoing reasons, the Bureau is 
adopting Sec.  1024.37(h)(2) as proposed.
37(i) Relationship to Flood Disaster Protection Act of 1973
    Section 1463 of the Dodd-Frank Act amended section 6 of RESPA to 
add new section 6(l)(4) to provide that the new Dodd-Frank Act 
requirements concerning force-placed insurance do not prohibit 
servicers from sending a simultaneous or concurrent notice of a lack of 
flood insurance pursuant to section 102(e) of the Flood Disaster 
Protection Act (FDPA). The Bureau proposed Sec.  1024.37(i) to provide 
that if permitted by regulation under section 102(e) of the Flood 
Disaster Protection Act of 1973, a servicer subject to the requirements 
of Sec.  1024.37 may deliver to the borrower or place in the mail any 
notice required by Sec.  1024.37 together with the notice required by 
section 102(e) of the Flood Disaster Protection Act of 1973.
    One national trade association representing banks and insurance 
providers urged the Bureau to permit servicers to combine the notice 
required pursuant to the FDPA with any notice required pursuant to 
Sec.  1024.37. One state consumer group expressed concern that a 
borrower might be confused if it receives a notice required pursuant to 
Sec.  1024.37 and a notice required pursuant to the FDPA at the same 
time. The commenter observed that the notices should be distinguishable 
from each other and should state that there is a difference between the 
two notices.
    Congress vested other Federal regulators with the authority to 
issue regulations under the FDPA, and thus, the Bureau cannot revise 
the content of notices required under the FDPA. With respect to 
potential confusion caused by receiving concurrent notices, the Bureau 
notes that it has excluded insurance required under the FDPA from the 
definition of force-placed insurance so that borrowers will not receive 
overlapping notices under Sec.  1024.37 and the FDPA with respect to 
the same insurance policy. To the extent

[[Page 10777]]

borrowers receive separate notices under Sec.  1024.37 and the FDPA 
with respect to separate insurance policies, the Bureau further 
believes that borrowers will be able to distinguish the notices under 
the two regulatory schemes based on their content. The Bureau also 
observes that it has addressed compliance burden by permitting under 
final Sec.  1024.37(i) that notices under the FDPA and Sec.  1024.37 
could be provided to borrowers in the same transmittal. Accordingly, 
the Bureau is adopting Sec.  1024.37(i) as proposed, except with 
adjustment just described. As adopted, Sec.  1024.37(i) states if 
permitted by regulation under section 102(e) of the Flood Disaster 
Protection Act of 1973, a servicer subject to the requirements of Sec.  
1024.37 may deliver to the borrower or place in the mail any notice 
required by Sec.  1024.37 and the notice required by section 102(e) of 
the Flood Disaster Protection Act of 1973 on separate pieces of paper 
in the same transmittal.
Section 1024.38 General Servicing Policies, Procedures, and 
Requirements
    Background. As discussed above, the Bureau proposed rules that 
would amend Regulation X to implement the Dodd-Frank Act amendments to 
TILA and RESPA, with respect to among other things, error resolution 
and information requests. The Bureau also proposed to use its section 
19(a) authority to require servicers to establish and to implement 
reasonable policies and procedures to manage information and documents, 
to evaluate and respond to loss mitigation applications, and to achieve 
other important objectives.
    As described more fully above, the Bureau's proposal sought to 
address pervasive consumer protection problems across major segments of 
the mortgage servicing industry that came to light during the recent 
financial crisis and that underlie many consumer complaints and recent 
regulatory and enforcement actions. In the 2012 RESPA Servicing 
Proposal, the Bureau stated that it believed that many servicers simply 
had not made the investments in resources and infrastructure necessary 
to service large numbers of delinquent loans. The Bureau noted that 
recent evaluations of mortgage servicer practices have indicated that 
borrowers have been harmed as a result of many servicers' lacking 
adequate policies and procedures to provide servicer personnel with 
appropriate borrower information. Federal regulatory agencies reviewing 
mortgage servicing practices have found that certain servicers 
demonstrated ``significant weaknesses in risk-management, quality 
control, audit, and compliance practices.'' \115\
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    \115\ Problems in Mortg. Servicing From Modification to 
Foreclosure: Hearings Before the Senate Comm. on Banking, Hous. & 
Urban Affairs, 111th Cong. 4 (2010) (statement of Daniel K. Tarullo, 
Board of Governors, Federal Reserve System), available at http://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm.
---------------------------------------------------------------------------

    Further, the Bureau noted that major servicers demonstrated 
systemic failures to document and verify, in accordance with applicable 
law, information relating to borrower mortgage loan accounts in 
connection with foreclosure proceedings. Examinations by prudential 
regulators found ``critical deficiencies in foreclosure governance 
processes, document preparation processes, and oversight and monitoring 
of third parties * * * [a]ll servicers [examined] exhibited similar 
deficiencies, although the number, nature, and severity of deficiencies 
varied by servicer.'' \116\
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    \116\ Failure to Recover: The State of Hous. Mkts., Mortg. 
Servicing Practices and Foreclosures: Hearings Before the House 
Comm. on Oversight and Gov't Reform, 112th Cong. 4 (2012) (statement 
of Morris Morgan, Office of the Comptroller of the Currency), 
available at http://www.occ.gov/news-issuances/congressional-testimony/2012/pub-test-2012-47-written.pdf.
---------------------------------------------------------------------------

    As the Bureau explained in the 2012 RESPA Servicing Proposal, a 
servicer's obligation to maintain accurate and timely information 
regarding a mortgage loan account and to be able to provide accurate 
and timely information to its own employees and to borrowers, owners, 
assignees, subsequent servicers, and courts, among others, is one of 
the most basic servicer duties. A servicer cannot comply with its 
myriad obligations to investors and applicable law, unless it maintains 
sound systems to manage the servicing of mortgage loan accounts, 
including information systems that maintain accurate and timely 
information with respect to mortgage loan accounts. To address those 
critical concerns, the Bureau decided to use RESPA section 19(a) 
authority to propose a rule to address servicers' information 
management and other general servicing policies and procedures across 
the industry.
    The Bureau received general comments about whether it was 
appropriate for the Bureau to regulate servicers' practices related to 
information management and other servicer policies and procedures 
identified in the 2012 RESPA Servicing Proposal. Consumer group 
comments generally demonstrated support for the proposal. Industry 
comments, on the other hand, expressed skepticism about whether it is 
necessary for the Bureau to regulate servicers' information management 
and other operational practices. Some industry comments suggested that 
recent State and Federal remediation efforts, such as the National 
Mortgage Settlement, and other existing regulations obviated the need 
for any regulation by the Bureau. Some servicers also urged the Bureau 
to delay adopting the proposed rule. The Bureau also received a small 
number of comments about the scope of the rule, including whether the 
proposed rule would apply to mortgages other than federally regulated 
mortgages or to reverse mortgages.
    In light of the potential harm to borrowers due to the deficiencies 
in servicer practices highlighted in the proposal, the Bureau continues 
to believe that servicers should achieve certain critical general 
servicing objectives and requirements. The Bureau declines to adopt the 
commenters' suggestions that regulation of these practices is not 
necessary at this time, and is adopting Sec.  1024.38, as proposed with 
the modifications discussed in detail below. Through enforcement and 
supervision of Sec.  1024.38, the Bureau will evaluate whether 
servicers are achieving the objectives and requirements set forth in 
Sec.  1024.38. The Bureau also expects that servicers will measure 
their own ability to achieve the objectives and requirements set forth 
in Sec.  1024.38. In addition, the Bureau expects that servicers' 
policies and procedures will address the core functions that they need 
to achieve those objectives and requirements, including providing 
adequate staffing and meaningful oversight of the resources engaged in 
achieving those important objectives and requirements, including 
servicer staff, service providers, and vendors.
    As explained above, the Bureau believes that the general servicing 
policies, procedures, and requirements set forth in Sec.  1024.38 are 
necessary and appropriate to achieve the consumer protective purposes 
of RESPA, including to avoid unwarranted or unnecessary costs and fees, 
to ensure that servicers are responsive to consumer requests and 
complaints, to ensure that servicers provide and maintain accurate and 
relevant information about the mortgage loan accounts that they 
service, and to facilitate the review of borrowers for foreclosure 
avoidance options. Moreover, as discussed in detail below in part VII, 
the Bureau believes that the burden imposed on servicers under the 
final rule is reasonable in light of the countervailing benefits of the 
provisions.

[[Page 10778]]

    As discussed in detail above in the section-by-section analysis of 
Sec.  1024.30, Sec.  1024.38 applies only to the servicing of federally 
related mortgage loans, as defined in Sec.  1024.2, and does not apply 
to the servicing of reverse mortgages, as defined in Sec.  1024.31, or 
with respect to any mortgage loan for which a servicer is subject to 
regulation by the Farm Credit Administration as a ``qualified lender,'' 
as defined in 12 CFR 617.7000. In addition, Sec.  1024.38 does not 
apply to small servicers, as defined in 12 CFR 1026.41(e)(4). The 
Bureau has also modified the final rule to clarify that the policies, 
procedures, and requirements set forth in Sec.  1024.38 are broader 
than information management and encompass general servicing policies, 
procedures, and requirements.
Legal Authority
    In proposing Sec.  1024.38, the Bureau relied on a number of 
authorities, including section 6(k)(1)(E) of RESPA. That provision, 
which was added by Sec.  1463 of the Dodd-Frank Act as part of a 
broader set of servicing-related requirements, authorizes the Bureau to 
promulgate regulations ``appropriate to carry out the consumer 
protection purposes of [RESPA].'' In the proposal, the Bureau noted 
that Sec.  1024.38 was further authorized under section 6(j)(3) of 
RESPA, as necessary to carry out section 6 of RESPA, and under section 
19(a) of RESPA, as necessary to achieve the purposes of RESPA. Because 
rules issued under section 6 of RESPA, including under sections 6(k)(1) 
and 6(j)(3), are enforceable through private rights of action, the 
Bureau proposed Sec.  1024.38(a)(2), which set forth a safe harbor 
under which a servicer would not violate proposed Sec.  1024.38 unless 
it engaged in a pattern or practice of failing to achieve any of the 
objectives set forth in Sec.  1024.38. The Bureau believed that 
creating a pattern or practice threshold would significantly improve 
industry practices but not subject servicers to lawsuits with respect 
to, for example, a single lost document or filing error.
    The Bureau received many comments on the private liability 
suggested by the Bureau's reliance on its authority under section 6 of 
RESPA to propose Sec.  1024.38. Numerous industry commenters expressed 
concern that authorizing Sec.  1024.38 under section 6 of RESPA would 
create a private cause of action to enforce the provisions of the 
section. These commenters noted that the litigation risk created by the 
proposed rule would complicate compliance due to the potential for 
inconsistent judicial interpretations of the rule. In light of this 
concern, industry commenters asked the Bureau to provide detailed, 
specific guidance on how to comply with the objectives set forth in 
proposed Sec.  1024.38. In addition, servicers argued that the Bureau 
and prudential regulators are better positioned to assess and supervise 
servicers' internal policies and procedures than courts through civil 
litigation. Industry commenters also stressed that the private 
litigation that would likely ensue under proposed Sec.  1024.38 would 
increase the cost of servicing and thereby decrease the availability of 
credit.
    Consumer group commenters generally supported the allowance of 
private rights of action to enforce Sec.  1024.38 but expressed 
dissatisfaction with the proposed safe harbor, which they argued should 
be eliminated or revised to reduce the barriers to successful civil 
actions and to ensure sufficient protection for borrowers. They 
commented that the safe harbor definition would make it difficult for 
consumers to bring successful civil suits, and urged the Bureau to 
eliminate or to revise the safe harbor to provide relief for more 
borrowers. Consumer advocates argued that borrowers need strong 
protections because borrowers cannot select their servicers.
    As stated in the proposal, the Bureau is concerned that a 
servicer's failure to achieve each of the objectives and standard 
requirements set forth in Sec.  1024.38 creates the potential for 
adverse consequences harmful to borrowers. These may include imposing 
improper fees on borrowers, inability reasonably to evaluate borrowers 
for loss mitigation options that may benefit borrowers and owners or 
assignees of mortgage loans, unwarranted costs to borrowers, and the 
potential for fraud upon courts through inaccurate or unverifiable 
legal pleadings.
    The Bureau sought to balance the need for consumer protections with 
the costs created by command-and-control regulation by proposing 
objectives-based policies and procedures that allowed servicers 
flexibility to set policies and procedures reasonably designed to 
achieve certain defined objectives. Because a single failure to achieve 
a desired objective or requirement is not necessarily indicative of a 
servicer's failure to implement appropriate policies and procedures and 
in light of the potential costs of civil litigation, the Bureau 
proposed a safe harbor under which servicers would be liable only for 
systemic violations of Sec.  1024.38. Upon consideration of the 
comments and further consideration, however, the Bureau has concluded 
that the proposed formulation would not have adequately balanced the 
countervailing concerns of borrowers and industry. Requiring a showing 
of a pattern or practice could make it difficult for borrowers or 
regulators to obtain remedies until a servicer had inflicted widespread 
harm among its borrowers. At the same time, the prospect that many 
individual suits could be filed could threaten to undermine the basic 
goal of an objectives-based system, if servicers felt pressured to 
adopt models to reduce risk that were not in fact appropriately 
tailored to their particular operations.
    Ultimately, the Bureau agrees with the commenters that allowing a 
private right of action for the provisions that set forth general 
servicing policies, procedures, and requirements would create 
significant litigation risk. As the commenters noted, courts 
potentially would interpret the proposed flexible objectives-based 
standards inconsistently, which would have created compliance 
challenges for servicers. To address such challenges, the Bureau 
believes that it would have needed to issue more prescriptive standards 
in the final rule. The Bureau continues to believe, however, for the 
reasons discussed above, that flexible objectives-based standards are 
best suited to address the information management and other servicing 
challenges faced by different servicers that the Bureau identified in 
the proposal. Policies and procedures best suited to achieve the 
desired objectives are often highly dependent on the facts and 
circumstances of an individual servicer, such as the number and type of 
loans being serviced, and the technology that the servicer has 
deployed.
    The Bureau believes that supervision and enforcement by the Bureau 
and other Federal regulators for compliance with and violations of 
Sec.  1024.38 respectively, would provide robust consumer protection 
without subjecting servicers to the same litigation risk and 
concomitant compliance costs as civil liability for asserted violations 
of Sec.  1024.38. Indeed, the Bureau believes that the Bureau and other 
Federal regulators have the experience and judgment necessary to 
evaluate a servicer's compliance with Sec.  1024.38 and to take action 
against servicers whose operational systems are not reasonably designed 
to achieve the stated objectives without waiting for evidence of a 
pattern or practice of undesirable outcomes. Prior to the enactment of 
the Dodd-Frank Act, there was no comprehensive Federal supervisory 
authority over non-bank mortgage servicers. The Dodd-Frank Act

[[Page 10779]]

created a comprehensive regime of federal regulation over both bank and 
non-bank mortgage servicers. Under this new regime, the Bureau and 
other federal regulators can calibrate supervision to focus on 
practices that present the greatest risk to borrowers and work with 
servicers to assure that servicers have implemented effective systems 
that protect consumers and manage servicing portfolios. At the same 
time, the new comprehensive regulatory regime will allow the Bureau and 
other regulators to take prompt and effective action where a servicer's 
policies and procedures are deficient without waiting for proof of a 
pattern or practice of abuse.
    Therefore, the Bureau is restructuring the final rule so that it 
neither provides private liability for violations of Sec.  1024.38 nor 
contains a safe harbor limiting liability to situations where there is 
a pattern or practice of violations. As discussed in more detail below, 
the Bureau has also revised some of the proposed objectives and added 
new requirements that the Bureau believes can be appropriately overseen 
by supervisory agencies but that would have been difficult for the 
courts to administer on a case-by-case basis. The Bureau believes that 
this approach more appropriately balances the need for robust consumer 
protections with respect to the general servicing policies, procedures, 
and requirements set forth in Sec.  1024.38 through supervision and 
enforcement by the Bureau and other agencies with the flexibility for 
industry to define how to achieve the important objectives set forth in 
Sec.  1024.38.
    Thus, the Bureau no longer relies on its authorities under section 
6 of RESPA to issue Sec.  1024.38. Instead, the Bureau is adopting 
Sec.  1024.38 pursuant to its authority under section 19(a) of RESPA. 
As explained in more detail below, the Bureau believes that the 
servicing policies, procedures, and requirements set forth in Sec.  
1024.38 are necessary to achieve the purposes of RESPA, including to 
avoid unwarranted or unnecessary costs and fees, to ensure that 
servicers are responsive to consumer requests and complaints, to ensure 
that servicers provide and maintain accurate and relevant information 
about the mortgage loan accounts that they service, and to facilitate 
the review of borrowers for foreclosure avoidance options. The Bureau 
believes that without sound operational policies and procedures and 
without achieving certain standard requirements, servicers will not be 
able to achieve those purposes. The Bureau is also adopting Sec.  
1024.38 pursuant to its authority under section 1022(b) of the Dodd-
Frank Act to prescribe regulations necessary or appropriate to carry 
out the purposes and objectives of Federal consumer financial laws. 
Specifically, the Bureau believes that Sec.  1024.38 is necessary and 
appropriate to carry out the purpose under section 1021(a) of the Dodd-
Frank Act of ensuring that markets for consumer financial products and 
services are fair, transparent, and competitive, and the objective 
under section 1021(b) of the Dodd-Frank Act of ensuring that markets 
for consumer financial products and services operate transparently and 
efficiently to facilitate access and innovation. The Bureau 
additionally relies on its authority under section 1032(a) of the Dodd-
Frank Act, which authorizes the Bureau to prescribe rules to ensure 
that the features of any consumer financial product or service, both 
initially and over the term of the product or service, are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances.
38(a) Reasonable Policies and Procedures
    Proposed Sec.  1024.38(a)(1) would have required servicers to 
establish reasonable policies and procedures for achieving certain 
objectives relating to borrower mortgage loan accounts. Proposed Sec.  
1024.38(a)(1) provided that a servicer meets this requirement if the 
servicer's policies and procedures are reasonably designed to achieve 
certain objectives, which are set forth in proposed Sec.  1024.38(b), 
and are reasonably designed to ensure compliance with certain specific 
requirements in proposed Sec.  1024.38(c).
    Proposed comment 38(a)-1 would have clarified that the proposed 
rule permits servicers to determine the specific methods by which they 
will implement reasonable policies and procedures to achieve the 
required objectives. The proposed comment also explained that servicers 
have flexibility to design the operations that are reasonable in light 
of the size, nature, and scope of the servicer's operations, including, 
for example, the volume and aggregate unpaid principal balance of 
mortgage loans serviced, the credit quality, including the default 
risk, of the mortgage loans serviced, and the servicer's history of 
consumer complaints. The Bureau noted in the proposal that it intended 
that this clarification would provide servicers flexibility to design 
policies and procedures that are appropriate for their servicing 
businesses.
    The Bureau received a handful of comments on the structure of the 
requirements. Industry commenters, especially credit unions, were 
generally supportive of framing the requirements as objectives-based 
standards. A trade association expressed support for the flexibility 
included in the rule, but noted concern that examiners may not view 
servicers' programs flexibly and instead may ask servicers to change 
existing programs based on unpublished rules. A consumer group 
commented that framing the requirements as objectives-based standards 
would lead to inconsistent practices throughout the mortgage servicing 
industry.
    The Bureau is adopting Sec.  1024.38(a), which is re-numbered from 
proposed Sec.  1024.38(a)(1), as proposed with non-substantive 
modifications. The Bureau believes that, due to diversity of servicer 
size, infrastructure, and work practices, flexible objectives-based 
standards are best-suited to manage servicers' operational practices. 
The Bureau understands as the commenters suggest that framing the 
requirements as objectives-based standards will lead to differences 
between how servicers implement the objectives, but believes that 
objectives-based standards best balance the burden on the industry with 
the protections for consumers.
    The Bureau is adopting comment 38(a)-1, as proposed with non-
substantive modifications to explain that a servicer may determine the 
specific policies and procedures it will adopt and the methods by which 
it will implement those policies and procedures so long as they are 
reasonably designed to achieve the objectives set forth in Sec.  
1024.38(b). A servicer has flexibility to determine such policies and 
procedures and methods in light of the size, nature, and scope of the 
servicer's operations, including, for example, the volume and aggregate 
unpaid principal balance of mortgage loans serviced, the credit 
quality, including the default risk, of the mortgage loans serviced, 
and the servicer's history of consumer complaints. Comment 38(a)-1 
clarifies that servicers may retain existing procedures or design 
policies and procedures that are appropriately tailored to their 
operations, as long as the procedures are reasonably designed to 
achieve the important objectives set forth in Sec.  1024.38(b). The 
Bureau is also adopting new comment 38(a)-2 to clarify the meaning of 
the term procedures. As stated in the comment, the term ``procedures'' 
refers to the actual practices followed by a servicer for achieving the 
objectives set forth in Sec.  1024.38(b). This comment clarifies

[[Page 10780]]

that the Bureau expects that servicers' policies and procedures will be 
reasonably designed to measure their ability to achieve the objectives 
set forth in Sec.  1024.38 and to make ongoing improvements to their 
policies and procedures to address any deficiencies.
    Safe harbor. As discussed above, the Bureau proposed Sec.  
1024.38(a)(2) to provide a safe harbor for servicers for non-systemic 
violations of Sec.  1024.38 to manage the costs that would arise from 
the contemplated litigation risk created by the contemplated civil 
liability for violations of Sec.  1024.38. Proposed Sec.  1024.38(a)(2) 
stated that a servicer satisfies the requirement in proposed Sec.  
1024.38(a)(1) if the servicer does not engage in a pattern or practice 
of failing to achieve any of the objectives set forth in proposed Sec.  
1024.38(b) and did not engage in a pattern or practice of failing to 
comply with any of the standard requirements in proposed Sec.  
1024.38(c). Proposed comment 38(a)(1)-1 would have provided examples of 
potential pattern or practice failures by servicers. Proposed comment 
38(a)(2)-1 would have provided further clarification about the 
operation of the safe harbor.
    Comments received by the Bureau expressed uniform dissatisfaction 
with the proposed safe harbor definition. Industry commenters in 
general expressed the concern that the proposed safe harbor would not 
sufficiently insulate them from the large costs that they said that 
they would bear due to the litigation risk they saw embedded in the 
proposal as a result of civil liability, as discussed above in the 
section-by-section discussion of the legal authority for Sec.  1024.38. 
In addition, some industry commenters stated that the safe harbor 
provision, which is based on the lack of a pattern or practice, would 
lead to costly discovery because servicers would be required to produce 
large volumes of documents to establish the absence of a pattern or 
practice.
    Consumer group commenters also expressed opposition to the proposed 
safe harbor. They commented that the safe harbor definition would make 
it difficult for borrowers to bring successful civil suits, and urged 
the Bureau to eliminate or to revise the safe harbor to provide relief 
for more borrowers. Consumer advocates argued that borrowers need 
strong protections because borrowers cannot select their servicers.
    As discussed above, the Bureau is adopting final general servicing 
policies, procedures, and requirements that are not enforceable through 
a private right of action. As violations of this Sec.  1024.38 no 
longer carry potential civil liability, the Bureau does not believe 
that the proposed safe harbor is appropriate to include in the final 
rule. The Bureau is adopting a final rule that does not include 
proposed Sec.  1024.38(a)(2) or proposed comments 38(a)(1)-1 and 
38(a)(2)-1. This revision will also allow the Bureau to protect 
borrowers through robust supervision and enforcement of the servicing 
policies, procedures, and requirements set forth in Sec.  1024.38 
without having to demonstrate a pattern or practice of violations.
38(b) Objectives
38(b)(1) Accessing and Providing Timely and Accurate Information
38(b)(1)(i)
    Proposed Sec.  1024.38(b)(1)(i) would have required that a 
servicer's policies and procedures be reasonably designed to achieve 
the objective of providing accurate and timely disclosures to 
borrowers. As stated in the proposal, the Bureau believed that this was 
an important objective to protect borrowers by making sure that 
servicers provide borrowers with accurate and timely information about 
their mortgage loan accounts. Having received no comments on this 
provision, the Bureau is adopting Sec.  1024.38(b)(1)(i), as proposed.
38(b)(1)(ii)
    Proposed Sec.  1024.38(b)(1)(ii) would have required that a 
servicer's policies and procedures be reasonably designed to achieve 
the objective of enabling the servicer to investigate, respond to, and, 
as appropriate, correct errors asserted by borrowers, in accordance 
with the procedures set forth in Sec.  1024.35, including errors 
resulting from actions of service providers. A servicer's ability to 
investigate promptly and respond appropriately to an assertion of error 
is necessarily dependent upon the accuracy of the servicer's records 
and on the ability of the servicer's employees to access those records 
readily. As a result, the Bureau believed that including this objective 
as one of the objectives for a servicer's policies and procedures was 
an important supplement to the Dodd-Frank Act error resolution 
requirements that are implemented in Sec.  1024.35.
    The Bureau received one comment on proposed Sec.  
1024.38(b)(1)(ii). A trade association urged the Bureau to limit the 
applicability of Sec.  1024.38(b)(1)(ii) to errors submitted pursuant 
to Sec.  1024.35. The Bureau declines to adopt the commenter's 
suggestion. In light of the Bureau's decision to limit the 
applicability of Sec.  1024.35 to notices of error submitted in 
writing, as discussed above in the section-by-section analysis of Sec.  
1024.35, the Bureau has decided to modify proposed Sec.  
1024.38(b)(1)(ii) to clarify that a servicer must have policies and 
procedures reasonably designed to respond to complaints asserted by 
borrowers, including those complaints that are not subject to the 
procedures set forth in Sec.  1024.35. In particular, the Bureau 
believes that the modification is necessary and appropriate to ensure 
that consumers receive prompt and appropriate responses to oral 
complaints even though such complaints will not trigger the formal 
processes under Sec.  1024.35.
    The Bureau also is removing the reference to the actions of service 
providers from the text of the rule, and, instead, is adopting new 
comment 38(b)(1)(ii)-1 to clarify that policies and procedures to 
comply with Sec.  1024.38(b)(1)(ii) must be reasonably designed to 
provide for promptly obtaining information from service providers to 
facilitate achieving the objective of correcting errors resulting from 
actions of service providers, including obligations arising pursuant to 
Sec.  1024.35.
38(b)(1)(iii)
    Proposed Sec.  1024.38(b)(1)(iii) would have required servicers to 
develop policies and procedures reasonably designed to provide 
borrowers with accurate and timely information and documents in 
response to borrower requests for information or documents related to 
their mortgage loan accounts in accordance with the procedures set 
forth in Sec.  1024.36. The Bureau believed that the proposed provision 
was an important supplement to the Dodd-Frank Act information request 
requirements that are implemented in Sec.  1024.36 because the 
maintenance of accurate information regarding mortgage loan accounts is 
necessary for a servicer to respond to requests for information made by 
borrowers.
    The Bureau received no comments on Sec.  1024.38(b)(1)(iii). 
However, in light of the Bureau's decision to limit the applicability 
of Sec.  1024.36 to requests for information submitted in writing, as 
discussed above in the section-by-section analysis of Sec.  1024.36, 
the Bureau has decided to modify proposed Sec.  1024.38(b)(1)(iii) to 
clarify that a servicer must have policies and procedures to provide a 
borrower with accurate and timely information and documents in response 
to the borrower's requests for information with respect to the 
borrower's mortgage loans, including those requests that are not 
asserted in accordance with the procedures set forth in Sec.  1024.36. 
In particular, the Bureau continues to believe that servicers must have 
the capacity to respond to borrowers'

[[Page 10781]]

requests for information reported to servicers orally, but the Bureau 
believes that it is appropriate to allow servicers to design policies 
and procedures best suited to their operations to achieve this 
objective. Accordingly, the Bureau is adopting Sec.  1024.38(b)(1)(iii) 
with modifications from the proposal to broaden the scope of the 
objective to include borrower requests for information or documents 
with respect to the borrower's mortgage loan that are not encompassed 
by the written information request process set forth in Sec.  1024.36.
38(b)(1)(iv)
    Proposed Sec.  1024.38(b)(1)(iv) would have required servicers to 
establish policies and procedures reasonably designed to achieve the 
objective of providing owners or assignees of mortgage loans with 
accurate and current information and documents about any mortgage loans 
that they own. As stated in the proposal, the Bureau believes that to 
protect borrowers, it is necessary for owners and assignees to receive 
accurate and timely information about the mortgage loans they own. As 
the Bureau stated, owners and assignees can play an important role in 
ensuring that servicers comply with the requirements of the owner or 
assignee which may inure to the benefit of borrowers.
    The Bureau received a comment on this proposed provision from an 
investor, providing types of information that would benefit investors 
regarding loss mitigation evaluations conducted, and loss mitigation 
agreements entered into, by servicers. Having received no comments on 
the substance of the proposed rule, the Bureau is adopting Sec.  
1024.38(b)(1)(iv), as proposed. The Bureau is also adopting new comment 
38(b)(1)(iv)-1 to clarify the information and documents contemplated by 
this section. Comment 38(b)(1)(iv)-1 provides that the relevant and 
current information to owners or assignees of mortgage loans includes, 
among other things, information about a servicer's evaluation of 
borrowers for loss mitigation options and a servicer's agreements with 
borrowers on loss mitigation options, including loan modifications. 
Such information includes, for example, information regarding the date, 
terms, and features of loan modifications, the components of any 
capitalized arrears, the amount of any servicer advances, and any 
assumptions regarding the value of a property used in evaluating any 
loss mitigation options.
38(b)(1)(v)
    Proposed Sec.  1024.38(b)(1)(v) would have required that a 
servicer's policies and procedures be reasonably designed to achieve 
the objective of enabling the servicer to submit documents or filings 
required for a foreclosure process, including documents or filings 
required by a court of competent jurisdiction, that reflect accurate 
and current information and that comply with applicable law. The Bureau 
believes that it is necessary and appropriate to protect borrowers from 
harms resulting from servicers' failure to submit accurate, current, 
and compliant documents in foreclosure proceedings. In issuing the 
proposed rule, the Bureau pointed to findings by the Office of the 
Comptroller of the Currency that major servicers demonstrated failures 
to document and verify, in accordance with applicable law, information 
relating to borrower mortgage loan accounts in connection with 
foreclosure proceedings.\117\
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    \117\ Failure to Recover: The State of Hous. Mkts., Mortg. 
Servicing Practices and Foreclosures: Hearings Before the House 
Comm. on Oversight and Gov't Reform, 112th Cong. 4 (2012) (statement 
of Morris Morgan, Office of the Comptroller of the Currency).
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    The Bureau received a number of comments on proposed Sec.  
1024.38(b)(1)(v). State attorneys general commented that the Bureau 
should adopt stricter standards to ensure the accuracy and validity of 
foreclosure documentation, such as the standards included in the recent 
National Mortgage Settlement. In addition, consumer groups urged the 
Bureau to require servicers who are initiating a foreclosure to provide 
documentation to borrowers of the right of the party initiating the 
action to foreclose, including providing evidence of an enforceable 
security interest and verification of supporting statements.
    After consideration of the comments, the Bureau has concluded that 
the proposed language already appropriately addresses the concerns 
raised. Section 1024.38(b)(1)(v), as proposed, requires servicers to 
develop policies and procedures reasonably designed to achieve the 
objective of ensuring the accuracy of any documents filed in 
foreclosure proceedings, which would include affidavits or security 
instruments, and, therefore, is broad enough to cover the specific 
documents identified in the National Mortgage Settlement. Specifying 
particular documents which must be submitted accurately, or regulating 
the particulars of how documents are prepared and validated by 
servicers, would be inconsistent with the rule's broad objectives-based 
standards, which, as discussed above, are designed to provide 
flexibility for a wide range of servicers to develop policies and 
procedures that are appropriate to their business and that will achieve 
the stated objectives. Accordingly, the Bureau declines to adopt a 
final rule containing the specific details included in the National 
Mortgage Settlement. The Bureau expects that the court filings of 
servicers whose operational and information management policies and 
procedures are reasonably designed to achieve the objective of Sec.  
1024.38(b)(1)(v) will be accurate and authorized by the underlying 
security documents.
    Second, the Bureau believes that the information request process 
defined in proposed Sec.  1024.36 provides borrowers in foreclosure 
with access to the documentation described by consumer groups. 
Specifically, Sec.  1024.36, as proposed, requires servicers to provide 
to borrowers upon their request information about their mortgage loan 
accounts, including their servicing files, which includes a complete 
payment history, a copy of their security instrument, collection notes, 
and other valuable information about their accounts. Accordingly, the 
Bureau does not believe that it is necessary to revise the proposed 
language to provide this protection. For the reasons discussed above, 
the Bureau is adopting Sec.  1024.38(b)(1)(v), as proposed.
38(b)(1)(vi)
    The Bureau's proposed servicing operational policies and procedures 
did not specifically address a servicer's obligations related to 
successors in interest upon the death of a borrower. The Bureau 
received information about difficulties faced by surviving spouses, 
children, or other relatives who succeed in the interest of a deceased 
borrower to a property that they also occupied as a principal 
residence, when that property is secured by a mortgage loan account 
solely in the name of the deceased borrower. In particular, the Bureau 
understands that successors in interest may encounter challenges in 
communicating with mortgage servicers about a deceased borrower's 
mortgage loan account. The Bureau believes that it is essential that 
servicers' policies and procedures are reasonably designed to 
facilitate communication with successors in interest regarding a 
deceased borrower's mortgage loan accounts. Therefore, the Bureau is 
adopting Sec.  1024.38(b)(1)(vi) to clarify that servicers should 
maintain policies and procedures that are reasonably

[[Page 10782]]

designed to, upon notification of the death of a borrower, identify 
promptly and facilitate communication with the successor in interest of 
the deceased borrower with respect to the property secured by the 
deceased borrower's mortgage loan.
38(b)(2) Properly Evaluating Loss Mitigation Applications
    Proposed Sec.  1024.38(b)(2) would have established a number of 
objectives designed specifically to support servicers' loss mitigation 
activities and to facilitate compliance with various requirements under 
proposed Sec.  1024.41. Specifically, proposed Sec.  1024.38(b)(2) 
would have required that a servicer's policies and procedures be 
reasonably designed to achieve the objective of enabling the servicer 
to (i) provide accurate information to borrowers regarding loss 
mitigation options; (ii) identify all loss mitigation options for which 
a borrower may be eligible; (iii) provide servicer personnel with 
prompt access to all documents and information submitted by a borrower 
in connection with a loss mitigation option; (iv) enable servicer 
personnel to identify documents and information that a borrower is 
required to submit to make a loss mitigation application complete; and 
(v) enable servicer personnel to evaluate borrower applications 
properly, and any appeals, as appropriate.
    In the proposal, the Bureau expressed its belief that requiring 
servicers to have reasonable policies and procedures to maintain and 
manage information and operations that are designed to enable the 
servicer to evaluate borrowers for loss mitigation options facilitates 
compliance with proposed Sec.  1024.41. Further, such policies and 
procedures are likely to protect consumers by requiring servicers to 
consider, in advance of the potential delinquency of a particular 
mortgage loan, the loss mitigation options that are generally available 
to borrowers.
    While acknowledging that servicers generally have begun to alter 
the manner in which they invest in infrastructure and are changing 
their approach to default management, the Bureau stated in the 2012 
RESPA Servicing Proposal that it believes that a requirement to develop 
reasonable policies and procedures to enable a servicer to evaluate 
loss mitigation applications imposes a reasonable burden on servicers 
that will benefit delinquent borrowers once the rule takes effect and 
will protect borrowers in future years as servicers transition from 
reacting to the current financial crisis to a more steady market more 
likely to be punctuated by regional spikes in delinquencies and 
foreclosures. Absent regulation, servicers that have not yet invested 
in improving loss mitigation functions may find less incentive to do so 
as housing markets recover, leading to continued inadequate 
infrastructure during future regional or national housing downturns, 
which may lead to future borrower harm. The Bureau requested comment 
regarding whether the Bureau had identified the appropriate objectives 
with respect to proposed Sec.  1024.38(b)(2) and whether objectives 
should be removed, or other objectives included, in the requirements.
    Loss mitigation information. Proposed Sec.  1024.38(b)(2) would 
have required that a servicer's policies and procedures be reasonably 
designed to achieve the objective of enabling the servicer to (i) 
provide accurate information to borrowers regarding loss mitigation 
options; (ii) identify all loss mitigation options for which a borrower 
may be eligible; (iii) provide servicer personnel with prompt access to 
all documents and information submitted by a borrower in connection 
with a loss mitigation option; (iv) enable servicer personnel to 
identify documents and information that a borrower is required to 
submit to make a loss mitigation application complete.\118\
---------------------------------------------------------------------------

    \118\ Proposed Sec.  1024.38(b)(2)(v), discussed above, would 
have required servicers to establish reasonable policies and 
procedures that enable servicer personnel to properly evaluate 
borrower applications, and any appeals, as appropriate.
---------------------------------------------------------------------------

    The Bureau received a small number of comments on Sec.  
1024.38(b)(2). Consumer advocates supported proposed Sec.  
1024.38(b)(2), and urged the Bureau to specify that servicers are 
required to provide borrowers with a list of available loss mitigation 
options. Trade associations urged the Bureau to clarify servicers' 
obligations in this section, in particular whether servicers could 
limit the information provided to borrowers to only the loss mitigation 
programs that the servicer offers. The Bureau also received many 
comments about the servicers' obligations to offer loss mitigation 
options to borrowers, which are discussed in detail in the section-by-
section analysis of Sec.  1024.41.
    For the reasons discussed above, the Bureau is adopting Sec. Sec.  
1024.38(b)(2)(i) through (b)(2)(iv), as proposed with slight 
modifications for clarification. Section 1024.38(b)(2)(ii) clarifies 
that the rule envisions that servicers will develop policies and 
procedures reasonably designed to identify with specificity all loss 
mitigation options available for mortgage loans currently serviced by a 
mortgage servicer and that the mortgage servicer may service in the 
future. The Bureau is also adopting new comment 38(b)(2)(ii)-1, which 
explains that servicers must develop policies and procedures reasonably 
designed to enable servicer personnel to identify all loss mitigation 
options available for mortgage loans currently serviced by the mortgage 
servicer. For example, a servicer's policies and procedures must be 
reasonably designed to address how a servicer specifically identifies, 
with respect to each owner or assignee, all of the loss mitigation 
options that the servicer may consider when evaluating any borrower for 
a loss mitigation option and the criteria that should be applied by a 
servicer when evaluating a borrower for such options. In addition, a 
servicer's policies and procedures must be reasonably designed to 
address how the servicer will apply any specific thresholds for 
eligibility for a particular loss mitigation option established by an 
owner or assignee of a mortgage loan (e.g., if the owner or assignee 
requires that a servicer only make a particular loss mitigation option 
available to a certain percentage of the loans that the servicer 
services for that owner or assignee, then the servicer's policies and 
procedures must be reasonably designed to determine in advance how the 
servicer will apply that threshold to those mortgage loans). A 
servicer's policies and procedures must also be reasonably designed to 
ensure that such information is readily accessible to the servicer 
personnel involved with loss mitigation, including personnel made 
available to the borrower as described in Sec.  1024.40.
    To meet the objectives of Sec.  1024.38(b)(2)(ii), a servicer will 
have to establish policies and procedures that are reasonably designed 
to provide servicer personnel with the ability to determine, on a loan 
by loan basis, which loss mitigation options made available by the 
servicer are available to particular borrowers and to provide that 
information to such borrowers. This objective requires that servicers 
have access to accurate information about the available loss mitigation 
options for particular types of loans. The Bureau anticipates that for 
servicers that service mortgage loans held by the servicer or an 
affiliate in portfolio, providing access to the latter category of 
information will not present significant burdens with respect to such 
mortgage loans as any such policies likely will be uniformly set forth 
by the servicer or affiliate. Similarly, the Bureau anticipates that 
servicers that service mortgage loans that are included in 
securitizations guaranteed by Fannie Mae, Freddie

[[Page 10783]]

