[Federal Register Volume 79, Number 240 (Monday, December 15, 2014)]
[Proposed Rules]
[Pages 74176-74305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28167]
[[Page 74175]]
Vol. 79
Monday,
No. 240
December 15, 2014
Part II
Bureau of Consumer Financial Protection
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12 CFR Parts 1024 and 1026
Amendments to the 2013 Mortgage Rules under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation
Z); Proposed Rule
Federal Register / Vol. 79, No. 240 / Monday, December 15, 2014 /
Proposed Rules
[[Page 74176]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Parts 1024 and 1026
[Docket No. CFPB-2014-0033]
RIN 3170-AA49
Amendments to the 2013 Mortgage Rules under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Proposed rule with request for comment.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
proposing amendments to certain mortgage servicing rules issued in
2013. These proposed amendments focus primarily on clarifying,
revising, or amending provisions regarding force-placed insurance
notices, policies and procedures, early intervention, and loss
mitigation requirements under Regulation X's servicing provisions; and
periodic statement requirements under Regulation Z's servicing
provisions. The proposed amendments also address proper compliance
regarding certain servicing requirements when a consumer is a potential
or confirmed successor in interest, is in bankruptcy, or sends a cease
communication request under the Fair Debt Collection Practices Act. The
proposed rule makes technical corrections to several provisions of
Regulations X and Z. The Bureau requests public comment on these
changes.
DATES: Comments must be received on or before March 16, 2015.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2014-
0033 or RIN 3170-AA49, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include CFPB-
2014-0033 AND/OR RIN 3170-AA49 in the subject line of the message.
Mail: Monica Jackson, Office of the Executive Secretary,
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC
20552.
Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1275 First
Street NE., Washington, DC 20002.
Instructions: All submissions should include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. Because paper mail in the Washington, DC area and at the
Bureau is subject to delay, commenters are encouraged to submit
comments electronically. In general, all comments received will be
posted without change to http://www.regulations.gov. In addition,
comments will be available for public inspection and copying at 1275
First Street NE., Washington, DC 20002, on official business days
between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an
appointment to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or Social
Security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Dania L. Ayoubi, David H. Hixson,
Bradley S. Lipton, Joel L. Singerman, or Shiri B. Wolf, Counsels; or
William R. Corbett or Laura A. Johnson, Senior Counsels; Office of
Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
In January 2013, the Bureau issued several final rules concerning
mortgage markets in the United States (2013 Title XIV Final Rules),
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).\1\ Two
of these rules were (1) the Mortgage Servicing Rules Under the Real
Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing
Final Rule); \2\ and (2) the Mortgage Servicing Rules Under the Truth
in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule).\3\
These two rules are referred to collectively as the 2013 Mortgage
Servicing Final Rules.
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\1\ Specifically, on January 10, 2013, the Bureau issued Escrow
Requirements Under the Truth in Lending Act (Regulation Z), 78 FR
4725 (Jan. 22, 2013) (2013 Escrows Final Rule), High-Cost Mortgage
and Homeownership Counseling Amendments to the Truth in Lending Act
(Regulation Z) and Homeownership Counseling Amendments to the Real
Estate Settlement Procedures Act (Regulation X), 78 FR 6855 (Jan.
31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and
Qualified Mortgage Standards Under the Truth in Lending Act
(Regulation Z), 78 FR 6407 (Jan. 30, 2013) (January 2013 ATR Final
Rule). The Bureau concurrently issued a proposal to amend the
January 2013 ATR Final Rule, which was finalized on May 29, 2013.
See 78 FR 6621 (Jan. 30, 2013) (January 2013 ATR Proposal) and 78 FR
35429 (June 12, 2013) (May 2013 ATR Final Rule). On January 17,
2013, the Bureau issued the Real Estate Settlement Procedures Act
(Regulation X) and Truth in Lending Act (Regulation Z) Mortgage
Servicing Final Rules, 78 FR 10901 (Feb. 14, 2013) (Regulation Z)
and 78 FR 10695 (Feb. 14, 2013) (Regulation X) (2013 Mortgage
Servicing Final Rules). On January 18, 2013, the Bureau issued the
Disclosure and Delivery Requirements for Copies of Appraisals and
Other Written Valuations Under the Equal Credit Opportunity Act
(Regulation B), 78 FR 7215 (Jan. 31, 2013) (2013 ECOA Valuations
Final Rule) and, jointly with other agencies, issued Appraisals for
Higher-Priced Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13,
2013) (2013 Interagency Appraisals Final Rule). On January 20, 2013,
the Bureau issued the Loan Originator Compensation Requirements
under the Truth in Lending Act (Regulation Z), 78 FR 11279 (Feb. 15,
2013) (2013 Loan Originator Final Rule).
\2\ 78 FR 10695 (Feb. 14, 2013).
\3\ 78 FR 10901 (Feb. 14, 2013).
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The Bureau clarified and revised those rules through notice and
comment rulemaking during the summer and fall of 2013 in the (1)
Amendments to the 2013 Mortgage Rules under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation
Z) (July 2013 Mortgage Final Rule) \4\ and (2) Amendments to the 2013
Mortgage Rules under the Equal Credit Opportunity Act (Regulation B),
Real Estate Settlement Procedures Act (Regulation X), and the Truth in
Lending Act (Regulation Z) (September 2013 Mortgage Final Rule).\5\ In
October 2013, the Bureau issued clarified compliance requirements in
relation to successors in interest, early intervention requirements,
bankruptcy law, and the Fair Debt Collection Practices Act (FDCPA),\6\
through an Interim Final Rule (October 2013 IFR or IFR) \7\ and a
contemporaneous compliance bulletin (October 2013 Servicing
Bulletin).\8\ In addition, in October 2014, the Bureau added an
alternative definition of small servicer in the Amendments to the 2013
Mortgage Rules under the Truth in Lending Act (Regulation Z).\9\ The
purpose of each of these updates was to address important questions
raised by industry, consumer advocacy groups, and other stakeholders.
The 2013 Mortgage Servicing Final Rules, as amended in 2013 and 2014,
are referred to herein as the Mortgage Servicing Rules.
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\4\ 78 FR 44685 (July 24, 2013).
\5\ 78 FR 60381 (Oct. 1, 2013).
\6\ 15 U.S.C. 1692 et seq.
\7\ 78 FR 62993 (Oct. 23, 2013).
\8\ Consumer Fin. Prot. Bureau, CFPB Bulletin 2013-12,
Implementation Guidance for Certain Mortgage Servicing Rules (Oct.
15, 2013), available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
\9\ 79 FR 65300, 65304 (Nov. 3, 2014).
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The Bureau is now proposing several additional amendments to the
Mortgage Servicing Rules to revise regulatory provisions and official
interpretations relating to the Regulation X and Z
[[Page 74177]]
mortgage servicing rules.\10\ The proposals cover nine major topics,
summarized below generally in the order they appear in the proposed
rule. More details can be found in the proposed rule.
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\10\ Note that RESPA and TILA differ in their terminology.
Whereas Regulation X generally refers to ``borrowers,'' Regulation Z
generally refers to ``consumers.''
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1. Successors in interest. The Bureau is proposing three sets of
rule changes relating to successors in interest. First, the Bureau is
proposing to apply all of the Mortgage Servicing Rules to successors in
interest once a servicer confirms the successor in interest's identity
and ownership interest in the property.\11\ Second, the Bureau is
proposing rules relating to how a mortgage servicer confirms a
successor in interest's status. Third, the Bureau is proposing that, to
the extent that the Mortgage Servicing Rules apply to successors in
interest, the rules apply with respect to all successors in interest
who acquire an ownership interest in a transfer protected from
acceleration, and therefore foreclosure, under Federal law.
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\11\ This proposal uses the term ``successor in interest's
status'' to refer to the successor in interest's identity and
ownership interest in the property.
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2. Definition of delinquency. The Bureau is proposing to add a
general definition of delinquency that would apply to all of the
servicing provisions of Regulation X and the provisions regarding
periodic statements for mortgage loans in Regulation Z. Under the
proposed definition, a borrower and a borrower's mortgage loan
obligation are delinquent beginning on the date a payment sufficient to
cover principal, interest, and, if applicable, escrow, becomes due and
unpaid.
3. Requests for information. The Bureau is proposing amendments
that would change how a servicer must respond to requests for
information asking for ownership information for loans in trust for
which the Federal National Mortgage Association (Fannie Mae) or Federal
Home Loan Mortgage Corporation (Freddie Mac) is the trustee, investor,
or guarantor.
4. Force-placed insurance. The Bureau is proposing to amend the
required disclosures to account for when a servicer wishes to force-
place insurance when the borrower has insufficient, rather than
expiring or expired, hazard insurance coverage on the property.
Additionally, the Bureau is proposing to give servicers the option to
include a borrower's mortgage loan account number on the notices
required under Sec. 1024.37. The Bureau is also proposing several
technical edits to correct discrepancies between the model forms and
the text of Sec. 1024.37.
5. Early intervention. The Bureau is proposing to clarify generally
the early intervention live contact obligations and written early
intervention notice obligations. The Bureau is also proposing to
require servicers to provide written early intervention notices to
certain borrowers who are in bankruptcy or who have invoked their cease
communication rights under the FDCPA.
6. Loss mitigation. The Bureau is proposing to: (1) Require
servicers to meet the loss mitigation requirements more than once in
the life of a loan for borrowers who become current after a
delinquency; (2) Modify the existing exception to the 120-day
prohibition on foreclosure filing to allow a servicer to join the
foreclosure action of a senior lienholder; (3) Clarify that servicers
have significant flexibility in setting a reasonable date by which a
borrower must return documents and information to complete an
application, so long as the date maximizes borrower protections and
allows borrowers a reasonable period of time to return documents and
information; (4) Clarify that servicers must take affirmative steps to
delay a foreclosure sale, even where the sale is conducted by a third
party; clarify the servicer's duty to instruct foreclosure counsel to
take steps to comply with the dual-tracking prohibitions; and indicate
that a servicer who has not taken, or caused counsel to take, all
reasonable affirmative steps to delay the sale, is required to dismiss
the foreclosure action if necessary to avoid the sale; (5) Require that
servicers promptly provide a written notice once they receive a
complete loss mitigation application; require that the notice indicate
that the servicer has received a complete application but clarify that
the servicer might later request additional information if needed;
require that the notice provide the date of completion and a disclosure
indicating whether a foreclosure sale was scheduled as of that date,
the date foreclosure protections began, a statement informing the
borrower of applicable appeal rights, and a statement that the servicer
will complete its evaluation within 30 days from the date of the
complete application; (6) Address and clarify how servicers obtain
information not in the borrower's control and evaluate a loss
mitigation application while waiting for such third party information;
prohibit servicers from denying borrowers based upon delay in receiving
such third party information; require that servicers promptly provide a
written notice to the borrower if the servicer lacks third party
information 30 days after receiving the borrower's complete
application; and require servicers to notify borrowers of their
determination in writing promptly upon receipt of the third party
information; (7) Permit servicers to offer a short-term repayment plan
based upon an evaluation of an incomplete application; (8) Clarify that
servicers may stop collecting documents and information from a borrower
pertaining to a loss mitigation option after receiving information
confirming that the borrower is ineligible for that option; and (9)
Address and clarify how loss mitigation procedures and timelines apply
to a transferee servicer that receives a mortgage loan for which there
is a loss mitigation application pending at the time of a servicing
transfer.
7. Prompt payment crediting. The Bureau is proposing to clarify how
servicers must treat periodic payments made by consumers who are
performing under either temporary loss mitigation programs or permanent
loan modifications. Under the Bureau's proposal, periodic payments made
pursuant to temporary loss mitigation programs would continue to be
credited according to the loan contract and could, if appropriate, be
credited as partial payments, while periodic payments made pursuant to
a permanent loan modification would be credited under the terms of the
permanent loan agreement.
8. Periodic statements. The Bureau is proposing to: (1) Clarify
certain periodic statement disclosure requirements relating to mortgage
loans that have been accelerated, are in temporary loss mitigation
programs, or have been permanently modified, to conform generally the
disclosure of the amount due with the Bureau's understanding of the
legal obligation in each of those circumstances; (2) Require servicers
to send modified periodic statements to consumers who have filed for
bankruptcy, subject to certain exceptions, with content varying
depending on whether the consumer is a debtor in a Chapter 7 or Chapter
13 bankruptcy case; and to conduct consumer testing on proposed sample
periodic statement forms that servicers could use for consumers in
bankruptcy to ensure compliance with Sec. 1026.41; and (3) Exempt
servicers from the periodic statement requirement for charged-off
mortgage loans if the servicer will not charge any additional fees or
interest on the account and provides a final periodic statement.
9. Small servicer. The proposal would make certain changes to the
small
[[Page 74178]]
servicer definition. The small servicer definition generally applies to
servicers who service 5,000 or fewer mortgage loans for all of which
the servicer is the creditor or assignee. The proposal would exclude
certain seller-financed transactions from being counted toward the
5,000 loan limit, allowing servicers that would otherwise qualify for
small servicer status to retain their exemption while servicing those
transactions.
The proposed rule also makes technical corrections to several
provisions of Regulations X and Z. The Bureau seeks public comment on
all of the proposed changes.
II. Background
A. Title XIV Rules under the Dodd-Frank Act
In response to an unprecedented cycle of expansion and contraction
in the mortgage market that sparked the most severe U.S. recession
since the Great Depression, Congress passed the Dodd-Frank Act, which
was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress
established the Bureau and generally consolidated the rulemaking
authority for Federal consumer financial laws, including the Truth in
Lending Act (TILA) and the Real Estate Settlement Procedures Act
(RESPA), in the Bureau.\12\ At the same time, Congress significantly
amended the statutory requirements governing mortgages with the intent
to restrict the practices that contributed to and exacerbated the
crisis.\13\ Under the statute, most of these new requirements would
have taken effect automatically on January 21, 2013, if the Bureau had
not issued implementing regulations by that date.\14\ To avoid
uncertainty and potential disruption in the national mortgage market at
a time of economic vulnerability, the Bureau issued several final rules
in a span of less than two weeks in January 2013 to implement these new
statutory provisions and provide for an orderly transition. These rules
included the 2013 Mortgage Servicing Final Rules, issued on January 17.
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\12\ See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12
U.S.C. 5491 and 5511 (establishing and setting forth the purpose,
objectives, and functions of the Bureau); section 1061 of the Dodd-
Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking
authority for Federal consumer financial laws in the Bureau);
section 1100A of the Dodd-Frank Act (codified in scattered sections
of 15 U.S.C.) (similarly consolidating certain rulemaking authority
in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12
U.S.C. 5519 (subject to certain exceptions, excluding from the
Bureau's authority any rulemaking authority over a motor vehicle
dealer that is predominantly engaged in the sale and servicing of
motor vehicles, the leasing and servicing of motor vehicles, or
both).
\13\ See title XIV of the Dodd-Frank Act, Public Law 111-203,
124 Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C.,
15 U.S.C., and 42 U.S.C.).
\14\ See Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.
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On January 17, 2013, the Bureau issued the 2013 Mortgage Servicing
Final Rules. Pursuant to the Dodd-Frank Act, which permitted a maximum
of one year for implementation, these rules became effective on January
10, 2014. The Bureau issued additional corrections and clarifications
to the 2013 Mortgage Servicing Final Rules in the summer and fall of
2013 and in the fall of 2014.
B. Implementation Plan for New Mortgage Rules
On February 13, 2013, the Bureau announced an initiative to support
implementation of the new mortgage rules (Implementation Plan),\15\
under which the Bureau would work with the mortgage industry to ensure
that the 2013 Title XIV Final Rules could be implemented accurately and
expeditiously. The Implementation Plan included: (1) Coordination with
other agencies; (2) publication of plain-language guides to the new
rules; (3) ongoing conversations with stakeholders involved in
implementation with respect to questions and concerns they had
identified; (4) publication of additional interpretive guidance and
corrections or clarifications of the new rules as needed; (5)
publication of readiness guides for the new rules; and (5) education of
consumers on the new rules.
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\15\ Press Release, Consumer Fin. Prot. Bureau, CFPB Lays Out
Implementation Plan for New Mortgage Rules (Feb. 13, 2013),
available at http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-lays-out-implementation-plan-for-new-mortgage-rules/.
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In the course of the implementation process, the Bureau identified
a number of respects in which the 2013 Mortgage Servicing Final Rules
posed implementation challenges. As a result, in July 2013 and
September 2013, following notice and comment, the Bureau issued two
final rules amending discrete aspects of the 2013 Mortgage Servicing
Final Rules. Among other things, the July 2013 Mortgage Final Rule
clarified, corrected, or amended provisions on the relation to State
law of Regulation X's servicing requirements; implementation dates for
certain adjustable-rate mortgage servicing notices under Regulation Z;
and the small servicer exemption from certain servicing rules. Among
other things, the September 2013 Mortgage Final Rule modified
provisions of Regulation X related to error resolution, information
requests, and loss mitigation procedures. In October 2013, the Bureau
issued an IFR, which among other things, provisionally suspended the
effectiveness of certain requirements of the 2013 Mortgage Servicing
Final Rules with respect to consumers in bankruptcy and consumers who
had exercised their rights under the FDCPA to direct that debt
collectors cease contacting them with respect to outstanding debts. In
the October 2013 Servicing Bulletin, the Bureau also clarified
compliance requirements regarding successors in interest, early
intervention live contact requirements, and the FDCPA. In addition, in
October 2014, the Bureau issued a final rule that, among other things,
adds an alternative definition of small servicer that applies to
certain nonprofit entities that service, for a fee, only loans for
which the servicer or an associated nonprofit entity is the creditor.
C. Ongoing Monitoring
After the January 10, 2014 effective date of the rules, the Bureau
has continued to engage in ongoing outreach and monitoring with
industry, consumer advocacy groups, and other stakeholders, including
holding numerous individual meetings as well as hosting a bankruptcy
roundtable discussion on June 16, 2014, among representatives of
consumer advocacy groups, bankruptcy attorneys, mortgage servicers,
trade groups, and bankruptcy trustees. As a result, the Bureau has
identified further issues that continue to pose implementation
challenges or require clarification. The Bureau has also recognized
that there are instances in which the rules are creating unintended
consequences or failing to achieve desired objectives.
The Bureau recognizes both the implementation process that industry
has experienced with respect to the Mortgage Servicing Rules and the
costs that industry has incurred. The Bureau believes that the majority
of the provisions in this proposal will impose, at most, minimal new
compliance burdens, and in many cases will reduce the compliance burden
relative to the existing rules. Where the Bureau is proposing adding
new requirements, the Bureau is doing so after careful weighing of
incremental costs and benefits.
This proposal concerns additional revisions to the Mortgage
Servicing Rules. The purpose of these revisions is to address important
questions raised by industry, consumer advocacy groups, or other
stakeholders. As discussed below, the Bureau contemplates additional
[[Page 74179]]
revisions in several sections of Regulations X and Z.
III. Legal Authority
As discussed more fully in the section-by-section analysis, the
Bureau is proposing this rule pursuant to the FDCPA and the Dodd-Frank
Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the
``consumer financial protection functions'' previously vested in
certain other Federal agencies, including the Board of Governors of the
Federal Reserve System (Board). 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.'' Section
1061 of the Dodd-Frank Act also transferred to the Bureau all of the
Department of Housing and Urban Development's (HUD's) consumer
protection functions relating to RESPA. Title X of the Dodd-Frank Act,
including section 1061 of the Dodd-Frank Act, along with TILA, RESPA,
the FDCPA, and certain subtitles and provisions of title XIV of the
Dodd-Frank Act, are Federal consumer financial laws.\16\
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\16\ See Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws,'' the provisions of title X of the Dodd-
Frank Act, and the laws for which authorities are transferred under
title X subtitles F and H of the Dodd-Frank Act); Dodd-Frank Act
section 1002(12), 12 U.S.C. 5481(12) (defining ``enumerated consumer
laws'' to include TILA); Dodd-Frank Act section 1400(b), 12 U.S.C.
5481(12) note (defining ``enumerated consumer laws'' to include
certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-
Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to
the Bureau all of HUD's consumer protection functions relating to
RESPA).
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A. RESPA
Section 19(a) of RESPA, 12 U.S.C. 2617(a), 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 include its
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements
necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of
RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe
regulations that are appropriate to carry out RESPA's consumer
protection purposes. As identified in the 2013 RESPA Servicing Final
Rule, the consumer protection purposes of RESPA include ensuring that
servicers respond to borrower requests and complaints in a timely
manner and maintain and provide accurate information, helping borrowers
avoid unwarranted or unnecessary costs and fees, and facilitating
review for foreclosure avoidance options. Each of the proposed
amendments or clarifications to Regulation X is intended to achieve
some or all these purposes.
Additionally, as explained below, certain of the proposed
amendments to Regulation X implement specific provisions of RESPA.
This proposed rule also includes amendments to the official Bureau
commentary in Regulation X. Section 19(a) of RESPA 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.
B. TILA
Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to
prescribe regulations to carry out the purposes of TILA. Under section
105(a), such regulations may contain such additional requirements,
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for all or any class of
transactions, as in the judgment of the Bureau are necessary or proper
to effectuate the purposes of TILA, to prevent circumvention or evasion
thereof, or to facilitate compliance therewith. Under section 102(a),
15 U.S.C. 1601(a), the purposes of TILA are ``to assure a meaningful
disclosure of credit terms so that the consumers will be able to
compare more readily the various credit terms available and avoid the
uniformed use of credit'' and to protect consumers against inaccurate
and unfair credit billing practices. For the reasons discussed in this
proposal, the Bureau is proposing to adopt amendments to Regulation Z
to carry out TILA's purposes and such additional requirements,
adjustments, and exceptions as, in the Bureau's judgment, are necessary
and proper to carry out the purposes of TILA, prevent circumvention or
evasion thereof, or to facilitate compliance therewith.
Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to
exempt from all or part of TILA any class of transactions if the Bureau
determines that TILA coverage does not provide a meaningful benefit to
consumers in the form of useful information or protection. For the
reasons discussed in this notice, the Bureau is proposing to exempt
certain transactions from the requirements of TILA pursuant to its
authority under section 105(f) of TILA.
Additionally, as explained below, certain of the proposed
amendments to Regulation Z implement specific provisions of TILA.
This proposed rule also includes amendments to the official Bureau
commentary in Regulation Z. Good faith compliance with the
interpretations would afford protection from liability under section
130(f) of TILA.
C. FDCPA
The Bureau also exercises its authority to prescribe rules with
respect to the collection of debts by debt collectors pursuant to
section 814(d) of the FDCPA, 15 U.S.C. 1692l(d). For the reasons
discussed below, the Bureau proposes to rely on this authority to
clarify a borrower's cease communication protections under section
805(c) of the FDCPA and to interpret the exceptions set forth in
section 805(c)(2) and (3) of the FDCPA to include the written early
intervention notice required by proposed Sec. 1024.39(d)(2)(iii). The
proposed rule also includes Bureau advisory opinions for purposes of
section 813(e) of the FDCPA, 15 U.S.C. 1692k(e). Under that section,
``[n]o provision of [the FDCPA] imposing any liability shall apply to
any act done or omitted in good faith in conformity with any advisory
opinion of the Bureau, notwithstanding that after such act or omission
has occurred, such opinion is amended, rescinded, or determined by
judicial or other authority to be invalid for any reason.''
D. The Dodd-Frank Act
Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1),
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.'' RESPA, TILA, the FDCPA, and title X of the
Dodd-Frank Act are Federal consumer financial laws.
Section 1032(a) of the Dodd-Frank Act, 12 U.S.C. 5532(a), 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 understand
the costs, benefits, and risks associated with the product or service,
in light of the facts and circumstances.''
[[Page 74180]]
The authority granted to the Bureau in section 1032(a) of the Dodd-
Frank Act 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.
Section 1032(c) of the Dodd-Frank Act, 12 U.S.C. 5532(c), provides
that, in prescribing rules pursuant to section 1032 of the Dodd-Frank
Act, 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.'' Accordingly, in proposing to amend
provisions authorized under section 1032(a) of the Dodd-Frank Act, 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.
IV. Proposed Effective Date
The Bureau proposes that all of the changes proposed herein, except
for the changes in proposed Sec. 1026.41(e)(5) and (f), take effect
280 days after publication of a final rule in the Federal Register. The
Bureau believes that the proposed changes generally reinforce existing
Bureau guidance, provide greater clarity in an effort to facilitate
compliance, expand existing preemptions, or otherwise provide relief
from regulatory requirements; therefore the Bureau believes an
effective date of 280 days after publication may be appropriate.
The Bureau proposes that the changes to proposed Sec.
1026.41(e)(5) and (f) take effect one year after publication of a final
rule in the Federal Register. These proposed changes would limit the
circumstances in which a servicer is exempt from the periodic statement
requirements with respect to a consumer who is a debtor in bankruptcy
and, when an exemption does not apply with respect to such consumers,
require that periodic statements contain certain bankruptcy-related
modifications; therefore the Bureau believes an effective date of one
year after publication may be appropriate.
The Bureau seeks comment on whether the proposed effective dates
are appropriate, or whether the Bureau should adopt alternative
effective dates.
V. Section-by-Section Analysis of the Proposed Rule
A. Regulation X and Regulation Z
Several of the Bureau's proposals under either Regulation X or
Regulation Z affect provisions in both Regulations X and Z. For
example, the proposed definition of delinquency in Sec. 1024.31
affects requirements in Sec. Sec. 1024.39 through 1024.41 of
Regulation X, as well as Sec. 1026.41 of Regulation Z. Generally, the
Bureau discusses each section of the proposed rule under the heading
designating the applicable regulation below--part V.B. for Regulation X
and part V.C. for Regulation Z. However, because the proposed rule and
commentary relating to successors in interest are interspersed
throughout Regulation X and Regulation Z, the Bureau is providing an
overview of the proposed rule under this combined part V.A for both
Regulation X and Regulation Z. In this combined part, references to
specific sections of part 1024 refer to Regulation X, and references to
specific sections of part 1026 refer to Regulation Z. The Bureau then
discusses each specific section of the proposed rule relating to
successors in interest in more detail under the heading designating the
applicable regulation below.
Overview of Proposed Rule Relating to Successors in Interest
Background. Current Sec. 1024.38(b)(1)(vi) provides that servicers
are required to maintain policies and procedures that are reasonably
designed to ensure that the servicer can, upon notification of the
death of a borrower, promptly identify and facilitate communication
with the successor in interest of the deceased borrower with respect to
the property securing the deceased borrower's mortgage loan.\17\ When
the Bureau adopted this requirement in the 2013 RESPA Servicing Final
Rule, the Bureau stated that it ``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.'' \18\
The Bureau issued the October 2013 Servicing Bulletin to provide
implementation guidance about this requirement.\19\ The Bureau noted
that it had received ``reports of servicers either outright refusing to
speak to a successor in interest or demanding documents to prove the
successor in interest's claim to the property that either do not exist
. . . or are not reasonably available.'' \20\ The Bureau also stated
that these practices ``often prevent a successor in interest from
pursuing assumption of the mortgage loan and, if applicable, loss
mitigation options.'' \21\ The October 2013 Servicing Bulletin provided
examples of servicer practices and procedures that would accomplish the
objectives set forth in Sec. 1024.38(b)(1)(vi) and alleviate these
problems.\22\
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\17\ A successor in interest is ``[o]ne who follows another in
ownership or control of property.'' Black's Law Dictionary (9th ed.
2009). For the purposes of this proposal, the Bureau is referring to
successors in interest who have been transferred a legal interest in
a property securing a mortgage loan from a borrower on the mortgage
loan; the successor in interest may not necessarily have assumed the
mortgage loan obligation (i.e., legal liability for the mortgage
debt) under State law, and the servicer may not necessarily have
agreed to add the successor in interest as obligor on the mortgage
loan.
\18\ 78 FR 10695, 10781 (Feb. 14, 2013).
\19\ October 2013 Servicing Bulletin.
\20\ Id. at 2.
\21\ Id.
\22\ Id. On July 17, 2014, the Bureau also issued an
interpretive rule clarifying that where a successor in interest who
has previously acquired a legal interest in a dwelling agrees to be
added as obligor on the mortgage loan, the servicer's express
acknowledgment of the successor in interest as obligor does not
constitute an ``assumption'' as that term is used in Regulation Z.
See 79 FR 41631 (July 17, 2014). Accordingly, the Regulation Z
Ability-to-Repay Rule does not apply when a creditor expressly
accepts a successor in interest as obligor on a loan. See id. The
interpretive rule also noted that the servicer must comply with any
ongoing obligations pertaining to consumer credit, such as the ARM
notice requirements (12 CFR 1026.20(c) and (d)) and periodic
statement requirement (12 CFR 1026.41), after the successor in
interest is added as an obligor on the mortgage note.
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As explained in more detail in the discussion that follows and in
the section-by-section analysis of the proposed sections,\23\ the
Bureau is proposing three sets of rules relating to successors in
interest. First, the Bureau is proposing rules providing that, to the
extent that the Mortgage Servicing Rules apply to successors in
interest, the rules apply specifically with respect to successors in
interest who acquired an ownership interest in the property securing a
mortgage loan in a transfer protected by the Garn-St Germain Depository
Institutions Act of 1982 (the Garn-St Germain Act).\24\ Second, the
Bureau is proposing rules relating to how a mortgage servicer confirms
a successor in interest's identity and ownership interest in the
property.
[[Page 74181]]
Third, the Bureau is proposing to apply all of the Mortgage Servicing
Rules to successors in interest whose identity and ownership interest
in the property have been confirmed by the servicer (``confirmed
successors in interest''). As explained in more detail in the
discussion that follows and in the section-by-section analysis of the
proposed sections, the Bureau believes that these changes are necessary
to address the significant problems successors in interest continue to
encounter with respect to the servicing of mortgage loans secured by
their property. The Bureau has received information from consumers,
consumer advocacy groups, and other stakeholders demonstrating that
such problems remain pervasive, despite the Bureau's earlier guidance.
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\23\ See section-by-section analyses of Sec. Sec. 1024.30(d),
1024.31, 1024.36(i), 1024.38(b)(1)(vi), 1024.39(b)(1), 1024.41(b),
1026.2(a)(11), 1026.2(a)(27), and 1026.41(a), infra.
\24\ 12 U.S.C. 1701j-3(d).
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Successors in interest covered by the proposed rule would not
necessarily have assumed the mortgage loan obligation (i.e., legal
liability for the mortgage debt) under State law. The Bureau
understands that whether a successor in interest has assumed a mortgage
loan obligation under State law is a fact-specific question. The
proposed rule would not affect this question but would apply with
respect to a successor in interest regardless of whether that person
has assumed the mortgage loan obligation under State law.\25\
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\25\ As noted, the Bureau has also clarified in an interpretive
rule that where a successor in interest who has previously acquired
a legal interest in a dwelling agrees to be added as obligor on the
mortgage loan, the servicer's express acknowledgment of the
successor in interest as obligor does not constitute an
``assumption'' as that term is used in Regulation Z. See 79 FR 41631
(July 17, 2014).
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Scope of successor in interest rules. The Bureau is proposing
changes to the Mortgage Servicing Rules regarding who qualifies as a
successor in interest for purposes of relevant provisions of the rules.
Current Sec. 1024.38(b)(1)(vi) refers to ``the successor in interest
of the deceased borrower.'' As the Bureau noted in the 2013 Mortgage
Rule Amendments, the Garn-St Germain Act ``generally prohibits the
exercise of due-on-sale clauses with respect to certain protected
transfers.'' \26\ These protected transfers include certain transfers
involving the death of a borrower, specifically ``a transfer to a
relative resulting from the death of a borrower'' and ``a transfer by
devise, descent, or operation of law on the death of a joint tenant or
tenant by the entirety.'' \27\ In addition to these categories
involving the death of a borrower, the Garn-St Germain Act protects
other categories of transfers: ``a transfer where the spouse or
children of the borrower become an owner of the property;'' ``a
transfer resulting from a decree of a dissolution of marriage, legal
separation agreement, or from an incidental property settlement
agreement, by which the spouse of the borrower becomes an owner of the
property;'' ``a transfer into an inter vivos trust in which the
borrower is and remains a beneficiary and which does not relate to a
transfer of rights of occupancy in the property;'' and ``any other
transfer or disposition described in regulations prescribed by the
Federal Home Loan Bank Board.'' \28\
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\26\ 78 FR 60381, 60406 (Oct. 1, 2013).
\27\ 12 U.S.C. 1701j-3(d).
\28\ Id. The Garn-St Germain Act also prohibits exercise of due-
on-sale clauses with respect to certain other situations that do not
involve transfer of an ownership interest in the property. See id.
The Bureau's proposed rule would not apply to these situations.
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The Bureau is proposing that, to the extent that the Mortgage
Servicing Rules apply to successors in interest, the rules would apply
to all successors in interest who acquired an ownership interest in the
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act, rather than only successors in interest who acquired an
ownership interest upon a borrower's death. Accordingly, for the
purposes of Regulation X, the Bureau is proposing to define successor
in interest in Sec. 1024.31 as a member of any of the categories of
successors in interest who acquired an ownership interest in the
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act. The Bureau also is proposing to modify current Sec.
1024.38(b)(1)(vi) to account for all transfers to successors in
interest meeting this definition. Similarly, for the purposes of
Regulation Z, proposed Sec. 1026.2(a)(27) defines successor in
interest to cover all categories of successors in interest who acquired
an ownership interest in the dwelling securing a mortgage loan in a
transfer protected by the Garn-St Germain Act. Successors in interest
covered by the proposed definitions would not necessarily have assumed
the mortgage loan obligation (i.e., legal liability for the mortgage
debt) under State law.\29\
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\29\ As noted, the Bureau understands that whether a successor
in interest has assumed a mortgage loan obligation under State law
is a fact-specific question.
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When the Bureau issued current Sec. 1024.38(b)(1)(vi), it stated
that it had ``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 secur[ing] a mortgage
loan account solely in the name of the deceased borrower.'' \30\ Since
that time, the Bureau has received additional information about
difficulties faced by other categories of successors in interest who
acquired an ownership interest in the property securing a mortgage loan
in a transfer protected by the Garn-St Germain Act, such as divorced
spouses of prior borrowers.\31\ For example, the Bureau has received
reports from consumers and consumer advocacy groups that successors in
interest who are transferred an ownership interest in property securing
a mortgage loan upon divorce or legal separation face similar
challenges to those faced by successors in interest in situations
involving borrower death.
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\30\ 78 FR 10695, 10781 (Feb. 14, 2013).
\31\ The Bureau interprets ``spouse'' to include married same-
sex spouses. See Memorandum on Ensuring Equal Treatment for Same-Sex
Married Couples (Same-Sex Married Couple Policy) (June 25, 2015),
available at http://files.consumerfinance.gov/f/201407_cfpb_memo_ensuring-equal-treatment-for-same-sex-married-couples.pdf (``It is the Bureau's policy, to the extent federal law
permits and consistent with the legal position announced by the U.S.
Department of Justice in interpreting relevant statutes, regulations
and policies, to recognize all marriages valid at the time of the
marriage in the jurisdiction where the marriage was celebrated.
Accordingly, the Bureau will regard a person who is married under
the laws of any jurisdiction to be married nationwide for purposes
of the federal statutes and regulations under the Bureau's
jurisdiction regardless of the person's place of residency.'').
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The Bureau believes that successors in interest in situations other
than those involving a borrower's death face the same risk of
unnecessary foreclosure and other consumer harm and have the same legal
rights with respect to the mortgage loan and property as successors in
interest upon death. Further, because the Bureau is proposing to apply
all of the Mortgage Servicing Rules to confirmed successors in interest
in large part to prevent unnecessary foreclosure, the Bureau believes
that it is appropriate to defer to Congress's policy choice about which
categories of successors in interest should be protected from
foreclosure. Accordingly, the Bureau is proposing that the Mortgage
Servicing Rules should apply with respect to all categories of
successors in interest who acquired an ownership interest in the
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act.
Confirming a successor in interest's status. The Bureau is
proposing modifications to Regulation X's mortgage servicing rules
(subpart C of Regulation X) relating to how a mortgage servicer
confirms a successor in interest's identity and ownership
[[Page 74182]]
interest in the property securing the mortgage loan.\32\ Proposed Sec.
1024.36(i) requires a servicer to respond to a written request that
indicates that the person making the request may be a successor in
interest by providing that person with information regarding the
documents the servicer requires to confirm the person's identity and
ownership interest in the property. Proposed Sec. 1024.38(b)(1)(vi)
provides several related modifications to the current policies and
procedures provision involving successors in interest.
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\32\ The Bureau believes that similar modifications to
Regulation Z's mortgage servicing rules relating to how a mortgage
servicer confirms a successor in interest's identity and ownership
interest in the dwelling are unnecessary. Regulation X's mortgage
servicing rules apply to the vast majority of mortgage loans to
which Regulation Z's mortgage servicing rules apply. Accordingly,
the rules under Regulation X relating to how a mortgage servicer
confirms a successor in interest's identity and ownership interest
in the property would generally apply to loans to which Regulation
Z's mortgage servicing rules apply, making unnecessary similar
modifications to Regulation Z.
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Proposed Sec. 1024.38(b)(1)(vi)(A) requires servicers to maintain
policies and procedures that are reasonably designed to ensure that the
servicer can, upon notification of the death of a borrower or of any
transfer of the property securing a mortgage loan, promptly identify
and facilitate communication with any potential successors in interest
regarding the property. Proposed Sec. 1024.38(b)(1)(vi)(B) requires
servicers to maintain policies and procedures reasonably designed to
ensure that the servicer can, upon identification of a potential
successor in interest, promptly provide to that person a description of
the documents the servicer reasonably requires to confirm the person's
identity and ownership interest in the property and how the person may
submit a written request under Sec. 1024.36(i) (including the
appropriate address). Proposed Sec. 1024.38(b)(1)(vi)(C) requires
servicers to maintain policies and procedures reasonably designed to
ensure that the servicer can confirm promptly, upon the receipt of such
documents, the person's status as a successor in interest, where
appropriate, and promptly notify the person, as applicable, that the
servicer has confirmed the person's status, has determined that
additional documents are required (and what those documents are), or
has determined that the person is not a successor in interest.
The Bureau is proposing these changes because it believes, based on
the information it has received from consumers, consumer advocacy
groups, and other stakeholders, that successors in interest continue to
have difficulty demonstrating their identity and ownership interest in
the property to servicers' satisfaction.\33\ The October 2013 Servicing
Bulletin indicated that servicers should have a practice of
``[p]romptly providing to any party claiming to be a successor in
interest a list of all documents or other evidence the servicer
requires, which should be reasonable in light of the laws of the
relevant jurisdiction, for the party to establish (1) the death of the
borrower and (2) the identity and legal interest of the successor in
interest.''\34\ Nonetheless, the Bureau has heard numerous reports that
some servicers continue to require successors in interest to submit
documents that the Bureau believes are unreasonable in light of the
particular situation of that successor in interest, or in light of the
laws of the relevant jurisdiction. For instance, the Bureau has heard
reports that some servicers have required successors in interest to
produce probate documents for estates that do not require probate. The
Bureau has also heard reports that some servicers have taken a long
time to confirm the successor in interest's status, even after receipt
of appropriate documentation. The Bureau has also heard reports that
some servicers have failed to communicate to the successor in interest
whether the servicer has confirmed the successor in interest's status.
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\33\ See, e.g., California Reinvestment Coalition, Chasm Between
Words and Deeds X: How Ongoing Mortgage Servicing Problems Hurt
California Homeowners and Hardest-Hit Communities, at 20 (May 21,
2014) (noting that majority of housing counselors surveyed reported
continuation of previously reported problems regarding successors in
interest, such as that ``servicers often . . . would require [such
homeowners] to go through costly and unnecessary hoops'').
\34\ CFPB Bulletin 2013-12.
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The Bureau believes that these difficulties present significant
problems related to RESPA's purposes and therefore warrant an
appropriate response in Regulation X's mortgage servicing rules. When
the Bureau issued the 2013 RESPA Servicing Final Rule, the Bureau
stated that 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.''\35\ Further, the Bureau stated that
the Dodd-Frank Act ``provides the Bureau authority to establish
prohibitions on servicers of federally related mortgage loans
appropriate to carry out the consumer protection purposes of RESPA . .
. . [I]n light of the systemic problems in the mortgage servicing
industry . . ., the Bureau is exercising this authority in this
rulemaking to implement protections for borrowers with respect to
mortgage servicing.''\36\ The Bureau believes that the proposed
modifications to Regulation X's mortgage servicing rules regarding
confirmation of a successor in interest's identity and ownership
interest in the property similarly serve these purposes, in particular
with respect to preventing unnecessary foreclosure and other homeowner
harms.
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\35\ 78 FR 10901, 10914 (Feb. 14, 2013).
\36\ Id. at 10703.
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Where a successor in interest's property secures a mortgage loan, a
foreclosure or threatened foreclosure imperils that ownership interest
and poses significant risk of consumer harm, even though the successor
in interest may not have assumed the mortgage loan obligation under
State law. Successors in interest may also have difficulty, beyond that
of other homeowners, in avoiding foreclosure. The Bureau believes that
such increased risk of harm may arise because successors in interest
are more likely than other homeowners to experience an income
disruption due to death or divorce, and because successors in interest
have more difficulty than other homeowners obtaining information about
the status of the mortgage loan, options for modification, and payoff
information. Successors in interest may also be more likely than other
homeowners to experience difficulty with the prompt crediting of their
payments, resulting in unnecessary foreclosure. For all these reasons,
the Bureau believes that successors in interest are a particularly
vulnerable group at risk of substantial harms.
These potential harms are most likely to occur when a servicer does
not promptly confirm a successor in interest's identity and ownership
interest in the property. Before confirmation of the successor in
interest's identity and ownership interest, the servicer may, in some
circumstances, have legitimate concerns about sharing information about
the mortgage loan, crediting payments, or evaluating the unconfirmed
successor in interest for loss mitigation options. Accordingly, when
confirmation is delayed, the potential risk of foreclosure and other
harms to the successor in interest increase. For these reasons, the
[[Page 74183]]
Bureau believes that the difficulties faced by successors in interest
with respect to confirmation of their status have caused successors in
interest to face unnecessary problems with respect to the mortgage
loans secured by the property, which may lead to unnecessary
foreclosure on the property.
The Bureau's October 2013 Servicing Bulletin addressed these
problems for a subset of successors in interest by requiring servicers
to have policies and procedures in place to facilitate the provision of
information to successors in interest who had inherited a property
securing a deceased borrower's mortgage loan. Nonetheless, the Bureau
has continued to receive reports that all categories of successors in
interest, including those who inherit the property upon death of a
family member, continue to experience difficulties in having servicers
confirm the successor in interest's legal status. The Bureau believes,
therefore, that proposing changes to the rules themselves is
appropriate and necessary to clarify servicers' obligations and to
ensure that the requirements are widely understood and enforceable. The
Bureau believes that enabling successors in interest to demonstrate
efficiently their status to servicers and having servicers promptly
confirm this status is particularly important. Such prompt confirmation
will reduce the risk of unnecessary foreclosures and other consumer
harm. Because the Bureau is proposing to apply all of the Mortgage
Servicing Rules to confirmed successors in interest, enabling
successors in interest to demonstrate their status to servicers
efficiently and requiring servicers to confirm this status promptly
would allow successors in interest to access the rules' protections as
quickly as possible. Moreover, as explained in the discussion above of
the scope of successor in interest rules, the Bureau also believes that
it is appropriate to extend protections to successors in interest in
situations beyond a borrower's death.
Applying Mortgage Servicing Rules to successors in interest. The
Bureau is proposing to apply all of the Mortgage Servicing Rules to
confirmed successors in interest. Accordingly, proposed Sec.
1024.30(d) provides that a successor in interest shall be considered a
borrower for the purposes of Regulation X's mortgage servicing rules
once a servicer confirms the successor in interest's identity and
ownership interest in the property. Similarly, proposed Sec.
1026.2(a)(11) provides that a confirmed successor in interest is a
consumer with respect to Regulation Z's mortgage servicing rules. Under
the proposed rule, the Mortgage Servicing Rules would apply with
respect to a confirmed successor in interest regardless of whether that
person has assumed the mortgage loan obligation (i.e., legal liability
for the mortgage debt) under State law.
The Bureau believes, based on the information it has received from
consumers, consumer advocacy groups, and other stakeholders, that
successors in interest face many of the challenges that the Mortgage
Servicing Rules were designed to prevent.\37\ For example, the Bureau
has learned that successors in interest often have difficulty receiving
information about the mortgage loan secured by the property or
correcting errors regarding the mortgage loan account. The Bureau has
also learned that servicers sometimes refuse to accept, or may
misapply, payments from successors in interest. The Bureau has also
heard numerous reports that successors in interest often encounter
difficulties being evaluated for loss mitigation options, including
that servicers often require successors in interest to assume the
mortgage loan obligation under State law before evaluating the
successor in interest for loss mitigation options. This practice
appears to contravene Fannie Mae and Freddie Mac requirements that, for
loans governed by Fannie Mae or Freddie Mac guidelines, servicers must
evaluate successors in interest for loss mitigation options prior to
processing an assumption.\38\ The problems encountered by successors in
interest in correcting servicing errors and obtaining information may
persist even after the servicer has confirmed the successor in
interest's identity and ownership interest in the property.
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\37\ See, e.g., California Reinvestment Coalition, Chasm Between
Words and Deeds X How Ongoing Mortgage Servicing Problems Hurt
California Homeowners and Hardest-Hit Communities, at 20 (May 21,
2014) (noting that majority of housing counselors surveyed reported
continuation of previously reported problems regarding successors in
interest, such as that ``servicers often would not speak to such
homeowners, would require them to go through costly and unnecessary
hoops, and would leave them more vulnerable to foreclosure'').
\38\ See Fannie Mae, Servicing Guide Announcement SVC-2013-17
(Aug. 28, 2013), available at https://www.fanniemae.com/content/announcement/svc1317.pdf; Freddie Mac, Bulletin 2013-3 (Feb. 15,
2013), available at http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1303.pdf..
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The ability of successors in interest to sell, encumber, or make
improvements to their property is limited by the lien securing the
mortgage loan. As homeowners of property securing a mortgage loan,
successors in interest typically must satisfy the loan's payment
obligations to avoid foreclosure, even though a successor in interest
will not necessarily have assumed liability for the mortgage debt under
State law. Successors in interest, like other homeowners, can face
serious adverse consequences from foreclosure. These consumer harms may
include loss of the home and accumulated equity, displacement, and
damage to credit scores.\39\ Successors in interest, however, may have
more difficulty preventing or resolving servicing errors than other
borrowers.
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\39\ Although successors in interest should not face the same
credit reporting consequences after a foreclosure as signatories to
the debt, inconsistencies in the credit scoring system make
uncertain any generalization about the impact of a foreclosure on
credit score, and successors in interest may, in some instances,
face credit score risks comparable to those of an original
signatory. For example, a foreclosure judgment may be reported
against the successor in interest and reflected in the credit score
as a judgment, regardless of whether the successor in interest has
personal liability on the debt.
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The Bureau believes that the problems faced by successors in
interest are similar to many of the problems that prompted the Bureau
to adopt the Mortgage Servicing Rules. When the Bureau issued the 2013
RESPA Servicing Final Rule, it stated that ``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.''\40\ The Bureau believes that these purposes similarly would
be served by providing successors in interest with the protections
available to borrowers under Regulation X. Specifically, the Bureau
believes that applying Regulation X's mortgage servicing rules to
successors in interest would provide these homeowners with access to
information about the mortgage, help successors in interest avoid
unwarranted or unnecessary costs and fees, and prevent unnecessary
foreclosure.
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\40\ 78 FR 10695, 10709 (Feb. 14, 2013).