Mac, or Ginnie Mae, or insured by FHA or other government sponsored 
insurance programs, will be familiar with policies that will be set 
forth by those entities regarding the requirements for loss mitigation 
options and will be able to make that information available to servicer 
personnel and borrowers. Servicers that service mortgage loans that are 
securitized through private label securities may need to undertake more 
detailed discussions with investors to identify which, if any, loss 
mitigation programs made available by the servicer are available to 
borrowers whose mortgage loans are owned by the securitization trust 
pursuant to the terms of any particular servicing agreement. However, 
the Bureau believes the burden is still reasonable and will abate over 
time as the industry does a better job of clarifying such issues at the 
time that the servicing agreements are first drafted.
    The Bureau believes that the final rule will increase protection 
for borrowers by requiring servicers to adopt policies and procedures 
reasonably designed to ensure that servicers consider, in advance of 
the potential delinquency of a particular mortgage loan, the loss 
mitigation options that are generally available to borrowers. Further, 
the final rule provides a basis for Bureau supervision and enforcement 
regarding whether servicers are unjustifiably asserting investor 
limitations as a basis for avoiding the work of processing loss 
mitigation applications.
    Proper evaluation of loss mitigation applications. Proposed Sec.  
1024.38(b)(2)(v) would have defined as an objective of a servicer's 
policies and procedures, the proper evaluation of loss mitigation 
applications, and any appeals, pursuant to the requirements of proposed 
Sec.  1024.41. As explained in the proposal, borrowers who are 
struggling to pay their mortgage have a vital interest in being 
properly considered for all available loss mitigation options, and the 
ability of servicers to do so is largely dependent upon servicers 
establishing and implementing policies and procedures that are 
reasonably designed to assure that servicer personnel have prompt and 
complete access to all relevant information, including documents and 
information submitted by the borrowers. Proposed Sec.  1024.41, as 
discussed below, in turn defined procedures for evaluating loss 
mitigation applications.
    Most of the comments received by the Bureau regarding proposed 
Sec.  1024.38(b)(2)(v) focused on the procedures set forth in proposed 
Sec.  1024.41. However, in light of the comments received, the Bureau 
is adopting Sec.  1024.38(b)(2)(v), with modifications from the 
proposal to make clear that the objective of proper evaluation of a 
borrower's application for a loss mitigation option, or any appeal, 
extends to all loss mitigation options that are potentially available 
to the borrower pursuant to any requirements established by the owner 
or assignee of the borrower's mortgage loan. As explained below in the 
section-by-section analysis of Sec.  1024.41, this objective is not 
inconsistent with the use of a waterfall of loss mitigation options 
that an investor or assignee may establish.
    The Bureau is also adopting new comment 38(b)(2)(v)-1 to clarify 
that a servicer is required pursuant to Sec.  1024.38(b)(2)(v) to 
maintain policies and procedures reasonably designed to evaluate a 
borrower for a loss mitigation option consistent with any owner or 
assignee requirements, even where the requirements of Sec.  1024.41 may 
be inapplicable. For example, an owner or assignee may require that a 
servicer implement certain procedures to review a loss mitigation 
application submitted by a borrower less than 37 days before a 
foreclosure sale. Further, an owner or assignee may require that a 
servicer implement certain procedures to re-evaluate a borrower who has 
demonstrated a material change in the borrower's financial 
circumstances for a loss mitigation option after the servicer's initial 
evaluation. A servicer must maintain policies and procedures reasonably 
designed to implement these requirements even if such loss mitigation 
evaluations may not be required pursuant to Sec.  1024.41. The Bureau 
believes that the final rule will provide borrowers with greater access 
to loss mitigation options and more transparency into the evaluation 
process.
38(b)(3) Facilitating Oversight of, and Compliance by, Service 
Providers
    Proposed Sec.  1024.38(b)(3) would have required that a servicer's 
policies and procedures be reasonably designed to achieve the objective 
of enabling the servicer to provide appropriate servicer personnel with 
accurate and current information reflecting actions performed by 
service providers, facilitating periodic reviews of service providers, 
and facilitating the sharing of accurate and current information among 
servicer personnel and service providers.
    The Bureau explained that proposed Sec.  1024.38(b)(3) was designed 
to address recent evaluations of mortgage servicer practices that had 
found that some major servicers ``did not properly structure, carefully 
conduct, or prudently manage their third-party vendor relationships.'' 
\119\ For example, certain servicers supervised by the Board of 
Governors of the Federal Reserve System and the Office of the 
Comptroller of the Currency were found by those agencies to have failed 
to monitor third-party vendor foreclosure law firms' compliance with 
the servicer's standards or to retain copies of documents maintained by 
third-party law firms.\120\ Similar failures were found to be present 
in connection with servicer relationships with default management 
service providers and Mortgage Electronic Registration Systems, Inc. 
(MERS).\121\ The Bureau noted in the proposal that these failures 
likely resulted in significant harms for borrowers, including imposing 
unwarranted fees on borrowers and harms relating to so-called ``dual 
tracking'' from miscommunications between service providers and 
servicer loss mitigation personnel.
---------------------------------------------------------------------------

    \119\ Fed. Reserve Sys., Office of the Comptroller of the 
Currency & Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices 9 (2011), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.
    \120\ Fed. Reserve Sys., Office of the Comptroller of the 
Currency, & Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices 9 (2011).
    \121\ Fed. Reserve Sys., Office of the Comptroller of the 
Currency, & Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices 10 (2011).
---------------------------------------------------------------------------

    The Bureau requested comment regarding whether the Bureau had 
identified the appropriate objectives and whether objectives should be 
removed, or other objectives included, in the requirements. The Bureau 
received a small number of comments proposed Sec.  1024.38(b)(3), all 
of which were submitted by industry. Commenters sought clarification 
about the scope of proposed Sec.  1024.38(b)(3), including whether the 
provision would apply to vendors used for non-mortgage loan related 
tasks and whether the provision would create an independent obligation 
for service providers to comply with Sec.  1024.38. Servicers also 
sought guidance on how to comply with the periodic review requirements 
of proposed Sec.  1024.38(b)(3)(ii), including whether compliance with 
the recent National Mortgage Settlement or participation in shared 
assessment programs would satisfy a servicer's obligations under the 
proposed rule.
    Proposed Sec.  1024.38(b)(3) would have imposed obligations on 
servicers with respect to maintaining and providing access to 
information about service providers, as defined by Sec.  1024.31,

[[Page 10784]]

discussed above in the section-by-section analysis of that section, 
which includes any party retained by a servicer that interacts with a 
borrower or provides a service to a servicer for which a borrower may 
incur a fee. The proposed provision would therefore not have created 
obligations with respect to vendors who do not meet this definition.
    The Bureau is adopting Sec.  1024.38(b)(3), as proposed. The Bureau 
remains concerned about servicers' inadequate oversight of service 
providers, and believes that proposed Sec.  1024.38(b)(3) appropriately 
addresses this concern by requiring servicers to maintain reasonable 
policies and procedures, which will provide servicer personnel with 
information about actions of service providers and facilitate review of 
service providers. The Bureau expects that servicers seeking to 
demonstrate that their policies and procedures are reasonably designed 
to achieve these objectives will demonstrate that, in fact, the 
servicer has been able to use its information to oversee its service 
providers effectively, such as through a shared assessment program of 
the type set forth in the National Mortgage Settlement.
38(b)(4) Facilitating Transfer of Information During Servicing 
Transfers
    Proposed Sec.  1024.38(b)(4) would have required that a servicer's 
policies and procedures be reasonably designed to achieve the objective 
of ensuring the timely transfer of all information and documents 
relating to a transferred mortgage loan to a transferee servicer in a 
form and manner that enables the transferee servicer to comply with the 
requirements of subpart C and the terms of the transferee servicer's 
contractual obligations to owners or assignees of the mortgage loans. 
Further, proposed Sec.  1024.38(b)(4) would have provided an objective 
that a transferee servicer shall have documents and information 
regarding the status of discussions with a borrower regarding loss 
mitigation options, any agreements with a borrower for a loss 
mitigation option, and any analysis with respect to potential recovery 
from a non-performing mortgage loan, as appropriate (typically called a 
final recovery determination).
    In proposing Sec.  1024.38(b)(4), the Bureau expressed concern that 
servicing transfers could give rise to potential harms to consumers. 
Transferee servicers may experience problems relating to inaccurate 
transfer of past payment information, failures of the transferor 
servicer to transfer documents provided to it by a borrower or others, 
and inaccurate transfer of information relating to loss mitigation 
discussions with borrowers. Borrowers engaged in loss mitigation 
efforts may be transferred to transferee servicers that have no 
knowledge of the existence or status of the loss mitigation efforts.
    The Bureau explained in the proposal that it believed it is a 
typical servicer duty for servicers to be able to effectuate sales, 
assignments, and transfers of mortgage servicing in a manner that does 
not adversely impact borrowers. Servicers generally should expect that 
servicing may be sold, assigned, or transferred for certain loans they 
service. Servicers may owe a duty to investors to ensure that mortgage 
servicing can be transferred without adversely impacting the value of 
the investor's asset. The Bureau stated that it believes it is 
appropriate for servicers to establish policies and procedures 
reasonably designed to achieve the objective of ensuring that in the 
event of any such transfer, documents and information regarding 
mortgage loan accounts are identified and transferred to a transferee 
servicer in a manner that permits the transferee servicer to continue 
providing appropriate service to the borrower.
    The Bureau requested comments regarding whether the Bureau had 
identified the appropriate objectives and whether objectives should be 
removed, or other objectives included, in the requirements. The Bureau 
received a small number of comments on proposed Sec.  1024.38(b)(4). 
Consumer advocates and some industry expressed support for the 
proposal. Other commenters asked for clarification about what the 
proposal would require, including whether transferor servicers must 
transfer all of the servicing file elements and whether the rule would 
require transferor servicers to obtain documents outside of the 
transferor servicers' possession or control. Servicers also asked for 
clarification about whether the rule would allow servicers to transfer 
files electronically.
    In addition, the Bureau has received information that consumers 
often face difficulty enforcing a loss mitigation agreement reached 
with a transferor servicer prior to transfer with the transferee 
servicer. The Bureau has learned that transferee servicers often fail 
to request complete information about loss mitigation agreements from 
transferor servicers, and instead require borrowers to provide that 
documentation.
    The Bureau is adopting Sec.  1024.38(b)(4)(i), renumbered from 
proposed Sec.  1024.38(b)(4), with modifications to address those 
comments. The Bureau has revised the proposal to add language to 
clarify that a transferor servicer's objectives regarding facilitating 
transfer relate only to documents within the transferor servicer's 
possession or control and that the transfer of information and 
documents must be in a form and manner that enables a transferee 
servicer to comply with obligations both under the terms of the 
mortgage loan and with applicable law. The Bureau is also removing the 
language concerning the transfer of information regarding loss 
mitigation discussions with borrowers from the text of proposed Sec.  
1024.38(b)(4) and, instead, is including new comment 38(b)(4)(i)-2, 
which clarifies the transferor servicer's obligation under Sec.  
1024.38(b)(4)(i) to establish policies and procedures reasonably 
designed to ensure that the transfer includes any information 
reflecting the current status of discussions with a borrower regarding 
loss mitigation options, any agreements entered into with a borrower on 
a loss mitigation option, and any analysis by a servicer with respect 
to potential recovery from a non-performing mortgage loan, as 
appropriate.
    To address industry's comments about the manner in which transferor 
servicers may effectuate the transfer of documents and information, the 
Bureau is adopting new comment 38(b)(4)(i)-1, which clarifies that a 
transferor servicer's policies and procedures may provide for 
transferring documents and information electronically provided that the 
transfer is conducted in a manner that is reasonably designed to ensure 
the accuracy of the information and documents transferred and that 
enables a transferee servicer to comply with its obligations to the 
owner or assignee of the loan and with applicable law. For example, 
transferor servicers must have policies and procedures for ensuring 
that data can be properly and promptly boarded by a transferee 
servicer's electronic systems and that all necessary documents and 
information are available to, and can be appropriately identified by, a 
transferee servicer.
    The Bureau is also adopting Sec.  1024.38(b)(4)(ii) to more clearly 
define objectives for transferee servicers. Section 1024.38(b)(4)(ii) 
defines as an objective of a transferee servicer's reasonable policies 
and procedures identifying necessary documents or information that may 
not have been transferred by a transferor servicer and obtaining such 
documents from the transferor servicer. Comment 38(b)(4)(ii)-1 explains 
that a transferee servicer must have policies and procedures reasonably 
designed to

[[Page 10785]]

ensure, in connection with a servicing transfer, that the servicer 
receives information regarding any loss mitigation discussions with a 
borrower, including any copies of loss mitigation agreements. Further, 
the comment clarifies that the transferee servicer's policies and 
procedures must address obtaining any such missing information or 
documents from a transferor servicer before attempting to obtain such 
information from a borrower.
    The Bureau is also adopting Sec.  1024.38(b)(4)(iii) to clarify 
that the obligations set forth in Sec.  1024.38(b)(4) apply to 
circumstances when the performance of servicing of a mortgage loan is 
transferred, but the right to perform servicing of a mortgage loan is 
not transferred, such as a transfer between a master servicer and a 
subservicer or between subservicers.
38(b)(5) Informing Borrowers of Written Error Resolution and 
Information Request Procedures
    As discussed above in the section-by-section analysis of Sec.  
1024.33, the Bureau is adopting a requirement for the servicing 
transfer notice that no longer requires a statement informing borrowers 
of the error resolution procedures required by existing Sec.  
1024.21(d)(3)(vii). To address concerns raised by commenters about the 
proposed revision of the transfer servicing notice, as discussed above, 
the Bureau is adopting Sec.  1024.38(b)(5) to require servicers to 
maintain policies and procedures reasonably designed to achieve the 
objective of informing borrowers about the procedures for submitting 
written notices of error set forth in Sec.  1024.35 and written 
requests for information set forth in Sec.  1024.36.
    The Bureau is also adopting new comment 38(b)(5)-1 to clarify the 
manner in which a servicer may inform borrowers about the procedures 
for submitting written notices of errors set forth in Sec.  1024.35 and 
for submitting written requests for information set forth in Sec.  
1024.36. The Bureau is also adopting new comment 38(b)(5)-2 to clarify 
that a servicer's policies and procedures required by Sec.  
1024.38(b)(5) must be reasonably designed to provide information to 
borrowers who are not satisfied with the resolution of a complaint or 
request for information submitted orally about the procedures for 
submitting written notices of error set forth in Sec.  1024.35 and for 
submitting written requests for information set forth in Sec.  1024.36.
38(c) Standard Requirements
38(c)(1) Record Retention
    Proposed Sec.  1024.38(c)(1) would have required a servicer to 
retain records that document actions taken with respect to a borrower's 
mortgage loan account until one year after a mortgage loan is paid in 
full or servicing of a mortgage loan is transferred to a successor 
servicer. When issuing the proposed rule, the Bureau observed that 
proposed Sec. Sec.  1024.35 and 1024.36 would have required servicers 
to respond to notices of error and information requests provided up to 
one year after a mortgage loan is paid in full or servicing of a 
mortgage loan is transferred to a successor servicer. The Bureau also 
noted that it believes that the record retention requirement was 
necessary for servicer compliance with obligations set forth in 
Sec. Sec.  1024.35 and 1024.36. The Bureau also proposed to eliminate 
the systems of record keeping set forth in current Sec.  1024.17(l), 
which required servicers to retain copies of documents related to 
borrower's escrow accounts for five years after the servicer last 
serviced the escrow account, which is likely to be close in time to 
when a mortgage loan is paid in full or servicing of a mortgage loan is 
transferred to a successor servicer. Further, the Bureau observed that 
servicers will require accurate information for the life of the 
mortgage loan to provide accurate payoff balances to borrowers or to 
exercise a right to foreclose. The Bureau requested comment regarding 
whether servicers should be required to retain documents and 
information relating to a mortgage file until one year after a mortgage 
loan is paid in full or servicing of a mortgage loan is transferred to 
a successor servicer and the potential burden of this requirement.
    The Bureau received a handful of comments on proposed Sec.  
1024.38(c)(1). Consumer advocates urged the Bureau to extend the 
retention period from one year to five years to ensure that documents 
were available for discovery in civil litigation. Two servicers argued 
that the one year retention period would impose too great a cost on 
servicers. Another servicer commented that it agreed with the proposed 
one year retention period. A trade association also urged the Bureau to 
clarify that contractual rights to access records possessed by another 
entity would satisfy the servicer's requirements under this provision.
    The Bureau is adopting Sec.  1024.38(c)(1), as proposed. The Bureau 
believes that servicers should retain records that document actions 
taken by the servicer with respect to a borrower's mortgage loan 
account until one year after the date the mortgage loan is discharged 
or servicing of a mortgage loan is transferred by the servicer to a 
transferee servicer. As the Bureau stated in the proposal, the Bureau 
believes that the record retention requirement is necessary for 
servicer compliance with obligations set forth in Sec. Sec.  1024.35 
and 1024.36. Further, the Bureau believes that servicers require 
accurate information for the life of the mortgage loan to provide 
accurate payoff balances to borrowers or to exercise a right to 
foreclose. Requiring servicers to retain records until one year after 
the transfer or payoff of a mortgage loan may impose some marginal 
increase in the servicer's compliance burden in the form of incremental 
storage costs, but the Bureau believes that this burden is reasonable 
in light of the considerable benefits to borrowers. Moreover, the 
retention period is necessary to ensure that the Bureau and other 
regulators have an opportunity to supervise servicers' compliance with 
applicable laws effectively. The Bureau declines to adopt the longer 
period suggested by commenters. The Bureau believes that the final rule 
adequately addresses the commenters' concerns about the availability of 
documents for discovery by requiring retention of documents throughout 
the life of the loan and for one year following the payoff or transfer 
of servicing.
    To clarify the methods that servicers may utilize to retain 
records, the Bureau is adopting new comment 38(c)(1)-1 that explains 
that retaining records that document actions taken with respect to a 
borrower's mortgage loan account does not necessarily mean actual paper 
copies of documents. The records may be retained by any method that 
reproduces the records accurately (including computer programs) and 
that ensures that the servicer can easily access the records (including 
a contractual right to access records possessed by another entity).
38(c)(2) Servicing File
    Proposed Sec.  1024.38(c)(2) would have required servicers to 
create a single servicing file for each mortgage loan account 
containing (1) a schedule of all payments credited or debited to the 
mortgage loan account, including any escrow account as defined in Sec.  
1024.17(b) and any suspense account; (2) a copy of the borrower's 
security instrument; (3) any collection notes created by servicer 
personnel reflecting communications with borrowers about the mortgage 
loan account; (4) a report of any data fields relating to a borrower's 
mortgage loan account

[[Page 10786]]

created by a servicer's electronic systems in connection with 
collection practices, including records of automatically or manually 
dialed telephonic communications; and (5) copies of any information or 
documents provided by a borrower to a servicer in accordance with the 
procedures set forth in Sec. Sec.  1024.35 or 1024.41. The proposal 
also would have required that servicers provide borrowers with copies 
of the servicing file in accordance with the procedures set forth in 
Sec.  1024.36.
    In the proposal, the Bureau expressed concern that many large 
servicers maintained documents and information related to a borrower's 
mortgage loan account in disparate systems and that this practice has 
led servicers to have difficulty identifying all necessary information 
regarding a borrower's mortgage loan account, including collector's 
notes, payment histories, note and deed of trust documents, and account 
debit and credit information, including escrow account information. 
Proposed Sec.  1024.38(c)(2) would have required servicers to aggregate 
into a single system a servicing file for each mortgage loan account, 
containing the specific information described above. The Bureau 
solicited comment regarding whether servicers should be required to 
provide copies of a defined servicing file to a borrower upon request 
and on the burden of adopting this requirement. Further, the Bureau 
requested comment regarding whether the Bureau had identified the 
appropriate components of a servicing file and whether certain 
categories of documents and information should be included or removed 
from the proposed requirement. The comments that the Bureau received 
are described in detail below.
    Providing copies of the servicing file to borrowers upon request. 
Proposed Sec.  1024.38(c)(2) would have required servicers to provide a 
borrower with a copy of a servicing file, containing specifically 
listed elements, for the borrower's mortgage loan account, in 
accordance with the procedures set forth in Sec.  1024.36. The Bureau 
received a large number of comments on that aspect of the proposal.
    The majority of the comments on proposed Sec.  1024.38(c)(2) came 
from industry, and demonstrated confusion about the proposed provision. 
Industry commenters generally misunderstood the proposed provision as a 
requirement to provide borrowers with copies of their servicing files 
not subject to the procedures for information requests set forth in 
Sec.  1024.36. Some servicers explicitly urged the Bureau to subject 
requests for servicing files to the procedural requirements of the 
information requests defined in Sec.  1024.36. In addition, given this 
misunderstanding, industry comments urged the Bureau to adopt limits on 
borrowers' requests for servicing files to protect servicers from 
burdensome or duplicative requests. Servicers also suggested that the 
Bureau eliminate certain elements of the servicing file, such as 
payment histories, collection notes, and data fields, because they 
claimed that those elements would be too voluminous to provide to 
borrowers. A large servicer also urged the Bureau to allow flexibility 
in how servicers provide the information to borrowers, such as allowing 
borrowers to access the servicing file via a Web site.
    Servicers also expressed concern that the proposed provision might 
require them to disclose privileged or proprietary information to 
borrowers. In particular, many commenters pointed to collection notes 
and data fields as elements potentially containing privileged or 
proprietary information.
    Some comments also focused on a perceived litigation risk from 
providing copies of the servicing file to borrowers. Two comments 
cautioned that borrowers and their attorneys could use the request for 
the servicing file to obtain information normally only available to 
borrowers through court-ordered discovery in litigation. Commenters 
also stated that collection notes and data fields were created for 
strictly internal purposes, and would confuse borrowers, which might 
lead to litigation.
    Consumer groups expressed support for providing borrowers with 
copies of their servicing files upon request. Consumer advocates noted 
that they specifically supported providing borrowers with a copy of a 
record of all payments credited to the account upon request and the 
data fields identifying the owner or assignee of the mortgage loan 
account. Also, one consumer advocate noted that the schedule of 
payments should include all payments made during the life of the loan 
and not just payments made to the current servicer.
    To address the commenters' confusion about the relationship between 
proposed Sec. Sec.  1024.38(c)(2) and 1024.36, the Bureau has removed 
the requirement to provide borrowers with copies of their servicing 
file from the language of proposed Sec.  1024.38(c)(2). Instead, the 
Bureau is adopting new comment 38(c)(2)-2 that clarifies that Sec.  
1024.38(c)(2) does not confer upon any borrower an independent right to 
access information contained in the servicing file and that upon 
receipt of a borrower's request for a servicing file, a servicer shall 
provide the borrower with a copy of the information contained in the 
servicing file for the borrower's mortgage loan, subject to the 
procedures and limitations set forth in Sec.  1024.36. This revision 
does not alter the substance of proposed Sec.  1024.38(c)(2).
    Aggregation of servicing file. Proposed Sec.  1024.38(c)(2) would 
have required that servicers provide a defined set of information and 
data, i.e. a serving file, to borrowers upon request. Commenters 
interpreted this provision to require that servicers aggregate the 
elements of the servicing file defined in this section into a single 
file or information management system. Industry commenters, especially 
community banks, and credit unions, expressed concern about the 
potential implementation burden of aggregating the information 
regarding each borrower into a single system. Some of these commenters 
explained that their existing information systems stored some of the 
elements of the servicing file in separate systems. Some of these 
commenters also stated that their existing systems had not led to 
problems identified in the proposal, and urged the Bureau not to 
mandate that servicers with sound existing information management 
systems rebuild those systems to satisfy the technical details in the 
regulation.
    The intent of the servicing file requirement in proposed Sec.  
1024.38(c)(2) was to prevent harm to borrowers and to investors by 
requiring servicers to have the capacity to access key information 
about a mortgage loan quickly. However, the Bureau recognizes that 
there are multiple ways to achieve this objective. The Bureau also does 
not want needlessly to require servicers with existing systems that 
work well to dismantle those systems by adopting an overly prescriptive 
regulatory framework. In light of the comments that the Bureau 
received, the Bureau is adopting Sec.  1024.38(c)(2) with modifications 
to allow flexibility for the manner in which a servicer maintains a 
servicing file. Under the final rule, Sec.  1024.38(c)(2) requires 
servicers to maintain a specific defined set of documents and data on 
each mortgage loan account serviced by the servicer in a manner that 
facilitates compiling such documents and data into a servicing file 
within five days. The Bureau believes that the final rule appropriately 
balances the benefits to borrowers and to investors by ensuring that 
servicers have ready access to all of the information necessary to 
service mortgage loan accounts with the flexibility required to enable 
servicers to design information management

[[Page 10787]]

systems that correspond to the servicers' existing information 
management practices.
    Content of servicing file. Proposed Sec.  1024.38(c)(2) would have 
required servicers to create a single servicing file for each mortgage 
loan account containing, (i) a schedule of all payments credited or 
debited to the mortgage loan account, including any escrow account as 
defined in Sec.  1024.17(b) and any suspense account; (ii) a copy of 
the borrower's security instrument; (iii) any collection notes created 
by servicer personnel reflecting communications with borrowers about 
the mortgage loan account; (iv) a report of any data fields relating to 
a borrower's mortgage loan account created by a servicer's electronic 
systems in connection with collection practices, including records of 
automatically or manually dialed telephonic communications; and (v) 
copies of any information or documents provided by a borrower to a 
servicer in accordance with the procedures set forth in Sec. Sec.  
1024.35 or 1024.41.
    The Bureau received several comments on this aspect of the 
proposal. Consumer advocates highlighted their support for the 
requirement that servicers maintain a servicing file that includes a 
copy of the security instrument and the complete payment history. Some 
servicers commented that the Bureau should limit the payment history 
requirement due to the costs associated with maintaining a payment 
history for the life of the mortgage loan, especially with respect to 
partial payments. A large servicer urged the Bureau to delay 
implementation of this proposed provision to allow the Bureau to test 
what fields should be contained in a servicing file. Industry comments 
also noted that some servicers' existing files do not contain all of 
the required elements.
    Some servicers also asked for clarification about the requirements 
for certain elements of the servicing file. A few servicers also asked 
for clarification about what type of communications with borrowers must 
be recorded in the collection notes, and in particular, whether a 
servicer must record communications with borrowers unrelated to 
mortgage loans. A few industry commenters asked the Bureau to clarify 
the data fields the servicer must maintain, described in proposed Sec.  
1024.38(c)(2)(iv).
    As described above, the Bureau believes the interests of borrowers 
are best served if servicers are quickly able to access certain key 
information regarding a borrower's mortgage loan account, including a 
schedule of all transactions credited or debited to the mortgage loan 
account, including any escrow account as defined in Sec.  1024.17(b) 
and any suspense account, a copy of the security instrument that 
establishes the lien securing the mortgage loan, any notes created by 
servicer personnel reflecting communications with borrowers about the 
mortgage loan account, data fields as defined by Sec.  
1024.38(c)(2)(iv), and copies of any information or documents provided 
by the borrower to the servicers in accordance with the procedures set 
forth in Sec. Sec.  1024.35 or 1024.41. Therefore, the Bureau declines 
to remove any of the proposed elements from the servicing file 
definition. Also, the flexibility added to the final rule for servicers 
to determine how best to store the elements of the servicing file 
reduces the implementation burden on servicers. Therefore, for the 
reasons discussed above, the Bureau is adopting the elements of the 
servicing file in Sec.  1024.38(c)(2), with minor technical 
adjustments, as proposed.
    To address commenters' confusion about the information described in 
proposed Sec.  1024.38(c)(iv), the Bureau is adopting new comment 
38(c)(2)(iv)-1. Comment 38(c)(2)(iv)-1 clarifies that a report of the 
data fields relating to the borrower's mortgage loan account created by 
the servicer's electronic systems in connection with servicing 
practices means a report listing the relevant data fields by name, 
populated with any specific data relating to the borrower's mortgage 
loan account. Comment 38(c)(2)(iv)-1 also provides examples of data 
fields relating to a borrower's mortgage loan account created by the 
servicer's electronic systems in connection with servicing practices 
including fields used to identify the terms of the borrower's mortgage 
loan, fields used to identify the occurrence of automated or manual 
collection calls, fields reflecting the evaluation of a borrower for a 
loss mitigation option, fields used to identify the owner or assignee 
of a mortgage loan, and any credit reporting history. Also, Sec.  
1024.38(c)(2)(iii) only requires servicers to maintain any notes 
created by servicer personnel reflecting communications with a borrower 
about the mortgage loan account.
    The Bureau also is adopting comment 38(c)(2)-1 to address 
commenters' confusion about the applicability of the servicing file 
requirements to existing servicer documents and information. Comment 
38(c)(2)-1 explains that a servicer complies with Sec.  1024.38(c)(2) 
if it maintains information in a manner that facilitates compliance 
with Sec.  1024.38(c)(2) beginning on or after January 10, 2014. A 
servicer is not required to comply with Sec.  1024.38(c)(2) with 
respect to information created prior to January 10, 2014.
Section 1024.39 Early Intervention Requirements for Certain Borrowers
Background
    Proposed Sec.  1024.39 would have required servicers to provide 
delinquent borrowers with two notices. First, proposed Sec.  
1024.39(a), would have required servicers to notify or make good faith 
efforts to notify a borrower orally that the borrower's payment is late 
and that loss mitigation options may be available, if applicable. 
Servicers would have been required to take this action not later than 
30 days after the payment due date, unless the borrower satisfied the 
payment during that period. Second, proposed Sec.  1024.39(b) would 
have required servicers to provide a written notice with information 
about the foreclosure process, housing counselors and the borrower's 
State housing finance authority, and, if applicable, information about 
loss mitigation options that may be available to the borrower. 
Servicers would have been required to provide the written notice not 
later than 40 days after the payment due date, unless the borrower 
satisfied the payment during that period. These two notices were 
designed primarily to encourage delinquent borrowers to work with their 
servicer to identify their options for avoiding foreclosure.
    While a number of industry commenters supported the overall 
objective of encouraging communication between servicers and delinquent 
borrowers, many commenters, particularly small servicers, requested 
that the Bureau not issue regulations that are not required by the 
express provisions of the Dodd-Frank Act, citing compliance burden and 
the potential for overwhelming and confusing borrowers. Some industry 
commenters were concerned that the breadth of the definition of ``Loss 
mitigation options'' would require servicers to offer options or take 
actions inconsistent with investor or guarantor requirements. One 
industry commenter suggested, as an alternative to early intervention, 
that all borrowers be required to receive education about mortgages 
earlier in the process, before they become delinquent. Another stated 
that the Bureau's early intervention requirements would be ineffective 
because borrowers would not open mail or respond to phone calls.
    Consumer advocacy groups were uniformly in favor of both an oral 
and

[[Page 10788]]

written notice requirement. One consumer advocacy group explained that 
an oral and written notice requirement would help homeowners identify 
late payments quickly and engage in loss mitigation earlier to avoid 
foreclosure. Several consumer advocacy groups who submitted a joint 
comment stated that the Bureau was justified in proposing early 
intervention, explaining that early intervention is already an industry 
norm under GSE guidelines, the National Mortgage Settlement, and HAMP, 
which have standards for multiple phone calls and written notices at 
the early stages of a delinquency. These commenters also cited research 
that showed borrowers have a lower re-default rate the earlier they are 
reached in their delinquency.
    However, most consumer advocacy groups requested that the Bureau 
require servicers to provide more information about the foreclosure 
process and loss mitigation options than the Bureau had proposed to 
require. Many consumer advocacy groups recommended that the Bureau 
require servicers to provide information about all loss mitigation 
options potentially available to borrowers through the proposed oral 
and written notices. One mortgage investor commenter supported the 
Bureau's policy goal of requiring servicers to engage more actively 
with delinquent borrowers about loss mitigation options. This commenter 
also recommended that the final rule require that servicers maintain 
adequate staffing levels with respect to delinquent loans, maintain 
frequent contact with borrowers to remind borrowers of available 
options, review them for such options, and provide a user-friendly and 
up-to-date Web site on which borrowers could locate servicer contact 
information.
    Industry commenters questioned whether the Bureau's rules were 
necessary in light of recent State and Federal remediation efforts, 
such as the National Mortgage Settlement and various consent agreements 
with bank regulators. One credit union trade association believed that 
the Bureau's proposed requirements were too rigid and would be 
ineffective, while another indicated that the early intervention 
requirements would not present issues because many of its affiliated 
members would be able to modify their current procedures without much 
difficulty. However, other industry trade associations and a nonprofit 
servicer indicated that, while most servicers already perform some form 
of early intervention, their programs are not identical to the Bureau's 
proposal, and that compliance would require adjustments to or 
formalization of servicer policies and procedures that may not 
necessarily be suited to a borrower's particular circumstances. Several 
industry commenters expressed concern that the Bureau's rules overlap 
and could conflict with existing State and Federal law.\122\ With 
respect to addressing potential conflicts between the Bureau's rules 
and existing State and Federal law as well as existing industry 
practice, commenters identified a variety of ways the Bureau could 
provide relief, including by not adopting rules that exceed or 
otherwise conflict with existing requirements, providing safe harbors 
(such as by clarifying that compliance with existing laws and 
agreements satisfies 1024.39), adopting more flexible standards, 
providing exemptions, including a mechanism in the rule to resolve 
compliance conflicts, or broadly preempting State laws.
---------------------------------------------------------------------------

    \122\ For example, one credit union trade association identified 
a Michigan law that generally requires that, before a foreclosing 
party proceeds to foreclosure, it must provide borrowers with a 
notice containing information about foreclosure avoidance options 
and housing counselors. See Mich. Comp. Laws 600.3205a.
---------------------------------------------------------------------------

    Trade associations, smaller servicers, credit unions, and rural 
creditors subject to Farm Credit Administration rules generally 
requested exemptions from the early intervention requirements, citing a 
``high-touch'' customer service model, problems with internalizing 
compliance costs relative to larger servicers, and potential conflicts 
arising from complying with conflicting sets of rules. Small servicers 
and credit unions expressed concern that higher compliance costs would 
make it difficult to maintain high levels of customer service.\123\ A 
reverse mortgage trade association requested an exemption from the 
early intervention requirements because of the unique nature of reverse 
mortgage products and because the majority of reverse mortgages made in 
the current market are FHA Home Equity Conversion Mortgages already 
subject to specific requirements.
---------------------------------------------------------------------------

    \123\ One nonprofit servicer requested that the Bureau clarify 
how the early intervention requirements would apply if, as the 
Bureau proposed, small servicers are exempt from the periodic 
statement requirement in Regulation Z.
---------------------------------------------------------------------------

    The Bureau has considered the comments submitted but continues to 
believe that rules governing early intervention are warranted. As the 
Bureau explained in its proposal, the Bureau believes that a servicer's 
delinquency management plays a significant role in whether the borrower 
cures the delinquency or ends up in foreclosure.\124\ For a variety of 
reasons, at least among the larger players, servicers have not been 
consistent in managing delinquent accounts to provide borrowers with an 
opportunity to avoid foreclosure. In addition, incentives remain that 
may discourage these larger servicers from addressing a delinquency 
quickly as servicers may profit from late fees.\125\ The Bureau also 
explained that delinquent borrowers may not make contact with servicers 
to discuss their options because they may be unaware that they have 
options \126\ or that their servicer is able to assist them.\127\ There 
is risk to borrowers who do not make contact with servicers and remain 
delinquent; the longer a borrower remains delinquent, the more 
difficult it can be to avoid foreclosure.\128\ By requiring early

[[Page 10789]]

intervention with delinquent borrowers, the Bureau has sought to 
correct impediments to borrower-servicer communication so that 
borrowers have a reasonable opportunity to avoid foreclosure at the 
early stages of a delinquency. As the Bureau recognized in its 
proposal, not all delinquent borrowers may respond to servicer outreach 
or pursue available loss mitigation options. However, the Bureau 
believes that the notices will ensure, at a minimum, that covered 
borrowers have an opportunity to do so at the early stages of a 
delinquency.
---------------------------------------------------------------------------

    \124\ See Diane Thompson, Foreclosing Modifications: How 
Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 
755, 768 (2011); Kristopher Gerardi & Wenli Li, Mortgage Foreclosure 
Prevention Efforts, 95 Fed. Reserve Bank of Atlanta Econ. Rev., 1, 
8-9 (2010); Michael A. Stegman et al., Preventative Servicing is 
Good for Business and Affordable Homeownership Policy, 18 Housing 
Policy Debate 243, 274 (2007). See also part VII of the final rule.
    \125\ See, e.g., The Need for National Mortgage Servicing 
Standards: Hearing Before the Subcomm. on Hous., Transp., & Comm. 
Affairs of the Senate Comm. on Banking and Urban Affairs, 112th 
Cong. 72-73 (2011) (statement of Diane Thompson); see generally 
Diane Thompson, Foreclolsing Modifications, 86 Wash. L. Rev. 755 
(2011). The Bureau is aware that the GSEs and other programs, such 
as HAMP, align servicer incentives to encourage early intervention. 
See, e.g., Fannie Mae, Single-Family Servicing Guide, Part VII Sec.  
602.04.05 (2012); Freddie Mac, Single-Family Seller/Servicer Guide, 
Volume 2, Ch. 65.42 (2012); U.S. Dep't of Treasury & U.S. Dep't of 
Hous. & Urban Dev., Making Home Affordable Program Handbook,106 
(December 15, 2011). Through this rulemaking, the Bureau intends to 
make early intervention a uniform minimum national standard and part 
of established servicer practice.
    \126\ See, e.g., Are There Government Barriers to the Housing 
Recovery? Hearing Before the Subcomm. on Ins., Hous., and Comm. 
Opportunity of the House Comm. on Fin. Services, 112th Cong. 50-51 
(2011) (statement of Phyllis Caldwell, Chief, Homeownership 
Preservation Office, U.S. Dep't. of the Treasury); Freddie Mac, 
Foreclosure Avoidance Research II: A Follow-Up to the 2005 Benchmark 
Study 8 (2008), available at http://www.freddiemac.com/service/msp/pdf/foreclosure_avoidance_dec2007.pdf; Freddie Mac, Foreclosure 
Avoidance Research (2005), available at http://www.freddiemac.com/service/msp/pdf/foreclosure_avoidance_dec2005.pdf.
    \127\ See Office of the Comptroller of the Currency, Foreclosure 
Prevention: Improving Contact with Borrowers, Insights (June 2007), 
available at http://www.occ.gov/topics/communityaffairs/publications/insights/insights-foreclosure-prevention.pdf.
    \128\ See, e.g., John C. Dugan, Comptroller, Office of the 
Comptroller of the Currency, Remarks Before the NeighborWorks 
America Symposium on Promoting Foreclosure Solutions (June 25, 
2007), available at http://www.occ.gov/news-issuances/speeches/2007/pub-speech-2007-61.pdf; Laurie S. Goodman et al., Amherst Securities 
Group LP, Modification Effectiveness: The Private Label Experience 
and Their Public Policy Implications (June 19, 2012), at 5-6; 
Michael A. Stegman et al., Preventative Servicing, 18 Hous. Policy 
Debate 245 (2007); Amy Crews Cutts & William A. Merrill, 
Interventions in Mortgage Default: Policies and Practices to Prevent 
Home Loss and Lower Costs 11-12 (Freddie Mac, Working Paper No. 08-
01, 2008).
---------------------------------------------------------------------------

    The Bureau notes that the 2013 HOEPA Final Rule implements, among 
other things, RESPA section 5(c) requiring lenders to provide 
applicants of federally related mortgage loans with a list of 
homeownership counseling providers. Thus, borrowers will receive 
information to access counseling services at the time of application. 
In addition, the 2013 HOEPA Final Rule requires that applicants for 
``high cost'' mortgages receive counseling prior to obtaining credit. 
While pre-mortgage counseling will help ensure borrowers understand the 
costs involved in obtaining a mortgage, borrowers who become delinquent 
may not know that they have options for avoiding foreclosure unless the 
servicer notifies them.
    The Bureau understands that private lenders and investors, Fannie 
Mae and Freddie Mac, and Federal agencies, such as FHA and VA, already 
have early intervention servicing standards in place for delinquent 
borrowers.\129\ However, servicers may vary as to how forthcoming they 
are in providing borrowers who are behind on their mortgage payments 
with options other than to pay only what is owed. The Bureau's goal 
with respect to its early intervention requirements is to identify 
consumer protection standards that are now best practices but were not 
consistently applied during the recent financial crisis and to apply 
these across the market, subject to exemptions identified in Sec.  
1024.30(b) and the scope limitation of Sec.  1024.30(c)(2), to ensure 
that servicers are providing delinquent borrowers with a meaningful 
opportunity to avoid foreclosure.
---------------------------------------------------------------------------