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The Bureau believes that it is especially important for the loss
mitigation procedures in Sec. 1024.41 to apply to successors in
interest. When the Bureau issued the 2013 RESPA Servicing Final Rule,
the Bureau stated that ``establishing national mortgage servicing
standards . . . ensure[s] that borrowers have a full and fair
opportunity to receive an evaluation for a loss mitigation option
before suffering the harms associated with foreclosure.''\41\ The
Bureau also stated
[[Page 74184]]
that ``[t]hese 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.''\42\ The Bureau believes that these
same consumer protection purposes would be served by applying the loss
mitigation procedures in Sec. 1024.41 to successors in interest, who,
as homeowners of property securing a mortgage loan, may need to make
payments on the loan to avoid foreclosure.
---------------------------------------------------------------------------
\41\ Id. at 10815.
\42\ Id.
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The Bureau believes that successors in interest may represent a
particularly vulnerable group of consumers. Because successors in
interest can face serious adverse consequences from foreclosure,
successors in interest often accede to the responsibilities of the
mortgage loan following death or divorce. Further, successors in
interest may be more likely than other homeowners to experience a
disruption in household income and therefore may be more likely than
other homeowners to need loss mitigation to avoid foreclosure. The
Bureau therefore believes that requiring servicers to evaluate a
complete loss mitigation application received from a confirmed
successor in interest under Sec. 1024.41's procedures would serve
RESPA's consumer protection purposes.
Further, because a servicer's acknowledgment of a successor in
interest's subsequent assumption of the mortgage loan under State law
is not subject to the Regulation Z Ability-to-Repay Rule,\43\
successors in interest are particularly dependent on a prompt loss
mitigation evaluation to assess the mortgage loan's affordability. A
servicer's evaluation of a complete loss mitigation application often
provides the successor in interest with critical information about the
long-term affordability of the loan. The Bureau therefore believes that
requiring servicers to evaluate a complete loss mitigation application
received from a confirmed successor in interest supports the successor
in interest in making a fully informed decision about whether to assume
the mortgage loan obligation under State law. The Bureau also believes
that requiring servicers to comply with Sec. 1024.41's procedures with
respect to confirmed successors in interest would not impose
significant costs on servicers.
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\43\ See 79 FR 41631 (July 17, 2014).
---------------------------------------------------------------------------
With respect to Regulation Z, when the Bureau issued the 2013 TILA
Servicing Final Rule, the Bureau stated that ``[t]he purposes of TILA
are to `assure a meaningful disclosure of credit terms so that the
consumers will be able to compare more readily the various credit terms
available and avoid the uninformed use of credit' and to protect
consumers against inaccurate and unfair credit billing practices.''\44\
Additionally, the Bureau noted that the Dodd-Frank Act ``empowers the
Bureau to prescribe rules regarding the disclosure of the `features' of
consumer financial products and services generally . . . even if other
Federal consumer financial laws do not specifically require disclosure
of such features,''\45\ and that the Dodd-Frank Act ``is a broad source
of authority to modify or exempt the disclosure requirements of TILA''
regarding ``residential mortgage loans if the Bureau determines that
such exemption or modification is in the interest of consumers and in
the public interest.''\46\ The Bureau believes that these purposes
would be served by applying Regulation Z's mortgage servicing rules to
successors in interest, who, as homeowners of dwellings securing
mortgage loans, may be required to make payments on the loan to avoid
foreclosure. Specifically, the Bureau believes that applying Regulation
Z's mortgage servicing rules to successors in interest would protect
successors in interest against inaccurate and unfair payment crediting
practices by the servicer of the mortgage loan on which they may be
making payments and which encumbers their property. The Bureau also
believes that applying Regulation Z's mortgage servicing rules to
successors in interest would benefit consumers and the public because
the rules would help prevent unnecessary foreclosure by, for example,
keeping successors in interest informed of the status of the mortgage
loan and requiring a servicer to credit promptly payments from
successors in interest. Moreover, the proposed amendments to Regulation
Z would help ensure that successors in interest receive prompt
information about the amount necessary to pay off the mortgage loan, as
other homeowners do under Regulation Z.
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\44\ 78 FR 10901, 10914 (Feb. 14, 2013) (quoting 15 U.S.C.
1601(a)).
\45\ Id.
\46\ Id.
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Legal Authority. For the reasons expressed above in this part V.A.,
the Bureau believes these proposed changes to the Mortgage Servicing
Rules carry out the purposes of RESPA and TILA. The Bureau is proposing
to exercise its authority under sections 6(j)(3), 6(k)(1)(E) and 19(a)
of RESPA to make these amendments relating to successors in interest to
Regulation X's mortgage servicing rules. The Bureau is proposing to
exercise its authority under section 105(a) of TILA to make these
amendments relating to successors in interest to Regulation Z's
mortgage servicing rules. The Bureau is also proposing to exercise 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.
The Bureau believes that it is reasonable to interpret ``borrower''
under RESPA and ``consumer'' under TILA to include successors in
interest and to apply the Mortgage Servicing Rules to confirmed
successors in interest. The Bureau believes that this treatment is
consistent with State property law and thus the context in which RESPA
and TILA were enacted. At common law, a successor in interest ``retains
the same rights as the original owner, with no change in
substance.''\47\ As a matter of State law, successors in interest have
historically been afforded many of the same rights and responsibilities
as the prior borrower. For example, there is a significant amount of
State law indicating that a successor in interest, like the prior
borrower, possesses the right to redeem following the mortgagee's
foreclosure on the property.\48\ Moreover, there is significant State
law providing that the contractual rights and obligations under the
mortgage loan of the prior borrower are freely assignable to successors
in interest.\49\ Further, before the enactment of the Garn-St Germain
Act, several States had longstanding prohibitions on the exercise of
due-on-sale clauses, thereby limiting servicers to the same contractual
remedies with respect to successors in interest as were available
against the prior borrower, whether or not the successor in interest
under State law assumes the legal obligation to pay
[[Page 74185]]
the mortgage.\50\ Additionally, while successors in interest may not be
personally liable on the mortgage note, absent their express assumption
of such liability under State law, in a significant number of mortgages
across the United States, the borrower on the note is also under State
law not personally liable for the debt upon foreclosure because a
deficiency judgment is not allowed.\51\ Accordingly, under State law, a
successor in interest is often in virtually the same legal position as
the borrower on the note with respect to foreclosure.
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\47\ Successor in interest, Black's Law Dictionary (9th ed.
2009).
\48\ ``Property sold subject to redemption . . . may be redeemed
in the manner hereinafter provided, by the . . . judgment debtor, or
his successor in interest in the whole or any part of the
property.'' Phillips v. Hagart, 45 P. 843, 843 (Cal. 1896); see
also, e.g., Forty-Four Hundred E. Broadway Co. v. 4400 E. Broadway,
660 P.2d 866, 868 (Az. Ct. App. 1982) (citing Call v. Thunderbird
Mortg. Co., 375 P.2d 169 (Cal. 1962)); Brastrup v. Ellingson, 161
NW. 553, 554 (N.D. 1917); Tate v. Dinsmore, 175 SW. 528, 529 (Ark.
1915).
\49\ See, e.g., Badran v. Household Fin. Corp., 2008 WL 4335098,
at *4 (Mich. Ct. App. 2008); Bermes v. Sylling, 587 P.2d 377 (Mont.
1978); In re Fogarty's Estate, 300 N.Y.S. 231 (N.Y. Sur. Ct. 1937).
\50\ See, e.g., Continental Fed. Sav. & Loan Ass'n v. Fetter,
564 P.2d 1013, 1017 n.4 (Okla. 1977) (collecting cases). The Garn-St
Germain Act later preempted restrictions on due-on-sale clauses
generally, but prohibited exercise of due-on-sale clauses with
respect to certain categories of successors in interest. See 12
U.S.C. 1701j-3(b) (preempting restrictions); id. Sec. 1701j-3(d)
(prohibiting exercise for certain categories).
\51\ Deficiency judgments against borrowers upon foreclosure are
disallowed with respect to most residential mortgages in several
states, including Alaska, Arizona, California, Hawaii, Minnesota,
Montana, Nevada, North Dakota, Oklahoma, Oregon, and Washington. See
Connecticut General Assembly, Office of Legislative Research, OSR
Research Report 2010-R-0327, Comparison of State Laws on Mortgage
Deficiencies and Redemption Periods (Dec. 9, 2011) (citing and
updating National Consumer Law Center, Survey of State Foreclosure
Laws (2009)), available at http://www.cga.ct.gov/2010/rpt/2010-R-0327.htm.
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The Bureau also believes that this treatment of successors in
interest is consistent with other aspects of Federal law. The Garn-St
Germain Act, like the Bureau's proposed amendments to the Mortgage
Servicing Rules, protects successors in interest from foreclosure after
transfer of homeownership to them. Additionally, several bankruptcy
courts have held that successors in interest are entitled to the same
treatment as prior borrowers, for example with respect to curing an
arrearage on a mortgage and reinstating the loan.\52\
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\52\ See, e.g., In re Smith, 469 B.R. 198, 202 (Bankr. S.D.N.Y.
2012); In re Curinton, 300 B.R. 78, 82 (Bankr. M.D. Fla. 2003)
(quoting In re Garcia, 276 B.R. 627, 631 (Bankr. D. Ariz. 2002)).
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The Bureau is aware that some courts have indicated that successors
in interest would not ordinarily be considered borrowers under
RESPA.\53\ Notwithstanding these cases, which were decided without the
benefit of regulations such as those that the Bureau is now proposing,
the Bureau believes that the term ``borrower'' may also be interpreted
to include successors in interest and that it is reasonable to consider
confirmed successors in interest borrowers for the purposes of the
Mortgage Servicing Rules. As homeowners of a property securing a
mortgage loan, successors in interest typically must satisfy the loan's
payment obligations to avoid foreclosure. As described above,
successors in interest therefore step into the shoes of the borrower
for many legal purposes.
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\53\ See, e.g., Wilson v. Bank of Am., N.A., 2014 WL 4744555, at
*8-*10 (E.D. Pa. Sept. 24, 2014).
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B. Regulation X
Section 1024.30 Scope
30(d) Successors in Interest
As explained in part V.A., the Bureau is proposing that all of the
Mortgage Servicing Rules apply to confirmed successors in interest (as
defined by the proposed definition of successor in interest, discussed
in the section-by-section analysis of Sec. 1024.31). Proposed Sec.
1024.30(d) accordingly provides that a successor in interest must be
considered a borrower for the purposes of subpart C of Regulation X
(Regulation X's mortgage servicing rules) once a servicer confirms the
successor in interest's identity and ownership interest in a property
that secures a mortgage loan covered by Regulation X's mortgage
servicing rules. Confirmed successors in interest covered by proposed
Sec. 1024.30(d) would not necessarily have assumed the mortgage loan
obligation (i.e., legal liability for the mortgage debt) under State
law.\54\ The Bureau also notes that the exemptions and scope
limitations in Regulation X's mortgage servicing rules would also apply
to the servicing of a mortgage loan with respect to a successor in
interest.\55\
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\54\ As indicated in part V.A., supra, the Bureau understands
that whether a successor in interest has assumed a mortgage loan
obligation (i.e., legal liability for the mortgage debt) under State
law is a fact-specific question.
\55\ Section 1024.30(b) exempts small servicers from Sec. Sec.
1024.38 through 1024.41 (except Sec. 1024.41(j)). Likewise, Sec.
1024.30(b) provides an exemption from these sections with respect to
reverse mortgage transactions and mortgage loan transactions for
which the servicer is a qualified lender. Accordingly, except as
otherwise provided in Sec. 1024.41(j), Sec. Sec. 1024.38 through
1024.41 would not apply to successors in interest with respect to
small servicers, reverse mortgage transactions, and mortgage loans
for which the servicer is a qualified lender. Consistent with 12 CFR
591.5(b)(1), which excludes reverse mortgages from the Garn-St
Germain's Act limitation on the exercise of certain due-on-sale
clauses, the Bureau is therefore not proposing to apply Sec.
1024.41's foreclosure-related protections with respect to reverse
mortgages secured by a property acquired by a successor in interest.
Under the proposed rule, however, Sec. Sec. 1024.30 through 1024.37
would apply with respect to reverse mortgages secured by a property
acquired by a successor in interest. Similarly, Sec. 1040.30(c)
provides that Sec. 1024.33(a) only applies to mortgage loans that
are secured by a first lien and that Sec. Sec. 1024.39 through
1024.41 only apply to mortgage loans secured by property that is a
borrower's principal residence. Accordingly, with respect to
successors in interest, Sec. 1024.33(a) would only apply to
mortgage loans that are secured by a first lien and Sec. Sec.
1024.39 through 1024.41 would only apply to mortgage loans secured
by property that is a borrower's principal residence.
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As described in part V.A., the Bureau is proposing this change
because the Bureau believes, based on numerous reports from consumers,
consumer advocacy groups, and other stakeholders, that successors in
interest face many of the challenges that Regulation X's mortgage
servicing rules were designed to prevent. The Bureau believes that the
same reasons supporting the Bureau's adoption of the 2013 RESPA
Servicing Final Rule support proposed Sec. 1024.30(d) because
successors in interest are homeowners whose property is subject to
foreclosure if the mortgage loan obligation is not satisfied, even
though the successor in interest may not have assumed that obligation
under State law. The Bureau has considered each section of Regulation
X's mortgage servicing rules and believes that each section should
apply to confirmed successors in interest.
The Bureau believes that it is appropriate to limit the application
of this portion of the proposed rule to successors in interest whom
servicers have confirmed have an ownership interest in the property.
Because some people representing themselves as successors in interest
may not actually have an ownership interest in the property, requiring
servicers to apply Regulation X's mortgage servicing rules'
communication, disclosure, and loss mitigation requirements to
successors in interest before servicers have confirmed the successor in
interest's identity and ownership interest in the property may present
privacy and other concerns. It would also be inappropriate to require
servicers to incur substantial costs before confirming the successor in
interest's identity and ownership interest in the property. However,
the Bureau believes that applying Regulation X's mortgage servicing
rules to confirmed successors in interest does not present privacy
concerns. The Bureau believes that a confirmed successor in interest's
ownership interest in the property securing the mortgage loan is
sufficient to allow the successor in interest to receive information
about the mortgage loan.
Specifically, the Bureau believes that Sec. Sec. 1024.35 and
1024.36 should apply to confirmed successors in interest.\56\ When the
Bureau issued Sec. Sec. 1024.35 and 1024.36 in the 2013 RESPA
Servicing
[[Page 74186]]
Final Rule, the Bureau stated 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.''\57\
The Bureau believes that clearly defining a servicer's obligation with
respect to a successor in interest would similarly benefit both
servicers and successors in interest. Under current Sec.
1024.38(b)(1)(vi), servicers are required to have policies and
procedures reasonably designed to ensure that the servicer can identify
and communicate with successors in interest. Because Sec. Sec. 1024.35
and 1024.36 do not currently necessarily apply to successors in
interest, however, the extent of the obligation to communicate with
successors in interest, as well as how a successor in interest may
obtain information from a servicer, are not clear. The Bureau therefore
believes that Sec. Sec. 1024.35 and 1024.36 would provide important
protections to successors in interest. For instance, Sec. 1024.35
would provide successors in interest with important protections
regarding a servicer's failure to accept payments conforming to the
servicer's written requirements for payments. Additionally, Sec.
1024.36's requirements to provide information about the mortgage loan
would prevent unnecessary foreclosure on the successor in interest's
property by, for example, allowing a successor in interest to obtain
information about the servicer's requirements for payments. Because
successors in interest, like prior borrowers, bear the risk of
unnecessary foreclosure, the Bureau believes that Sec. Sec. 1024.35
and 1024.36 should apply to successors in interest, as homeowners of
the property, for the same reasons that these rules apply to prior
borrowers.
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\56\ As described in the section-by-section analysis of Sec.
1024.36(i), infra, in addition to proposing that Regulation X's
mortgage servicing rules, including Sec. 1024.36, apply with
respect to confirmed successors in interest, the Bureau is also
proposing a new information request requirement in Sec. 1024.36(i)
that applies before the servicer has confirmed the successor in
interest's status.
\57\ 78 FR 10695, 10736 (Feb. 14, 2013).
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Providing successors in interest with protections under Sec. Sec.
1024.35 and 1024.36 may cause servicers to incur costs, such as the
cost of providing responses to information requests from successors in
interest and handling error resolution. The Bureau believes, however,
that the resulting consumer protection of this vulnerable group
justifies the cost. Further, because servicers are already required to
comply with the requirements of Sec. Sec. 1024.35 and 1024.36 with
respect to prior borrowers and may already expend some resources to
communicate with successors in interest, the additional cost to
servicers to apply these requirements to successors in interest will be
minimal.
As noted, the Bureau believes that providing confirmed successors
in interest with information about the mortgage loan as required by
Sec. Sec. 1024.35 and 1024.36 does not present privacy concerns. The
Bureau solicits comment on whether any information that could be
provided to successors in interest under Sec. Sec. 1024.35 and 1024.36
presents privacy concerns and whether servicers should be permitted to
withhold any information from successors in interest out of such
privacy concerns.
As explained in part V.A., the Bureau believes that the loss
mitigation procedures contained in Sec. 1024.41 should apply to
confirmed successors in interest and that servicers should be required
to evaluate successors in interest for loss mitigation options to
prevent unnecessary foreclosure. The Bureau believes that significant
consumer harm flows from a servicer's failure to afford a successor in
interest the same access to loss mitigation as other homeowners. As
discussed in part V.A., the Bureau also believes that requiring
servicers to evaluate successors in interest for loss mitigation prior
to the successor in interest's assumption of liability for the mortgage
debt under State law is consistent with Fannie Mae and Freddie Mac
guidelines and serves RESPA's purposes.\58\ Accordingly, under the
proposed rule, once a servicer confirms a successor in interest's
identity and ownership interest in the property, if the servicer
receives a complete loss mitigation application from the successor in
interest more than 37 days before a foreclosure sale, for example, the
servicer must evaluate the successor in interest for all loss
mitigation options available to the successor in interest, as required
by Sec. 1024.41(c)(1).
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\58\ See Fannie Mae, Servicing Guide Announcement SVC-2013-17
(Aug. 28, 2013); Freddie Mac, Bulletin 2013-3 (Feb. 15, 2013).
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Consistent with Sec. 1024.41's treatment of borrowers generally,
the proposal would not require a servicer to offer a successor in
interest any particular loss mitigation option. Further, under the
proposed rule, a servicer could require a successor in interest to
provide the same information and meet the same criteria for loss
mitigation as other borrowers. The proposed rule would also not prevent
a servicer from conditioning an offer for a loss mitigation option on
the successor in interest's assumption of the mortgage loan obligation
under State law or from offering loss mitigation options to the
borrower that differ based on whether the borrower would simultaneously
assume the mortgage loan obligation. Under the proposed rule, however,
a servicer could not condition review and evaluation of a loss
mitigation application on the successor in interest's assumption of the
mortgage obligation. Once a servicer confirms a successor in interest's
identity and ownership interest in the property, a servicer would, for
example, be required under Sec. 1024.41(b) to respond to a loss
mitigation application from the successor in interest and exercise
reasonable diligence in obtaining documents and information to complete
the loss mitigation application. The foreclosure prohibitions under
Sec. 1024.41(f) and (g) would also apply.
Providing successors in interest with Sec. 1024.41's protections
may cause servicers to incur costs. Servicers may have to devote
additional resources to responding to and evaluating loss mitigation
applications from successors in interest. Further, providing successors
in interest with Sec. 1024.41's protections may delay or prevent
foreclosure on the property securing the mortgage loan. The Bureau
believes, however, that the resulting consumer protection of this
vulnerable group justifies the cost. Further, because servicers are
already required to comply with Sec. 1024.41's requirements with
respect to prior borrowers, the additional cost to servicers to apply
these requirements to successors in interest should be minimal.
For similar reasons, the early intervention and continuity of
contact requirements contained in Sec. Sec. 1024.39 and 1024.40 should
apply to confirmed successors in interest. In issuing these provisions
in the 2013 RESPA Servicing Final Rule, the Bureau stated that
Sec. Sec. 1024.39 and 1024.40 are ``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.''\59\ The Bureau
further stated that Sec. Sec. 1024.39 and 1024.40 are ``necessary and
appropriate to carry out the purpose . . . of the Dodd-Frank Act of
ensuring that markets for consumer financial products and services are
fair, transparent, and competitive'' and 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.''\60\ The Bureau believes that
these same consumer protection purposes would be served by
[[Page 74187]]
applying Sec. Sec. 1024.39 and 1024.40 to successors in interest, who
as homeowners of a property securing a mortgage loan may be required to
make payments on the loan to avoid foreclosure. In particular, the
protections provided by Sec. Sec. 1024.39 and 1024.40 would serve to
prevent unnecessary foreclosure by alerting successors in interest to
any delinquency on the mortgage loan secured by their property and
assisting with the process of applying for loss mitigation options.
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\59\ 78 FR 10695, 10791 (Feb. 14, 2013) (discussing 12 CFR
1024.39); see also id. at 10809-10 (discussing 12 CFR 1024.40).
\60\ Id. at 10791.
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Providing successors in interest with protections under Sec. Sec.
1024.39 and 1024.40 may cause servicers to incur costs. In particular,
servicers may be required to devote additional staffing and personnel
to communicating with successors in interest. The Bureau believes,
however, that providing consumer protections to this vulnerable group
justifies the cost. Further, because servicers are already required to
comply with Sec. Sec. 1024.39's and 1024.40's requirements with
respect to prior borrowers, the additional cost to servicers to apply
these requirements to successors in interest should be minimal.
Finally, the Bureau believes that the requirements contained in
Sec. 1024.33 (regarding mortgage servicing transfers), Sec. 1024.34
(regarding escrow payments and account balances), and Sec. 1024.37
(regarding force-placed insurance) should apply to confirmed successors
in interest. The same rationale for applying these rules to prior
borrowers applies with respect to successors in interest, who are also
homeowners and may be required to make payments on the loan to avoid
foreclosure.\61\ Further, it would add unnecessary complexity to the
rules to apply the rest of Regulation X's mortgage servicing rules to
confirmed successors in interest but not to apply Sec. Sec. 1024.33,
1024.34, and 1024.37 to such successors in interest. The Bureau
believes it is preferable to apply all of Regulation X's mortgage
servicing rules to confirmed successors in interest, unless there is a
compelling reason not to apply a particular rule. The Bureau is aware
of no such compelling reason with respect to Sec. Sec. 1024.33,
1024.34, and 1024.37 but solicits comment as to whether any such
compelling reasons exist.
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\61\ See id. at 10727 (describing 12 CFR 1024.33); id. at 10734
(describing 12 CFR 1024.34); id. at 10763 (describing 12 CFR
1024.37).
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Providing successors in interest with protections under Sec. Sec.
1024.33, 1024.34, and 1024.37 may cause servicers to incur costs, in
particular the costs involved in communicating with successors in
interest. The Bureau believes, however, that the resulting consumer
protection of this vulnerable group justifies the cost. Further,
because servicers are already required to comply with the requirements
of Sec. Sec. 1024.33, 1024.34, and 1024.37 with respect to prior
borrowers, the additional cost to servicers to apply these requirements
to successors in interest should be minimal.
The Bureau solicits comment on whether any particular sections of
Regulation X's mortgage servicing rules should apply with respect to
successors in interest even if the servicer has not confirmed the
successor in interest's identity and ownership interest in the
property. Further, the Bureau solicits comment on whether any
particular sections of Regulation X's mortgage servicing rules should
not apply with respect to confirmed successors in interest.
Proposed commentary. Proposed comment 30(d)-1 clarifies the
requirement in proposed Sec. 1024.30(d) that a successor in interest
must be considered a borrower for the purposes of Regulation X's
mortgage servicing rules once a servicer confirms the successor in
interest's identity and ownership interest in the property. The
proposed comment provides the example of the application of Sec.
1024.41's loss mitigation procedures to successors in interest: If a
servicer receives a loss mitigation application from a successor in
interest after confirming the successor in interest's identity and
ownership interest in the property, the servicer must review and
evaluate the application and notify the successor in interest in
accordance with the procedures set forth in Sec. 1024.41.\62\ The
proposed comment also notes, in contrast, Sec. 1024.36(i)'s
requirement that a servicer must respond to written requests for
certain information from a potential successor in interest in
accordance with the requirements of Sec. 1024.36(c) through (g) before
confirming that person's status.
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\62\ As described in the section-by-section analysis of Sec.
1024.41(b), infra, proposed comment 41(b)-1.ii provides that if a
servicer receives a loss mitigation application from a potential
successor in interest before confirming that person's identity and
ownership interest in the property, the servicer is required to
review and evaluate that loss mitigation application upon such
confirmation in accordance with the procedures set forth in Sec.
1024.41.
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Proposed comment 30(d)-2 clarifies the effect on the prior borrower
of a servicer's confirmation of a successor in interest's identity and
ownership interest in the property. The proposed comment provides that,
even after a servicer's confirmation of a successor in interest's
identity and ownership interest in the property, the servicer is still
required to comply with the requirements of Regulation X's mortgage
servicing rules with respect to the prior borrower, unless that
borrower also has either died or been released from the obligation on
the mortgage loan.\63\ Accordingly, once a servicer confirms a
successor in interest's identity and ownership interest in the property
and the prior borrower has either died or been released from the
obligation on the mortgage loan, the servicer would no longer be
required to comply with the requirements of Regulation X's mortgage
servicing rules with respect to the prior borrower. The proposed
comment also provides that the prior borrower retains any rights under
Regulation X's mortgage servicing rules that accrued prior to the
confirmation of the successor in interest to the extent these rights
would otherwise survive the prior borrower's death or release from the
obligation. Accordingly, for example, a deceased borrower's estate
would still have any claims that accrued prior to the borrower's
death.\64\ (As described in the section-by-section analysis of Sec.
1026.2(a)(11), the Bureau is proposing similar commentary with respect
to Regulation Z's requirements.)
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\63\ Under proposed comment 30(d)-2, in the absence of
confirmation of a successor in interest, the servicer is still
required to comply with Regulation X's mortgage servicing rules with
respect to the prior borrower (i.e., the prior borrower's estate)
even if the prior borrower has died.
\64\ See, e.g., Wilson, 2014 WL 4744555, at *8, *10-*18
(describing RESPA claims brought by ``Plaintiff as Administratrix of
the Estate'').
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The Bureau is proposing comment 30(d)-2 because the Bureau believes
that Regulation X's mortgage servicing rules would generally provide
important protections to prior borrowers even after confirmation of a
successor in interest. The prior borrower may still be liable on the
mortgage note, and so the prior borrower may have significant legal
interests at stake with respect to the mortgage loan, including
potential credit reporting and any subsequent foreclosure or resulting
deficiency. The Bureau believes that these ongoing interests of prior
borrowers generally justify the continued application of Regulation X's
mortgage servicing rules to prior borrowers after confirmation of a
successor in interest. Alternatively, the Bureau seeks comment on
whether the prior borrower should not continue to receive Regulation
X's mortgage servicing protections once a successor in interest's
identity and ownership interest have been confirmed.
[[Page 74188]]
The Bureau acknowledges that, under proposed comment 30(d)-2,
servicers will sometimes be required to comply with Regulation X's
mortgage servicing rules with respect to more than one person--both the
prior borrower and the successor in interest, as well as, in some
cases, multiple successors in interest who each acquire an ownership
interest in a property. The Bureau notes that, under the Mortgage
Servicing Rules, it is already the case that the rules may apply with
respect to more than one borrower for a particular mortgage loan. It is
quite common for more than one borrower (for example, spouses) to be
obligated on the mortgage note, and the Mortgage Servicing Rules apply
with respect to each borrower in such cases. Accordingly, the Bureau
does not believe that applying Regulation X's mortgage servicing rules
to successors in interest presents novel challenges for servicers in
this regard.
On the other hand, the Bureau does not believe that it often would
be useful to the prior borrower or the borrower's estate after the
borrower has either died or been released from the obligation on the
mortgage loan to continue to receive the protections of Regulation X's
mortgage servicing rules once a servicer confirms a successor in
interest's identity and ownership interest in the property. When a
successor in interest has been confirmed and the prior borrower has
died, the borrower's estate would typically have a relatively narrow
interest in the mortgage loan. Likewise, when the prior borrower has
been released from the obligation on the mortgage loan, that borrower
may have interests relating to loan activity prior to the release of
the obligation but would have little or no interest in subsequent loan
activity. Accordingly, the Bureau believes that prior borrowers should
not receive Regulation X's mortgage servicing protections when a
successor in interest has been confirmed and the prior borrower has
also died or been released from the mortgage obligation, but should
retain any rights that accrued previously to the extent such rights
would otherwise survive the death of the borrower or the release of the
borrower from the obligation.
The Bureau solicits comment on whether other circumstances exist,
beyond death and relief of the obligation on the mortgage loan, in
which Regulation X's mortgage servicing rules should not apply to the
prior borrower once a successor in interest has been confirmed.
Section 1024.31 Definitions
Delinquency
Section 1024.31 contains definitions for various terms that are
used throughout the provisions of subpart C of Regulation X. It does
not contain a definition of the term ``delinquency,'' although it is
defined for purposes of Sec. Sec. 1024.39(a) and (b) and 1024.40(a).
Since the publication of the 2013 RESPA Servicing Final Rule, the
Bureau has received numerous inquiries about how servicers should
calculate delinquency with respect to those provisions of the Mortgage
Servicing Rules that refer to delinquency but do not define
delinquency. In particular, stakeholders have asked the Bureau how
servicers should calculate the 120-day foreclosure referral waiting
period set forth in Sec. 1024.41(f)(1)(i). To provide greater clarity,
the Bureau is proposing to add a single definition of ``delinquency''
that will apply to all provisions in subpart C of Regulation X, and to
remove the definitions from the commentary to Sec. Sec. 1024.39(a) and
(b) and 1024.40(a).
Delinquency is currently defined for purposes of Sec. Sec.
1024.39(a) and (b) and 1024.40(a) as beginning ``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.'' \65\ Delinquency is not defined for purposes of
other sections of subpart C, including Sec. 1024.41(f)(1), which
prohibits a servicer from making the first notice or filing for
foreclosure unless ``[a] borrower's mortgage loan obligation is more
than 120 days delinquent.''
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\65\ Comments 39(a)-1.i and 40(a)-3.
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To address apparent confusion, as well as to ensure that the term
``delinquency'' is interpreted consistently throughout Regulation X's
mortgage servicing rules, the Bureau is proposing to remove the current
definition of delinquency applicable to Sec. Sec. 1024.39(a) and (b)
and 1024.40(a) and to add a general definition of delinquency in Sec.
1024.31 that would apply to all sections of subpart C.\66\ The Bureau
is proposing to define delinquency as a period of time during which a
borrower and the borrower's mortgage loan obligation are delinquent,
and to clarify within the proposed definition that a borrower and a
borrower's mortgage loan obligation are delinquent beginning on the day
a periodic payment sufficient to cover principal, interest, and, if
applicable, escrow, became due and unpaid, until such time as the
payment is made.\67\ Delinquency under the proposed definition is not
triggered by a borrower's failure to pay a late fee, consistent with
current comments 39(a)-1.i and 40(a)-3. As the Bureau explained in the
2012 RESPA Servicing Proposal, the Bureau believes that there is a low
risk that borrowers who are otherwise current with respect to
principal, interest, and escrow payments will be pushed into
foreclosure solely because of a failure to pay accumulated late
charges.\68\
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\66\ The proposed definition would not affect the interpretation
of Sec. 1024.33(c), which prohibits servicers from treating a
borrower as ``late for any purpose'' if a transferee servicer
receives a payment from a borrower within the 60-day period
beginning on the effective date of a transfer.
\67\ All three concepts--delinquency, delinquent borrower, and
delinquent mortgage loan obligation--are used interchangeably
throughout subpart C. See, e.g., 12 CFR 1024.39(a) (``delinquent
borrower''; ``borrower's delinquency''); 12 CFR 1024.39(b) (same);
12 CFR 1024.41(f)(1)(i) (``A borrower's mortgage loan obligation is
more than 120 days delinquent'').
\68\ See 77 FR 57199, 57252 (Sept. 17, 2012).
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In contrast with the definition of delinquency currently found in
comments 39(a)-1.i and 40(a)-3, the proposed definition does not
include the phrase ``for a given billing cycle.'' As used in the
context of the live contact and continuity of contact requirements
under Sec. Sec. 1024.39 and 1024.40, respectively, that phrase was
intended to ensure that the servicer met the respective requirements of
those rules during each billing cycle in which the borrower was
delinquent. However, such a definition would have created incongruities
if applied to the 120-day foreclosure referral waiting period in Sec.
1024.41(f)(1)(i).
By proposing to define ``delinquency,'' the Bureau intends to
provide servicers, borrowers, and other stakeholders with clear
guidance on how to determine whether a borrower is delinquent for
purposes of Regulation X's servicing provisions and when the borrower's
delinquency began. Servicers may use different definitions of
``delinquency'' for operational purposes, and servicers may use
different or additional terminology when referring to borrowers who are
late or behind on their payments--for example, servicers may refer to
borrowers as ``past due'' or ``in default,'' and may distinguish
between borrowers who are ``delinquent'' and ``seriously delinquent.''
Except as provided in the Mortgage Servicing Rules themselves, the
Bureau does not intend the proposed definition of delinquency to affect
industry's existing procedures for identifying and dealing with
borrowers
[[Page 74189]]
who are late or behind on their payments. The Bureau therefore seeks
comment regarding whether the proposed definition has the potential of
interfering with industry's existing policies and procedures. In
addition, the Bureau seeks comment on whether there are alternative
ways to articulate the proposed definition that may improve uniform
interpretation and implementation.
The Bureau is also proposing to add three comments to the proposed
definition of delinquency to provide servicers additional guidance in
determining whether and for how long a borrower has been delinquent.
Proposed comment 31 (Delinquency)-1 essentially restates existing
comments 39(a)-1.i and 40(a)-3: that a borrower becomes delinquent
beginning the day on which the borrower fails to make a periodic
payment, even if the servicer grants the borrower additional time after
the due date to pay before charging the borrower a late fee.
Proposed comment 31 (Delinquency)-2 explains how delinquency should
be calculated if a servicer applies a borrower's payments to the oldest
outstanding periodic payment. The Bureau understands from its outreach
that many servicers credit payments made to a delinquent account to the
oldest outstanding periodic payment; the model deed of trust provided
by the GSEs provides that the servicer will apply payments ``in the
order in which [they] became due.'' \69\ The Bureau also understands
that some servicers that use this method may be concerned about how to
calculate the length of a borrower's delinquency without increased
certainty from the Bureau.\70\ As it stated in the 2012 TILA Servicing
Proposal, the Bureau believes that this method of crediting payments
provides greater consumer protection, because it advances the date the
borrower's delinquency began and therefore shortens the length of a
borrower's delinquency.\71\ Nonetheless, consistent with its decision
in the context of the 2013 TILA Servicing Final Rule, the Bureau is not
requiring servicers to apply payments to the oldest outstanding
periodic payment at this time. The Bureau initially proposed to require
servicers to apply payments in this way in the 2012 TILA Servicing
Proposal, but it ultimately decided not to adopt the proposed
provision, finding that it provided limited consumer benefit and posed
a potential conflict with State law.\72\ The Bureau is not revisiting
that decision in this rulemaking. The Bureau will continue to monitor
the market to evaluate servicers' payment crediting practices and those
practices' effects on consumers.
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\69\ See, e.g., Fannie Mae, Security Instruments, https://www.fanniemae.com/singlefamily/security-instruments (security
instruments for various states but with a uniform covenant that
payments shall be applied to each periodic payment in the order in
which it became due); Fannie Mae & Freddie Mac, California Single
Family Uniform Instrument, Form 3005-4, available at https://www.fanniemae.com/content/legal_form/3005w.doc; Fannie Mae & Freddie
Mac, New York Single Family Uniform Instrument, Form 3033, available
at https://www.fanniemae.com/content/legal_form/3033w.doc.
\70\ Am. Bankers Ass'n. Letter to Consumer Fin. Prot. Bureau
(Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
\71\ See 77 FR 57318, 57352-53 (Sept. 17, 2012).
\72\ See 78 FR 10901, 10955-56 (Feb. 14, 2013).
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At this time, rather than requiring that servicers apply payments
to the oldest outstanding periodic payment, the Bureau is proposing
comment 31 (Delinquency)-2 to clarify that, if a servicer applies
payments to the oldest outstanding periodic payment, the date of the
borrower's delinquency must advance accordingly. The proposed comment
includes an example illustrating this concept. The example assumes a
mortgage loan obligation with a periodic payment due on the first of
each month. The borrower misses the periodic payment due on January 1,
but makes a payment in full on February 1. The servicer credits the
payment it received on February 1 to the January deficiency. Pursuant
to proposed comment 31 (Delinquency)-2, on February 2, the borrower is
one day delinquent. Servicers have indicated to the Bureau that if they
apply payments in this manner, this method of calculating delinquency
means that, in light of the 120-day foreclosure referral waiting period
in Sec. 1024.41(f)(1)(i), servicers will not be able to foreclose on a
borrower who misses one or two payments but does not become seriously
delinquent--for example, a borrower who misses one payment over the
course of a year but makes all other payments in full and on time. The
Bureau understands that most servicers would not treat such a borrower
as seriously delinquent and would not initiate loss mitigation
procedures or seek to foreclose on that borrower. As such, the Bureau
believes that the proposed comment will not place a significant
additional burden on most servicers. The Bureau will continue to
monitor the market to evaluate whether and to what extent servicers are
choosing to foreclose on borrowers who are only one or two payments
behind, including whether such foreclosure practices raise consumer
protection concerns that would be appropriately addressed through
formal guidance or rulemaking.
Proposed comment 31 (Delinquency)-3 permits servicers to apply a
payment tolerance to partial payments under certain circumstances. The
Bureau has learned from its outreach that some servicers elect or are
required to treat borrowers as having made a timely payment even if
they make payments that are less than the amount due by some small
amount (perhaps as a result of a scrivener's error or recent ARM
payment adjustment). The Bureau understands that servicers that apply a
payment tolerance advance the outstanding payment amount to the
borrower's account, such that the account is reflected as current in
the servicer's systems. The Bureau understands that the maximum amount
these servicers use for a payment tolerance varies from $10 to $50.\73\
These servicers would prefer not to initiate early intervention
communications, continuity of contact requirements, or loss mitigation
procedures with those borrowers for that given billing cycle. Proposed
comment 31 (Delinquency)-3 permits servicers that elect to advance
outstanding funds to a borrower's mortgage loan account to treat the
borrower's insufficient payment as timely, and therefore not
delinquent, for purposes of Regulation X's mortgage servicing rules.
The comment clarifies, however, that if a servicer chooses not to treat
the borrower as delinquent for purposes of subpart C of Regulation X,
the borrower is not delinquent as defined in Sec. 1024.31. This
clarification is intended to prevent servicers from selectively
applying a payment tolerance only where doing so benefits the servicer.
Specifically, the clarification is intended to prevent the circumstance
under which a servicer treats a borrower as current in order to avoid
the early intervention, continuity of contact, or loss mitigation
requirements, while treating the same borrower as delinquent for
purposes of
[[Page 74190]]
initiating foreclosure under Sec. 1024.41(f)(1). The Bureau seeks
comment on whether it should limit servicers' use of a payment
tolerance to a specific dollar amount or percentage of the periodic
payment amount, and if so, what the specific amount or percentage
should be.
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\73\ The variation in the payment tolerance amounts used could
relate to whether the servicer is bound by the terms of the National
Mortgage Settlement, which includes a mandatory payment tolerance
policy: Servicers subject to the National Mortgage Settlement must
accept and credit up to two payments that come within $50 of the
scheduled payment to the borrower's account. The National Mortgage
Settlement is available at: http://www.nationalmortgagesettlement.com/. The five servicers subject to
the National Mortgage Settlement are Bank of America, JP Morgan
Chase, Wells Fargo, CitiMortgage, and Ally/GMAC. Ocwen reached a
separate settlement agreement containing an identical provision at a
later time, also available at http://www.nationalmortgagesettlement.com/.
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Successors in Interest
As described in part V.A., the Bureau is proposing that, to the
extent that the Mortgage Servicing Rules apply to successors in
interest, those rules should apply with respect to transfers to all
categories of successors in interest who acquired an ownership interest
in the property securing a mortgage loan in a transfer protected by the
Garn-St Germain Act.\74\ Accordingly, the Bureau is proposing to add a
definition of successor in interest to Sec. 1024.31 that is broader
than the category of successors in interest contemplated by current
Sec. 1024.38(b)(1)(vi) and that would cover all categories of
successors in interest who acquired an ownership interest in the
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act. (As discussed in the section-by-section analysis of
Sec. 1026.2(a)(27), the Bureau is proposing to add a similar
definition to Regulation Z.)
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\74\ 12 U.S.C. 1701j-3(d).
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The proposed definition states that a successor in interest is a
person to whom an ownership interest in a property securing a mortgage
loan is transferred from the borrower, provided that the transfer falls
under an exemption specified in the appropriate section of the Garn-St
Germain Act. The Bureau intends the proposed definition to apply
throughout the relevant proposed rule and commentary. (As discussed in
the section-by-section analysis of Sec. 1024.38(b)(1)(vi), the Bureau
is also proposing modifying current Sec. 1024.38(b)(1)(vi) to account
for all protected transfers under the Garn-St Germain Act.)
The Bureau solicits comment on whether the proposed definition of
successor in interest is appropriate for the purposes of the Mortgage
Servicing Rules. The Bureau also solicits comment on whether certain
categories of successors in interest protected by the Garn-St Germain
Act should not be covered by the Bureau's definition of successor in
interest. The Bureau further solicits comment on whether additional
categories of successors in interest, beyond those protected by the
Garn-St Germain Act, should be covered by the Bureau's definition of
successor in interest.
The Bureau also solicits comment on whether the Mortgage Servicing
Rules should expressly and specifically address the status of persons
who possess an ownership interest in the property, have not have
assumed the mortgage loan obligation (i.e., legal liability for the
mortgage debt) under State law, but did not acquire an ownership
interest from a prior borrower on the mortgage loan. Such persons would
include, for example, persons who purchased the property jointly with
the prior borrower but did not undertake the mortgage loan obligation
when the loan was originated and may not necessarily have assumed the
mortgage loan obligation thereafter. The Bureau is considering, but is
not proposing at this time, expressly providing that such persons are
borrowers for the purposes of the Mortgage Servicing Rules. The Bureau
solicits comment on whether this category of persons are having
difficulty with their treatment by mortgage servicers, and if so, the
extent and nature of the difficulty.
Section 1024.36Requests for Information
36(a) Information Request
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. Currently, when a borrower
submits a request for information under Sec. 1024.36(a) asking for the
owner or assignee of a mortgage loan held by a trust in connection with
a securitization transaction and administered by an appointed trustee,
comment 36(a)-2 provides that the servicer complies with Sec.
1024.36(d) by responding by identifying both the name of the trust and
the name, address, and appropriate contact information for the trustee.
The comment provides that, among other examples, if a mortgage loan is
owned by Mortgage Loan Trust, Series ABC-1, for which XYZ Trust Company
is the trustee, the servicer complies with Sec. 1024.36(d) by
responding to a request for information regarding the owner or assignee
of the mortgage loan by identifying the owner as Mortgage Loan Trust,
Series ABC-1, and providing the name, address, and appropriate contact
information for XYZ Trust Company as the trustee. Proposed amendments
to comment 36(a)-2 would change how a servicer must respond to such
requests when Fannie Mae or Freddie Mac is the trustee, investor, or
guarantor.
The Bureau has received feedback from industry suggesting that
providing borrowers with detailed information about the trust when
Fannie Mae or Freddie Mac is the trustee, investor, or guarantor is
unnecessarily burdensome on servicers. According to industry,
servicers' systems do not typically track the name of the trust for
each such loan, so a servicer must ask the trustee for this information
each time it receives an information request asking for the loan's
owner or assignee. Moreover, because the loss mitigation provisions for
loans governed by Fannie Mae or Freddie Mac are determined by Fannie
Mae or Freddie Mac and not by the trust, the trust-identifying
information may be of less value to borrowers when Fannie Mae or
Freddie Mac is the trustee, investor, or guarantor. Industry has
therefore requested that the Bureau reconsider the requirement for a
servicer to provide specific trust-identifying information for loans
governed by Fannie Mae's or Freddie Mac's servicing guidelines.
While the Bureau acknowledges industry's concerns, the Bureau
continues to believe that a borrower should be able to obtain the
identity of the trust by submitting a request for information under
Sec. 1024.36(a). Consumer advocacy groups have informed the Bureau
that borrowers require trust-identifying information in order to raise
certain claims or defenses during litigation, as well as to exercise
the extended right of rescission under Sec. 1026.23(a)(3) when
applicable. Further, for loans held in a trust for which Fannie Mae or
Freddie Mac is not the trustee, investor, or guarantor, a borrower
would require the trust-identifying information to determine what loss
mitigation options are available.
Nonetheless, the Bureau believes that, with respect to a loan for
which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor,
it may not be necessary for a servicer to identify both the trustee and
the trust in response to all requests for information seeking ownership
information. To the extent that borrowers asking for the owner or
assignee of a loan are seeking information about loss mitigation
options or the requirements imposed on the servicer by the owner of the
loan, such information is usually publicly available in Fannie Mae's or
Freddie Mac's respective Seller-Servicing Guide without distinction
based on the particular trust. If a borrower knows that Fannie Mae or
Freddie Mac is the trustee, investor, or guarantor, the borrower can
look to those guides and related bulletins to learn what loss
[[Page 74191]]
mitigation options are available, what foreclosure processes the
servicer must follow, how the servicer is compensated, and a wide
variety of other information applicable to the loan. Alternatively,
borrowers can access the appropriate Web site to learn more information
once they know which entity's guidelines apply; both Fannie Mae and
Freddie Mac maintain Web sites containing a considerable amount of
information relating to standards affecting borrowers' mortgage loans.
Fannie Mae and Freddie Mac also maintain dedicated telephone lines for
borrower inquiries. As such, requiring a servicer to identify Fannie
Mae or Freddie Mac as the owner or assignee of the loan (without also
identifying the name of the trust) would give most borrowers access to
the information they seek.
Given the foregoing considerations, the Bureau is proposing to
revise comment 36(a)-2 to provide that, for loans for which Fannie Mae
or Freddie Mac is the trustee, investor, or guarantor, a servicer
complies with Sec. 1024.36(d) by responding to requests for
information asking only for the owner or assignee of the loan by
providing only the name and contact information for Fannie Mae or
Freddie Mac, as applicable, without also providing the name of the
trust. However, proposed comment 36(a)-2 also provides that, if a
request for information expressly requests the name or number of the
trust or pool, the servicer complies with Sec. 1024.36(d) by providing
the name of the trust, and the name, address, and appropriate contact
information for the trustee, regardless of whether or not Fannie Mae or
Freddie Mac is the trustee, investor, or guarantor.
The Bureau believes that proposed comment 36(a)-2 would preserve a
borrower's access to information while reducing burden on servicers by
no longer requiring them to obtain trust-identifying information for
loans for which Fannie Mae or Freddie Mac is the trustee, investor, or
guarantor. Further, the Bureau believes that, by requiring servicers to
provide specific trust-identifying information upon a request expressly
seeking such information, proposed comment 36(a)-2 would ensure that
borrowers who do require specific trust-identifying information can
obtain it. For other borrowers, receiving trust-identifying
information, which could appear technical or unfamiliar, might be
confusing and is unlikely to benefit the borrower.