    \129\ HUD and the VA have promulgated regulations and issued 
guidance on servicing practices for loans guaranteed or insured by 
their programs. See 24 CFR 203 subpart C (HUD); U.S. Hous. & Urban 
Dev., Handbook 4330.1 rev-5, Ch. 7; 38 CFR Ch. 1 pt. 36, Subpt. A. 
Fannie Mae & Freddie Mac have established recommended servicing 
practices for delinquent borrowers in their servicing guidelines and 
align their modification incentives with the number of days the 
mortgage loan is delinquent when the borrower enters a trial period 
plan. See Fannie Mae, Single-Family Servicing Guide, 700-1 (2012); 
Fannie Mae, Outbound Call Attempts Guidelines (Oct. 1, 2011), 
available at https://www.efanniemae.com/home/index.jsp; Fannie Mae, 
Letters and Notice Guidelines (Apr. 25, 2012), available at https://www.efanniemae.com/home/index.jsp; Freddie Mac, Single-Family 
Seller/Servicer Guide, Vol. 2, Ch. 64-69 (2012).
---------------------------------------------------------------------------

    In light of comments received on the proposal, the Bureau has 
revised the proposed early intervention requirements to provide 
servicers with additional flexibility. Proposed Sec.  1024.39(a) would 
have required servicers to notify, or make good faith efforts to 
notify, delinquent borrowers orally that loss mitigation options, if 
applicable, may be available by the 30th day of their delinquency. 
Under the proposal, servicers that make loss mitigation options 
available to borrowers would generally have been required to notify 
delinquent borrowers of the availability of such options not later than 
the 30th day of their delinquency.
    The final rule does not require servicers to provide this notice to 
all borrowers and does not require servicers to inform borrowers of 
options that are not available from the owner or investor. Instead, 
under Sec.  1024.39(a), servicers must establish or make good faith 
efforts to establish live contact with a delinquent borrower by the 
36th day of the borrower's delinquency. Live contact includes 
telephoning or conducting an in-person meeting with the borrower. In 
addition, under Sec.  1024.39(a), promptly after establishing live 
contact, servicers must inform the borrower about the availability of 
loss mitigation options if appropriate. Among other changes, the final 
rule includes commentary that clarifies that it is within a servicer's 
reasonable discretion to determine whether such a notice is appropriate 
under the circumstances. Commentary to the final rule also provides a 
more flexible good faith efforts standard that would permit servicers 
to comply by encouraging the borrower through written or electronic 
communication to make contact with the servicer. These changes are 
intended to help ensure servicers make efforts to contact delinquent 
borrowers who would be interested in learning about loss mitigation 
options and, at the same time, avoid causing servicers to spend 
resources notifying borrowers about loss mitigation options the 
servicer has reason to believe would not benefit from being informed of 
such options.
    The final rule includes a written notice requirement similar to the 
one proposed at Sec.  1024.39(b), but the Bureau has sought to mitigate 
compliance burden without undermining the protection of an early 
written notice by extending the deadline for providing the notice from 
40 to 45 days of a borrower's delinquency to align with other notices 
that servicers may already provide to borrowers at that time. The 
Bureau has sought to develop flexible early intervention requirements 
to accommodate existing practices and requirements to avoid servicers 
having to duplicate existing early intervention practices. For example, 
if servicers are required by other laws to provide a notice that 
includes the content required by Sec.  1024.39(b)(2) and if servicers 
may provide such notice within the first 45 days of a borrower's 
delinquency, the Bureau does not believe servicers would need to 
provide each notice separately.
    The Bureau has further sought to accommodate existing practices by 
providing clarifying commentary to Sec.  1024.39(b)(1) that servicers 
may combine notices that may already meet the content requirements of 
Sec.  1024.39(b)(2) into a single mailing. In addition, comment 
39(b)(2)-1 explains that the written notice contains minimum content 
requirements for the written notice and that a servicer may provide 
additional information that the servicer determines would be helpful or 
which may be required by applicable law or the owner or assignee of the 
mortgage loan. The Bureau has included this comment, in part, to 
accommodate similar notices that servicers may already be providing. 
Further, to assist with compliance, the Bureau has also developed model 
clauses, which the Bureau has tested with the assistance of Macro. A 
servicer's appropriate use of the model clauses will act as a safe 
harbor for compliance.
    While the Bureau has designed its early intervention requirements 
to provide flexibility to servicers that already have early 
intervention practices in place or that are complying with external 
existing requirements, the Bureau acknowledges that some of the new 
requirements may not align perfectly with all existing practices. To 
address actual conflicts with State or Federal law, the Bureau has 
included new Sec.  1024.39(c), which, as discussed in more detail 
below, provides that nothing in Sec.  1024.39 shall require a servicer 
to make contact with a borrower in a manner that would be prohibited 
under applicable law. The Bureau believes this approach to conflicting 
laws is preferable to

[[Page 10790]]

preempting other laws. Because Sec.  1024.39 require servicers to 
proactively contact borrowers, the Bureau is concerned that preempting 
laws might override those that protect delinquent borrowers from 
certain contacts (e.g., debt collection laws).
    In addition, the Bureau is granting exemptions for small servicers 
as defined in 12 CFR 1026.41(e)(4); servicers with respect to any 
reverse mortgage transaction as that term is defined in Sec.  1024.31; 
and servicers with respect to any mortgage loan for which the servicer 
is a qualified lender as that term is defined in 12 CFR 617.7000. See 
the section-by-section analysis of Sec.  1024.30(b) above. The Bureau 
is further limiting the application of Sec. Sec.  1024.39 through 41 to 
mortgage loans that are secured by a borrower's principal residence, as 
discussed in more detail in the section-by-section analysis of Sec.  
1024.30(c)(2) above.
    The Bureau is not mandating that servicers maintain specific 
staffing levels to perform early intervention with delinquent 
borrowers, but the Bureau notes that, under Sec.  1024.38, servicers 
must maintain policies and procedures reasonably designed to achieve 
the objective of properly evaluating borrowers for loss mitigation 
options. The Bureau is not requiring servicers to maintain a Web site 
for delinquent borrowers to provide early intervention information 
because the Bureau believes such a requirement may be burdensome for 
all servicers and is unnecessary in light of the written notice at 
Sec.  1024.39(b), which includes contact information for servicer 
continuity of contact personnel assigned pursuant to Sec.  1024.40(a).
    The Bureau declines to grant an exemption from the early 
intervention requirements with respect to borrowers who have ceased 
making payments for the past six months and have not contacted their 
servicer. To the extent loss mitigation options are available for such 
borrowers, the Bureau believes these borrowers should be so informed in 
accordance with Sec.  1024.39(a) and (b). Further, the Bureau believes 
servicers should make good faith efforts to establish live contact with 
borrowers who may be reluctant to reach out before taking action that 
may result in the loss of the borrower's home. In addition, the Bureau 
believes these borrowers would benefit from information about how to 
contact their servicer as well as information about how to access 
housing counseling resources.
Legal Authority
    The Bureau proposed to implement Sec.  1024.39 pursuant to 
authority under sections 6(k)(1)(E), 6(j)(3), and 19(a) of RESPA. 
Violations of section 6 of RESPA are subject to a private right of 
action. Industry commenters, including the GSEs, industry trade 
associations, and several large bank servicers were concerned that a 
private right of action would result in uncertainty for servicers and 
could delay loss mitigation efforts and the foreclosure process if a 
borrower claimed it did not receive a timely notice required by the 
Bureau's rules. Commenters indicated that increased litigation costs 
would limit access to and increase the cost of credit to borrowers. One 
commenter was concerned that a private right of action would result in 
loss mitigation being perceived as a substantive right. Instead, 
commenters requested that the Bureau issue the early intervention and 
other loss mitigation provisions solely in reliance on RESPA section 
19(a) authority.
    The Bureau has considered industry comments but continues to rely 
on RESPA section 6 authority as a basis for the Bureau's early 
intervention requirements under Sec.  1024.39. The Bureau does not 
believe Sec.  1024.39 will result in loss mitigation being treated as a 
substantive right because it sets forth procedural requirements only. 
As finalized, Sec.  1024.39 does not require servicers to offer any 
particular loss mitigation option to any particular borrower. The live 
contact requirement under Sec.  1024.39(a) requires servicers to notify 
borrowers of the availability of loss mitigation options ``if 
appropriate''; associated commentary clarifies that it is within a 
servicer's reasonable discretion to determine whether it is appropriate 
to inform borrowers of such options. The written notice requirement 
under Sec.  1024.39(b)(2)(iii) requires servicers to inform borrowers, 
``if applicable,'' of examples of loss mitigation options available 
through the servicer. Nothing in Sec.  1024.39 affects whether a 
borrower is permitted as a matter of contract law to enforce the terms 
of any contract or agreement between a servicer and an owner or 
assignee of a mortgage loan.
    In addition, the Bureau has taken steps to clarify requirements in 
the rule, which the Bureau believes will help avoid uncertainty for 
servicers and help minimize litigation risk and compliance costs 
arising from a private right of action associated with RESPA section 6. 
For example, the final rule omits the proposed oral notice requirement 
under proposed Sec.  1024.39(a) and instead requires that servicers 
establish or make good faith efforts to establish live contact with 
borrowers and, promptly after establishing live contact, inform 
borrowers of the availability of loss mitigation options ``if 
appropriate.'' Comment 39(a)-3.i explains that it is within a 
servicer's reasonable discretion to determine whether informing a 
borrower about the availability of loss mitigation options is 
appropriate under the circumstances; the comment also includes 
illustrative examples to assist with compliance. While this guidance 
should provide servicers with some degree of certainty around 
compliance, the Bureau recognizes there may be limited situations that 
are less clear; in these cases, however, servicers could avoid 
compliance risk by informing borrowers of loss mitigation options. 
Comment 39(a)-3.ii explains that a servicer may inform borrowers about 
the availability of loss mitigation options either through an oral or 
written communication. The final rule also provides servicers with more 
flexibility in satisfying the good faith efforts standard; servicers 
may demonstrate compliance by providing written or electronic 
communication encouraging borrowers to establish live contact with 
their servicer. In addition, with respect to the written notice under 
Sec.  1024.39(b), the final rule includes model clauses and clarifies 
in commentary that servicers may provide additional information about 
loss mitigation options not included in the model clauses. Further, the 
final rule includes flexible minimum content requirements for the 
written notice that will assist servicers in accommodating existing 
disclosures and other related disclosure requirements.
    The Bureau does not believe that the risk of a private right of 
action will negatively impact access to, or cost of, credit. The 
requirements under Sec.  1024.39 include clear procedural requirements 
as well as protections for a servicer's exercise of reasonable 
discretion. Further, the requirements have been implemented to reduce 
compliance burden and provide clear rules capable of efficient 
implementation by servicers, including through the use of model 
clauses. Accordingly, the Bureau believes that the early intervention 
rules under Sec.  1024.39 provide necessary consumer protections and 
that servicers are capable of providing such protections without 
negative consequences for borrowers, including with respect to access 
to, or cost of, credit.
    The Bureau is adopting Sec.  1024.39 pursuant to its authorities 
under sections 6(j)(3), 6(k)(1)(E), and 19(a) of

[[Page 10791]]

RESPA. As explained in more detail below, the Bureau finds, consistent 
with RESPA section 6(k)(1)(E), that Sec.  1024.39 is appropriate to 
achieve the consumer protection purposes of RESPA, including to help 
borrowers avoid unwarranted or unnecessary costs and fees and to 
facilitate review of borrowers for foreclosure avoidance options. For 
the same reasons, Sec.  1024.39 is authorized under section 6(j)(3) of 
RESPA as necessary to carry out section 6 of RESPA, and under section 
19(a) of RESPA as necessary to achieve the purposes of RESPA, including 
borrowers' avoidance of unwarranted or unnecessary costs and fees and 
the facilitation of review of borrowers for foreclosure avoidance 
options.
    The Bureau is also adopting Sec.  1024.39 pursuant to its authority 
under section 1022(b) of the Dodd-Frank Act to prescribe regulations 
necessary or appropriate to carry out the purposes and objectives of 
Federal consumer financial laws, including the purposes and objectives 
of Title X of the Dodd-Frank Act. Specifically, the Bureau believes 
that Sec.  1024.39 is necessary and appropriate to carry out the 
purpose under section 1021(a) of the Dodd-Frank Act of ensuring that 
markets for consumer financial products and services are fair, 
transparent, and competitive, and the objectives under section 1021(b) 
of the Dodd-Frank Act of ensuring that consumers are provided with 
timely and understandable information to make responsible decisions 
about financial transactions, and markets for consumer financial 
products and services operate transparently and efficiently to 
facilitate access and innovation. The Bureau additionally relies on its 
authority under section 1032(a) of the Dodd-Frank Act, which authorizes 
the Bureau to prescribe rules to ensure that the features of any 
consumer financial product or service, both initially and over the term 
of the product or service, are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the product or service, 
in light of the facts and circumstances. Consistent with section 
1032(b) of the Dodd-Frank Act, the model clauses at appendix MS-4 have 
been validated through consumer testing.
39(a) Live Contact
Proposed Sec.  1024.39(a)
    Proposed Sec.  1024.39(a) would have required that, if a borrower 
is late in making a payment sufficient to cover principal, interest, 
and, if applicable, escrow, the servicer must, not later than 30 days 
after the missed payment, notify or make good faith efforts to notify 
the borrower that the payment is late and that loss mitigation options, 
if applicable, may be available. Proposed Sec.  1024.39(a) also 
provided that if the servicer attempts to notify the borrower by 
telephone, good faith efforts would require calling the borrower on at 
least three separate days in order to reach the borrower. The Bureau 
explained in the section-by-section analysis of the proposed rule that 
the ``if applicable'' qualification in proposed Sec.  1024.39(a) meant 
that servicers that do not make any loss mitigation options available 
to borrowers would not be required to notify borrowers that loss 
mitigation options may be available.
    The Bureau had proposed to clarify through comment 39(a)-1.i that 
the oral notice would have to be made through live contact or good 
faith efforts to make live contact with the borrower, such as by 
telephoning or meeting in-person with the borrower, and that oral 
contact does not include a recorded message delivered by phone. 
Proposed comment 39(a)-1.ii would have clarified that a servicer is not 
required to describe specific loss mitigation options, and that the 
servicer need only inform the borrower that loss mitigation options may 
be available, if applicable. The comment also would have clarified that 
a servicer may provide more detailed information that the servicer 
believes would be helpful. Proposed comment 39(a)-2 clarified that, in 
order to make a good faith effort by telephone, the servicer must 
complete the three phone calls attempting to reach the borrower by the 
end of the 30-day period after the payment due date.
    The Bureau received significant comment on the proposed oral notice 
from consumer advocacy groups, trade associations, credit unions, 
community banks, rural servicers, large banks, non-bank servicers, and 
individual consumers. Consumer advocacy groups and two residential real 
estate trade associations were generally supportive of an oral notice 
requirement. One coalition of consumer advocacy groups explained that a 
mandatory phone call or visit would alert borrowers that loss 
mitigation options may be available and give borrowers an opportunity 
to ask questions and gather accurate information about the borrower's 
rights and responsibilities. Several consumer advocacy groups and 
individual consumers supported an oral notice requirement because it 
would permit borrowers to engage in an interactive conversation with 
servicers about their rights and responsibilities surrounding loss 
mitigation. A number of consumer advocacy groups, however, requested 
that the Bureau require that servicers provide more information about 
loss mitigation options than the notice set forth in proposed Sec.  
1024.39(a). These commenters recommended that servicers notify 
borrowers of all loss mitigation options that may be available, 
including application instructions and deadlines, and information about 
the foreclosure process at the time of the oral notice. Several 
consumer advocacy groups also recommended that the Bureau delete 
proposed comment 39(a)-1.ii, which explained that a servicer need not 
describe specific loss mitigation options during the oral notice and 
that the servicer need only inform borrowers that loss mitigation 
options may be available, if applicable.
    Industry commenters expressed concern about the circumstances under 
which servicers would be required to notify borrowers about loss 
mitigation options. These commenters explained that a servicer's offer 
of loss mitigation depends on not only the stage of a borrower's 
delinquency but also the nature of the delinquency, as well as other 
circumstances, pursuant to investor or guarantor guidelines and could 
be perceived as misleading for borrowers who are ultimately ineligible 
based on owner or investor requirements. These commenters, including 
one Federal agency, also expressed concern that informing borrowers of 
loss mitigation options that are inappropriate for short-term 
delinquencies could impede the resolution of delinquent loans by 
discouraging borrowers from resolving a short-term delinquency they 
could have cured on their own. Industry commenters also asserted that 
notifying borrowers about loss mitigation options too early would be 
confusing or perceived as potentially harassing for those borrowers at 
low risk of default. In addition, several commenters cited concerns 
that requiring early intervention for low-risk borrowers would detract 
from helping high-risk borrowers. To address these concerns, they 
requested that the Bureau clarify the circumstances under which 
servicers would be required to notify borrowers that loss mitigation 
options may be available. In particular, several commenters requested 
that the Bureau clarify that, before providing the notice regarding 
loss mitigation options, a servicer may first determine whether a 
borrower is experiencing a short- or long-term delinquency, and that 
servicers be permitted to pursue

[[Page 10792]]

collection efforts in the case of short-term delinquencies.
    Industry commenters also expressed concern with demonstrating 
compliance with the oral notice requirement, particularly in light of 
the possibility of a private right of action under RESPA section 6, 
which the Bureau relied on as a source of legal authority for proposed 
Sec.  1024.39. Rural, community bank, and credit union servicers 
recommended against an oral notice requirement because such 
requirements are difficult to track and verify, would require systems 
reprogramming or upgrades, may be misunderstood by borrowers, and would 
not guarantee establishing contact with borrowers. One community bank 
commenter stated that a simple delinquency notice should suffice, 
without a need to have a live conversation about loss mitigation 
options. Several rural and credit union servicers indicated that 
staffing and resource limitations would make it difficult to reach 
borrowers after normal work hours, when most borrowers are available by 
phone. One industry commenter recommended that the Bureau mandate in-
person outreach in addition to the oral and written notice requirements 
while another industry commenter asked that the Bureau clarify that 
this provision does not mandate in-person outreach.
    Several industry commenters and individual consumers recommended 
that other forms of contact, such as text messages or email should be 
permitted, but not required, to satisfy good faith efforts, or that 
email should be permitted in lieu of live contact. These commenters 
noted that a more flexible approach, such as permitting written or 
other forms of electronic contact, would help reach borrowers and 
address compliance issues because written methods are more easily 
tracked. Several industry commenters requested that the Bureau permit 
servicers to engage in any form of contact that is reasonable under the 
circumstances. One industry commenter suggested that servicers should 
be permitted to leave a recorded message instead of three phone calls.
    By contrast, a number of consumer advocacy groups stated that the 
good faith effort standard as proposed was reasonable, although some 
recommended that servicers be required to engage in more efforts to 
contact the borrower, such as by attempting to contact borrowers on 
every telephone number on record in order to reach the borrower and by 
requiring that servicers leave a message when servicers have that 
option. Some consumer advocacy groups recommended that servicers be 
required to leave a message when a borrower's telephone number provided 
a voicemail option, while an industry commenter indicated there may be 
privacy concerns with respect to any potential requirement for notices 
to be provided via text or email.
Final Sec.  1024.39(a)
    After considering comments on the proposal, the Bureau is revising 
the proposed oral notice requirement into a live contact requirement 
permits servicers to exercise reasonable discretion in determining 
whether informing delinquent borrowers of the availability of loss 
mitigation options is appropriate under the circumstances. The Bureau 
is also adjusting the timing of the contact requirement from the 
proposed 30-day timeframe to 36 days.
    Under Sec.  1024.39(a), a servicer must establish or make good 
faith efforts to establish live contact with a delinquent borrower not 
later than the 36th day of the borrower's delinquency and, promptly 
after establishing live contact, inform such borrower about the 
availability of loss mitigation options ``if appropriate.'' The Bureau 
has added comment 39(a)-3.i to clarify that it is within a servicer's 
reasonable discretion to determine whether informing a borrower about 
the availability of loss mitigation options is appropriate under the 
circumstances. To illustrate, comment 39(a)-3.i provides examples 
demonstrating when a servicer has made a reasonable determination 
regarding the appropriateness of providing information about loss 
mitigation options. Comment 39(a)-3.i.A illustrates a scenario in which 
a servicer provides information about the availability of loss 
mitigation options to a borrower that notifies a servicer during live 
contact of a material adverse change in the borrower's financial 
circumstances that is likely to cause the borrower to experience a 
long-term delinquency for which loss mitigation options may be 
available. Comment 39(a)-3.i.B illustrates a scenario in which a 
servicer does not provide information about the availability of loss 
mitigation options to a borrower who has missed a January 1 payment and 
notified the servicer that full late payment will be transmitted to the 
servicer by February 15.
    The Bureau is adopting a modified version of the proposed oral 
notice in Sec.  1024.39(a) because the Bureau agrees that a 
prescriptive requirement to provide an oral notice for all delinquent 
borrowers, where loss mitigation options were available, within the 
first 30 days of a delinquency would be overbroad. The Bureau observes 
that the oral notice as proposed would not have required servicers to 
offer options in a manner that is inconsistent with investor or 
guarantor requirements because servicers would only have had to notify 
borrowers that loss mitigation options, if applicable, ``may'' be 
available; servicers would not have been required to provide 
information about or offer options that the servicer did not already 
offer. However, the Bureau recognizes the potential for borrower 
confusion if servicers are required in every instance to notify 
borrowers who are experiencing short-term delinquencies of available 
loss mitigation options if these borrowers ultimately are unlikely to 
need or be eligible for such options. The Bureau agrees that providing 
the notice within the first 30 days of a borrower's delinquency may be 
unwarranted if a borrower would not ultimately qualify based on 
investor or guarantor requirements or for whom loss mitigation options 
are unnecessary, such as for borrowers who are experiencing a short-
term cash-flow problem. As the Bureau noted in its proposal, borrowers 
who are 30 days delinquent generally present a lower risk for default, 
(compared to borrowers with more extended delinquencies), and such 
borrowers typically resolve their delinquency without the assistance of 
loss mitigation options.\130\
---------------------------------------------------------------------------

    \130\ See, e.g., Amy Crews Cutts & William A. Merrill, 
Interventions in Mortgage Default: Policies and Practices to Prevent 
Home Loss and Lower Costs 10 (Freddie Mac, Working Paper No. 08-01, 
2008) (explaining that, in one study, there was a ``significant cure 
rate out of the 30-day delinquency population without servicer 
intervention,'' but that ``as the time in delinquency increases so 
does the hurdle the borrower has to overcome to reinstate the loan 
and the importance of calling the servicer'').
---------------------------------------------------------------------------

    Nonetheless, while many borrowers who miss a payment will be able 
to self-cure within 30 days, some portion of these borrowers are likely 
to fall further behind on their payments, and the Bureau believes 
servicers should make efforts to inform such borrowers that help is 
available. As the Bureau noted in its proposal, evidence suggests that 
one of the barriers to communication between borrowers and servicers is 
that borrowers do not know that servicers may be helpful or that they 
have options to avoid foreclosure, and that as a result of these 
barriers, borrowers may not know that help is available until too late, 
when it can be more difficult to cure a delinquency. Although borrowers 
may receive notice of loss mitigation options through other written 
notices, such as the written early intervention notice proposed at 
Sec.  1024.39(b), borrowers may be reluctant to contact a

[[Page 10793]]

servicer on their own but would nonetheless benefit from early 
notification that help is available. By establishing early live contact 
with borrowers, servicers would be able to begin working with the 
borrower to develop appropriate relief at the early stages of a 
delinquency. The Bureau recognizes that, by giving servicers 
flexibility to determine whether it is appropriate under the 
circumstances to notify borrowers about loss mitigation options, there 
is some risk that servicers, despite their reasonable exercise of 
discretion, may incorrectly determine a borrower is experiencing a 
short-term delinquency. The Bureau believes that, on balance, the 
potential that delinquent borrowers may remain uninformed of their 
options is mitigated by the requirement in Sec.  1024.39(b)(1), 
discussed below, to provide a written notice not later than the 45th 
day of a borrower's delinquency.
    Proposed comment 39(a)-1.i would have clarified that the proposed 
oral notice would have to be made through live contact or good faith 
efforts to make live contact, such as by telephoning or conducting an 
in-person meeting with the borrower, but not leaving a recorded 
message. The final rule adopts proposed comment 39(a)-1.i substantially 
as proposed, which the Bureau has renumbered as comment 39(a)-2 for 
organizational purposes. Final comment 39(a)-2 includes guidance 
appearing in proposed comment 39(a)-1.i about the meaning of live 
contact, but omits reference to the notice required under 1024.39(a) 
because, as discussed immediately below, the final rule does not 
require servicers to inform borrowers of the availability of loss 
mitigation options under Sec.  1024.39(a) during live contact. Final 
comment 39(a)-2 further clarifies that a servicer may, but need not, 
rely on live contact established at the borrower's initiative to 
satisfy the live contact requirement in Sec.  1024.39(a). Final comment 
39(a)-2 also explains that live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's delinquency.
    The Bureau has added comment 39(a)-3.ii to clarify that, if 
appropriate, servicers may inform borrowers about the availability of 
loss mitigation options orally, in writing, or through electronic 
communication, but that servicers must provide such information 
promptly after the servicer establishes live contact. This comment is 
intended to provide servicers flexibility in notifying borrowers about 
loss mitigation options at the early stages of delinquency. The Bureau 
believes establishing initial live contact is important for a servicer 
to learn about the circumstances for a borrower's delinquency and to 
determine whether it is appropriate under the circumstances to inform 
borrowers about the availability of loss mitigation options. The Bureau 
believes that providing borrowers with initial notice about the 
availability of loss mitigation options may be accomplished through an 
oral conversation or information delivered in writing, as long as it is 
provided promptly after the servicer establishes live contact, if 
appropriate.
    Comment 39(a)-3.ii further explains that a servicer need not notify 
a borrower about any particular loss mitigation options promptly after 
the servicer determines that a borrower should be informed of loss 
mitigation options; a servicer need only inform a borrower generally 
that loss mitigation options may be available. This comment is 
substantially similar to proposed comment 39(a)-1.ii. The Bureau is not 
requiring that servicers to provide detailed information about all loss 
mitigation options, application deadlines, or foreclosure timelines 
because not all borrowers may benefit from such a conversation at the 
time of this contact. Further, the Bureau believes the continuity of 
contact provisions at Sec.  1024.40 will serve to provide borrowers 
with access to personnel who can assist them with loss mitigation 
options. Comment 39(a)-3.ii also explains that, if appropriate, a 
servicer may satisfy the requirement in Sec.  1024.39(a) to inform a 
borrower about loss mitigation options by providing the written notice 
required by Sec.  1024.39(b)(1), but the servicer must provide such 
notice promptly after the servicer establishes live contact. The Bureau 
believes that the written notice that must be provided by the 45th day 
of a borrower's delinquency pursuant to Sec.  1024.39(a) provides 
sufficient information about the availability of loss mitigation 
options.
Good Faith Efforts
    The Bureau agrees with commenters who assert that servicers should 
be permitted to engage in a wide variety of methods of contacting 
borrowers who may be difficult to reach by telephone. Accordingly, in 
the final rule, the Bureau has developed a more flexible good faith 
efforts standard. Proposed Sec.  1024.39(a) would have provided that, 
if the servicer attempts to notify the borrower about loss mitigation 
options by telephone, good faith efforts would require calling the 
borrower on at least three separate days in order to reach the 
borrower. The final rule does not define good faith efforts to 
establish live contact by identifying a particular number of days to 
reach the borrower. Instead, comment 39(a)-2 clarifies that good faith 
efforts to establish live contact consist of reasonable steps under the 
circumstances to reach a borrower and may include telephoning the 
borrower on more than one occasion or sending written or electronic 
communication encouraging the borrower to establish live contact with 
the servicer.
    The Bureau believes that, by permitting servicers to satisfy the 
good faith efforts standard through a wider variety of methods, 
servicers will be able to reach borrowers who may be difficult to reach 
by phone, particularly if a servicer does not have access to a 
borrower's mobile phone or if a borrower is unreachable by phone during 
the day. In addition, permitting servicers to satisfy the good faith 
efforts standard through written or electronic communication 
encouraging the borrower to establish live contact addresses servicer 
concerns about tracking and compliance risks associated with the 
proposed oral notice requirement.
    Although the Bureau is permitting servicers to contact borrowers 
through a variety of means, the Bureau is not requiring servicers to 
contact borrowers through every means of contact possible because it 
would be difficult, if not impossible, to satisfy such a standard. The 
Bureau is not requiring servicers to leave a voicemail message when 
such an option is available because such a requirement may implicate 
privacy concerns. The Bureau is not adopting a requirement mandating 
that servicers establish in-person contact or so-called ``field calls'' 
to the borrower's residence. While such methods of contact may be 
effective methods of reaching delinquent borrowers, the Bureau believes 
telephone calls are equally, if not more effective in certain 
circumstances, and mandating an in-person contact requirement would be 
unduly burdensome for most servicers. Of course, a servicer could 
choose to establish live contact through in-person meetings.
36th Day of Delinquency
    Proposed Sec.  1024.39(a) would have required servicers to provide 
the oral notice not later than 30 days after a payment due date. In 
light of comments received, the Bureau is not adopting the 30-day 
timeframe in proposed Sec.  1024.39(a) and instead is adopting a 
requirement that a servicer establish live contact not later than the 
36th day of a borrower's delinquency to determine whether to inform 
such borrower that

[[Page 10794]]

loss mitigation options may be available.
    Industry commenters stated that providing notices too early would 
be unnecessary for borrowers capable of curing a short-term delinquency 
or for borrowers at low risk of default, and that providing notice of 
loss mitigation, in such circumstances, may interfere with sound 
delinquency management. A variety of servicers and trade associations 
recommended that the Bureau extend the deadline to 40 or 45 days and 
one trade association recommended that the Bureau extend the deadline 
to 60 days to provide servicers with maximum flexibility. One industry 
commenter indicated that a 30-day timeframe would be burdensome for 
servicers that honor a 15-day grace period because it would only leave 
servicers only 15 days to satisfy the good faith efforts standard. 
Trade associations, community banks, and rural lenders were concerned 
that the Bureau's requirements might be duplicative of or not perfectly 
aligned with existing requirements. Some commenters requested that the 
Bureau create an exemption from the 30-day deadline for servicers that 
employ a behavior modeling tool. In contrast, consumer advocacy groups 
requested that the Bureau maintain the 30-day period and include more 
information in the oral notice. One consumer advocate recommended that 
borrowers be notified about their options as soon as their account is 
deemed delinquent by the servicer.
    In the final rule, the Bureau is retaining a deadline by which a 
servicer must establish or make good faith efforts to establish live 
contact, but the Bureau is adjusting the timing of the deadline from 
the 30-day period originally proposed to a 36-day period. As the Bureau 
recognized in its proposal, certain borrowers may be temporarily 
delinquent because of an accidental missed payment, a technical error 
in transferring funds, a short-term payment difficulty, or some other 
reason. These borrowers may be able to cure a delinquency without a 
servicer's efforts to make live contact. Thus, if the borrower fully 
satisfies the payment before the end of the 36-day period, the servicer 
would not be required to establish live contact or otherwise comply 
with Sec.  1024.39(a). Proposed comment 39(a)-4 explained that a 
servicer would not be required to notify or make good faith efforts to 
notify a borrower unless the borrower remains late in making a payment 
during the 30-day period after the payment due date. A similar comment 
appears in 39(a)-1.iv, revised to reflect the new 36-day period.
    As the Bureau noted in its proposal, there is risk to borrowers as 
a result of a delay in notifying borrowers that loss mitigation options 
may be available; research indicates that the longer a borrower remains 
delinquent, the more difficult it can be to avoid foreclosure.\131\ At 
the same time, the Bureau understands that a significant portion of 
borrowers who become delinquent are able to self-cure within 30 days of 
a missed payment.
---------------------------------------------------------------------------

    \131\ See, e.g., John C. Dugan, Comptroller, Office of the 
Comptroller of the Currency, Remarks Before the NeighborWorks 
America Symposium on Promoting Foreclosure Solutions (June 25, 
2007); Laurie S. Goodman et al., Amherst Securities Group LP, 
Modification Effectiveness: The Private Label Experience and Their 
Public Policy Implications 5-6 (June 19, 2012); Michael A. Stegman 
et al., Preventative Servicing, 18 Hous. Policy Debate 245 (2007); 
Amy Crews Cutts & William A. Merrill, Interventions in Mortgage 
Default: Policies and Practices to Prevent Home Loss and Lower Costs 
11-12 (Freddie Mac, Working Paper No. 08-01, 2008).
---------------------------------------------------------------------------

    The government-sponsored enterprises generally recommend that 
servicers initiate phone calls for borrowers who have missed a payment 
by the 16th day after a payment due date, although calling campaigns 
for high-risk borrowers must begin by the third day after a due 
date.\132\ In general, calls must occur every three days through day 36 
of delinquency, and follow-up calls are required after borrower 
solicitation packages have been sent. Other standards, such as HAMP 
\133\ and the National Mortgage Settlement,\134\ typically provide for 
the commencement of outreach efforts to communicate loss mitigation 
options for potentially eligible borrowers after two missed payments. 
For FHA-insured mortgages, HUD has a general requirement to contact 
borrowers with FHA-insured mortgages by telephone between the 17th day 
of delinquency and the end of the month.\135\ However, HUD Mortgagee 
Letter 98-18 provides that, at the lender's discretion following a 
formal risk assessment, borrowers with FHA loans at low risk for 
foreclosure may be contacted by phone by the 45th day of delinquency.
---------------------------------------------------------------------------

    \132\ Freddie Mac recommends servicers contact borrowers within 
three days of a missed payment, unless the servicers use a behavior 
modeling tool that would support an alternate approach. Fannie Mae 
recommends servicers contact ``high risk'' borrowers within three 
days of a missed payment; campaigns for non-high-risk borrowers 
should begin within 16 days of a missed payment. See Fannie Mae, 
Single-Family Servicing Guide 700-1 (2012); Fannie Mae, Outbound 
Call Attempts Guidelines (Oct. 1, 2011), available at https://www.efanniemae.com/home/index.jsp; Fannie Mae, Letters and Notice 
Guidelines (Apr. 25, 2012), available at https://www.efanniemae.com/home/index.jsp.
    \133\ Under HAMP, servicers must pre-screen all first lien 
mortgage loans where two or more payments are due and unpaid (at 
least 31 days delinquent). Servicers must proactively solicit for 
HAMP any borrower whose loan passes this pre-screen, unless the 
servicer has documented that the investor is not willing to 
participate in HAMP. See U.S. Dep't of Treasury & U.S. Dep't of 
Hous. & Urban Dev., MHA Handbook version 51 (June 1, 2011).
    \134\ ``Servicer shall commence outreach efforts to communicate 
loss mitigation options for first lien mortgage loans to all 
potentially eligible delinquent borrowers (other than those in 
bankruptcy) beginning on timelines that are in accordance with HAMP 
borrower solicitation guidelines set forth in the MHA Handbook 
version 3.2, Chapter II, Section 2.2, regardless of whether the 
borrower is eligible for a HAMP modification.'' National Mortgage 
Settlement: Consent Agreement A-23 (2012)(Loss Mitigation 
Communications with Borrowers), available at http://www.nationalmortgagesettlement.com.
    \135\ See U.S. Hous. & Urban Dev., Handbook 4330.1 REV-5, ch. 7, 
para. 7-7B, available at http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_14710.pdf.
---------------------------------------------------------------------------

    The Bureau is adjusting the timing by which a servicer must 
establish live contact from 30 to 36 days to be more consistent with 
GSE outbound call guidelines, HAMP, and the National Mortgage 
Settlement, and to give borrowers more time to cure a delinquency 
before a servicer attempts to establish live contact. In addition, a 
36-day deadline would help servicers screen for delinquent borrowers 
who regularly pay late, by permitting servicers to identify borrowers 
at risk of missing two payment deadlines before attempting efforts to 
contact them. The Bureau understands that servicers may not be able to 
complete an initial eligibility evaluation prior to the deadline for 
contact (potentially within five days after a second missed payment due 
date). However, the Bureau's rule would only require servicers to 
establish or make good faith efforts to establish live contact with 
borrowers and inform such borrowers of the availability of loss 
mitigation options promptly after establishing live contact ``if 
appropriate.'' Where a servicer determines that it would be appropriate 
to inform a borrower about the availability of such options, comment 
39(a)-3.ii clarifies that a servicer need not notify borrowers about 
specific loss mitigation options under 1024.39(a), but only that loss 
mitigation options may be available. In addition, even if servicers 
have not completed an initial eligibility evaluation by the time of 
oral contact, the Bureau believes delinquent borrowers would still 
benefit from hearing about any other loss mitigation options for which 
they may be eligible. The Bureau believes a 36-day standard would be 
consistent with the Settlement terms requiring servicers to commence 
outreach efforts after the second missed

[[Page 10795]]

payment. Under Sec.  1024.39(a), servicers must establish or make good 
faith efforts to establish live contact with borrowers by the 36th day 
of delinquency, which would occur after a second missed payment is due. 
Moreover, servicers need not inform borrowers of the availability of 
loss mitigation options at the time of establishing live contact (if 
appropriate); Sec.  1024.39(a) requires that they do so promptly after 
establishing live contact. The Bureau declines to adopt a requirement 
to contact borrowers as soon as they become delinquent because the 
Bureau believes such a requirement would be overbroad, as discussed 
above.
    The Bureau declines to adopt a general 40- or 45-day standard for 
all borrowers because the Bureau believes borrowers who may be 
experiencing the early stages of a long-term delinquency are, on 
balance, likely to benefit from earlier contact, and the Bureau 
believes that by the 36th day of a delinquency, servicers would know 
whether a borrower has missed two payments (subject only to the 
possibility that the payment will be received before the expiration of 
the grace period for the second payment). The Bureau believes that 
borrowers who miss two payments generally will present a greater 
financial risk than borrowers who are only one month late. The Bureau 
believes servicers should be required to establish live contact, or 
make good faith efforts to do so, not later than several days after a 
borrower has missed a second payment due date so the servicer may begin 
to learn about the circumstances of a borrower's delinquency. Of 
course, servicers may elect to contact borrowers sooner, and the Bureau 
believes most servicers will do so pursuant to GSE, FHA, and VA 
guidelines. Finally, the Bureau declines to permit servicers to delay 
contact for borrowers identified as low-risk based on a servicer's use 
of a behavior modeling tool. The Bureau is concerned that modeling 
tools used to predict future behavior are inherently imprecise and 
produce a certain percentage of false negatives--i.e., borrowers who 
are predicted to self-cure but do not. As also discussed below, at this 
time, the Bureau does not have sufficient data to evaluate or validate 
such tools.
    To account for situations in which a borrower proactively contacts 
the servicer about a late payment, proposed comment 39(a)-5 explained 
that, if the borrower contacts the servicer at any time prior to the 
end of the 30-day period to explain that the borrower expects to be 
late in making a payment, the servicer could provide the oral notice 
under proposed Sec.  1024.39(a) by informing the borrower at that time 
that loss mitigation options, if applicable, may be available. The 
Bureau did not receive comment on proposed comment 39(a)-5 or the two 
illustrative examples at proposed 39(a)-5.i.A or -5.i.B. The Bureau is 
omitting these comments from the final rule because the Bureau does not 
believe they are necessary in light of the clarifications provided in 
comment 39(a)-2 (establishing live contact).
    The Bureau proposed in Sec.  1024.39(a) to require a servicer to 
provide an oral notice, or make good faith efforts to do so, if the 
borrower is late in making ``a payment sufficient to cover principal, 
interest, and, if applicable, escrow.'' Thus, a servicer would not have 
been required to provide the oral notice if a borrower is late only 
with respect to paying a late fee for a given billing cycle. As 
explained in the proposal, the Bureau proposed this trigger because the 
Bureau believes there is low risk that borrowers will default solely 
because of accumulated late charges if they are otherwise current with 
respect to principal, interest, and escrow payments. The Bureau 
proposed to add comment 39(a)-3 to explain that, for purposes of 
proposed Sec.  1024.39(a), a payment would be considered late the day 
after a payment due date, even if the borrower is afforded a grace 
period before the servicer assesses a late fee. Thus, for example, if a 
payment due date is January 1, the servicer would be required to notify 
or make good faith efforts to notify the borrower not later than 30 
days after January 1 (i.e., by January 31) if the borrower has not 
fully paid the amount owed as of January 1 and the full payment remains 
due during that period.
    The Bureau did not receive comment on what constitutes a late 
payment for purposes of providing the oral notice and is adopting a 
substantially similar standard in the final rule, which the Bureau has 
defined as ``delinquency'' for purposes of Sec.  1024.39. The Bureau 
has added comment 39(a)-1.i to clarify that, for purposes of Sec.  
1024.39, delinquency begins on the day a payment sufficient to cover 
principal, interest, and, if applicable, escrow for a given billing 
cycle is due and unpaid, even if the borrower is afforded a period 
after the due date to pay before the servicer assesses a late fee. For 
example, if a payment due date is January 1 and the amount due is not 
fully paid during the 36-day period after January 1, the servicer must 
establish or make good faith efforts to establish live contact not 
later than 36 days after January 1--i.e., by February 6. Delinquency is 
calculated in a similar manner with respect to the written notice under 
Sec.  1024.39(b)(1) that must be provided by the 45th day of a 
borrower's delinquency. The Bureau uses the term ``delinquency'' in the 
final rule to improve and clarify the proposed regulatory text and 
intends no substantive difference from the proposal. Unlike proposed 
comment 39(b)(1)-2, comment 39(a)(1)-1.i does not use the term ``grace 
period'' but instead uses the phrase ``period of time after the due 
date has passed to pay before the servicer assesses a late fee.'' The 
Bureau intends no substantive difference between the final rule and the 
proposal, but has made this change to conform to similar changes in the 
Bureau's 2013 TILA Mortgage Servicing Final Rule.
    Proposed comment 39(a)-6 clarified that a servicer would not be 
required under Sec.  1024.39(a) to provide the oral notice to a 
borrower who is performing as agreed under a loss mitigation option 
designed to bring the borrower current on a previously missed payment. 
The Bureau did not receive comment on proposed comment 39(a)-6 and is 
adopting it substantially as proposed, but reorganized under comment 
39(a)-1 as a clarification to whether a borrower is ``delinquent'' for 
purposes of Sec.  1024.39(a). Thus, comment 39(a)-1.ii explains that a 
borrower who is performing as agreed under a loss mitigation option 
designed to bring the borrower current on a previously missed payment 
is not delinquent for purposes of Sec.  1024.39.
    Rural and community bank commenters requested clarification on 
whether the oral and written notices would be required to be provided 
on a recurring basis for borrowers who satisfy their mortgage payments 
late on a recurring basis and who may be unresponsive to servicer 
collection efforts. The Bureau has addressed the issue of recurring 
delinquencies with regard to the written notice below in the section-
by-section analysis of Sec.  1024.39(b), discussed below. With respect 
to the live contact requirement, servicers would be required to 
establish live contact or make good faith efforts to do so with 
borrowers to determine whether to inform borrowers of loss mitigation 
options. Thus, a servicer must establish live contact or make good 
faith effort to establish live contact, even with borrowers who are 
regularly delinquent, by the 36th day of a borrower's delinquency. 
However, it is within a servicer's reasonable discretion to determine 
whether it would be appropriate to inform a borrower who is delinquent 
on a recurring, month-to-month basis about the availability of loss 
mitigation options.

[[Page 10796]]

    Servicing transfers. The Bureau has added comment 39(a)-1.iii, 
which explains that, during the 60-day period beginning on the 
effective date of transfer of the servicing of any mortgage loan, a 
borrower is not delinquent for purposes of Sec.  1024.39 if the 
transferee servicer learns that the borrower has made a timely payment 
that has been misdirected to the transferor servicer and the transferee 
servicer documents its files accordingly.
    The Bureau has added this comment to address situations that may 
arise during the 60 days after a servicing transfer. RESPA section 6(d) 
provides that, during the 60-day period beginning on the effective date 
of transfer of servicing of any federally related mortgage loan, a late 
fee may not be imposed on the borrower with respect to any payment on 
such loan and no such payment may be treated as late for any other 
purposes, if the payment is received by the transferor servicer (rather 
than the transferee servicer who should properly receive the payment) 
before the due date applicable to such payment. 12 U.S.C. 2605(d). This 
provision is implemented through current Sec.  1024.21(d)(5), which the 
Bureau is moving and finalizing as Sec.  1024.33(c)(1). As explained in 
more detail in the section-by-section analysis of Sec.  1024.33(c)(1) 
above, the Bureau has added comment 33(c)(1)-2 to clarify a transferee 
servicer's compliance with 1024.39 during the 60-day period beginning 
on the effective date of a servicing transfer does not constitute 
treating a payment as late for purposes of Sec.  1024.33(c)(1). The 
Bureau has added comment 33(c)(1)-2 to address situations in which a 
transferee servicer does not know the reasons for a late payment but 
may still need to comply with Sec.  1024.39 in the face of this 
uncertainty.
    To account for situations in which the transferee servicer learns 
that a borrower has simply misdirected a timely payment, the Bureau has 
added comment 39(a)-1.iii to clarify that, during the 60-day period 
beginning on the effective date of transfer of the servicing of any 
mortgage loan, a borrower is not delinquent for purposes of Sec.  
1024.39 if the transferee servicer learns that the borrower has made a 
timely payment that has been misdirected to the transferor servicer and 
the transferee servicer documents its files accordingly. In such cases, 
the Bureau does not believe such borrowers should be treated as 
delinquent for purposes of Sec.  1024.39. Comment 39(a)-1.iii also 
contains cross-references to Sec.  1024.33(c)(1) and comment 33(c)(1)-
2. To clarify that this guidance also applies to Sec.  1024.39(b), 
comment 39(b)(1)-1 includes a cross-reference to comment 39(a)-1.
    Borrower's representative. Several consumer group commenters and a 
housing counseling organization requested that the Bureau clarify that 
a servicer must communicate with a borrower's representative. The 
Bureau agrees that, in certain situations, such as where the borrower 
is represented by an attorney, it may be appropriate for servicers to 
communicate with the borrower's authorized representative, particularly 
in situations involving delinquency that may result in foreclosure. 
Accordingly, the Bureau has added comment 39(a)-4 to explain that Sec.  
1024.39 does not prohibit a servicer from satisfying the requirements 
of Sec.  1024.39 by establishing live contact with, and, if applicable, 
providing information about loss mitigation to a person authorized by 
the borrower to communicate with the servicer on the borrower's behalf. 
The comment provides that a servicer may undertake reasonable 
procedures to determine if a person that claims to be an agent of a 
borrower has authority from the borrower to act on the borrower's 
behalf, for example by requiring that a person that claims to be an 
agent of the borrower provide documentation from the borrower stating 
that the purported agent is acting on the borrower's behalf. This 
comment is similar to comments 35(a)-1, 36(a)-1, and 40(a)-1.
    The Bureau does not believe it is necessary to specifically require 
servicers to communicate with a borrower's representative for purposes 
of Sec.  1024.39. By comparison, the requirements applicable to notices 
of error and information requests under Sec. Sec.  1024.35 and 36 
include comments 35(a)-1 and 36(a)-1, which explain that notices of 
error and information requests from a borrower's representative are 
treated the same way that servicers treat such communications from a 
borrower though the servicer may undertake reasonable procedures to 
determine if a person that claims to be an agent of a borrower has 
authority from the borrower to act on the borrower's behalf. In 
situations involving notices of error or information requests, in which 
a borrower requests through a representative that the servicer take 
some action that the servicer may not otherwise perform, there is some 
risk that a servicer might claim it had no obligation to act if the 
regulation only required actions with respect to the ``borrower.'' 
However, Sec.  1024.39 requires that servicers reach out to borrowers. 
Thus, the risk that servicers would claim they had no obligation to act 
with respect to a borrower is not present in this case; to the 
contrary, the Bureau believes it would mitigate the burden on the 
servicer to be able to communicate with either the borrower or the 
borrower's representative.
39(b) Written Notice
39(b)(1) Notice Required
    As discussed below, the Bureau is adopting a written notice 
requirement that has been slightly revised from the proposal. The 
Bureau proposed Sec.  1024.39(b)(1) to require servicers to provide 
borrowers who are late in making a payment with a written notice 
containing information about the foreclosure process, contact 
information for housing counselors and the borrower's State housing 
finance authority, and, if applicable, loss mitigation options. The 
Bureau proposed to require that this notice be provided not later than 
40 days after the payment due date. Proposed comment 39(b)(1)-1 
explained that the written notice would be required even if the 
servicer provided information about loss mitigation and the foreclosure 
process previously during the oral notice under Sec.  1024.39(a).
    Consumer advocacy groups were generally supportive of a written 
notice, although they recommended including more detail about loss 
mitigation options, application instructions, and foreclosure 
timelines. Industry commenters were concerned that the written notice 
requirement would conflict with existing early intervention 
requirements and recommended that the Bureau provide more flexibility 
with respect to the content of the notice and that the Bureau extend 
the deadline for providing the written notice. Some commenters 
questioned the necessity of the written notice in light of an oral 
notice requirement and other existing requirements.
    The Bureau is adopting a written notice requirement in the final 
rule at Sec.  1024.39(b). Borrowers may not receive information about 
loss mitigation options either because the servicer is unable to 
establish live contact with a borrower despite good faith efforts or 
because the servicer exercises reasonable discretion to determine that 
providing information about loss mitigation options is not appropriate. 
Further, as the Bureau noted in its proposal, even if a borrower 
receives information about the availability of loss mitigation options 
orally, the Bureau believes a written notice is still necessary if a 
borrower has not cured by

[[Page 10797]]

day 45 because borrowers may be unable to adequately assess and recall 
detailed information provided orally and the written notice would 
provide more information than what would likely have been provided 
under Sec.  1024.39(a).
    In addition, a written disclosure would provide borrowers with the 
ability to review the information or discuss it with a housing 
counselor or other advisor. Accordingly, the Bureau is adopting comment 
39(b)(1)-1 substantially as proposed. The proposed comment explained 
that the written notice would be required even if the servicer provided 
information about loss mitigation and the foreclosure process 
previously during an oral communication under Sec.  1024.39(a). In the 
final rule, the Bureau has omitted the reference to foreclosure and 
renumbered this comment as 39(b)(1)-4 for organizational purposes. The 
Bureau has also included new comment 39(b)(1)-3 to provide a cross-
reference to comment 39(a)-4 to clarify that the Bureau's guidance with 
respect to communicating with a borrower's representative also applies 
to the written notice provision at Sec.  1024.39(b).
    In response to comments, however, the Bureau is adjusting the 
timing of the notice from 40 to 45 days after a missed payment and is 
making certain adjustments to the proposed content of the notice. To 
assist servicers in complying with the notice requirement, the Bureau 
is adopting model clauses, referenced in Sec.  1024.39(b)(3), which the 
Bureau has amended. The model clauses are discussed in the section-by-
section analysis of appendix MS-4.
    Some industry commenters were concerned that the breadth of the 
definition of ``Loss mitigation options'' would require servicers to 
offer options or take actions inconsistent with investor or guarantor 
requirements.
    The Bureau does not believe the written notice requirement in Sec.  
1024.39(b) will pose a conflict with investor or guarantor requirements 
and is adopting it as applicable to servicers of all mortgage loans, 
with certain exemptions and limitations in scope, as discussed 
above.\136\ Given the breadth of the definition of ``Loss mitigation 
option'' and the general industry practice of offering some sort of 
short-term relief or at least accepting a deed-in-lieu of foreclosure, 
the Bureau expects that few servicers would not offer any loss 
mitigation options. In addition, the definition of ``Loss mitigation 
option'' is limited to options offered by the owner or assignee of a 
mortgage loan that are available through the servicer. Thus, options 
that are not offered by an owner or assignee and thus not available 
through the servicer would not be required to be listed. In addition, 
the Bureau has developed flexible content requirements in the written 
notice with regard to how and which loss mitigation options are 
described. Finally, the Bureau has retained the ``if applicable'' 
qualifier in Sec.  1024.39(b)(2) setting forth requirements to describe 
loss mitigation options. Thus, if an owner or assignee of a loan offers 
no loss mitigation options for delinquent borrowers, the servicer would 
not be required to include statements describing loss mitigation 
options, but would still be required to send a notice encouraging the 
borrower to contact the servicer and containing information about 
housing counselors; the Bureau believes borrowers would benefit from 
information about how to contact their servicer or housing counselors 
to ask questions, for example, about how the foreclosure process works.
---------------------------------------------------------------------------

    \136\ As discussed in the section-by-section analysis of Sec.  
1024.30(b), above, the Bureau is adopting exemptions from Sec.  
1024.39 for small servicers, servicers with respect to reverse 
mortgage transactions, and servicers with respect to mortgage loans 
for which the servicer is a qualified lender (as defined in 12 CFR 
617.7000). In addition, as discussed in the section-by-section 
analysis of Sec.  1024.30(c), Sec.  1024.39 does not apply to any 
mortgage loan that is not secured by a borrower's principal 
residence.
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45th Day of Delinquency
    Similar to the proposed oral notice, the Bureau proposed in Sec.  
1024.39(b) to require servicers to provide the written notice if a 
borrower is late in making a payment sufficient to cover principal, 
interest, and, if applicable, escrow. However, unlike the proposed oral 
notice that servicers would have been required to provide, or make good 
faith efforts to provide, not later than 30 days after a payment due 
date, the Bureau proposed to require that the written notice be 
provided not later than 40 days after the payment due date. The Bureau 
had proposed a 40-day deadline to provide borrowers a reasonable 
opportunity to cure a short-term delinquency while also ensuring that 
they received information on loss mitigation options at the early 
stages of a delinquency. The Bureau proposed to permit servicers to 
provide the written notice at any time during the 40-day period. The 
Bureau proposed a deadline for the written notice that occurred after 
the 30-day deadline for the proposed oral notice to provide servicers 
an opportunity to tailor the written notice and other information to 
the borrower's individual circumstances following the oral notice. 
However, servicers would also have had the option of sending the notice 
at any time after the borrower's missed payment. The Bureau proposed to 
include guidance at comment 39(b)(1)-2 to clarify that servicers should 
consider a payment late in the same manner as they would for purposes 
of calculating when the oral notice must be provided. The Bureau 
solicited comment on whether the written deadline should be extended to 
45 days, 65 days, or longer.
    Consumer advocacy groups and one industry commenter were generally 
supportive of the timing of the written notice as proposed, although 
one consumer advocacy group recommended that borrowers receive a more 
detailed notice 60 days after the missed payment following a lighter 
notice about loss mitigation options immediately after a delinquency. 
Most industry commenters recommended that the Bureau extend the 
deadline for the written notice to sometime between 45 and 70 days 
after a missed payment. Industry commenters argued that extending the 
deadline would preserve servicer flexibility in managing delinquencies 
and reduce the compliance burden in light of existing early 
intervention practices and requirements. Similar to arguments made 
about the proposed oral notice, industry commenters and a Federal 
agency expressed concern that informing a borrower of loss mitigation 
options that the borrower does not qualify for or that are not 
available to the borrower could cause borrower confusion and impede the 
resolution of delinquent loans.
    Industry commenters and several consumer advocacy groups noted that 
extending the deadline for the written notice would allow servicers 
time to distinguish between high- and low-risk borrowers, allowing 
servicers to focus on high-risk borrowers while avoiding the need to 
make contact with borrowers who are able to self-cure the occasional 
late payment or those who are repeatedly delinquent but who eventually 
make their payments. Several industry commenters recommended that the 
Bureau extend the deadline to 60 days to permit servicers additional 
time to complete an eligibility assessment required under HAMP and the 
National Mortgage Settlement. One trade association noted that the 
Bureau's original outline of proposals under consideration included a 
proposal for servicers to provide borrowers with written information 
about loss mitigation options within five days after notifying the 
servicer that they may have trouble making their payments.

[[Page 10798]]

The commenter requested that this be a requirement in the final rule.
    In addition, as with the proposed oral notice, industry commenters 
were concerned that the Bureau's requirements may be duplicative of or 
not perfectly aligned with existing State and Federal requirements, GSE 
guidelines, consent orders, and settlement agreements. Many industry 
commenters noted that a 40-day deadline would be premature and that it 
would be more efficient, common, and would avoid borrower confusion to 
send the notice by 45 days after a missed payment, consistent with 
other notices that servicers send by that time, such as breach letters, 
a notice under section 106(c)(5) of the Housing and Urban Development 
Act of 1968, as amended, regarding the availability of housing 
counselors (12 U.S.C. 1701x(c)(5)(B)), and a notice under the 
Servicemembers Civil Relief Act (50 U.S.C. App. 501 et seq.).\137\ One 
large servicer explained that extending the deadline from 40 to 45 days 
would still provide borrowers with sufficient notice of loss mitigation 
options before a servicer begins the foreclosure process. One industry 
commenter recommended that the Bureau extend the deadline to 50 days 
after the payment due date to better accommodate other loss mitigation-
related communications that go out by the 45th day of delinquency. In 
addition, a variety of servicers and trade associations requested 
additional flexibility in delivering the content of the written notice, 
such as by combining the proposed written notice requirement with 
existing notices.
---------------------------------------------------------------------------

    \137\ See Form, U.S. Hous. & Urban Dev., Service Members Civil 
Relief Act Form HUD-92070 (June 30, 2011), available at http://portal.hud.gov/hudportal/documents/huddoc?id=92070.pdf.
---------------------------------------------------------------------------

    The GSEs, certain large lenders, and trade associations, as well as 
several consumer advocacy groups, recommended that the Bureau permit 
servicers to send the written notice by the 60th, 65th or 70th day of a 
borrower's delinquency. Other industry commenters and a few consumer 
advocacy groups recommended that the Bureau extend the deadline to 
sometime between 60 and 70 days after a missed payment. A number of 
commenters expressed concern that the proposed 40-day notice was not in 
line with GSE guidelines that permit servicers to send a loss 
mitigation solicitation package to borrowers identified by the servicer 
as low default risks by the 65th day of the borrower's delinquency. 
Other commenters recommended that the Bureau permit an exemption from 
the 40-day deadline for servicers to comply with a later deadline if 
the servicer uses behavior modeling to identify chronically late payers 
that do not appear at risk of serious delinquency and where the notice 
is unlikely to be helpful, in order to better align with GSE practice.
    Based on comments received, the Bureau is adopting a 45-day 
deadline rather than a 40-day deadline in the final rule. First, the 
Bureau believes that a 45-day deadline strikes an appropriate balance 
between permitting servicers flexibility in managing delinquencies and 
providing borrowers information at the early stages of a delinquency. 
Some borrowers are in the habit of making their mortgage payments after 
the due date in order to take advantage of the 15-day period generally 
available to make payment without incurring a late fee. A borrower who 
has missed a payment entirely may likewise wait until up to the 15th 
day after the next payment is due (i.e., the 45th day after the initial 
payment was due) before making a payment. A 45-day deadline would 
permit borrowers to receive a written notice of loss mitigation options 
at the early stages of their delinquency while also permitting 
servicers to distinguish between borrowers who can self-cure out of a 
30-day delinquency and those experiencing longer-term problems. The 
Bureau believes that the fact that a borrower has not satisfied a late 
payment by the 45th day of a delinquency generally indicates that such 
borrower is having difficulty making payments and should be informed of 
the availability of loss mitigation options.
    The Bureau understands that some servicers may not be able to 
complete eligibility assessments for borrowers by the 45th day of a 
delinquency under HAMP (which is set to expire by December 31, 
2013).\138\ However, the Bureau's rule would not require that servicers 
make a determination of eligibility of loss mitigation options by this 
time; they require only that they notify borrowers that loss mitigation 
options may be available. The Bureau has crafted flexible content 
standards that would not require servicers to list specific loss 
mitigation options in the written notice. With respect to the National 
Mortgage Settlement, the Bureau believes a 45-day standard would be in 
line with the Settlement terms requiring servicers to commence outreach 
efforts after the second missed payment.
---------------------------------------------------------------------------

    \138\ See U.S. Dep't of Treasury & U.S. Dep't of Hous. & Urban 
Dev., Home Affordable Modification Program, available at http://www.makinghomeaffordable.gov/programs/lower-payments/Pages/hamp.aspx.
---------------------------------------------------------------------------

    The Bureau understands that GSE servicers have additional 
flexibility in providing the solicitation package to certain lower-risk 
borrowers as late as the 65th day of their delinquency.\139\ As noted 
above, several industry commenters and consumer advocacy groups 
recommended that the Bureau extend the deadline for the written notice 
to sometime between 60 and 70 days after a missed payment in order to 
accommodate this GSE practice. However, the Bureau is not adopting an 
exemption for servicers who use behavior modeling tools to identify 
lower-risk borrowers for the following reasons. Evidence available to 
the Bureau indicates that the longer a borrower remains delinquent, the 
more difficult it can be to avoid foreclosure,\140\ particularly as a 
borrower experiences a delinquency lasting 60 days or longer.\141\ 
While waiting to day 65 to see if a delinquent borrower has self-cured 
may be appropriate for low-risk borrowers, modeling tools to predict 
future behavior are inherently imprecise and identify a certain number 
of borrowers who are predicted to self-cure but do not. At this time, 
the Bureau does not have data with which to validate or evaluate such 
models. Further, the Bureau is concerned that if these borrowers are 
not informed of their options until the beginning of the third month of 
their delinquency, it may be

[[Page 10799]]

more difficult for them to find a solution than if they were notified 
sooner.
---------------------------------------------------------------------------

    \139\ The GSEs allow servicers to rely on the results of a 
behavioral modeling tool to evaluate a borrower's risk profile. U.S. 
Consumer Fin. Prot. Bureau, Final Report of the Small Business 
Review Panel on CFPB's Proposals Under Consideration for Mortgage 
Servicing Rulemaking, 30 (Jun, 11, 2012).
    \140\ See, e.g., John C. Dugan, Comptroller, Office of the 
Comptroller of the Currency, Remarks Before the NeighborWorks 
America Symposium on Promoting Foreclosure Solutions (June 25, 
2007); Laurie S. Goodman et al., Amherst Securities Group LP, 
Modification Effectiveness: The Private Label Experience and Their 
Public Policy Implications 5-6 (June 19, 2012); Michael A. Stegman 
et al., Preventative Servicing, 18 Hous. Policy Debate 245 (2007); 
Amy Crews Cutts & William A. Merrill, Interventions in Mortgage 
Default: Policies and Practices to Prevent Home Loss and Lower Costs 
11-12 (Freddie Mac, Working Paper No. 08-01, 2008).
    \141\ See Amy Crews Cutts & William A. Merrill, Interventions in 
Mortgage Default: Policies and Practices to Prevent Home Loss and 
Lower Costs 12 (Freddie Mac, Working Paper No. 08-01, 
2008)(examining the success of repayment plans, the authors found 
that ``[t]he cure rate among loans that are only 30 days delinquent 
is just under 60 percent, but that rate falls to less than 30 
percent if they are 3 or more payments behind at the onset of the 
plan''); Laurie S. Goodman et al., Amherst Securities Group LP, 
Modification Effectiveness: The Private Label Experience and Their 
Public Policy Implications 6 (June 19, 2012).
---------------------------------------------------------------------------

    The Bureau appreciates that a 45-day notice requirement might 
result in notices to borrowers who would self-cure without any notice. 
On balance, however, the Bureau believes it is appropriate to be 
potentially overbroad to avoid situations in which borrowers may not 
receive any information until potentially three months of missed 
payments. The Bureau has sought to address the compliance burden on GSE 
servicers who use behavior modeling tools by creating flexible content 
standards for the written notice. The Bureau has also sought to limit 
the burden of sending the notice by limiting the number of times a 
borrower would receive the notice, as discussed in more detail below.
    In addition, the Bureau believes a 45-day deadline would be more 
consistent with other notices that servicers send by that time than the 
40-day deadline as originally proposed. As discussed in more detail in 
the section-by-section analysis of Sec.  1024.39(b)(2), the Bureau has 
sought to adopt flexible content requirements for the 45-day written 
notice to accommodate existing early intervention notices. The Bureau 
agrees that permitting servicers to comply with Sec.  1024.39(b) by 
combining other notices that go out at this time would reduce possible 
confusion among borrowers as well as compliance burden. See the 
discussion of comment 39(b)(2)-3 below. Servicers of VA loans generally 
must provide borrowers with a letter if payment has not been received 
within 30 days after it is due and telephone contact could not be 
made.\142\ HUD generally requires servicers of FHA-insured loans to 
provide each mortgagor in default HUD's ``Avoiding Foreclosure'' 
pamphlet, or a form developed by the mortgagee and approved by HUD, not 
later than the end of the second month of delinquency, although HUD 
recommends sending the form by the 32nd day of delinquency in order to 
prevent foreclosures from proceeding where avoidable.\143\
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    \142\ ``This letter should emphasize the seriousness of the 
delinquency and the importance of taking prompt action to resolve 
the default. It should also notify the borrower(s) that the loan is 
in default, state the total amount due and advise the borrower(s) 
how to contact the holder to make arrangements for curing the 
default.'' 38 CFR 36.4278(g)(iii).
    \143\ See 24 CFR 203.602; U.S. Hous. & Urban Dev., HUD Handbook 
4330.1 rev-5, ch. 7, para. 7-7(G).
---------------------------------------------------------------------------

    Section 106(c)(5) of the Housing and Urban Development Act of 1968, 
as amended, generally requires creditors to provide notice of 
homeownership counseling to eligible delinquent borrowers not later 
than 45 days after a borrower misses a payment due date. 12 U.S.C. 
1701x(c)(5)(B). In addition, HUD has developed a notice pursuant to the 
Servicemembers Civil Relief Act, as amended, providing notice of 
servicemembers' rights that must be provided within 45 days of a missed 
payment. Servicers of GSE loans are expected to send a written package 
soliciting delinquent borrowers to apply for loss mitigation options 31 
to 35 days after a payment due date, unless the servicer has made 
contact with the borrower and received a promise to cure the 
delinquency within 30 days.\144\
---------------------------------------------------------------------------

    \144\ See Fannie Mae, Letters and Notice Guidelines (Apr. 25, 
2012), available at https://www.efanniemae.com/home/index.jsp; 
Freddie Mac Single-Family Seller/Servicing Guide, Volume 2, Chapter 
64.5 (2012). During the Small Business Panel Review outreach, SERs 
that service for Fannie Mae and Freddie Mac generally described 
strict rules and tight timeframes in dealing with delinquent 
borrowers. See Small Business Review Panel Report at 25.
---------------------------------------------------------------------------

    The Bureau is not adopting a requirement in the final rule for 
servicers to provide the Sec.  1024.39(b) written notice based solely 
on a borrower's indication of difficulty in making payment. The Bureau 
notes that, pursuant to Sec.  1024.39(a) and comment 39(a)-3.i, 
servicers must promptly inform borrowers of the availability of loss 
mitigation options if appropriate, which servicers may determine based 
on their exercise of reasonable discretion. If the servicer determines 
informing a borrower of loss mitigation options is appropriate, they 
may choose to do so orally or in writing, in accordance with comment 
39(a)-3.ii. The Bureau believes a strict 45-day deadline for the 
written notice required under Sec.  1024.39(b) is necessary to mitigate 
the risk that borrowers may not receive notice of the availability of 
loss mitigation options pursuant Sec.  1024.39(a): a servicer may not 
establish live contact with a borrower despite good faith efforts to 
do, or a servicer may make a reasonable determination that such notice 
is not appropriate under Sec.  1024.39(a). In addition, as previously 
noted, a single deadline would provide servicers with flexibility, 
within the deadline, to determine the most appropriate time to provide 
the written notice, e.g., for borrowers who may be able to self-cure. 
Finally, the Bureau believes that new Sec.  1024.36, which will require 
servicers to respond to information requests, and new Sec.  
1024.38(b)(2)(i), which requires servicers to maintain policies and 
procedures that are reasonably designed to ensure that servicers 
provide accurate information regarding loss mitigation options 
available to a borrower, will address situations in which borrowers 
request information about loss mitigation and foreclosure.
    In the final rule, the Bureau uses the term ``delinquency'' to 
identify when the 45-day period begins. The Bureau has clarified the 
meaning of delinquency in commentary in a manner substantially similar 
to the late payment trigger that was proposed in Sec.  1024.39(b). 
Accordingly, in the final rule, Sec.  1024.39(a) requires a servicer to 
provide the written notice not later than the 45th day of ``a 
borrower's delinquency.'' Comment 39(b)(1)-1 contains a cross-reference 
to comment 39(a)-1, which generally explains that delinquency begins on 
the day a payment sufficient to cover, principal, interest, and, if 
applicable, escrow for a given billing cycle is due and unpaid, even if 
the borrower is afforded a period of time after the due date has passed 
to pay before the servicer assesses a late fee. The cross-reference 
also clarifies that a borrower is not delinquent for purposes of Sec.  
1024.39 if the borrower is performing as agreed under a loss mitigation 
option designed to bring the borrower current on a previously missed 
payment.
    Comment 39(b)(1)-1 provides an example substantially similar to the 
example proposed as comment 39(b)(1)-2, in which a borrower misses a 
January 1 payment that remains due during the 45-day period after 
January 1, requiring that the servicer provide the written notice by 
February 15. Comment 39(b)(1)-1 also contains an example similar to the 
example in proposed comment 39(b)(1)-3, which explained that a servicer 
is not required to provide the written notice if the borrower makes the 
payment during the 45 days after the payment due date. The Bureau has 
also replaced the 40-day period in the comment with a 45-day period to 
conform to changes adopted in the final rule regarding the timing of 
the written notice. The Bureau has made this change to clarify that the 
notice must be provided only if the borrower is delinquent, and must be 
provided not later than the 45th day of the borrower's delinquency.
Frequency of the Notice
    Proposed Sec.  1024.39(b)(1) would have provided that a servicer 
would not be required to provide the written notice under Sec.  
1024.39(b) more than once during any 180-day period beginning on the 
date on which the disclosure is provided. Proposed comment 39(b)(1)-4 
further explained that, notwithstanding this limitation, a servicer 
would still be

[[Page 10800]]

required to provide the oral notice required under Sec.  1024.39(a) for 
each payment that is overdue. Several commenters provided feedback on 
the frequency of the written notice. Two consumer advocacy groups 
recommended that the Bureau require the notice be resent if the 
borrower redefaults on the mortgage loan. Other consumer advocacy 
groups recommended that servicers provide the notice again based on the 
results of a behavior modeling tool.
    The Bureau is retaining the proposed 180-day limitation in Sec.  
1024.39(b)(1). The Bureau is also retaining substantially all of the 
language in comment 39(b)(1)-4, which the Bureau is renumbering to 
comment 39(b)(1)-2. The Bureau has replaced the 40-day time periods in 
the examples in the commentary with 45-day time periods to conform to 
the final rule; the Bureau is also omitting the reference in the 
proposed comment to 39(a) in the last example in light of the Bureau's 
change to the nature of the proposed oral notice.
    The Bureau is requiring that servicers provide the notice once 
every 180 days to limit the number of times a servicer would have to 
send the notice to borrowers who consistently pay late but otherwise 
eventually make their payments. The Bureau does not believe that 
borrowers who consistently carry a short-term delinquency would benefit 
from receiving the same written notice every month. Because Sec.  
1024.32 requires that the written notice be provided in a form the 
borrower may keep, borrowers would be able to retain the disclosure for 
future reference. In addition, a 180-day timeframe is generally 
consistent with HUD's requirement that, in connection with FHA loans, 
HUD's ``Avoiding Foreclosure'' pamphlet must be resent to delinquent 
borrowers unless the beginning of the new delinquency occurs less than 
six months after the pamphlet was last mailed.\145\
---------------------------------------------------------------------------

    \145\ See 24 CFR 203.602; U.S. Hous. & Urban Dev., HUD Handbook 
4330.1 rev-5, ch. 7, para. 7-7(G).
---------------------------------------------------------------------------

    The Bureau believes that the requirement to provide the notice once 
every 180 days as well as the requirement in Sec.  1024.40(a) to make 
servicer personnel available to borrowers not later than the 45th day 
of a borrower's delinquency will, as a practical matter, address 
situations in which borrowers may redefault. Further, Sec.  1024.39(a) 
requires that servicers establish or make good faith efforts to 
establish live contact with borrowers with respect to every delinquency 
and promptly inform such borrowers that loss mitigation options may be 
available if appropriate, subject to a servicer's reasonable exercise 
of discretion. In addition, borrowers who previously worked with 
servicer personnel assigned under the continuity of contact rule to 
develop a loss mitigation option would know that they may contact their 
servicer to discuss loss mitigation options. The Bureau is not adopting 
an exemption based on a servicer's use of a behavior modeling tool for 
the reasons discussed above with respect to the timing of the written 
notice.
39(b)(2) Content of the Written Notice
In General
    The Bureau proposed to add new Sec.  1024.39(b)(2) to set forth 
information that servicers would be required to include in the written 
notice. Under paragraphs (b)(2)(i) and (b)(2)(ii) of proposed Sec.  
1024.39, servicers would have been required to include a statement 
encouraging the borrower to contact the servicer, along with the 
servicer's mailing address and telephone number. Under paragraphs 
(b)(2)(iii) and (b)(2)(iv) of proposed Sec.  1024.39, servicers would 
have been required, if applicable, to include a statement providing a 
brief description of loss mitigation options that may be available, as 
well as a statement explaining how the borrower can obtain additional 
information about those options. Proposed Sec.  1024.39(b)(2)(v) would 
have required servicers to include a statement explaining that 
foreclosure is a process to end the borrower's ownership of the 
property. Proposed Sec.  1024.39(b)(2)(v) also would have required 
servicers to provide an estimate for when the servicer may start the 
foreclosure process. This estimate would have been required to be 
expressed in a number of days from the date of a missed payment. 
Finally, proposed Sec.  1024.39(b)(iv) would have required servicers to 
include contact information for any State housing finance authorities, 
as defined in FIRREA section 1301, for the State in which the property 
is located, and either the Bureau or HUD list of homeownership 
counselors or counseling organizations.
    Industry commenters, particularly smaller servicers, were generally 
concerned that the written notice was too prescriptive. A number of 
industry commenters requested clarification whether the Bureau's notice 
would be in addition to other similar notices that servicers may be 
already providing to borrowers. A variety of servicers and several 
trade associations recommended that the Bureau permit servicers to 
combine the Sec.  1024.39(b) notice with other notices servicers send 
around the 45-day time period to improve efficiency and reduce the risk 
of information overload. One industry commenter recommended that the 
Bureau allow an exemption from the written notice where existing 
notices satisfy the content requirements of the rule, or permit 
servicers to consolidate the required information into an existing 
letter. A non-bank servicer requested clarification on whether 
servicers would have flexibility in how servicers delivered the content 
in the written notices, such as by permitting the use of logos, color, 
web sites, and additional information beyond what was required.
    Many consumer advocacy groups requested that the Bureau require 
more information in the written notice, particularly information about 
all available loss mitigation options from the servicer, detailed 
application instructions and eligibility requirements, and foreclosure 
referral deadlines. One coalition of consumer advocacy groups supported 
the Bureau's proposal to include model clauses, explaining that they 
would mitigate the cost of creating written notice forms, but would 
also set an essential standard for content and level of detail, and 
help ensure that all borrowers receive the same information, regardless 
of the type of servicer.
    As noted in the proposal, the Bureau sought to establish minimum 
standards such that servicers that are already providing adequate 
notices of loss mitigation options would already be in compliance. The 
Bureau is not adopting standardized written notices because the Bureau 
continues to believe an overly-prescriptive written notice may not 
account for the variety of situations posed by delinquent borrowers or 
the variety of loss mitigation options available from investors and 
guarantors. Thus, the Bureau is adopting generally applicable minimum 
content requirements that can be tailored to a specific situations, as 
discussed in more detail in the section-by-section analysis of Sec.  
1024.39(b)(2) below. As discussed above in the section-by-section 
analysis of Sec.  1024.30(b), the Bureau is granting exemptions from 
Sec.  1024.39 for small servicers, servicers with respect to reverse 
mortgages, and servicers with respect to any mortgage loan for which 
the servicer is a qualified lender as that term is defined in 12 CFR 
617.7000.
    The Bureau believes that permitting servicers to incorporate 
relevant portions of the notice required under Sec.  1024.39(b)(1) into 
other disclosures that already include some or all of the statements 
required by Sec.  1024.39(b)(2)

[[Page 10801]]

would reduce the potential for borrower confusion otherwise resulting 
from duplicative statements. Accordingly, the Bureau has added comment 
39(b)(2)-3 to clarify that servicers may satisfy the requirement to 
provide the written notice by grouping other notices that satisfy the 
content requirements of Sec.  1024.39(b)(2) into the same mailing, 
provided each of the required statements satisfies the clear and 
conspicuous standard in Sec.  1024.32(a)(1).
    To accommodate existing servicer requirements and practices, 
proposed comment 39(b)(2)-1 explained that a servicer may provide 
additional information beyond the proposed content requirements that 
the servicer determines would be beneficial to the borrower. This would 
include any additional disclosures that servicers believe would be 
helpful, such as directing borrowers to Web sites. In addition, 
proposed comment 39(b)(2)-2 explained that any color, number of pages, 
size and quality of paper, type of print, and method of reproduction 
may be used so long as the disclosure is clearly legible. The Bureau is 
adopting comments 39(b)(2)-1 and 39(b)(2)-2 substantially as proposed. 
The Bureau has further amended proposed comment 39(b)(2)-1 to provide 
that servicers may provide additional information that the servicer 
determines would be helpful ``or which may be required by applicable 
law or the owner or assignee of the mortgage loan.'' The Bureau has 
added this language to clarify that servicers may provide additional 
content that may be required by, for example, State law. The Bureau has 
revised guidance in proposed comment 39(b)(2)-2 that had clarified that 
the statements required by Sec.  1024.39(b)(2) must be ``clearly 
legible.'' Instead, comment 39(b)(2)-2 explains that the statements 
required by Sec.  1024.39(b)(2) must satisfy the clear and conspicuous 
standard in Sec.  1024.32(a)(1). The Bureau has made this revision in 
order to clarify that the Sec.  1024.39(b) written notice is subject to 
the same legibility standard applicable to other notices, pursuant to 
Sec.  1024.32(a)(1).
    Finally, the Bureau notes that comment MS-2, which provides 
commentary that is generally applicable to the model forms and clauses 
in appendix MS, clarifies that, except as otherwise specifically 
required, servicers may add graphics or icons, such as the servicer's 
corporate logo, to the model forms and clauses. Thus, it is unnecessary 
to include a comment to Sec.  1024.39(b)(2) to clarify that servicers 
may include corporate logos. The Bureau has addressed consumer group 
comments regarding additional content for the written notice below.
Statement Encouraging the Borrower to Contact the Servicer
    Proposed Sec.  1024.39(b)(2)(i) would have required the written 
notice to include a statement encouraging the borrower to contact the 
servicer. The Bureau did not receive comment on this requirement and is 
adopting it as proposed, renumbered as Sec.  1024.39(b)(2)(i). As noted 
in its proposal, the Bureau believes that a statement informing 
borrowers that the servicer can provide assistance with respect to 
their delinquency is necessary to facilitate a discussion between the 
borrower and the servicer at the early stages of delinquency. Many 
borrowers do not know that their servicer can help them avoid 
foreclosure if they are having trouble making their monthly payments. 
The Bureau believes a statement encouraging the borrower to call would 
help remove this barrier to borrower-servicer communication.
    Proposed comment 39(b)(2)(i)-1 explained that the servicer would 
not be required, for example, to specifically request the borrower to 
contact the servicer regarding any particular loss mitigation option. 
The Bureau is not adopting this comment in the final rule because the 
Bureau does not believe it is necessary in light of comment 
39(b)(2)(iii)-1, which explains that Sec.  1024.39(b)(2)(iii) does not 
require that a specific number of examples be disclosed in the written 
notice.
Contact Information for the Servicer
    To facilitate a dialogue between the servicer and the borrower, 
proposed Sec.  1024.39(b)(2)(ii) would have required the written notice 
to include the servicer's mailing address and telephone number. 
Proposed comment 39(b)(2)(ii)-1 had explained that, if applicable, a 
servicer should provide contact information that would put a borrower 
in touch with servicer personnel under the continuity of contact rule 
at Sec.  1024.40. Under Sec.  1024.40(a)(2), servicers are generally 
required to maintain policies and procedures that are reasonably 
designed to achieve the objective of ensuring that a servicer makes 
available to a delinquent borrower telephone access to servicer 
personnel to respond to borrower inquiries and, as applicable, assist 
with loss mitigation options by the time the servicer provides the 
borrower with the Sec.  1024.39(b) written notice, but in any event not 
later than the 45th day of a borrower's delinquency. See the section-
by-section analysis of Sec.  1024.40(a) below.
    The Bureau is moving language from comment 39(b)(2)(ii)-1 to 
regulation text to clarify that servicers are required to provide the 
telephone number to access servicer personnel assigned under Sec.  
1024.40(a) and the servicer's mailing address. The Bureau believes it 
is more appropriate to include as a requirement of Sec.  
1024.39(b)(2)(ii), rather than as commentary, that servicers must 
provide in the written notice the telephone number to access continuity 
of contact personnel. The Bureau believes that including this contact 
information will help direct borrowers to continuity of contact 
personnel who will be able to assist delinquent borrowers.
Brief Description of Loss Mitigation Options
    Proposed Sec.  1024.39(b)(2)(iii) would have required that the 
written notice include a statement, if applicable, providing a brief 
description of loss mitigation options that may be available from the 
servicer. Proposed comment 39(b)(2)(iii)-1 explained that Sec.  
1024.39(b)(2)(iii) does not mandate that a specific number of examples 
be disclosed, but explained that borrowers are likely to benefit from 
examples that permit them to remain in their homes and examples of 
options that would require that borrowers end their ownership of the 
property in order to avoid foreclosure. Proposed comment 39(b)(2)(iii)-
2 explained that an example of a loss mitigation option may be 
described in one or more sentences. Proposed comment 39(b)(2)(iii)-2 
also explained that if a servicer offers several loss mitigation 
programs, the servicer may provide a generic description of each option 
instead of providing detailed descriptions of each program. The comment 
explained, for example, that if a servicer provides several loan 
modification programs, it may simply provide a generic description of a 
loan modification.
    Many consumer advocacy groups recommended that servicers should be 
required to provide detailed information about all loss mitigation 
options available from the servicer. One consumer group recommended 
that servicers provide individually tailored information about a 
borrower's options depending on the nature of the borrower's loan. 
Another recommended that servicers be required to inform borrowers 
specifically what type of loan they have and what options are available 
to them. By contrast, several industry commenters recommended that the 
description of loss mitigation options should be minimal, asserting 
that lengthy explanations could confuse,