The proposed amendments also restructure comment 36(a)-2 to improve
clarity. The proposed changes would not affect a servicer's existing
obligations with respect to loans not held in a trust for which an
appointed trustee receives payments on behalf of the trust, or with
respect to any loan held in a trust for which neither Fannie Mae nor
Freddie Mac is the trustee, investor, or guarantor. For loans that are
not held in a trust for which an appointed trustee receives payments on
behalf of the trust, proposed amendments to comment 36(a)-2.i would
preserve the requirement for servicers to respond to a request for
information regarding the owner or assignee of a mortgage loan by
identifying the person on whose behalf the servicer receives payments
from the borrower. This proposed revision subsumes the requirement in
current comment 36(a)-2.i to identify the servicer or its affiliate as
the owner or assignee when a loan is held in portfolio and would
therefore eliminate the current comment's explicit reference to
portfolio loans.
Proposed comment 36(a)-2.i also clarifies that a servicer is not
the owner or assignee for purposes of Sec. 1024.36(d) if the servicer
holds title to the loan, or title is assigned to the servicer, solely
for the administrative convenience of the servicer in servicing the
mortgage loan obligation. This change is intended to bring the
commentary to Sec. 1024.36(d) clearly in line with the Regulation Z
provisions in Sec. 1026.39 related to transfer of ownership notices.
As to loans held in a trust for which Fannie Mae or Freddie Mac is not
the investor, guarantor, or trustee, proposed comments 36(a)-2.ii.A and
36(a)-2.ii.B preserve the obligation in existing comment 36(a)-2.ii
that servicers would still comply with Sec. 1024.36(d) by identifying
both the trust and the trustee of such loans to the borrower,
regardless of how the borrower phrased the request for ownership
information.
Similarly, the proposed amendments would not change a servicer's
requirements for responding to requests for ownership information for
loans for which the Government National Mortgage Association (Ginnie
Mae) is the guarantor. As noted in both current comment 36(a)-2 and
proposed comment 36(a)-2.ii.B, Ginnie Mae is not the owner or assignee
of the loan solely as a result of its role as a guarantor. In addition,
servicing requirements for those loans are governed by the Federal
agency insuring the loan--such as the Federal Housing Association, the
Department of Veterans' Affairs, the Rural Housing Services, or the
Office of Public and Indian Housing--not by Ginnie Mae itself.
36(i) Successors in Interest
The Bureau is proposing a new request for information requirement
regarding the confirmation of a successor in interest's identity and
ownership interest in the property. Proposed Sec. 1024.36(i) requires
a servicer to respond to a written request that indicates that the
person may be a successor in interest and that includes the name of the
prior borrower and information that enables the servicer to identify
that borrower's mortgage loan account. Under the proposed rule, a
servicer must respond to such a request by providing the person with
information regarding the documents the servicer requires to confirm
the person's identity and ownership interest in the property. With
respect to the written request, the proposed rule requires the servicer
to treat the person as a borrower for the purposes of the procedural
requirements of Sec. 1024.36(c) through (g)--for instance, the
servicer must acknowledge receipt within five days and respond in
writing within 30 days without charge. The proposed rule also provides
that if a servicer has, under Sec. 1024.36(b), established an address
that a borrower must use to request information, a servicer must comply
with the requirements of Sec. 1024.36(i) only for requests received at
the established address. As with the policies and procedures
requirement regarding successors in interest (proposed Sec.
1024.38(b)(1)(vi), discussed in the section-by-section analysis of
Sec. 1024.38(b)(1)(vi)), but unlike the application of Regulation X's
mortgage servicing rules to successors in interest generally (proposed
Sec. 1024.30(d), discussed in the section-by-section analysis of Sec.
1024.30(d)), servicers would be required to comply with proposed Sec.
1024.36(i) before confirming the successor in interest's identity and
ownership interest in the property.
As indicated in part V.A., the Bureau is proposing Sec. 1024.36(i)
to address problems faced by successors in interest in confirming their
identity and ownership interest in the property securing the mortgage
loan; the Bureau believes that these problems may lead to unnecessary
foreclosure on homeowners' property. The Bureau is proposing Sec.
1024.36(i) in conjunction with proposed Sec. 1024.38(b)(1)(vi)(B) (see
section-by-section analysis of Sec. 1024.38(b)(1)(vi)), which would
require servicers to maintain policies and procedures that are
reasonably designed to ensure that the servicer can, upon
identification of any potential successor in interest--including
through any request made by a potential
[[Page 74192]]
successor in interest under Sec. 1024.36(i) or any loss mitigation
application received from a potential successor in interest--promptly
provide to the potential successor in interest a description of the
documents the servicer reasonably requires to confirm that person's
identity and ownership interest in the property and how the person may
submit a written request under Sec. 1024.36(i) (including the
appropriate address). The Bureau intends that proposed Sec.
1024.38(b)(1)(vi)(B) would require servicers to have policies and
procedures to determine what documents are reasonable to require from
successors in interest in particular circumstances, so that the
servicer is prepared to provide promptly a description of these
documents, while proposed Sec. 1024.36(i) would give potential
successors in interest a mechanism to obtain this information from
servicers. The Bureau believes that the separate requirement in
proposed Sec. 1024.36(i) is appropriate, in addition to the policies
and procedures requirement in proposed Sec. 1024.38(b)(1)(vi)(B),
because information regarding the documents the servicer requires to
confirm a successor in interest's status may be of importance to each
individual successor in interest and so each successor in interest
should have a mechanism to obtain this information from a servicer.
The Bureau intends that proposed Sec. 1024.36(i) would apply to a
broad range of written communication from potential successors in
interest. Under the proposed rule, the successor in interest would not
need to specifically request information regarding the documents the
servicer requires to confirm the person's identity and ownership
interest in the property. As with other requests for information, the
successor in interest would also not need to indicate specifically that
the request is a written request under Sec. 1024.36 or to make the
request in any particular form. Accordingly, servicers would be
required to provide the information in response to any written
communication indicating that the person may be a successor in interest
that is accompanied by the name of the prior borrower and information
that enables the servicer to identify that borrower's mortgage loan
account. For instance, a servicer would be required to provide the
information regarding the documents the servicer requires to confirm a
person's identity and ownership interest in the property in response to
a written request for loss mitigation from a person other than a known
borrower, because such a request suggests that the person may be a
successor in interest, or in response to a written statement from a
person other than the known borrower that the known borrower has died.
The Bureau is proposing this broad language because the Bureau is
concerned that some successors in interest may not be aware that they
need to confirm their identity and ownership interest in the property.
In the alternative, the Bureau is also considering requiring servicers
to respond only to a written communication that actually requests this
information. The Bureau solicits comment on each approach.
Additionally, the Bureau intends that proposed Sec. 1024.36(i) would
apply with respect to the servicer's receipt of written communication
from any potential successor in interest unless and until the servicer
becomes aware that the transfer to the successor in interest was not
protected by the Garn-St Germain Act.\75\ The Bureau is proposing that
the requirement apply in this manner because the Bureau believes that
even though a servicer may be unaware at the time of initial contact
with a potential successor in interest whether the transfer was
protected, in these situations the servicer should still communicate
with the potential successor in interest about confirmation and should
not wait until it has reason to believe that the transfer was
protected.
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\75\ Pursuant to the Bureau's Same-Sex Marriage Couple Policy,
see note 31, supra., a same-sex spouse would be evaluated for
confirmation as a successor in interest under proposed Sec.
1024.38(b)(1)(vi)(B) as would any other potential successor in
interest. As with any potential successor in interest, confirmation
of that person's status as a successor in interest would depend on
whether, under State law, the person had acquired an ownership
interest in a property securing a mortgage loan in a transfer
protected by the Garn-St Germain Act.
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The Bureau anticipates that many requests under proposed Sec.
1024.36(i) will indicate the nature of the transfer of the ownership
interest from the prior borrower to the successor in interest. In that
case, the Bureau anticipates that servicers will respond with
information that is specifically relevant to that successor in
interest's specific situation. The Bureau anticipates that, if the
potential successor in interest does not indicate the nature of the
transfer of the ownership interest to the successor in interest and the
servicer does not otherwise have that information, servicers will
respond with more general information about how successors in interest
may confirm their identity and ownership interest in the property in a
range of situations.
The Bureau solicits comment on whether a servicer should only be
required to respond under proposed Sec. 1024.36(i) when a possible
successor in interest expressly requests information regarding how to
confirm the successor in interest's identity and ownership interest in
the property.
The Bureau believes that it is appropriate for the requirements of
Sec. 1024.36(c) through (g) to apply to requests under proposed Sec.
1024.36(i). In particular, the Bureau believes that requiring servicers
to state in writing what documents the servicer requires to confirm a
successor in interest's status would avoid confusion about what
documents are required. The Bureau also believes that applying the
timing requirements in Sec. 1024.36(c) through (g) to requests under
Sec. 1024.36(i) would ensure that potential successors in interest
promptly receive this information from servicers.
The Bureau also believes that it is appropriate to require that
requests under Sec. 1024.36(i) be sent to an exclusive address if a
servicer has established one under Sec. 1024.36(b), as is required for
other requests for information under Sec. 1024.36. It would be
unnecessarily burdensome to require servicers to respond to requests
for information from potential successors in interest that the servicer
receives at other locations. Because servicers are not ordinarily
required to respond to requests for information received at other
locations, servicers would need to train staff and set up systems at
these locations solely to comply with Sec. 1024.36(i). Further, the
Bureau believes that successors in interest would be able to send
information requests to the designated address because, under Sec.
1024.36(b), a servicer that designates an address for receipt of
information requests must post the designated address on any Web site
maintained by the servicer if the Web site lists any contact address
for the servicer and because successors in interest may in some
circumstances have access to written communications provided to the
prior borrower that identify the address. In the alternative, however,
the Bureau is considering requiring servicers to respond to requests
for information received from potential successors in interest at any
location. The Bureau solicits comment on these two approaches and
whether there is another approach that would better facilitate
communication between successors in interest and servicers without
unnecessarily burdening servicers.
[[Page 74193]]
The Bureau notes that, because Sec. 1024.36(c) through (g) apply
to requests under proposed Sec. 1024.36(i), Sec. 1024.36(f)(1)(i)'s
rule on duplicative information applies to requests under proposed
Sec. 1024.36(i). A servicer is therefore not required to respond to a
request under proposed Sec. 1024.36(i) if the information requested is
substantially the same as information previously requested for which
the servicer has previously complied with its obligation to respond.
Accordingly, a servicer would not repeatedly need to provide
substantially similar information in response to every communication
from successors in interest meeting the criteria described in proposed
Sec. 1024.36(i). The Bureau solicits comment on whether this
limitation is sufficiently clear from the application of Sec.
1024.36(c) through (g) to requests under proposed Sec. 1024.36(i) or
whether instead the Bureau should issue appropriate clarifying
commentary.
The application of Regulation X's mortgage servicing rules' scope
provision (Sec. 1024.30(b)) to successors in interest means that
proposed Sec. 1024.36(i), but not proposed Sec. 1024.38(b)(1)(vi),
would apply to small servicers, with respect to reverse mortgage
transactions, and with respect to mortgage loans for which the servicer
is a qualified lender. Accordingly, small servicers, for example, would
be required to respond to requests for information under Sec.
1024.36(i) by providing information about the documents the servicer
requires to confirm the person's identity and ownership interest in the
property, even though small servicers would not be required to maintain
policies and procedures to decide promptly what documents the servicer
reasonably requires to confirm the successor in interest's identity and
ownership interest in the property. The Bureau believes that this
approach appropriately balances the burden on small servicers with the
need for successors in interest to receive this information. The Bureau
solicits comment on alternatives to this approach.
Proposed commentary. Proposed comment 36(i)-1 provides that, for
the purposes of requests under Sec. 1024.36(i), a servicer is only
required to provide information regarding the documents the servicer
requires to confirm the person's identity and ownership interest in the
property, not any other information that may also be requested by the
person. The Bureau is proposing this comment to make clear that, while
servicers would need to comply with the procedural requirements of
Sec. 1024.36(c) through (g) with respect to providing information
regarding the documents the servicer requires to confirm the person's
identity and ownership interest in the property, servicers are not
required to provide any other information about the mortgage loan that
the potential successor in interest may request before confirmation of
the potential successor in interest's status. The Bureau is proposing
this comment because the Bureau believes that it would be inappropriate
to require servicers to provide information about the mortgage loan
before confirming a successor in interest's identity and ownership
interest in the property. As discussed in the section-by-section
analysis of Sec. 1024.30(d), based on the application of proposed
Sec. 1024.30(d) to current Sec. 1024.36, successors in interest would
be able to request information about the mortgage loan more generally
once the servicer confirms the successor in interest's identity and
ownership interest in the property.
The Bureau is not proposing, but is considering, additional
requirements regarding requests for information about the mortgage loan
received by servicers from a potential successor in interest before
confirmation of that person's status. The Bureau is considering
requiring servicers to provide the information requested upon
confirmation of the successor in interest's status. A servicer would
therefore be required to preserve any information requests received
from a potential successor in interest, so that the servicer would be
able to respond to the request upon confirmation of that person's
status.\76\ Alternatively, the Bureau is considering requiring
servicers to respond to any such requests from a potential successor in
interest by informing the potential successor in interest that the
information request must be resubmitted upon confirmation of the
person's status. The Bureau seeks comment on these approaches.
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\76\ As described in the section-by-section analysis of Sec.
1024.41(b), infra, proposed comment 41(b)-1.ii similarly provides
that if a servicer receives a loss mitigation application from a
potential successor in interest before confirming that person's
status, upon such confirmation, the servicer is required to review
and evaluate that loss mitigation application in accordance with the
procedures set forth in Sec. 1024.41.
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Section 1024.37 Force-Placed Insurance
37(c) Requirements Before Charging Borrower for Force-Placed Insurance
37(c)(2) Content of Notice
37(c)(2)(v)
Under Sec. 1024.37(b), a servicer may not charge a borrower for
force-placed insurance ``unless the servicer has a reasonable basis to
believe that the borrower has failed to comply with the mortgage loan's
contract requirement to maintain hazard insurance.'' Section
1024.37(c)(1) requires a servicer to provide to a borrower an initial
notice and a reminder notice before assessing a fee or charge related
to force-placed insurance. Sections 1024.37(c)(2) and 1024.37(d)(2)
specify the notices' content. Section 1024.37(c)(2)(v) requires the
initial and reminder force-placed insurance notices to include a
statement that a borrower's hazard insurance has expired or is
expiring, as applicable. This provision does not specify what a notice
must state if a borrower has insufficient coverage, such as when the
borrower's insurance provides coverage in a dollar amount less than
that required by the mortgage loan contract. The Bureau is proposing to
amend Sec. 1024.37(c)(2)(v) to address situations in which a borrower
has insufficient, rather than expiring or expired, hazard insurance.
(As discussed in the section-by-section analysis of Sec.
1024.37(d)(2)(ii), the Bureau is proposing a related amendment to Sec.
1024.37(d)(2)(ii)).
Specifically, Sec. 1024.37(c)(2)(v) currently requires the initial
notice to include a statement that, among other things, ``the
borrower's hazard insurance is expiring or has expired, as applicable,
and that the servicer does not have evidence that the borrower has
hazard insurance coverage past the expiration date. * * * '' Section
1024.37(d)(2)(i)(C) requires the reminder notice to include the same
statement if, after providing the initial notice, a servicer does not
receive any evidence of hazard insurance.
The Bureau is concerned that the statements required by Sec.
1024.37(c)(2)(v) and (d)(2)(i)(C) may not afford servicers flexibility
to address circumstances in which a borrower has insufficient coverage.
When a borrower has hazard insurance that is insufficient under the
mortgage loan contract's requirements, a statement that coverage has
expired or is expiring may not be applicable. Similarly, the notices
must state that the servicer does not have evidence that the borrower
has hazard insurance past the coverage date, but Sec. 1024.37 does not
[[Page 74194]]
permit the notice to instead state that the servicer lacks evidence
that the borrower's hazard insurance provides sufficient coverage.
Moreover, Sec. 1024.37(c)(4) and (d)(4) prohibit a servicer from
including in the force-placed insurance notices any information other
than that required by Sec. 1024.37(c)(2) or (d)(2). As a result, a
servicer cannot explain on the notice itself that the borrower's hazard
insurance is insufficient rather than expired or expiring. Although a
servicer could include such an explanation on a separate piece of paper
in the same transmittal as the force-placed insurance notice,\77\ the
Bureau believes that servicers and borrowers may benefit if servicers
are able to state on the notice itself that the servicer lacks evidence
of sufficient coverage.
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\77\ See 12 CFR 1024.37(c)(2) and (d)(2).
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Accordingly, the Bureau is proposing to amend Sec.
1024.37(c)(2)(v) to provide that the force-placed insurance notices
must include a statement that the borrower's hazard insurance is
expiring, has expired, or provides insufficient coverage, as
applicable, and that the servicer does not have evidence that the
borrower has hazard insurance coverage past the expiration date or
evidence that the borrower has hazard insurance that provides
sufficient coverage, as applicable. The Bureau believes that this
amendment may enable servicers to provide borrowers with notices that
are more accurately tailored for their precise circumstances and
potentially avoid confusing a borrower whose coverage is not expiring
but is insufficient under the mortgage loan contract.
The Bureau solicits comments on whether other modifications to the
required content of the force-placed insurance notices are necessary or
appropriate to address circumstances in which a servicer force-places
insurance for reasons other than expired or expiring coverage.
37(c)(4) Additional Information
Section 1024.37(c) currently requires servicers to provide a
borrower a notice at least 45 days before assessing a fee or charge
related to force-placed insurance. Section 1024.37(c)(4) prohibits a
servicer from including in the notice any information other than that
required by Sec. 1024.37(c)(2), though a servicer may provide a
borrower with additional information on separate pieces of paper in the
same transmittal. The Bureau is proposing to amend Sec. 1024.37(c)(4)
to grant servicers the flexibility to include a borrower's mortgage
loan account number in the notice required by Sec. 1024.37(c)(1)(i).
(As discussed in the section-by-section analyses of Sec. 1024.37(d)(4)
and (e)(4), the Bureau is also proposing to make parallel amendments to
Sec. 1024.37(d)(4) and (e)(4) with respect to the notices required by
Sec. 1024.37(c)(1)(ii) and (e)(1)(i).)
The Bureau has received questions inquiring whether servicers may
include a borrower's mortgage loan account number in the notices
required by Sec. 1024.37, including the initial notice required by
Sec. 1024.37(c)(1)(i). The Bureau understands that providing a
borrower's mortgage loan account number in the notice may facilitate
identifying a borrower and locating the borrower's account information
when the borrower contacts the servicer in response to the force-placed
insurance notice. Under the current rule, however, servicers may not
include any additional information on the required notices and
therefore may include a borrower's account number only on a separate
piece of paper in the same transmittal.
In the 2013 RESPA Servicing Final Rule, the Bureau explained that
providing required information along with additional information in the
same notice could obscure the most important information or lead to
information overload. The Bureau stated that it would be better if
servicers have the latitude to provide the additional information on
separate pieces of paper in the same transmittal.\78\
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\78\ 78 FR 10695, 10770 (Feb. 14, 2013).
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Nonetheless, the Bureau believes it may be appropriate to give
servicers the flexibility to include a borrower's mortgage loan account
number in the notices required by Sec. 1024.37. An account number is a
customary disclosure on communications between a servicer and a
borrower. The Bureau believes that an account number is unlikely to
obscure other information on the notices or lead to information
overload. The Bureau also believes that including the borrower's
mortgage loan account number may help to facilitate communications
between a borrower and a servicer regarding a notice provided under
Sec. 1024.37. The Bureau does not believe that servicers should be
required to include a separate piece of paper in the transmittal solely
to identify the mortgage loan account number. Therefore, the Bureau is
proposing to amend Sec. 1024.37(c)(4) to grant servicers the
flexibility to include a borrower's mortgage loan account number in the
notices required by Sec. 1024.37.
The Bureau seeks comment on this proposal to grant servicers
flexibility to include a borrower's mortgage loan account number in the
notices required by Sec. 1024.37 and whether there are other types of
information that servicers should be allowed to include that would not
obscure the required disclosures or create information overload.
37(d) Reminder Notice
37(d)(2) Content of the Reminder Notice
37(d)(2)(ii) Servicer Not Receiving Demonstration of Continuous
Coverage
The Bureau is proposing to amend Sec. 1024.37(d)(2)(ii), which
specifies the information a force-placed insurance reminder notice must
contain if a servicer does not have evidence that the borrower has had
hazard insurance in place continuously. This provision does not address
the scenario in which a servicer receives evidence that the borrower
has had hazard insurance in place continuously, but the servicer lacks
evidence that the continued hazard insurance is sufficient under the
mortgage loan contract. As discussed in the section-by-section analysis
of Sec. 1024.37(c)(2)(v), while a servicer could include on a separate
piece of paper a statement clarifying that it is purchasing insurance
due to insufficient coverage, the Bureau believes it may be preferable
for the notice itself to be clear in this regard.
In order to align the requirements of Sec. 1024.37(d)(2)(ii) with
the proposed changes to Sec. 1024.37(c)(2)(v), the Bureau is proposing
to amend Sec. 1024.37(d)(2)(ii) to clarify that the provision applies
when a servicer has received hazard insurance information after
providing the initial notice but has not received evidence
demonstrating that the borrower has had sufficient hazard insurance
coverage in place continuously. The Bureau believes that this amendment
would clarify Sec. 1024.37(d)(2)(ii)'s applicability when a borrower
has insufficient hazard insurance.
The Bureau solicits comment on whether other modifications to the
required contents of the force-placed insurance notices are necessary
or appropriate to address circumstances in which a servicer force-
places insurance for reasons other than expired or expiring coverage.
37(d)(2)(ii)(B)
The proposal makes a technical correction to Sec.
1024.37(d)(2)(ii)(B) to correct the statement that the notice must set
forth the information required by Sec. 1024.37(c)(2)(ii) through (iv),
(x), (xi), and (d)(2)(i)(B) and (D). Section
[[Page 74195]]
1024.37(d)(2)(ii)(B) should state that the notice must also set forth
information required by Sec. 1024.37(c)(2)(ix).
37(d)(3) Format
Section 1024.37(d)(3) sets forth certain formatting requirements
for the reminder notice required by Sec. 1024.41(c)(1)(ii). The
reminder notice contains some of the same information as the initial
notice provided under Sec. 1024.37(c)(1)(i). The proposal makes a
technical correction to Sec. 1024.37(d)(3) to state that the
formatting instructions in Sec. 1024.37(c)(3), which apply to
information set forth in the initial notice, also apply to the
information set forth in the reminder notice provided pursuant to Sec.
1024.37(d). The purpose of this change is to clarify that, when the
same information appears in both the initial notice and the reminder
notice, that information must be formatted the same way in both
notices.
37(d)(4) Additional Information
The Bureau is proposing two amendments with respect to Sec.
1024.37(d)(4). First, the Bureau is proposing to amend Sec.
1024.37(d)(4) to give servicers the flexibility to include a borrower's
mortgage loan account number in the notice required by Sec.
1024.37(c)(1)(ii). For the reasons discussed in the section-by-section
analysis of Sec. 1024.37(c)(4), the Bureau believes that giving
servicers flexibility to include the account number may benefit
servicers and borrowers without obscuring other information on the
notice or leading to information overload.
The Bureau seeks comment on this proposal to grant servicers
flexibility to include a borrower's mortgage loan account number in the
notices required by Sec. 1024.37 and whether there are other types of
information that servicers should be allowed to include that would not
obscure the required disclosures or create information overload.
Second, the proposal makes technical corrections to redesignate
comment 37(d)(4)-1 as comment 37(d)(5)-1, and to correct an erroneous
reference in that comment to Sec. 1024.37(d)(4), which instead should
be a reference to Sec. 1024.37(d)(5).
37(e) Renewing or Replacing Force-Placed Insurance
37(e)(4) Additional Information
The Bureau is proposing two amendments with respect to Sec.
1024.37(e)(4). First, the Bureau is proposing to amend Sec.
1024.37(e)(4) to give servicers the flexibility to include a borrower's
mortgage loan account number in the notice required by Sec.
1024.37(e)(1)(i). For the reasons discussed in the section-by-section
analysis of Sec. 1024.37(c)(4), the Bureau believes that giving
servicers flexibility to include the account number may benefit
servicers and borrowers without obscuring other information on the
notice or leading to information overload.
The Bureau seeks comment on this proposal to grant servicers
flexibility to include a borrower's mortgage loan account number in the
notices required by Sec. 1024.37 and whether there are other types of
information that servicers should be allowed to include that would not
obscure the required disclosures or create information overload.
Second, the proposal makes a technical correction to remove the
unnecessary words ``[a]s applicable'' from Sec. 1024.37(e)(4).
Legal Authority
These proposed amendments and clarifications to Sec. 1024.37
implement sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.
Section 1024.38 General Servicing Policies, Procedures, and
Requirements
38(b) Objectives
(38)(b)(1)(vi) Successors in Interest
Current Sec. 1024.38(b)(1)(vi) provides that servicers shall
maintain policies and procedures that are reasonably designed to
achieve the objective of, upon notification of the death of a borrower,
promptly identifying and facilitating communication with the successor
in interest of the deceased borrower with respect to the property
securing the deceased borrower's mortgage loan. The Bureau is proposing
several modifications to this requirement. Like proposed Sec.
1024.36(i) (see section-by-section analysis of Sec. 1024.36(i)),
proposed Sec. 1024.38(b)(1)(vi) applies with respect to potential
successors in interest before the servicer confirms the successor in
interest's identity and ownership interest in the property. By
contrast, the Mortgage Servicing Rules generally would not apply to
successors in interest (see section-by-section analysis of Sec.
1024.30(d)) until the servicer has confirmed the person's identify and
ownership interest in the property securing the mortgage loan.
Consistent with the proposed definition of successor in interest
(see section-by-section analysis of Sec. 1024.31), proposed Sec.
1024.38(b)(1)(vi) expands the current policies and procedures
requirement regarding identifying and communicating with successors in
interest beyond the situation of borrower death. Proposed Sec.
1024.38(b)(1)(vi)(A) requires servicers to maintain policies and
procedures that are reasonably designed to ensure that the servicer can
identify and facilitate communication with any potential successors in
interest upon notification either of the death of a borrower or of any
transfer of the property securing a mortgage loan. The Bureau expects
that a servicer may be notified of the existence of a potential
successor in interest in a variety of ways, either directly (by the
successor in interest identifying him or herself) or indirectly (such
as by receipt of a loss mitigation application from someone other than
the prior borrower). The Bureau also notes that, although the proposed
rule applies only with respect to transfers to successors in interest
who acquired an ownership interest in the property securing a mortgage
loan in a transfer protected by the Garn-St Germain Act, proposed Sec.
1024.38(b)(1)(vi)(A) applies with respect to the servicer's initial
notification of any transfer of the property securing a mortgage loan
unless and until the servicer becomes aware that the transfer to the
successor in interest was not protected by the Garn-St Germain Act. The
Bureau is proposing that the requirement apply in this manner because
the Bureau believes that even though a servicer may be unaware at the
time of initial contact with a potential successor in interest whether
the transfer was protected, the servicer should still identify and
facilitate communication with the potential successor in interest; the
servicer should not wait until it has reason to believe that the
transfer was protected.
Proposed Sec. 1024.38(b)(1)(vi)(B) requires servicers to maintain
policies and procedures that are reasonably designed to ensure that the
servicer can, upon identification of a potential successor in
interest--including through any request made by a potential successor
in interest under Sec. 1024.36(i) or any loss mitigation application
received from a potential successor in interest--provide promptly to
the potential successor in interest a description of the documents the
servicer reasonably requires to confirm that person's identity and
ownership interest in the property and how the person may submit a
written request under Sec. 1024.36(i) (including the appropriate
address). The Bureau intends that this rule would require servicers to
have policies and procedures in place so that the servicer can
determine what documents are reasonable to require from successors in
[[Page 74196]]
interest in particular circumstances, so that servicers are able to
provide a description of these documents promptly. (As explained in the
section-by-section analysis of proposed Sec. 1024.38(b)(1)(vi),
proposed comment 38(b)(1)(vi)-1 further clarifies the requirement that
the documents required by the servicer are reasonable in the particular
circumstances of a specific successor in interest.) As explained in the
section-by-section analysis of Sec. 1024.36(i), the Bureau is
proposing Sec. 1024.38(b)(1)(vi)(B) in conjunction with proposed Sec.
1024.36(i), which requires servicers to respond to information requests
indicating that a person may be a successor in interest by providing
information regarding the documents the servicer requires to confirm
the person's identity and ownership interest in the property.
Accordingly, proposed Sec. 1024.38(b)(1)(vi)(B) requires servicers to
have policies and procedures in place to determine what documents to
provide to potential successors in interest who contact them. Proposed
Sec. 1024.36(i) also provides potential successors in interest a
mechanism to prompt servicers to provide this information.
Additionally, proposed Sec. 1024.38(b)(1)(vi)(C) requires
servicers to maintain policies and procedures that are reasonably
designed to ensure that the servicer can, upon the receipt of such
documents (i.e., those the servicer reasonably requires to confirm that
person's identity and ownership interest in the property), promptly
notify the person, as applicable, that the servicer has confirmed the
person's status, has determined that additional documents are required
(and what those documents are), or has determined that the person is
not a successor in interest. The proposed rule would require servicers
to have policies and procedures in place to confirm promptly potential
successors in interest's status, so that a servicer can promptly notify
the person whether the servicer has confirmed the person's status or if
additional documents are required. The Bureau intends to provide
servicers with flexibility under this proposed rule regarding the form
of notification to a potential successor in interest. The Bureau does
not believe that it is appropriate to require servicers to notify the
potential successor in interest in writing. Adding an additional
written notice requirement could be unnecessarily burdensome on
servicers and may delay servicer responses to successors in interest.
The Bureau solicits comment, however, on whether servicers should
instead be required to notify a potential successor in interest in
writing whether the servicer has confirmed the person's status.
As explained in part V.A., the Bureau is proposing these changes to
Sec. 1024.38(b)(1)(vi) because the Bureau believes, based on reports
from consumers, consumer advocacy groups, and other stakeholders, that
successors in interest often have difficulty demonstrating their
identity and ownership interest in the property to servicers'
satisfaction. The Bureau believes, therefore, that changes to the
Bureau's rules are appropriate to clarify servicers' obligations and
ensure that the requirements are widely understood and enforceable.
The Bureau also solicits comment on whether other changes to
Regulation X's mortgage servicing rules would protect successors in
interest from unnecessary foreclosure before a servicer has confirmed
the successor in interest's status, and, if so, what these changes
would be.
Proposed commentary. Proposed comment 38(b)(1)(vi)-1 clarifies that
the documents a servicer requires to confirm a potential successor in
interest's identity and ownership interest in the property must be
reasonable in light of the laws of the relevant jurisdiction, the
successor in interest's specific situation, and the documents already
in the servicer's possession. The proposed comment provides that the
required documents may, where appropriate, include, for example, a
death certificate, an executed will, or a court order.
The Bureau is proposing comment 38(b)(1)(vi)-1 because, as
described in part V.A, the Bureau believes, based on repeated reports
from consumers, consumer advocacy groups, and other stakeholders, that
servicers may request documentation to prove the successor in
interest's identity and ownership interest in the property that is
unreasonable in the successor in interest's particular situation. For
instance, the Bureau has heard reports that servicers may request
probate documents for transfers upon death in which probate is not
required, such as when spouses own a property in joint tenancy and the
ownership interest in the property transfers as a matter of law upon
one spouse's death.
Proposed comment 38(b)(1)(vi)-2 provides examples illustrating
documents that a servicer may require to confirm a potential successor
in interest's identity and ownership interest in the property and that
generally would be reasonable, subject to the relevant law governing
each situation, in four common situations involving potential
successors in interests. These situations are:
(1) Tenancy by the entirety or joint tenancy. A potential successor
in interest indicates (or the servicer knows from its records or other
sources) that the prior borrower and the potential successor in
interest owned the property as tenants by the entirety or joint tenants
and that the prior borrower has died. To demonstrate that the potential
successor in interest has an ownership interest in the property upon
the death of the prior borrower, applicable law does not require a
probate proceeding, but requires only that there be a prior recorded
deed listing both the potential successor in interest and the prior
borrower as tenants by the entirety (e.g., married grantees) or joint
tenants. The proposed comment provides that it would be reasonable for
the servicer to require the potential successor in interest to provide
documentation of the recorded instrument, if the servicer does not
already have it, and the deceased borrower's death certificate. The
proposed comment also provides that, because a probate proceeding is
not required under applicable law, requiring documentation of a probate
proceeding would be unreasonable.
(2) Affidavits of heirship. A potential successor in interest
indicates that he or she acquired an ownership interest in the property
upon the death of the prior borrower through intestate succession. To
demonstrate that the potential successor in interest has an ownership
interest in the property upon the death of the prior borrower,
applicable law does not require a probate proceeding, but requires only
an appropriate affidavit of heirship documenting the chain of title.
The proposed comment provides that it would be reasonable for the
servicer to require the potential successor in interest to provide the
affidavit of heirship and the death certificate of the prior borrower.
The proposed comment also provides that, because a probate proceeding
is not required under applicable law, requiring documentation of a
probate proceeding would be unreasonable.
(3) Divorce or legal separation. A potential successor in interest
indicates that he or she acquired an ownership interest in the property
from a spouse who is a borrower as a result of a property agreement
incident to a divorce proceeding. Under applicable law, transfer from
the borrower spouse is demonstrated by a final divorce decree and
accompanying separation agreement executed by both spouses. Applicable
law does not require a deed conveying the interest in the property. The
proposed comment provides that it
[[Page 74197]]
would be reasonable for the servicer to require the potential successor
in interest to provide documentation of the final divorce decree and an
executed separation agreement. The proposed comment also provides that
because applicable law does not require a deed, requiring documentation
of a deed would be unreasonable.
(4) Living spouses or parents. A potential successor in interest
indicates that he or she acquired an ownership interest in the property
from a living spouse or parent who is a borrower by quitclaim deed or
act of donation. The proposed comment provides that it would be
reasonable for the servicer to require the potential successor in
interest to provide the quitclaim deed or act of donation. The proposed
comment also provides that it would be unreasonable to require
additional documents to establish ownership.
The Bureau is proposing comment 38(b)(1)(vi)-2 because the Bureau
believes that it would be helpful to provide more specific guidance
about what are reasonable documents to require from a potential
successor in interest to confirm the person's status as a successor in
interest in very common and straightforward situations. The Bureau
recognizes that this proposed comment does not cover all possible
situations involving successors in interest and that additional
documents may be required in certain less straightforward situations.
In particular, the Bureau notes that this proposed comment does not
describe situations involving the death of a borrower with a will or
trust. The Bureau has not included commentary regarding such situations
because the Bureau believes that such situations may not always be as
straightforward as the examples provided. For instance, situations
involving the death of a borrower with a will may require probate
documentation. Additionally, the Bureau believes that servicers may be
more familiar with situations where the borrower has a will or trust
and that therefore servicers may need less guidance from the Bureau in
determining what documents are appropriate in these circumstances.
The Bureau solicits comment on whether proposed comment
38(b)(1)(vi)-2 accurately describes examples of reasonably required
documents to confirm a successor in interest's identity and ownership
interest in the property. The Bureau also solicits comment on whether
it would be reasonable for servicers to require additional documents
(such as affidavits or notarized copies) from a potential successor in
interest to confirm the validity of documents submitted by the
potential successor in interest. The Bureau also solicits comment on
whether the Bureau should include other common examples of reasonably
required documents to confirm a successor in interest's identity and
ownership interest in the property and what those examples should be.
Proposed comment 38(b)(1)(vi)-3 clarifies proposed Sec.
1024.38(b)(1)(vi)(C)'s requirement that servicers maintain policies and
procedures reasonably designed to ensure that the servicer can, upon
the receipt of the documents that the servicer reasonably requires,
promptly notify the person, as applicable, that the servicer has
confirmed the person's status, has determined that additional documents
are required (and what those documents are), or has determined that the
person is not a successor in interest. The proposed comment provides
that, upon the receipt of the documents, the servicer's confirmation
must be sufficiently prompt so as not to interfere with the successor
in interest's ability to apply for loss mitigation options according to
the procedures provided in Sec. 1024.41. The proposed comment also
provides that, in general, a servicer's policies and procedures must be
reasonably designed to ensure that confirmation of a successor in
interest's status occurs at least 30 days before the next applicable
milestone provided in proposed comment 41(b)(2)(ii)-2.\79\
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\79\ Proposed comment 41(b)(2)(ii)-2 provides the following
milestones: ``i. The date by which any document or information
submitted by a borrower will be considered stale or invalid pursuant
to any requirements applicable to any loss mitigation option
available to the borrower; ii. The date that is the 120th day of the
borrower's delinquency; iii. The date that is 90 days before a
foreclosure sale; iv. The date that is 38 days before a foreclosure
sale.''
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The Bureau is proposing comment 38(b)(1)(vi)-3 because the Bureau
understands that successors in interest may have difficulty pursuing
loss mitigation options to avoid foreclosure when the servicer does not
promptly confirm the successor in interest's identity and ownership
interest in the property. The Bureau has heard reports that
miscommunication and delay in the process of confirming successors in
interest's identity and ownership interest in the property sometimes
prevent successors in interest from successfully applying for loss
mitigation. In general, as each milestone provided in proposed comment
41(b)(2)(ii)-2 passes, a borrower is likely to enjoy fewer protections
under Sec. 1024.41 when the application becomes complete.
Proposed comment 38(b)(1)(vi)-3 would help to ensure that servicer
delay in confirmation of successor in interest status would not
unnecessarily hinder successors in interest's ability to apply for loss
mitigation options. The Bureau believes that servicers generally are
aware of the progress of each loan in the foreclosure process.
Accordingly, the Bureau believes that it would not be particularly
burdensome for servicers to design policies and procedures for
confirming potential successors in interest's status that take into
account the foreclosure status of a particular loan, so that the
servicer would be able to confirm the successor in interest's status
sufficiently promptly for the successor in interest to apply for loss
mitigation under Sec. 1024.41. The proposed comment provides that, in
general, confirmation of a successor in interest's status at least 30
days before the next applicable milestone would provide the successor
in interest sufficient opportunity to pursue loss mitigation.
As with other policies and procedures required by Sec. 1024.38,
the policies and procedures required under proposed Sec. 1024.38
(b)(1)(vi) would have to be ``reasonably designed'' to achieve the
stated objective. The Bureau recognizes that, for various reasons
(e.g., the timing of the servicer's receipt of documents from the
potential successor, the status of pending foreclosure proceedings,
etc.), it may not be possible in every case to confirm a successor in
interest's status sufficiently promptly so as not to interfere with the
successor in interest's ability to apply for loss mitigation options
according to the procedures provided in Sec. 1024.41 or to confirm a
successor in interest's status 30 days before the next applicable
milestone provided in proposed comment 41(b)(2)(ii)-2. However, the
Bureau believes that servicers should be able to adopt policies and
procedures to ensure that they generally confirm the status of
successors in interest sufficiently promptly for successors in interest
to apply for loss mitigation options according to the procedures
provided in Sec. 1024.41.
The Bureau solicits comment generally on proposed Sec.
1024.38(b)(1)(vi). Further, proposed Sec. 1024.38(b)(1)(vi) uses the
word ``promptly'' in several instances. The Bureau is considering
adding commentary clarifying what the Bureau considers ``promptly'' to
mean in the various instances. The Bureau solicits comment on whether
it should add this commentary and if so, what should be considered
``promptly'' for the purposes of Sec. 1024.38(b)(1)(vi).
[[Page 74198]]
38(b)(2) Properly Evaluating Loss Mitigation Applications
38(b)(2)(vi)
The Bureau is proposing to add Sec. 1024.38(b)(2)(vi), which
requires a servicer to maintain policies and procedures reasonably
designed to ensure that the servicer can promptly identify and obtain
documents or information not in the borrower's control that the
servicer requires to determine which loss mitigation options, if any,
to offer the borrower in accordance with the requirements of proposed
Sec. 1024.41(c)(4), discussed below.
Under current Sec. 1024.41(c)(1), if a servicer receives a
complete loss mitigation application more than 37 days before a
foreclosure sale, the servicer shall, within 30 days of receipt,
evaluate the borrower for all loss mitigation options available to the
borrower and provide the notice required under Sec. 1024.41(c)(1)(ii).
Section 1024.41(b)(1) defines a complete loss mitigation application to
include information that the servicer requires from a borrower in
evaluating applications for the loss mitigation options available to
the borrower.\80\ Thus, a loss mitigation application becomes complete
notwithstanding that a servicer might require additional information
that is not in the control of the borrower.\81\
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\80\ 12 CFR 1024.41(b)(1).
\81\ See comment 41(b)(1)-5.
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Through outreach efforts, the Bureau has learned that servicers
cannot always obtain necessary third-party information in time to
evaluate a borrower's complete loss mitigation application within 30
days of receipt as required by Sec. 1024.41(c)(1). Servicers and
Federal agencies have informed the Bureau that this can occur because a
servicer delays requesting the information or because a third party
from whom the servicer requested the information delays providing it.
Currently, Sec. 1024.41 does not specifically address this
circumstance--when a servicer is unable to obtain information not in
the borrower's control within 30 days of receiving a complete
application and thus cannot complete the evaluation within that
timeframe as required by Sec. 1024.41(c)(1). Proposed Sec.
1024.41(c)(4), discussed in more detail in the section-by-section
analysis of Sec. 1024.41(c)(4), addresses these issues by adding
requirements with respect to the servicer's obligation to pursue
necessary information not in the borrower's control and the servicer's
responsibilities if such information is not obtained within 30 days
after a complete application is received.
Servicers often need to be able to access information from parties
other than the borrower at different points during a loss mitigation
application process. The Bureau believes that the policies and
procedures requirements in proposed Sec. 1024.38(b)(2)(vi) would
facilitate compliance with the requirements for gathering information
not in the borrower's control under proposed Sec. 1024.41(c)(4).
Maintaining such policies and procedures would ensure that servicers
efficiently identify and obtain information not in the borrower's
control in accordance with Sec. 1024.41(c)(4). Efficiency in obtaining
information not in the borrower's control provides enhanced consumer
protection benefits by shortening the loss mitigation evaluation
process and facilitating compliance with Sec. 1024.41(c)(1)'s
requirement to evaluate complete loss mitigation applications within 30
days.
The Bureau also believes that proposed Sec. 1024.38(b)(2)(vi)
would contribute to the goals of Sec. 1024.38(b)(2) more generally.
Section 1024.38(b)(2) requires servicers to maintain policies and
procedures regarding various aspects of evaluation of loss mitigation
applications, including (among others) document collection and proper
evaluation. As the Bureau explained in the 2012 RESPA Servicing
Proposal, these and other requirements of Sec. 1024.38(b)(2)
facilitate servicer compliance with Sec. 1024.41 and lead to loss
mitigation processes that better protect consumers.\82\ Similarly, the
Bureau believes that requiring servicers to maintain policies and
procedures regarding the identification and collection of non-borrower
information under proposed Sec. 1024.38(b)(2)(vi) would protect
borrowers by facilitating compliance with proposed Sec. 1024.41(c)(4)
and the evaluation timelines provided under Sec. 1024.41(c)(1).
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\82\ 77 FR 57199, 57248 (Sept. 17, 2012).
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Legal Authority
The Bureau is proposing these amendments to Sec. 1024.38 pursuant
to its authority under section 19(a) of RESPA. As explained above, the
Bureau believes that the servicing policies, procedures, and
requirements set forth in these proposed amendments 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
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 policies and
procedures and without achieving certain standard requirements,
servicers will not be able to achieve those purposes. The Bureau is
also proposing these amendments to 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 these proposed amendments to Sec. 1024.38 are 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 operate transparently and efficiently to facilitate access
and innovation. The Bureau additionally is relying 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.
Section 1024.39 Early Intervention Requirements for Certain Borrowers
39(a) Live Contact
The Bureau is proposing several clarifications, revisions, and
amendments to Sec. 1024.39(a) and its commentary. The proposed changes
are intended to clarify that a servicer's early intervention live
contact obligations recur in each billing cycle while a borrower is
delinquent and to provide additional examples illustrating how the live
contact requirements apply in certain circumstances, such as when a
borrower is unresponsive or is in the process of applying for loss
mitigation pursuant to Sec. 1024.41.
Repeated Attempts To Establish Live Contact
Section 1024.39(a) currently requires a servicer to 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.
Current comment 39(a)-1 states that a borrower's delinquency begins
``on the day a payment sufficient to cover principal, interest, and, if
applicable, escrow for a given billing
[[Page 74199]]
cycle is due and unpaid . . . .'' \83\). The Bureau has always
understood these provisions to require servicers to make continual
attempts to contact a borrower who remains delinquent for more than one
billing cycle. The Bureau is proposing to revise Sec. 1024.39(a) to
codify this interpretation. The proposed revision would expressly
require servicers to establish or make good faith efforts to establish
live contact with a delinquent borrower no later than the 36th day
after each payment due date for the duration of the borrower's
delinquency.
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\83\ Comment 39(a)-1 (emphasis added).
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As it stated in the 2012 RESPA Servicing Proposal, the Bureau
intended the live contact provisions to create an ongoing obligation
for a servicer to attempt to communicate with a delinquent borrower. In
its discussion of the decision to limit a servicer's obligation to
provide written notice under Sec. 1024.39(b)(1) to once every 180
days, the Bureau noted that it was not including a similar limitation
in Sec. 1024.39(a) because it expected a servicer to contact a
borrower during each period of delinquency.\84\ In the 2013 RESPA Final
Servicing Rule, the Bureau confirmed that it expected servicers to
attempt to make live contact on a recurring basis and stated that,
``[w]ith respect to the live contact requirement . . . a servicer must
establish 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.''\85\ In the October 2013 Servicing Bulletin,
the Bureau again clarified that servicers have an obligation to make
good faith efforts to contact a borrower within 36 days of when a
borrower first becomes delinquent, ``and for each of any subsequent
billing periods for which the borrower's obligation is due and
unpaid.''
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\84\ 77 FR 57199, 57256 (Sept. 17, 2012).
\85\ 78 FR 10696, 10795 (Feb. 14, 2013) (emphasis added).
---------------------------------------------------------------------------
The Bureau continues to believe that borrowers who remain
delinquent for more than one billing cycle benefit from receiving
repeated live contact and that relieving a servicer of its obligations
to establish live contact after the initial delinquent billing cycle
would undermine the intent of Sec. 1024.39(a). Accordingly, the Bureau
is proposing to clarify Sec. 1024.39(a) to codify its understanding
and require servicers expressly to establish or make good faith efforts
to establish live contact with a delinquent borrower no later than 36
days after each payment due date for the duration of the borrower's
delinquency.
To provide additional guidance, the Bureau is proposing to revise
and re-order comment 39(a)-1 and its subsections. First, the Bureau
proposes to remove the language in current comment 39(a)-1.i. As
discussed in the section-by-section analysis of Sec. 1024.31, the
Bureau is proposing a new definition of delinquency applicable to all
of subpart C. If adopted as proposed, the new definition generally
would mirror the language in current comment 39(a)-1.i, making that
language superfluous. Second, the Bureau is proposing to revise
existing comments 39(a)-1 and 39(a)-1.i and add comments 39(a)-1.i.A
and 39(a)-1.i.B to illustrate how a servicer may comply with the
recurring live contact obligation when a borrower is delinquent for one
or more billing cycles. Proposed comment 39(a)-1.i.B gives the example
of a borrower with a payment due date on the first of the month who
misses three consecutive payments, on January 1, February 1, and March
1. The proposed comment provides that a servicer can meet the
requirements of Sec. 1024.39(a) by, for example, attempting to make
live contact with the borrower on February 5, and again on March 25.