[[Page 10802]]

overwhelm, and discourage borrowers from reaching out to their 
servicer. One large servicer indicated that, in its experience, 
providing borrowers with more generic information about loss mitigation 
options resulted in better contact rates and pull through to complete 
loan modifications. One industry commenter recommended that any 
communication regarding loss mitigation options should explicitly state 
that all loss mitigation options have qualification requirements and 
that not all options are available to all consumers to address the risk 
that listing options that are not available to certain borrowers could 
be perceived as deceptive.
    The Bureau is adopting proposed Sec.  1024.39(b)(2)(iii) and the 
associated commentary substantially as proposed. The Bureau is amending 
the regulatory text of proposed Sec.  1024.39(b)(2)(iii) to require 
that servicers are required to describe only ``examples'' of loss 
mitigation options that may be available. The Bureau has made this 
revision to clarify the nature of the requirement, consistent with 
proposed comment 39(a)(2)(iii)-1, which explained that the regulation 
does not mandate that a specific number of examples be disclosed.
    At the time the Bureau proposed its early intervention requirements 
for the Small Business Panel, the Bureau considered requiring servicers 
to provide a brief description of any loss mitigation programs 
available to the borrower.\146\ However, the Bureau did not propose, 
and is not requiring in the final rule, that servicers list all of the 
loss mitigation options they offer. The Bureau understands that, 
pursuant to investor or guarantor requirements, eligibility criteria 
for certain loss mitigation options are complex and may depend on 
circumstances that may arise over the course of a borrower's 
delinquency. In addition, the Bureau understands that loss mitigation 
options may comprise several programs; servicers may have, for example 
several different types of loan modification options. The Bureau 
understands that there may be operational difficulties associated with 
explaining subtle differences among these programs in a written notice. 
Moreover, the Bureau is concerned that a lengthy written notice may 
undermine the intended effect of encouraging borrowers to contact their 
servicers to discuss their options. The Bureau is not requiring 
servicers to provide each borrower with an individually tailored 
written notice about that borrower's options because the Bureau does 
not believe it would be practicable for servicers to provide such a 
notice at this stage of a borrower's delinquency or without additional 
information about a borrower's particular circumstances. Instead, the 
Bureau believes borrowers would be better served by servicer continuity 
of contact personnel explaining, in accordance with policies and 
procedures required under Sec.  1024.40(b), the various loss mitigation 
options for which borrowers may be eligible.
---------------------------------------------------------------------------

    \146\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, appendix C (Jun, 11, 2012).
---------------------------------------------------------------------------

    In lieu of providing borrowers with information about every option, 
the Bureau proposed that the written notice contain a statement, if 
applicable, informing borrowers how to obtain more information about 
loss mitigation options from the servicer, as well as contact 
information for housing counseling resources that could provide 
borrowers with information about other loss mitigation options that 
might not be listed on the written notice. As adopted in the final 
rule, the notice must also include the telephone number to access 
servicer personnel assigned under Sec.  1024.40(a). In addition, the 
Bureau has included requirements in Sec.  1024.40(b)(1) for servicers 
to establish policies and procedures reasonably designed to achieve the 
objectives of providing accurate information regarding loss mitigation 
options. Pursuant to Sec.  1024.38(b)(2)(ii), servicers must also 
establish policies and procedures reasonably designed to achieve the 
objective of identifying all loss mitigation options for which a 
borrower may be eligible. For these reasons and those set forth in the 
proposal, the Bureau is adopting the Sec.  1024.39(b)(2)(iii) 
substantially as proposed.
    The Bureau is retaining proposed comment 39(b)(2)(iii)-1, which 
explains that Sec.  1024.39(b)(2)(iii) does not require that a specific 
number of examples be disclosed, but that borrowers are likely to 
benefit from examples of options that would permit them to retain 
ownership of their home and examples of options that may require 
borrowers to end their ownership to avoid foreclosure. The comment 
further explains that a servicer may include a generic list of loss 
mitigation options that it offers to borrowers, and that it may include 
a statement that not all borrowers will qualify for all of the listed 
options, because different loss mitigation options may be available to 
borrowers depending on the borrower's qualifications or other factors. 
The Bureau proposed this comment to avoid borrower confusion regarding 
their eligibility for loss mitigation options listed in the materials. 
The Bureau agrees that servicers should be able to clarify that not all 
of the enumerated loss mitigation options will necessarily be 
available. During consumer testing of the proposed model clauses, all 
participants understood that the fact that they received this notice 
did not mean that they would necessarily qualify for these options. The 
Bureau is adopting this comment substantially as proposed.
    The Bureau is also retaining proposed comment 39(b)(2)(iii)-2 
substantially as proposed, which explains that an example of a loss 
mitigation option may be described in one or more sentences and that if 
a servicer offers several loss mitigation programs, the servicer may 
provide a generic description of the type of option instead of 
providing detailed descriptions of each program. The Bureau has 
included this comment because the Bureau recognizes that there may be 
operational difficulties associated with determining how to explain 
specialized loss mitigation programs. The Bureau recognizes that loss 
mitigation options are complex, and providing comprehensive 
explanations of each option may overwhelm borrowers and may undermine 
the intended effect of the written notice of encouraging borrowers to 
get in touch with their servicers to identify appropriate relief. The 
Bureau does not believe that borrowers would benefit from a disclosure 
with voluminous detail at the early stage of exploring available 
options. Instead, the Bureau believes that servicers should provide 
borrowers with a brief explanation of loss mitigation options and 
encourage borrowers to contact their servicer to discuss whether any 
options may be appropriate.
Explanation of How the Borrower May Obtain More Information About Loss 
Mitigation Options
    Proposed Sec.  1024.39(b)(2)(iv) would have required the written 
notice to include an explanation of how the borrower may obtain more 
information about loss mitigation options, if applicable. Proposed 
comment 39(b)(2)(iv)-1 explained that, at a minimum, a servicer could 
comply with this requirement by directing the borrower to contact the 
servicer for more information, such as through a statement like, 
``contact us for instructions on how to apply.''
    Consumer advocacy groups recommended that the Bureau require 
servicers to identify the deadline by which borrowers must send 
application

[[Page 10803]]

materials. One consumer group indicated that a requirement to notify 
borrowers of application deadlines in the written notice was necessary 
to coordinate with the Bureau's proposed requirement in 1024.41(g) that 
only applications received by the servicer's deadline are subject to 
the prohibition on foreclosure sales. In addition to application 
deadlines, many consumer advocacy groups recommended that servicers be 
required to provide borrowers with eligibility requirements, an 
application form and application instructions, along with a clear list 
of required documentation necessary to be considered a complete 
application, consistent with GSE practice. By contrast, an industry 
commenter indicated that communications about loss mitigation options 
should be more general in nature rather than provide too much detail 
that might overwhelm borrowers. An individual consumer indicated that 
the most important element of the notice was to inform borrowers who 
they could contact to discuss their options.
    While the Bureau appreciates that borrowers may benefit from 
knowing about the applicability of deadlines, the Bureau is concerned 
that there may be operational difficulties with a requirement to 
disclose application deadlines in the written notice at Sec.  
1024.39(b). Because the Bureau is not requiring servicers to disclose 
in the written notice all loss mitigation options available from the 
servicer, the Bureau does not believe it would be appropriate to 
require servicers to disclose all loss mitigation application deadlines 
that may apply; otherwise, such information could be confusing to 
borrowers. Moreover, the Bureau is concerned that there may be 
comprehension difficulties associated with an explanation in the Sec.  
1024.39(b) written notice of the interaction between application 
deadlines and deadlines in the Bureau's loss mitigation procedures at 
Sec.  1024.41. The Bureau believes that a requirement to specifically 
identify application deadlines in the early intervention notice 
requires further analysis by the Bureau to address the concern that 
disclosure of deadlines occurring far in the future might discourage 
borrowers from acting quickly to resolve a delinquency. See the 
discussion below under the heading ``Foreclosure Statement'' for more 
discussion of the Bureau's concerns about borrower perception of 
deadlines in the early intervention notice. Further, the Bureau notes 
that servicers must maintain policies and procedures reasonably 
designed to ensure that servicer personnel assigned to a borrower 
pursuant to Sec.  1024.40(a) provide borrowers accurate information 
about actions that the borrower must take to be evaluated for loss 
mitigation options and applicable loss mitigation deadlines established 
by an owner or assignee of a mortgage loan or Sec.  1024.41. See Sec.  
1024.40(b)(1)(ii) and (v); Sec.  1024.41 (setting forth various 
procedural requirements and timeframes governing a servicer's 
consideration of a borrower's loss mitigation application). Finally, 
because the Bureau is adopting Sec.  1024.41(f)(1) to prohibit 
servicers from making the first notice or filing required by applicable 
law unless a borrower's mortgage loan is more than 120 days delinquent, 
borrowers will have more time to submit loss mitigation applications 
before a servicer initiates the foreclosure process.
    The Bureau is not adopting a rule to require servicers to identify 
application materials in the written notice. At the time the Bureau 
proposed its early intervention requirements for the Small Business 
Review Panel, the Bureau considered requiring servicers to provide a 
brief outline of the requirements for qualifying for any available loss 
mitigation programs, including documents and other information the 
borrower must provide, and any timelines that apply.\147\ The Bureau 
did not propose requiring servicers to provide this level of detail 
because each loss mitigation option may have its own specific 
documentation requirements and servicers may be unable to provide 
comprehensive application instructions generally applicable to all 
options. Additionally, because the Bureau had proposed that servicers 
provide only examples of loss mitigation options in the written notice, 
the proposal noted that detailed instructions for only the listed 
options may not be useful for all borrowers. The Bureau believes 
setting consistent and streamlined requirements best achieves the 
central purpose of the early intervention notice, which is to inform 
borrowers that help is available and to encourage them to contact their 
servicer. In addition, the Bureau understands that not all loss 
mitigation options are necessarily appropriate for every borrower. The 
Bureau is concerned that a requirement to provide application materials 
for all options listed in the notice might be overwhelming for 
borrowers at this stage in the process. Servicers might have multiple 
loss mitigation options and each may have its own documentation 
requirements. A requirement to prospectively disclose all documentation 
requirements for all listed options could prove voluminous. 
Additionally, a borrower's eligibility for options depends on the 
borrower's circumstances as well as the stage of delinquency, and the 
Bureau believes servicers or housing counselors are best suited to 
advising borrowers about their options during a live conversation.
---------------------------------------------------------------------------

    \147\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, appendix C (Jun, 11, 2012).
---------------------------------------------------------------------------

    The Bureau's continuity of contact requirements are designed to 
assist borrowers who are provided the Sec.  1024.39(b) written notice 
or who reach a certain stage of delinquency. These requirements are 
designed to ensure servicers have servicer personnel dedicated to 
guiding such borrowers through the loss mitigation application process. 
Pursuant to Sec.  1024.40(a), servicers must maintain policies and 
procedures that are reasonably designed to achieve the objective of 
making available to a delinquent borrower telephone access to servicer 
personnel to respond to the borrower's inquiries and, as applicable, 
assist the borrower with loss mitigation options to borrowers by the 
time the servicer provides the borrower with the Sec.  1024.39(b) 
written notice but in any event no than the 45th day of a borrower's 
delinquency. Pursuant to Sec.  1024.40(b)(1), the Bureau has set forth 
objectives that servicer policies and procedures for continuity of 
contact personnel must be reasonably designed to achieve. These 
objectives include providing accurate information about loss mitigation 
options available to a borrower from the owner or assignee of a 
mortgage loan; actions the borrower must take to be evaluated for such 
options, including actions the borrower must take to submit a complete 
loss mitigation application, as defined in Sec.  1024.31, and, if 
applicable, actions the borrower must take to appeal the servicer's 
determination to deny the borrower's loss mitigation application for 
any trial or permanent loan modification program offered by the 
servicer; the status of any loss mitigation application that the 
borrower has submitted to the servicer; the circumstances under which 
the servicer may make a referral to foreclosure; and applicable loss 
mitigation deadlines established by an owner or assignee of a mortgage 
loan or Sec.  1024.41. The Bureau believes these requirements will help 
ensure borrowers receive accurate information about how to submit a 
complete loss mitigation application.
    Of course, servicers may choose to provide application materials 
with the written notice. Accordingly, the Bureau

[[Page 10804]]

proposed comment 39(b)(2)(iv)-1 to explain that, to expedite the 
borrower's timely application for any loss mitigation options, 
servicers may wish to provide more detailed instructions on how a 
borrower could apply, such as by listing representative documents the 
borrower should make available to the servicer, such as tax filings or 
income statements, and by providing estimates for when the servicer 
expects to make a decision on a loss mitigation option. Proposed 
comment 39(b)(2)(iv)-1 also provided that servicers may supplement the 
written notice with a loss mitigation application form. The Bureau is 
adopting this comment substantially as proposed in the final rule.
Foreclosure Statement
    Proposed Sec.  1024.39(b)(2)(v) would have required that the 
written notice include a statement explaining that foreclosure is a 
legal process to end the borrower's ownership of the property. Proposed 
Sec.  1024.39(b)(2)(v) also would have required that the notice include 
an estimate of how many days after a missed payment the servicer makes 
the referral to foreclosure. The Bureau proposed to clarify through 
comment 39(b)(2)(v)-1 that the servicer may explain that the 
foreclosure process may vary depending on the circumstances, such as 
the location of the borrower's property that secures the loan, whether 
the borrower is covered by the Servicemembers Civil Relief Act, and the 
requirements of the owner or assignee of the borrower's loan. The 
Bureau also proposed to clarify through comment 39(b)(2)(v)-2 that the 
servicer may qualify its estimates with a statement that different 
timelines may vary depending on the circumstances, such as those listed 
in comment 39(b)(2)(v)-1. Proposed comment 39(b)(2)(v)-2 also explained 
that the servicer may provide its estimate as a range of days.
    Consumer advocacy groups and industry commenters were generally 
divided over whether servicers should be required to provide 
information about foreclosure in the written notice, although one 
industry trade group supported such a requirement. Several industry 
commenters supported the Bureau's proposal to provide an estimated 
range of dates for when foreclosure may occur, citing the need to be 
flexible in light of unforeseen circumstances and the variety of 
timelines in which a foreclosure could proceed in light of the nature 
of the property. However, other industry commenters were concerned that 
including any range may be too inaccurate to provide meaningful 
guidance to borrowers because of the variety of factors that could 
influence a foreclosure referral. One large servicer explained that 
servicers do not typically review accounts for or pursue foreclosure 
until much later in a borrower's delinquency and that including 
information about foreclosure could be construed as a threat to take 
action that is not likely to happen until much later. Another industry 
commenter and a trade group expressed concern that requiring 
prospective disclosure of possible foreclosure timelines could lead to 
litigation if the information turned out to be inaccurate. By contrast, 
some consumer advocacy groups recommended that the notices should 
include a narrower foreclosure timeline. Some consumer advocacy groups 
also believed it was appropriate to make servicers accountable to their 
estimates, such as by prohibiting servicers from initiating foreclosure 
earlier than the timeline in the notice.
    Industry commenters and consumer advocacy groups were also divided 
over whether the estimated foreclosure timeline would undermine the 
purpose of the early intervention notice. Several industry commenters 
expressed concern that a foreclosure timeline estimate could confuse 
borrowers into believing that the referral date is the last day for 
loss mitigation options whereas help may be available even after the 
foreclosure referral date. One of these commenters recommended that the 
Bureau add qualifying language to address concerns that a foreclosure 
timeline estimate could mislead borrowers into believing they had more 
time to take action to avoid foreclosure.
    Consumer advocacy groups, on the other hand, believed that a more 
detailed notice about the foreclosure process could serve an 
educational function. One consumer advocacy group recommended provision 
of detailed, State-specific foreclosure timelines tailored to the 
borrower's residence. One coalition of consumer advocacy groups 
recommended that the foreclosure statement should provide more 
explanation of the steps occurring in the foreclosure process, such as 
a description of court procedures and a sheriff's sale that occur in 
judicial foreclosure jurisdictions; this group explained that borrowers 
are often confused about how foreclosure referrals are related to the 
actual sale of their home. This group of advocates also explained that 
information when foreclosure will start and end is also important in 
non-judicial foreclosure jurisdictions, where the foreclosure process 
can occur quickly and with fewer opportunities for borrowers to object. 
In addition, this group of advocates recommended that the Bureau should 
specify a minimum period of time between a missed payment and the date 
on which foreclosure may begin.
    The Bureau notes at the outset that because the Bureau is adopting 
Sec.  1024.41(f)(1) to delay foreclosure referrals until 120 days after 
a missed payment, there is less risk of borrower confusion about when 
foreclosure may begin. Section 1024.41(f)(1) is discussed in more 
detail below in the applicable section-by-section analysis. 
Nonetheless, while a single foreclosure deadline would minimize 
compliance issues around potentially inaccurate estimates, the Bureau 
is concerned that requiring foreclosure information in the written 
early intervention notice may cause borrower confusion and may possibly 
discourage borrowers from seeking early assistance. In addition, an 
explanation that a servicer will not initiate foreclosure until the 
120th day of delinquency may suggest to some borrowers that they cannot 
submit a loss mitigation application after the initiation of 
foreclosure, which may not necessarily be the case. See Sec.  
1024.41(g).\148\
---------------------------------------------------------------------------

    \148\ Section 1024.41(g) generally provides that, if a borrower 
submits a complete loss mitigation application after a servicer has 
made the first foreclosure filing but more than 37 days before a 
scheduled or anticipated foreclosure sale, a servicer may not move 
for foreclosure judgment or order of sale, or conduct a foreclosure 
sale until a borrower is notified of the borrower's ineligibility 
for a loss mitigation options, the borrower rejects a loss 
mitigation offer, or the borrower fails to perform as agreed under 
an option.
---------------------------------------------------------------------------

    During consumer testing of the model clauses, participants had a 
mixed reaction to the foreclosure statement, which included an 
estimated timeline for when foreclosure may begin. The statement tested 
a timeline that explained foreclosure could occur 90-150 days after a 
missed payment. All participants understood before reading the 
statement that foreclosure was a process through which their lender 
could take their home if they did not make their mortgage payments.
    With respect to the estimated timeline for when foreclosure may 
begin, some thought that the estimated timeline meant nothing would 
happen before that date, despite the fact that the clause stated that 
the process ``may begin earlier or later.'' While some participants 
appeared to be motivated to act quickly because of the foreclosure 
statement, others commented that the estimated timeline implied that it 
was less important to act immediately because there would be a period 
of time during which they would be safe from foreclosure. One 
participant felt strongly

[[Page 10805]]

that if it were true that the foreclosure process could start in less 
than 90 days, then the reference to the 90 to 150 day time period 
should be removed from the clause because it was misleading.
    The Bureau is not finalizing the proposed requirement that 
servicers notify borrowers about foreclosure in the written notice. 
While the Bureau agrees that the early intervention written notice 
could serve an educational function with regard to the foreclosure 
process, the Bureau believes a requirement to notify borrowers about 
the foreclosure process in the written early intervention notice 
requires further evaluation by the Bureau because of the risk that such 
a disclosure could be perceived as confusing or negatively by 
borrowers, and may discourage some borrowers from reaching out to their 
servicer promptly. As the Bureau noted in its proposal, during the 
Small Business Review Panel outreach, some small servicer 
representatives explained that information about foreclosure is 
typically not provided until after loss mitigation options have been 
explored; \149\ and during consumer testing, several participants 
indicated that the tone of the foreclosure statement seemed at odds 
with the tone of the rest of the clauses encouraging borrowers to 
resolve their delinquency as soon as possible. Further, the Bureau is 
concerned that, given the variation in State foreclosure processes, a 
prescriptive requirement to explain foreclosure may either result in 
explanations that are too generic to be useful or too complex to be 
easily understood. Accordingly, for the reasons set forth above, the 
Bureau is removing the proposed requirement that servicers provide 
information about the foreclosure process in the written early 
intervention notice.
---------------------------------------------------------------------------

    \149\ See U.S. Consumer Fin. Prot. Bureau, Final Report of the 
Small Business Review Panel on CFPB's Proposals Under Consideration 
for Mortgage Servicing Rulemaking, 31 (Jun, 11, 2012).
---------------------------------------------------------------------------

    Although the Bureau is not finalizing the requirement for servicers 
to provide a statement describing foreclosure in the written notice, 
the Bureau agrees that some borrowers would benefit from receiving 
information about foreclosure at the time of receiving information 
about loss mitigation options. Such information could help some 
borrowers understand their choices they face at the early stages of 
delinquency. The Bureau believes the requirements to include contact 
information for housing counselors and servicer personnel assigned 
under Sec.  1024.40(a) will help address potential information 
shortcomings of the written notice. Pursuant to Sec.  
1024.40(b)(1)(iv), servicers must have policies and procedures 
reasonably designed to ensure that servicer continuity of contact 
personnel provide accurate information about the circumstances under 
which borrowers may be referred to foreclosure. Accordingly, for the 
reasons discussed above, the Bureau is not finalizing proposed Sec.  
1024.39(b)(2)(iv) or model clause MS-4(D), which contained language 
illustrating the foreclosure statement.
Contact Information for Housing Counselors and State Housing Finance 
Authorities
    Proposed Sec.  1024.39(b)(vi) would have required the written 
notice to include contact information for any State housing finance 
authority for the State in which the borrower's property is located, 
and contact information for either the Bureau list or the HUD list of 
homeownership counselors or counseling organizations.
    With respect to contact information for homeownership counselors or 
counseling organizations, the Bureau proposed to require similar 
information pertaining to housing counseling resources that would be 
required on the ARM interest rate adjustment notice and the periodic 
statement, as provided in the Bureau's 2012 TILA Mortgage Servicing 
Proposal.\150\ For these notices, the Bureau did not propose that 
servicers include a list of specific housing counseling programs or 
agencies (other than the State housing finance authority, discussed 
below), but instead that servicers provide contact information for 
either the Bureau list or the HUD list of homeownership counselors or 
counseling organizations. The Bureau solicited comment on whether the 
written early intervention notice should include a generic list to 
access counselors or counseling organizations, as proposed here, or a 
list of specific counselors or counseling organizations, as was 
proposed in the 2012 HOEPA Proposal.\151\
---------------------------------------------------------------------------

    \150\ See proposed Regulation Z Sec. Sec.  1026.20(d) and 
1026.41(d)(7) in the Bureau's 2012 TILA Mortgage Servicing Proposal.
    \151\ The 2013 HOEPA Final Rule, which, among other things, 
implements RESPA section 5(c), which requires lenders to provide 
applicants of federally related mortgage loans with a ``reasonably 
complete or updated list of homeownership counselors who are 
certified pursuant to section 106(e) of the Housing and Urban 
Development Act of 1968 (12 U.S.C. 1701x(e)) and located in the area 
of the lender.'' The list provided to applicants pursuant to this 
requirement will be obtained through a Bureau Web site Bureau or 
data made available by the Bureau or HUD to comply with this 
requirement.
---------------------------------------------------------------------------

    Some consumer advocacy groups recommended that the Bureau require 
that servicers provide a list of specific counselors or HUD-certified 
agencies, citing the need to protect borrowers against so-called 
``foreclosure rescue'' scams, and one organization recommended that the 
Bureau require servicers to refer borrowers directly to specific 
counselors upon the borrower's request. Industry commenters expressed 
support for the proposed requirement to provide generic contact 
information for borrowers to access a list of counselors. One industry 
commenter was concerned that requiring servicers to provide a list of 
counselors would require frequent updating by servicers to ensure the 
accuracy of the notice. In addition, the commenter was concerned that 
providing a list of counselors could be construed as the servicer 
advocating for a particular counselor. One housing counseling 
organization and an industry commenter explained that some States 
already require that servicers provide a list of nonprofit housing 
counseling agencies at the time of sending a written foreclosure 
notice. The housing counseling organization recommended that the final 
rule require servicers to provide a list of HUD-approved nonprofit 
counseling agencies in the written notice, while the industry commenter 
was concerned about complying with overlapping requirements.
    During the fourth round of consumer testing in Philadelphia, all 
participants indicated they were likely to take advantage of the 
contact information contained in the notice, although they indicated 
they would try to contact their bank first.\152\ Several participants 
said that they would contact HUD \153\ or the State housing finance 
agency \154\ if they were not satisfied with the assistance they got 
from their bank. One participant indicated that this contact 
information would be useful to help verify that information provided by 
the

[[Page 10806]]

lender was accurate and followed legal guidelines.
---------------------------------------------------------------------------

    \152\ During consumer testing, participants referred 
colloquially to their ``bank.'' The Bureau does not believe this 
reflects comprehension difficulties with respect to the party 
borrowers must contact. During testing when asked whether the terms 
``servicer'' and ``lender'' were identical, participants indicated 
that they were not.
    \153\ Macro tested a statement including HUD's housing counselor 
list and phone number because, at the time of testing, the Bureau 
did not have a web site containing this information. The Bureau 
believes consumers would have the same reaction if the Bureau's 
contact information were listed instead of HUD's.
    \154\ At the time of testing, the Bureau tested clauses that 
included contact information for a State housing finance agency, as 
the Bureau would have required to be listed under proposed Sec.  
1024.39(b)(2)(vi).
---------------------------------------------------------------------------

    The Bureau is adopting the requirement substantially as proposed, 
renumbered as Sec.  1024.39(b)(2)(v) from Sec.  1024.39(b)(2)(vi). 
Section 1024.39(b)(2)(v) requires servicers to include in the written 
notice the Web site to access either the Bureau list or the HUD list of 
homeownership counselors or counseling organizations, and the HUD toll-
free telephone number to access homeownership counselors or counseling 
organizations.\155\ The Bureau is modifying the proposed requirement, 
which would have required servicers to list either the HUD telephone 
number or a Bureau telephone number. In the final rule, the Bureau is 
requiring servicers to list the HUD telephone number but not a Bureau 
telephone number because the Bureau believes the HUD telephone number 
that currently exists provides adequate access to approved counseling 
resources.
---------------------------------------------------------------------------

    \155\ The HUD list is available at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm and the HUD toll-free number is 800-569-4287. 
The Bureau list will be available by the effective date of this 
final rule at http://www.consumerfinance.gov/.
---------------------------------------------------------------------------

    As noted in its proposal, the Bureau believes that delinquent 
borrowers would benefit from knowing how to access housing counselors 
because some borrowers may be more comfortable discussing their options 
with a third-party.\156\ In addition, a housing counselor could provide 
a borrower with additional information about loss mitigation options 
that a servicer may not have listed on the written notice. The Bureau 
also believes the contact information to access the HUD or Bureau list 
would provide borrowers with access to qualified counselors or 
counseling organizations that could counsel borrowers about potential 
foreclosure rescue scams. While the Bureau agrees that borrowers may 
benefit from a list of specific counseling organizations or counselors, 
the Bureau also believes that there is value in keeping the content 
requirements in the written notice flexible to ensure the notice is 
able to accommodate existing requirements, such as State laws, that may 
overlap with the Bureau's requirements. The Bureau believes that 
providing borrowers with the Web site address for either the Bureau or 
HUD list of homeownership counseling agencies and programs would 
streamline the disclosure and present clear and concise information for 
borrowers.
---------------------------------------------------------------------------

    \156\ Some servicers have found that borrowers may trust 
independent counseling agencies more than they trust servicers. See 
Office of the Comptroller of the Currency, Foreclosure Prevention: 
Improving Contact with Borrowers, Insights (June 2007) at 6, 
available at http://www.occ.gov/topics/community-affairs/publications/insights/insights-foreclosure-prevention.pdf.
---------------------------------------------------------------------------

    In addition to information about accessing housing counselors, the 
Bureau proposed to require that the written notice include contact 
information for the State housing finance authority located in the 
State in which the property is located. In its proposal, the Bureau 
sought comment on the costs and benefits of the provision of 
information about housing counselors and State housing finance 
authorities to delinquent borrowers in the proposed written notice. The 
Bureau also sought comment on the potential effect of the Bureau's 
proposal on access to homeownership counseling generally by borrowers, 
and the effect of increased borrower demand for counseling on existing 
counseling resources, including demand on State housing finance 
authorities.
    A State housing finance agency, an association of State housing 
finance agencies, and a large servicer recommended that the Bureau 
remove housing finance authority contact information from the written 
notice, citing resource limitations of State housing finance 
authorities. The large servicer expressed concern that borrowers would 
blame their servicer for directing them to State housing finance 
agencies that proved unable to provide assistance, or that such an 
experience would discourage borrowers from seeking other assistance. 
Two industry commenters also recommended that the Bureau eliminate the 
requirement to provide State housing finance authority contact 
information, citing the tracking burden associated with this 
requirement. One commenter explained that a phone number to access 
housing counselors (e.g., through a HUD or Bureau phone number or Web 
site) would provide borrowers with sufficient access to assistance. As 
an alternative, the industry commenter suggested that the Bureau host 
this information or that the Bureau simply include language that there 
may be State-sponsored programs in the borrower's State that could be 
helpful. Another servicer recommended that the written notice simply 
reference that assistance may be available through the State Housing 
Finance Authority and provide a telephone number that borrowers could 
call to learn more about them.
    In the final rule, the Bureau is omitting the proposed requirement 
to disclose State housing finance authority contact information in the 
written notice because the Bureau shares the concern of the State 
housing finance authorities that directing borrowers to specific State 
agencies may overwhelm their limited resources. The Bureau also 
understands that not all State housing finance authorities offer 
counseling services, which may cause confusion among delinquent 
borrowers directed to such entities. In addition, the Bureau believes 
providing contact information for housing counselors or counseling 
organizations through access to a HUD or Bureau Web site or telephone 
number will ensure borrowers have access to assistance. Accordingly, 
the Bureau is amending proposed paragraph (b)(2)(vi) to contain no 
subparagraphs and is renumbering it as paragraph (b)(2)(v) in light of 
the deletion of the proposed foreclosure statement. In addition, the 
Bureau is deleting the portion of model clause MS-4(E) containing 
language about State housing finance authorities.
39(b)(3) Model Clauses
    The Bureau proposed to add new Sec.  1024.39(b)(3), which contained 
a reference to proposed model clauses that servicers may use to comply 
with the written notice requirement. The Bureau proposed to include 
these model clauses are in new appendix MS-4. For more detailed 
discussion of the model clauses, see the section-by-section analysis of 
appendix MS below.
39(c) Conflicts With Other Law
    As noted above, industry commenters were concerned that the 
Bureau's proposed early intervention requirements could conflict with 
existing law. Several commenters requested guidance on whether 
servicers would be required to comply with the early intervention 
requirements if the borrower instructed the servicer to cease 
collection efforts, not to contact the borrower by telephone, or that 
the borrower refuses to pay the debt. Several of these commenters 
requested that the Bureau include an exemption in cases involving debt 
collection or bankruptcy law. One industry commenter requested that the 
Bureau clarify whether servicers would have immunity from claims of 
harassment or improper conduct under the Fair Debt Collection Practices 
Act, 15 U.S.C. 1692.
    To address concerns about conflicts with other law, the Bureau has 
added subsection (c) to Sec.  1024.39 to provide that nothing in Sec.  
1024.39 shall require a servicer to communicate with a borrower in a 
manner otherwise prohibited under applicable law. The Bureau has added 
this provision to clarify that the Bureau does not intend for its early 
intervention requirements to require servicers to take any action that 
may be prohibited under State law, such

[[Page 10807]]

as a statutory foreclosure regime that may prohibit certain types of 
contact with borrowers that may be required under Sec.  1024.39. The 
Bureau has also added this provision to clarify that servicers are not 
required to make contact with borrowers in a manner that may be 
prohibited by Federal laws, such as the Fair Debt Collection Practices 
Act or the Bankruptcy Code's automatic stay provisions. The Bureau has 
also added comment 39(c)-1 to address borrowers in bankruptcy. Comment 
39(c)-1 provides that Sec.  1024.39 does not require a servicer to 
communicate with a borrower in a manner inconsistent with applicable 
bankruptcy law or a court order in a bankruptcy case; and that, to the 
extent permitted by such law or court order, servicers may adapt the 
requirements of Sec.  1024.39 in any manner that would permit them to 
notify borrowers of loss mitigation options. Through this comment the 
Bureau has not sought to interpret the Bankruptcy Code, but instead 
intended to indicate that servicers may take a flexible approach to 
complying with Sec.  1024.39 in order to provide information on loss 
mitigation options to borrowers in bankruptcy to the extent permitted 
by applicable law or court order.
Section 1024.40 Continuity of Contact
    Background. As discussed above, this final rule addresses 
servicers' obligation to provide delinquent borrowers with access to 
servicer personnel to respond to inquiries, and as applicable, assist 
them with foreclosure avoidance options. Widespread reports of 
communication breakdowns between servicers and delinquent borrowers who 
present a heightened risk for default have revealed that one of the 
most significant impediments to the success of foreclosure mitigation 
programs is the inadequate manner by which servicer personnel at major 
servicers have provided assistance to these borrowers. The Bureau noted 
in the proposal that the problem was systemic. For example, Federal 
regulatory agencies reviewing mortgage servicing practices have found 
that ``a majority of the [servicers examined] had inadequate staffing 
levels or had recently added staff with limited servicing experience.'' 
\157\ The Bureau proposed Sec.  1024.40 to establish requirements to 
ensure that there would be a baseline level of standards that would 
address the issue.
---------------------------------------------------------------------------

    \157\ See Fed. Reserve Sys., Office of the Comptroller of the 
Currency, & Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices, at 8 (2011).
---------------------------------------------------------------------------

    Proposed Sec.  1024.40(a)(1) would have provided that a servicer 
must assign personnel to respond to borrower inquiries and as 
applicable, assist a borrower with loss mitigation options no later 
than five days after a servicer has provided such borrower with the 
oral notice that would have been required by proposed Sec.  1024.39(a). 
For a transferee servicer, proposed Sec.  1024.40(a)(1) would have 
required such servicer to make the assignment within a reasonable time 
after the mortgage servicing right to a borrower's mortgage loan has 
been transferred to such servicer if the borrower's previous servicer 
had assigned personnel to such borrower as would have been required by 
proposed Sec.  1024.40(a)(1) before the mortgage servicing right was 
transferred and the assignment had not ended when the servicing right 
was transferred. Proposed Sec.  1024.40(a)(2) would have required a 
servicer to make access to assigned personnel available via telephone 
and would have set forth related requirements on what a servicer must 
do if a borrower contacts the servicer and does not receive a live 
response from the assigned personnel. Proposed Sec.  1024.40(b) would 
have required a servicer to establish reasonable policies and 
procedures designed to ensure that the servicer personnel the servicer 
assigns to a borrower pursuant to proposed Sec.  1024.40(a) perform 
certain enumerated functions. Proposed Sec.  1024.40(c) would have set 
forth requirements with respect to how long the assigned personnel must 
be assigned and available to a borrower.
    Although many servicers failed to adequately assist delinquent 
borrowers, the Bureau recognized that some servicers provide a high 
level of customer service to their borrowers both to ensure loan 
performance (because either they or one of their affiliates owned the 
loan) and maintain strong customer relationships (because they rely on 
providing borrowers with other products and services and thus have a 
strong interest in preserving their reputation and relationships with 
their customers). The Bureau believed that to the extent that a 
servicer's existing practices with respect to providing assistance to 
delinquent borrowers have been successful at helping borrowers avoid 
foreclosure, it was important that these practices be permitted to 
continue to exist within the framework of proposed Sec.  1024.40. The 
Bureau sought to clarify the Bureau's intent by explaining in proposed 
comment 40(a)(1)-3.i that the continuity of contact provisions allowed 
a servicer to exercise discretion to determine the manner by which 
continuity of contact is implemented.
    The Bureau received general comments about whether it was 
appropriate for the Bureau to regulate the manner by which servicer 
personnel at servicers provide assistance to delinquent borrowers. With 
one exception, consumer groups expressed support for proposed Sec.  
1024.40. One consumer group that identified itself as primarily serving 
Asian-Americans and Pacific Islander communities expressed concern that 
proposed Sec.  1024.40 only appeared to address the initial assignment 
of servicer staff to assist delinquent borrowers. The commenter also 
urged the Bureau to mirror the more prescriptive approach of the 
National Mortgage Settlement and the California Homeowner Bill of 
Rights.
    A number of consumer groups suggested that the Bureau add an 
additional requirement to require servicers to establish electronic 
loan portals to facilitate the exchange of documents related to a 
borrower's loan modification application. Consumer groups asserted that 
servicers' insistence that borrowers have not submitted requested 
documents remains a barrier to loan modification success and that the 
National Mortgage Settlement already requires the five largest 
servicers to develop online portals linked to a servicer's primary 
servicing system where borrowers can check the status of their first-
lien loan modifications, at no cost to them.
    Industry commenters generally expressed agreement with the 
principle that servicers must have adequate staffing levels to meet the 
needs of delinquent borrowers and commended the Bureau for recognizing 
the importance of permitting successful servicing practices with 
respect to how servicers provide assistance to delinquent borrowers to 
continue to exist. But smaller servicers and rural creditors subject to 
Farm Credit Administration rules generally requested exemptions from 
the continuity of contact requirements.
    Smaller servicers predicted that the continuity of contact 
requirements will bring about a significant increase in borrower 
communication, which they will have to respond by significantly 
increasing the size of their staff and making substantial changes to 
their servicing platforms. Smaller servicers asserted that these 
adjustments will increase their compliance costs and result in the 
reduction in the high quality of customer service they already provide 
to their customers. Rural lenders subject to Farm Credit

[[Page 10808]]

Administration rules asserted that they should be exempted from the 
Bureau's continuity of contact requirements because they are already 
required to follow a highly prescriptive set of regulations when 
working with borrowers with distressed loans issued by the Farm Credit 
Administration. They expressed concern about potentially having to 
comply with inconsistent regulations and borrower confusion.
    A national trade association representing the reverse mortgage 
industry sought a general exemption for reverse mortgages, asserting 
that continuity of contact requirements would be duplicative of 
existing HUD regulations that require servicers of home equity 
conversion mortgages (HECM) to assign specific employees to assist HECM 
borrowers and provide the information to HECM borrowers on an annual 
basis and whenever the assigned employees change.
    Several industry commenters urged the Bureau to make changes to 
Sec.  1024.40 where they contend the proposal is inconsistent with the 
National Mortgage Settlement because of the cost of potentially being 
required to comply with different standards. One non-bank servicer 
requested that the Bureau specify that compliance with Sec.  1024.40 
would provide a safe harbor from compliance with similar applicable 
law, including State law, the National Mortgage Settlement, HAMP 
guidelines, and investor requirements. Another non-bank servicer 
asserted that several of the functions the Bureau proposed to require 
continuity of contact personnel to perform under Sec.  1024.40 would 
require servicers under some States' law to make available licensed 
loan originators to assist borrowers and that the Bureau should preempt 
such laws because servicers may not have an adequate number of licensed 
staff.
    One bank servicer and one non-bank servicer suggested the Bureau 
could reduce any potential compliance burden with Sec.  1024.40 if the 
Bureau limited a servicer's duty to comply with Sec.  1024.40 to 
borrowers who are responsive to servicers' attempts to engage them in 
foreclosure avoidance options and who have not vacated their principal 
residences. One non-bank servicer urged the Bureau create an exemption 
from compliance with continuity of contact requirements with respect to 
borrowers who have filed for bankruptcy.
    In light of the comments received and upon further consideration, 
the Bureau has made a number of changes to Sec.  1024.40. The Bureau 
has concluded that the best way to ensure that existing, successful 
servicing practices with respect to assisting delinquent borrowers be 
able to continue to exist would be to adopt proposed Sec.  1024.40 as a 
requirement for servicers to maintain policies and procedures 
reasonably designed to achieved specified objectives, and leave it to 
each servicers to implement its own policies and procedures calculated 
to achieve the desired results. Given the flexibility provided by Sec.  
1024.40 as finalized, the Bureau does not discern a need to provide 
servicers with express safe harbors or preemptions or a need to make 
Sec.  1024.40 align exactly with the terms of the National Mortgage 
Settlement.
    The Bureau also declines to adopt the electronic portal requirement 
a number of consumers have urged the Bureau to impose on servicers. The 
Bureau agrees that servicers should, consistent with the purposes of 
RESPA, facilitate the exchange of documents related to a borrower's 
loan modification application and is adopting requirements in the final 
rule that would support this objective. For example, Sec.  
1024.38(b)(2)(iii) requires servicers to maintain policies and 
procedures reasonably designed to achieve the objective of providing 
prompt access to all documents and information submitted by a borrower 
in connection with a loss mitigation option to servicer personnel 
assigned to assist the borrower as described in Sec.  1024.40. The 
Bureau believes that to fulfill this requirement, servicers must have 
policies and procedures for the use of reasonable means to track and 
maintain borrower-submitted loss mitigation documents. However, 
imposing on servicers a specific obligation to establish electronic 
portals would supplant other reasonable means to track and maintain 
borrower-submitted loss mitigation documents. As noted above, the 
Bureau expects to further consider the benefits of electronic portals, 
as well as requirements regarding electronic communication with 
servicers more broadly.
    Further, for reasons discussed in the section-by-section analysis 
of Sec.  1024.30, the Bureau has decided that requirements set forth in 
the Bureau's discretionary rulemakings are generally not appropriate to 
impose on small servicers (servicers that servicers 5,000 mortgage 
loans or less and only servicers mortgage loans that either they or 
their affiliates own or originated), housing finance agencies, 
servicers with respect to any mortgage loan for which the servicer is a 
qualified lender as that term is defined in 12 CFR 617.7000, and 
servicers of reverse mortgage transactions.
    In addition, for reasons set forth above, the Bureau has limited 
the scope of Sec. Sec.  1024.39 through 41 to mortgage loans that are 
secured by a borrower's principal residence. But the Bureau declines to 
further limit the scope of Sec.  1024.40 to ``responsive borrowers'' or 
to exclude borrowers who have filed for bankruptcy. As discussed above, 
the purpose of the early intervention, continuity of contact, and loss 
mitigation procedure requirements is to ensure that a borrower who 
resides in a property as a principal residence have the protection of 
clear standards of review for loss mitigation options so that the 
borrower can be considered for an option that will assist the borrower 
in retaining the property and the owner or assignee in mitigating 
losses. The Bureau believes limiting the applicability of Sec.  1024.40 
to ``responsive'' borrowers introduces a notable degree of subjectivity 
that conflicts with this purpose. The Bureau additionally declines to 
create an exemption with respect to borrowers who have filed for 
bankruptcy because the exemption would be too broad. A borrower could 
have filed for bankruptcy but still be eligible for loss mitigation 
assistance.
Legal Authority
    The Bureau proposed Sec.  1024.40 pursuant to authority under 
sections 6(k)(1)(E), 6(j)(3), and 19(a) of RESPA, and accordingly, like 
other rules issued pursuant to the Bureau's authority under section 6 
of RESPA, Sec.  1024.40 would have been enforceable through private 
rights of action. But as discussed above, the Bureau is adopting Sec.  
1024.40 as an objectives-based policies and procedures requirement. As 
discussed above in the section-by-section analysis of Sec.  1024.38, 
the Bureau believes that private liability is not compatible with 
objectives-based policies and procedures requirements. The Bureau has 
therefore decided to finalize Sec.  1024.40 such that there will be no 
private liability for violations of the provision. Accordingly, the 
Bureau no longer relies on its authorities under section 6 of RESPA to 
issue Sec.  1024.40. Instead, the Bureau is adopting Sec.  1024.40 
pursuant to its authority under section 19(a) of RESPA. The Bureau 
believes that the objectives-based policies and procedures set forth in 
Sec.  1024.40 that regulate the manner by which servicer personnel 
provide assistance to delinquent borrowers are necessary to achieve the 
purposes of RESPA, including avoiding unwarranted or unnecessary costs 
and fees, ensuring that servicers are responsive to consumer requests 
and

[[Page 10809]]

complaints, and facilitating the review of borrowers for foreclosure 
avoidance options.
    The Bureau is also adopting Sec.  1024.40 pursuant to its authority 
under section 1022(b) of the Dodd-Frank Act to prescribe regulations 
necessary or appropriate to carry out the purposes and objectives of 
Federal consumer financial laws. Specifically, the Bureau believes that 
Sec.  1024.40 is necessary and appropriate to carry out the purpose 
under section 1021(a) of the Dodd-Frank Act of ensuring that markets 
for consumer financial products and services are fair, transparent, and 
competitive, and the objective under section 1021(b) of the Dodd-Frank 
Act of ensuring that markets for consumer financial products and 
services operate transparently and efficiently to facilitate access and 
innovation. The Bureau additionally relies on its authority under 
section 1032(a) of the Dodd-Frank Act, which authorizes the Bureau to 
prescribe rules to ensure that the features of any consumer financial 
product or service, both initially and over the term of the product or 
service, are fully, accurately, and effectively disclosed to consumers 
in a manner that permits consumers to understand the costs, benefits, 
and risks associated with the product or service, in light of the facts 
and circumstances.
Proposed 40(a)
    Proposed Sec.  1024.40(a)(1) would have provided that no later than 
five days after a servicer has notified or made a good faith effort to 
notify a borrower to the extent required by proposed Sec.  1024.39(a), 
the servicer must assign personnel to respond to the borrower's 
inquiries, and as applicable, assist the borrower with loss mitigation 
options. Proposed Sec.  1024.40(a)(1) further provided that if a 
borrower has been assigned personnel as required by Sec.  1024.40(a)(1) 
and the assignment has not ended when servicing for the borrower's 
mortgage loan has transferred to a transferee servicer, subject to 
Sec.  1024.40(c)(1) through (4), the transferee servicer must assign 
personnel to respond to the borrower's inquiries, and as applicable, 
assist the borrower with loss mitigation options, within a reasonable 
time of the transfer of servicing for the borrower's mortgage loan. In 
support of the continuity of contact requirements with respect to the 
transfer of a borrower's mortgage loan, the Bureau reasoned that the 
transfer of a borrower's mortgage loan from one servicer to another 
should not negatively impact the borrower's pursuit of loss mitigation 
options.
    Proposed comment 40(a)(1)-1 would have explained that for purposes 
of responding to borrower inquiries and assisting the borrower with 
loss mitigation options, the term ``borrower'' includes a person whom 
the borrower has authorized to act on behalf of the borrower (a 
borrower's agent), and may include, for example, a housing counselor or 
attorney. The comment would have further explained that servicers may 
undertake reasonable procedures to determine if such person has 
authority from the borrower to act on the borrower's behalf. Proposed 
comment 40(a)(1)-1 reflects the Bureau's understanding that some 
delinquent borrowers may authorize third parties to assist them as they 
pursue alternatives to foreclosure. Accordingly, the Bureau sought to 
clarify that a servicer's obligation in proposed Sec.  1024.40 extends 
to persons authorized to act on behalf of the borrower.
    Proposed comment 40(a)(1)-2 would have clarified that for purposes 
of Sec.  1024.40(a)(1), a reasonable time for a transferee servicer to 
assign personnel to a borrower is by the end of the 30-day period of 
the transfer of servicing for the borrower's mortgage loan. Proposed 
comment 40(a)(1)-2 reflects the Bureau's belief that a transferee 
servicer may require some time after the transfer of servicing to 
identify delinquent borrowers who had personnel assigned to them by the 
transferor servicer. The Bureau believed that 30 days is a reasonable 
amount of time for a transferee servicer to assign personnel to a 
borrower whose mortgage loan has been transferred to the servicer 
through a servicing transfer. The Bureau invited comments on whether a 
longer time frame is appropriate.
    Proposed comment 40(a)(1)-3.i. would have explained that a servicer 
has discretion to determine the manner by which continuity of contact 
is implemented and reflected the Bureau's belief that a one-size-fits-
all approach to regulating the mortgage servicing industry may not be 
optimal, and thus servicers should be given flexibility to implement 
proposed Sec.  1024.40 in the manner best suited to their particular 
circumstances. Proposed comment 40(a)(1)-3.ii would have explained that 
Sec.  1024.40(a)(1) requires servicers to assign personnel to borrowers 
whom servicers are required to notify pursuant to Sec.  1024.39(a). If 
a borrower whom a servicer is not required to notify pursuant to Sec.  
1024.39(a) contacts the servicer to explain that he or she expects to 
be late in making a particular payment, the comment would have 
explained that the servicer may assign personnel to the borrower upon 
its own initiative. Proposed comment 40(a)(1)-4 would have explained 
that proposed Sec.  1024.40(a)(1) does not permit or require a servicer 
to take any action inconsistent with applicable bankruptcy law or a 
court order in a bankruptcy case to avoid any potential conflict 
between the continuity of contact requirements and the automatic stay. 
The Bureau, however, invited comment on whether servicers should be 
required to continue providing delinquent borrowers continuity of 
contact after borrowers have filed for bankruptcy.
    The Bureau proposed Sec.  1024.40(a)(2) to require a servicer to 
make access to the assigned personnel available via telephone. If a 
borrower contacted the servicer and did not receive a live response 
from the assigned personnel, proposed Sec.  1024.40(a)(2) would have 
required that the borrower be able to record his or her contact 
information and that the servicer respond to the borrower within a 
reasonable time. Proposed comment 40(a)(2)-1 would have provided that 
for purposes of Sec.  1024.40(a)(2), three days (excluding legal public 
holidays, Saturdays, and Sundays) is a reasonable time to respond. The 
Bureau intended comment 40(a)(2)-1 to function as a safe harbor because 
the Bureau believed in most cases, it would be reasonable to expect 
that borrowers receive a response within the proposed time frame. The 
Bureau invited comments on whether the Bureau should provide for a 
longer response time.
    As discussed above, consumer groups generally supported the 
Bureau's proposed continuity of contact requirements, but industry 
commenters urged the Bureau to make changes in various ways. With 
respect to proposed Sec.  1024.40(a)(1), industry commenters 
overwhelmingly opposed the requirement that would have required a 
servicer to make contact personnel available to any borrower five days 
after a servicer has orally notified such borrower about the borrower's 
late payment in accordance with proposed Sec.  1024.39(a). Commenters 
asserted that tying the assignment of contact staff to the oral 
notification requirement might require servicers to devote significant 
resources to assist borrowers who do not require formal loss mitigation 
assistance because in most cases, borrowers who are delinquent for 30 
days or less self-cure. The commenters additionally asserted that the 
diversion of resources would adversely impact borrowers who actually 
need loss mitigation assistance by diverting servicer resources 
unnecessarily. One state credit union association suggested that there 
might

[[Page 10810]]

be implementation challenges because servicers' current systems might 
not be set up to assign personnel based on a borrower's payment status.
    Industry commenters suggested alternative methods of assignment 
that they asserted would be more effective: (1) Delay assignment until 
borrowers become at least 45 days delinquent (the range was between 45 
and 60 days); (2) permit servicers to rely on their internal policies 
and procedures to determine the timing of assignment; (3) require 
servicers to assign contact personnel to borrowers who request loss 
mitigation assistance, which could be demonstrated by either submitting 
a loss mitigation application or the first piece of documentation a 
servicer has requested from a borrower with respect to a loss 
mitigation application. Industry commenters who suggested the last 
alternative observed that limiting a servicer's obligation to assign 
contact personnel would be consistent with the National Mortgage 
Settlement and thus would make compliance with the Bureau's proposed 
rule less costly to servicers who have already implemented systems 
changes to comply with the National Mortgage Settlement.
    With respect to comments received on proposed Sec.  1024.40(a)(2), 
one non-bank servicer expressed concern about whether proposed Sec.  
1024.40(a)(2) would have required servicers to track voicemail messages 
left in the voicemail box of individual staff members and urged the 
Bureau to change the requirement such that borrowers are transferred to 
available live representatives or require servicers to call borrowers 
back within some set amount of time. With respect to proposed comment 
40(a)(2)-1, one national non-profit organization urged the Bureau to 
provide that a servicer may take five days to respond because it saw 
the three-day response time as a requirement that it could not meet 
because it is mostly staffed by volunteers. A non-bank servicer 
requested clarification whether the three-day response time is guidance 
or a requirement.
Final 1024.40(a)
    For reasons discussed above, the Bureau is adopting proposed Sec.  
1024.40 as a requirement that servicers maintain a set of policies and 
procedures reasonably designed to achieve specified objectives. 
Accordingly, the Bureau is withdrawing Sec.  1024.40(a)(1) and (2) 
because they are proposed as specific requirements. But, the objectives 
the Bureau is adopting in Sec.  1024.40(a) largely draw from the 
specific requirements concerning assignment of personnel in proposed 
Sec.  1024.40(a), unless otherwise noted below. As adopted, Sec.  
1024.40(a) requires a servicer to maintain policies and procedures that 
are reasonably designed to achieve the following objectives: (1) Assign 
personnel to a delinquent borrower by the time a servicer provides such 
borrower with the written notice required in Sec.  1024.39(b), but in 
any event, not later than the 45th day of a borrower's delinquency; (2) 
make available to such borrower, via telephone, the assigned personnel 
to respond to the borrower's inquiries and, as applicable, assist the 
borrower with available loss mitigation options until the borrower has 
made two consecutive mortgage payments in accordance with the terms of 
a permanent loss mitigation agreement without incurring a late charge; 
and (3) ensure that the servicer can provide a live response to a 
delinquent borrower who contacts the assigned personnel but does not 
immediately receive a live response.
    After carefully considering industry commenters' concern that tying 
the assignment of contact personnel to the oral notification 
requirement in proposed Sec.  1024.39(a) might require servicers to 
devote significant resources to assist borrowers who do not require 
formal loss mitigation assistance, the Bureau has decided to delay the 
timing of the assignment of contact personnel to the 45th day of a 
borrower's delinquency, unless the servicer provides the written notice 
required by Sec.  1024.39(b) beforehand. The Bureau believes that this 
change adequately addresses the concern of industry commenters that the 
proposal might require servicers to devote significant resources to 
assist borrowers who do not require formal loss mitigation assistance. 
To the extent a servicer becomes obligated to assign contact personnel 
to a borrower before such borrower becomes 45-days delinquent, it would 
be because the servicer has determined that such borrower should be 
informed of the availability of loss mitigation options before day 45.
    The Bureau does not believe it is appropriate to make assignment 
and availability of contact personnel contingent on a borrower making a 
request for loss mitigation assistance. The Bureau believes that 
servicers have more information about the qualifications for various 
loss mitigation options than borrowers, and accordingly, the Bureau 
believes it is necessary to achieve the purposes of RESPA to require 
servicers to engage a borrower in communication that would facilitate 
reviewing a borrower for foreclosure avoidance options. The Bureau also 
disagrees that servicers would be unduly burdened by a continuity of 
contact provision that does not exactly align with the terms of the 
National Mortgage Settlement. The Bureau observes that the National 
Mortgage Settlement requires a servicer to identify the contact 
personnel to a borrower after a borrower has requested assistance. The 
Bureau is not requiring that a servicer provide borrowers with 
identifying information about the contact personnel, just that contact 
personnel be available to borrowers to whom a servicer has provided 
loss mitigation information to answer borrower inquiries and assist 
borrowers with loss mitigation options, as applicable. The Bureau 
believes the Bureau's requirement is less burdensome than the terms and 
conditions of the National Mortgage Settlement.
    The Bureau has made changes to proposed comment 40(a)(1)-1 in 
response to general concerns expressed by several industry commenters 
about communicating with persons other than a borrower with respect to 
error resolution, information requests, and during the loss mitigation 
process. Industry commenters asserted that it would be costly to 
servicers to verify whether such persons are in fact authorized to act 
on a borrower's behalf. They also expressed concern regarding potential 
liability for inadvertent release of confidential information and 
violation of applicable privacy laws.
    The Bureau acknowledges that requiring servicers to provide 
continuity of contact personnel to borrowers' agents is more costly 
than limiting the requirement to borrowers. The Bureau believes, 
however, that borrowers who are experiencing difficulty in making their 
mortgage payments or in dealing with their servicer may turn, for 
example, to a housing counselor or other knowledgeable persons to 
assist them in addressing such issues. The Bureau believes that it is 
necessary to achieve the purposes of RESPA to permit such agents to 
communicate with the servicer on a borrower's behalf.
    Proposed comment 40(a)(1)-1 is adopted as comment 40(a)-1 to 
clarify that a servicer may undertake reasonable procedures to 
determine if a person who claims to be an agent of a borrower has 
authority from the borrower to act on the borrower's behalf and that 
such reasonable policies and procedures may require that a person that 
claims to be an agent of the borrower provide documentation from the 
borrower stating that the purported agent is acting on the borrower's 
behalf.

[[Page 10811]]

The Bureau believes that this clarification adequately balances the 
duty of servicers to communicate with third parties authorized by 
delinquent borrowers to act on their behalf in pursuing alternatives to 
foreclosure and the compliance cost and potential liability asserted by 
industry commenters and described above. Further, the Bureau notes that 
this comment is similar to commentary appearing in Sec. Sec.  1024.35, 
36, and 39.
    In adopting Sec.  1024.40(a), the Bureau has added to comment 
40(a)-1 clarification of what the term ``delinquent borrower'' means 
for purposes of Sec.  1024.40(a). Upon further consideration, the 
Bureau believes it would be better to state clearly in Sec.  1024.40(a) 
that the continuity of contact requirements in Sec.  1024.40 only apply 
to delinquent borrower rather than setting forth a separate section in 
proposed Sec.  1024.40(c) to the same effect. Accordingly, the Bureau 
is not adopting proposed Sec.  1024.40(c) and is instead moving the 
substance of proposed Sec.  1024.40(c), which the Bureau has modified 
for reasons set forth below, into commentary as part of comment 40(a)-1 
to explain the term ``delinquent borrower.''
    The Bureau is adopting proposed comment 40(a)(1)-3.i as comment 
40(a)-2. Two GSEs and a credit union commenter asked the Bureau to move 
the clarification in proposed comment 40(a)(1)-3.i that a servicer may 
assign a team of persons to assist a borrower as required by proposed 
Sec.  1024.40(a)(1) from commentary to rule text. The Bureau declines 
because the proposed clarification is an example of how a servicer may 
exercise discretion to determine the manner by which continuity of 
contact is implemented. Accordingly, the Bureau believes that it is 
appropriate that the clarification remains in the commentary.
    As adopted, comment 40(a)-2 additionally provides that a servicer 
may assign single-purpose or multi-purpose personnel. Single-purpose 
personnel are personnel whose primary responsibility is to respond to a 
delinquent borrower who meets the assignment criteria described in 
Sec.  1024.40(a)(1). Multi-purpose personnel can be personnel that do 
not have a primary responsibility at all, or personnel for whom 
responding to a borrower who meet the assignment criteria set forth in 
Sec.  1024.40(a)(1) is not the personnel's primary responsibility. The 
Bureau added this clarification to address comments by industry 
commenters expressing concern that some servicers do not have the 
capacity to dedicate staff members to assisting borrowers with loss 
mitigation options to the exclusion of other responsibilities. Comment 
40(a)-2 further explains that when a borrower who meets the assignment 
criteria of Sec.  1024.40(a) has filed for bankruptcy, a servicer may 
assign personnel with specialized knowledge in bankruptcy law to assist 
such borrowers in response to questions raised by industry commenters 
about whether the Bureau's continuity of contact requirement would 
allow servicers to reassign a borrower who has filed for bankruptcy to 
personnel with specialized knowledge and training in bankruptcy law. 
Because the Bureau is adopting this clarification in comment 40(a)-2, 
the Bureau is not adopting proposed comment 40(a)(1)-4, which, as 
explained above, was proposed to clarify the relationship between 
proposed Sec.  1024.40 and bankruptcy law to address situations in 
which servicers transfer the borrower's file to a separate unit of 
personnel (i.e., personnel who are not part of the servicer's loss 
mitigation unit), or to outside bankruptcy counsel to comply with 
bankruptcy law). The Bureau is also not adopting proposed comment 
40(a)(1)-3.ii because the final rule no longer ties the assignment of 
contact personnel to a servicer's provision of the oral notice that 
would have been required pursuant to proposed Sec.  1024.39(a).
    As discussed above, proposed Sec.  1024.40(a)(1) would have 
required a transferee servicer to assign contact personnel to a 
borrower if the borrower had been assigned personnel by the transferor 
servicer, and the assignment had not ended at the time of the 
borrower's mortgage loan had been transferred. The Bureau became 
concerned that transferee servicers may try to evade compliance with 
the obligation to provide continuity of contact by asserting that this 
obligation is contingent upon whether the borrower has been assigned 
contact personnel by the transferor servicer. The Bureau believes that 
preventing a servicer's evasion of its continuity of contact obligation 
is necessary to achieve the purposes of RESPA. The Bureau believes that 
finalized Sec.  1024.40(a) makes it clear that a servicer's obligation 
to maintain policies and procedures reasonably designed to assign 
contact personnel to certain delinquent borrowers is not contingent 
upon whether the borrower was assigned such personnel by the borrower's 
previous servicer.
Proposed 40(b)
    The Bureau proposed Sec.  1024.40(b)(1) to require a servicer to 
establish policies and procedures reasonably designed to ensure that 
the servicer personnel the servicer makes available to the borrower 
pursuant to proposed Sec.  1024.40(a) perform certain functions that 
the Bureau believed would facilitate servicers' review of a borrower 
for loss mitigation options. The functions would have been as follows: 
(1) Providing a borrower with accurate information about loss 
mitigation options offered by the servicer and available to the 
borrower based on information in the servicer's possession (proposed 
Sec.  1024.40(b)(1)(i)(A)), actions a borrower must take to be 
evaluated for loss mitigation options, including what the borrower must 
do to submit a complete loss mitigation application, as defined in 
proposed Sec.  1024.41, and if applicable, what the borrower must do to 
appeal the servicer's denial of the borrower's application (proposed 
Sec.  1024.40(b)(1)(i)(B)), the status of the borrower's already-
submitted loss mitigation application (proposed Sec.  
1024.40(b)(1)(i)(C)), the circumstances under which a servicer must 
make a foreclosure referral (proposed Sec.  1024.40(b)(1)(i)(D)), and 
loss mitigation deadlines the servicer has established (proposed Sec.  
1024.40(b)(1)(i)(E)); (2) accessing a complete record of the borrower's 
payment history in the servicer's possession, all documents the 
borrower has submitted to the servicer in connection with the 
borrower's application for a loss mitigation option offered by the 
servicer, and if applicable, documents the borrower has submitted to 
prior servicers in connection with the borrower's application for loss 
mitigation options offered by those servicers, to the extent that those 
documents are in the servicer's possession (proposed Sec.  
1024.40(b)(1)(ii)(A through (C)); (3) providing the documents in Sec.  
1024.40(b)(1)(ii)(B) through (C) to persons authorized to evaluate a 
borrower for loss mitigation options offered by the servicer if the 
servicer personnel assigned to the borrower is not authorized to 
evaluate a borrower for loss mitigation options (proposed Sec.  
1024.40(b)(1)(iii)); and (4) within a reasonable time after a borrower 
request, provide the information to the borrower or inform the borrower 
of the telephone number and address the servicer has established for 
borrowers to assert an error pursuant to Sec.  1024.35 or make an 
information request pursuant to Sec.  1024.36 (proposed Sec.  
1024.40(b)(1)(iv)). Proposed comment 40(b)(1)(iv) would have clarified 
that for purposes of Sec.  1024.40(b)(1)(iv), three days

[[Page 10812]]

(excluding legal public holidays, Saturdays, and Sundays) is a 
reasonable time to provide the information the borrower has requested 
or inform the borrower of the telephone number and address the servicer 
has established for borrowers to assert an error pursuant to Sec.  
1024.35 or make an information request pursuant to Sec.  1024.36.
    Proposed Sec.  1024.40(b)(1) reflected the Bureau's belief that 
having staff available to help delinquent borrowers is necessary, but 
not sufficient, to ensure that when a borrower at a significant risk of 
default reaches out to a servicer for assistance, the borrower is 
connected to personnel who can address the borrower's inquiries or loss 
mitigation requests adequately. The staff a servicer makes available to 
delinquent borrowers must be able to perform functions that are 
calibrated toward, among other things, facilitating the review of 
borrowers for foreclosure avoidance options. Further, as discussed in 
the proposal, Sec.  1024.40 was intended to work together with proposed 
Sec. Sec.  1024.39 and 1024.41. For example, proposed Sec.  1024.41 
would have required a servicer to notify a borrower if the borrower has 
submitted an incomplete loss mitigation application. Proposed Sec.  
1024.40(b)(1) would have addressed this duty by requiring the personnel 
assigned to the borrower to inform the borrower about the steps the 
borrower must take to complete his or her loss mitigation application.
    The Bureau additionally proposed Sec.  1024.40(b)(1) based on the 
recognition that mortgage investors and other regulators have responded 
to breakdowns in borrower-servicer communication by requiring servicers 
to adopt staffing standards. The Bureau believed that the functions set 
forth in proposed Sec.  1024.40(b)(1) would have complemented existing 
standards. The Bureau did not receive comments in response to proposed 
Sec.  1024.40(b)(1), with the exception that two national consumer 
groups questioned whether proposed Sec.  1024.40(b)(1)(ii)(C) would 
unnecessarily dilute a transferor servicer' responsibility to ensure it 
transfers all relevant borrower information and a transferee servicer's 
responsibility to ensure that it take possession of all such 
information because proposed Sec.  1024.40(b)(1)(ii)(C) would have 
limited the transferred documents to ones in a transferee servicer's 
possession. The consumer groups also questioned whether Sec.  
1024.40(b)(1)(ii)(C) would have conflicted with proposed Sec.  
1024.38(b)(4), which would have required servicers to transfer all of 
the information and documents relating to a transferred mortgage loan. 
The Bureau observes that the limitation was proposed because the Bureau 
did not believe a transferee servicer should be exposed to potentially 
costly litigation if the lack of access to documents is due to the 
fault of the transferor servicer. The Bureau observes that several of 
the proposed objectives with respect to providing information or 
accessing information would have been limited to circumstances where 
the information was in the servicer's possession. This proposed 
limitation was intended to be a safeguard to help servicers manage 
costs arising from the litigation risk that would have been created by 
the existence of civil liability for violations of proposed Sec.  
1024.40. But because the Bureau has decided to finalize Sec.  1024.40 
such that there will be no private liability for violations of the 
provision, the Bureau is not adopting the safeguard.
    Proposed Sec.  1024.40(b)(2) would have provided that a servicer's 
policies and procedures satisfy the requirements in Sec.  1024.40(b)(1) 
if servicer personnel do not engage in a pattern or practice of failing 
to perform the functions set forth in Sec.  1024.40(b)(1) where 
applicable. Proposed comment 40(b)(2)-1.i would have provided that for 
purposes of Sec.  1024.40(b)(2), a servicer exhibits a pattern or 
practice of failing to perform such functions, with respect to a single 
borrower, if servicer personnel assigned to the borrower fail to 
perform any of the functions listed in Sec.  1024.40(b)(1) where 
applicable on multiple occasions, such as, for example, repeatedly 
providing the borrower with inaccurate information about the status of 
the loss mitigation application the borrower has submitted. Proposed 
comment 40(b)(2)-1.ii would have explained that a servicer exhibits a 
pattern or practice of failing to perform such functions, with respect 
to a large number of borrowers, if servicer personnel assigned to the 
borrowers fail to perform any of the functions listed in Sec.  
1024.40(b)(1) in similar ways, such as, for example, providing a large 
number of borrowers with inaccurate information about the status of the 
loss mitigation applications the borrowers have submitted.
    The Bureau recognizes that contact personnel may occasionally make 
a mistake and fail to perform a function enumerated in proposed Sec.  
1024.40(b)(1). Proposed Sec.  1024.40(b)(2) reflects the Bureau's 
belief that the occasional mistake is not necessarily indicative of 
servicers not complying with the servicing obligation set forth in 
proposed Sec.  1024.40(b)(1). Accordingly, just as the Bureau proposed 
the safe harbor in proposed Sec.  1024.38(a)(2) for servicers for non-
systemic violations of Sec.  1024.38 to manage the costs arising from 
the litigation risk created by the existence of civil liability for 
violations of Sec.  1024.38, the Bureau proposed a safe harbor in 
proposed Sec.  1024.40(b)(2) for servicers for non-systemic violations 
of Sec.  1024.40(b)(1).
    Both consumer groups and industry commenters opposed the safe 
harbor the Bureau proposed in Sec.  1024.40(b)(2). Just as consumer 
groups urged the Bureau to eliminate the proposed safe harbor in 
proposed Sec.  1024.38(a)(2) to reduce barriers to successful 
litigation and to ensure that the rule provides protection for more 
borrowers, they urged the Bureau to withdraw proposed Sec.  
1024.40(b)(2). Just as industry groups urged the Bureau to eliminate 
the pattern or practice private cause of action under Sec.  
1024.38(a)(2) to reduce significant litigation exposure, they urged the 
Bureau to do the same with respect to proposed Sec.  1024.40(b)(2). 
Moreover, as is true in the general servicing policies and procedures 
context, the Bureau is concerned that the safe harbor in proposed Sec.  
1024.40(b)(2) would hamper the Bureau and other regulators in 
exercising supervisory authority and could preclude relief from being 
secured until there have been widespread or repeated incidents of 
consumer harm. Further, the safe harbor is no longer necessary because, 
as discussed above, the Bureau has decided to finalize Sec.  1024.40 
such that there will be no private liability for violations of the 
provision. Accordingly, the Bureau is not adopting Sec.  1024.40(b)(2) 
and related comments 40(b)(2)-1.i and ii. Instead, the Bureau is only 
adopting Sec.  1024.40(b)(1) as Sec.  1024.40(b).
New 40(b)
    Proposed Sec.  1024.40(b)(1) is largely adopted as Sec.  
1024.40(b)(1) through (3). In addition to changes that have been noted 
above, the Bureau has made technical changes to proposed Sec.  
1024.40(b)(1)(i)(B) (redesignated as Sec.  1024.40(b)(1)(ii)) to be 
consistent with changes to the language of Sec.  1024.41, to clarify 
that the function of accessing the information set forth in proposed 
Sec.  1024.40(b)(1)(ii) (redesignated as Sec.  1024.40(b)(2)) means 
retrieval, and to clarify that the retrieval must be done in a timely 
manner. The Bureau is also clarifying that ``document'' means ``written 
information'' for purposes of proposed Sec.  1024.40(b)(1)(ii)(B) 
(redesignated as Sec.  1024.40(b)(2)(ii)).
Proposed 40(c)
    The Bureau proposed Sec.  1024.40(c) to provide that a servicer 
shall ensure that

[[Page 10813]]

the personnel it assigns and makes available to a borrower pursuant to 
Sec.  1024.40(a) remain assigned and available to the borrower until 
any of the following occur: (1) the borrower refinances the mortgage 
loan (see proposed Sec.  1024.40(c)(1)); (2) the borrower pays off the 
mortgage loan (see proposed Sec.  1024.40(c)(2)); (3) a reasonable time 
has passed since (i) the borrower has brought the mortgage loan current 
by paying all amounts owed in arrears, or (ii) the borrower and the 
servicer have entered into a permanent loss mitigation agreement in 
which the borrower keeps the property securing the mortgage loan (see 
proposed Sec.  1024.40(c)(3)(i) through (ii)); (4) title to the 
borrower's property has been transferred to a new owner through, for 
example, a deed-in-lieu of foreclosure, a sale of the borrower's 
property, including, as applicable, a short sale, or a foreclosure sale 
(see proposed Sec.  1024.40(c)(4)); or (5) if applicable, a reasonable 
time has passed since servicing for the borrower's mortgage loan was 
transferred to a transferee servicer (see proposed Sec.  
1024.40(c)(5)). The Bureau observes that proposed Sec.  1024.40(c) 
clearly indicates that the Bureau intended Sec.  1024.40 to apply to 
more than just the initial assignment of contact personnel.
    The Bureau proposed comment 40(c)(3)-1 to provide that for purposes 
of Sec.  1024.40(c)(3), a reasonable time has passed when the borrower 
has made on-time mortgage payments for three consecutive months. The 
Bureau noted in the 2012 RESPA Servicing Proposal that the ability of a 
borrower to make on-time mortgage payments for three consecutive months 
has gained wide acceptance as an indicator of whether a previously-
delinquent borrower can succeed in keeping his or her mortgage loan 
current. For example, under Treasury's HAMP program, a borrower is put 
in a trial modification period lasting three months. The borrower must 
have made all trial period payments to qualify for a permanent loan 
modification.\158\ The Bureau sought comment on whether criteria other 
than a borrower making on-time mortgage payments for three consecutive 
months should be used to determine what is a ``reasonable time'' for 
purposes of Sec.  1024.40(c)(3).
---------------------------------------------------------------------------

    \158\ Making Home Affordable Program Handbook, v3.4, at 89 
(December 15, 2011); see also Fannie Mae Single Family Servicing 
Guide, Ch. 6, Sec.  602 (2012).
---------------------------------------------------------------------------

    A number of industry commenters asserted that three months of 
tracking a borrower who later becomes current would generally be 
excessive, particularly if the borrower cures without the aid of loan 
modification. Several industry commenters urged the Bureau to conform 
proposed Sec.  1024.40(3) to the requirement in the National Mortgage 
Settlement, which permits a servicer to end the assignment of a single 
point of contact to a borrower upon the reinstatement of the loan, 
which occurs either due to voluntary reinstatement or the processing of 
a permanent loan modification program. They urged the Bureau to not 
discount a borrower's completion of a trial modification program, and 
several commenters urged servicers to count a borrower's trial 
modification payments toward meeting the proposed on-time payment 
requirement in Sec.  1024.40(c)(3).
    One bank servicer suggested that the Bureau should further clarify 
proposed Sec.  1024.40(c)(3) by replacing the phrase ``on-time mortgage 
payment'' with ``when the borrower has made payment for three 
consecutive months that have not incurred a late fee.'' The servicer 
expressed the concern that narrowly interpreting ``on-time'' payments 
as paying as of the due date could unnecessarily extend the duration of 
the continuity of contact and that the Bureau should take account of 
any grace period after the payment due date during which a borrower 
could pay without incurring a late fee.
    Proposed comment 40(c)(5)-1 would have provided that for purposes 
of Sec.  1024.40(c)(5), a reasonable time would have passed 30 days 
after servicing for the borrower's mortgage loan was transferred to a 
transferee servicer. As discussed above, the Bureau believed that the 
transferee servicer may require up to 30 days from the date of transfer 
of servicing to identify borrowers who had personnel assigned to them 
by the transferor servicer.
    A large bank servicer and a national trade association representing 
large mortgage financing companies opposed requiring a transferor 
servicer to continue making continuity of contact personnel available 
to a borrower whose loan has been transferred because after servicing 
has been transferred, the transferor servicer would no long have access 
to any records or documents of the borrower and could no longer 
reasonably be expected to assist a borrower effectively. The large bank 
servicer suggested that if the Bureau adopts a rule that requires a 
transferor service to continue making continuity of contact personnel 
available after a borrower's loan has been transferred, the Bureau 
should require the assignment to last no more than 15 days following 
the transfer. The national trade association suggested that the Bureau 
should require contact information for the continuity of contact 
personnel made available by a transferee servicer be disclosed in the 
servicing transfer letter or provide an exemption for liability for 
potentially violating Sec.  1024.40(b) as the personnel will be unable 
to perform many of the functions set forth in proposed Sec.  
1024.40(b). One bank servicer recommended that the Bureau provide a 
safe harbor for situations where a continuity of contact personnel is 
no longer available due to staffing changes in the normal course of 
business.
    The Bureau has considered the comments the Bureau has received in 
response to proposed Sec.  1024.40(c) and is making several 
adjustments. The Bureau has reconsidered the appropriate continuity of 
contact objectives where a borrower's mortgage loan is made current 
through voluntary reinstatement. The Bureau believes that the objective 
should be to maintain continuity of contact until a borrower either 
brings a mortgage loan current by paying all amount owed in arrears or 
is able to make at least the first two payments following a permanent 
modification agreement. In the case of a borrower who brings her 
mortgage current, the Bureau believes that the likelihood of a near-
term re-default is relatively low and thus the servicer should not be 
required to implement policies and procedures reasonably designed to 
maintain continuity of contact with such a borrower. On the other hand, 
The Bureau believes that the risk of a re-default for a borrower who 
has gone through formal loss mitigation assistance is sufficiently high 
that the servicer's policies and procedures should be reasonably 
designed to maintain continuity of contact with such a borrower 
throughout any trial modification and for a period of time after the 
borrower enters into a permanent loan modification agreement. The 
Bureau is adopting Sec.  1024.40(a)(2), which reduces the number of 
consecutive monthly payments from three to two. This responds to 
concerns about whether three months of tracking might be excessive. The 
Bureau has also considered the request to permit a servicer to factor 
in grace periods when determining whether a payment was an on-time 
payment and believes that it would be an appropriate change. This 
change is reflected in final Sec.  1024.40(a)(2).
    The Bureau has considered the issue of a transferor servicer's 
obligation to continue making contact personnel available to a borrower 
whose loan has been transferred. As discussed above, the Bureau 
reasoned that it might