Because a servicer has 36 days from the date a borrower first becomes
delinquent to establish or make good faith efforts to establish live
contact with the borrower, the proposed comment explains that an
attempt to establish live contact with the borrower on February 5 meets
the requirements of Sec. 1024.39(a) for both January and February.
The Bureau is also proposing to revise comment 39(a)-2 to codify
guidance from the October 2013 Servicing Bulletin, which clarified that
servicers are permitted to combine their live contact attempts with
their attempts to contact borrowers for other purposes, including, for
example, by providing a borrower with information about available loss
mitigation options when contacting the borrower for purposes of
collection.\86\
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\86\ October 2013 Servicing Bulletin at 5.
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Finally, the Bureau is proposing to add comment 39(a)-3 to clarify
that, while the Bureau expects servicers to continue to attempt to make
live contact with borrowers who are regularly delinquent, a borrower's
failure to respond to such attempts, as well as the length of the
borrower's delinquency, are relevant circumstances to consider when
evaluating a servicer's good faith. To this end, the Bureau is
proposing to add an example it first provided in the October 2013
Servicing Bulletin. The example would provide that, in the case of a
borrower with six or more consecutive delinquencies, good faith efforts
to establish live contact might include adding a sentence in the
borrower's periodic statement or another communication encouraging the
borrower to contact the servicer. The Bureau is proposing to re-
designate current comments 39(a)-3 and 39(a)-4 as, respectively,
comments 39(a)-4 and 39(a)-5 to accommodate the addition of proposed
comment 39(a)-3.
Compliance With Sec. 1024.41
The Bureau is also proposing to add comment 39(a)-6 to illustrate
how a servicer can meet its early intervention live contact
requirements when a delinquent borrower is engaged in various stages of
the loss mitigation procedures set forth in Sec. 1024.41. Proposed
comment 39(a)-6 codifies guidance the Bureau provided in its October
2013 Servicing Bulletin. In the bulletin, the Bureau reiterated that
the live contact requirements are designed to give servicers
significant flexibility to tailor their procedures to particular
circumstances. As explained in comment 39(a)-2, good faith efforts to
establish live contact consist of ``reasonable steps under the
circumstances to reach a borrower . . . '' The Bureau went on to
provide several examples of reasonable steps, including the example of
a servicer that has established and is maintaining live contact with a
borrower ``with regard to the borrower's completion of a loss
mitigation application and the servicer's evaluation of that borrower
for loss mitigation options.''\87\
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\87\ October 2013 Servicing Bulletin at 5.
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The Bureau is now proposing to codify its guidance from the October
2013 Servicing Bulletin. As the Bureau stated in the 2013 RESPA
Servicing Final Rule, the live contact requirements are intended, in
part, to ensure that borrowers receive timely information about loss
mitigation options at an early stage of delinquency.\88\ For borrowers
who have already applied or are in the process of applying for loss
mitigation, however, repeated or parallel attempts by the servicer to
establish live contact pursuant to the requirements of Sec. 1024.39(a)
may be confusing or harassing. Therefore, the Bureau is proposing to
add commentary codifying the bulletin's guidance and clarifying
generally that a servicer working with a borrower pursuant to the
procedures of Sec. 1024.41 complies with the requirements of Sec.
1024.39(a).
[[Page 74200]]
Specifically, proposed comment 39(a)-6 clarifies that a servicer that
has established and is maintaining ongoing contact with regard to a
borrower's completion of a loss mitigation application, or in
connection with the servicer's evaluation of the borrower's complete
loss mitigation application, complies with the requirements of Sec.
1024.39(a). In addition, the proposed comment clarifies that a servicer
that has evaluated and denied a borrower for all available loss
mitigation options has complied with the requirements of Sec.
1024.39(a). The Bureau believes that, once a servicer has complied with
the requirements of Sec. 1024.41 with respect to a specific borrower,
and has determined that the borrower does not qualify for any available
loss mitigation options, continued live contact between a borrower and
a servicer no longer serves the purpose of Sec. 1024.39(a). Indeed, at
that point, continued attempts by the servicer to establish live
contact may frustrate or even harass a borrower who was recently denied
for loss mitigation. Accordingly, the Bureau is proposing to clarify
that a servicer complies with Sec. 1024.39(a) if the servicer has sent
a notice to a borrower (in compliance with Sec. 1024.41(c)(1)(ii))
notifying the borrower that the borrower is not eligible for any loss
mitigation options.
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\88\ See, e.g., 78 FR 10695, 10793 (Feb. 14, 2013).
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The Bureau believes, however, that a borrower who cures a prior
delinquency but subsequently becomes delinquent again would benefit
from the servicer resuming compliance with the live contact
requirement. Therefore, proposed comment 39(a)-6 also clarifies that a
servicer is again subject to the requirements of Sec. 1024.39(a) with
respect to a borrower who becomes delinquent after curing a prior
delinquency. The Bureau is proposing to add a reference to proposed
comment 39(a)-6 in proposed comment 39(a)-3 to indicate that the
examples set forth in comment 39(a)-6 represent examples of ``good
faith efforts.''
39(b) Written Notice
39(b)(1)
The Bureau is proposing certain revisions to Sec. 1024.39(b)(1)
and its commentary to clarify the frequency with which a servicer must
provide the written early intervention notice and to ensure consistency
with the proposed revisions to the live contact requirements in Sec.
1024.39(a). Under the proposed revision, a servicer must send a written
notice to a delinquent borrower no later than the 45th day of the
borrower's delinquency, but a servicer does not have to send such a
notice more than once in any 180 day period. If the borrower remains
delinquent or becomes 45 days delinquent again after the 180-day period
expires, the proposed revision requires the servicer to provide the
written notice again.
Current comment 39(b)(1)-1 references the definition of delinquency
in current comment 39(a)-1.i. As explained in the section-by-section
analysis of Sec. 1024.39(a), the definition of delinquency included in
current comment 39(a)-1.i and referenced in comment 39(b)(1)-1 states
that a borrower's 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. As with Sec. 1024.39(a), the
inclusion of the phrase ``for a given billing cycle'' in the definition
of delinquency for purposes of Sec. 1024.39(b)(1) creates a recurring
obligation on the part of servicers to provide a delinquent borrower
with a written notice. In contrast with the recurring obligation to
make live contact under Sec. 1024.39(a), however, servicers only have
to comply with the requirement to send a written notice once in a 180-
day period.\89\ This is because, as the Bureau explained in the 2012
RESPA Servicing Proposal, the Bureau did not believe ``that borrowers
who are consistently delinquent would benefit from receiving the same
written notice every month.''\90\
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\89\ 12 CFR 1024.39(b)(1).
\90\ 77 FR 57199, 57257 (Sept. 17, 2012).
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As discussed in the section-by-section analysis of Sec. 1024.31,
the Bureau's proposed new definition of delinquency in Sec. 1024.31
does not use the phrase ``for a given billing cycle.'' The Bureau
wishes to clarify that it continues to expect servicers to send a
written notice more than once, notwithstanding the revised language in
the proposed definition of delinquency. Accordingly, the Bureau is
proposing revisions to Sec. 1024.39(b)(1) and comment 39(b)(1)-2 to
preserve the recurring nature of the written notice requirement, as
well as the limitation that a servicer has to send a written notice
only once during any 180-day period. Under the proposed revision, a
servicer must send a written notice to a delinquent borrower no later
than the 45th day of the borrower's delinquency, but no more than once
in any 180-day period. If the borrower either remains delinquent or
becomes delinquent again at some point after the 180-day period
expires, the proposed revision would require the servicer to provide
the borrower with another written notice 45 days from the date of her
most recent missed payment.
In addition, the Bureau is proposing to clarify through a revision
to comment 39(b)(1)-2 that a servicer is again required to send written
notice to a borrower who remains delinquent more than 180 days after
the servicer sent the first notice. Current comment 39(b)(1)-2 provides
an example of a borrower who fails to make a payment due on March 1.
The comment states that the servicer is required to send a written
notice within 45 days thereafter--i.e., by April 15; it further
provides that, if the borrower fails to make the April 1 payment, the
servicer does not need to send a second written notice because it
already did so within the previous 180 days. The Bureau is proposing to
add a further explanation that, if the borrower misses a payment on
October 1, the servicer is again obligated to provide a written notice
within 45 days after October 1, since the 45th day (November 15) falls
more than 180 days from the date the servicer provided the first
written notice. This proposal also makes a minor technical change to
comment 39(b)(1)-2 to correct an erroneous reference to Sec.
1024.39(a), which should instead be a reference to Sec. 1024.39(b).
Finally, the Bureau is proposing to add comment 39(b)(1)-6 to
clarify the obligation of a transferee servicer to provide the written
notice required by Sec. 1024.39(b). Proposed comment 39(b)(1)-6 states
that a transferee servicer is not required to provide a second written
notice to a borrower who already received a written notice from the
transferor servicer on or before the borrower's 45th day of
delinquency. The comment further clarifies, however, that a servicer is
required to comply with Sec. 1024.39(b) regardless of whether the
transferor servicer sent the borrower a written notice in the preceding
180-day period. In other words, if the transferor servicer provided a
first written notice after an initial missed payment and, following the
transfer, the borrower remains or becomes 45 days delinquent again, the
transferee servicer would have to provide a written notice again,
regardless of whether or not 180 days had passed since the date the
transferor servicer provided the first written notice to the borrower.
The Bureau is proposing this clarification because it believes that
the rationale that justified applying the 180-day limitation to
mortgage loans serviced by a single servicer may not apply in the case
of a loan whose servicing rights are transferred to another servicer.
The Bureau explained in the 2013 RESPA Servicing Final Rule
[[Page 74201]]
that it did not believe that borrowers who are repeatedly delinquent
would benefit from receiving essentially the same written notice month
after month.\91\ Accordingly, it adopted a once-every-180-days
limitation on the general requirement to provide a written notice under
Sec. 1024.39(b). In the case of a transferred loan, however, the
Bureau believes that a transferee servicer may provide additional and
different information to a delinquent borrower under Sec.
1024.39(b)(2) and that a borrower would benefit from receiving this
information sooner rather than later following a transfer. Accordingly,
the Bureau believes it is appropriate to clarify that the 180-day
limitation in Sec. 1024.39(b)(1) does not apply where the prior notice
triggering the 180-day waiting period was provided by the transferor
servicer prior to transfer.
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\91\ See 78 FR 10695, 10800 (Feb. 14, 2013).
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Successors in interest. As described in the section-by-section
analysis of Sec. 1024.30(d), proposed Sec. 1024.30(d) provides that a
confirmed successor in interest must be considered a borrower for the
purposes of Regulation X's mortgage ervicing rules. Accordingly, once a
servicer confirms a successor in interest's identity and ownership
interest in the property, a servicer would be required to make
reasonable efforts to establish live contact and to make written
contact with the successor in interest regarding a delinquent mortgage
loan under Sec. 1024.39's early intervention requirements.
Proposed comment 39(b)(1)-5 clarifies that, where a servicer has
already provided a written early intervention notice to a prior
borrower under Sec. 1024.39(b) before confirming a successor in
interest's status, the servicer is not required also to provide that
notice to the confirmed successor in interest, but the servicer must
provide the confirmed successor in interest with any additional written
early intervention notices required after confirming the successor in
interest's status. The Bureau believes that it would be unnecessary and
difficult for servicers to provide additional copies of the written
early intervention notices that servicers have already provided to the
prior borrower. The Bureau also believes that, in many cases,
successors in interest may have received the original notice mailed by
the servicer to the prior borrower. Further, as described in the
section-by-section analysis of Sec. 1026.2(a)(11), servicers would be
required to provide confirmed successors in interest with periodic
statements under Sec. 1026.41 of Regulation Z, so confirmed successors
in interest will generally be kept apprised of the status of the
mortgage loan.
39(b)(2) Content of the Written Notice
The Bureau is proposing to clarify when a servicer must include the
disclosures under Sec. 1024.39(b)(2)(iii) and (iv) in the written
early intervention notice. Section 1024.39(b)(2)(iii) and (iv)
currently state that, ``if applicable,'' the written notice must
include a statement providing a brief description of examples of loss
mitigation options that may be available and either application
instructions or a statement informing the borrower how to obtain more
information about loss mitigation options from the servicer. The Bureau
is proposing to add a comment to clarify when such disclosures are
``applicable'' and when a servicer is therefore required to include
them in the written early intervention notice. Specifically, proposed
comment 39(b)(2)-4 provides that, if loss mitigation options are
available, a servicer must include in the written notice the
disclosures set forth in Sec. 1024.39(b)(2)(iii) and (iv). The
proposed comment further provides that loss mitigation options are
available if the owner or assignee of a borrower's mortgage loan offers
an alternative to foreclosure that is made available through the
servicer. Additionally, the proposed comment provides that the
availability of loss mitigation options does not depend upon a
borrower's eligibility for those options, but simply depends upon
whether the owner or assignee of a borrower's mortgage loan generally
offers loss mitigation options through the servicer. Proposed comment
39(b)(2)-4 is generally intended to assist servicers in determining
when they are required to include the Sec. 1024.39(b)(2)(iii) and (iv)
disclosures in the written early intervention notice, and whether they
are exempt from providing the written notice under proposed Sec.
1024.39(d)(1)(ii) or (d)(2)(ii) as discussed in the section-by-section
analyses of Sec. 1024.39(d)(1) and (d)(2).
Legal Authority
The Bureau is proposing the amendments to Sec. 1024.39(a) and (b)
pursuant to its authorities under sections 6(j)(3), 6(k)(1)(E), and
19(a) of RESPA. As explained above, the Bureau finds, consistent with
section 6(k)(1)(E), that the proposed amendments to Sec. 1024.39(a)
and (b) are 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, the proposed amendments to
Sec. 1024.39(a) and (b) are authorized under section 6(j)(3) of RESPA
as necessary to carry out section 6 of RESPA, and under section 19(a)
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 proposing the amendments to Sec. 1024.39(a) and
(b) 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 these amendments are 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.
39(d) Exemptions
39(d)(1) Borrowers in Bankruptcy
The Bureau is proposing to revise Sec. 1024.39(d)(1) to narrow the
scope of the bankruptcy exemption from Sec. 1024.39(a) and (b)'s early
intervention requirements. Section 1024.39(d)(1) currently exempts a
servicer from the early intervention requirements with respect to a
mortgage loan if at least one of the borrowers is a debtor in
bankruptcy. The proposed revisions preserve the current exemption from
the live contact requirements of Sec. 1024.39(a) as it relates to a
borrower in bankruptcy, but they provide that the exemption would no
longer apply to a borrower
[[Page 74202]]
who is jointly liable on the mortgage loan with someone who is a debtor
in a Chapter 7 or Chapter 11 bankruptcy case.\92\ The proposal
partially lifts the exemption from the written notice requirements of
Sec. 1024.39(b) and requires a servicer to provide the written notice
unless no loss mitigation options are available, the borrower's
confirmed plan of reorganization provides for the surrendering of the
property or avoidance of the lien securing the mortgage loan, the
borrower files a Statement of Intention in the bankruptcy case
identifying an intent to surrender the mortgage loan, or a court enters
an order avoiding the lien securing the mortgage loan or lifting the
automatic stay with respect to the property securing the mortgage loan.
That is, if loss mitigation options are available, the proposal
requires that a servicer, with certain exceptions, provide the written
early intervention notice required by Sec. 1024.39(b) to borrowers in
bankruptcy.
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\92\ ``Consumer homeowners typically seek relief under either
Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 requires
the debtor to surrender all nonexempt property for distribution to
creditors. In return, the debtor's debts are discharged, with some
exceptions. Chapter 13 permits debtors with regular income to keep
their property and to repay creditors in whole or in part by making
monthly payments to a Chapter 13 trustee, who then distributes the
payments to creditors.'' Alan M. White & Carolina Reid, Saving
Homes, Bankruptcies and Loan Modifications in the Foreclosure
Crisis, 65 Fla. L. Rev. 1713, 1717 (Dec. 2013) (citing Adam J.
Levitin, Resolving the Foreclosure Crisis: Modification of Mortgages
in Bankruptcy, 2009 Wis. L. Rev. 565, 579, 643 (2009)). Some
consumer homeowners seek relief under Chapter 11 of the Bankruptcy
Code, usually because their debt levels exceed Chapter 13's
limitations, and family farmers and fishermen may file under Chapter
12. See 11 U.S.C. 109(d)-(f) (defining who may be a debtor under
Chapter 11, Chapter 12, and Chapter 13). Because relatively few
consumer homeowners seek relief under Chapter 11 or Chapter 12 of
the Bankruptcy Code, the discussion of early intervention focuses
primarily on homeowners in Chapter 7 or Chapter 13 cases. See
Administrative Office of the U.S. Courts, U.S. Bankruptcy Courts--
Business and Nonbusiness Cases Commenced, by Chapter of the
Bankruptcy Code, During the 12-Month Period Ending December 31,
2013, available at http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf (indicating
that in 2013, there were only 1,320 nonbusiness Chapter 11 filings
and 495 Chapter 12 filings nationwide).
---------------------------------------------------------------------------
The objectives of the early intervention requirements under Sec.
1024.39 include ensuring that delinquent borrowers have an opportunity
to pursue loss mitigation options at the early stages of delinquency,
encouraging communication between servicers and delinquent borrowers,
and encouraging delinquent borrowers to work with their servicers to
identify alternatives to foreclosure.\93\ Section 1024.39(a) requires a
servicer to 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 the borrower about the availability of loss mitigation options,
if appropriate. Section 1024.39(b) requires a servicer to provide to a
delinquent borrower a written notice with specific information,
including examples of loss mitigation options that may be available and
instructions on how to obtain more information about loss mitigation
options from the servicer, not later than the 45th day of the
borrower's delinquency.
---------------------------------------------------------------------------
\93\ See 77 FR 57199, 57251 (Sept. 17, 2012); 78 FR 10695, 10787
(Feb. 14, 2013).
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In the 2012 RESPA Servicing Proposal, the Bureau sought comment on
``whether servicers may reasonably question how they could comply with
[the] Bureau's propos[ed early intervention requirements] in light of
other applicable laws,'' including the Bankruptcy Code.\94\ The
preamble acknowledged that the Bankruptcy Code's automatic stay
generally prohibits, among other things, actions to collect, assess, or
recover a claim against the debtor that arose before the debtor filed
for bankruptcy.\95\ In response, industry expressed concerns that the
early intervention requirements could conflict with existing law,
including the Bankruptcy Code.\96\
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\94\ 77 FR 57199, 57260-61 (Sept. 17, 2012).
\95\ Id. See also 11 U.S.C. 362(a).
\96\ 78 FR 10695, 10806-07 (Feb. 14, 2013).
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In the 2013 RESPA Servicing Final Rule, the Bureau addressed these
concerns by adopting Sec. 1024.39(c), which provides that nothing in
Sec. 1024.39 requires a servicer to communicate with a borrower in a
manner otherwise prohibited under applicable law.\97\ The Bureau also
added a comment to Sec. 1024.39(c), specifying that servicers are not
required to communicate with borrowers in a manner that would be
inconsistent with applicable bankruptcy law or a court order in a
bankruptcy case, and that servicers could adapt the requirements of
Sec. 1024.39 in any manner that would permit them to inform borrowers
of loss mitigation options. The Bureau explained that these additions
were intended to clarify that servicers could take a flexible approach
to complying with Sec. 1024.39 and that the Bureau did not intend for
its early intervention requirements to require servicers to take any
action that may be prohibited under, among other things, the Bankruptcy
Code's automatic stay provisions.\98\
---------------------------------------------------------------------------
\97\ Id.
\98\ Id. at 10806.
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Notwithstanding this flexibility, servicers continued to express
concerns to the Bureau about their ability to comply with the early
intervention requirements while also avoiding violations of bankruptcy
law. Specifically, servicers sought guidance regarding whether Sec.
1024.39 would require some attempt at compliance even if the borrower
was protected by the automatic stay, and whether servicers would be
subject to claims by private litigants asserting that bankruptcy was
not an excuse for a servicer's lack of performance under Sec. 1024.39.
Based on these inquiries, the Bureau determined that the
interaction of bankruptcy law and the early intervention requirements
required further study and that there was insufficient time before the
final rule's January 10, 2014 effective date to calibrate the
requirements.\99\ Accordingly, the Bureau issued the October 2013 IFR,
which added current Sec. 1024.39(d)(1), exempting servicers from the
early intervention requirements for a mortgage loan when the borrower
is a debtor in bankruptcy. The Bureau clarified in comment 39(d)(1)-2
that, when two or more borrowers are joint obligors with primary
liability on the mortgage loan, the exemption applies if any of the
borrowers is in bankruptcy. The Bureau further clarified in comment
39(d)(1)-3 that a servicer has no obligation to resume compliance with
Sec. 1024.39 with respect to any portion of a mortgage loan that is
discharged under applicable provisions of the Bankruptcy Code.
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\99\ 78 FR 62993, 62997 (Oct. 23, 2013).
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In issuing the IFR, the Bureau did not take a position as to
whether early intervention efforts might violate the Bankruptcy Code's
automatic stay or discharge injunction.\100\ The Bureau encouraged
servicers that had been communicating with borrowers in bankruptcy
about loss mitigation options to continue doing so and expressed the
opinion that some borrowers in bankruptcy may benefit from receiving
tailored loss mitigation information that is appropriate to their
circumstances.\101\ The Bureau also solicited comments on the scope of
the exemption, the triggers for qualifying for the exemption and when
to resume early intervention, and how communications might be tailored
to
[[Page 74203]]
meet the particular needs of borrowers in bankruptcy.\102\ Finally, the
Bureau stated that it would continue to examine this issue and might
reinstate an early intervention requirement with respect to borrowers
in bankruptcy, though the Bureau indicated that it would not reinstate
any such requirement without notice and comment rulemaking and an
appropriate implementation period.\103\
---------------------------------------------------------------------------
\100\ See id.
\101\ Id.
\102\ Id. at 62998.
\103\ Id.
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During the IFR's official comment period, the Bureau received
approximately 30 comments, several of which discussed Sec.
1024.39(d)(1)'s exemption from the early intervention requirements for
borrowers in bankruptcy.\104\ The Bureau has since continued to engage
stakeholders on the scope of this exemption, including by hosting the
roundtable discussion on June 16, 2014, among representatives of
consumer advocacy groups, bankruptcy attorneys, servicers, trade
groups, and bankruptcy trustees. The Bureau has also sought comment
from bankruptcy judges and experts and conducted its own analysis of
the intersection of the early intervention requirements and bankruptcy
law.
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\104\ The IFR comment period closed on November 22, 2013.
Subsequent written and oral presentations to the Bureau imparting
information or argument directed to the merits or outcome of the IFR
were subject to the Bureau's policy on ex parte presentations. See
Consumer Fin. Prot. Bureau, CFPB Bulletin 11-3, Policy on Ex Parte
Presentations in Rulemaking Proceedings (Aug. 16, 2011) (CFPB
Bulletin 11-3), available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------
Based upon its review of the comments received and its study of the
intersection of the early intervention requirements and bankruptcy law,
the Bureau believes it may be appropriate to reinstate the early
intervention requirements with respect to borrowers in bankruptcy,
under certain circumstances. The Bureau is proposing to do so in the
present rulemaking because, as noted in the IFR, the Bureau believes
that it would be preferable to use notice and comment rulemaking,
rather than simply finalizing the IFR with modifications, to reinstate
the early intervention requirements with respect to such
borrowers.\105\ The Bureau believes that this approach will allow
stakeholders to more fully consider and comment on the Bureau's
specific proposal. The Bureau also believes that it is appropriate for
the Bureau to address comments it already received in response to the
IFR. Accordingly, the following discussion of the proposed revisions to
Sec. 1024.39(d)(1) and accompanying commentary includes discussion of
the comments received regarding the IFR, as well as ex parte comments
received after the IFR's official comment period ended.
---------------------------------------------------------------------------
\105\ 78 FR 62993, 62998 (Oct. 23, 2013).
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Live Contact
Commenters supported almost uniformly the IFR's exemption from
Sec. 1024.39(a)'s live contact requirement. Servicers and trade groups
urged the Bureau to maintain the exemption in order to avoid conflicts
with the Bankruptcy Code. One trade group added that a borrower likely
would have received early intervention outreach prior to filing for
bankruptcy, such that additional early intervention attempts during
bankruptcy would be redundant or unnecessary. Two bankruptcy judges
commented that the Bureau should not require servicers to attempt to
establish live contact with borrowers because such attempts may violate
the automatic stay under certain circumstances. One bankruptcy judge
and two industry participants further noted that contacting a borrower
represented by bankruptcy counsel might, under certain circumstances,
implicate ethics rules or State laws prohibiting direct contact with a
party that is represented by counsel.
A consortium of consumer advocacy groups submitted comments
generally opposing the exemption from the early intervention
requirements, arguing that the flexibility afforded by Sec. 1024.39(c)
is sufficient to address any concerns about violating the automatic
stay or discharge injunction. In subsequent ex parte comments, however,
several of these groups clarified that, with one exception discussed
below, they were comfortable with the exemption from the live contact
requirements. Finally, during the bankruptcy roundtable discussion,
which included representatives from industry and consumer advocacy
groups, as well as bankruptcy trustees, no attendees took the position
that the Bureau should lift the exemption with respect to live contact.
In light of these comments, the Bureau is proposing to maintain the
exemption from the live contact requirements with respect to a borrower
who is in bankruptcy, has discharged personal liability for the
mortgage loan, or shares liability on a mortgage loan with a person who
is a debtor in a Chapter 12 or Chapter 13 bankruptcy case. In addition
to the issues identified in the comments, two other factors inform the
Bureau's proposal to maintain the exemption. First, the Bureau believes
that live contact may be perceived as more intrusive and of less value
to a borrower in bankruptcy. As discussed in the section-by-section
analysis of Sec. 1024.39(a), the live contact requirements are ongoing
and generally require a servicer to make continued efforts to establish
live contact with a borrower so long as a borrower remains delinquent.
In addition, compliance with Sec. 1024.39(a) is not limited to--and
does not in every case require--a discussion of available loss
mitigation options. Section 1024.39(a) requires a servicer to inform a
borrower of loss mitigation options ``if appropriate.'' More broadly,
``[l]ive contact provides servicers an opportunity to discuss the
circumstances of a borrower's delinquency,''\106\ and, based on this
discussion, a servicer may determine not to inform a borrower of loss
mitigation options. Current comment 39(a)-3.i.B provides an example
demonstrating that it is reasonable for a servicer to 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.\107\ In that situation, a live contact conversation could serve as
a reminder to a borrower who inadvertently missed a payment, or it
could give the servicer an opportunity to discuss when the borrower
would cure a temporary delinquency; it would not necessarily involve a
discussion of loss mitigation options. Borrowers who seek protection
under the Bankruptcy Code, however, may do so in part to terminate
unwelcome creditor communications about outstanding payment
obligations. For such borrowers, the Bureau believes that a servicer's
repeated attempts to establish live contact, which may not lead to a
discussion of available loss mitigation options between the parties,
may be of diminished value to the borrower.
---------------------------------------------------------------------------
\106\ Comment 39(a)-2.
\107\ This proposal would redesginate this comment as comment
39(a)-4.i.B.
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Second, while some courts have determined that a creditor may
properly contact a borrower in bankruptcy, including by telephone, to
inform the borrower about loss mitigation options or to negotiate the
terms of a loss mitigation agreement,\108\ other courts
[[Page 74204]]
have found that a creditor violated the automatic stay by making live
contact with a borrower to discuss loss mitigation.\109\ The Bureau
notes that these violations appear to involve extreme facts, such as
creditors making dozens of phone calls, some of which threatened legal
action, to borrowers who had requested that the creditor stop
contacting them and either had already decided to surrender the
property or were not interested in the offered loss mitigation
options.\110\ Nonetheless, while the Bureau does not believe that
compliance with Sec. 1024.39(a)'s live contact requirement would
generally violate the stay, the Bureau is concerned that, given the
interactive and potentially unscripted nature of live contact, as well
as the fact that live contact does not necessarily require a discussion
of loss mitigation options, borrowers or courts may view a servicer's
attempts to establish live contact as a communication prohibited by the
automatic stay under certain circumstances. Accordingly, the Bureau
believes it may not be appropriate to require servicers to engage in
live contact with borrowers in bankruptcy.
---------------------------------------------------------------------------
\108\ See, e.g., Brown v. Bank of Am. (In re Brown), 481 B.R.
351, 360 (Bankr. W.D. Pa. 2012) (holding that creditor did not
violate the automatic stay by making telephone calls to a borrower
regarding foreclosure alternatives); In re Silva, No. 09-02504, 2010
WL 605578, at *1 (Bankr. D. Haw. Feb. 19, 2010) (``Nothing in the
Bankruptcy Code prevents or prohibits a chapter 7 or chapter 13
debtor or its secured creditors from entering into communications or
negotiations about the possibility of a loan modification.''); In re
Medina, No. 6:12-bk-00066-ABB, 2012 WL 2090419, at *1 (Bankr. M.D.
Fla. June 8, 2012) (``The automatic stay and the discharge
provisions of the Bankruptcy Code do not prevent the parties from
negotiating and entering into a loan modification post-petition.'').
\109\ See, e.g., In re Culpepper, 481 B.R. 650, 659-60 (Bankr.
D. Or. 2012) (stating that a creditor's reasonable contacts with a
debtor regarding foreclosure alternatives may be permissible, but
nonetheless finding a stay violation because the creditor made more
than 100 phones calls to a borrower who had requested the creditor
stop contacting her and the creditor discussed only loss mitigation
options (i) for which the borrower was ineligible, (ii) in which the
borrower was not interested, and (iii) which would have revived at
least a portion of the borrower's discharged mortgage debt); In re
Whitmarsh, 383 B.R. 735, 737 (Bankr. D. Neb. 2008) (stating that
``[a] phone call or two to follow up a letter regarding loss
mitigation efforts is understandable,'' but finding that the
creditor violated the automatic stay by making at least 22 phone
calls, some of which threatened legal action, to borrowers who had
already decided to surrender the property and had requested in
writing on several occasions that the creditor make contact only
with the borrowers' attorney).
\110\ Culpepper, 481 B.R. at 659-60; Whitmarsh, 383 B.R. at 737.
---------------------------------------------------------------------------
For these reasons, the Bureau is proposing Sec. 1024.39(d)(1)(i),
which provides that a servicer is exempt from the early intervention
live contact requirements with respect to a borrower who is a debtor in
bankruptcy or has discharged personal liability through bankruptcy.
Proposed Sec. 1024.39(d)(1)(i) also provides that a servicer is exempt
from the live contact requirements with respect to a borrower if any
borrower on the mortgage loan is a debtor in a Chapter 12 or Chapter 13
bankruptcy case. When a debtor files for protection under Chapter 12 or
Chapter 13, the Bankruptcy Code implements a ``co-debtor stay,''
prohibiting creditors from engaging in collection efforts against
certain of the debtor's joint obligors, such as a joint obligor on the
debtor's mortgage loan, even though the joint obligor has not filed for
bankruptcy.\111\ Because contacting a borrower covered by the ``co-
debtor stay'' raises some of the same concerns as contacting a borrower
covered by the automatic stay, the Bureau believes it may be
appropriate to exempt servicers from compliance with Sec. 1024.39(a)
with respect to a borrower who is jointly liable on mortgage loan with
someone who is a debtor in a Chapter 12 or Chapter 13 bankruptcy case.
---------------------------------------------------------------------------
\111\ 11 U.S.C. 1201(a) and 1301(a) (both stating that
``[e]xcept as provided in subsections (b) and (c) of this section,
after the order for relief under this chapter, a creditor may not
act, or commence or continue any civil action, to collect all or any
part of a consumer debt of the debtor from any individual that is
liable on such debt with the debtor, or that secured such debt,
unless--(1) such individual became liable on or secured such debt in
the ordinary course of such individual's business; or (2) the case
is closed, dismissed, or converted to a case under chapter 7 or 11
of this title.'').
---------------------------------------------------------------------------
Proposed Sec. 1024.39(d)(1)(i) provides that the exemption from
Sec. 1024.39(a)'s live contact requirements applies to only those non-
bankrupt borrowers who are jointly liable on a mortgage loan with a
debtor in a Chapter 12 or Chapter 13 bankruptcy case; the proposed
exemption therefore excludes borrowers who are jointly liable on a
mortgage loan with a debtor in a Chapter 7 or Chapter 11 case. This is
a departure from current Sec. 1024.39(d)(1), under which the Bureau
intentionally crafted a broad exemption from Sec. 1024.39, making the
exemption applicable to any joint obligor of a debtor in bankruptcy,
irrespective whether the joint obligor was in bankruptcy or protected
against collection attempts by the co-obligor stay under 11 U.S.C.
1201(a) or 1301(a). A consortium of consumer advocacy groups commented
that this exemption is too broad, as there is no ``co-obligor stay''
provision in Chapter 7 or Chapter 11 of the Bankruptcy Code. Thus, they
argued, there is no prohibition against contacting a joint obligor of a
Chapter 7 or Chapter 11 debtor and therefore no reason to exempt a
servicer from the live contact requirements in these circumstances. The
consumer advocacy groups gave the example of a married couple who
jointly own a home. If one spouse filed for protection under Chapter 7,
the automatic stay would not apply to the other spouse, and a servicer
would not violate the automatic stay by contacting or attempting to
negotiate a loss mitigation option with the non-debtor spouse. Under
the current broad exemption, however, a servicer has no obligation to
make reasonable efforts to establish live contact with the non-debtor
spouse, even if the couple were legally separated or living apart for
years.
The Bureau believes that it may not be necessary to exempt a
servicer from the live contact requirements with respect to a joint
obligor of a debtor in a Chapter 7 or Chapter 11 case. As the consumer
advocacy groups noted, the Bankruptcy Code does not prevent collection
attempts against such joint obligors and servicers do not violate the
automatic stay by contacting them.\112\ Further, the Bureau believes
that these joint obligors may benefit from early intervention in the
same way that borrowers who are not in bankruptcy do. Therefore,
proposed Sec. 1024.39(d)(i) does not exempt a servicer from the live
contact requirement with respect to a joint obligor of a debtor in a
Chapter 7 or Chapter 11 case.
---------------------------------------------------------------------------
\112\ In re Chugach Forest Products, Inc., 23 F.3d 241, 246 (9th
Cir. 1994) (``As a general rule, `[t]he automatic stay of section
362(a) protects only the debtor, property of the debtor or property
of the estate. It does not protect non-debtor parties or their
property. Thus, section 362(a) does not stay actions against
guarantors, sureties, corporate affiliates, or other non-debtor
parties liable on the debts of the debtor.''') (quoting Advanced
Ribbons & Office Prods. v. U.S. Interstate Distrib. (In re Advanced
Ribbons & Office Prods.), 125 B.R. 259, 263 (B.A.P. 9th Cir. 1991)).
---------------------------------------------------------------------------
Proposed comment 39(d)(1)(i) clarifies when the exemption from the
live contact requirements begin. The proposed comment states that the
requirements of Sec. 1024.39(a) would not apply once a petition is
filed under the Bankruptcy Code, commencing any case in which the
borrower is a debtor, or a Chapter 12 or Chapter 13 case in which any
borrower on the mortgage loan is a debtor. The proposed comment further
clarifies that the requirements of Sec. 1024.39(a) also do not apply
if the borrower has discharged personal liability for the mortgage loan
under 11 U.S.C. 727, 1141, 1228, or 1328.
Written Notice
The Bureau received several comments regarding the bankruptcy
exemption from Sec. 1024.39(b)'s written early intervention notice
requirement. Most initial industry comments in response to the IFR did
not draw a distinction between the live contact and written notice
requirements, arguing broadly in favor of a blanket exemption from
early intervention. One servicer commented specifically that the
written notice requirements could implicate the
[[Page 74205]]
automatic stay or raise issues about contacting a borrower represented
by counsel. The servicer also stated that it was considering whether it
would be more appropriate to send a borrower loss mitigation
information immediately upon the filing of a bankruptcy petition,
rather than notices only at specific points in a borrower's
delinquency.
Most commenters that specifically addressed the written notice
requirements, however, stated that servicers could comply with Sec.
1024.39(b) without violating the automatic stay. Consumer advocacy
groups argued that borrowers in bankruptcy would benefit from
information about loss mitigation options and that there is no case law
holding that a written notice describing loss mitigation options
violates the automatic stay. The consumer advocacy groups argued
further that the written notice required by Sec. 1024.39(b) could not
violate the automatic stay because it is purely informational and
contains no payment demand. Two bankruptcy judges and a bankruptcy law
professor commented that a written notice compliant with Sec.
1024.39(b) and containing a bankruptcy disclaimer would raise fewer
concerns about the automatic stay than live contact because the notice
does not contain any payment demand and because the nature of the
notice is an invitation to apply for debt relief.
During the bankruptcy roundtable, several industry participants
stated that it would be appropriate for servicers to provide a borrower
in bankruptcy with the written notice containing information related to
available loss mitigation options, particularly as Sec. 1024.39(b)
does not require a servicer to send the notice more than once in a six-
month period. Thus, these participants took the position that the
notice is unlikely to harass a borrower. Several roundtable
participants further stated that any written notice requirement should
be limited to borrowers in Chapter 7 who first become delinquent after
filing bankruptcy and borrowers in Chapter 13 who are delinquent on
their bankruptcy plan payments (as opposed to delinquent under the
mortgage loan contract).
The Bureau continues to believe that borrowers in bankruptcy will
benefit from receiving the written notice required under Sec.
1024.39(b). Specifically, the Bureau believes that the content of the
notice, including the statement providing a brief description of loss
mitigation options that may be available from the servicer and the
application instructions or a statement informing the borrower how to
obtain more information about loss mitigation options from the
servicer, may be of particular value to a delinquent borrower in
bankruptcy. The Bureau believes that receipt of the written early
intervention notice may be critical in educating borrowers about
available loss mitigation options. The Bureau further believes that
borrowers who have filed for bankruptcy should not be denied an
opportunity to obtain information about available loss mitigation
options. This information may be uniquely critical for borrowers in
bankruptcy as they make decisions about how best to eliminate or
reorganize their debts.
Other Federal agencies have similarly recognized that borrowers in
bankruptcy are in need of information regarding loss mitigation options
and should be considered for available foreclosure alternatives. In
2008, HUD issued FHA loss mitigation guidance requiring mortgagees to
provide information to a bankrupt borrower's attorney regarding
foreclosure alternatives and instructions on how to apply.\113\ HUD
further recommended that mortgagees should provide debtors not
represented by counsel with the same loss mitigation information and
review debtors' bankruptcy petitions to determine if they are eligible
for loss mitigation.\114\ The Department of the Treasury does not
require HAMP participants to actively solicit borrowers in bankruptcy
for loss mitigation options, but it has made clear that such borrowers
may be eligible for HAMP.\115\
---------------------------------------------------------------------------
\113\ U.S. Dep't of Housing and Urban Dev., Mortgagee Letter
2008-32, Use of FHA Loss Mitigation During Bankrutpcy (Oct. 17,
2008) (HUD Mortgagee Letter 2008-32), available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2008ml.cfm.
\114\ Id.
\115\ U.S. Dep't of the Treasury & U.S. Dep't of Housing and
Urban Dev., MHA Handbook v. 4.4, Making Home Affordable Program
Handbook for Servicers of Non-GSE Loans, at 79, 82 (Mar. 3, 2014)
(``Borrowers in active Chapter 7 or Chapter 13 bankruptcy cases are
eligible for HAMP at the servicer's discretion in accordance with
investor guidelines, but servicers are not required to solicit these
borrowers proactively for HAMP. * * * Borrowers who have received a
Chapter 7 bankruptcy discharge in a case involving the first lien
mortgage who did not reaffirm the mortgage debt under applicable law
are eligible for HAMP. * * * [A] servicer is deemed to have made a
Reasonable Effort to solicit [those] borrower[s] after sending two
written notices to the last address of record in addition to the two
required written notices. * * *''), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_44.pdf.
---------------------------------------------------------------------------
The Bureau understands that even after a borrower files for
bankruptcy, a servicer is not categorically barred from communicating
with the borrower.\116\ Courts have found that, under appropriate
circumstances, servicers may provide periodic statements, notices of
change in payments, and other communications without violating the
automatic stay.\117\ As noted above, several courts have determined
that a servicer may properly contact a borrower to inform the borrower
about loss mitigation options or to negotiate the terms of a loss
mitigation agreement. Consumer advocacy groups and bankruptcy attorneys
have also commented that sending a notice of potential loss mitigation
options, without any accompanying demand for payment, would not
implicate the automatic stay.
---------------------------------------------------------------------------
\116\ See, e.g., Zotow v. Johnson (In re Zotow), 432 B.R. 252,
258 (B.A.P. 9th Cir. 2010) (``[T]he automatic stay does not prevent
all communications between a creditor and the debtor.'') (citations
omitted); In re Duke, 79 F.3d 43, 45 (7th Cir. 1996) (holding that
creditor does not violate automatic stay by sending a
``nonthreatening and non-coercive'' offer to reaffirm a pre-petition
debt and stating that ``the respite provided by Sec. 362 `is * * *
from the threat of immediate action by creditors, such as a
foreclosure or a lawsuit''') (quoting Brown v. Pa. State Emps.
Credit Union, 851 F.2d 81, 86 (3d Cir. 1988)).
\117\ See section-by-section analysis of 12 CFR 1026.41, infra;
see also Zotow, 432 B.R. at 260 (notice of payment change due to
escrow deficiency); Duke, 79 F.3d at 45 (offer to reaffirm debt);
Schatz v. Chase Home Fin. (In re Schatz), 452 B.R. 544 (Bankr. M.D.
Pa. 2011) (periodic statements); Singh v. U.S. Bank (In re Singh),
457 B.R. 790 (Bankr. E.D. Cal. 2011) (notice of payment change); see
also Morgan Guaranty Trust Co. of N.Y. v. Am. Sav. & Loan Ass'n, 804
F.2d 1487, 1491 (9th Cir. 1986) (``[M]ere requests for payment are
not barred absent coercion or harassment by the creditor. * * *'').
---------------------------------------------------------------------------
Accordingly, the Bureau is proposing to revise the exemption set
forth in Sec. 1024.39(d)(1). Under the proposal, a servicer would,
with certain exceptions, be required to provide the written early
intervention notice required by Sec. 1024.39(b) to a delinquent
borrower who is in bankruptcy or has discharged personal liability for
the mortgage loan. Specifically, proposed Sec. 1024.39(d)(ii)
generally limits the exemption to instances where there are no loss
mitigation options available or where the borrower is surrendering the
property or avoiding the lien securing the mortgage loan. Thus, under
the proposal, a servicer would be required to provide the written early
intervention notice to a borrower in bankruptcy, except in limited
circumstances. As discussed above, the Bureau believes that information
in the written early intervention notice is valuable to all borrowers
and may be particularly useful to a borrower who is in bankruptcy for
the purpose of reducing or reorganizing outstanding debts.
The Bureau notes that servicers have expressed concerns about
communicating with a borrower
[[Page 74206]]
represented by counsel, but the Bureau does not believe that these
concerns warrant a blanket exemption from providing the written early
intervention notice to borrowers in bankruptcy. Section 1024.39(c)
already provides that a servicer is not required to communicate with a
borrower in a manner otherwise prohibited by applicable law, which
could include State laws regarding communications with a represented
party. Moreover, as existing comments 39(a)-4 and 39(b)-3 clarify, a
servicer may satisfy the live contact and written notice requirements
of Sec. 1024.39 by providing information about loss mitigation options
to a person authorized by the borrower to communicate with the servicer
on the borrower's behalf.\118\ To the extent that a servicer is
concerned about communicating with a borrower represented by counsel,
it may communicate with the borrower's authorized representative
instead. As HUD has recognized, communicating with a borrower's
bankruptcy counsel about available loss mitigation does not raise
concerns about violating the automatic stay.\119\
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\118\ See also 78 FR 10695, 10796 (Feb. 14, 2013) (``[Section]
1024.39 requires that servicers reach out to borrowers. * * * [T]he
Bureau believes it would mitigate the burden on the servicer to be
able to communicate with either the borrower or the borrower's
representative.''); id. at 10797 (``[C]omment 39(a)-4 [clarifies]
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).'').
\119\ HUD Mortgagee Letter 2008-32 (``As a result of these
discussions [with bankruptcy experts], the Department understands
that contact with debtor's counsel or a bankruptcy trustee does not
constitute a violation of the automatic stay and that waiting until
a bankruptcy is discharged or dismissed before offering loss
mitigation may be injurious to the interests of the borrower, the
mortgagee and the FHA insurance funds.''); see also Henry v. Assocs.
Home Equity Servs., Inc. (In re Henry), 266 B.R. 457 (Bankr. C.D.
Cal. 2001) (``If a debtor is represented by counsel, any creditor
may communicate with counsel for the debtor without violating the
automatic stay. Counsel has no need to be shielded from a client's
creditors. It is part of the job of counsel for a debtor to deal
with the client's creditors.''); United States v. Nelson, 969 F.2d
626, 628 (8th Cir. 1992) (holding that creditor did not violate the
stay by sending a letter to debtor's counsel); Cash Am. Pawn, L.P.
v. Murphy, 209 B.R. 419, 424 (E.D. Tex. 1997) (similar); Murray v.
Great Valley Sav. Ass'n, (In re Murray), 89 B.R. 533, 536 (Bankr.
E.D. Pa. 1988) (similar); cf. Duke, 79 F.3d at 45 (holding that
creditor did not violate stay by copying debtor on letter it sent to
debtor's counsel).
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The Bureau also does not believe that it is appropriate, as some
commenters suggested, to limit the written early intervention notice to
instances where a borrower in Chapter 7 first becomes delinquent while
in bankruptcy or to where a borrower in Chapter 13 fails to make
payments due under the bankruptcy plan. Although a borrower in Chapter
7 who was delinquent pre-bankruptcy may have already received early
intervention, such a borrower may benefit from updated information
related to available loss mitigation options, particularly when
determining whether to retain the property. Additionally, a borrower in
Chapter 13 making timely plan payments may still be delinquent under
the mortgage loan contract and may benefit from receiving timely
information about loss mitigation options. The Bureau understands that
most Chapter 13 cases are unsuccessful, with more than half resulting
in dismissal,\120\ indicating that a borrower who is temporarily
current on bankruptcy plan payments may ultimately need to modify the
mortgage loan to enable a successful bankruptcy plan. The Bureau
therefore believes that it may be better to provide such borrowers with
information about loss mitigation options earlier rather than later.
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\120\ See Ed Flynn, Chapter 13 Revisited: Can it help Solve the
Judiciary's Fiscal Problems?, 32 a.m. Bankr. Inst. J. 20, 20 (Dec.
2013) (stating that over 55% of Chapter 13 cases are dismissed
before plan completion); U.S. Dep't of Justice, Office of the U.S.
Trustee, Chapter 13 Trustee Data and Statistics, available at http://www.justice.gov/ust/eo/private_trustee/data_statistics/ch13.htm.
(indicating that over 50% of Chapter 13 cases filed since 2004 have
been dismissed prior to completion).
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Nonetheless, as noted above, proposed Sec. 1024.39(d)(1)(ii)
retains the exemption from the written early intervention notice in
certain circumstances. Proposed Sec. 1024.39(d)(1)(ii)(A) provides
that a servicer is exempt from the written notice requirement if no
loss mitigation options are available. The Bureau believes that a
primary value of the written early intervention notice to a delinquent
borrower in bankruptcy is to inform the borrower of potential loss
mitigation options to avoid foreclosure. If no loss mitigation options
are available, however, the value of the written notice may be
significantly diminished for a borrower in bankruptcy.