[[Page 10814]]

reasonably take some time for transferee servicers to identify borrower 
who had personnel assigned to them by the transferor servicer. The 
Bureau believes this safeguard is no longer necessary when violations 
of finalized Sec.  1024.40 no longer expose a servicer to civil 
liability. Accordingly, the Bureau is not finalizing proposed Sec.  
1024.40(c)(5).
    As discussed above, one industry commenter suggested that the 
Bureau should relieve a servicer of its obligation to make continuity 
of contact personnel available due to staffing changes in the normal 
course of business. The Bureau disagrees. The Bureau expects that 
servicers already have existing policies and procedures in place to 
address the implication of staffing changes to their servicing 
operations, including the impact on borrower-servicer communications 
and accordingly, this limitation is unnecessary.
    As discussed above, after further consideration, the Bureau 
believes it would be better to state clearly in Sec.  1024.40(a) that 
the continuity of contact policy and procedures requirements in Sec.  
1024.40 only applies to delinquent borrower rather than setting forth a 
separate section in proposed Sec.  1024.40(c) to the same effect. 
Accordingly, the Bureau is not adopting proposed Sec.  1024.40(c) as a 
separate subsection of Sec.  1024.40 and is instead moving the 
substance of proposed Sec.  1024.40(c), revised as discussed above, to 
comment 40(a)-1, which elaborates on the meaning of the term 
``delinquent borrower'' for purposes of Sec.  1024.40(a). As adopted, 
comment 40(a)-1 clarifies that a borrower is no longer a ``delinquent 
borrower'' (for purposes of Sec.  1024.40(a)) if a borrower has 
refinanced the mortgage loan, paid off the mortgage loan, brought the 
mortgage loan current by paying all amounts owed in arrears, or if 
title to the borrower's property has been transferred to a new owner 
through, for example, a deed-in-lieu of foreclosure, a sale of the 
borrower's property, including, as applicable, a short sale, or a 
foreclosure sale.
Proposed 40(d)
    The Bureau proposed Sec.  1024.40(d) to provide that a servicer has 
not violated Sec.  1024.40 if the servicer's failure to comply with 
this section is caused by conditions beyond a servicer's control. 
Proposed comment 40(d)-1 would have explained that ``conditions beyond 
the servicer's control'' include natural disasters, wars, riots or 
other major upheaval, delays or failures caused by third parties, such 
as a borrower's delay or failure to submit any requested information, 
disruptions in telephone service, computer system malfunctions, and 
labor disputes, such as strikes. The Bureau intended proposed Sec.  
1024.40(d) to limit the liability of servicers to borrowers under 
RESPA. The Bureau did not believe that failures to comply with the 
continuity of contact requirements in proposed Sec.  1024.40 caused by 
conditions beyond a servicer's control should expose a servicer to 
liability to a borrower under section 6 of RESPA. Even if servicers 
implement processes that would address staffing failures that had a 
significant adverse impact on borrowers seeking alternatives to 
foreclosure, the Bureau believes that such conditions may occasionally 
occur that could adversely affect a servicer's ability to provide 
adequate and appropriate staff to assist delinquent borrowers.
    One non-bank servicer recommended that the Bureau add to the list 
of conditions beyond a servicer's control circumstances under which a 
servicer cannot establish reasonable contact with a borrower or the 
borrower is not responsive to reasonable attempts to make contact. 
Another servicer asked the Bureau to provide that major business 
reorganizations, such as mergers, be added to the list of conditions 
beyond a servicer's control. In response to the first commenter, the 
Bureau observes that a servicer's obligation under proposed Sec.  
1024.40 would have been to simply make contact personnel available in 
accordance with Sec.  1024.40(a). The contact personnel would not have 
been required by Sec.  1024.40 to make multiple attempts to contact a 
borrower. Making multiple attempts to contact a borrower is also not an 
objective of Sec.  1024.40 as adopted. In response to the second 
commenter, the Bureau observes that major business organizations 
typically require advanced negotiation and planning. Accordingly, the 
Bureau believes that such transactions should not be added to the list 
of conditions beyond a servicer's control.
    But importantly, the Bureau is withdrawing proposed Sec.  
1024.40(d) and related comment 40(d)-1. For reasons discussed above, 
violations of Sec.  1024.40 will not give rise to civil liability. 
Accordingly, the Bureau believes that adopting proposed Sec.  
1024.40(d) is no longer necessary.
Section 1024.41 Loss mitigation procedures
    As discussed in the Bureau's 2012 RESPA Servicing Proposal, and in 
part II above, there has been widespread concern among mortgage market 
participants, consumer advocates, and policymakers regarding pervasive 
problems with servicers' performance of loss mitigation activity in 
connection with the financial crisis, including lost documents, non-
responsive servicers, and unwillingness to work with borrowers to reach 
agreement on loss mitigation options. In response, servicers, 
investors, guarantors, and State and Federal regulators have undertaken 
efforts to adjust servicer loss mitigation and foreclosure practices to 
address problems relating to evaluation of loss mitigation options. 
Specifically: (1) Treasury and HUD sponsored the Making Home Affordable 
program, which established guidelines for Federal government sponsored 
loss mitigation programs such as HAMP; \159\ (2) the Federal Housing 
Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to align 
their guidelines for servicing delinquent mortgages they own or 
guarantee to improve servicing practices; \160\ (3) prudential 
regulators, including the Board and the OCC, undertook enforcement 
actions against major servicers, resulting in consent orders imposing 
requirements on servicing practices; \161\ (4) the National Mortgage 
Settlement agreement imposes obligations on five of the largest 
servicers, including on the conduct of loss mitigation evaluations; 
\162\ and (5) a number of States have adopted, and others continue to 
propose, regulations relating to mortgage servicing and foreclosure 
processing, including requiring evaluation for loss mitigation 
options.\163\
---------------------------------------------------------------------------

    \159\ www.makinghomeaffordable.gov.
    \160\ Press Release, Federal Housing Finance Agency, Fannie Mae 
and Freddie Mac to Align Guidelines for Servicing Delinquent 
Mortgages (Apr. 28, 2011), http://www.fhfa.gov/webfiles/21190/SAI42811.pdf. See also Comment letter submitted by Fannie Mae and 
Freddie Mac.
    \161\ Press Release, Office of the Comptroller of the Currency, 
NR 2011-47, OCC Takes Enforcement Action Against Eight Servicers for 
Unsafe and Unsound Foreclosure Practices (Apr. 13, 2011); Federal 
Reserve Board Press Release, Federal Reserve Issues Enforcement 
Actions Related to Deficient Practices in Residential Mortgage Loan 
Servicing (April 13, 2011), available at: http://www.federalreserve.gov/newsevents/press/enforcement/20110413a.htm.
    \162\ www.nationalmortgagesettlement.com.
    \163\ See, e.g., N.Y. Comp. Codes R. & Regs. tit. 3, Sec.  419.1 
et seq.; 2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) (WEST) amending 
Cal. Civ. Code Sec.  2923.6. See also Massachusetts proposed 
mortgage servicing regulations, available at http://www.mass.gov/ocabr/docs/dob/209cmr18proposedred.pdf. (last accessed November 19, 
2012).
---------------------------------------------------------------------------

    Many of these initiatives imposed a similar set of consumer 
protective practices on covered servicers with respect to delinquent 
borrowers. For example, the FHFA servicing alignment initiative, the 
National Mortgage Settlement, and HAMP all require servicers to review 
loss mitigation

[[Page 10815]]

applications within 30 days.\164\ Further, the FHFA servicing alignment 
initiative and the National Mortgage Settlement require a servicer that 
receives an application for a loss mitigation option from a borrower 
before the 120th day of delinquency to postpone the referral of the 
borrower's mortgage loan account to foreclosure until the borrower has 
been evaluated for a loss mitigation option.\165\
---------------------------------------------------------------------------

    \164\ See e.g., National Mortgage Settlement at Appendix A, at 
A-26; Freddie Mac Single Family Seller/Servicer Guide, Vol. 2 Sec.  
64.6(d)(5) (2012); Fannie Mae Single Family Servicing Guide Sec.  
205.08 (2012); HAMP Guidelines, Ch. 6 (2011).
    \165\ See e.g., National Mortgage Settlement at Appendix A, at 
A-17, available at http://www.nationalmortgagesettlement.com (last 
accessed January 15, 2013).
---------------------------------------------------------------------------

    While these various initiatives are starting to bring 
standardization to significant portions of the market, none of them to 
date has established a set of consistent national procedures and 
expectations regarding loss mitigation procedures. The Financial 
Stability Oversight Council, observing that the mortgage servicing 
industry was unprepared and poorly structured to address the rapid 
increase in defaults and foreclosures, recommended that federal 
regulators establish national mortgage servicing standards to address 
structural vulnerability in the mortgage servicing market.\166\ 
Further, the GAO recommended that to the extent federal regulators 
create national servicing standards, such standards should address 
servicer foreclosure practices.\167\
---------------------------------------------------------------------------

    \166\ See Financial Stability Oversight Council, 2011 Annual 
Report (July 22, 2011), available at http://www.treasury.gov/initiatives/fsoc/Documents/FSOCAR2011.pdf (last accessed January 15, 
2013).
    \167\ U.S. Government Accountability Office, Mortgage 
Foreclosures--Documentation Problems Reveal Need for Ongoing 
Regulatory Oversight (May 2011), available at http://www.gao.gov/assets/320/317923.pdf (last accessed January 15, 2013).
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    In response to these recommendations, the Bureau has developed 
these final rules to serve as national mortgage servicing standards. 
The Bureau believes that because so many borrowers are more than 90 
days delinquent and in need of consideration for loss mitigation, 
because borrowers often are not able to choose the servicer of their 
mortgage loan, and because the manner in which loss mitigation is 
handled has such potentially significant impacts on both individual 
consumers and the health of the larger housing market and economy, 
establishing national mortgage servicing standards is necessary and 
appropriate to protect borrowers and achieve the consumer protection 
purposes of RESPA. Such standards establish appropriate expectations 
for loss mitigation processes for borrowers and for owners or assignees 
of mortgage loans. Such standards also ensure that borrowers have a 
full and fair opportunity to receive an evaluation for a loss 
mitigation option before suffering the harms associated with 
foreclosure. These standards are appropriate and necessary to achieve 
the consumer protection purposes of RESPA, including facilitating 
borrowers' review for loss mitigation options, and to further the goals 
of the Dodd-Frank Act to ensure a fair, transparent, and competitive 
market for mortgage servicing.
    As stated in the proposal, the Bureau has considered a number of 
different options for addressing consumer harms relating to loss 
mitigation. In general, the Federal government has at least three 
approaches to addressing loss mitigation: (1) Establishing processes to 
facilitate actions by market participants; (2) mandating outcomes of 
loss mitigation process (implicitly raising costs to market 
participants of pursuing foreclosure actions in violation of the 
mandated outcomes); or (3) providing subsidies to incent the desired 
outcomes.\168\ Only options (1) and (2) were considered by the Bureau 
in light of resources and other factors. These present a stark choice: 
Whether to mandate processes that provide consumer protections without 
mandating specific outcomes or whether to mandate specific outcomes by 
establishing criteria for when such outcomes are required. For example, 
a requirement that a servicer review a completed loss mitigation 
application in a certain time period establishes a process requirement 
but does not impose upon the servicer a criterion for determining 
whether to offer a loss mitigation option. In contrast, a requirement 
that a servicer provide a loan modification when an evaluation of a 
loss mitigation application indicates that a loan modification may have 
a positive net present value would impose a substantive criterion. 
Mandating a methodology or set of assumptions for determining when a 
modification has a positive net present value would further constrain 
the investor's discretion in deciding under what circumstances to offer 
a loss mitigation option.
---------------------------------------------------------------------------

    \168\ See Patricia A. McCoy, Barriers to Home Mortgage 
Modifications During the Financial Crisis, at 4 (May 31, 2012).
---------------------------------------------------------------------------

    The 2012 RESPA Servicing Proposal included proposed procedural 
requirements for servicers to follow in reviewing borrowers for loss 
mitigation options. Specifically, proposed Sec.  1024.41 provided that 
servicers that make loss mitigation options available to borrowers in 
the ordinary course of business must undertake certain duties in 
connection with the evaluation of borrower applications for loss 
mitigation options. The proposal was intended to achieve three main 
goals: First, it was designed to provide protections to borrowers to 
ensure that, to the extent a servicer offers loss mitigation options, a 
borrower would receive timely information about how to apply, and that 
a servicer would evaluate a complete application in a timely manner. 
Second, it was designed to prohibit a servicer from completing a 
foreclosure process by proceeding with a foreclosure sale until a 
borrower and a servicer had terminated discussions regarding loss 
mitigation options.\169\ Third, it was designed to set timelines for 
loss mitigation evaluation that could be completed without requiring a 
suspension of the foreclosure sale date in order to avoid strategic use 
of these procedures to extend foreclosure timelines.
---------------------------------------------------------------------------

    \169\ Although there is a paucity of reliable data about the 
prevalence of problems resulting from proceeding with a foreclosure 
sale while loss mitigation discussions are ongoing, the Federal 
Reserve identified anecdotal evidence of these problems in 2008. See 
Larry Cordell et al., The Incentives of Mortgage Servicers: Myths 
and Realities, at 9 (Federal Reserve Board, Working Paper No. 2008-
46, Sept. 2008). Anecdotal evidence continues to accumulate. See, 
e.g., Haskamp, et al. v. Federal National Mortgage Assoc., et al., 
No. 11-cv-2248, Plaintiff's Memorandum of Law In Support of Their 
Motion For Partial Summary Judgment (D. Minn. June 14, 2012); 
Stovall v. Suntrust Mortgage, Inc., No. 10-2836, 2011 U.S. Dist. 
LEXIS 106137 (D. Md. September 20, 2011); Debra Gruszecki, REAL 
ESTATE: Homeowner Protests ``Dual Tracking,'' Press-Enterprise (June 
19, 2012), available at: http://www.pe.com/local-news/local-news-headlines/20120619-real-estate-homeowner-protests-dual-tracking.ece. 
Information presented by consumer advocacy groups illustrates that 
consumers and their advocates continue to be frustrated by the 
process of dual tracking. For example, the NCLC conducted a survey 
of consumer attorneys to identify instances of foreclosure sales 
occurring while loss mitigation discussions were on-going. Per that 
survey, 80 percent of surveyed consumer attorneys surveyed reported 
an instance of an attempted foreclosure sale while awaiting a loan 
modification. National Consumer Law Center & National Association of 
Consumer Bankruptcy Attorneys, Servicers Continue to Wrongfully 
Initiate Foreclosures: All Types of Loans Affected (Feb. 2012), 
available at http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/wrongful-foreclosure-survey-results.pdf. 
Further, a survey by the National Housing Resource Center stated 
that 73 percent of 285 housing counselors surveyed rate servicer 
performance in complying with dual tracking rules outlined in HAMP 
guidelines as ``fair'' or ``poor.'' National CAPACD Comment Letter, 
at 7. These surveys, while certainly not conclusive evidence of the 
prevalence of dual tracking or compliance with requirements imposed 
on servicers, indicate that concurrent loss mitigation and 
foreclosure processes continue to negatively impact borrowers.
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    The Bureau intended that the protections that were set forth in

[[Page 10816]]

proposed Sec.  1024.41 would have been augmented and supplemented by 
protections in other sections of the 2012 RESPA Servicing Proposal that 
addressed loss mitigation issues. In proposed Sec.  1024.39, for 
instance, the Bureau proposed to implement obligations on servicers 
that would have required servicers to contact borrowers early in the 
delinquency process and to provide information to borrowers regarding 
loss mitigation options. In proposed Sec.  1024.40, the Bureau proposed 
to implement obligations on servicers that would have required 
servicers, in certain circumstances to provide borrowers with contact 
personnel to assist them with the process of applying for a loss 
mitigation option. Such personnel would have been required to have 
access to, among other things, information regarding loss mitigation 
options available to the borrower, actions the borrower must take to be 
evaluated for such loss mitigation options, and the status of any loss 
mitigation application submitted by the borrower. Further, in proposed 
Sec.  1024.38, the Bureau proposed to require that servicers implement 
policies and procedures reasonably designed to achieve the objective of 
reviewing borrowers for loss mitigation options. Finally, in proposed 
Sec.  1024.35, the Bureau proposed to permit a borrower to assert an 
error as a result of a servicer's failure to postpone a scheduled 
foreclosure sale when a servicer has failed to comply with the 
requirements for proceeding with a foreclosure sale. The Bureau 
believed that all of these protections, when implemented together, 
would have a substantial impact on reducing consumer harm.
    The Bureau requested comment on all aspects of the proposal, and, 
in particular, whether focusing on the provision of procedural rights 
was the appropriate approach to addressing the consumer harm it had 
identified. The Bureau sought comment on whether there were additional 
appropriate measures that could be required to improve loss mitigation 
outcomes for all parties. The Bureau also sought comment on whether the 
proposed requirements ensured that consumers' timely and complete 
applications would receive fair and full consideration and ensured the 
predictability of outcomes for consumers as well as owners and 
assignees of mortgage loans. Finally, and as discussed further below, 
the Bureau sought comment on whether proposed Sec.  1024.41 would have 
required servicers to undertake practices that conflicted with other 
Federal regulatory requirements or State law or may have caused 
servicers to undertake practices that might reduce the availability of 
loss mitigation options or access to credit.\170\
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    \170\ With respect to investor or guarantor requirements that do 
not constitute Federal or State law, such as requirements of the 
GSEs, the Bureau observes that such entities may need to review and 
adjust their requirements in light of the consumer protections set 
forth in the final rules.
---------------------------------------------------------------------------

    The Bureau received comments from numerous individual consumers, 
consumer advocates, as well as some servicers and industry trade 
associations in support of the Bureau's implementation of loss 
mitigation procedures. Although many of these commenters indicated 
specific areas where adjustments to the proposed requirements might be 
warranted, a number of commenters indicated that the loss mitigation 
procedures proposed by the Bureau would provide necessary and 
appropriate tools to assist consumers in receiving evaluations for loss 
mitigation options. Other commenters disagreed with the Bureau's 
proposed approach with respect to loss mitigation requirements. 
Numerous consumer advocacy groups commented that the Bureau's proposed 
requirements were inadequate to address consumer harm, and that the 
Bureau should more aggressively regulate loss mitigation activities. 
Conversely, the majority of industry participants and their trade 
associations commented that the proposed requirements were burdensome, 
unnecessary to address consumer harm, and could create an incentive for 
servicers and owners or assignees of mortgage loans to withdraw current 
loss mitigation practices.
    Consumer advocacy groups primarily commented on three main topics: 
(1) Mandating specific loss mitigation criteria; (2) addressing 
consumer harms relating to dual tracking of processes for pursuing 
foreclosures and evaluating borrowers for loss mitigation; and (3) 
appropriate timelines for the loss mitigation procedures. These topics 
are addressed in turn below. In certain circumstances, because the 
Bureau's approach to loss mitigation is not limited to the loss 
mitigation procedures set forth in Sec.  1024.41, but involves a 
coordinated use of tools set forth in different provisions of the 
mortgage servicing rules (including the error resolution procedures in 
Sec.  1024.35, the reasonable information management policies and 
procedures in Sec.  1024.38, the early intervention requirements in 
Sec.  1024.39, and the continuity of contact requirements in Sec.  
1024.40), the Bureau has implemented adjustments to other provisions in 
light of the comments received with respect to the loss mitigation 
procedures in Sec.  1024.41 as discussed further below and in the 
discussions of the other sections as appropriate.
Mandating Specific Loss Mitigation Criteria
    Consumer advocates submitted a significant number of comments 
requesting that the Bureau mandate criteria for loss mitigation 
programs. For example, twelve individual consumer advocacy groups, as 
well as two coalitions of consumer advocacy groups, commented that the 
Bureau's proposal to require loss mitigation procedures did not go far 
enough to protect consumers from harms relating to the loss mitigation 
process.
    Many consumer advocate commenters set forth a list of goals that 
should be considered by the Bureau to guide the development of a fuller 
set of consumer protections relating to the loss mitigation process. 
These goals included: (1) The Bureau should mandate specific home-
saving strategies, with affordable loan modifications ranked first and 
with an order of priority among types of modifications (e.g. temporary 
or permanent interest rate reduction, extension of term, reduction of 
principal, etc.); (2) the Bureau should require all servicers to offer 
affordable, net present value positive loan modifications to qualified 
homeowners facing hardship and should establish rules for determining 
what constitutes an affordable modification by establishing a maximum 
or target debt-to-income ratio; \171\ (3) the Bureau should require 
that successful trial loan modifications must be automatically 
converted to permanent modifications by servicers; \172\ and (4) the 
Bureau should require servicers to notify homeowners regarding the 
status of evaluations for loss mitigation options in writing. Notably, 
one commenter stated that the Bureau should require that if a homeowner 
is ineligible for a loan modification option, a servicer should fully 
explore non-home retention options, such as cash-for-keys or deed-in-
lieu of foreclosure, with the homeowner before a foreclosure is filed.
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    \171\ One commenter added that servicers should be required to 
demonstrate that these models are accurate and do not result in 
discriminatory impacts.
    \172\ The commenters indicated that they believed servicers 
unduly delayed conversion of trial modifications to permanent 
modifications and stated that homeowners should not bear the 
financial burden of undue delay in conversion of a trial 
modification to a permanent modification.
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    Mandatory loan modifications were addressed by a number of other

[[Page 10817]]

comment submissions. A coalition of 60 consumer advocacy groups further 
commented that the Bureau should require loan modification programs 
similar to HAMP using a public and transparent net-present-value test 
mandated by the Bureau. One consumer advocacy group commented that a 
servicer should be required to offer loss mitigation when the servicer 
is a participant in a Federal, State, or private loss mitigation 
program or process. Further, one commenter stated that servicers should 
be prohibited from offering loss mitigation options that grossly 
deviate from standard industry practices. Finally, individual consumers 
that participated in a discussion of the proposed rules in connection 
with the Regulation Room project commented that the Bureau should 
mandate specific loan modification programs and requirements.
    On the other hand, three consumer advocacy groups expressly stated 
that the Bureau should not mandate specific loan modification programs 
and requirements. Although these groups advocated that the Bureau 
should mandate that all servicers engage in loss mitigation procedures 
and ``include loan modifications that reduce payments to an affordable 
level as one of the loss mitigation options generally available to 
borrowers,'' these groups recommended against prescribing specific loss 
mitigation criteria, specified waterfalls or debt-to-income targets, or 
net present value models or assumptions. Rather, these groups stated 
that servicers should be given discretion to implement loss mitigation 
programs. These groups did urge, however, that servicers should be 
responsible for implementing loss mitigation programs consistent with 
the requirements imposed by owners or assignees of mortgage loans with 
respect to the administration of those programs.
    In contrast with consumer advocates, industry commenters stated 
that regulations concerning loss mitigation procedures will limit the 
availability of loss mitigation options and restrict the availability 
of credit. Specifically, a community bank, a credit union, and a non-
bank mortgage lender commented that mandating outcomes would be a 
disincentive to offering loss mitigation programs. Further, these 
commenters indicated that such programs would be costly and burdensome 
to implement. Further, a number of servicers, their trade associations, 
and a law firm stated that allowing a private right of action for loss 
mitigation options would substantially increase costs for lenders, 
limit the offering of loss mitigation options, and more generally, 
restrict the availability of credit.
    After careful consideration of the comments, the Bureau has decided 
to refrain at this time from mandating specific loss mitigation 
programs or outcomes. The Bureau continues to believe that it is 
necessary and appropriate to achieve the purposes of RESPA to implement 
required procedures for servicers' evaluations of borrowers for loss 
mitigation options and that this approach will maintain consumer access 
to credit.
    As discussed in the 2012 RESPA Servicing Proposal, the Bureau is 
concerned that mandating specific loss mitigation programs or outcomes 
might adversely affect the housing market and the ability of consumers 
to access affordable credit. Even in its current constrained state, the 
mortgage market generates approximately $1.4 trillion dollars in new 
loans.\173\ The mortgage market necessarily depends on a large number 
of creditors, investors, and guarantors who are willing to accept the 
credit risk entailed in mortgage lending. The market is constrained 
today at least in part because, in the wake of the financial crisis, 
private capital is largely unwilling to accept that risk without a 
government guarantee.
---------------------------------------------------------------------------

    \173\ See Laurie Goodman, Outlook and Opportunities U.S. RMBS 
Market (October 2012) (estimated originations through the first six 
months of 2012 were approximately $777 billion; originations for 
CY2011 were approximately $1.308 trillion). See also Mortgage 
Bankers Association, MBA Increases Originations Estimate for 2012 by 
Almost $200 Billion (May 24, 2012) http://www.mortgagebankers.org/NewsandMedia/PressCenter/80910.htm.
---------------------------------------------------------------------------

    As with any secured lending, those who take the credit risk on 
mortgage loans do so in part in reliance on their security interest in 
the collateral. When a borrower is unable (or unwilling) to repay a 
loan, it is in the interest of those who own the loans to attempt to 
mitigate (i.e., reduce) their losses. There are myriad options, ranging 
from forbearance, to loan modification, to short sales, to foreclosure 
or deed-in-lieu of foreclosure to achieve that end. Further, there is a 
wide range of borrower situations regarding which the borrower and 
owner or assignee of the mortgage loan must make judgments as to the 
desirable options. And for any given situation with respect to a 
borrower's willingness and ability to pay, there are a large number of 
issues to resolve in determining how to structure a particular option, 
such as a forbearance plan, loan modification, or short sale.
    The Bureau understands that different creditors, investors, and 
guarantors have differing perspectives on how best to achieve loss 
mitigation based in part on their own individual circumstances and 
structures and in part on their market judgments and assessments. 
Community banks and credit unions with loans on portfolio may have a 
different viewpoint, for example, than large investors who purchased 
mortgage loans on the secondary market. Even government insurance 
programs adopt approaches that differ in material respects from each 
other, as well as from those programs implemented by the GSEs.
    The Bureau does not believe that it can develop, at this time, 
rules that are sufficiently calibrated to protect the interests of all 
parties involved in the loss mitigation process and is concerned that 
an attempt to do so may have unintended negative consequences for 
consumers and the broader market. Loss mitigation programs have evolved 
significantly since the onset of the financial crisis and the Bureau is 
concerned that an attempt to mandate specific loss mitigation outcomes 
risks impeding innovation, that would allow such programs to evolve to 
the needs of the market. The Bureau further believes that if it were to 
attempt to impose substantive loss mitigation rules on the market at 
this time, consumers' access to affordable credit could be adversely 
affected. Creditors who were otherwise prepared to assume the credit 
risk on mortgages might be unwilling to do so, or might charge a higher 
price (interest rate) because they would no longer be able to establish 
their own criteria for determining when to offer a loss mitigation 
option in the event of a borrower's default. Investors in the secondary 
market might likewise reduce their willingness to invest in mortgage 
securities or pay less for securities at present rates (thereby 
requiring creditors to charge higher interest rates to maintain the 
same yield). The cost of servicing might increase substantially to 
compensate servicers for the burden of complying with prescribed 
criteria for evaluation of loss mitigation applications. Based upon 
these considerations, the Bureau declines to prescribe specific loss 
mitigation criteria at this time.
    The Bureau is implementing requirements, however, for servicers to 
evaluate borrowers for loss mitigation options pursuant to guidelines 
established by the owner or assignee of a borrower's mortgage loan. In 
order to effectuate this policy, the Bureau has created certain 
requirements in Sec.  1024.38, with respect to general servicing 
policies, procedures, and requirements, and other requirements in 
connection with the loss mitigation

[[Page 10818]]

procedures in Sec.  1024.41. Pursuant to Sec.  1024.38, servicers are 
required to maintain policies and procedures to achieve the objective 
of (1) identifying, with specificity, all loss mitigation options for 
which borrowers may be eligible pursuant to any requirements 
established by an owner or assignee of the borrower's mortgage loan and 
(2) properly evaluating a borrower who submits an application for a 
loss mitigation option for all loss mitigation options for which the 
borrower may be eligible pursuant to any requirements established by 
the owner or assignee of the borrower's mortgage loan. Further, in 
Sec.  1024.41, the Bureau is implementing procedural protections for 
borrowers with respect to the process of obtaining an evaluation for 
loss mitigation options, as well as restrictions on the foreclosure 
process while a borrower is being evaluated for a loss mitigation 
option. Borrowers have a private right of action to enforce the 
procedural requirements in Sec.  1024.41, as set forth in Sec.  
1024.41(a); borrowers do not, however, have a private right of action 
under the Bureau's rules to enforce the requirements set forth in Sec.  
1024.38 or to enforce the terms of an agreement between a servicer and 
an owner or assignee of a mortgage loan with respect to the evaluation 
of borrowers for loss mitigation options. The Bureau believes this 
framework provides an appropriate mortgage servicing standard; 
servicers must implement the loss mitigation programs established by 
owners or assignees of mortgage loans and borrowers are entitled to 
receive certain protections regarding the process (but not the 
substance) of those evaluations.
    In reaching the conclusion not to impose substantive requirements 
on loss mitigation programs, such as eligibility criteria, or to 
mandate the outcomes of loss mitigation processes, the Bureau 
recognizes that there is abundant evidence that the current system is 
not producing a level of loan modifications and other foreclosure 
alternatives that best meets the interests of distressed borrowers, the 
communities that would be hurt by borrowers' loss of their homes, and 
owners or assignees of mortgage loans. To the extent that is the result 
of process failures by servicers--specifically, the lack of 
infrastructure to handle the flood of delinquent borrowers resulting 
from the financial crisis--the Bureau believes that it can best 
contribute to solving that problem through the rules it is adopting 
which, as previously discussed, will require servicers to establish 
policies and procedures governing servicer operations, to implement 
continuity of contact policies and procedures, to engage in early 
intervention with delinquent borrowers, and to comply with procedures 
regarding the evaluation of a borrower for loss mitigation options. 
Together, these requirements are necessary and appropriate to achieve 
the consumer protection purposes of RESPA.
    To the extent the failure of the current system to produce an 
optimal level of loss mitigation is the result of servicers pursuing 
their self-interest rather than the interest of their principals (i.e. 
the owners or assignees of the mortgage loans), the Bureau is 
addressing that issue by requiring servicers to maintain policies and 
procedures reasonably designed to identify all available loss 
mitigation options of their principals and properly consider delinquent 
borrowers for all such options.
    The Bureau observes that the vast bulk of delinquent mortgages 
today are owned or guaranteed by governmental agencies such as FHA or 
by the GSEs in conservatorship. Those agencies, and the FHFA as 
conservator for the GSEs, are accountable to the public for meeting 
their statutory responsibilities to borrowers and taxpayers. The Bureau 
believes these agencies are best situated to establish loss mitigation 
programs for their mortgage loans, to determine the extent to which 
they believe it appropriate to allow individual borrowers to enforce 
their loss mitigation rules, and to evaluate whether a borrower should 
be able to obtain judicial review of the decision of a servicer in an 
individual case to offer a loss mitigation option. If the Bureau were 
to effectively mandate such review, the Bureau fears that investors and 
guarantors might dilute the obligations they impose on servicers or the 
loss mitigation options they make available. Such a result would not 
serve the interests of consumer or the housing market. Accordingly, the 
Bureau has determined not to establish substantive criteria for review 
of loss mitigation programs at this time and not to make investor 
guidelines with respect to loss mitigation enforceable against 
servicers by borrowers through RESPA. The Bureau will continue to 
monitor developments in the market and work with the prudential 
regulators, as well as other Federal agencies, to assess collectively 
whether additional rules are necessary and appropriate to improve 
outcomes for all participants in the mortgage market.
    Although the Bureau is not mandating specific loss mitigation 
criteria and, instead, is adopting a procedural approach, the Bureau is 
finalizing the loss mitigation procedures as proposed with significant 
adjustments, as set forth below, that are designed to enhance the 
effectiveness of the proposed procedures in light of the public 
comments. Such adjustments include, for example, expanding the scope of 
the loss mitigation procedures to apply to all servicers, not just 
servicers that offer loss mitigation options in the ordinary course of 
business, adjusting the timelines for the loss mitigation procedures, 
and implementing protections for borrowers from the harms of dual 
tracking. Although the Bureau believes that substantially all, if not 
all, servicers offer loss mitigation options, as defined by the Bureau, 
in the ordinary course of business, the Bureau acknowledges, and agrees 
with, comments received from consumer advocates that requiring 
servicers to comply with the loss mitigation requirements 
notwithstanding their business practices better achieves the consumer 
protection purposes of RESPA.
    As set forth more fully below (and above with respect to Sec.  
1024.38), the Bureau is also making adjustments to other sections of 
the rule to address concerns raised by certain consumer advocate 
commenters related to loss mitigation. For example, Sec.  1024.38 
requires servicers to maintain policies and procedures reasonably 
designed to implement the loss mitigation program requirements 
established by owners or assignees of mortgage loans. Such programs may 
require servicers to consider whether a borrower's material change in 
financial circumstances warrants further consideration of the 
availability of loss mitigation options and may require consideration 
of loss mitigation applications beyond the timelines required by the 
Bureau. Although the Bureau has determined not to adjust the loss 
mitigation procedures requirements in Sec.  1024.41 to address such 
concerns, the Bureau has made adjustments to the requirements for 
servicers to adopt policies and procedures in Sec.  1024.38, as set 
forth above, which has the effect of addressing such concerns.
Restricting Dual Tracking
    The proposed rule would have required servicers to comply with the 
loss mitigation procedures by reviewing complete and timely loss 
mitigation applications before a servicer could proceed with a 
foreclosure sale. Timely applications included complete loss mitigation 
applications submitted within a deadline established by a servicer, 
which could be no earlier than 90 days before a foreclosure sale. By

[[Page 10819]]

prohibiting servicers from proceeding to a foreclosure sale while a 
complete and timely loss mitigation application is pending, the 
proposed rule would have addressed one of the most direct consumer 
harms resulting from concurrent evaluation of loss mitigation options 
and prosecution of foreclosure proceedings.
    The comments from consumer advocacy groups regarding dual tracking 
set forth three distinct themes: (1) Borrowers should have the 
opportunity to be reviewed for a loss mitigation option before a 
servicer begins a foreclosure process, (2) borrowers should not receive 
inconsistent communications relating to, or incur costs for, continuing 
the foreclosure process when a loss mitigation review is underway, and 
(3) borrowers should receive the protection of required loss mitigation 
procedures closer in time to the date of a foreclosure sale than 90 
days. The first two of these themes are addressed here and the third is 
addressed below with respect to timelines.
    Consumer advocates submitted a significant number of comments 
stating that although the Bureau's proposal would address harms 
resulting from a foreclosure sale, other harms to consumers relating to 
dual tracking were not addressed by the proposed rule. These included 
consumer harms resulting from participating in the foreclosure process, 
including confusion from receiving inconsistent and confusing 
foreclosure communications, while loss mitigation reviews are on-going. 
Such harm potentially may lead to failures by borrowers to complete 
loss mitigation processes that may have more beneficial consequences 
for borrowers as well as owners or assignees of mortgage loans. 
Further, borrowers may be negatively impacted because borrowers are 
responsible for accruing foreclosure costs while an application for a 
loss mitigation option is under review. These costs burden already 
struggling borrowers and may impact the evaluation and ultimate outcome 
for a borrower for a loss mitigation option.
    These commenters recommended that the Bureau restrict servicers 
from pursuing the foreclosure process and evaluating a borrower for 
loss mitigation options on dual tracks. For example, twelve individual 
consumer advocacy groups, as well as two coalitions of consumer 
advocacy groups stated that the Bureau should require servicers to 
undertake loss mitigation evaluations, including loan modification 
reviews and offers, prior to beginning the foreclosure process. These 
commenters further stated that homeowners applying for loss mitigation 
options after a foreclosure has started should have their foreclosures 
paused while their files are reviewed, and if needed, appealed, in a 
timely fashion. Further, three consumer advocacy groups commented that 
the Bureau should create a defined pre-foreclosure period of 120 days 
before a borrower can be referred to foreclosure. This period should 
also have a mandatory review of a borrower before proceeding with 
foreclosure.
    Industry commenters also addressed whether the Bureau should 
implement protections relating to dual tracking apart from the 
prohibition on foreclosure sale set forth in the proposal. Outreach 
with servicers and their trade associations indicated general support 
for maintaining consistency among any ``dual tracking'' requirements 
established by the Bureau and the National Mortgage Settlement. A law 
firm commented that the Bureau's requirements with respect to ``dual 
tracking'' should model the National Mortgage Settlement. Notably, a 
community bank and its trade association commented that, as a 
consequence of the Bureau's regulations on loss mitigation procedures, 
servicers may try to begin foreclosures as soon as possible after 
delinquency in order to evade the requirements of the Bureau's loss 
mitigation procedures and preserve flexibility in handling the 
foreclosure process.
    The Bureau is persuaded by the comments that the potential harm to 
consumers of commencing a foreclosure proceeding before the consumer 
has had a reasonable opportunity to submit a loss mitigation 
application or while a complete loss mitigation application is pending 
is substantial. The fact that the GSEs and the National Mortgage 
Settlement both prohibit servicers from commencing foreclosure for a 
specified period of time to afford a borrower a reasonable opportunity 
to apply for a loss mitigation option is further persuasive that 
providing borrowers with the same protection would advance the consumer 
protection purposes of RESPA and would not present a significant risk 
of unintended consequences.
    Accordingly, in light of the comments, the Bureau has determined to 
implement restrictions on dual tracking beyond those set forth in the 
proposal. These restrictions have three main components. First, the 
Bureau is prohibiting a servicer of a mortgage loan subject to Sec.  
1024.41 from making the first notice or filing required for a 
foreclosure process unless a borrower is more than 120 days delinquent. 
After a borrower is 120 days delinquent, a servicer may make the first 
notice or filing required for a foreclosure process unless the borrower 
has submitted a complete loss mitigation application, in which case, 
the servicer must complete the review and appeal procedures set forth 
in Sec.  1024.41 before starting the foreclosure process. If a borrower 
is performing under an agreement on a loss mitigation option, such as a 
trial modification, the servicer may not commence the foreclosure 
process.
    Second, the Bureau is expanding and clarifying the prohibition on 
proceeding with a foreclosure sale. If a borrower submits a complete 
loss mitigation application by an applicable deadline, as discussed 
below, a servicer must complete the loss mitigation procedures before 
proceeding to a foreclosure judgment, obtaining an order of sale for 
the property, or conducting a foreclosure sale. As set forth below, the 
Bureau has clarified that proceeding to a foreclosure judgment includes 
filing a dispositive motion, such as a motion for a default judgment, 
judgment on the pleadings, or summary judgment, which may result in the 
issuance of a foreclosure judgment. If such a motion is pending when a 
servicer receives a complete loss mitigation application, the servicer 
should take reasonable steps to avoid a ruling on such motion until 
completing the loss mitigation procedures. The Bureau is also 
finalizing the prohibition on proceeding with a foreclosure sale if a 
borrower is performing under a trial modification or other agreed upon 
loss mitigation option.
    Third, as set forth below with respect to timelines, the Bureau is 
implementing procedures applicable to the evaluation of complete loss 
mitigation applications submitted by borrowers less than 90 days before 
a foreclosure sale, but 37 days or more before a foreclosure sale. 
These procedures expand the protections from the harms of dual tracking 
to borrowers that submit complete loss mitigation applications closer 
in time to a foreclosure sale. The Bureau received comments from 
consumer advocates in states with non-judicial foreclosure processes 
that operate on relatively short timelines indicating that consumers in 
such states may not benefit from the protections implemented by the 
Bureau. The Bureau agrees with these comments and is implementing 
protections on dual tracking that address different timing scenarios. 
The Bureau believes that such provisions are necessary and appropriate 
to achieve the consumer

[[Page 10820]]

protection purposes of RESPA, including ensuring that consumers in all 
jurisdictions have an opportunity to submit a complete loss mitigation 
application and avoid certain of the harms resulting from dual 
tracking.
    The Bureau is not, however, otherwise mandating a pause in 
foreclosure proceedings if a loss mitigation application is submitted 
after a foreclosure proceeding has been commenced. Once the foreclosure 
process is initiated, there are typically timelines for the steps that 
follow that are established by state law or, in judicial foreclosure 
jurisdictions, by court rules or orders entered in individual cases. 
Those timelines and steps vary from state to state and even from case 
to case. Some of these timelines and steps have been implemented to 
ensure that consumers receive the benefit of disclosures or processes 
enacted by state law to assist consumers. So long as a servicer does 
not proceed with a dispositive motion in a foreclosure action, the 
Bureau does not believe that the benefits that might accrue to 
borrowers from mandating a pause in a foreclosure proceeding (which 
pause may last for up to 88 days under the timelines the Bureau is 
mandating for resolving loss mitigation applications) are justified by 
the disruption that might result to state court proceedings from a 
mandated pause and the risk of a loss mitigation application being 
submitted strategically to delay or derail the foreclosure process.
    The Bureau recognizes that requiring a pause in foreclosures while 
a complete loss mitigation application is being considered would create 
incentives for servicers to address such applications expeditiously. 
The Bureau believes, however, that the best way to address this issue 
is by mandating strict deadlines for review of a complete loss 
mitigation application, as the Bureau is doing, and providing for 
enforcement of those deadlines through private rights of action. The 
Bureau also recognizes that a pause could reduce costs to borrowers 
that would otherwise be incurred for the foreclosure process while a 
loss mitigation application is under review. However, so long as a 
servicer adheres to the timelines established by the Bureau, the Bureau 
does not believe that these costs are likely to be substantial.
Appropriate Timelines for the Loss Mitigation Procedures
    The proposed rule would have required mortgage servicers to comply 
with the procedures set forth in proposed Sec.  1024.41 with respect to 
a complete loss mitigation application that was received by a deadline 
established by a servicer, which deadline could be no earlier than 90 
days before a foreclosure sale. In the proposal, the Bureau stated that 
a 90-day threshold set an appropriate line because a servicer who 
received a complete loss mitigation application 90 days before a 
foreclosure sale would have 30 days to review a borrower's application 
for a loss mitigation option, would be able to provide the borrower 
with 14 days to respond to the servicer's offer of a loss mitigation 
option and/or to file an appeal, would be able to consider any timely 
appeal during a subsequent 30 day period, and would be able to provide 
the borrower with an additional 14 days to respond to any offer of a 
loss mitigation option after an appeal. Thus, with the timeline set 
forth, a servicer would be able to complete the entire process within 
88 days and a 90 day deadline could accommodate completing the process 
without rescheduling the foreclosure sale. Proposed comment 41(f)-1 
would have clarified that where a foreclosure sale had not been 
scheduled, or where a foreclosure sale could occur less than 90 days 
after the sale is scheduled pursuant to State law, a servicer should 
establish a deadline that is no earlier than 90 days before the day 
that a servicer reasonably anticipates that a foreclosure sale will be 
scheduled.
    Although some servicers and a trade association indicated support 
for the 90 day maximum deadline, in general, commenters indicated 
substantial disagreement regarding the appropriate deadlines and 
framework for structuring timing requirements for reviewing loss 
mitigation applications. A substantial number of consumer advocacy 
groups objected to the underlying premise of the deadline requirement. 
In addition to establishing timeframes prior to a foreclosure referral, 
as discussed above, consumer advocacy groups stated that borrowers 
should be permitted to provide complete loss mitigation applications 
less than 90 days before a foreclosure sale and receive the protection 
of the procedures required by the Bureau. A housing counselor and three 
consumer advocacy groups indicated that the deadline should be extended 
until a maximum of 14 days before a foreclosure sale. Another consumer 
advocacy group stated that the deadline should be no more than 7 days 
before a foreclosure sale. These commenters further recommended 
postponing a foreclosure sale if an application received at least 14 
days before a sale is still in the review process by 14 days before a 
sale to allow time for review and appeals. Further, consumer advocacy 
groups operating in states with non-judicial foreclosure processes with 
relatively short timelines stated that borrowers may not be able to 
benefit from the loss mitigation procedures established by the Bureau 
within the 90-day deadline set forth in the proposal.
    Conversely, banks, credit unions, and non-bank servicers, as well 
as their trade associations, objected to the proposed 90 day deadline 
requirement because it would purportedly provide too much time for 
borrowers to pursue loss mitigation applications. Two credit unions, 
two large banks, and two non-bank servicers objected to the 90 day 
deadline on the basis that the rules should encourage borrowers to seek 
assistance at the earliest possible time while the delinquency may be 
curable and allow the borrower to retain the home. A non-bank servicer 
stated that it appreciated the 90 day deadline but indicated that this 
deadline could be so far after an initial delinquency in certain 
jurisdictions that it may lead to a borrower submitting an application 
after so much time has passed that no option could reasonably assist 
the borrower with curing a delinquency. Further, a non-bank servicer 
suggested the Bureau implement staged timelines rather than requiring 
servicers to establish timelines that may be inconsistent with state 
law.\174\
---------------------------------------------------------------------------

    \174\ A large bank servicer also commented that in light of the 
incentives for the borrower, it should not be required to notify a 
consumer of a deadline so long as the communication with the 
consumer is not within 90 days of the foreclosure sale.
---------------------------------------------------------------------------

    In light of the comments, the Bureau has reconsidered the proposed 
approach to timelines for the loss mitigation procedures and has made 
certain adjustments. The Bureau is persuaded that, however regrettable, 
some borrowers simply may not be prepared to come to terms with their 
situations and explore the availability of loss mitigation options 
until foreclosure is close at hand. The Bureau also is persuaded that 
it is necessary, and appropriate, to implement protections for 
consumers that apply for loss mitigation options closer in time to a 
foreclosure sale than 90 days. At the same time, the Bureau is 
cognizant that if applications received at the last moment were allowed 
to unduly delay a foreclosure from proceeding, there is a risk that the 
application process could be used tactically to stall foreclosure. 
Given that foreclosure timelines are already very long in many 
jurisdictions; given that the Bureau is implementing protections to 
mandate early communication with borrowers

[[Page 10821]]

regarding loss mitigation options; and given that the Bureau is 
prohibiting servicers from proceeding to foreclosure unless a borrower 
is more than 120 days delinquent to ensure that borrowers have the 
opportunity to apply for loss mitigation options early in the 
delinquency timeline; the Bureau does not believe it is appropriate to 
permit applications provided shortly before a foreclosure sale to delay 
the foreclosure.
    Accordingly, as set forth below, instead of setting an overall 
deadline for the loss mitigation procedures, the Bureau is implementing 
timelines that provide different loss mitigation processes with 
differing levels of protection at certain stages of the foreclosure 
process. These requirements are: (1) Pursuant to Sec.  1024.41(b)(2), a 
servicer must comply with the requirements relating to acknowledgement 
of a loss mitigation application and notice of additional documents and 
information required to complete a loss mitigation application for any 
loss mitigation application received 45 days or more before a 
foreclosure sale; (2) pursuant to Sec.  1024.41(c)(1), a servicer must 
evaluate within 30 days any complete loss mitigation application 
received more than 37 days before a foreclosure sale; (3) pursuant to 
Sec.  1024.41(e)(1), if a servicer receives a complete loss mitigation 
application 90 days or more before a foreclosure sale, the servicer 
must provide the borrower at least 14 days to accept or reject an offer 
of a loss mitigation option; if a servicer receives a complete loss 
mitigation application less than 90 days before a foreclosure sale but 
more than 37 days before a foreclosure sale, the servicer must provide 
the borrower at least 7 days to accept or reject an offer of a loss 
mitigation option; and (4) pursuant to Sec.  1024.41(h)(1), a servicer 
must comply with the appeal process for any complete loss mitigation 
application received 90 days or more before a foreclosure sale. 
Applying these timelines together yields four timing scenarios 
depending upon when a borrower submits a complete loss mitigation 
application.
    Scenario 1. If a borrower is less than 120 days delinquent, or if a 
borrower is more than 120 days delinquent but the servicer has not made 
the first notice or filing required for a foreclosure process, and a 
borrower submits a complete loss mitigation application, the servicer 
(1) must review the complete loss mitigation application within 30 
days, (2) must allow the borrower at least 14 days to accept or reject 
an offer of a loss mitigation option, and (3) must permit the borrower 
to appeal the denial of a loan modification option pursuant to Sec.  
1024.41(h)(1). Further, for all loss mitigation applications received 
in this timeframe, the servicer must comply with the requirements for 
acknowledging a loss mitigation application and providing notice of 
additional information and documents necessary to make an incomplete 
loss mitigation application complete. The servicer may not make the 
first notice or filing required for a foreclosure process unless these 
procedures are completed.
    Scenario 2. If a borrower submits a complete loss mitigation 
application after a servicer has made the first notice or filing for a 
foreclosure process, but 90 days or more exist before a foreclosure 
sale, the servicer (1) must review the complete loss mitigation 
application within 30 days, (2) must allow the borrower at least 14 
days to accept or reject an offer of a loss mitigation option, and (3) 
must permit the borrower to appeal the denial of a loan modification 
option pursuant to Sec.  1024.41(h). Further, for all loss mitigation 
applications received in this timeframe, the servicer must comply with 
the requirements for acknowledging a loss mitigation application and 
providing notice of additional information and documents necessary to 
make an incomplete loss mitigation application complete. The servicer 
may not proceed to foreclosure judgment or order of sale, or conduct a 
foreclosure sale, unless these procedures are completed.
    Scenario 3. If a borrower submits a complete loss mitigation 
application after a servicer has made the first notice or filing for a 
foreclosure process, and less than 90 days, but more than 37 days, 
exist before a foreclosure sale, the servicer (1) must review the 
complete loss mitigation application within 30 days, and (2) must allow 
the borrower at least 7 days to accept or reject an offer of a loss 
mitigation option. The servicer is not required to permit the borrower 
to appeal the denial of a loan modification option pursuant to Sec.  
1024.41(h)(1). Further, the servicer must comply with the requirements 
for acknowledging a loss mitigation application and providing notice of 
additional information and documents necessary to make an incomplete 
loss mitigation application complete only if the loss mitigation 
application was received 45 days or more before a foreclosure sale. The 
servicer may not proceed to foreclosure judgment or order of sale, or 
conduct a foreclosure sale, unless these procedures are completed.
    Scenario 4. None of the loss mitigation procedures apply to a loss 
mitigation application, including a complete loss mitigation 
application, received 37 days or less before a foreclosure sale. 
Servicers are required, however, pursuant to Sec.  1024.38 to implement 
policies and procedures reasonably designed to achieve the objective of 
reviewing borrowers for loss mitigation options pursuant to 
requirements established by an owner or assignee of a mortgage loan. As 
set forth below, nothing in Sec.  1024.41 excuses a servicer from 
complying with additional requirements imposed by an owner or assignee 
of a mortgage loan. For example, the GSEs require servicers to engage 
in certain procedures to review loss mitigation applications submitted 
37 days or less before a foreclosure sale, and servicers may be 
required by the GSEs to comply with those requirements. The requirement 
to implement policies and procedures to achieve the objective of 
reviewing borrowers for loss mitigation options pursuant to 
requirements established by an owner or assignee of a mortgage loan 
includes timelines established by any such owner or assignee of a 
mortgage loan.
Other Servicer Loss Mitigation Requirements
    As set forth above, the Bureau recognizes that servicers have many 
layers of requirements with which they must comply. These include 
requirements imposed by owners or assignees of mortgage loans, as well 
as requirements imposed by State law or pursuant to settlement 
agreements and consent orders.
    Notably, certain commenters requested clarification regarding the 
interaction between the proposed rules and certain existing servicing 
requirements. The GSEs commented that their processes allow reviews of 
loss mitigation applications closer in time to foreclosure than the 90 
day timeline proposed by the Bureau and requested clarification 
regarding the impact of the proposed deadlines in the loss mitigation 
procedures and the GSE requirements. A non-bank servicer also requested 
clarification regarding the interaction of timelines imposed by the 
Bureau and existing State or local pre-foreclosure mediation 
requirements that may require a complete loss mitigation application 
package in advance of the mediation meeting.
    In order to reduce burden to servicers and costs to borrowers, the 
Bureau has sought to maintain consistency among Sec.  1024.41, the 
National Mortgage Settlement, FHFA's servicing alignment initiative, 
Federal regulatory agency consent orders, and State law mortgage

[[Page 10822]]

servicing statutory requirements. In certain instances, each of these 
other sources of servicing requirements may be more restrictive or 
prescriptive than Sec.  1024.41. That is intentional. Section 1024.41 
establishes standard consumer protections and provides flexibility for 
Federal regulatory agency requirements, State law, or investor and 
guarantor requirements to impose obligations that may be more 
restrictive on servicers.
    Servicers should comply with the most restrictive requirements to 
which they are subject. For example, Sec.  1024.41 imposes requirements 
with respect to complete loss mitigation applications received more 
than 37 days before a foreclosure sale. This is consistent with the 
National Mortgage Settlement and GSE requirements.\175\ Notably, the 
National Mortgage Settlement and GSE requirements impose obligations to 
conduct an expedited loss mitigation evaluation for servicers with 
respect to loss mitigation applications received 37 days or less before 
a foreclosure sale (although in certain circumstances the servicer is 
not necessarily required to complete the review before foreclosure). 
Nothing in Sec.  1024.41 prohibits or impedes a servicer from complying 
with these requirements and servicers may be required to comply with 
requirements that are more prescriptive than the regulations 
implemented by the Bureau. Indeed, as noted, Sec.  1024.38 requires 
servicers to maintain policies and procedures reasonably designed to 
achieve the objective of evaluating borrower for loss mitigation 
options pursuant to requirements established by owners or assignees of 
mortgage loans. Similarly, if a servicer is required to proactively 
engage with a borrower to evaluate a borrower for a loss mitigation 
option prior to engaging in a mandatory mediation or arbitration 
process, Sec.  1024.41 does not prohibit a servicer from obtaining a 
loss mitigation application before such process so long as the servicer 
complies with the procedures set forth in Sec.  1024.41 with respect to 
such application.
---------------------------------------------------------------------------

    \175\ See National Mortgage Settlement., at Appendix A, at A-19.
---------------------------------------------------------------------------

Legal Authority
    The Bureau relies on its authority under sections 6(j)(3), 
6(k)(1)(C), 6(k)(1)(E) and 19(a) of RESPA to establish final rules 
setting forth obligations on servicers to comply with the loss 
mitigation procedures in Sec.  1024.41. These loss mitigation 
procedures are necessary and appropriate to achieve the consumer 
protection purposes of RESPA, including by requiring servicers to 
provide borrowers with timely access to accurate and necessary 
information regarding an evaluation for a foreclosure avoidance option 
and to facilitate the evaluation of borrowers for foreclosure avoidance 
options. Further, the loss mitigation procedures implement, in part, a 
servicer's obligation to take timely action to correct errors relating 
to avoiding foreclosure under section 6(k)(1)(C) of RESPA by 
establishing servicer duties and procedures that must be followed where 
appropriate to avoid errors with respect to foreclosure.
    In addition, the Bureau relies on its authority pursuant to section 
1022(b) of the Dodd-Frank Act to prescribe regulations necessary or 
appropriate to carry out the purposes and objectives of Federal 
consumer financial law, including the purposes and objectives of Title 
X of the Dodd-Frank Act. Specifically, the Bureau believes that Sec.  
1024.41 is necessary and appropriate to carry out the purpose under 
section 1021(a) of the Dodd-Frank Act of ensuring that markets for 
consumer financial products and services are fair, transparent, and 
competitive, and the objective under section 1021(b) of the Dodd-Frank 
Act of ensuring that markets for consumer financial products and 
services operate transparently and efficiently to facilitate access and 
innovation. The Bureau additionally relies on its authority under 
section 1032(a) of the Dodd-Frank Act, which authorizes the Bureau to 
prescribe the rules to ensure that features of any consumer financial 
product or service, both initially and over the terms of the product or 
service, are fully, accurately, and effectively disclosed to consumers 
in a manner that permits consumers to understand the costs, benefits, 
and risks associated with the product or service, in light of the facts 
and circumstances.
41(a) Enforcement and Limitations
    Proposed Sec.  1024.41(a) would have required any servicer that 
offers loss mitigation options in the ordinary course of business to 
comply with the requirements of Sec.  1024.41. The purpose of this 
section was to clarify that the requirements in proposed Sec.  1024.41 
are applicable only to those servicers that are engaged in a practice, 
in the ordinary course of business, of evaluating loss mitigation 
options for their own portfolios or pursuant to duties owed to 
investors or guarantors of mortgage loans. Further, proposed comment 
41(a)-1 clarified that nothing in proposed Sec.  1024.41 was intended 
to impose a duty on a servicer to offer loss mitigation options to 
borrowers generally or to offer or approve any particular borrower for 
a loss mitigation option. As set forth in the 2012 RESPA Servicing 
Proposal, the Bureau did not intend to create a private right of action 
for borrowers to enforce, in private litigation, any requirements that 
are imposed by owners or assignees of mortgage loans (including 
investors or guarantors) on servicers to mitigate losses for such 
parties. Rather, the Bureau intended that borrowers could enforce the 
loss mitigation procedures against servicers to ensure that servicers 
complied with the appropriate procedural steps before completing the 
foreclosure process when a borrower had submitted a complete loss 
mitigation application.
    If a servicer did not evaluate borrowers for loss mitigation 
options in the ordinary course of business, the servicer would not have 
been subject to proposed Sec.  1024.41. In proposed comment 41(a)-2, 
the Bureau set forth examples of practices that, by themselves, would 
not have been considered indicia that a servicer had opted to offer 
loss mitigation options in the ordinary course of business. The Bureau 
notes, however, that the proposed definition of loss mitigation options 
in Sec.  1024.31, however, was expansive, encompassing not just loan 
modifications, but also forbearance plans, short sale agreements, and 
deed-in-lieu of foreclosure programs. The Bureau believes that 
substantially all, if not all, servicers offer these loss mitigation 
options in the ordinary course of business.
    Consumer advocate commenters stated that the loss mitigation 
procedures should not be limited to mortgage servicers that offered 
loss mitigation options in the ordinary course of business. These 
commenters stated that the recent financial crisis has demonstrated 
that reviewing borrowers for loss mitigation options has risen to the 
level of a standard servicer duty that should be expected of all 
mortgage servicers. Further, industry commenters did not take issue 
with the concept that engaging in loss mitigation should be considered 
a standard servicer duty. Rather, comments from industry focused 
instead on whether prescriptive loss mitigation requirements would 
adversely affect the manner in which servicers engage in reviews of 
borrowers for loss mitigation options. Specifically, a number of large 
banks and their trade associations stated that a private right of 
action for loss mitigation was a particular concern. These commenters 
indicated that borrowers should not be entitled to bring an action to 
enforce loss mitigation requirements set forth by an owner or assignee 
of a mortgage loan or a voluntary loss mitigation program

[[Page 10823]]

(such as HAMP). In addition, the Bureau's outreach and additional 
analysis raised questions regarding whether the scope of the loss 
mitigation provisions should be limited to a borrower's principal 
residence consistent with other governmental initiatives.
    Community banks, credit unions, and their trade associations 
commented that the loss mitigation procedures (and other rulemakings 
not specifically required by the Dodd-Frank Act) should exempt small 
servicers. These commenters also argued that the definition of small 
servicers should be large enough to cover most credit unions and 
community banks. A trade association for reverse mortgage lenders 
commented that reverse mortgage servicers should be exempt from the 
proposed rules. Further, four farm credit system institutions stated 
that they should be exempt because they are required to comply with 
distressed borrower regulations promulgated by the Farm Credit 
Administration in 12 CFR part 617. A nonprofit lender commented that 
bona-fide nonprofits should be exempt from the mortgage servicing 
rules.
    The Bureau has adjusted Sec.  1024.41(a) in response to the public 
comments. First, the Bureau has revised Sec.  1024.41(a) to eliminate 
the limitation on the loss mitigation procedures to only those 
servicers that offer loss mitigation options in the ordinary course of 
business. The Bureau has not identified from the comments or outreach 
any servicers that did not offer loss mitigation options in the 
ordinary course of business as contemplated by the Bureau and would not 
have been subject to Sec.  1024.41 as proposed. Moreover, the Bureau 
believes that owners or assignees of mortgage loans should determine 
whether they will offer loss mitigation options and, if so, the Bureau 
does not believe an exemption from complying with the loss mitigation 
procedures should exist based on separate business practices of a 
servicer. Further, the Bureau believes that it is preferable that 
temporary or pilot programs should be addressed through clarifications 
regarding for which programs, if any, a servicer should evaluate a 
borrower's application, not by limiting the overall application of the 
loss mitigation procedures. Accordingly, Sec.  1024.41(a) has been 
adjusted to require that servicers comply with the requirements of 
Sec.  1024.41 without consideration of whether a servicer currently 
offers loss mitigation options in the ordinary course of business.
    Second, for the reasons set forth above with respect to Sec.  
1024.30, the scope of Sec.  1024.41 has been changed to limit the scope 
of the loss mitigation procedures to a borrower's principal residence. 
Third, for the reasons set forth above with respect to Sec.  1024.30, 
the Bureau has exempted from the loss mitigation procedures 
requirements (1) small servicers (with the exception of Sec.  
1024.41(j)), (2) reverse mortgage transactions, and (3) ``qualified 
lenders'' that are required to comply with Farm Credit Administration 
regulations relating to distressed borrowers.
    Finally, the Bureau observes that the loss mitigation procedures 
are issued, among other authorities, pursuant to the Bureau's authority 
under section 6 of RESPA. Violations of section 6 of RESPA are subject 
to a private right of action pursuant to section 6(f) of RESPA. 
Servicers may be liable to borrowers pursuant to section 6(f) of RESPA 
for failure to comply with the loss mitigation procedures in Sec.  
1024.41. The Bureau believes a private right of action for borrowers to 
enforce the loss mitigation procedures is necessary to ensure that 
individual borrowers have the necessary tools to ensure they receive 
the benefit of the loss mitigation procedures in their own individual 
circumstances. Further, the Bureau believes that the risk of a private 
right of action will not negatively impact access to, or cost of, 
credit. The requirements in Sec.  1024.41 include clear procedural 
requirements and have been calibrated to avoid risks of litigation 
relating to owner or assignee contractual requirements, as discussed 
below. Further, the requirements in Sec.  1024.41 are consistent with 
requirements already implemented by the GSEs, the National Mortgage 
Settlement, and certain State laws, with respect to certain servicers. 
Accordingly, the Bureau has revised Sec.  1024.41(a) to reflect the 
effect of section 6(f) of RESPA with respect to a private right of 
action.
    Although servicers are required to comply with the procedural 
requirements of Sec.  1024.41, the Bureau has clarified in response to 
inquiries raised by commenters that servicers are not required by the 
Bureau's rules to offer any particular loss mitigation option to any 
particular borrower. Nothing in Sec.  1024.41 should affect whether a 
borrower is permitted as a matter of contract law to enforce the terms 
of any contract or agreement between a servicer and an owner or 
assignee of a mortgage loan. Accordingly, the Bureau finalizes Sec.  
1024.41(a) by relocating the substance of proposed comment 41(a)-1 in 
the text of Sec.  1024.41(a). Section 1024.41(a) provides that nothing 
in Sec.  1024.41 imposes a duty on a servicer to offer any borrower any 
particular loss mitigation option. Further, Sec.  1024.41(a) states 
nothing in Sec.  1024.41 should be construed to permit a borrower to 
enforce the terms of any agreement between a servicer and the owner or 
assignee of a mortgage loan, including with respect to the evaluation 
for, or provision of, any loss mitigation option.
41(b) Loss Mitigation Application
    Proposed Sec.  1024.41(b) defined the term complete loss mitigation 
application and set forth requirements for servicers with regard to 
both complete and incomplete loss mitigation applications. 
Specifically, proposed Sec.  1024.41(b)(1) stated that a complete loss 
mitigation application means a borrower's submission requesting 
evaluation for a loss mitigation option for which a servicer has 
received all the information the servicer regularly obtains and 
considers in evaluating a loss mitigation application by the deadline 
established by the servicer. Proposed Sec.  1024.41(b)(2) would have 
required a servicer that receives an incomplete loss mitigation 
application to exercise reasonable diligence in obtaining information 
from a borrower to make the application complete. Further, proposed 
Sec.  1024.41(b)(2) would have required a servicer that receives an 
incomplete loss mitigation application earlier than 5 days (excluding 
legal public holidays, Saturdays, and Sundays) before the deadline 
established by the servicer to notify the borrower that the application 
was incomplete, the documents and information necessary to make the 
application complete, and the date by which the borrower must submit 
such documents. The servicer would have been required to provide the 
notice within 5 days (excluding legal public holidays, Saturdays, and 
Sundays) after receiving an incomplete loss mitigation application.
    The Bureau received numerous comments regarding these requirements. 
First, the Bureau received comments regarding the definition of a loss 
mitigation application and a complete loss mitigation application. A 
large bank servicer requested clarification regarding prequalification 
processes, including whether oral communications with borrowers should 
be considered a loss mitigation application. A non-bank servicer 
commented that defining a complete loss mitigation application as 
requiring all the information the servicer ``regularly obtains'' is 
both ambiguous and unduly limiting with respect to evaluations of 
borrowers in

[[Page 10824]]

substantially different circumstances or subject to substantially 
different investor requirements. The commenter suggested instead that 
the Bureau define a complete loss mitigation application as a 
borrower's submission requesting evaluation for a loss mitigation 
option for which a servicer has received all the information the 
servicer obtains and considers in evaluating a loss mitigation 
application for a particular loan type, investor, or other group of 
loans, as deemed appropriate by the servicer.
    Second, the Bureau received comments regarding servicer obligations 
upon receipt of a loss mitigation application. Specifically, four 
consumer advocacy groups stated that servicers should be required to 
review a loss mitigation application for completeness promptly upon 
receipt. Conversely, a trade association commented that five days is 
too short a time to evaluate a loss mitigation application, determine 
that it is incomplete, determine what additional documentation is 
needed, and generate a notice to the borrower. A financial industry 
trade association requested that the Bureau provide guidance in the 
form of examples of ``reasonable diligence'' to obtain information from 
borrowers. The commenter suggested that one example be that the 
servicer sends a letter or electronic communication to the borrower 
with a list of what information is needed and how the borrower can 
submit that information.
    Third, a non-bank servicer commented that the Bureau should create 
standard loss mitigation applications so that industry may align around 
similar loss mitigation strategies. Finally, a coalition of 60 consumer 
advocacy groups commented that the Bureau should mandate that servicers 
provide borrowers that submit incomplete loss mitigation applications a 
reasonable amount of time to complete the applications.
    The Bureau has adjusted Sec.  1024.41(b) in response to the public 
comments. First, the Bureau agrees with commenters that further 
clarification regarding the definitions of the term loss mitigation 
application and complete loss mitigation application is appropriate. 
Section 1024.31 defines a loss mitigation application to mean an oral 
or written request for a loss mitigation option that is accompanied by 
any information required by a servicer for evaluation for a loss 
mitigation option. This definition is intended to distinguish between 
inquiries regarding the availability of loss mitigation options and an 
actual request for an evaluation for a loss mitigation option. The 
Bureau intends the loss mitigation procedures to apply when servicers 
receive loss mitigation applications during oral communications with 
borrowers, including communications between the borrower and any 
contact personnel assigned to the borrower's mortgage loan account 
pursuant to Sec.  1024.40.
    The definition of a complete loss mitigation application (and, 
consequently, an incomplete loss mitigation application) has been 
designed similarly to the complete and incomplete application concepts 
underlying Regulation B. See 12 CFR 1002.2(f), 1002.9(c). Thus, at a 
point in a conversation between a borrower and a mortgage servicer, if 
the borrower requests an evaluation for a loss mitigation option and 
provides information to the servicer that will be used in the 
evaluation of a loss mitigation application, the borrower has made a 
loss mitigation application, and the servicer, pursuant to Sec.  
1024.41(b)(2)(i)(A), must review the application promptly to determine 
whether it is complete or incomplete.
    If a loss mitigation application is complete and has been submitted 
by an applicable deadline, the servicer must evaluate the loss 
mitigation application pursuant to the requirements in Sec.  1024.41. 
Under Sec.  1024.41(b)(1), a complete loss mitigation application means 
an application in connection with which a servicer has received all the 
information that the servicer requires from a borrower in evaluating 
applications for the loss mitigation options available to the borrower. 
The Bureau has removed the requirement that a loss mitigation 
application must include all the information the servicer regularly 
obtains and considers in evaluating loss mitigation applications. This 
change is intended to further the goal of providing servicers 
flexibility to determine the information required for any individual 
mortgage loan borrower's application for a loss mitigation option and 
require servicers to consider an application complete notwithstanding 
that the borrower has not submitted certain information that the 
servicer may regularly require but is irrelevant with respect to a 
particular borrower. Thus, under Sec.  1024.41(b)(1), a loss mitigation 
application is complete when a servicer receives all information that a 
servicer requires from a borrower.
    Section 1024.41(b)(1) requires a servicer to exercise reasonable 
diligence in obtaining information to complete a loss mitigation 
application and to evaluate a complete loss mitigation application. 
Accordingly, a servicer is required to exercise reasonable diligence to 
follow up with borrowers to obtain any information the borrower has not 
submitted that is necessary to make the application complete and to 
ensure that the servicer timely receives any necessary third-party 
information, such as an automated valuation or consumer report. 
Contrary to requests from commenters, the Bureau declines to implement 
commentary that providing the notice required by Sec.  1024.41(b)(2) 
constitutes reasonable diligence for purposes of Sec.  1024.41(b)(1). 
Rather, reasonable diligence is based on the circumstances, including 
the circumstances of any continuing discussions between a borrower and 
the contact personnel assigned pursuant to Sec.  1024.40. Such contact 
personnel should have information regarding the status of a borrower's 
loss mitigation application and should work with borrowers to make any 
such loss mitigation application complete. The Bureau has added 
commentary to clarify this requirement as set forth below.
    The Bureau has added commentary to Sec.  1024.41(b) to clarify the 
meaning of a complete loss mitigation application. The Bureau has added 
comment 41(b)(1)-1 to clarify that a servicer, consistent with the 
requirements of the investor or assignee with respect to a particular 
mortgage, has flexibility to establish application requirements for a 
loss mitigation option offered by an owner or assignee and to decide 
the type and amount of information it will require from borrowers 
applying for loss mitigation options. The Bureau agrees with the 
comments that servicers may require different application information 
for loss mitigation programs undertaken for different owners or 
assignees of mortgage loans. Different owners or assignees may 
establish widely varying criteria and requirements for loss mitigation 
evaluations, and servicers may require different forms and types of 
information to effectuate such programs. The Bureau believes the 
requirement that a complete loss mitigation application contain 
information required by servicers provides appropriate flexibility to 
servicers to determine application requirements consistent with the 
variety of borrower circumstances or owner or assignee requirements 
that servicers must evaluate and to ensure that individual borrowers 
are not obliged to provide information or documents that are 
unnecessary and inappropriate for a loss mitigation evaluation.
    The Bureau has added comments 41(b)(1)-2 and 41(b)(1)-3 in response 
to comments requesting clarity regarding prequalification programs and 
other feedback seeking clarification regarding informal communications 
between

[[Page 10825]]

servicers and borrowers. As set forth above, the Bureau received a 
comment from a large bank servicer requesting clarification regarding 
prequalification programs. Further, in outreach, another large bank 
servicer requested clarification regarding whether the Bureau's 
regulations, and specifically, the error resolution and the loss 
mitigation procedures represented a policy of regulation of informal 
communication.
    Although the Bureau has withdrawn the proposed requirements 
regarding oral error resolution and information request process with 
respect to Sec. Sec.  1024.35-1024.36, the Bureau believes that the 
loss mitigation procedures should apply when a borrower orally requests 
evaluation for a loss mitigation option. One of the principal goals of 
the early intervention and continuity of contact requirements of the 
rule is to establish oral communications between servicers and 
borrowers; it would be inconsistent with that purpose to ignore these 
communications in determining whether a borrower has requested 
consideration for a loss mitigation option. Further, one of the 
purposes of the loss mitigation procedures is to provide accurate 
information to borrowers and to facilitate the evaluation of 
foreclosure avoidance options by creating uniform evaluation processes 
and ensuring that a borrower obtains an evaluation for all loss 
mitigation options available to the borrower. That purpose may be 
circumvented if the loss mitigation requirements focused only on 
written communications, and a servicer could steer a borrower into a 
specific loss mitigation option through oral communications. Consistent 
with the requirements set forth in Regulation B regarding applications 
for credit, the Bureau believes it is necessary and appropriate to 
achieve the purposes of RESPA to implement requirements on servicers to 
treat oral communications that have sufficiently passed the point of 
inquiries as loss mitigation applications subject to the loss 
mitigation procedures.
    The Bureau has added comment 41(b)(1)-2 to clarify when an inquiry 
or prequalification request becomes an application. The Bureau 
recognizes there is substantial ambiguity in interpersonal 
communications but believes that loss mitigation applications should be 
considered expansively. For example, if a borrower indicates that the 
borrower would like to apply for a loss mitigation option and provides 
any information the servicer would evaluate in connection with a loss 
mitigation application, a borrower has submitted a loss mitigation 
application. Because a servicer must exercise reasonable diligence in 
making a loss mitigation application complete, the Bureau believes 
appropriate communication with a borrower that expresses an interest in 
a loss mitigation option is to clarify the borrower's intention 
regarding the submission and to obtain information from the borrower to 
make a loss mitigation application complete.
    Not all communications regarding loss mitigation options will 
constitute loss mitigation applications. Accordingly, the Bureau has 
added comment 41(b)(1)-3 to illustrate circumstances where oral 
communications will not constitute a loss mitigation application. 
Comment 41(b)(1)-3.i states that a borrower calls to ask about loss 
mitigation options and servicer personnel explain the loss mitigation 
options available to the borrower and the criteria for determining the 
borrower's eligibility for any such loss mitigation option. In this 
example, only an inquiry has taken place. The borrower has not 
submitted information that would be evaluated in connection with a loss 
mitigation option. Comment 41(b)(1)-3.ii states that a borrower calls 
to ask about the process for applying for a loss mitigation option but 
the borrower does not provide any information that a servicer would 
consider for evaluating a loss mitigation application. A servicer that 
provides information regarding the process for applying for a loss 
mitigation application has not taken a loss mitigation application in 
this circumstance.
    The Bureau has added comment 41(b)(1)-4 to indicate how a servicer 
should comply with its requirement to undertake reasonable diligence to 
obtain the information necessary to make an incomplete loss mitigation 
application complete. For example, a servicer must request information 
necessary to make a loss mitigation application complete promptly after 
receiving the loss mitigation application. Comment 41(b)(1)-4.i 
provides that reasonable diligence requires contacting an applicant 
promptly to obtain information missing from a loss mitigation 
application, like an address or telephone number to verify employment. 
This obligation exists notwithstanding a servicer's obligation to 
provide a notice pursuant to Sec.  1024.41(b)(2)(i)(B). Further, 
comment 41(b)(1)-4.ii provides that reasonable diligence also includes 
reviewing documents that may have been included in connection with a 
servicing transfer to determine if a borrower previously submitted 
information or documents to a transferor servicer that may complete a 
loss mitigation application.
    The Bureau has added comment 41(b)(1)-5 regarding circumstances 
where a servicer requires information that is not in the borrower's 
control. A loss mitigation application is complete when a borrower 
provides all information required from the borrower notwithstanding 
that additional information may be required by a servicer that is not 
in the control of a borrower. For example, if a servicer requires a 
consumer report for a loss mitigation evaluation, a loss mitigation 
application is considered complete if a borrower has submitted all 
information required from the borrower without regard to whether a 
servicer has obtained a consumer report that a servicer has requested 
from a consumer reporting agency.
    The Bureau has also adjusted the requirements in Sec.  
1024.41(b)(2) with respect to a servicer's obligation upon receipt of a 
loss mitigation application. The Bureau agrees with the comments it 
received that a servicer should be required to promptly evaluate a loss 
mitigation application to determine whether the application is complete 
or incomplete. Accordingly, Sec.  1024.41(b)(2)(i)(A) requires a 
servicer that receives a loss mitigation application to determine 
promptly upon receipt whether such application is complete or 
incomplete. Further, under Sec.  1024.41(b)(2)(i)(B), a servicer must 
notify a borrower in 5 days (excluding legal public holidays, 
Saturdays, and Sundays) regarding whether the servicer has determined 
an application is complete or incomplete.
    Proposed Sec.  1024.41(b)(2) would have required a servicer that 
receives a loss mitigation application to provide a notice to a 
borrower only in the event a loss mitigation application is incomplete. 
The Bureau recognizes, however, that a borrower that submits a complete 
loss mitigation application may not realize that such application has 
been considered complete and that an evaluation for a loss mitigation 
application is ongoing. Accordingly, Sec.  1024.41(b)(2)(i)(B) requires 
providing a notice to a borrower regardless of whether the application 
is complete or incomplete.
    Section 1024.41(b)(2)(i)(B) further requires a servicer that 
determines a loss mitigation application is incomplete to notify the 
borrower of the additional documents and information the borrower must 
submit to make the loss mitigation application complete and the date by 
which the borrower must submit the additional documents and

[[Page 10826]]

information to be reviewed. The notice to the borrower must also 
include a statement that the borrower should consider contacting 
servicers of any other mortgage loans secured by the same property to 
discuss available loss mitigation options. The Bureau has added this 
statement to the notice in connection with withdrawing proposed Sec.  
1024.41(j), discussed below, with respect to providing a loss 
mitigation application to servicers of other mortgage loan liens. 
Further, because of the added content of the notice and the 
requirements with respect to oral communications constituting loss 
mitigation applications, the Bureau has determined to withdraw the 
proposal that the notice required pursuant to Sec.  1024.41(b)(2)(i)(B) 
could be provided orally. Rather, the Bureau has determined the notice 
must be provided in writing.
    Finally, the Bureau finds that 5 days (excluding legal public 
holidays, Saturdays, and Sundays) is a reasonable amount of time for a 
servicer to comply with the requirements for an incomplete loss 
mitigation application. Fannie Mae and Freddie Mac guidelines, as well 
as the National Mortgage Settlement, require servicers to provide a 
substantially similar but, in some cases, more prescriptive, notice 
within 5 business days of receipt of an incomplete loss mitigation 
application.\176\
---------------------------------------------------------------------------

    \176\ See United States of America v. Bank of America Corp., at 
Appendix A, at A-26, http://www.nationalmortgagesettlement.com; 
Freddie Mac Single Family Seller/Servicer Guide, Vol. 2 Sec.  
64.6(d)(4) (2012); Fannie Mae Single Family Servicing Guide Sec.  
205.07 (2012).
---------------------------------------------------------------------------

    The Bureau has added Sec.  1024.41(b)(2)(ii) to clarify how a 
servicer communicates to a borrower the deadline by which the borrower 
should submit a complete loss mitigation application. A servicer must 
state to the borrower that the borrower should submit documents needed 
to complete the application by the earliest remaining date of four 
potential options. The rule provides that a servicer must disclose the 
date a borrower should complete a loss mitigation application, rather 
than the date a borrower must complete a loss mitigation application, 
because the effect of the various timelines is that a borrower may miss 
the deadline communicated by the servicer but still be able to submit a 
complete loss mitigation application in the future (and thus a 
requirement that a borrower must complete an application by an earlier 
deadline may be inaccurate). However, a borrower should complete the 
application by the applicable deadline in order to incur the lowest 
application burden and to gain the benefit of the most consumer 
protections for the loss mitigation application. Further, the Bureau 
agrees with comments received from a number of servicers and their 
trade associations that it is appropriate to encourage earlier 
submission of loss mitigation applications by borrowers.
    A servicer must state that the borrower should provide the 
documents and information by the earliest remaining date of: (a) The 
date by which any document or information already submitted by a 
borrower will be considered stale or invalid pursuant to any 
requirements applicable to any loss mitigation program available to the 
borrower; (b) the date that is the 120th day of the borrower's 
delinquency; (c) the date that is 90 days before a foreclosure sale; or 
(d) the date that is 38 days before a foreclosure sale. Dates in (b), 
(c), and (d) are designed to match the various scenarios set forth 
above with respect to the timing of the loss mitigation procedures. The 
date in (a) is meant to incorporate any internal servicer policy to 
ensure that borrowers do not submit documents beyond the date when 
documents and information previously provided are considered stale or 
invalid, which would frustrate the process of obtaining a complete loss 
mitigation application.
41(c) Evaluation of Loss Mitigation Applications
    Proposed Sec.  1024.41(c) would have required that, within 30 days 
of receiving a complete loss mitigation application, a servicer must 
evaluate the borrower for all loss mitigation options available to the 
borrower and provide the borrower with a written notice stating the 
servicer's determination of whether it will offer the borrower a loss 
mitigation option. In the proposal, the Bureau stated that it was 
appropriate to require servicers to evaluate complete loss mitigation 
applications within 30 days because review of a loss mitigation 
application in 30 days is an industry standard, as discussed above.
    The Bureau further stated that it is appropriate to require a 
servicer to evaluate a borrower for all loss mitigation options 
available to the borrower rather than requiring borrowers to select 
options for which the borrower may be evaluated. A servicer is in a 
better position than a borrower to determine the loss mitigation 
programs for which a borrower may qualify. Requiring that a borrower 
select a loss mitigation option for which the borrower may be 
considered, or only evaluating a borrower for a few loss mitigation 
options, may cause a borrower to accept or reject an option without 
seeking evaluation for another option. This may lead to less effective 
programs, disparate outcomes for similarly situated borrowers, and 
longer timelines for effectuating loss mitigation options. Instead, the 
Bureau has proposed that a servicer evaluate a borrower for all loss 
mitigation programs available to the borrower. The Bureau believes that 
this approach will ensure that all borrowers receive fair evaluations 
for all options available to them and will be able to select options 
appropriate for their circumstances. In sum, owners or assignees of 
mortgage loans (including investors, guarantors, and insurers that 
establish criteria governing loss mitigation programs) retain the 
ability to manage loss mitigation programs to ensure that borrower 
eligibility and program administration is consistent with their 
requirements, while borrowers will be able to understand all potential 
options that may be available.
    Consumer advocate commenters supported the proposed requirement 
that a servicer evaluate a borrower for all loss mitigation options 
available to the borrower within 30 days. For example, one such 
commenter stated that the rule as proposed would add more transparency 
in the loss mitigation process, would enable borrowers to make a more 
informed decision on their loss mitigation options, and would actually 
reduce paperwork burdens on borrowers by eliminating the necessity of a 
borrower having to send duplicate and additional paperwork each time a 
borrower requested consideration for a different loss mitigation 
option.
    Conversely, industry commenters, including numerous large banks, 
credit unions, community banks, non-bank servicers, and their trade 
associations, generally opposed the requirement that a servicer review 
a borrower for all loss mitigation options available to the borrower 
within 30 days. These commenters generally believed that servicers 
should be permitted to follow investor waterfalls for foreclosure 
prevention options. These commenters stated that the volume of 
documents borrowers may be required to submit to effectuate a review of 
all loss mitigation options may be substantial. Further, industry 
commenters stated that the rule as proposed would require overly 
complicated and unclear communications with customers and those 
customers should be entitled to a communication only about the option 
for which they specifically applied.
    Commenters requested that the Bureau permit servicers to allow 
borrowers to choose between home retention and non-home retention

[[Page 10827]]

options for evaluations. For example, a Federal agency stated that 
servicers should be able to separate borrowers for evaluation purposes 
based upon whether a hardship is temporary or permanent and, 
accordingly, whether a home retention or non-home retention option is 
appropriate. A law firm commented that servicers should be able to 
apply different evaluations for borrowers that indicate a preference 
for a home retention or non-home retention option. A small cre