In addition, proposed Sec. 1024.39(d)(1)(ii)(B) through (D) exempt
a servicer from the written early intervention notice requirement in
several situations where the borrower in bankruptcy surrenders the
property securing the mortgage loan or avoids (i.e., renders
unenforceable) the lien securing the mortgage loan. First, proposed
Sec. 1024.39(d)(1)(ii)(B) provides that a servicer is exempt if the
borrower's confirmed plan of reorganization provides for the borrower
to surrender the property, provides for the avoidance of the lien
securing the mortgage loan, or otherwise does not provide for, as
applicable, the payment of pre-bankruptcy arrearage or the maintenance
of payments due under the mortgage loan.\121\ Second, proposed Sec.
1024.39(d)(1)(ii)(C) provides that a servicer is exempt if the borrower
files a statement of intention with the bankruptcy court that
identifies an intent to surrender the property securing the mortgage
loan.\122\ Finally, proposed Sec. 1024.39(d)(1)(ii)(D) provides that a
servicer is exempt if the bankruptcy court enters an order providing
for the avoidance of the servicer's lien or lifting the automatic stay
with respect to the property securing the mortgage loan. In each of
these situations, the borrower relinquishes the property or otherwise
discontinues making regular payments on the mortgage loan. The Bureau
believes that apprising a borrower in bankruptcy of loss mitigation
options at that time may be of diminished value. Moreover, in these
situations, the borrower may be significantly delinquent and may have
already received information about loss mitigation options, either
before or during bankruptcy.
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\121\ In Chapter 13, for example, a borrower who is delinquent
on a mortgage loan as of the date of the bankruptcy filing may,
subject to certain restrictions, confirm a plan of reorganization
that provides for the borrower to make payments that will pay down
the pre-bankruptcy arrearage over time while the borrower also
continues to make the periodic payments as they come due under the
mortgage loan. See 11 U.S.C. 1322(b)(5) (stating that the plan of
reorganization may ``provide for the curing of any default within a
reasonable time and maintenance of payments while the case is
pending on any unsecured claim or secured claim on which the last
payment is due after the date on which the final payment under the
plan is due'').
\122\ See 11 U.S.C. 521(a)(2) (requiring a Chapter 7 debtor to
file ``a statement of intention with respect to the retention or
surrender of [secured property of the estate]'').
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The Bureau is also proposing two comments to clarify proposed Sec.
1024.39(d)(1)(ii). First, proposed comment 39(d)(1)(ii)-1 provides that
for purposes of Sec. 1024.39(d)(1)(ii), the term ``plan of
reorganization'' refers to a borrower's plan of reorganization filed
under the applicable provisions of Chapter 11, Chapter 12, or Chapter
13 of the Bankruptcy Code and confirmed by a court with jurisdiction
over the borrower's bankruptcy case. This comment is intended to avoid
any confusion about what the term ``plan of reorganization'' means when
used in Sec. 1024.39(d)(1).
Second, proposed comment 39(d)(1)(ii)--2 states that, if the FDCPA
applies to a servicer's communications with a borrower in bankruptcy
and the borrower has sent a notification under
[[Page 74207]]
FDCPA section 805(c), proposed comment 39(d)(2)(iii)-2 may be
applicable. As discussed more fully in the section-by-section analysis
of Sec. 1024.39(d)(2), proposed comment 39(d)(2)(iii)-2 would, under
certain circumstances, exempt a servicer from the written notice
requirements if the borrower has sent a notification pursuant to FDCPA
section 805(c) and is unrepresented by a person authorized by the
borrower to communicate with the servicer on the borrower's behalf.
Resuming Compliance
The Bureau is also proposing to revise current comment 39(d)(1)-2
and redesignate it as comment 39(d)(1)-1. As revised and redesignated,
proposed comment 39(d)(1)-1 addresses a servicer's obligation to resume
compliance with the early intervention requirements following a
borrower's bankruptcy. The proposed comment provides that, with respect
to any borrower who has not discharged the mortgage debt, a servicer
must resume compliance with Sec. 1024.39(a) and (b), as applicable, as
of the first delinquency that follows the earliest of the following
outcomes in the bankruptcy case: (1) the case is dismissed, (2) the
case is closed, (3) the borrower reaffirms the mortgage loan under 11
U.S.C. 524, or (4) the borrower receives a discharge under 11 U.S.C.
727, 1141, 1228, or 1328. However, proposed comment 39(d)(1)-1 also
clarifies that the requirement to resume compliance with Sec. 1024.39
does not require a servicer to communicate with a borrower in a manner
that would be inconsistent with applicable bankruptcy law or a court
order in a bankruptcy case. The proposed revisions provide that, to the
extent necessary to comply with such law or court order, a servicer may
adapt the requirements of Sec. 1024.39 as appropriate. In addition,
proposed comment 39(d)(1)-1 provides that compliance with Sec.
1024.39(a) is not required with respect to any borrower who has
discharged the mortgage debt under applicable provisions of the
Bankruptcy Code. If the borrower's bankruptcy case is revived--for
example, if the court reinstates a previously dismissed case or reopens
the case--the servicer is again exempt from the requirements of
proposed Sec. 1024.39(a).
The Bureau requests comment on proposed Sec. 1024.39(d)(1),
including the scope of the exemptions, the triggers for qualifying for
the exemptions and resuming early intervention, and how communications
may be tailored to meet the particular needs of borrowers in
bankruptcy. The Bureau further solicits comment on whether servicers
have had difficulties receiving notices regarding the dismissal or
closing of a bankruptcy case or of the debtor's discharge, and whether
the obligation to resume early intervention should be contingent on
receiving such notices. Additionally, the Bureau requests comment on
whether the timing of the written early intervention notice should be
different for a borrower in bankruptcy, such as whether a servicer
should be required to provide the written notice to a borrower in
bankruptcy within 45 days after the bankruptcy case commences, rather
than by the 45th day of the borrower's delinquency.
Legal Authority
The Bureau is proposing to exercise its authority under sections
6(j)(3) and 19(a) of RESPA to exempt servicers from the early
intervention live contact requirements in Sec. 1024.39(a) for a
mortgage loan while the borrower is a debtor in bankruptcy, while any
borrower on the mortgage loan is a debtor in Chapter 12 or Chapter 13
bankruptcy, or if the borrower has discharged personal liability for
the mortgage loan through bankruptcy. For the reasons discussed above,
the Bureau does not believe at this time that the consumer protection
purposes of RESPA would be furthered by requiring servicers to comply
with Sec. 1024.39(a) for a mortgage loan under those bankruptcy-
related circumstances.
The Bureau is also proposing to exercise its authority under
sections 6(j)(3) and 19(a) of RESPA to exempt a servicer from the
written early intervention notice requirements in Sec. 1024.39(b) if
no loss mitigation options are available and the borrower is a debtor
in bankruptcy, any borrower on the mortgage loan is a debtor in Chapter
12 or Chapter 13 bankruptcy, or the borrower has discharged personal
liability for the mortgage loan through bankruptcy. The Bureau is also
proposing to exercise its authority under sections 6(j)(3) and 19(a) of
RESPA to exempt a servicer from the written early intervention notice
requirements in Sec. 1024.39(b) if the borrower is a debtor in
bankruptcy and any of the three following conditions are met: (1) The
borrower's confirmed plan of reorganization provides that the borrower
will surrender the property securing the mortgage loan, provides for
the avoidance of the lien securing the mortgage loan, or otherwise does
not provide for, as applicable, the payment of pre-bankruptcy arrearage
or the maintenance of payments due under the mortgage loan; (2) the
borrower files with the court a Statement of Intention pursuant to 11
U.S.C. 521(a) identifying an intent to surrender the property securing
the mortgage loan; or (3) a court enters an order in the bankruptcy
case providing for the avoidance of the lien securing the mortgage loan
or lifting the automatic stay pursuant to 11 U.S.C. 362 with respect to
the property securing the mortgage loan. For the reasons discussed
above, the Bureau believes at this time that the consumer protection
purposes of RESPA would not be furthered by requiring compliance with
Sec. 1024.39(b) under those circumstances.
39(d)(2) Fair Debt Collection Practices Act
The Bureau is proposing to revise the scope of the current
exemption from the early intervention requirements set forth in Sec.
1024.39(d)(2). Section 1024.39(d)(2) currently exempts servicers
subject to the FDCPA with respect to a mortgage loan for which a
borrower has sent a cease communication notification pursuant to FDCPA
section 805(c) (15 U.S.C. 1692c(c)) from the early intervention
requirements.\123\ The proposal maintains the current exemption from
the live contact requirements of Sec. 1024.39(a) but partially lifts
the exemption from the written early intervention notice requirements
of Sec. 1024.39(b). Specifically, the proposal requires that a
servicer must provide a modified written early intervention notice if
loss mitigation options are available. In addition to the information
set forth in Sec. 1024.39(b)(2), the proposal provides that the
modified written early intervention notice must include a statement
that the servicer may or intends to invoke its specified remedy of
foreclosure. Proposed model clause MS-4(D) in appendix MS-4 to this
part may be used to comply with this requirement. The proposal provides
that the written notice may not contain a request for payment. In
addition, it prohibits a servicer from providing the written notice
more than once during any 180-day period. To the extent a servicer
would be required to provide the modified written notice under Sec.
1024.39(d)(2)(iii), the proposal
[[Page 74208]]
provides the servicer with a safe harbor from liability under the
FDCPA. Consistent with the discussion in this section, the Bureau is
proposing to issue an advisory opinion interpreting the FDCPA cease
communication requirement in relation to the Mortgage Servicing Rules
under FDCPA section 813(e) (15 U.S.C. 1692k(e)). As provided in that
section, no liability arises under the FDCPA for an act done or omitted
in good faith in conformity with an advisory opinion of the Bureau
while that advisory opinion is in effect. For the reasons discussed
below, the Bureau is proposing to provide a safe harbor for certain
communications between a servicer and a borrower notwithstanding a
borrower's invocation of the ``cease communication'' right.
---------------------------------------------------------------------------
\123\ This proposal discusses the impact of a borrower's cease
communication notification on a servicer's obligations under the
early intervention requirements, and is intended to apply equally to
a borrower's notice to the servicer that the borrower refuses to pay
a debt. See FDCPA section 805(c) (``If a consumer notifies a debt
collector in writing that the consumer refuses to pay a debt or that
the consumer wishes the debt collector to cease further
communication with the consumer, the debt collector shall not
communicate further with the consumer with respect to such debt. * *
*'').
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The objectives of the early intervention requirements under Sec.
1024.39 include ensuring that servicers provide delinquent borrowers
with information about their options at the early stages of
delinquency, encouraging communication between servicers and delinquent
borrowers, and encouraging delinquent borrowers to work with their
servicers to identify alternatives to foreclosure.\124\ Section
1024.39(a) requires a servicer to 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 the borrower about the availability of loss
mitigation options, if appropriate. Section 1024.39(b) requires a
servicer to provide to a delinquent borrower a written notice with
specific information, including examples of loss mitigation options
that may be available and instructions on how to obtain more
information about loss mitigation options from the servicer, not later
than the 45th day of the borrower's delinquency.
---------------------------------------------------------------------------
\124\ See 77 FR 57199, 57251 (Sept. 17, 2012); 78 FR 10695,
10788-89 (Feb. 14, 2013).
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In the Bureau's 2012 RESPA Servicing Proposal, the Bureau sought
comment on ``whether servicers may reasonably question how they could
comply with [the] Bureau's propos[ed early intervention requirements]
in light of [other applicable] laws,'' including the FDCPA.\125\ A
servicer of a mortgage that was in default at the time the servicer
acquired it may be a debt collector under FDCPA section 803(6). The
FDCPA generally grants consumers the right to bar debt collectors from
communicating with them regarding a debt by sending a written cease
communication notification pursuant to FDCPA section 805(c). However,
even after a borrower sends a servicer a cease communication
notification, the servicer is not categorically barred under the FDCPA
from all communication with the borrower. FDCPA section 805(c) contains
specific exceptions that allow further communications with the borrower
with respect to a debt for the following reasons: (1) To advise the
borrower that the debt collector's further efforts are being
terminated; (2) to notify the borrower that the debt collector or
creditor may invoke specified remedies which are ordinarily invoked by
such debt collector or creditor; or (3) where applicable, to notify the
borrower that the debt collector or creditor intends to invoke a
specified remedy.\126\
---------------------------------------------------------------------------
\125\ 77 FR 57199, 57260-61 (Sept. 17, 2012).
\126\ FDCPA section 805(c)(1) through (3).
---------------------------------------------------------------------------
To address industry concerns about conflicts with existing law, in
the 2013 RESPA Servicing Final Rule, the Bureau added Sec. 1024.39(c),
which provides that nothing in Sec. 1024.39 requires a servicer to
communicate with a borrower in a manner otherwise prohibited under
applicable law, including the FDCPA.\127\ The Bureau subsequently
clarified compliance requirements in relation to the FDCPA in the
October 2013 IFR and October 2013 Servicing Bulletin.\128\ Under the
IFR, a servicer subject to the FDCPA with respect to a borrower is
exempt from the requirements of Sec. Sec. 1024.39 and 1026.20(c) with
regard to a mortgage loan for which the borrower has sent a cease
communication notification pursuant to FDCPA section 805(c). The Bureau
explained that, because the early intervention rule (Sec. 1024.39) and
the adjustable-rate mortgage (ARM) payment adjustment notice rule
(Sec. 1026.20(c)) are neither statutorily mandated by the Dodd-Frank
Act nor in response to a borrower-initiated communication, the
interplay between Sec. Sec. 1024.39 and 1026.20(c) and the cease
communication provision of FDCPA section 805(c) was unclear. At that
time, the Bureau did not make a determination as to the legal status of
early intervention efforts or the ARM payment adjustment notice
requirements following the receipt of a borrower's proper cease
communication request. The Bureau stated that it would explore, as part
of a broader rulemaking on debt collection, the legal issues and
practical benefits of requiring: (1) Some type of early intervention to
notify borrowers of the potential availability of loss mitigation
options, balancing the rights of debtors to protect themselves against
certain debt collector practices with the consumer protections afforded
by servicer-borrower contact that may lead to the resolution of
borrower default; and (2) some form of Sec. 1026.20(c) notice,
balancing the rights of debtors to prevent debt collectors from
communicating with them with the consumer protection afforded by timely
notice of interest rate and payment adjustments.\129\ The Bureau noted
that the future rulemaking on debt collection issues may alter or
eliminate the exemptions set forward in the IFR.\130\
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\127\ 78 FR 10695, 10806-07 (Feb. 14, 2013).
\128\ 78 FR 62993 (Oct. 23, 2013); CFPB Bulletin 2013-12.
\129\ 78 FR 62993, 62994 (Oct. 23, 2013).
\130\ Id. at 62998-99.
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The Bureau received a number of comments in response to the IFR
during the official comment period and ex parte comments after the
close of the official comment period. Accordingly, the following
discussion of the proposed rule refers to both sets of comments. The
Bureau received comments from various trade associations in support of
the FDCPA-related exemptions under the IFR and the safe harbor from
liability under the FDCPA that the Bureau granted servicers. One trade
association encouraged the Bureau to make a comprehensive determination
as to the legal status of communications required under the servicing
rules and their impact on or conflict with the FDCPA before making
additional changes. Two commenters stated that the Bureau should
address these questions through rulemaking rather than through a
subsequent compliance bulletin.
A consumer advocacy group's comment requested that the Bureau not
require borrowers to choose between their rights under the FDCPA and
the benefits of the servicing rules. The comment described the written
early intervention notice as a ``form letter'' and argued that most
borrowers would not view the notice as the type of debt collection that
they meant to stop through a cease communication notification. In a
follow-up ex parte meeting with the Bureau, the consumer advocacy group
stated that servicers that are careful to send only mandated notices in
compliance with the Bureau's requirements are unlikely to face
litigation risk and suggested that a servicer could include language on
a required notice acknowledging that the borrower has exercised cease
communication rights.
The Bureau has learned through continued outreach that important
consumer protections may be implicated by the current FDCPA-related
exemption from the early
[[Page 74209]]
intervention requirements under Sec. 1024.39(d)(2). Specifically, the
Bureau believes that a borrower may send a blanket cease communication
notification and thus unwittingly forfeit the opportunity to gain
information about potential loss mitigation options under the early
intervention rules. Borrowers assisted by counsel or housing counselors
may find themselves choosing between their rights to invoke cease
communication protections pursuant to FDCPA section 805(c) or the
benefits of the early intervention rules under Sec. 1024.39.
Therefore, the Bureau is taking the opportunity to revisit the
exemption from the early intervention requirements at this time rather
than as part of a later and broader rulemaking on debt collection.\131\
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\131\ The Bureau is not, however, making a determination as to
the legal status of the requirements under Sec. 1026.20(c)
following receipt of proper cease communication requests at this
time. As noted in the IFR, the Bureau continues to encourage
servicers to provide ARM payment adjustment notices to the extent
that the FDCPA permits. See 78 FR 62993, 62999 (Oct. 23, 2013).
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The Bureau considers whether it may be appropriate to alter or
eliminate the exemption from the early intervention live contact
requirements in Sec. 1024.39(a), the written notice requirements in
Sec. 1024.39(b), or both. The proposal maintains the current exemption
from the live contact requirements of Sec. 1024.39(a), but would
partially lift the exemption from the written early intervention notice
requirements of Sec. 1024.39(b) if loss mitigation options are
available. After careful consideration, the Bureau believes that a
modified written early intervention notice is closely linked to the
exceptions promulgated to the cease communication rights by FDCPA
section 805(c), and that the written notice is more closely linked to
those exceptions than the live contact requirements.
Live Contact
The Bureau understands that the nature of live contact and the
information conveyed may be highly variable. The information conveyed,
the manner for conveying that information, and whether any information
is conveyed depends on the borrower's circumstances, the servicer's
perception of those circumstances, and the servicer's exercise of
reasonable discretion.\132\ The servicer may contact the borrower in
person, by telephone, or not at all, if the servicer's good faith
efforts to reach the borrower fail.\133\ By their nature, discussions
or conversations resulting from live contact are not and cannot be
closely prescribed.\134\ Such variability is inconsistent with the
narrow exceptions in FDCPA section 805(c), which permit a debt
collector to communicate further with a borrower for extremely limited
purposes after a borrower has sent a servicer a cease communication
notification. Because the information conveyed and the manner for
conveying such information may be highly variable in the context of
live contact, the Bureau believes that requiring a servicer to comply
with the live contact requirements with regard to a mortgage loan for
which a borrower has sent a notification pursuant to FDCPA section
805(c) is inappropriate and may put a servicer subject to the FDCPA
with respect to that borrower's loan at risk of violating the FDCPA.
The Bureau is proposing no general rule about whether oral versus
written communications are more likely to violate the FDCPA, but notes
only that the live contact requirements of Sec. 1024.39(a) are less
susceptible to standard, uniform delivery in compliance with the cease
communication exceptions in FDCPA section 805(c) than are the written
early intervention notice requirements.
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\132\ See comment 39(a)-3.i. This proposal would redesignate
current comment 39(a)-3.i as comment 39(a)-4.i.
\133\ See comment 39(a)-2 (``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.''). This proposal would move this language into comment
39(a)-3.
\134\ See 78 FR 10695, 10793 (Feb. 14, 2013).
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The Bureau also believes that live contact may be less valuable to
a delinquent borrower who has properly invoked the FDCPA's cease
communication protections. Compliance with Sec. 1024.39(a) is not
limited to--and does not in every case require--a discussion of
available loss mitigation options. Section 1024.39(a) requires that a
servicer inform the borrower about the availability of loss mitigation
options, ``if appropriate.'' More broadly, ``[l]ive contact provides
servicers an opportunity to discuss the circumstances of a borrowers'
delinquency,''\135\ and, based on this discussion, a servicer may
determine not to inform a borrower of loss mitigation options. As
current comment 39(a)-3.i explains, ``[i]t 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.''\136\ Under certain circumstances, a servicer may
determine that promptly informing the borrower about the availability
of loss mitigation options is not appropriate under the circumstances.
Current comment 39(a)-3.i.B provides an example that demonstrates it is
reasonable for a servicer to 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.\137\ The purpose of such
a conversation could be to remind a borrower who perhaps inadvertently
missed a payment of a past due amount, or to give the servicer an
opportunity to discuss when the borrower may cure a temporary
delinquency, but the conversation may not necessarily involve a
discussion of loss mitigation options.
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\135\ Comment 39(a)-2.
\136\ Comment 39(a)-3.i. This proposal would redesignate current
comment 39(a)-3.i as comment 39(a)-4.i.
\137\ This proposal would redesginate current comment 39(a)-
3.i.B as comment 39(a)-4.i.B.
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When a delinquent borrower has instructed the servicer to stop
communicating with the borrower about the debt, the Bureau believes
that repeated attempts to establish live contact with such a borrower
that may not lead to a discussion of available loss mitigation options
may be unwanted and in contravention to the purposes of the FDCPA's
cease communication protections. The early intervention live contact
requirement is a recurring obligation that generally requires servicers
to make continued efforts to establish live contact with a borrower so
long as a borrower remains delinquent.\138\ A borrower who has sent a
servicer a cease communication notification may perceive a servicer's
early intervention live contact under Sec. 1024.39(a) as a repeated,
intrusive, and unwanted communication. The Bureau is also concerned
that, given the recurring and relatively unstructured nature of the
live contact requirements, requiring early intervention through live
contact may increase the potential for harassment in direct
contravention of the FDCPA.\139\
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\138\ See CFPB Bulletin 2013-12; section-by-section analysis of
Sec. 1024.39(a), supra.
\139\ See FDCPA section 806 (``A debt collector may not engage
in any conduct the natural consequence of which is to harass,
oppress, or abuse any person in connection with the collection of a
debt.'').
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Balancing the considerations discussed above, the Bureau is
proposing to maintain the current exemption from the live contact
requirements of Sec. 1024.39(a).
[[Page 74210]]
Specifically, proposed Sec. 1024.39(d)(2)(i) provides that a servicer
subject to the FDCPA with respect to a borrower is exempt from the
early intervention live contact requirement under Sec. 1024.39(a) with
regard to a mortgage loan for which the borrower has sent a
notification pursuant to FDCPA section 805(c).
Written Notice
The Bureau believes that the written early intervention notice will
generally be closely linked to the invocation of foreclosure. Current
Sec. 1024.39(b) requires a servicer to provide a delinquent borrower
with the written notice not later than the 45th day of the borrower's
delinquency. As a general matter, this written notice must be sent well
before the servicer may initiate foreclosure: in most cases, the
servicer must wait until a borrower's mortgage loan obligation is more
than 120 days delinquent, after the written notice has been sent, to
make the first notice or filing to initiate the foreclosure
process.\140\ As the Bureau explained in the preamble to the 2013 RESPA
Servicing Final Rule, the purpose of the written notice is to provide
more information to a borrower who has not cured by the 45th day of
delinquency. Providing a borrower with notice in writing that includes,
for example, the servicer's contact information as well as relevant
information regarding loss mitigation options and housing counselors,
conveys important information to a borrower that the servicer may not
have communicated to the borrower through live contact. Additionally,
the written notice generally provides more information than likely
would have been provided through live contact and provides the borrower
with information that may be reviewed and discussed with a housing
counselor or other advisor.\141\
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\140\ See 12 CFR 1024.41(f)(1)(i).
\141\ See 78 FR 10695, 10796-97 (Feb. 14, 2013).
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The Bureau understands that in most cases, there may be some loss
mitigation options available. Therefore, in most cases, borrowers
receiving the written early intervention notice will have an
opportunity to respond to the written notice by applying for loss
mitigation, should they so choose. Where a borrower responds to the
written notice by applying for loss mitigation, the dual tracking
restrictions of the 2013 RESPA Servicing Final Rule apply, further
limiting the servicer's ability to invoke the remedy of foreclosure.
Pursuant to Sec. 1024.41(f)(2) and (g), respectively, a servicer may
not make the first notice or filing for foreclosure if a borrower
submits a complete loss mitigation application before foreclosure
referral, and cannot move for foreclosure judgment or order of sale or
conduct a foreclosure sale if a borrower submits a complete loss
mitigation application more than 37 days before a foreclosure sale.
The failure to provide a borrower with the written early
intervention notice may impede a servicer's ability to invoke
foreclosure, particularly if loss mitigation options are available. For
example, because failure to provide a borrower with the written early
intervention notice may result in borrowers submitting requests for
loss mitigation at a later point in time--e.g., closer to the
foreclosure sale--failure to provide the written early intervention
notice may delay or otherwise interfere with the servicer's exercise of
its specified remedy of foreclosure. In addition, the Bureau
understands that some states require documentation of a servicer's
efforts to modify the loan, or require a servicer to provide the
borrower with information substantially similar to the written early
intervention notice, prior to initiating foreclosure or conducting a
foreclosure sale (e.g., California, Illinois). Therefore, the Bureau
believes that when loss mitigation options are available, the written
early intervention notice is particularly critical to a servicer's
ability to invoke its specified remedy of foreclosure, and that the
information conveyed through the written notice is closely linked to
the exceptions in FDCPA section 805(c)(2) and (3) to permit a servicer
to communicate further with a borrower after a borrower has sent a
servicer a cease communication notification.
If loss mitigation options are available, as will generally be the
case, the Bureau believes that the written early intervention notice
may be of significant value to borrowers, as well as tied closely to
the servicer's ability to invoke its specified remedy of foreclosure.
Indeed, the Bureau has stated that the early intervention notice
requirements were designed primarily to encourage delinquent borrowers
to work with their servicers to identify options for avoiding
foreclosure.\142\ Specifically, the Bureau believes that the content of
the written early intervention notice, including the statement
providing a brief description of examples of loss mitigation options
that may be available from the servicer and the application
instructions or a statement informing the borrower how to obtain more
information about loss mitigation options from the servicer,\143\ may
be of particular value and relevance to a delinquent borrower facing
debt collection in informing the borrower of the availability of loss
mitigation. The Bureau believes that receipt of the modified written
early intervention notice may be critical in educating delinquent
borrowers about potentially available loss mitigation options. The
Bureau further believes that borrowers who have sent a cease
communication notification under the FDCPA may benefit from receiving
information about loss mitigation options that may be available, which
would be provided to other borrowers who have not sent the servicer a
cease communication notification. Given its broad experience with
consumers in debt, facing foreclosure, or dealing with other financial
difficulties, the Bureau believes that, in invoking the FDCPA's cease
communication protections, borrowers are unlikely to have intended to
prevent communication about loss mitigation options. Regardless of
whether the borrower is in fact eligible for or takes advantage of loss
mitigation options that may be available, if the borrower receives the
written early intervention notice, the borrower at a minimum has an
opportunity to gain information about potential options.
---------------------------------------------------------------------------
\142\ Id. at 10787.
\143\ See section-by-section analysis of Sec. 1024.39(b)(2),
supra.
---------------------------------------------------------------------------
The Bureau has also learned that consumer advocates, in some cases,
may advise a borrower to refrain from sending a servicer a cease
communication notification pursuant to FDCPA section 805(c) in order to
preserve access to information about loss mitigation and continue to
receive early intervention communications from a servicer. The Bureau
believes that borrowers who have invoked the FDCPA's cease
communication protections should not be denied an opportunity to obtain
information about potential loss mitigation options; indeed, this
information may be even more critical for delinquent borrowers facing
debt collection.
In the limited circumstances where no loss mitigation options are
available, the Bureau believes that the written early intervention
notice will be of significantly less value to a borrower who has
exercised cease communication rights under the FDCPA and is not as
closely tied to the servicer's right to invoke foreclosure due to the
limited impact of the dual-tracking restrictions in the absence of loss
mitigation options. Therefore, the Bureau believes that it is not
appropriate to require servicers to provide the written early
[[Page 74211]]
intervention notice to such borrowers who have exercised their FDCPA
cease communication rights.
Balancing the considerations discussed above, the Bureau is
proposing to partially lift the exemption in current Sec.
1024.39(d)(2) and to require the provision of a modified form of the
written early intervention notice to borrowers who have exercised their
cease communication rights, while retaining the exemption from Sec.
1024.39(b) if no loss mitigation options are available. Specifically,
the Bureau is proposing Sec. 1024.39(d)(2)(ii) to explain that, with
regard to a mortgage loan for which the borrower has sent a
notification pursuant to section 805(c) of the FDCPA, a servicer
subject to the FDCPA with respect to that borrower's loan is exempt
from the written early intervention notice requirement under Sec.
1024.39(b) if no loss mitigation options are available. And proposed
Sec. 1024.39(d)(2)(iii) provides that a servicer subject to the FDCPA
with respect to a borrower must provide a modified written early
intervention notice with regard to a mortgage loan for which the
borrower has sent a notification pursuant to section 805(c) of the
FDCPA if loss mitigation options are available.
In addition to the information required pursuant to Sec.
1024.39(b)(2), proposed Sec. 1024.39(d)(2)(iii) would modify the
written early intervention notice to: (1) Include a statement that the
servicer may or intends to invoke its specified remedy of foreclosure;
(2) prohibit that the written notice contain a request for payment; and
(3) prohibit a servicer from providing the written notice more than
once during any 180-day period. To assist servicers in complying with
the requirements of proposed Sec. 1024.39(d)(2)(iii), the Bureau has
developed proposed model clause MS-4(D), contained in appendix MS-4 to
Part 1024. A more detailed discussion of the proposed model clause is
contained in the section-by-section analysis of appendix MS.
The Bureau is also proposing to add comment 39(d)(2)(iii)-1 to
offer servicers additional guidance on complying with the modified
written early intervention notice required by proposed Sec.
1024.39(d)(2)(iii). First, the proposed comment explains that in
requiring servicers to provide a borrower the written early
intervention notice under proposed Sec. 1024.39(d)(2)(iii), the Bureau
provides servicers a safe harbor from liability under the FDCPA with
respect to the written notice. Specifically, proposed comment
39(d)(2)(iii)-1 provides that, to the extent the FDCPA applies to a
servicer's communications with a borrower, a servicer does not violate
section 805(c) of the FDCPA by providing the modified written notice
required by Sec. 1024.39(d)(2)(iii) after a borrower has sent a
notification pursuant to section 805(c) of the FDCPA with respect to
that borrower's loan. Second, the proposed comment reminds servicers
that in providing the written early intervention notice, they must
continue to comply with all other applicable provisions of the FDCPA.
Specifically, comment 39(d)(2)(iii)-1 provides that, in providing the
borrower the written notice, the servicer must continue to comply with
all other applicable provisions of the FDCPA, including prohibitions on
unfair, deceptive, and abusive practices as contained in sections 805
through 808 of the FDCPA, 15 U.S.C. 1692c through 1692f.
The Bureau is proposing an additional comment to address
circumstances in which a borrower has invoked the FDCPA's cease
communication protections and is also a borrower in bankruptcy.
Specifically, proposed comment 39(d)(2)(iii)-2 provides that, to the
extent the FDCPA applies to a servicer's communications with a borrower
and the borrower has sent a notification pursuant to section 805(c) of
the FDCPA, a servicer is not required to provide the written notice
required by Sec. 1024.39(d)(2)(iii) if the borrower is in bankruptcy
and is not represented by a person authorized by the borrower to
communicate with the servicer on the borrower's behalf. Proposed
comment 39(d)(2)(iii)-2 further provides that if the borrower is
represented by a person authorized by the borrower to communicate with
the servicer on the borrower's behalf, however, the servicer must
provide the modified written notice required by Sec.
1024.39(d)(2)(iii) to the borrower's representative. The Bureau
requests comment on whether including proposed comment 39(d)(2)(iii)-2
is appropriate. The Bureau also seeks comment on whether there may be a
conflict between the language of proposed model clause MS-4(D) and
applicable bankruptcy laws when a borrower has exercised cease
communication rights under the FDCPA and is also a borrower in
bankruptcy and the scope of any conflict. Proposed model clause MS-4(D)
is contained in appendix MS-4. A more detailed discussion of the
proposed model clause is contained in the section-by-section analysis
of appendix MS.
The Bureau intends this proposal to partially lift the current
exemption for a servicer subject to the FDCPA with respect to a
borrower to be limited to the Bureau's explicit interpretation.
Accordingly, the Bureau intends the proposal to be narrow and based
only upon the interplay between two specific federal requirements
providing consumer protections--the early intervention requirements of
Sec. 1024.39 of Regulation X and the cease communication provision of
section 805(c) of the FDCPA. The Bureau believes that, in the limited
circumstance where a servicer is subject to the FDCPA with respect to a
borrower, and that borrower has sent the servicer a cease communication
notification, the strong consumer interest in receiving timely
information about potentially available loss mitigation options under
Sec. 1024.39(b) may outweigh or at least equal the consumer protection
offered by section 805(c) of the FDCPA. Under that limited
circumstance, the Bureau also believes that the relationship between
the Bureau's required written early intervention notice and the
servicer's invocation of its specified remedy of foreclosure is closely
linked so as to bring a proposed modified written early intervention
notice requirement within the statutory exceptions of section 805(c) of
the FDCPA. The Bureau seeks comment on whether partially lifting the
exemption for the written early intervention notice if loss mitigation
options are available is appropriate.
The Bureau reminds servicers that they may only rely on the
exemptions in proposed Sec. 1024.39(d)(2)(i) and (ii) if both the
servicer is subject to the FDCPA with respect to a borrower, meaning
that the servicer of a defaulted mortgage loan is also acting as a debt
collector under section 803(6) of the FDCPA (i.e., the servicer
acquired the mortgage at the time that it was in default) and the
borrower has properly sent the servicer a written cease communication
notification under section 805(c) of the FDCPA. Therefore, even if a
servicer receives a written cease communication notification from a
borrower, if the servicer is not also acting as a debt collector for
purposes of the FDCPA with respect to that borrower's mortgage loan,
the servicer must continue to comply with all of the early intervention
requirements under Sec. 1024.39.
The Bureau has narrowly tailored the proposal to reduce the risk
that servicers will circumvent a borrower's cease communication rights.
As noted above, the proposed requirement that a servicer subject to the
FDCPA with respect to a borrower provide a delinquent borrower with the
modified written early intervention notice applies only if the servicer
is subject to the FDCPA with
[[Page 74212]]
respect to that borrower, meaning that the servicer of a mortgage loan
that was in default at the time the servicer acquired it is also acting
as a debt collector under section 803(6) of the FDCPA, and only if that
borrower has properly invoked the FDCPA's cease communication
protections. The Bureau believes that the proposal to partially lift
the exemption for the written early intervention notice will generally
only be relevant in instances where the servicer has received a cease
communication notification prior to the 45th day of the borrower's
delinquency.\144\ Additionally, the proposal relates to only the
modified written early intervention notice, while maintaining the
exemption for early intervention live contact and the exemption for the
written notice if no loss mitigation options are available. If no loss
mitigation options are available, i.e., the owner or assignee of a
borrower's mortgage loan does not offer an alternative to foreclosure
that is made available through the servicer, this proposal leaves the
current exemption in place.\145\ Furthermore, this proposal requires
that the modified written early intervention notice include a statement
that the servicer may or intends to invoke its specified remedy of
foreclosure, prohibits the servicer from making a request for payment
via the written early intervention notice, and prohibits a servicer
from providing the written notice more than once during any 180-day
period. The Bureau believes that limiting the proposal in this manner
reduces the risk that the modified written early intervention notice
will be used to circumvent a borrower's cease communication rights
under section 805(c) of the FDCPA.
---------------------------------------------------------------------------
\144\ See FDCPA section 805(c) (``If such notice from the
consumer is made by mail, notification shall be complete upon
receipt.'').
\145\ See section-by-section analysis of Sec. 1024.39(b)(2)-4,
supra.
---------------------------------------------------------------------------
Borrower-Initiated Communications
The Bureau expects that, after the borrower has sent a cease
communication notification, any subsequent borrower-initiated
communications with a servicer for the purposes of loss mitigation will
be limited to a discussion of loss mitigation options that may be
available. Therefore, even after a borrower has sent a cease
communication notification under the FDCPA, a servicer should respond
to a borrower who inquires about loss mitigation with information
limited to potentially available loss mitigation options. For example,
a servicer may discuss with a borrower available loss mitigation
options that the owner or assignee of the borrower's mortgage loan
offers, instructions on how the borrower can apply for loss mitigation,
what documents and information the borrower would need to provide to
complete a loss mitigation application, and the potential terms or
details of a loan modification program, including the monthly payment
and duration of the program. The Bureau is proposing to issue an
advisory opinion interpreting the FDCPA cease communication requirement
in relation to the Mortgage Servicing Rules under section 813(e) of the
FDCPA. As provided in that section, no liability arises under the FDCPA
for an act done or omitted in good faith in conformity with an advisory
opinion of the Bureau while that advisory opinion is in effect.
The Bureau believes that a servicer's responding to borrower-
initiated communications with specific information about loss
mitigation options that may be available does not undermine the
protections offered by section 805(c) of the FDCPA, which empowers
borrowers to direct debt collectors to cease contacting them to collect
a debt and frees borrowers from the burden of being subject to unwanted
communications. Borrower-initiated communications are by their nature
wanted communications and therefore do not impose such a burden. Such
communications benefit borrowers by providing them with valuable
information about potentially available loss mitigation options. The
Bureau believes that when a servicer communicates with a borrower who
has invoked the FDCPA's cease communication protections about
potentially available loss mitigation options in the limited manner
described in this proposal, the servicer does not violate section
805(c) of the FDCPA. The Bureau believes that a borrower's cease
communication notification pursuant to the FDCPA should ordinarily be
understood to exclude borrower-initiated communications with a servicer
for the purposes of loss mitigation because the borrower has
specifically requested the communication at issue. As the Bureau
explained in the October 2013 Servicing Bulletin, even if the borrower
sends a cease communication notification while a specific action the
borrower requested of the servicer is in process, the borrower usually
should be understood to have excluded the specific action from the
general request to cease communication. Thus, only if the borrower
sends a communication to the servicer specifically withdrawing the
request for such action may a servicer cease to carry out the
requirements of these provisions. Accordingly, these communications
would--under the Bureau's proposed advisory opinion--be consistent with
the FDCPA's requirements, and a servicer would not be liable for
violating the FDCPA with respect to such communications.
However, the Bureau's proposed advisory opinion would not protect a
servicer from using such borrower-initiated communications for the
purpose of loss mitigation as a pretext for collection of a debt in
circumvention of a borrower's cease communication protections. In any
subsequent borrower-initiated communications with a servicer for the
purposes of loss mitigation, the servicer may not and is strictly
prohibited from making a request for payment, including, for example,
initiating conversations with the borrower related to repayment of the
debt (through a debt payment plan or otherwise), demanding that the
borrower make a payment, requesting that the borrower bring the account
current or make a partial payment on the account, or attempting to
collect the outstanding balance or arrearage.\146\ Only if the
borrower, without prompting from the servicer, independently inquires
about or requests to make a payment or initiates a discussion of
possible payment plans other than as part of loss mitigation, may the
servicer engage in a discussion related to payment of the debt. The
Bureau reiterates that servicers may not misuse borrower-initiated
communications for the purpose of loss mitigation as an opportunity or
pretext to direct or steer borrowers to a discussion of repayment or
collection of the debt in circumvention of a borrower's cease
communication protections. Additionally, the servicer may not begin or
resume contacting the borrower in contravention of the cease
communication notification, unless the borrower consents or revokes a
prior cease communication request. As discussed above, all other
provisions of the FDCPA, including the prohibitions on unfair,
deceptive, and abusive practices as contained in sections 805 through
808 of the FDCPA, remain intact notwithstanding the proposed
requirement that the servicer provide the modified written early
intervention
[[Page 74213]]
notice if loss mitigation options are available to borrowers who have
exercised their FDCPA cease communication rights. The Bureau seeks
comment generally on borrower-initiated communications for the purpose
of loss mitigation in this context and the scope of the Bureau's
proposed advisory opinion.
---------------------------------------------------------------------------
\146\ See 53 FR 50097, 50103 (Dec. 13, 1988) (Section 805(c)-2
of the Federal Trade Commission's (FTC) Official Staff Commentary on
FDCPA section 805(c)) (``A debt collector's response to a `cease
communication' notice from a consumer may not include a demand for
payment, but is limited to the three statutory exceptions [under
FDCPA section 805(c)(1) through (3)].'').
---------------------------------------------------------------------------
Legal Authority
The Bureau is proposing to exercise its authority under sections
6(j)(3) and 19(a) of RESPA to exempt a servicer that is a debt
collector pursuant to the FDCPA with regard to a mortgage loan from the
early intervention live contact requirements in Sec. 1024.39(a) when a
borrower has exercised the cease communication right under the FDCPA
prohibiting the servicer from communicating with the borrower regarding
the debt. For the reasons discussed above, the Bureau believes at this
time that the consumer protection purposes of RESPA would not be
furthered by requiring compliance with Sec. 1024.39(a) at a time when
a borrower has specifically requested that the servicer stop
communicating with the borrower about the debt. Accordingly, the Bureau
is proposing to implement proposed Sec. 1024.39(d)(2)(i) pursuant to
its authority under sections 6(j)(3) and 19(a) of RESPA.
The Bureau is also proposing to exercise its authority under
sections 6(j)(3) and 19(a) of RESPA to exempt a servicer that is a debt
collector pursuant to the FDCPA with regard to a mortgage loan from the
written early intervention notice requirements in Sec. 1024.39(b) when
a borrower has exercised the cease communication right under the FDCPA
if no loss mitigation options are available. For the reasons discussed
above, the Bureau believes at this time that the consumer protection
purposes of RESPA would not be furthered by requiring compliance with
Sec. 1024.39(b) at a time when a borrower has specifically requested
that the servicer stop communicating with the borrower about the debt
and when no loss mitigation options are available. Accordingly, the
Bureau is proposing to implement proposed Sec. 1024.39(d)(2)(ii)
pursuant to its authority under sections 6(j)(3) and 19(a) of RESPA.
The Bureau is proposing to exercise its authority under section
6(k)(1)(E) of RESPA to add proposed Sec. 1024.39(d)(2)(iii). The
Bureau has authority to implement requirements for servicers to provide
information about borrower options pursuant to section 6(k)(1)(E) of
RESPA. As the Bureau has previously determined, providing borrowers
with timely information about loss mitigation options and the
foreclosure process, disclosures encouraging servicers to work with
borrowers to identify any appropriate loss mitigation options, and
information about housing counselors and State housing finance
authorities are necessary to provide borrowers a meaningful opportunity
to avoid foreclosure.\147\ The Bureau also exercises its authority to
prescribe rules with respect to the collection of debts by debt
collectors pursuant to section 814(d) of the FDCPA, 15 U.S.C. 1692l(d).
Pursuant to this authority, the Bureau is clarifying a borrower's cease
communication protections under the FDCPA. Section 805(c) of the FDCPA
sets forth both the cease communication requirement and its exceptions.
Under section 805(c)(2) and (3) of the FDCPA, a borrower's cease
communication request does not prohibit a debt collector from
communicating with the borrower ``to notify the consumer that the debt
collector or creditor may invoke specified remedies which are
ordinarily invoked by such debt collector or creditor'' or ``where
applicable, to notify the consumer that the debt collector or creditor
intends to invoke a specified remedy.'' For the reasons given above,
the Bureau believes that requiring a servicer to provide the written
early intervention notice if loss mitigation options are available is a
reasonable interpretation of the exceptions under section 805(c)(2) and
(3) of the FDCPA. The Bureau believes that because the written early
intervention notice will generally be closely linked to the invocation
of foreclosure, such a notice informs a borrower that the servicer may
invoke or intends to invoke the specified remedy of foreclosure and
thus falls within the scope of the exceptions under section 805(c)(2)
and (3) of the FDCPA. Accordingly, the Bureau is proposing to implement
proposed Sec. 1024.39(d)(2)(iii) pursuant to its authority under
section 6(k)(1)(E) of RESPA and section 814(d) of the FDCPA.
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\147\ See 77 FR 57199, 57260 (Sept. 17, 2012).
---------------------------------------------------------------------------
Section 1024.41 Loss Mitigation Procedures
41(b) Receipt of a Loss Mitigation Application
Successors in interest. As described in the section-by-section
analysis of Sec. 1024.30(d), proposed Sec. 1024.30(d) provides that
once a servicer confirms a successor in interest's identity and
ownership interest in the property, the successor in interest must be
considered a borrower for the purposes of Regulation X's mortgage
servicing rules. Accordingly, the servicer must comply with Sec.
1024.41's loss mitigation procedures with respect to a loss mitigation
application submitted by a confirmed successor in interest.
Proposed comment 41(b)-1.i clarifies that, if a servicer receives a
loss mitigation application, including a complete loss mitigation
application, from a potential successor in interest before confirming
that person's identity and ownership interest in the property, the
servicer may, but is not required to, review and evaluate the loss
mitigation application in accordance with the procedures set forth in
Sec. 1024.41. The proposed comment also provides that if a servicer
complies with the requirements of Sec. 1024.41 for a complete loss
mitigation application submitted by a potential successor in interest
before confirming that person's identity and ownership interest in the
property, Sec. 1024.41(i)'s limitation on duplicative requests applies
with respect to any loss mitigation application subsequently submitted
by that person, provided that confirmation of the successor in
interest's status would not affect the servicer's evaluation of the
application.
The Bureau is proposing comment 41(b)-1.i to make clear that
servicers may, but are not required to, review and evaluate loss
mitigation applications from successors in interest before confirming a
successor in interest's identity and ownership interest in the
property, even though servicers would not be required to do so under
the proposed rule. The Bureau is proposing this comment to ensure that
the proposed requirement to review and evaluate applications from a
successor in interest upon confirmation of the successor in interest's
status would not imply that the servicer may not do so before
confirmation. Further, the Bureau believes that where a servicer
complies with the requirements of Sec. 1024.41 for a complete loss
mitigation application submitted by a potential successor in interest
and confirmation of the successor in interest's status would not affect
the outcome of the successor's application for loss mitigation, a
subsequent request would be duplicative and thus should be subject to
Sec. 1024.41(i)'s limitation.
Proposed comment 41(b)-1.ii provides that if a servicer receives a
loss mitigation application from a potential successor in interest
before confirming that person's status, upon such confirmation the
servicer must review and evaluate that loss mitigation application in
accordance with the procedures set forth in Sec. 1024.41. For purposes
of Sec. 1024.41, the servicer must
[[Page 74214]]
treat the loss mitigation application as if it had been received on the
date that the servicer confirmed the successor in interest's status.
Accordingly, servicers would be required to preserve any loss
mitigation application received from a potential successor in interest,
so that the servicer can review and evaluate that application upon
confirmation of the successor in interest's status and the successor in
interest would not have to resubmit the loss mitigation application.
The Bureau is proposing comment 41(b)-1.ii because successors in
interest may be confused by having to resubmit identical documents
simply because the servicer has confirmed the successor in interest's
status. The Bureau believes that it is preferable to require servicers
to preserve loss mitigation applications received from potential
successors in interest and review and evaluate those loss mitigation
applications upon confirming the successor in interest's status.
41(b)(1) Complete Loss Mitigation Application
The Bureau is proposing to revise comment 41(b)(1)-1 to clarify
that, in the course of gathering documents and information from a
borrower to complete a loss mitigation application, a servicer may stop
collecting documents and information pertaining to a particular loss
mitigation option after receiving information confirming that the
borrower is ineligible for that option.
Section 1024.41(b)(1) defines a complete application as an
application for which a servicer has received all the information the
servicer requires from a borrower in evaluating applications for the
loss mitigation options available to the borrower. Current comment
41(b)(1)-1 explains that a servicer has the flexibility to establish
the type and amount of information that it will require from borrowers
applying for loss mitigation options, and the Bureau explained in the
2013 RESPA Servicing Final Rule that the servicer may tailor
application requirements to each individual borrower.\148\ In
exercising reasonable diligence to obtain a complete application under
Sec. 1024.41(b)(1), therefore, a servicer may determine that an
application is complete even when the borrower has not submitted
certain information that the servicer regularly requires but is
irrelevant with respect to that particular borrower.\149\
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\148\ See 78 FR 10695, 10824 (Feb. 14, 2013).
\149\ See id.
---------------------------------------------------------------------------
The Bureau has learned from servicers and consumer advocacy groups
that some servicers have been attempting to collect a large number of
documents from borrowers, including some that are irrelevant to
determining whether a particular borrower is eligible for any loss
mitigation option. To the extent that this practice represents a
servicer's good faith effort to exercise reasonable diligence under
Sec. 1024.41(b)(1), the Bureau wishes to clarify that Sec.
1024.41(b)(1) does not require it. The Bureau believes that an
interpretation that Sec. 1024.41(b)(1) requires a servicer to collect
documents or information after the servicer has confirmed that such
documents cannot affect the outcome of an evaluation unnecessarily
burdens both the servicer and the borrower and hinder efforts to
complete the loss mitigation application.
Therefore, the Bureau is proposing to amend comment 41(b)(1)-1 to
explain that, in the course of gathering documents and information from
a borrower to complete a loss mitigation application, a servicer may
stop collecting documents or information for a particular loss
mitigation option after receiving information confirming that the
borrower is ineligible for that option. As revised, proposed comment
41(b)(1)-1 includes the following example: if a particular loss
mitigation option is only available for military servicemembers, once a
servicer receives documents or information confirming that the borrower
is not a military servicemember, the servicer may stop collecting
documents or information from the borrower that the servicer would use
to evaluate the borrower for that loss mitigation option. The proposed
comment further explains that making such a determination does not
affect a servicer's obligation to exercise reasonable diligence in
obtaining a complete application; the servicer must continue its
efforts to obtain documents and information from the borrower that
pertain to all other available loss mitigation options. Finally, the
proposed comment provides that a servicer may not stop collecting
documents and information for any loss mitigation option based solely
upon the borrower's stated preference for a different loss mitigation
option.
As the Bureau explained in the 2013 RESPA Servicing Final Rule, the
Bureau believes that an application process that would impose an
obligation on borrowers to select a desired loss mitigation option and
permit servicers to evaluate the borrower for only that option would be
inappropriate.\150\ The Bureau believes that requiring servicers to
evaluate loss mitigation applications for all loss mitigation options
available to a borrower helps the borrowers make better-informed
decisions about the complex options involved in loss mitigation.\151\
The Bureau is also concerned that permitting a servicer to stop
collecting borrower information based solely upon a borrower's stated
preference for one option or another might allow the servicer to
inappropriately influence the borrower's preference during
communications with the borrower. It also might allow the servicer to
otherwise circumvent Sec. 1024.41 by simply choosing to review a
borrower for a particular loss mitigation option, as it would be
difficult to verify whether a borrower has expressed such a preference.
However, the Bureau believes that, where a servicer receives
information that conclusively demonstrates that a borrower is not
eligible for a particular loss mitigation option, as in the example in
proposed comment 41(b)(1)-1, borrowers and servicers will benefit from
clarity in the comment that the servicer may stop collecting
information from the borrower that the servicer might otherwise need to
complete the application. The Bureau believes that proposed comment
41(b)(1)-1 would help ensure that servicers continue to consider
borrowers for all loss mitigation options in a single application
process notwithstanding the significant flexibility servicers enjoy in
establishing application requirements.
---------------------------------------------------------------------------
\150\ Id. at 10828.
\151\ See id.
---------------------------------------------------------------------------
The Bureau also notes that pursuant to proposed comment 41(b)(1)-1,
a servicer may stop collecting documents and information from a
borrower pertaining to a particular loss mitigation option after
receiving information confirming that the borrower is ineligible for
that option, even if the servicer previously requested such documents
and information in the notice sent pursuant to Sec.
1024.41(b)(2)(i)(B).
41(b)(2) Review of a Loss Mitigation Application Submission
41(b)(2)(i) Requirements
The Bureau is proposing to add comment 41(b)(2)(i)-1 to clarify the
timelines for when a servicer must review and acknowledge a borrower's
loss mitigation application when no foreclosure sale has been scheduled
as of the date the loss mitigation application is received. Under Sec.
1024.41(b)(2)(i), if a servicer receives a loss mitigation application
45 days or more before a foreclosure sale, the servicer must: (1)
Promptly review the
[[Page 74215]]
application to determine if it is complete, and (2) within five days of
receiving the application, notify the borrower that the application was
received and is complete or incomplete, and if incomplete, state the
additional documents and information needed to complete the
application.\152\
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\152\ 12 CFR 1024.41(b)(2)(i).
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Section 1024.41(b)(2)(i) does not expressly address whether this
requirement applies when an application is received before a
foreclosure sale is scheduled.\153\ The Bureau believes that, in that
scenario, the application was still received ``45 days or more before a
foreclosure sale,'' and that the requirements of Sec. 1024.41(b)(2)(i)
still apply. To codify this interpretation, the Bureau is proposing to
add new comment 41(b)(2)(i)-1, which provides that for purposes of
Sec. 1024.41(b)(2)(i), if a foreclosure sale has not been scheduled as
of the date an application is received, the application shall be
treated as if it were received at least 45 days before a foreclosure
sale. The proposed comment clarifies that servicers must comply with
all of the requirements of Sec. 1024.41(b)(2)(i) even when no
foreclosure sale has been scheduled as of the date a servicer receives
a borrower's loss mitigation application. The Bureau believes that the
proposed comment will provide certainty to servicers and borrowers.
---------------------------------------------------------------------------
\153\ In the September 2013 Mortgage Final Rule, the Bureau
adopted new Sec. 1024.41(b)(3) and related commentary to address
borrowers' rights where no foreclosure sale has been scheduled as of
the date a complete loss mitigation application is received. The
final rule clarified that if a foreclosure sale has not yet been
scheduled as of the date that a complete loss mitigation application
is received, the application shall be treated as if it were received
at least 90 days before a foreclosure sale. See 78 FR 60381, 60397
(Oct. 1, 2013).
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41(b)(2)(ii) Time Period Disclosure
The Bureau is proposing to revise commentary discussing a
servicer's obligations in setting a reasonable date for the return of
documents and information under Sec. 1024.41(b)(2)(ii).
When a borrower submits an incomplete loss mitigation application
at least 45 days before a scheduled foreclosure sale, Sec.
1024.41(b)(2)(ii) requires the servicer to select a reasonable date by
which the borrower should return documents and information to complete
the application. Current comment 41(b)(2)(ii)-1 clarifies that, in
selecting this date, the servicer should consider four specific
milestones that implicate borrower protections under Sec. 1024.41: (1)
The date by which any document or information that a borrower submitted
will be considered stale or invalid pursuant to any requirements
applicable to any available loss mitigation option, (2) the date that
is the 120th day of the borrower's delinquency, (3) the date that is 90
days before a foreclosure sale, and (4) the date that is 38 days before
a foreclosure sale. In general, as each milestone passes, it becomes
more likely that a borrower will enjoy fewer protections under Sec.
1024.41 when the application becomes complete. As the Bureau explained
in the September 2013 Mortgage Final Rule, Sec. 1024.41(b)(2)(ii) was
drafted to afford the servicer sufficient flexibility to set a date for
the return of documents that will maximize a borrower's protections in
light of the borrower's individual application timeline.\154\
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\154\ 78 FR 60381, 60395-96 (Oct. 1, 2013).
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The Bureau has received a number of inquiries from servicers
seeking guidance on how they should determine the reasonable date under
Sec. 1024.41(b)(2)(ii) when the nearest remaining milestone is not
scheduled to take place for a significant amount of time. This might be
the case, for example, when the borrower has not submitted any
information that can go stale, the loan is more than 120 days
delinquent, and the foreclosure sale is scheduled to take place in six
months. In this circumstance, the nearest remaining milestone might not
occur for three months--the date that is 90 days before the foreclosure
sale. Servicers have questioned whether, in similar situations, Sec.
1024.41(b)(2)(ii) requires a servicer to select a reasonable date that
allows the borrower months to return the necessary documents, or
whether the servicer may select an earlier date in order to encourage
the borrower to respond more promptly.
The Bureau has learned that different servicers use different
approaches when the nearest remaining milestone is months away. One
servicer informed the Bureau that it selects the nearest remaining
milestone as the reasonable date for the return of documents, even when
the milestone is many months in the future. Several other servicers
indicated that they always select the earlier of 90 days or the nearest
remaining milestone.
The Bureau believes that selecting a reasonable date that is months
away may ultimately disadvantage some borrowers. As the Bureau
explained in the September 2013 Mortgage Final Rule, the reasonable
date provision under Sec. 1024.41(b)(2)(ii) was intended, in part, to
maximize borrower protections by encouraging the borrower to submit
necessary information in time to receive the most protections possible
under Sec. 1024.41.\155\ The Bureau believes that allowing a borrower
90 days or more to return documents may discourage borrowers from
promptly providing documents and information necessary to complete a
loss mitigation application, which ultimately may not further the goal
of maximizing their protections under Sec. 1024.41. Generally, the
longer a borrower waits to submit documentation to complete an
application, the greater the risk that a delinquency will grow, which
might negatively affect the borrower's eligibility to receive loss
mitigation and might make it more difficult for the borrower to perform
under a loss mitigation program that the servicer later offers. Several
servicers have informed the Bureau that they share these concerns but
have been reluctant to set an earlier return date for fear of violating
Sec. 1024.41(b)(2)(ii).
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\155\ See id.
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In order to encourage servicers to set reasonable dates that will
avoid these outcomes, as well as to clarify the contents of comment
41(b)(2)(ii)-1, the Bureau is proposing to revise comment 41(b)(2)(ii)-
1 and add comments 41(b)(2)(ii)-2 and 3. As amended, proposed comment
41(b)(2)(ii)-1 states that, in setting a reasonable date for the return
of documents and information under Sec. 1024.41(b)(2)(ii), a servicer
must allow a reasonable period of time for the borrower to obtain and
submit documents and information necessary to make the loss mitigation
application complete. The proposed comment also explains that,
generally, a reasonable period of time would not be less than seven
days.
Proposed comment 41(b)(2)(ii)-2 also provides, as 41(b)(2)(ii)-1
currently does, that a servicer must preserve maximum borrower rights
under Sec. 1024.41 in setting a reasonable date under Sec.
1024.41(b)(2)(ii). However, proposed comment 41(b)(2)(ii)-2 also states
that subject to comment 41(b)(2)(ii)'s clarification that the servicer
allow the borrower a reasonable period of time to obtain and submit
necessary documents, a servicer generally should not set a reasonable
date that is further away than the nearest of the remaining milestones,
which would be listed in proposed comment 41(b)(2)(ii)-2.
Finally, proposed comment 41(b)(2)(ii)-3 addresses situations where
the nearest remaining milestone will not occur for several months based
on the timing of a scheduled foreclosure sale and the documents that
the borrower had already submitted when the
[[Page 74216]]
servicer selects a reasonable date for the return of documents or
information. The proposed comment states that a servicer has
flexibility in selecting a reasonable date, subject to comments
41(b)(2)(ii)-1 and 2, and that a servicer may select any date that it
determines both maximizes borrower rights under Sec. 1024.41 and
allows the borrower a reasonable period of time to obtain and submit
documents and information necessary to make the loss mitigation
application complete. The proposed comment also provides the following
explanatory example: a servicer may set a reasonable date that is
earlier than the nearest remaining milestone listed in comment
41(b)(2)(ii)-2 and does not need to select that milestone as the
reasonable date itself.
The Bureau believes that the proposed revisions would clarify
servicers' obligations under Sec. 1024.41(b)(2)(ii). The Bureau
believes that the proposed revisions would help servicers by clarifying
that they have significant flexibility in setting a reasonable date
under Sec. 1024.41(b)(2)(ii)--servicers may select any date that they
determine preserves maximum borrower protections and allows borrowers a
reasonable period of time to submit the requested information. As noted
above, the Bureau believes that a flexible standard permits servicers
to account for borrowers' individual circumstances and maximize
protections for each borrower when selecting a reasonable date under
Sec. 1024.41(b)(2)(ii).\156\ The proposed revisions should shorten
application timelines where appropriate, encourage borrowers to respond
more promptly, and increase the likelihood of a successful loss
mitigation outcome for the borrower.
---------------------------------------------------------------------------
\156\ See id.
---------------------------------------------------------------------------
The Bureau seeks comment on whether this proposal will provide
servicers with sufficient guidance in setting a reasonable date for the
return of documents and information under Sec. 1024.41(b)(2)(ii) that
will maximize borrower protections. The Bureau also seeks comment on
whether to address expressly those situations where the nearest
remaining milestone will not occur for several months based on the date
of a scheduled foreclosure sale and the documents the borrower had
submitted at the time the servicer selects the reasonable date under
Sec. 1024.41(b)(2)(ii). The Bureau also seeks comment on whether the
Bureau should adopt a less flexible standard that would leave servicers
with little or no discretion in setting a reasonable date under Sec.
1024.41(b)(2)(ii), and if so, what would constitute an appropriate
standard under such an approach.
41(c) Evaluation of Loss Mitigation Applications
41(c)(1) Complete Loss Mitigation Application
Under Sec. 1024.41(c)(1), a servicer that receives a complete loss
mitigation application more than 37 days before a foreclosure sale
must, within 30 days of receiving the complete application, evaluate
the borrower for all loss mitigation options available to the borrower
and provide the borrower with a notice in writing stating, among other
things, the servicer's determination of which loss mitigation options,
if any, it will offer to the borrower. Furthermore, pursuant to Sec.
1024.41(e)(1), if a complete loss mitigation application is received
less than 90 days but more than 37 days before a foreclosure sale, a
servicer may require that a borrower accept or reject an offer of a
loss mitigation option no earlier than seven days after the servicer
provides the offer to the borrower. In the Bureau's February 2013 RESPA
Servicing Final Rule, the Bureau stated that it believes the timing of
the loss mitigation procedures, including the appeal process, are
clear--``[a]ll such deadlines are based on when information is received
by or provided by a servicer.''\157\
---------------------------------------------------------------------------
\157\ 78 FR 10695, 10836 (Feb. 14, 2013).
---------------------------------------------------------------------------
However, the Bureau has heard some concerns about the scenario
where a servicer receives a complete loss mitigation application 38
days before a foreclosure sale, evaluates the borrower for all loss
mitigation options available, and 30 days later provides the borrower
the written notice stating the servicer's determination of which loss
mitigation options it will offer. The borrower has a minimum of seven
days to accept or reject the offer, but accounting for the time it
takes for the notice to reach the borrower, particularly if provided by
mail, the borrower may effectively have less than seven days to accept
or reject the offer. Additionally, assuming that the borrower mails an
acceptance of a loss mitigation option to the servicer in this
scenario, it is possible that the servicer may not receive the
borrower's response until after the date of the foreclosure sale. The
Bureau believes that this potential timeline may be problematic and may
impact a borrower's ability to timely respond, especially when a
borrower is just days away from a scheduled foreclosure sale. The
Bureau understands that a similar situation may arise with respect to
the length of time that a borrower has to make an appeal. Section
1024.41(h)(2) provides that a servicer shall permit a borrower to make
an appeal within 14 days after the servicer provides the offer of a
loss mitigation option to the borrower. Again, accounting for the time
it takes for the notice to reach the borrower, particularly if provided
by mail, the borrower may effectively have less than 14 days to make an
appeal.
The Bureau makes no proposal at this time but seeks comment on
whether the timing and method of correspondence of loss mitigation
offers and appeals between servicers and borrowers generally is
presenting a problem. The Bureau further seeks comment on the specific
scenario described above in which a complete loss mitigation
application is received on or near the 38th day before a foreclosure
sale and whether borrowers are facing particular difficulties timely
responding to servicers in this context. The Bureau reminds servicers
that under Sec. 1024.38(b)(1)(i), a servicer must maintain policies
and procedures that are reasonably designed to ensure that the servicer
can provide accurate and timely disclosures to a borrower as required
by Regulation X's mortgage servicing rules, including Sec. 1024.41, or
other applicable law.
41(c)(2) Incomplete Loss Mitigation Application Evaluation
41(c)(2)(iii) Payment Forbearance
The Bureau is proposing to revise Sec. 1024.41(c)(2)(iii) to
permit servicers to offer short-term repayment plans based upon an
evaluation of an incomplete loss mitigation application. Section
1024.41(c)(2) generally prohibits a servicer from evading the
requirement to evaluate a complete loss mitigation application by
offering a loss mitigation option based upon an evaluation of any
information provided by a borrower in connection with an incomplete
application. However, current Sec. 1024.41(c)(2)(iii) offers an
exception to this rule--it permits a servicer to offer a short-term
payment forbearance program based upon an incomplete application.
The Bureau has received inquiries seeking clarification of whether
Sec. 1024.41(c)(2)(iii) also permits a servicer to offer a short-term
repayment plan based upon an evaluation of an incomplete application.
For the reasons explained below, the Bureau believes that it is
appropriate, under certain conditions, to permit servicers to offer
short-term repayment plans based upon an evaluation of an incomplete
loss mitigation application.
[[Page 74217]]
In the Bureau's September 2013 Mortgage Final Rule, the Bureau
explained that permitting a servicer to offer a short-term payment
forbearance program based upon an incomplete application was an
appropriate exception to Sec. 1024.41(c)(1)'s general requirement that
a borrower should be evaluated for all available loss mitigation
options at once, and only after a servicer receives a complete
application.\158\ The Bureau determined that allowing the short-term
payment forbearance exception under Sec. 1024.41(c)(2)(iii) would,
with appropriate safeguards, benefit borrowers by permitting a
relatively efficient solution to a temporary hardship without
exhausting a borrower's protections under Sec. 1024.41.\159\ The
Bureau believes that the same considerations apply to short-term
repayment plans and therefore proposes to expressly include them under
Sec. 1024.41(c)(2)(iii).\160\
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\158\ 78 FR 60381, 60398-400 (Oct. 1, 2013).
\159\ See id. at 60399-400 (discussing the rationale for
permitting short-term forbearance programs based upon the evaluation
of an incomplete application).
\160\ The Bureau appreciates that some industry participants
consider repayment plans to be a form of forbearance. In order to
avoid confusion regarding the definition of a forbearance program,
proposed Sec. 1024.41(c)(2)(iii) explicitly differentiates between
the two. See note 166, infra, (clarifying the primary distinction
between the definitions of short-term repayment plans and short-term
payment forbearance programs).
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Therefore, the Bureau is proposing to amend Sec.
1024.41(c)(2)(iii) to permit servicers to offer a short-term payment
forbearance program or a short-term repayment plan to a borrower based
upon an evaluation of an incomplete loss mitigation application.
Proposed Sec. 1024.41(c)(2)(iii) requires that the short-term payment
forbearance program or repayment plan must be provided to the borrower
in writing before the program or plan begins and must clearly specify
the payment terms and duration. As is already the case where a servicer
offers a short-term payment forbearance program, proposed Sec.
1024.41(c)(2)(iii) requires that a servicer shall not make the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process, and shall not move for foreclosure
judgment or order of sale, or conduct a foreclosure sale, if a borrower
is performing pursuant to the terms of a payment forbearance program or
repayment plan offered under Sec. 1024.41(c)(2)(iii). Finally,
proposed Sec. 1024.41(c)(2)(iii) provides that a servicer may offer a
short-term forbearance program in conjunction with a short-term
repayment plan.
As with short-term payment forbearance programs, the Bureau
believes that permitting a servicer to offer a short-term repayment
plan based upon an evaluation of an incomplete application affords a
servicer flexibility to address a borrower's temporary hardship in a
relatively efficient manner.\161\ The Bureau further believes that
permitting a servicer to offer a short-term repayment plan based on an
evaluation of an incomplete application could reduce the burden on both
servicers and some borrowers by eliminating the need to gather many
borrower documents that may be necessary to complete an application
under Sec. 1024.41(b)(1). Further, the Bureau believes that permitting
a servicer to offer a short-term repayment plan based upon an
evaluation of an incomplete application provides borrowers a way to
address a temporary hardship without exhausting protections provided
under Sec. 1024.41 that begin once an application becomes
complete.\162\
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\161\ See 78 FR 60381, 60399-400 (Oct. 1, 2013) (discussing the
rationale for permitting short-term forbearance programs based on an
evaluation of an incomplete application).
\162\ See 78 FR 39901, 39913 (July 2, 2013) (discussing similar
considerations about expending the protections of Sec. 1024.41 in
context of short-term paymentforbearance programs).
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However, as the Bureau discussed in the September 2013 Mortgage
Final Rule, permitting a servicer to offer loss mitigation based upon
an evaluation of an incomplete application could potentially have
adverse consequences for a borrower.\163\ If a servicer were to
inappropriately divert a borrower into a loss mitigation program based
upon an incomplete application, it could exacerbate a delinquency and
put the borrower at risk of losing the opportunity to complete the
application and receive the full protections of Sec. 1024.41.\164\
Also, a borrower who is offered a short-term payment forbearance
program or short-term repayment plan under proposed Sec.
1024.41(c)(2)(iii) may be experiencing a hardship for which other,
longer-term loss mitigation solutions might be more appropriate for a
particular borrower's circumstance.
---------------------------------------------------------------------------
\163\ 78 FR 60381, 60399-400 (Oct. 1, 2013).
\164\ See id.
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To mitigate these concerns, the Bureau is proposing to apply
comments 41(c)(2)(iii)-2 and 41(c)(2)(iii)-3, which currently mitigate
against such risks for short-term payment forbearance programs, to
short-term repayment plans. Proposed comment 41(c)(2)(iii)-2 explains
that, where a servicer offers a short-term payment forbearance program
or a short-term repayment plan based on the evaluation of an incomplete
application, the application remains subject to the other obligations
in Sec. 1024.41. These obligations include reviewing the application
for completeness under Sec. 1024.41(b)(2), exercising reasonable
diligence under Sec. 1024.41(b)(1), and providing the borrower with
the Sec. 1024.41(b)(2)(i)(B) notice acknowledging the servicer's
receipt of the application and indicating that the servicer has
determined that the application is incomplete. Proposed comment
41(c)(2)(iii)-3 explains that, even if a servicer offers a short-term
payment forbearance program or a short-term repayment plan based on an
evaluation of an incomplete loss mitigation application, the servicer
must comply with all the requirements in Sec. 1024.41 if the borrower
completes the loss mitigation application.
The Bureau believes that the proposed revisions to comments
41(c)(2)(iii)-2 and 3 would help ensure that servicers do not offer
short-term repayment plans based on incomplete loss mitigation
applications to evade their obligations under Sec. 1024.41. As the
Bureau explained in the September 2013 Mortgage Final Rule, these
protections help preserve a borrower's option to submit a complete
application and be considered for a long-term loss mitigation solution
where appropriate.\165\
---------------------------------------------------------------------------
\165\ Id. at 603400 (discussing similar considerations in
context of short-term payment forbearance programs offered under
Sec. 1024.41(c)(2)(iii)).
---------------------------------------------------------------------------
To further mitigate the risks associated with permitting a servicer
to offer a loss mitigation option based upon an evaluation of an
incomplete application, the Bureau also is proposing to revise comment
41(b)(1)-4.iii to clarify a servicer's obligation to exercise
reasonable diligence during a short-term payment forbearance program or
short-term repayment plan. Proposed comment 41(b)(1)-4.iii provides
that reasonable diligence under Sec. 1024.41(b)(1) requires a servicer
to notify a borrower when a short-term repayment plan is being offered
based on an evaluation of an incomplete application. The servicer must
notify the borrower that the borrower has the option of completing the
application to receive a full evaluation of all loss mitigation options
available to the borrower. Proposed comment 41(b)(1)-4.iii. further
explains that, if a servicer provides such a notification, the borrower
remains in compliance with a payment forbearance program or repayment
plan, and the borrower does
[[Page 74218]]
not request further assistance, the servicer may suspend reasonable
diligence efforts while the borrower remains in compliance with the
short-term repayment plan and does not request further assistance, but
that, if the borrower remains delinquent near the end of the program or
plan, the servicer should contact the borrower near the end of the
forbearance or repayment period to determine if the borrower wishes to
complete the application and proceed with a full loss mitigation
evaluation. The Bureau believes that permitting the servicer to suspend
document collection while a borrower is performing under a short-term
repayment plan will limit borrower confusion and avoid unnecessary
servicer burden, but that continued servicer engagement at the outset
and near the end of the plan will help the borrower make well-informed
decisions about the mortgage loan.
As noted above, the Bureau is proposing to amend Sec.
1024.41(c)(2)(iii) to require that a short-term payment forbearance
program or a short-term repayment plan must be provided to the borrower
in writing before the program or plan begins and must clearly specify
the payment terms and duration. The Bureau believes that requiring a
servicer to send the borrower the terms of any loss mitigation option
offered under proposed Sec. 1024.41(c)(2)(iii) in writing before the
program or plan begins will reduce misunderstandings between the
servicer and the borrower regarding the terms and existence of a
payment forbearance program or repayment plan. The Bureau understands
that, in the past, such misunderstandings sometimes resulted in the
borrower making incorrect payments, causing the delinquency to grow in
size and duration.
The Bureau is also proposing a change to comment 41(c)(2)(iii)-1 to
clarify that Sec. 1024.41(c)(2)(iii) no longer applies exclusively to
short-term payment forbearance programs. As amended, the first sentence
of comment 41(c)(2)(iii)-1 states that the exemption under Sec.
1024.41(c)(2)(iii) applies to, ``among other things,'' short-term
payment forbearance programs. The comment would otherwise remain in its
current form.
Definition of ``Short-Term Repayment Plan''
The Bureau is also proposing to add comment 41(c)(2)(iii)-4 to
define a repayment plan as a loss mitigation option pursuant to which a
servicer allows a borrower to repay past due payments over a specified
period of time until the mortgage loan account is current.\166\ Under
this definition, only those plans that would cure a delinquency would
be permitted under Sec. 1024.41(c)(2)(iii). The Bureau believes that
this is essential to protect a borrower because a borrower generally
remains delinquent during a repayment plan--and the longer a
delinquency exists without a complete application, the fewer borrower
protections Sec. 1024.41 is likely to provide if the borrower later
completes the application. By requiring the plan to cure the borrower's
delinquency if successfully completed, the Bureau seeks to prohibit a
servicer from offering a repayment plan that would likely leave the
borrower in a worse position.
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\166\ The proposed definition of ``short-term repayment plan''
would address repayment of already existing arrearage, in contrast
to the definition of a payment forbearance program (defined under
comment 41(c)(2)(iii)-1), which allows a borrower to forgo making
certain payments or portions of payments for a period of time.
---------------------------------------------------------------------------
Proposed comment 41(c)(2)(iii)-4 defines short-term repayment plans
to include no more than three months of payments due and a repayment
period lasting no more than six months. The Bureau believes that the
definition of a short-term repayment plan should limit both the maximum
amount of the arrearage that may be included in the plan and the
maximum time of repayment. The Bureau believes that these limitations
will help protect borrowers who accept offers for short-term repayment
plans by increasing the likelihood that the borrowers will successfully
complete the plans. The Bureau believes that a borrower is less likely
to complete a repayment plan that accounts for a larger delinquency;
and that longer-term plans may be more difficult for borrowers to
complete successfully. The Bureau also believes that borrowers may not
be served as well by extended repayment plans--the longer the repayment
period lasts, the longer the delinquency remains and the longer
negative credit reporting continues.
Additionally, a borrower who accepts a short-term repayment plan
based upon an evaluation of an incomplete application risks losing the
protections of Sec. 1024.41 depending on whether and when the borrower
completes the application. Generally, the longer a borrower's
application remains incomplete, the greater the risk that the borrower
will enjoy fewer protections under Sec. 1024.41. For example, under
Sec. 1024.41(f)(1)(i), a servicer may not make the first notice or
filing for any judicial or non-judicial foreclosure process until a
borrower's mortgage loan obligation is more than 120 days delinquent.
Similarly, several protections under Sec. 1024.41 only apply if a
borrower completes the loss mitigation application a certain number of
days before a foreclosure sale, including the evaluation timelines
under Sec. 1024.41(c)(1), foreclosure protections under Sec.
1024.41(g), and appeal rights under Sec. 1024.41(h), among others.
Therefore, the longer a short-term repayment plan offered under Sec.
1024.41(c)(2)(iii) lasts, the greater the risk that a borrower will
lose important protections under Sec. 1024.41 if the borrower fails to
complete the plan. Consequently, the Bureau is proposing, in the
context of incomplete applications, to limit the duration of a short-
term repayment plan offered based upon an incomplete application,
require that the plan bring the borrower current, and prohibit
servicers from proceeding to foreclosure while the borrower is
performing on the short-term repayment plan. The Bureau seeks comment
on the adequacy of these protections for borrowers.
The Bureau also solicits comment on the appropriate maximum
duration for short-term repayment plans offered under Sec.
1024.41(c)(2)(iii). The Bureau notes that proposed comment
41(c)(2)(iii)-2 does not preclude a servicer from offering a longer-
term repayment plan; it merely prohibits the servicer from doing so
based upon an evaluation of an incomplete application.
41(c)(2)(iv) Facially Complete Application
The Bureau is proposing to revise Sec. 1024.41(c)(2)(iv). First,
the Bureau is proposing a minor technical change to Sec.
1024.41(c)(2)(iv) to correct an erroneous reference to Sec.
1026.41(b)(2)(i)(B), which should instead be a reference to Sec.
1024.41(b)(2)(i)(B). Second, the Bureau is proposing to amend Sec.
1024.41(c)(2)(iv) to provide that an application is facially complete
if a servicer is required under proposed Sec. 1024.41(c)(3) to send
the borrower a notice of complete application.
Currently, Sec. 1024.41(c)(2)(iv) provides that, if a borrower
submits all the missing documents and information as stated in the
notice required pursuant to Sec. 1024.41(b)(2)(i)(B), or no additional
information is requested in such notice, an application shall be
considered facially complete. Section 1024.41(c)(2)(iv) provides a
series of protections that apply once an application is facially
complete. First, if the servicer later discovers that additional
information or corrections are required to complete the application,
the servicer must promptly
[[Page 74219]]
request the missing information or corrected documents and treat the
application as complete for purposes of the dual tracking protections
under Sec. 1024.41(f)(2) and (g) until the borrower is given a
reasonable opportunity to complete the application. If the borrower
completes the application within this period, Sec. 1024.41(c)(2)(iv)
also requires a servicer to consider the application as complete as of
the date it was facially complete for the purposes of Sec. 1024.41(d),
(e), (f)(2), (g), and (h),\167\ and as of the date the application was
actually complete for the purposes of Sec. 1024.41(c).\168\
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\167\ Sections 1024.41(d), (e), (f)(2), (g), and (h)
respectively provide borrowers protections relating to a servicer's
denial of a loan modification, the amount of time a borrower will
have to respond to an offer of a loss mitigation option, dual
tracking, and the right to appeal.
\168\ Under Sec. 1024.41(c) provides that a servicer's
evaluation of a complete application is subject to a specific
timeline and various other requirements.
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As explained in the section-by-section analysis of Sec.
1024.41(c)(3), proposed Sec. 1024.41(c)(3)(i) requires a servicer to
provide a written notice informing the borrower, among other things,
that the application is complete, the date the application became
complete, and that the servicer expects to complete its evaluation
within 30 days of the date it received the complete application. The
Bureau believes that this notice of complete application would ensure
that borrowers are informed of the next steps in the loss mitigation
evaluation process and enable borrowers to make better-informed
decisions about their finances. The Bureau also believes that this
notice would limit confusion for both servicers and borrowers in
determining which protections apply under Sec. 1024.41, as many of
those protections begin when the application becomes complete. However,
the Bureau recognizes that, in certain circumstances, servicers might
require additional documents or information from a borrower after
sending a notice of complete application under proposed Sec.
1024.41(c)(3)(i). For example, a servicer might require additional
information after learning that a borrower has a source of income that
the servicer first learned about while reviewing the complete
application. To clarify the status of an application in this
circumstance, the Bureau is proposing to provide expressly that the
facially complete provision applies to an application for which a
servicer has provided the notice of complete application under proposed
Sec. 1024.41(c)(3)(i).
Proposed Sec. 1024.41(c)(2)(iv) states that a loss mitigation
application shall be considered facially complete when a borrower
submits all the missing documents and information as stated in the
notice required under Sec. 1024.41(b)(2)(i)(B), no additional
information is requested in such notice, or when the servicer is
required under Sec. 1024.41(c)(3) to send the borrower a notice of
complete application. Proposed Sec. 1024.41(c)(iv) provides the
identical protections as does current Sec. 1024.41(c)(2)(iv). However,
if a borrower timely completes an application after a servicer requests
additional information or corrections to a previously submitted
document, proposed Sec. 1024.41(c)(iv) requires the application be
treated as complete as of as of the date it first became facially
complete for the purposes of Sec. 1024.41(d), (e), (f)(2), (g), and
(h), and as of the date the application was actually complete for the
purposes of Sec. 1024.41(c).
The Bureau believes that these proposed amendments would provide
both borrowers and servicers with certainty about whether and when
various protections apply under Sec. 1024.41 in the circumstance where
a servicer requires additional information for an application that the
borrower previously completed. The Bureau also believes that these
proposed amendments are appropriate to make clear that a borrower who
has been informed that the application is complete will not lose
protections if the servicer subsequently determines that it needs
additional information. Finally, the Bureau believes that ensuring that
many of a borrower's protections under Sec. 1024.41 continue to apply
will encourage servicers to efficiently process loss mitigation
applications, which will reduce unnecessary delay in completing the
evaluation.
41(c)(3) Notice of Complete Application
The Bureau is proposing to require a servicer to provide a written
notice of complete application under new Sec. 1024.41(c)(3).
The Bureau has learned from consumer advocacy groups that, during
the loss mitigation application process, borrowers are frequently
uncertain about whether an application is complete. Consumer advocacy
groups and servicers inform the Bureau that, after a borrower submits
documents and information that a servicer requests to complete an
application, servicers often require the borrower to submit additional
information or corrected versions of previously submitted documents
several times during the application process, both before and after an
application becomes complete. However, Sec. 1024.41 currently requires
a servicer to notify a borrower that an application is complete only if
this is the case when the servicer provides the notice acknowledging
receipt of an application under Sec. 1024.41(b)(2)(i)(B). The Bureau
understands from outreach efforts that applications are rarely complete
at this stage, so many borrowers who complete an application might not
receive notice that they have done so.
The Bureau is proposing to add Sec. 1024.41(c)(3)(i) to require a
servicer to provide a borrower a written notice, including specific
information, promptly upon receiving the borrower's complete
application. The notice must inform the borrower that the application
is complete; the date the servicer received the complete application;
whether a foreclosure sale was scheduled as of the date the servicer
received the complete application and, if so, the date of that
scheduled sale; and the date the borrower's foreclosure protections
began under Sec. 1024.41(f)(2) and (g) as applicable, with a concise
description of those protections. The notice must also include a
statement that the servicer expects to complete its evaluation within
30 days of the date it received the complete application and a
statement that, although the application is complete, the borrower may
need to submit additional information at a later date if the servicer
determines that it is necessary. Finally, the notice must inform the
borrower, if applicable, that the borrower will have the opportunity to
appeal the servicer's determination to deny the borrower for any trial
or permanent loan modification under Sec. 1024.41(h).
Proposed Sec. 1024.41(c)(3)(ii) provides that a servicer is not
required to provide the notice of complete application in three
circumstances: if the servicer has already notified the borrower under
Sec. 1024.41(b)(2)(i)(B) that the application is complete and the
servicer has not subsequently requested additional information or a
corrected version of a previously submitted document from the borrower
to complete the application; the application was not complete or
facially complete more than 37 days before a foreclosure sale; or the
servicer has already provided a notice approving or denying the
application under Sec. 1024.41(c)(1)(ii).
The Bureau is also proposing commentary to explain certain aspects
of the notice requirement under proposed Sec. 1024.41(c)(3). Proposed
comment 41(c)(3)(i)-1 explains that, generally, a servicer complies
with the requirement to provide a borrower with written notice promptly
under
[[Page 74220]]
Sec. 1024.41(c)(3)(i) by providing the written notice within five days
of receiving a complete application from the borrower. Proposed comment
41(c)(3)(i)-2 states that the date the borrower's protections began
under Sec. 1024.41(f)(2) and (g) must be the date on which the
application became either complete or facially complete, as applicable.
Finally, proposed comment 41(c)(3)(i)-3 explains that Sec.
1024.41(c)(3)(i) requires a servicer to send a notification, subject to
the exceptions under Sec. 1024.41(c)(3)(ii), every time a loss
mitigation application becomes complete. That proposed comment further
clarifies that if, after providing a notice under Sec.
1024.41(c)(3)(i), a servicer requests additional information or
corrections to a previously submitted document required to complete the
application in accordance with Sec. 1024.41(c)(2)(iv), the servicer
might have to provide an additional notice under Sec. 1024.41(c)(3)(i)
if the borrower submits the additional information or corrected
documents to complete the application.
The Bureau believes that requiring servicers to provide borrowers
with the information in the notice of complete application under
proposed Sec. 1024.41(c)(3)(i) would ensure that borrowers are
informed of the next steps in the evaluation process. The Bureau
believes that receiving notice of when to expect an offer or denial
will permit the borrower to make better-informed decisions.
Additionally, the Bureau believes requiring, as does proposed Sec.
1024.41(c)(3)(i)(B), that the notice of complete application indicate
the date that the servicer received a complete application would limit
confusion for both servicers and borrowers in determining which
protections apply under Sec. 1024.41. Many of those protections begin
when an application becomes complete, and the Bureau believes that
borrowers will better understand those protections if the notice
provides the date of completion. The Bureau also believes that Sec.
1024.41(c)(3)(i)(F)'s requirement that the notice of complete
application inform borrowers that they may need additional or updated
information from the borrower after determining that the application
was complete will reduce borrower confusion when and if the servicer
requests such additional information.
As noted above, proposed Sec. 1024.41(c)(3)(i) requires a servicer
to provide the notice of complete application promptly upon receiving a
complete application, and proposed comment 41(c)(3)(i)-1 explains that
a servicer generally acts promptly by providing the written notice
within five days of receiving a complete application. The Bureau
believes that, generally, a servicer should be able to provide the
notice required under proposed Sec. 1024.41(c)(3)(i) within five days
of receiving the complete loss mitigation application from the
borrower. However, the Bureau recognizes that servicers might sometimes
require more than five days to determine whether a loss mitigation
application is complete. The Bureau believes that the proposed comment
provides servicers with sufficient flexibility to make an accurate
determination but prevents undue delay. The Bureau believes that this
approach is preferable to a stricter requirement that the notice must
be provided within a specific number of days, without exception. The
Bureau seeks comment on whether proposed Sec. 1024.41(c)(3)(i) should
provide such a stricter timing requirement and, if so, whether five
days is an appropriate general standard of promptness for purposes of
Sec. 1024.41(c)(3)(i).
Also as noted above, proposed comment 41(c)(3)(i)-3 clarifies that
Sec. 1024.41(c)(3)(i) requires a servicer to send a notification every
time a loss mitigation becomes complete during a single loss mitigation
application process. The proposed comment includes an example
describing a situation in which an application might become complete
more than once because the servicer requests additional information or
corrected documents after initially determining that the application
was complete. Section 1024.41(c)(2)(iv) requires a servicer who has
received an application that the servicer must treat as facially
complete, and later discovers that additional information or
corrections to a previously submitted document are required to complete
the application, to request this information promptly. The Bureau
believes that requiring a servicer to send an additional notification
when the borrower submits additional information or corrected documents
requested by the servicer would help ensure that a borrower has
accurate and current information about the status of the loan and when
to expect a servicer to complete the evaluation, which will help the
borrower plan for the future.
The Bureau notes that Sec. 1024.41(c)(2)(iv) was intended to
address a limited set of circumstances where a servicer, subsequent to
receiving the facially complete application, discovers that it requires
additional information that was not previously requested by the
servicer or corrections to a previously submitted document. The Bureau
believes that repeated requests for additional documents and
information by servicers could hamper borrower understanding of the
loss mitigation process and impede borrower protections under the
rules. To determine whether further rulemaking or guidance is required
in this area, the Bureau will continue to monitor the market to
evaluate whether and to what extent servicers are complying with Sec.
1024.41(c)(2)(iv) by requesting such additional information or
corrected documents only when such information is required.
The Bureau is aware that servicers may incur some costs in
providing the notice required under proposed Sec. 1024.41(c)(3).
However, the Bureau notes that several servicers informed the Bureau
during outreach efforts that they already provide a similar notice
informing the borrower that an application is complete. For these
servicers, proposed Sec. 1024.41(c)(3) would likely impose relatively
little additional burden, limited to ensuring that the notices contain
the requisite disclosures. For other servicers, the Bureau believes
that the benefits to the borrower outweigh those costs associated with
providing the notice, especially in light of the difficulty that
borrowers have had in the past in obtaining useful information from
servicers during the loss mitigation application process.\169\
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\169\ See 77 FR 57199, 57204 (Sept. 17, 2012) (discussing
servicer failures in the loss mitigation application process).
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Moreover, the Bureau notes that four of the disclosures required
under proposed Sec. 1024.41(c)(3)(i) would contain standardized
language for every borrower, and servicers currently must be able to
identify the information required in the remaining disclosures (the
date the application is complete, that a foreclosure sale is scheduled,
the date of that sale, and the date on which the borrower's foreclosure
protections began) in order to comply with various requirements under
Sec. Sec. 1024.40 and 1024.41. The Bureau believes that servicers may
already be tracking this information in order to monitor compliance
with the Mortgage Servicing Rules. Thus, providing the notice should
not significantly burden servicers.
Finally, as described above, the exceptions under proposed Sec.
1024.41(c)(3)(ii) provide that a servicer is not required to provide
the notice of complete application in three circumstances. These
exceptions are as follows: if the servicer has already
[[Page 74221]]
notified the borrower under Sec. 1024.41(b)(2)(i)(B) that the
application is complete and the servicer has since requested no
additional information or a corrected version of a previously submitted
document from the borrower; if the application was not complete or
facially complete more than 37 days before a foreclosure sale; or if
the servicer has already provided a notice approving or denying the
application under Sec. 1024.41(c)(1)(ii). These exceptions are
intended to avoid unnecessary burden on servicers and prevent borrower
confusion due to the receipt of conflicting or redundant information.
The Bureau seeks comment on whether the notice of complete
application required under proposed Sec. 1024.41(c)(3) should include
additional or different disclosures than those listed above.
41(c)(4) Information Not in the Borrower's Control
The Bureau is proposing to amend Sec. 1024.41(c)(1) and add Sec.
1024.41(c)(4) to address a servicer's obligations with respect to
information not in the borrower's control that the servicer requires to
determine which loss mitigation options, if any, it will offer a
borrower.
Under current Sec. 1024.41(c)(1), if a servicer receives a
complete loss mitigation application more than 37 days before a
foreclosure sale, the servicer shall, within 30 days of receipt,
evaluate the borrower for all loss mitigation options available to the
borrower and provide the notice required under Sec. 1024.41(c)(1)(ii).
A complete loss mitigation application includes all the information the
servicer requires from a borrower in evaluating applications for the
loss mitigation options available to the borrower.\170\ Thus, a loss
mitigation application may be complete notwithstanding that additional
information may be required by a servicer that is not in the control of
the borrower.\171\
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\170\ 12 CFR 1024.41(b)(1).
\171\ See comment 41(b)(1)-5.
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As noted in the section-by-section analysis of Sec.
1024.38(b)(2)(vi), the Bureau has learned through outreach that
servicers do not always obtain necessary information not in the
borrower's control in time to determine which loss mitigation options,
if any, to offer a borrower within 30 days of receiving a complete loss
mitigation application, as Sec. 1024.41(c)(1) requires. For example,
servicers are occasionally unable to obtain homeowner association
payoff information or approval from the loan owner, investor, or
mortgage insurance company within 30 days after of receiving a complete
application. Servicers and Federal agencies have informed the Bureau
that such delay sometimes results from the servicer's failure to
request the information promptly, and it sometimes results because the
party with the information delays in providing it.
Several servicers have expressed uncertainty about how to proceed
in this circumstance. The Bureau understands that servicers have
adopted different practices when this occurs. Some servicers have
informed the Bureau that they exceed the 30-day evaluation timeframe in
Sec. 1024.41(c)(1) and wait to receive the third-party information
before making any decision on the application and sending the notice
required by Sec. 1024.41(c)(1)(ii). One servicer informed the Bureau
that it sends a denial notice to borrowers but also informs them that
the servicer will reevaluate the application upon receipt of the third-
party information. Although both of these solutions do not appear to
preclude a borrower from receiving loss mitigation, neither provides
the borrower with clear information about the status of the application
or whether the servicer will offer any loss mitigation options to the
borrower.
The Bureau is concerned that the absence of clear information about
the status of the loss mitigation application may cause borrowers to
abandon their pursuit of loss mitigation, or to be confused about their
loss mitigation options and how they may pursue their rights under
Sec. 1024.41. A delay in the evaluation of a borrower's complete loss
mitigation application may cause the borrower's hardship to worsen and
thereby reduce the likelihood that the servicer will offer the borrower
a loss mitigation option, among other consumer harms.
To address these concerns, the Bureau is proposing amendments to
Sec. 1024.41 that would require servicers to exercise reasonable
diligence to gather necessary information not in the borrower's control
and would provide guidance to servicers to address situations where
another party's delay in providing such information prevents a servicer
from completing the loss mitigation evaluation within 30 days of
receiving a complete application.
First, the Bureau is proposing to amend Sec. 1024.41(c)(1) to
provide that proposed Sec. 1024.41(c)(4)(ii) offers an exception to
the general requirement that a servicer must evaluate a complete loss
mitigation application received more than 37 days before a foreclosure
sale within 30 days of receiving it from the borrower.
Second, under proposed Sec. 1024.41(c)(4)(i), if a servicer
requires documents or information not in the borrower's control, a
servicer must exercise reasonable diligence in obtaining such documents
or information. Proposed Sec. 1024.41(c)(4)(ii)(A) prohibits a
servicer from denying a borrower's complete application solely because
the servicer has not received documents or information not in the
borrower's control. In addition, proposed Sec. 1024.41(c)(ii)(B)
requires that if, 30 days after a complete loss mitigation application
is received, a servicer is unable to determine which loss mitigation
options, if any, it will offer the borrower because it lacks documents
or information from a party other than the borrower or the servicer,
the servicer must promptly provide the borrower a written notice
stating the following: (1) That the servicer has not received documents
or information not in the borrower's control that the servicer requires
to determine which loss mitigation options, if any, the servicer will
offer on behalf of the owner or assignee of the mortgage; (2) the
specific documents or information that the servicer lacks; (3) the date
on which the servicer first requested that documentation or information
during the current loss mitigation application process; and (4) that
the servicer will complete its evaluation of the borrower for all
available loss mitigation options promptly upon receiving the
documentation or information.
Finally, proposed Sec. 1024.41(c)(4)(ii)(C) requires that, if a
servicer is unable to determine which loss mitigation options, if any,
to offer a borrower within 30 days of receiving a complete application
due to lack of documents or information from a party other than the
borrower or the servicer, upon receiving such documents or information,
the servicer must promptly provide the borrower written notice stating
the servicer's determination in accordance with Sec.
1024.41(c)(1)(ii). Proposed comment 41(c)(4)(ii)(C)-1 clarifies that,
in this circumstance, the servicer should not provide the borrower a
written notice stating the servicer's determination until the servicer
receives the documentation or information.
The Bureau is also proposing comments to explain a servicer's
obligations under proposed Sec. 1024.41(c)(4)(i)'s reasonable
diligence standard with respect to gathering information not in the
borrower's control. The proposed comments address a servicer's
reasonable diligence obligations both upon receipt of a
[[Page 74222]]
complete loss mitigation application and where a servicer has not
received third-party information within 30 days of a complete
application. First, proposed comment 41(c)(4)(i)-1 explains that a
servicer must act with reasonable diligence to collect information not
in the borrower's control that the servicer requires to determine which
loss mitigation options, if any, it will offer the borrower. Proposed
comments 41(c)(4)(i)-1.i and ii explain that a servicer must request
such information from the appropriate person, at a minimum and without
limitation: promptly upon determining that the servicer requires the
documents or information to determine which loss mitigation options, if
any, to offer the borrower; and, to the extent practicable, by a date
that will enable the servicer to complete the evaluation within 30 days
of receiving a complete application as set forth under Sec.
1024.41(c)(1).
Second, proposed comment 41(c)(4)(i)-2 explains that, if a servicer
has not received documents or information not in the borrower's control
within 30 days of receiving a complete loss mitigation application, the
servicer acts with reasonable diligence by attempting to obtain the
documents or information from the appropriate person as quickly as
possible. The Bureau notes that this standard might require a servicer
to act with more immediate urgency to obtain the necessary third-party
information than would the standard set forth in comment 41(c)(4)(ii)-
1. The Bureau believes that this heightened standard is appropriate
after the initial 30 days in order to keep the evaluation timeline as
close as possible to the 30-day evaluation period under Sec.
1024.41(c)(1). The Bureau believes that these proposed comments will
result in shorter evaluation timelines by limiting servicer delay in
the evaluation process.
The Bureau believes that proposed Sec. 1024.41(c)(4)(ii)'s
exception to the 30-day evaluation timeline should be narrowly tailored
to avoid premature denials based solely on the absence of information
not in the borrowers control, while requiring servicers to evaluate the
complete application promptly upon receipt of such information.
Proposed Sec. 1024.41(c)(4)(ii) includes three provisions that would
operate together to achieve these objectives.
First, proposed Sec. 1024.41(c)(4)(ii)(A) prohibits a servicer
from denying a complete application solely because the servicer has not
received documents or information not in the borrower's control. The
Bureau understands that third parties sometimes delay providing
information that the servicer requires to determine which loss
mitigation options, if any, to offer the borrower, notwithstanding a
servicer's reasonable diligence in obtaining such information. However,
the Bureau believes that a borrower's loss mitigation application
should not be denied solely because a party other than the borrower or
the servicer does not timely supply information that the servicer
requires. Several servicers have informed the Bureau that they do not
deny the borrower's application under this circumstance, and at least
one industry trade association has encouraged the Bureau to expressly
sanction this practice. The Bureau agrees that this standard would be
appropriate in order to prevent the borrower from losing the
opportunity for loss mitigation due solely to third-party delay.
Second, proposed Sec. 1024.41(c)(4)(ii)(B) provides that if, 30
days after a complete application is received, the servicer is unable
to make a determination as to which loss mitigation options, if any, it
will offer to the borrower because the servicer lacks documents or
information from a party other than the borrower or the servicer, the
servicer must promptly provide a written notice to the borrower
containing the disclosures listed above. The Bureau believes that the
disclosures required by proposed Sec. 1024.41(c)(4)(ii)(B) would help
avoid borrower confusion in many cases where the evaluation of a loss
mitigation application is delayed under Sec. 1024.41(c)(4)(ii). For
example, a borrower who had already received confirmation that the
application was complete might be expecting a decision within 30 days,
and without the notice required under proposed Sec.
1024.41(c)(4)(ii)(B), the borrower might not receive subsequent
notification regarding the status of the application prior to the
servicer's decision on the application, even if there was significant
delay due to the non-receipt of third-party information.
The Bureau believes that requiring a servicer to provide the
disclosures in proposed Sec. 1024.41(c)(4)(ii)(B) would reduce the
burden on servicers associated with responding to a borrower's
inquiries by providing greater clarity regarding the status of the
application in this circumstance. The Bureau also believes that these
disclosures would benefit both servicers and borrowers and promote
compliance by making it easier for both parties to determine whether
the servicer exercised reasonable diligence in obtaining third-party
information as proposed Sec. 1024.41(c)(4)(i) provides. Further, the
Bureau intends for the disclosures to reduce the number of inquiries
borrowers submit to servicers pertaining to application status. This
would reduce servicer burden and improve communication between
borrowers and servicers.
Third, proposed Sec. 1024.41(c)(4)(ii)(C) provides that if, due to
a lack of documents or information from a party other than the borrower
or the servicer, a servicer is unable to determine which loss
mitigation options, if any, to offer a borrower within 30 days of
receiving the complete application, upon receiving such documents or
information, the servicer must promptly provide the borrower a written
notice stating the servicer's determination in accordance with Sec.
1024.41(c)(1)(ii). The Bureau believes that requiring a servicer to
determine promptly which loss mitigation options, if any, to offer the
borrower upon receiving delayed documents or information from a party
other than the borrower or the servicer and to provide the borrower
written notice of the servicer's determination promptly will reduce
delay and is consistent with industry practice.
Proposed comment 41(c)(4)(ii)-1 would clarify that the servicer
must complete all possible steps in the evaluation process--including
by taking all steps mandated by third-parties like mortgage insurance
companies, guarantors, owners, or assignees--within 30 days of
receiving a complete application, notwithstanding delay in receiving
information from any third-party. The proposed comment would include
the following clarifying example: if a servicer can determine a
borrower's eligibility for all available loss mitigation options based
upon the borrower's complete application subject only to approval from
the mortgage insurance company, it must do so within 30 days of
receiving the complete application notwithstanding the need to obtain
such approval before offering any loss mitigation options to the
borrower. The proposed comment is intended to prohibit a servicer from
unnecessarily delaying the evaluation process because of delayed third-
party information. The Bureau is concerned that this type of servicer
delay would increase the risk that the borrower's documents would go
stale, possibly delaying the evaluation further while the hardship
worsens.
The Bureau notes that, while proposed Sec. 1024.41(c)(4)(i) and
(ii)(A) refer to ``information not in the borrower's control,''
proposed Sec. 1024.41(c)(4)(ii)(B) and (C) refer only to ``information
from a party other than
[[Page 74223]]
the borrower or the servicer.'' The Bureau believes that this
distinction is appropriate given the different requirements that the
proposed provisions would impose on servicers. Proposed Sec.
1024.41(c)(4)(i) and (ii)(A), respectively, require a servicer to
exercise reasonable diligence in obtaining any non-borrower
information, and not deny the borrower solely because the servicer has
not received such information. The Bureau believes that these
protections are appropriate regardless of whether the missing
information is in the control of the servicer or in the control of a
third-party in order to ensure fair and efficient evaluation. However,
proposed Sec. 1024.41(c)(4)(ii)(B) and (C) offer an exception to the
30-day evaluation timeline provided under Sec. 1024.41(c)(1). The
Bureau believes that such an exception should exist only when the
servicer itself lacks control over the information and must seek it
from a third-party over which the servicer does not have control. The
Bureau therefore proposes to limit the extension of the evaluation
timeline to circumstances in which neither the servicer nor the
borrower is in control of the necessary information. Since a servicer
can generally access information in its own control at any time, the
Bureau believes that it would be inappropriate to offer an exception to
the 30-day evaluation timeline required under Sec. 1024.41(c)(1) based
upon a servicer's delay in doing so.
The Bureau seeks comment to better understand the cause of delay in
servicers receiving non-borrower information necessary to determine
which loss mitigation options, if any, to offer a borrower.
Specifically, the Bureau seeks comment on how servicers and third-
parties contribute to the delay, as well as which categories of non-
borrower information most frequently result in delay. Finally, the
Bureau seeks comment on whether to limit the amount of time that a
servicer must exercise reasonable diligence in attempting to obtain
information not in the borrower's control.
41(f) Prohibition on Foreclosure Referral
41(f)(1) Pre-foreclosure Review Period
The Bureau is proposing to amend Sec. 1024.41(f)(1)(iii) so that
the prohibition on referral to foreclosure until after the 120th day of
delinquency would not apply when a servicer is joining the foreclosure
action of a senior lienholder. Although current Sec. 1024.41(f)(1)
generally prohibits a servicer from making the first notice or filing
required by applicable law to begin the foreclosure process unless a
borrower's mortgage loan obligation is more than 120 days delinquent,
the rule includes an exemption allowing a servicer to make a first
notice or filing when the servicer is joining the foreclosure action of
a subordinate lienholder. The proposed amendment to Sec.
1024.41(f)(1)(iii) would similarly allow a servicer to make the first
notice or filing before the loan obligation is 120 days delinquent when
the servicer is joining the foreclosure action of a senior lienholder.
In the September 2013 Mortgage Final Rule, the Bureau decided that,
if a borrower is current on a mortgage secured by a senior lien but is
being foreclosed on by a subordinate lienholder, it would be
appropriate for the servicer of the mortgage secured by the senior lien
to join the foreclosure action, even though the borrower may not be
delinquent on the mortgage secured by the senior lien, because the
first notice or filing would not be based upon a borrower's delinquency
in this circumstance.\172\ The Bureau did not then consider the
situation in which the servicer is joining the foreclosure action of a
senior lienholder, and servicers have since asked the Bureau why the
same rule does not apply in that situation. The Bureau believes that
the same rationale makes it appropriate to expand the current exemption
to circumstances in which the servicer is joining the foreclosure
action of a senior lienholder. The Bureau believes that it would be
appropriate for the servicer of the mortgage secured by the subordinate
lien to join the foreclosure action, even though the borrower may not
be delinquent on the mortgage secured by the subordinate lien, because
the first notice or filing would not be based upon a borrower's
delinquency with respect to the serviced loan. Further, expanding the
exemption seems to present only minimal borrower protection concerns
because the borrower would already be facing a foreclosure action on
the property.
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\172\ See 78 FR 60381, 60406 (Oct. 1, 2013).
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The Bureau believes that the proposed rule would be helpful to
servicers by making clear that the servicer of a subordinate lien may
participate in the existing foreclosure action on a senior lien. The
servicer's participation in the foreclosure action of a senior
lienholder may allow the servicer to represent the servicer's interests
in the existing foreclosure action more fully under some circumstances.
Additionally, it may sometimes be necessary, when the same servicer is
responsible for both the senior and subordinate lien, for the servicer
to initiate foreclosure on the subordinate lien as part of the
foreclosure action on the senior lien, in order to clear title on the
property for the subsequent owner.\173\
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\173\ If the servicer in this circumstance does not initiate
foreclosure on the subordinate lien, the servicer may be deemed not
to have joined the subordinate lienholder in the foreclosure action,
causing the subordinate lien to remain on the property after
foreclosure. See, e.g., Deutsche Bank Natl. Trust Co. v. Mark Dill
Plumbing Co., 903 NE.2d 166, 169 (Ind. Ct. App. 2009), aff'd on
rehearing, 908 NE. 2d 1273 (Ind. Ct. App. 2009) (``Foreclosure by a
senior mortgagee does not affect the rights of a junior lienholder
who was not made a party to the foreclosure action.''); Portland
Mort. Co. v. Creditors Protective Ass'n, 262 P.2d 918, 922 (Or.
1953) (``The omitted junior lienholder is in the same position as if
no foreclosure had ever taken place, and he has the same rights, no
more and no less, which he had before the foreclosure suit was
commenced.'').
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41(g) Prohibition on Foreclosure Sale
The Bureau is proposing to revise comments 41(g)-1 and (g)-3 and
add new comment 41(g)-5. Together these changes would clarify
servicers' obligations with respect to Sec. 1024.41(g)'s prohibition
against moving for foreclosure judgment or order of sale, or conducting
a sale, during the evaluation of a complete loss mitigation application
received more than 37 days before a foreclosure sale. The Bureau is
also proposing to add commentary to clarify the requirements for
policies and procedures under Sec. 1024.38(b)(3)(iii) as the
requirements relate to the prohibition under Sec. 1024.41(g).
Under Sec. 1024.41(g), if a borrower submits a complete loss
mitigation application after a servicer has made the first notice or
filing, but more than 37 days before a foreclosure sale, the servicer
is prohibited from moving for foreclosure judgment or order of sale, or
conducting a foreclosure sale, unless: (1) The servicer has sent the
borrower a notice pursuant to Sec. 1024.41(c)(1)(ii) that the borrower
is not eligible for any loss mitigation option and the appeal process
under Sec. 1024.41(h) is not applicable, the borrower has not
requested an appeal within 14 days, or the servicer has denied the
borrower's appeal; (2) the borrower rejects all loss mitigation options
offered by the servicer; or (3) the borrower fails to perform under an
agreement on a loss mitigation option.
Current comment 41(g)-1 explains that the prohibition on a servicer
moving for judgment or order of sale includes making a dispositive
motion for foreclosure judgment, such as a motion for default judgment,
judgment on the pleadings, or summary judgment, which may directly
result in a judgment of foreclosure or order of sale. The
[[Page 74224]]
comment further explains that a servicer that has made a dispositive
motion before receiving a complete loss mitigation application has not
moved for a foreclosure judgment or order of sale if the servicer takes
reasonable steps to avoid a ruling on such motion or issuance of such
order prior to completing the procedures required by Sec. 1024.41,
notwithstanding whether any such step successfully avoids a ruling on a
dispositive motion or issuance of an order of sale. Comment 41(g)-2
provides that Sec. 1024.41(g) does not prevent a servicer from
proceeding with any steps in the foreclosure process, so long as any
such steps do not cause or directly result in the issuance of a
foreclosure judgment or order of sale, or the conduct of a foreclosure
sale, in violation of Sec. 1024.41. Comment 41(g)-3 explains that a
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, in
violation of Sec. 1024.41(g), when a servicer has a received a
complete loss mitigation application. Such instructions may include
instructing counsel to move for continuance with respect to the
deadline for filing a dispositive motion.\174\
---------------------------------------------------------------------------
\174\ Comment 41(g)-4 explains that although a servicer is not
required to comply with the requirements in Sec. 1024.41 with
respect to a loss mitigation application submitted 37 days or less
before a foreclosure sale, a servicer is required separately, in
accordance with policies and procedures maintained pursuant to Sec.
1024.38(b)(2)(v), to properly evaluate 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. Such evaluation may be subject to requirements
applicable to a review of a loss mitigation application submitted by
a borrower 37 days or less before a foreclosure sale.
---------------------------------------------------------------------------
Section 1024.41(g)'s prohibition applies to two distinct types of
steps in the foreclosure process: moving for judgment or an order of
sale and conducting a foreclosure sale. A servicer's obligations under
Sec. 1024.41(g) will vary depending on whether the foreclosure is
judicial or non-judicial. If the applicable foreclosure procedure is
non-judicial and does not require any court proceeding or order, then
there is only one step in the foreclosure process addressed by Sec.
1024.41(g)--conducting the sale during a pending loss mitigation
evaluation. However, in a judicial foreclosure proceeding, a servicer
must comply with both the prohibition against making or proceeding on a
dispositive motion and the prohibition against conducting the
foreclosure sale.
The Bureau proposed Sec. 1024.41(g) in the 2012 RESPA Servicing
Proposal, after the mortgage crisis had revealed that servicers often
``were ill-equipped to handle the high volumes of delinquent mortgages,
loan modification requests, and foreclosures they were required to
process.''\175\ The Bureau noted that evaluations of mortgage servicer
practices had found that servicers failed to properly structure and
manage third-party vendor relationships and noted that the failures had
``manifested 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.''\176\ The Bureau also noted that, even
before the mortgage crisis, servicers may have had ``financial
incentives to foreclose rather than engage in loss mitigation.''\177\
The Bureau stated that one of the main goals in proposing Sec. 1024.41
was prohibiting completion of the foreclosure process during a pending
evaluation of a borrower's loss mitigation application and that the
prohibition would ``eliminate the clearest harms on borrowers resulting
from servicers pursuing loss mitigation and foreclosure proceedings
concurrently.''\178\
---------------------------------------------------------------------------
\175\ 77 FR 57199, 57203, 57266 (Sept. 17, 2012).
\176\ Id. at 57249-50 (citing Press Release, Federal Reserve
System, Office of the Comptroller of the Currency, and Office of
Thrift Supervision, Interagency Review of Foreclosure Policies and
Practices, at 5 (Apr. 2011), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.)
\177\ Id. at 57203 (Sept. 17, 2012).
\178\ Id. at 57271.
---------------------------------------------------------------------------
In adopting Sec. 1024.41(g) in the 2013 RESPA Servicing Final
Rule, the Bureau included moving for judgment or order of sale in the
foreclosure prohibition. The Bureau explained that the rule restricted
```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.''\179\ The Bureau did
not believe that Sec. 1024.41(g) would have a substantial impact on
expected foreclosure timelines separate and apart from current market
practices. However, the Bureau also believed that preventing the worst
harms of dual-tracking would justify some disruption of foreclosure
timelines.\180\
---------------------------------------------------------------------------
\179\ 78 FR 10695, 10698 (Feb. 14, 2013).
\180\ Id. at 10834.
---------------------------------------------------------------------------
Since the Mortgage Servicing Rules went into effect, however,
consumers have not always received the protections intended by Sec.
1024.41(g). For instance, the Bureau has received reports that counsel
retained by servicers to conduct the foreclosure proceeding lack
current and accurate information about the completion of borrowers'
loss mitigation applications. As a result, foreclosure counsel may not
take adequate steps to avoid a judgment or order of sale and may fail
to seek the delay or continuance of a sale when necessary to provide
adequate time for the servicer to evaluate the loss mitigation
application. In extreme cases, the Bureau has heard, foreclosure
counsel may not represent accurately to the court the status of the
loss mitigation application. Further, the Bureau has received reports
that, even when servicers' foreclosure counsel take some steps to avoid
a judgment or sale, they may fail to impress upon courts the
significance of Sec. 1024.41(g)'s prohibition. All of these failures
to act in accordance with Sec. 1024.41(g)'s requirements may result in
the completion of foreclosure sales while the servicer is evaluating a
borrower's complete loss mitigation application.
The Bureau has received inquiries concerning what steps a servicer
must take to comply with Sec. 1024.41(g) where a court orders a
foreclosure sale date that does not afford sufficient time for the
servicer to complete the evaluation process required by Sec.
1024.41.\181\ The Bureau has learned that some courts are ruling on a
pending dispositive motion and setting a date for the foreclosure sale,
despite the servicer's attempts through counsel to delay the ruling or
order. In many cases, the initially scheduled sale date may not provide
the servicer adequate time to complete the loss mitigation evaluation
and appeals process. Servicers indicate that in some instances courts
are requiring that the foreclosure continue to a completed sale even
when review of a complete loss mitigation application is underway.
Media accounts as well as reports from consumer advocacy groups confirm
that some courts may be refusing to continue cases when confronted with
a motion to do so.\182\
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\181\ Many borrower protections under Sec. 1024.41 are
determined as of the date a servicer receives a complete loss
mitigation application from the borrower. See 12 CFR 1024.41(b)(3).
Comment 41(b)(3)-1 explains that if a foreclosure sale is not
scheduled as of the date a complete loss mitigation application is
received the application is considered to have been received 90 days
before a foreclosure sale. Thus, a servicer that receives a complete
loss mitigation application before a foreclosure sale date is
scheduled must provide the full loss mitigation evaluation
procedures under Sec. 1024.41, the various steps of which generally
provide for a total possible timeline of 88 days to complete.
\182\ See, e.g., Alison Fitzgerald, Homeowners steamrolled as
Florida courts clear foreclosure backlog, The Ctr. for Pub.
Integrity, Sept. 10, 2014, available at http://www.publicintegrity.org/2014/09/10/15463/homeowners-steamrolled-florida-courts-clear-foreclosure-backlog.
---------------------------------------------------------------------------
[[Page 74225]]
Current comment 41(g)-1 explains that a servicer does not violate
Sec. 1024.41(g) where the servicer takes ``reasonable steps to avoid''
issuance of an order or ruling on a dispositive motion filed prior to
receipt of the complete loss mitigation application from the borrower.
However, there is no similar commentary explaining what, if any,
``reasonable steps'' a servicer must take to avoid a violation of the
prohibition under Sec. 1024.41(g) against conducting a sale after the
servicer receives a complete loss mitigation application.
As the Bureau noted in the 2013 RESPA Servicing Final Rule, Sec.
1024.41(g) ``prohibit[s] a servicer from completing the foreclosure
process if a borrower has submitted a timely and complete loss
mitigation application . . . until the servicer has completed the
evaluation of the borrower . . . .'' \183\ The Bureau believes that,
regardless of the applicable foreclosure procedures, Sec. 1024.41(g)
does not permit a servicer to stand by while a sale goes forward unless
the servicer can satisfy one of the three conditions listed under Sec.
1024.41(g)(1) through (3). Based upon the reports and information
received, the Bureau is concerned that the absence of express
commentary requiring a servicer to take affirmative steps to delay the
sale may have encouraged some servicers to fail to instruct foreclosure
counsel appropriately and, further, may lead courts to discount
servicer obligations under the rule, depriving borrowers of the
important consumer protections against dual tracking that are provided
under Sec. 1024.41.
---------------------------------------------------------------------------
\183\ 78 FR 10695, 10834 (Feb. 14, 2013).
---------------------------------------------------------------------------
Therefore, the Bureau is proposing to revise and add commentary to
clarify the operation of Sec. 1024.41(g) in these situations. As
revised, proposed comment 41(g)-1 clarifies that if, upon receipt of a
complete loss mitigation application, a servicer or its foreclosure
counsel fails to take reasonable steps to avoid a ruling on a pending
motion for judgment or the issuance of an order of sale, the servicer
must dismiss the foreclosure proceeding if necessary to avoid the sale.
Proposed comment 41(g)-5 would clarify that Sec. 1024.41(g) prohibits
a servicer from conducting a foreclosure sale, even if a person other
than the servicer administers or conducts the foreclosure sale
proceedings, and that servicers must take reasonable steps to delay the
sale until one of the conditions under Sec. 1024.41(g)(1) through (3)
is met.
The Bureau is also proposing to revise comment 41(g)-3 to clarify
servicers' obligations under Sec. 1024.41(g) when acting through
foreclosure counsel. Similarly, the Bureau is proposing comment
38(b)(3)(iii)-1 to clarify that policies and procedures required under
Sec. 1024.38(b)(3)(iii) to facilitate sharing of information with
service provider personnel responsible for handling foreclosure
proceedings must be reasonably designed to ensure that servicer
personnel promptly inform service provider personnel handling
foreclosure proceedings that the servicer has received a complete loss
mitigation application.
The proposed comments, taken together, would clarify that, once a
servicer receives a complete loss mitigation application, a servicer
must take reasonable steps to avoid a ruling on a dispositive motion or
issuance of a judgment or an order of sale, and also must take
reasonable steps to delay a foreclosure sale until after the servicer
has completed the loss mitigation evaluation procedures required by
Sec. 1024.41. Where a servicer fails to take reasonable steps to avoid
a ruling on a dispositive motion, to avoid issuance of a judgment or an
order of sale, or to delay the foreclosure sale, or where the
servicer's foreclosure counsel fails to take such steps, the servicer
would have to dismiss the foreclosure proceeding, if dismissal is
necessary to avoid completing the foreclosure during the pendency of
the loss mitigation evaluation.
The Bureau believes that the proposed revisions to the commentary
will aid servicers in complying with Sec. 1024.41(g)'s prohibition and
assist courts in applying the prohibition in foreclosure proceedings.
The Bureau also believes that clarifying that a servicer must take
affirmative reasonable steps, not only to delay issuance of a judgment
or order, but also to delay the sale, will ensure that borrowers are
protected from foreclosure during pending evaluations of complete loss
mitigation applications. Further, the Bureau believes that it is
appropriate to require a servicer to dismiss a foreclosure if necessary
to permit completion of the loss mitigation evaluation procedures where
the servicer or its foreclosure counsel has failed to take such
reasonable steps. The Bureau believes that clarifying that dismissal is
required if a servicer has failed to take reasonable steps on its own
or through foreclosure counsel to avoid a ruling or to delay a
foreclosure sale during a pending loss mitigation evaluation will
incentivize servicers to develop more effective procedures to carry out
the requirements of Sec. 1024.41(g). The Bureau believes that
dismissal should rarely be necessary, given that servicers have it
within their power to take all such reasonable steps to avoid a ruling
on a dispositive motion, issuance of a judgment or an order of sale, or
the conduct of a foreclosure sale.
Under current comment 41(g)-1, a servicer that fails to take
reasonable steps to avoid a ruling on a motion pending at the time the
servicer receives a complete loss mitigation application violates Sec.
1024.41(g)'s first prohibition against moving for judgment or order of
sale. The Bureau believes that where a servicer fails to take
reasonable steps to avoid a ruling on or issuance resulting from a
dispositive motion, as postulated in current comment 41(g)-1, the
servicer must still comply with the prohibition against conducting a
sale. The completion of a foreclosure sale during the evaluation of a
borrower's complete loss mitigation application is precisely the harm
that the Bureau crafted Sec. 1024.41(g) to avoid. The Bureau believes
that a servicer's failure to comply with one element of Sec.
1024.41(g), the prohibition against proceeding on a dispositive motion,
does not justify disregard for the prohibition against conducting a
sale. Consequently, to emphasize the necessity of a servicer's taking
reasonable steps to avoid a ruling or issuance of an order for sale
when there is a pending loss mitigation evaluation, the Bureau is
proposing to revise comment 41(g)-1 to provide explicitly that failure
to take such steps requires dismissal if necessary to avoid the
foreclosure sale.
Proposed comment 41(g)-5 also clarifies that a servicer must seek
to delay a foreclosure sale, notwithstanding the fact that a third-
party, such as a sheriff, trustee, or other public official,
administers or conducts the sale proceedings, as is the case under
foreclosure procedure in many States. The Bureau believes that any
interpretation of Sec. 1024.41(g)'s prohibition against conducting a
foreclosure sale that relieves servicers of a responsibility to act to
prevent a foreclosure simply because the foreclosure procedure does not
require the servicer itself to conduct or administer the sale is
inconsistent with the purpose of Sec. 1024.41(g). The Bureau believes
servicers already have an obligation to prevent a foreclosure sale
under Sec. 1024.41(g)'s prohibition against the conduct of a
foreclosure sale. The Bureau is proposing comment 41(g)-5 to
[[Page 74226]]
clarify a servicer's obligations under the prohibition, but is not
adding a new requirement or interpretation.
The Bureau recognizes that in some jurisdictions, it may be
difficult for a servicer to delay a foreclosure sale after entry of
foreclosure judgment or issuance of an order of sale. The Bureau also
understands that courts may be reluctant to delay foreclosure
proceedings when lengthy backlogs of foreclosure matters create added
pressure to expedite dockets. The Bureau believes that, even in these
situations, reasonable steps to delay the sale are available to
servicers and to courts administering foreclosure proceedings. Proposed
comment 41(g)-5 provides a non-exclusive explanation of what reasonable
steps might include. For instance, the Bureau believes that in judicial
foreclosure proceedings, a servicer, through its counsel, may make a
motion to continue the sale, remove it from the docket, or place the
proceeding in any administrative status that stays the sale.\184\ In
non-judicial proceedings, the Bureau believes that servicers may have
more control over the conduct of the sale and that analogous steps to
those listed in proposed comment 41(g)-5 may apply. The Bureau seeks
comment on what reasonable steps may be available to servicers to delay
the conduct of a foreclosure sale under different foreclosure
procedures.
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\184\ As noted above, the maximum timeline for loss mitigation
evaluations required by Sec. 1024.41 is 88 days. See note 179,
supra. The Bureau believes that in most judicial foreclosure
procedures, a delay of a foreclosure sale often will not require a
substantial elongation of the typical time period between an order
and a sale.
---------------------------------------------------------------------------
Proposed comment 41(g)-3 explains that Sec. 1024.41(g)'s
prohibitions on moving for judgment or order of sale or conducting a
sale may require a servicer to take steps through foreclosure counsel,
and that a servicer is not relieved of its obligations because the
foreclosure counsel's actions or inaction cause a violation. The
proposed revisions to comment 41(g)-3 are consistent with the Bureau's
understanding of servicer's responsibilities under the Mortgage
Servicing Rules whenever service providers are involved, including the
policies and procedures requirements under Sec. 1024.38(b)(3). While
the action or inaction of vendors or service providers may cause the
violation in the first instance, the action or inaction of vendors or
service providers does not change the servicer's responsibility for
ensuring its compliance with the Mortgage Servicing Rules, whether
directly or through service providers.
Proposed comment 41(g)-3 further explains that if a servicer has
received a complete loss mitigation application, the servicer must
promptly instruct counsel not to make a dispositive motion for
foreclosure judgment or order of sale; to take reasonable steps, where
such a dispositive motion is pending, to avoid a ruling on the motion
or issuance of an order of sale; and to take reasonable steps to delay
the conduct of a foreclosure sale until the servicer satisfies one of
the conditions in Sec. 1024.41(g)(1) through (3). The instructions to
counsel may include instructing counsel to move for a continuance with
respect to the deadline for filing a dispositive motion or to move for
or request that the foreclosure sale be stayed, otherwise delayed, or
removed from the docket, or that the foreclosure proceeding be placed
in any administrative status that stays the sale. This list is not
meant to be exhaustive, and the Bureau seeks comments on whether there
are other helpful illustrative examples.
The Bureau believes that the proposed revisions to comment 41(g)-3
provide servicers, their foreclosure counsel, and courts with greater
clarity with respect to the operation of Sec. 1024.41(g)'s
prohibition. As the Bureau noted in its earlier guidance regarding
service providers, the fact that an entity enters into a business
relationship with a service provider does not absolve the entity of
responsibility for complying with Federal consumer financial law to
avoid consumer harm.\185\ The Bureau believes that codifying this
principal in comment 41(g)-3 would ensure that servicers understand
their obligations with respect to instructing foreclosure counsel
promptly to take steps required by Sec. 1024.41(g). The Bureau
understands that when a servicer receives an application shortly before
a court hearing or while a dispositive motion is pending, timely
communication with foreclosure counsel may necessitate expedited
procedures. However, the Bureau believes that timely communication in
such situations presents neither a novel challenge to lawyers and their
clients, nor an insurmountable one, given modern communication
technology.
---------------------------------------------------------------------------
\185\ Consumer Fin. Prot. Bureau, CFPB Bulletin 2012-03, Service
Providers (Apr. 13, 2012), available at http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf.
---------------------------------------------------------------------------
Proposed comment 38(b)(3)(iii)-1 explains that the policies and
procedures must be reasonably designed to ensure that servicer
personnel promptly instruct foreclosure counsel to take any step
required by Sec. 1024.41(g) sufficiently timely to avoid violating the
prohibition against moving for judgment or order of sale or conducting
a foreclosure sale. The Bureau believes that proposed comment
38(b)(3)(iii)-1 will help to ensure that counsel are timely informed of
the status of loss mitigation applications and can more effectively
seek delay from a court of the issuance of an order or a foreclosure
sale. Having policies and procedures to timely instruct counsel to take
the actions required by Sec. 1024.41(g) will help servicers
efficiently handle communication with a servicer's foreclosure counsel
and ensure that the counsel accurately represents the status of loss
mitigation applications and the obligations of servicers under Sec.
1024.41(g) to courts handling foreclosure proceedings.\186\
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\186\ The Bureau notes that Sec. 1024.38(b)(1)(v) already
requires servicers maintain policies and procedures reasonably
designed to ensure that the servicer can 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.
---------------------------------------------------------------------------
Though the proposed commentary clarifications do not alter existing
requirements under Sec. 1024.41(g), the Bureau has considered the
potential burdens for servicers in dismissing a foreclosure proceeding.
In jurisdictions where significant foreclosure backlogs exist,
dismissal may significantly delay completion of the foreclosure process
(assuming no loss mitigation agreement is reached between the borrower
and the servicer). In addition, in some jurisdictions a subsequent
foreclosure brought by a servicer may encounter procedural challenges
or defenses as a result of the dismissal. Nonetheless, the Bureau
believes that dismissal is appropriate in the limited circumstances
where a servicer fails to take reasonable steps to avoid a ruling or
issuance of an order or delay the sale to protect borrowers from the
dual-tracking harms Sec. 1024.41(g) aims to prevent. Moreover, the
Bureau notes that dismissal is required only to avoid a violation of
Sec. 1024.41(g) or to mitigate the harm to the consumer arising from
the servicer's prior violation of Sec. 1024.41(g) in failing to take
reasonable steps to delay a foreclosure sale. Thus, only those
servicers that fail to act to delay issuance of the order or judgment
would incur any costs related to dismissal. The Bureau believes that
expressly clarifying that dismissal may be required would ensure that
servicers take reasonable steps to avoid foreclosure sales. The Bureau
seeks comment on whether the clarification is adequate or whether
additional
[[Page 74227]]
clarification is necessary to protect borrowers from foreclosure.
The Bureau requests comment on whether all of the proposed
commentary clarifications are appropriate and whether the commentary
provides sufficient clarity to ensure that the prohibition under Sec.
1024.41(g) will effectively prevent foreclosures during a pending loss
mitigation evaluation. In addition, the Bureau requests comment on
whether there are any specific reasonable steps to comply with Sec.
1024.41(g) that servicers should take, beyond re-scheduling or delaying
the sale, removing the sale from the docket, or placing the foreclosure
proceeding in any administrative status that stays the sale, where a
court has ruled upon a dispositive motion. Finally, the Bureau requests
comment on whether there are situations in which a servicer should
dismiss a foreclosure proceeding to stop a sale even where the servicer
has taken the reasonable steps outlined in Sec. 1024.41(g).
The Bureau requests comment on whether the incorporation into the
regulation text of any elements of the proposed commentary would aid
servicers in complying with Sec. 1024.41(g). The Bureau believes that
the proposed commentary would provide help in interpreting and
complying with Sec. 1024.41(g). However, the Bureau also recognizes
that incorporation in the regulation text itself may aid servicers,
consumers, and courts in applying the prohibition.
41(i) Duplicative Requests
Currently, Sec. 1024.41(i) requires a servicer to comply with the
requirements of Sec. 1024.41 for only a single complete loss
mitigation application for a borrower's mortgage loan account. Section
1024.38(b)(2)(v) requires a servicer to maintain policies and
procedures designed to ensure that the servicer can properly evaluate a
borrower 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[.]'' In effect, therefore,
unless investor guidelines require them to do so, servicers are not
required to comply with the loss mitigation provisions in Sec. 1024.41
if they previously complied with those requirements with respect to the
same borrower's prior complete loss mitigation application.
The Bureau is now proposing to revise Sec. 1024.41(i) to provide
that servicers are required to comply with the requirements of Sec.
1024.41 unless the servicer has previously complied with Sec. 1024.41
for a borrower's complete loss mitigation application and the borrower
has been delinquent at all times since the borrower submitted that
complete application. As further explained below, the Bureau believes
that requiring servicers to comply with Sec. 1024.41 again in these
circumstances may serve an important consumer protection purpose by
extending the protections of Sec. 1024.41 and promoting the use of
uniform loss mitigation procedures for all borrowers. At the same time,
the Bureau believes the proposed revision preserves servicer and
borrower incentives to dedicate appropriate resources to an initial
loss mitigation application.
When the Bureau first proposed Sec. 1024.41 in the 2012 RESPA
Servicing Proposal, it sought comment on whether a borrower should be
entitled to a renewed evaluation for a loss mitigation option if an
appropriate time period had passed since the initial evaluation or if
there had been a material change in the borrower's financial
circumstances. Industry commenters generally supported the Bureau's
proposal to limit a servicer's obligation to comply with Sec. 1024.41
to one time over the life of a borrower's loan. Consumer advocacy
groups, however, argued that the Bureau should require servicers to
review a subsequent loss mitigation submission when a borrower has
demonstrated a material change in the borrower's financial
circumstances.\187\
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\187\ See 78 FR 10695, 10836 (Feb. 14, 2013).
---------------------------------------------------------------------------
In the 2013 RESPA Servicing Final Rule, the Bureau stated that it
agreed with consumer advocacy groups that there are circumstances in
which it is appropriate to reevaluate borrowers in light of a material
change in financial circumstances. Further, it acknowledged that many
owners or assignees of mortgage loans already require servicers to
consider material changes in a borrower's financial circumstances.\188\
However, the Bureau noted that ``significant challenges exist to
determine whether a material change in financial circumstances has
occurred[,]'' and that, in contrast with investor or GSE guidelines,
Sec. 1024.41 gives borrowers a private right of action to enforce its
procedures.\189\ In addition, the Bureau stated its belief that
limiting the loss mitigation procedures of Sec. 1024.41 to a single
complete loss mitigation application provides borrowers with
appropriate incentives to submit all relevant information up front and
allows servicers to dedicate resources to those applications most
likely to qualify for loss mitigation options. Accordingly, the Bureau
adopted Sec. 1024.41(i) as proposed and required servicers to comply
with the loss mitigation procedures in Sec. 1024.41 only once over the
life of a mortgage loan.
---------------------------------------------------------------------------
\188\ Id.
\189\ Id.
---------------------------------------------------------------------------
Since the publication of the 2013 RESPA Servicing Final Rule, the
Bureau has received numerous requests to revise Sec. 1024.41(i) to
require servicers to reevaluate borrowers who have experienced a change
in financial circumstances and might therefore benefit from subsequent
review of a new loss mitigation application under the requirements of
Sec. 1024.41. The Bureau continues to have concerns with requiring
reevaluations under the Mortgage Servicing Rules when there has been a
``material change in financial circumstances,'' so is not proposing to
do so in this rulemaking. However, continued industry monitoring
efforts, outreach to stakeholders, and continued reports from consumers
and consumer advocacy groups suggests that current Sec. 1024.41(i) may
unfairly disadvantage a borrower who experiences multiple hardships
over the life of a loan. The Bureau believes that a borrower may
greatly benefit from the protections of Sec. 1024.41 for loss
mitigation applications submitted in connection with each subsequent
hardship. Moreover, the Bureau believes that revising Sec. 1024.41(i)
to require servicers to reevaluate borrowers in certain circumstances
under the requirements of Sec. 1024.41 would not place a significant
additional burden on servicers because many servicers already
reevaluate borrowers who reapply for loss mitigation using the
procedures set forth in Sec. 1024.41.
Based on this analysis, the Bureau is proposing to revise the
current rule to require servicers to reevaluate borrowers under Sec.
1024.41 in certain circumstances. However, as the Bureau explained in
the 2013 RESPA Servicing Final Rule, the Bureau believes that a
servicer's obligation to reevaluate borrowers under Sec. 1024.41
should be limited in scope. Accordingly, proposed Sec. 1024.41(i)
provides that servicers are required to comply with Sec. 1024.41
unless the servicer has previously complied with Sec. 1024.41 for a
borrower's complete loss mitigation application and the borrower has
been delinquent at all times since the borrower submitted that complete
application. That is, under proposed Sec. 1024.41(i), a servicer would
be required to comply with Sec. 1024.41, even if it had previously
complied with Sec. 1024.41 for a borrower's complete loss mitigation
application, for a borrower who has been current on payments at
[[Page 74228]]
any time between the borrower's prior complete loss mitigation
application and a subsequent loss mitigation application. This revision
is intended to preserve borrower and servicer incentives to reach a
timely, efficient, and effective resolution to a borrower's hardship
the first time a borrower applies for loss mitigation.
In addition, the Bureau believes that proposed Sec. 1024.41(i)
bases a servicer's obligation to reevaluate a borrower under Sec.
1024.41 on an objective, bright-line test. One of the Bureau's concerns
about the suggestions to require reevaluations under the Mortgage
Servicing Rules when there has been a ``material change in financial
circumstances'' is that the standard would be dependent upon a
servicer's subjective determination. The Bureau believes that the
challenges in implementing and enforcing such a standard would outweigh
any intended benefit to borrowers. However, an easy-to-administer
standard such as the one proposed may promote servicer compliance and
reduce confusion for both servicers and borrowers. The Bureau also
believes that this proposal may encourage consistent implementation of
the Mortgage Servicing Rules by discouraging servicers from applying
different loss mitigation procedures depending on whether a borrower
has been previously evaluated under Sec. 1024.41.
For purposes of this proposal, the Bureau assumes that a permanent
modification of a borrower's mortgage loan obligation effectively cures
the borrower's pre-modification delinquency. In other words, the Bureau
assumes that a borrower who is performing under a permanent
modification does not meet the definition of delinquency that the
Bureau is proposing to add to Sec. 1024.31. The Bureau seeks comment
on whether there are types of permanent loan modifications or other
circumstances for which this assumption would be inaccurate.
Finally, the Bureau is revising the current commentary to Sec.
1024.41(i), which addresses servicers' obligations following the
transfer of servicing rights, to accommodate proposed Sec. 1024.41(k).
Specifically, the Bureau is preserving the portion of comment 41(i)-1
that obligates a transferee servicer to comply with Sec. 1024.41
regardless of whether a transferor servicer previously evaluated a
borrower's complete loss mitigation application. As set forth in the
section-by-section analysis of Sec. 1024.41(k) below, the Bureau is
proposing to move the balance of comment 41(i)-1, as revised, as well
as comment 41(i)-2, as revised, into proposed Sec. 1024.41(k) and
proposed new commentary.
The Bureau seeks comment on the proposed revision to Sec.
1024.41(i) generally. The Bureau specifically seeks comment on whether
the borrower's right to a reevaluation should be contingent upon
whether the borrower was current for a minimum period of time since the
borrower's last-submitted complete loss mitigation application.
41(k) Servicing Transfers
The Bureau is proposing Sec. 1024.41(k) to address the
requirements applicable to loss mitigation applications pending at the
time of a servicing transfer. Proposed Sec. 1024.41(k) provides that,
subject to certain exceptions, a transferee servicer must comply with
Sec. 1024.41's requirements within the same timeframes that were
applicable to the transferor servicer. The proposed exceptions include
a five-day extension of time for a transferee servicer to provide the
written notification required by Sec. 1024.41(b)(2)(i)(B), and a
provision ensuring that a transferee servicer that acquires servicing
through an involuntary transfer has at least 15 days after the transfer
date to evaluate a borrower's pending complete loss mitigation
application. The proposal also provides that if a borrower's appeal
under Sec. 1024.41(h) is pending as of the transfer date, a transferee
servicer must evaluate the appeal pursuant to Sec. 1024.41(h) if it is
able to determine whether it should offer the borrower the loan
modification options subject to the appeal; a transferee servicer that
is unable to evaluate an appeal must treat the appeal as a complete
loss mitigation application and evaluate the borrower for all loss
mitigation options available to the borrower from the transferee
servicer.
Currently, Sec. 1024.41 addresses transfers through the
commentary. Comment 41(i)-1 provides that, among other things,
documents and information transferred to a transferee servicer may
constitute a loss mitigation application to the transferee servicer and
may cause the transferee servicer to be required to comply with Sec.
1024.41 with respect to a borrower's mortgage loan account. Comment
41(i)-2 states that a transferee servicer must obtain documents and
information a borrower submitted in connection with a loss mitigation
application, and that a transferee servicer should continue the
evaluation of a complete loss mitigation application to the extent
practicable. Finally, comment 41(i)-2 also states that, for purposes of
specific subsections in Sec. 1024.41, if a loss mitigation application
is complete as to a transferee servicer, the transferee servicer is
considered to have received the documents and information constituting
the complete application as of the date the transferor servicer
received the documents and information. The purpose of comment 41(i)-2
is to ensure that a servicing transfer does not deprive a borrower of
protections to which a borrower was entitled from the transferor
servicer.\190\
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\190\ 78 FR 10695, 10837 (Feb. 14, 2013).
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The Bureau interprets Sec. 1024.41 and comments 41(i)-1 and 2 as
generally requiring a transferee servicer to stand in the shoes of the
transferor servicer with respect to a loss mitigation application
pending at transfer. A transferee servicer that receives a loss
mitigation application as a result of a transfer should comply with
Sec. 1024.41 within the timeframes that were applicable to the
transferor servicer, and, as comment 41(i)-2 states, a borrower's
protections are based upon when the transferor servicer received
documents and information constituting a complete application.
Nonetheless, by stating that the transferee should continue the review
to the extent practicable, comment 41(i)-2 implies that there are times
when a transferee servicer may not be able to continue the evaluation
of a complete application.
The Bureau is concerned that current Sec. 1024.41 and comments
41(i)-1 and 2 may not provide sufficient clarity to servicers and
borrowers regarding a transferee servicer's duties under Sec. 1024.41
in certain circumstances. The Bureau has received questions about the
timeframes in which a transferee servicer must act and whether a
transferee servicer must provide notices to a borrower if the
transferor servicer already provided the same notices. The Bureau has
also received questions about a transferee servicer's responsibilities
in the event that continuing the evaluation of a complete loss
mitigation application is not practicable. Finally, through outreach
and industry monitoring efforts, the Bureau has learned from servicers
that complying with certain of Sec. 1024.41's requirements, such as
the requirement in Sec. 1024.41(b)(2)(i)(B) to provide written
notification to a borrower within five days after receiving a loss
mitigation application, can be especially difficult in the transfer
context.
The Bureau believes that servicers and borrowers will benefit from
greater clarity regarding a transferee servicer's obligations and a
borrower's protections under Sec. 1024.41, including with respect to
certain situations not currently discussed in Sec. 1024.41 and
comments
[[Page 74229]]
41(i)-1 and 2. For example, the Bureau wishes to provide greater
clarity regarding how transferee servicers should handle a pending
appeal of a denial of a loan modification option, a pending offer of a
loss mitigation option, and pending applications that are facially
complete or become complete as of the transfer date. The Bureau also
believes that under certain circumstances, it may be appropriate to
provide a transferee servicer with an extension of time or flexibility
in complying with Sec. 1024.41.
The Bureau is therefore proposing Sec. 1024.41(k) to address the
requirements applicable to a transferee servicer with respect to a loss
mitigation application pending as of the transfer date. As explained
below, proposed Sec. 1024.41(k) provides that, subject to certain
exceptions, a transferee servicer must comply with Sec. 1024.41's
requirements within the same timeframes that were applicable to the
transferor servicer. The proposal also provides that if a borrower's
appeal under Sec. 1024.41(h) is pending as of the transfer date, a
transferee servicer must evaluate the appeal in accordance with Sec.
1024.41(h) if it is able to determine whether it should offer the
borrower the loan modification options subject to the appeal; a
transferee servicer that is unable to evaluate an appeal must treat the
appeal as a complete loss mitigation application and evaluate the
borrower for all loss mitigation options available to the borrower from
the transferee servicer.
Proposed comment 41(k)-1 provides that a loss mitigation
application is considered pending if it was subject to Sec. 1024.41
and had not been fully resolved before the transfer date. The comment
also clarifies that a pending application is considered pending
complete application if, as of the transfer date, the application was
complete under the transferor servicer's criteria. Thus, proposed
comment 41(k)-1 is intended to avoid ambiguity about whether a loss
mitigation application that was fully resolved by a transferor servicer
would cause a transferee servicer to be required to comply with Sec.
1024.41.
While proposed Sec. 1024.41(k) specifies the timeframes in which a
transferee servicer must comply with Sec. 1024.41's loss mitigation
procedural requirements following a transfer, the Bureau expects that
transferor servicers with policies and procedures adopted pursuant to
Sec. 1024.38 will help enable transferee servicers' compliance with
Sec. 1024.41. Section 1024.38(b)(4) requires a transferor servicer to
have policies and procedures reasonably designed to ensure that it can
timely transfer all information and documents in its possession or
control related to a transferred mortgage loan to a transferee servicer
in a form and manner that ensures the accuracy of the information and
documents transferred. Section 1024.38(b)(4) further specifies that a
transferor servicer's policies and procedures must be reasonably
designed to ensure that the documents and information are transferred
in a form and manner that ``enables a transferee servicer to comply
with . . . applicable law.'' The Bureau therefore believes that a
transferor servicer shares responsibility for enabling a transferee
servicer to comply with Sec. 1024.41(k)'s requirements and ensuring
that borrowers will not be adversely impacted by a servicing transfer.
Accordingly, the Bureau at this time does not believe it is necessary
to impose any specific requirements in Sec. 1024.41(k) with respect to
transferor servicers. The Bureau will continue to monitor whether
transferor servicers' practices raise consumer protection concerns that
should be addressed through formal guidance or rulemaking.
41(k)(1) In General
Proposed Sec. 1024.41(k)(1)(i) largely incorporates and clarifies
existing comments 41(i)-1 and 2. It provides that a transferee servicer
that acquires the servicing of a mortgage loan for which a loss
mitigation application is pending as of the transfer date must comply
with Sec. 1024.41's requirements for that application. Proposed Sec.
1024.41(k)(1)(i) further states that subject to the exemptions set
forth in Sec. 1024.41(k)(2) through (4), a transferee servicer must
comply with Sec. 1024.41's requirements within the timeframes that
were applicable to the transferor servicer. Finally, proposed Sec.
1024.41(k)(1)(i) states that any protections under Sec. 1024.41(e)
through (h), such as prohibitions on commencing foreclosure or
conducting a foreclosure sale, that applied to a borrower before a
transfer continue to apply notwithstanding the transfer.
The purpose of proposed Sec. 1024.41(k)(1)(i) is to ensure that a
transfer does not adversely affect a borrower who is pursuing loss
mitigation options. A borrower generally has no control over whether
and when a mortgage loan is transferred to another servicer. As the
Bureau has previously observed, there is heightened risk inherent in
transferring mortgage loans in loss mitigation.\191\ The Bureau
believes that generally holding a transferee servicer to the same
standards and timelines as a transferor servicer helps mitigate the
risk of consumer harm.
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\191\ See 79 FR 63295, 63296 (Oct. 23, 2014).
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Proposed comment 41(k)(1)(i)-1.i incorporates a portion of existing
comment 41(i)-2, stating that a transferee servicer must obtain from
the transferor servicer documents and information a borrower submitted
to a transferor servicer in connection with a loss mitigation
application, consistent with policies and procedures adopted pursuant
to Sec. 1024.38. The proposed comment also provides that a transferee
must comply with the applicable requirements of Sec. 1024.41 with
respect to a loss mitigation application received as a result of
transfer, even if the transferor servicer was not required to comply
with Sec. 1024.41 (because, for example, the transferor servicer was a
small servicer or the application was a duplicative request under Sec.
1024.41(i) for the transferor servicer).
Proposed comment 41(k)(1)(i)-1.ii states that a transferee servicer
must, in accordance with Sec. 1024.41(b), exercise reasonable
diligence to complete a loss mitigation application received as a
result of a transfer. The proposed comment further explains that in the
transfer context, reasonable diligence includes ensuring that a
borrower is informed of any changes to the application process, such as
a change in the address to which the borrower should submit documents
and information to complete the application, as well as ensuring that
the borrower is informed about which documents and information are
necessary to complete the application. Proposed comments 41(k)(1)(i)-
1.i and ii are intended to avoid any ambiguity about whether a
transferee servicer is required to comply with Sec. 1024.41 with
respect to loss mitigation applications received as a result of a
transfer.
Proposed comment 41(k)(1)(i)-2 mirrors the last sentence of current
comment 41(i)-2, stating that for purposes of Sec. 1024.41(e)
(borrower response), (f) and (g) (foreclosure protections), and (h)
(appeal process), a transferee servicer must consider documents and
information that constitute a complete application to have been
received as of the date the transferor servicer received the documents
and information. Proposed comment 41(k)(1)-2 further clarifies that an
application that was facially complete with respect to a transferor
servicer remains facially complete under Sec. 1024.41(c)(2)(iv) with
respect to the transferee servicer as of the date it was facially
complete with respect to the transferor servicer. It also clarifies
[[Page 74230]]
that if an application was complete with respect to the transferor
servicer but is not complete with respect to the transferee servicer,
the transferee servicer must treat the application as facially complete
as of the date the application was complete with respect to the
transferor servicer. The purpose of this comment is to ensure that a
transfer does not affect the protections to which a borrower is
entitled under Sec. 1024.41.
Finally, proposed comment 41(k)(1)(i)-3 provides that a transferee
servicer is not required to provide any notice required by Sec.
1024.41 with respect to a particular loss mitigation application if the
transferor servicer provided the notice to a borrower before the
transfer. This comment is intended to address questions about whether a
transferee servicer must resend a notice already provided by the
transferor servicer as to a particular application.
Proposed Sec. 1024.41(k)(1)(ii) provides that for purposes of
Sec. 1024.41(k), the transfer date is the date on which the transfer
of servicing responsibilities from the transferor servicer to the
transferee servicer occurs. Proposed comment 41(k)(1)(ii)-1provides
that the transfer date corresponds to the date transferee servicer will
begin accepting payments relating to the mortgage loan, which already
must be disclosed on the notice of transfer of loan servicing pursuant
to Sec. 1024.33(b)(4)(iv).\192\ Proposed comment 41(k)(1)(ii)-1
further clarifies that the transfer date is not necessarily the sale
date for the transaction. As a result, the Bureau believes the proposed
definition is consistent with the definition Fannie Mae employs in its
servicing guide,\193\ and the Bureau believes that it reflects the
industry's common understanding of the term.
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\192\ Section 1024.33(b)(4)(iv) requires the notice of transfer
to include ``The date on which the transferor servicer will cease to
accept payments relating to the loan and the date on which the
transferee servicer will begin to accept such payments. These dates
shall either be the same or consecutive days.''
\193\ See Fannie Mae, Servicing Guide Announcement SVC-2014-06,
at 1 (May 9, 2014), available at https://www.fanniemae.com/content/announcement/svc1406.pdf.
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The Bureau solicits comment on the treatment of loss mitigation
applications pending at transfer and whether it is appropriate to
require a transferee servicer to comply with Sec. 1024.41 within the
timeframes that were applicable to the transferor servicer.
Additionally, the Bureau solicits comment on whether, following a
transfer, a transferee servicer should be required to provide a
borrower a written notice of what documents and information the
transferee servicer needs to complete the application, regardless of
whether the transferor servicer has provided such a notice.
41(k)(2) Acknowledgement Notices
Proposed Sec. 1024.41(k)(2) provides that if a transferee servicer
acquires the servicing of a mortgage loan for which the period to
provide the notice required by Sec. 1024.41(b)(2)(i)(B) has not
expired as of the transfer date, the transferee servicer must provide
the notice within 10 days (excluding legal public holidays, Saturdays,
or Sundays) after the date the transferor servicer received the
application.
Section 1024.41(b)(2)(i)(B) states that if a servicer receives a
loss mitigation application 45 days or more before a foreclosure sale,
a servicer must notify the borrower in writing within five days
(excluding legal public holidays, Saturdays, or Sundays) that the
servicer acknowledges receipt of the application and the servicer has
determined that the application is complete or incomplete. If the
application is incomplete, the notice must, among other things,
identify the documents or information necessary to complete the
application.
The Bureau is concerned about a transferee servicer's ability to
comply with Sec. 1024.41(b)(2)(i)(B) in the scenario where a
transferor servicer receives a loss mitigation application and, before
the time period in which to provide the notice required by Sec.
1024.41(b)(2)(i)(B) expires, it transfers the mortgage loan to the
transferee servicer, without providing the notice. In that situation, a
transferee servicer would be required to provide the notice within five
days (excluding legal public holidays, Saturdays, or Sundays) of when
the transferor servicer received the application. Depending on the
timing of the transfer, a transferee servicer might have as little as
one day after the transfer date to provide this notice.
Information the Bureau has gathered through its outreach and
industry monitoring efforts confirms that a transferee servicer often
has difficulty providing the notice required by Sec.
1024.41(b)(2)(i)(B) within five days after the transferor servicer
received a loss mitigation application. The Bureau understands that a
transferee servicer typically requires several days to transition a
mortgage loan file and related information onto its systems. A
transferee servicer may be unable to transition this information and
accurately review a loss mitigation application within the five-day
time period specified in Sec. 1024.41(b)(2)(i)(B), particularly for
applications received within a few days before transfer. As a result,
the Bureau believes that in this situation, a transferee servicer
acting diligently and in good faith may still be unable to timely
comply with the requirements of Sec. 1024.41(b)(2)(i)(B).
The Bureau is therefore proposing to allow transferee servicers up
to an additional five days to comply with Sec. 1024.41(b)(2)(i)(B)
with respect to applications pending as of the transfer date.
Specifically, proposed Sec. 1024.41(k)(2) requires a transferee
servicer to provide the notice required by Sec. 1024.41(b)(2)(i)(B)
within 10 days (excluding legal public holidays, Saturdays, or Sundays)
after the date the transferor servicer received a borrower's
application.
The Bureau believes that establishing a specific deadline for the
transferee servicer to provide the notice required by Sec.
1024.41(b)(2)(i)(B) may encourage transferor and transferee servicers
to work together to streamline the transfer of documents. In
particular, a specific deadline underscores the importance of Sec.
1024.38(b)(4)(i), which requires a transferor servicer to have policies
and procedures reasonably designed to ensure that it can timely
transfer all information and documents in its possession or control
relating to a transferred mortgage loan to a transferee servicer in a
form and manner that ensures the accuracy of the information and
documents transferred. Thus, the Bureau expects transferor servicers to
timely and accurately identify and transfer all loss mitigation
applications to transferee servicers. Further, the Bureau believes a
firm compliance deadline may avoid unnecessary delays in the loss
mitigation application process, while at the same time affording
transferee servicers additional time to properly respond to a
borrower's application.
The Bureau also believes that this proposed extension would
facilitate transferee servicers' compliance with Sec.
1024.41(b)(2)(i)(B) while not materially affecting most borrowers. A
borrower's protections under Sec. 1024.41(e) through (h) are
determined by the date on which a servicer receives a borrower's
complete application; extending the time for a transferee servicer to
comply with Sec. 1024.41(b)(2)(i)(B) therefore could delay, but in
most cases would not prevent, a borrower from obtaining those
protections. Moreover, the proposed extension is for a relatively brief
period of time, and the Bureau does not believe that a short delay in
providing the Sec. 1024.41(b)(2)(i)(B) notice would significantly
lengthen the loss mitigation application process. Finally, the Bureau
believes that
[[Page 74231]]
allowing a transferee servicer some additional time to review a
borrower's initial loss mitigation application may result in more
accurate determinations regarding the documents and information needed
to complete an application, which would ultimately benefit borrowers.
Nonetheless, the Bureau recognizes that a delay in providing the
Sec. 1024.41(b)(2)(i)(B) notice could impact a borrower in certain
circumstances, such as when a servicer receives an incomplete loss
mitigation application shortly before the 90th or 38th day before a
foreclosure sale. In that instance, a borrower has an interest in
completing the application as soon as possible to preserve the maximum
protections available under Sec. 1024.41(e) through (h). Allowing a
transferee servicer additional time to provide a borrower with a
written notification of the documents and information required to
complete an application could result in a borrower being asked to
obtain and submit the documents in a just a few days, which generally
would be considered impracticable.\194\
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\194\ See comment 41(b)(2)(ii)-1.
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The Bureau requests comment on whether borrowers currently have
difficulty in obtaining and submitting required documents and
information to complete an application that the servicer received
shortly before the 90th or 38th day before a foreclosure sale, and
whether the extension in proposed Sec. 1024.41(k)(2) would exacerbate
such difficulties. The Bureau further requests comment on whether a
transferee servicer that avails itself of the extension in proposed
Sec. 1024.41(k)(2) should be required to give a borrower additional
time to complete an application, such that the extension under Sec.
1024.41(k)(2) would also give the a borrower additional time past the
90th or 38th day before a foreclosure sale to submit a complete
application and obtain the applicable protections under Sec.
1024.41(e) through (h).
The Bureau further requests comment on whether it is reasonable to
require a transferee servicer to provide the written notification
required by Sec. 1024.41(b)(2)(i)(B) within 10 days (excluding legal
public holidays, Saturdays, or Sundays) from the date a transferor
servicer received a loss mitigation application, or whether a shorter
or longer period is more appropriate. Finally, if a longer period were
appropriate, the Bureau requests comment on whether a transferee
servicer that avails itself of such a longer extension should be
required to give a borrower additional time to complete an application,
such that an extension would also give the a borrower additional time
past the 90th or 38th day before a foreclosure sale to submit a
complete application and obtain the applicable protections under Sec.
1024.41(e) through (h).
41(k)(3) Complete Loss Mitigation Applications Pending at Transfer
Proposed Sec. 1024.41(k)(3)(i) provides that, with two exceptions,
a transferee servicer that acquires the servicing of a mortgage loan
for which a complete loss mitigation application is pending as of the
transfer date must comply with the applicable requirements of Sec.
1024.41(c)(1) and (4) within 30 days of the date the transferor
servicer received the complete application. Thus, unless an exception
applies, a transfer does not affect the time in which a borrower should
receive a notice of which loss mitigation options, if any, a servicer
will offer to the borrower. The Bureau believes that this proposed
requirement may be necessary to ensure that a transfer does not
adversely affect a borrower.
Proposed comment 41(k)(3)(i)-1 clarifies a transferee servicer's
obligations regarding an application that was complete with respect to
the transferor servicer but for which the transferee servicer needs
additional documentation or corrections to a previously submitted
document to evaluate the borrower for all loss mitigation options based
upon the transferee servicer's criteria. Specifically, the proposed
comment clarifies that in this scenario and consistent with proposed
Sec. 1024.41(c)(2)(iv), the application is facially complete as of the
date it was first facially complete or complete, as applicable, with
respect to the transferor servicer, and the borrower is entitled to all
of the protections under Sec. 1024.41(c)(2)(iv). Additionally, once
the transferee servicer receives the information or corrections
necessary to complete the application, Sec. 1024.41(c)(3) requires the
transferee servicer to provide a notice of complete application.
Finally, the proposed comment clarifies that an application that was
complete with respect to the transferor servicer remains complete even
if the transferee servicer requests that a borrower resubmit the same
information in the transferee servicer's specified format or make
clerical corrections to the application. The comment further clarifies
that a borrower's failure to resubmit such information or make such
clerical corrections does not extend the time in which the transferee
servicer must complete the evaluation of the borrower's complete
application. The purpose of this comment is to clarify that a borrower
does not lose protections under Sec. 1024.41, including foreclosure
protections, if a transferee servicer determines that it needs
additional documentation or corrections to a previously submitted
document, and that a request to resubmit documents in a different
format will not extend the time by which a borrower will receive a
determination of which loss mitigation options the servicer will offer.
Proposed comment 41(k)(3)(i)-2 addresses the reverse situation in
which a borrower's loss mitigation application was incomplete based
upon the transferor servicer's criteria prior to transfer but the
transferee servicer determines that the application is complete based
upon its own criteria. In that case, the proposed comment clarifies
that the application is considered a pending loss mitigation
application complete as of the transfer date for purposes of Sec.
1024.41(k)(3), but complete as of the date the transferor servicer
received the documents and information constituting the complete
application for purposes of Sec. 1024.41(e) through (h). This comment
is intended to avoid confusion about the timeframe in which the
transferee servicer must evaluate a complete application and the date
on which the borrower obtained protections under Sec. 1024.41.
Proposed Sec. 1024.41(k)(3)(ii)(A) sets forth the first proposed
exception to the requirement to comply with Sec. 1024.41(c)(1) and (4)
within 30 days of the date the transferor servicer received the
complete application. This proposed exception concerns involuntary
transfers of servicing. The Bureau understands that a servicer that
acquires servicing as a result of an involuntary transfer is less
likely to be able to plan properly for a transfer, such as by engaging
in pre-transfer due diligence, coordinating the delivery and onboarding
of documents and information, or potentially negotiating contractual
provisions requiring the transferor servicer to identify mortgage loans
that are in active or pending loss mitigation. Additionally,
involuntary transferee servicers may be more likely to receive loans
from a failing or bankrupt servicer, which in turn may be more likely
to have failed to maintain adequate records regarding borrowers'
mortgage loans. As a result, an involuntary transferee servicer may be
unable to complete the evaluation within 30 days of when the transferor
servicer received the complete application.
[[Page 74232]]
Therefore, proposed Sec. 1024.41(k)(3)(ii)(A) would allow a
servicer that acquires servicing as a result of an involuntary transfer
to comply with the applicable requirements of Sec. 1024.41(c)(1) and
(4) within 30 days of the date the transferor received a complete loss
mitigation application, or within 15 days of the transfer date,
whichever is later. The Bureau believes that allowing an involuntary
transferee servicer at least 15 days from the transfer date to comply
would give the transferee servicer sufficient opportunity to obtain
documents and information from a transferor servicer and complete the
evaluation of a borrower's application. The Bureau also believes that
this relatively brief proposed extension of time, when applicable,
would impose only limited costs on borrowers. A borrower's protections
under Sec. 1024.41(e) through (h) are established as of the date a
servicer receives a complete application, and extending the time to
evaluate the complete application would not alter those protections.
Furthermore, allowing an involuntary transferee servicer a minimum of
15 days after the transfer date to review a complete loss mitigation
application may result in a more accurate evaluation, ultimately
benefitting a borrower.
Proposed Sec. 1024.41(k)(3)(ii)(B) provides that a transfer is
involuntary when an unaffiliated investor or a court or regulator with
jurisdiction requires, with less than 30 days advance notice, the
transferor servicer to transfer servicing to another servicer and the
transferor servicer is in breach of, or default under, its servicing
agreement for loss mitigation related-servicing performance
deficiencies or is in receivership or bankruptcy. This proposed
definition builds on the definition of involuntary transfer used in the
Department of the Treasury's HAMP directives, which encompasses
transfers that are required by a court or regulator with
jurisdiction.\195\ The Bureau believes, however, that including every
investor-required transfer within the definition of involuntary
transfer may be too broad for Sec. 1024.41's purposes, as it could be
interpreted as including all investor flow agreements, which could
cover transfers for which the transferee servicer is able to plan and
conduct reasonable preparation. Accordingly, with respect to investor-
required transfers, the Bureau is proposing to limit the definition of
involuntary transfer to those transfers that occur while the transferor
servicer is in breach of, or in default under, its servicing agreement
for loss mitigation related-servicing performance deficiencies.
Further, the transferor servicer must have received the direction to
transfer the loan thirty days or less before the transfer date. The
Bureau believes that this definition will appropriately capture those
transfers for which a transferee servicer may have difficulty timely
complying with Sec. 1024.41(c)'s loss mitigation requirements.
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\195\ See Dep't of Treasury, Supplemental Directive 11-2, Making
Home Affordable Program--Servicing Transfers (Dec. 27, 2011),
available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1112.pdf.
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The second proposed exception concerns instances where a transferee
servicer's completion of the evaluation within the timeframes set forth
in proposed Sec. 1024.41(k)(3)(i) or (ii)(A), as applicable, is
impracticable under the circumstances. The Bureau understands that due
to the unique circumstances and complications that may arise in
connection with a transfer, there may be times when, despite the
transferee servicer's good faith efforts, it may be impracticable to
comply with the timing requirements of Sec. 1024.41(k)(3)(i) or
(ii)(A). In that situation, proposed Sec. 1024.41(k)(3)(iii) requires
a transferee servicer to comply with the applicable requirements of
Sec. 1024.41(c)(1) and (4) within a reasonably prompt time after
expiration of the applicable time period in Sec. 1024.41(k)(3)(i) or
(ii)(A). The Bureau expects that in most circumstances, it will be
practicable for a transferee servicer to evaluate a complete
application within the prescribed timeframes and that an extension will
not be necessary or appropriate.
The Bureau is also proposing comment 41(k)(3)(iii)-1, which
clarifies that for purposes of Sec. 1024.41(k)(3)(iii), a servicer
that complies with the applicable requirements of Sec. 1024.41(c)(1)
and (4) within five days after the expiration of the applicable
timeframe in proposed Sec. 1024.41(k)(3)(i) or (ii)(A) would generally
be considered to have acted within a ``reasonably prompt time.'' As
discussed in the section-by-section analysis of Sec. 1024.41(k)(2),
servicing transfers can raise unique circumstances. The Bureau
therefore believes that when it is impracticable for a transferee
servicer to timely complete the evaluation of a borrower's pending
complete loss mitigation application due to unforeseen complications
arising from a transfer, a transferee servicer should be afforded
additional time to complete the evaluation.
The Bureau seeks comment on the treatment of complete applications
pending at transfer. In particular, the Bureau seeks comment on whether
it is ever necessary or appropriate to give transferee servicers an
extension of time to evaluate complete applications. If an extension is
necessary or appropriate, the Bureau seeks comment on which factors and
circumstances, including but not limited to involuntary transfers, may
require an extension, the appropriate length of any extension, and the
burden transferee servicers should have to carry to demonstrate a need
for the extension. The Bureau also seeks comment on what obstacles
transferee servicers currently face in obtaining and evaluating pending
loss mitigation applications and the problems faced by borrower who
have applications pending at the time of a servicing transfer, as well
as whether an extension of time to comply with Sec. 1024.41 following
a transfer would ameliorate or exacerbate those problems.
41(k)(4) Applications Subject to Appeal Process
Proposed Sec. 1024.41(k)(4) provides that if a borrower timely
appeals a transferor servicer's denial of a loan modification option
under Sec. 1024.41(h), a transferee servicer must evaluate the appeal
if it is able to determine whether it should offer the borrower the
loan modification options subject to the appeal. A transferee servicer
that is unable to evaluate an appeal must treat the borrower's appeal
as a pending complete loss mitigation application and comply with the
requirements of Sec. 1024.41 for such application. Proposed Sec.
1024.41(k)(4) would apply if a borrower made an appeal before the
transfer date and the appeal remains pending as of the transfer date,
or if the period for making an appeal under Sec. 1024.41(h) had not
expired as of the transfer date and a borrower subsequently made a
timely appeal.
The Bureau believes that a transfer should not deprive a borrower
of the right to appeal a servicer's denial of a loan modification
option. As discussed in the 2013 RESPA Servicing Final Rule, borrowers
and consumer advocacy groups dispute in many cases whether servicers
have properly applied the requirements of loan modification
programs.\196\ The terms of loan modification programs are complex, and
the Bureau continues to believe that, as with any complex and unique
process, servicers may make mistakes in evaluating borrowers' complete
applications. Moreover, investors or
[[Page 74233]]
guarantors may be motivated to transfer servicing to a new servicer
based on a determination that the new servicer is better able to
evaluate borrowers for loss mitigation options. In that case, the
Bureau believes that both a borrower and an investor or guarantor may
benefit from the new servicer attempting to determine whether the
transferor servicer mistakenly denied the borrower for a loan
modification option.
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\196\ 78 FR 10695, 10835 (Feb. 14, 2013).
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Therefore, proposed Sec. 1024.41(k)(4) provides that if a
transferee servicer that acquires the servicing of a mortgage loan for
which, as of the transfer date, a borrower's appeal under Sec.
1024.41(h) is pending or a borrower's time period to appeal under Sec.
1024.41(h) has not expired, the transferee servicer must evaluate the
appeal if it is able to determine whether it should offer the borrower
the loan modification options subject to the appeal. Proposed Sec.
1024.41(k)(4)(i) further provides that, if a servicer is able to
evaluate an appeal but it is not practicable under the circumstances to
complete the determination within 30 days of when the borrower made the
appeal, the transferee servicer must complete the evaluation of the
borrower's appeal and provide the notice required by Sec.
1024.41(h)(4) within a reasonably prompt time. Proposed comment
41(k)(4)-2 clarifies that in general, a reasonably prompt time would be
within an additional five days after the expiration of the original 30-
day evaluation window. Proposed Sec. 1024.41(k)(4)(i) thus imposes the
same requirements on a transferee servicer to evaluate a pending appeal
as a pending complete loss mitigation application. For the reasons
discussed above, the Bureau believes that in some circumstances, a
transferee servicer may need to exceed the 30-day evaluation window to
complete the evaluation.
The Bureau recognizes, however, that a transferee servicer may not
always be able to determine whether a transferor servicer incorrectly
denied the borrower for a loan modification option. For example, the
transferee servicer may not have sufficient information about the
evaluation criteria used by the transferor servicer, in particular when
the transferor servicer denied a borrower for a loan modification
option that the transferee servicer does not offer, or when the
transferee servicer receives the mortgage loan file through an
involuntary transfer and the transferor servicer failed to maintain
proper records such that the transferee servicer does not have
sufficient information to evaluate the appeal. The Bureau believes that
such circumstances will be rare, that transferee servicers will
generally be able to evaluate borrowers' appeals, and that borrowers
will not be disadvantaged as a result of transfers. In those limited
circumstances, however, proposed Sec. 1024.41(k)(4)(ii) requires the
transferee servicer to treat the appeal as a pending complete loss
mitigation application and evaluate the borrower for all options
available to the borrower from the transferee servicer. For purposes of
Sec. 1024.41(c) or (k)(2), as applicable, such a pending complete loss
mitigation application would be considered received as of the date the
appeal was received. For purposes of Sec. 1024.41(e) through (h), such
a pending complete loss mitigation application would be considered
facially complete as of the date the application was facially complete
with respect to the transferor servicer.
The Bureau believes that, in cases where the transferee servicer
cannot evaluate the appeal, requiring the transferee servicer to
reevaluate the borrower for all loss mitigation options that may be
available to the borrower preserves the benefits of the appeal process
for borrowers. Furthermore, the Bureau believes that the proposed
requirement would not impose substantial burdens on transferee
servicers because a transferee servicer is already required to comply
with the requirements of Sec. 1024.41 regardless of whether the
borrower received an evaluation of a complete loss mitigation
application from the transferor servicer.\197\
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\197\ 12 CFR 1024.41(i); comment 41(i)-1.
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Proposed comment 41(k)(4)-1 notes that a transferee servicer may be
unable to evaluate an appeal when, for example, the transferor servicer
denied a borrower for a loan modification option that the transferee
servicer does not offer or when the transferee servicer receives the
mortgage loan file through an involuntary transfer and the transferor
servicer failed to maintain proper records such that the transferee
servicer lacks sufficient information to evaluate the appeal. The
proposed comment also clarifies that if a transferee servicer is
required to treat the appeal as a pending complete application, the
transferee servicer must permit the borrower to accept or reject any
loss mitigation options offered by the transferor servicer, in addition
to the loss mitigation options, if any, that the transferee servicer
determines to offer the borrower based on its own evaluation of the
borrower's complete loss mitigation application. This proposed comment
is intended to ensure that a transfer does not have the result of
depriving a borrower of any loss mitigation options that were offered
by the transferor servicer, and it is consistent with the treatment of
pending loss mitigation offers in proposed Sec. 1024.41(k)(5).
The Bureau requests comment on the treatment of appeals pending at
transfer, including whether transferee servicers may need additional
time to evaluate pending appeals, the extent to which transferee
servicers are able to evaluate appeals of a transferor servicer's
denial of a loan modification option, and whether a pending appeal
should ever or always be treated as a new loss mitigation application
such that a transferee servicer must evaluate the borrower for all
available loss mitigation options. Additionally, the Bureau is
concerned about the appropriate recourse when, if ever, a transferee
servicer is unable to evaluate a borrower's appeal. The Bureau believes
that treating the appeal as a pending complete application would
provide benefits to borrowers, but the Bureau requests comment on
whether such treatment would be in the borrower's best interests where,
for example, the borrower's application documents may have gone stale
or the borrower has little hope of being offered any loss mitigation
option, and whether such treatment is inconsistent with applicable
investor requirements.
41(k)(5) Pending Loss Mitigation Offers
Proposed Sec. 1024.41(k)(5) provides that a transfer does not
affect the borrower's ability to accept or reject a loss mitigation
option offered under Sec. 1024.41(c) or (h). Specifically, the
proposal states that if a transferor servicer offered the borrower a
loss mitigation option and the borrower's time to accept or reject the
offer had not expired as of the transfer date, a transferee servicer
must allow the borrower to accept or reject the offer.
Proposed comment 41(k)(5)-1 clarifies that a transferee servicer
should expect that some borrowers will provide their acceptances to the
transferor servicer and, pursuant to the policies and procedures
maintained under Sec. 1024.38(b)(4), a transferee servicer should
obtain those acceptances from the transferor servicer. For example, a
borrower may be able to accept a trial modification agreement by making
an initial payment of the modified amount. A borrower may timely send
this payment to the transferor servicer instead of to the transferee
servicer. In this situation, the Bureau believes that the transferee
servicer must honor an acceptance that the borrower timely sent to the
transferor servicer.
[[Page 74234]]
Legal Authority
The Bureau proposes to rely on its authority under sections
6(j)(3), 6(k)(1)(C), 6(k)(1)(E) and 19(a) of RESPA to propose these
amendments to Sec. 1024.41. The proposed 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 proposed 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 the
proposed amendments to Sec. 1024.41 are 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 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.
Appendix MS
Appendix MS-3(A) through (D)--Model Forms for Force-Placed Insurance
Notices
The Bureau is proposing three sets of changes to the model forms
for force-placed insurance notices, located at appendix MS-3(A) through
(D). First, the Bureau proposes to amend MS-3(A) and (B) to align the
model forms to the proposed amendments to Sec. 1024.37(c)(2)(v). As
discussed in the section-by-section analysis of Sec. 1024.37(c)(2)(v),
the Bureau is proposing to amend that provision to require the force-
placed insurance notice to state, as applicable, that the borrower's
hazard insurance provides insufficient coverage and that the servicer
does not have evidence that the borrower has hazard insurance that
provides sufficient coverage. The Bureau is therefore proposing to make
a corresponding change to the language in model forms MS-3(A) and (B),
so that the forms include the statement ``your [hazard] [Insurance
Type] insurance [is expiring] [expired] [provides insufficient
coverage], and we do not have evidence that you have obtained new
coverage.''
Second, the Bureau is proposing a technical change to align the
model forms with the requirements of Sec. 1024.37(c)(2)(ix)(A) and
(e)(2)(viii)(A). Those provisions require the force-placed insurance
initial, reminder, and renewal notices to include a statement that the
insurance the servicer has purchased or purchases ``may cost
significantly more than hazard insurance purchased by the borrower.''
Current model forms MS-3(A) through (D) omit the word
``significantly.'' The Bureau is proposing to amend model forms MS-3(A)
through (D) to add the word significantly, such that each model form
would track the language of Sec. 1024.37(c)(2)(ix)(A) and
(e)(2)(viii)(A).
Third, the Bureau is proposing a technical change to MS-3(D) to
align the model form with the requirements of Sec. 1024.37(e)(3),
which requires servicers to provide certain information on the form in
bold text.
Legal Authority
The Bureau is proposing to exercise its authority under section
6(k)(1)(E) of RESPA to amend the model forms in appendix MS-3(A)
through (D) to Part 1024 of Regulation X. For the reasons given above,
the Bureau believes that the amendments to the model forms for the
force-placed insurance notices are appropriate to align the text of the
model forms with the disclosures required by Sec. 1024.37.
Appendix MS-4--Model Clause for the Written Early Intervention Notice
Proposed model clause MS-4(D) in appendix MS-4 illustrates the
disclosures required under proposed Sec. 1024.39(d)(2)(iii)(A). The
Bureau has developed proposed model clause MS-4(D) to assist servicers
that are subject to the FDCPA with respect to a borrower who has
invoked the FDCPA's cease communication protections in complying with
the modified written early intervention notice required by Sec.
1024.39(d)(2)(iii). As discussed in the section-by-section analysis of
Sec. 1024.39(d)(2), proposed Sec. 1024.39(d)(2)(iii) requires that
the written early intervention notice include a statement that the
servicer may or intends to invoke its specified remedy of foreclosure
pursuant to section 805(c)(2) or (3) of the FDCPA. Proposed model
clause MS-4(D) may be used to comply with this requirement.
Specifically, proposed model clause MS-4(D) states, ``This is a legally
required notice sent to borrowers who are at least 45 days delinquent.
We have a right to invoke foreclosure. Loss mitigation or other
alternatives may be available to help you avoid losing your home.'' The
Bureau seeks comment on whether proposed model clause MS-4(D) is
appropriate, and whether alternate or additional model clauses would be
helpful to borrowers and servicers in this context.
Legal Authority
The Bureau is proposing to exercise its authority under section
6(k)(1)(E) of RESPA and section 814(d) of the FDCPA to add new model
clause MS-4(D) in appendix MS-4 to Part 1024 of Regulation X. For the
reasons discussed in the section-by-section analysis of Sec.
1024.39(d)(2), the Bureau believes that requiring a servicer to provide
the modified written early intervention notice if loss mitigation
options are available is a reasonable interpretation of the exceptions
under section 805(c)(2) and (3) of the FDCPA, which permit a debt
collector to communicate with a consumer who has invoked the cease
communication protections to notify the consumer that the debt
collector or creditor may invoke specified remedies which are
ordinarily invoked or intends to invoke a specified remedy.
C. Regulation Z
Section 1026.2 Definitions and Rules of Construction
Paragraph (a)(11)
As noted in part V.A., the Bureau is proposing that all of the
Mortgage Servicing Rules apply to confirmed successors in interest.
Accordingly, similar to proposed Sec. 1024.30(d) with respect to
Regulation X's mortgage servicing rules,\198\ proposed
[[Page 74235]]
Sec. 1026.2(a)(11) defines the term consumer to include a successor in
interest once a servicer confirms the successor in interest's identity
and ownership interest in the dwelling for the purposes of Regulation
Z's mortgage servicing rules--Sec. Sec. 1026.20(c) through (e),
1026.36(c), and 1026.41. Confirmed successors in interest covered by
proposed Sec. 1026.2(a)(11) would not necessarily have assumed the
mortgage loan obligation (i.e., legal liability for the mortgage debt)
under State law.\199\
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\198\ See section-by-section analysis of Sec. 1024.30(d),
supra.
\199\ As indicated in part V.A., supra, the Bureau understands
that whether a successor in interest has assumed a mortgage loan
obligation (i.e., legal liability for the mortgage debt) under State
law is a fact-specific question.
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As described in part V.A., the Bureau is proposing this change
because the Bureau believes, based on repeated reports from consumers,
consumer advocacy groups, and other stakeholders, that successors in
interest face many of the challenges that Regulation Z's mortgage
servicing rules were designed to prevent. Because a successor in
interest is a homeowner whose dwelling is subject to foreclosure if the
mortgage loan obligation is not satisfied, the Bureau believes that the
same reasons supporting the Bureau's adoption of the 2013 TILA
Servicing Final Rule support proposed Sec. 1026.2(a)(11).
The Bureau believes that it is appropriate to limit the application
of this portion of the proposed rule to successors in interest whom
servicers have confirmed have an ownership interest in the dwelling.
Because some people representing themselves as successors in interest
may not actually have an ownership interest in the dwelling, the Bureau
believes that requiring servicers to apply Regulation Z's mortgage
servicing rules' communication and disclosure requirements to
successors in interest before servicers have confirmed the successor in
interest's identity and ownership interest in the dwelling may present
privacy and other concerns. For the same reason, the Bureau also
believes it is inappropriate to require servicers to incur substantial
costs before confirming the successor in interest's identity and
ownership interest in the dwelling.
The Bureau has considered each of Regulation Z's mortgage servicing
rules and believes that each portion should apply to confirmed
successors in interest. The Bureau also generally believes that it
would add unnecessary complexity to the rules to require servicers to
apply some but not all of Regulation Z's mortgage servicing rules to
confirmed successors in interest. The Bureau believes it is preferable
to apply all of Regulation Z's mortgage servicing rules to confirmed
successors in interest, unless there is a compelling reason not to
apply a particular rule.
With respect to Sec. 1026.20(c) through (e), under proposed Sec.
1026.2(a)(11), once a servicer confirms a successor in interest's
identity and ownership interest in the dwelling, the servicer would be
required to provide successors in interest with ARM disclosures under
Sec. 1026.20(c) and (d) and with escrow account cancellation notices
under Sec. 1026.20(e).\200\ The Bureau believes that the disclosures
required by Sec. 1026.20(c) through (e) would provide successors in
interest with important information to allow the successor in interest
to keep the mortgage loan current, which in turn will help the
successor in interest avoid foreclosure. Further, because servicers are
already required to comply with Sec. 1026.20(c) through (e) with
respect to prior consumers, any additional cost to servicers to apply
these requirements to successors in interest would be minimal. The
Bureau believes that the cost would be limited to updating servicer
systems initially, adding individual successors in interest to the
system on an ongoing basis, and printing and mailing costs, if any. The
Bureau believes that the resulting consumer protection of this
vulnerable group justifies the additional cost to servicers.
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\200\ Section 1026.20(e) will become effective on August 1,
2015. See Integrated Mortgage Disclosures Under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth In Lending
Act (Regulation Z), 78 FR 79730, 79732, 80328-29 (Dec. 31, 2013).
Section 1026.20(c) and (d) apply with respect to ``a closed-end
consumer credit transaction secured by the consumer's principal
dwelling,'' and Sec. 1026.20(e) applies with respect to ``a closed-
end consumer credit transaction secured by a first lien on real
property or a dwelling.'' Accordingly, with respect to successors in
interest under proposed Sec. 1026.2(a)(11), Sec. 1026.20(c) and
(d) would apply with respect to a mortgage loan secured by the
successor in interest's principal dwelling, and Sec. 1026.20(e)
would apply in connection with a mortgage loan secured by a first
lien on real property or a dwelling.
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The Bureau solicits comment on whether Sec. 1026.20(c) through (e)
should not apply with respect to successors in interest. The Bureau
also solicits comment on whether, in the case of consumer death, the
servicer should continue providing disclosures to the consumer's estate
until a successor in interest's status has been confirmed.
With respect to Sec. 1026.36(c), under proposed Sec.
1026.2(a)(11), once a servicer confirms a successor in interest's
identity and ownership interest in the dwelling, the servicer would be
required to comply with Sec. 1026.36(c)'s requirements regarding
payment processing, the prohibition on pyramiding of late fees, and
payoff statements with respect to the successor in interest.\201\ The
Bureau believes that Sec. 1026.36(c)'s protections would help
successors in interest maintain ownership of their homes; successors in
interest, as owners of a dwelling securing a mortgage loan, may be
required to make payments on the loan to avoid foreclosure. As noted in
part V.A., the Bureau has heard from consumers and consumer advocacy
groups that some servicers have refused to accept payments from
successors in interest, which in turn may lead to delinquency on the
mortgage loan and, eventually, foreclosure. The Bureau believes that
applying Sec. 1026.36(c)'s prompt crediting requirements to confirmed
successors in interest would alleviate this problem. The Bureau also
believes that providing successors in interest with access to the
loan's payoff balance would serve to keep successors in interest
informed about the mortgage loan secured by the dwelling and would help
prevent unnecessary foreclosure, as the payoff balance is the amount
that ultimately must be paid to prevent the servicer from foreclosing
on the dwelling.\202\ The Bureau also believes that because successors
in interest, as owners of a dwelling securing a mortgage loan, may be
required to make payments on the loan to avoid foreclosure, the
prohibition on pyramiding of late fees would serve TILA's purpose of
``protect[ing] consumers against inaccurate and unfair credit billing
practices.'' \203\
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\201\ Section 1026.36(c)(1) and (2) apply in connection with ``a
consumer credit transaction secured by a consumer's principal
dwelling,'' and Sec. 1026.36(c)(3) applies in connection with ``a
consumer credit transaction secured by a consumer's dwelling.''
Accordingly, with respect to successors in interest under proposed
Sec. 1026.2(a)(11), Sec. 1026.36(c)(1) and (2) would apply in
connection with a mortgage loan secured by a consumer's principal
dwelling, and Sec. 1026.36(c)(3) would apply in connection with a
mortgage loan secured by a consumer's dwelling.
\202\ For the reasons discussed in the section-by-section
analysis of Sec. 1024.30(d), supra, the Bureau believes that
providing confirmed successors in interest with payoff balances does
not present privacy concerns.
\203\ 78 FR 10901, 10914 (Feb. 14, 2013) (quoting 15 U.S. C.
1601(a)).
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Additionally, because Sec. 1026.36(c) already requires servicers
to comply with these requirements with respect to prior consumers, the
Bureau believes that the additional cost to servicers to apply these
requirements to successors in interest will be relatively minimal. In
any event, the Bureau believes that providing these consumer
protections to
[[Page 74236]]
this vulnerable group justifies the additional cost to servicers.
The Bureau solicits comment on whether certain parts of Sec.
1026.36(c) should apply with respect to successors in interest even if
the servicer has not confirmed the successor in interest's identity and
ownership interest in the dwelling. Further, the Bureau solicits
comment on whether certain parts of Sec. 1026.36(c) should not apply
with respect to confirmed successors in interest.
With respect to Sec. 1026.41, under proposed Sec. 1026.2(a)(11),
once a servicer confirms a successor in interest's identity and
ownership interest in the dwelling, the servicer would be required to
provide the successor in interest with ongoing periodic statements
required under Sec. 1026.41.\204\ As described in part V.A, the Bureau
is proposing this change because the Bureau has received repeated
reports from consumers and consumer advocacy groups that successors in
interest face many of the challenges that Regulation Z's mortgage
servicing rules were designed to prevent. Specifically, when the Bureau
issued the periodic statement requirement in the 2013 TILA Servicing
Final Rule, the Bureau stated that the periodic statement ``serve[s] a
variety of important purposes, including informing consumers of their
payment obligations, providing information about the mortgage loan,
creating a record of transactions that increase or decrease the
outstanding balance, providing information needed to identify and
assert errors, and providing information when consumers are
delinquent.'' \205\ The Bureau believes that receiving periodic
statements would serve these same purposes for successors in interest,
who as homeowners of a dwelling securing a mortgage loan may be
required to make payments on the loan to avoid foreclosure.
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\204\ Section 1026.41 applies with respect to ``a closed-end
consumer credit transaction secured by a dwelling.'' Accordingly,
with respect to successors in interest under proposed Sec.
1026.2(a)(11), Sec. 1026.41 would apply with respect to a mortgage
loan secured by a dwelling.
\205\ 78 FR 10901, 10959 (Feb. 14, 2013).
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Further, because Sec. 1026.41 already requires servicers to send
periodic statements to the prior consumer, the Bureau believes that the
additional cost to servicers to apply these requirements to successors
in interest will be minimal. The Bureau believes that the cost would be
limited to updating servicer systems initially, adding individual
successors in interest to the system on an ongoing basis, and printing
and mailing costs, if any. In any event, the Bureau believes that
providing consumers who have an ownership interest in a property with
detailed information about the status of the loan secured by the
property justifies the additional cost.
The Bureau solicits comment on whether Sec. 1026.41 should provide
that, in the case of consumer death, the servicer should continue
providing periodic statements to the consumer's estate until a
successor in interest's status has been confirmed.
Proposed commentary. Proposed comment 2(a)(11)-1 provides that,
even after a servicer confirms a successor in interest's status, the
servicer is still generally required to comply with the requirements of
Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41 with respect
to the prior consumer. The proposed comment indicates, however, that a
servicer is not required to comply with the requirements of Sec. Sec.
1026.20(c) through (e) and 1026.41 if the prior consumer also has
either died or has been released from the obligation on the mortgage
loan, and a servicer is not required to comply with the requirements of
Sec. 1026.36(c) if the prior consumer also has been released from the
obligation on the mortgage loan. The proposed comment also provides
that the prior consumer retains any rights under Sec. Sec. 1026.20(c)
through (e), 1026.36(c), and 1026.41 that accrued prior to the
confirmation of the successor in interest to the extent these rights
would otherwise survive the prior consumer's death or release from the
obligation.
The Bureau is proposing this comment because the Bureau believes
that Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41 would
still provide valuable information and protections to prior consumers
even after confirmation of a successor in interest. In particular,
because the prior consumer may remain liable on the mortgage loan even
after a successor in interest is confirmed and so still has significant
legal interests at stake, the Bureau believes that it would be
appropriate for the prior consumer to continue receiving the
information and protections of Sec. Sec. 1026.20(c) through (e),
1026.36(c), and 1026.41.
The Bureau acknowledges that, under this proposed comment,
servicers will sometimes be required to comply with Regulation Z's
mortgage servicing rules with respect to more than one person--both the
prior consumer and the successor in interest, as well as, in some
cases, multiple successors in interest who each acquire an ownership
interest in a dwelling. The Bureau notes that, under the Mortgage
Servicing Rules, it is already the case that the rules may apply with
respect to more than one consumer for a particular mortgage loan. It is
quite common for more than one consumer (for example, spouses) to be
obligated on the mortgage note, and the Mortgage Servicing Rules apply
with respect to each consumer in such cases. Accordingly, the Bureau
does not believe that applying Regulation Z's mortgage servicing rules
to successors in interest presents novel challenges for servicers in
this regard.
On the other hand, with respect to Sec. Sec. 1026.20(c) through
(e) and 1026.41, the Bureau believes that it would not often be useful
to the prior consumer's estate to continue receiving ARM disclosures,
escrow account cancellation notices, and periodic statements once a
servicer confirms a successor in interest's status and the prior
consumer has died. When a successor in interest's status has been
confirmed and the prior consumer has died, the estate of the prior
consumer would have at most a relatively narrow interest in the
mortgage loan. Accordingly, the Bureau believes that prior consumers
should not receive ARM disclosures, escrow account cancellation
notices, or periodic statements after the successor in interest has
been confirmed and the prior consumer has died. By contrast, with
respect to Sec. 1026.36(c), the Bureau believes that it would not
reduce much burden on servicers to relieve them of the prompt
crediting, prohibition on pyramiding of late fees, and payoff balance
requirements after the successor in interest has been confirmed and the
prior consumer has died. The Bureau also believes there may be some
circumstances in which, for example, prompt crediting of payments from
a deceased consumer's estate would help to prevent foreclosure.
Accordingly, the Bureau believes that Sec. 1026.36(c) should still
apply to the prior consumer even after the successor in interest has
been confirmed and the prior consumer has died. In the alternative,
however, the Bureau is considering providing that Sec. 1026.36(c) does
not apply to the prior consumer when the servicer has confirmed a
successor in interest's status and the prior consumer has died.
Once a successor in interest has been confirmed and the prior
consumer has been released from the obligation on the mortgage loan,
the prior consumer may have legal interests relating to loan activity
prior to the release of the obligation, but would have little or no
legal interest in subsequent loan activity. Accordingly, the Bureau
believes that servicers should not be required to comply with the
requirements of Sec. Sec. 1026.20(c) through
[[Page 74237]]
(e), 1026.36(c), and 1026.41 once a successor in interest has been
confirmed and the prior consumer has been released from the obligation
on the mortgage loan.
The Bureau solicits comment on whether a servicer should not be
required to comply with Sec. Sec. 1026.20(c) through (e), 1026.36(c),
and 1026.41 with respect to prior consumers after a successor in
interest is confirmed. The Bureau also solicits comment on whether
other circumstances exist, beyond death and relief of the obligation on
the mortgage loan, in which some or all of the requirements of
Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41 should not
apply with respect to the prior consumer after a successor in interest
is confirmed.
Paragraph (a)(27)
As described in part V.A., the Bureau believes that, to the extent
that the Mortgage Servicing Rules apply to successors in interest, the
proposed rule should apply with respect to all categories of successors
in interest who acquired an ownership interest in the dwelling securing
a mortgage loan in a transfer protected by the Garn-St Germain
Act.\206\ Accordingly, the Bureau is proposing to define successor in
interest in Sec. 1026.2(a)(27) to cover all categories of successors
in interest who acquired an ownership interest in the dwelling securing
a mortgage loan in a transfer protected by the Garn-St Germain Act. (As
discussed in the section-by-section analysis of Sec. 1024.31, the
Bureau is proposing to add a similar definition to Regulation X.)
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\206\ 12 U.S.C. 1701j-3(d).
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The proposed definition states that a successor in interest is a
person to whom an ownership interest in a dwelling securing a mortgage
loan is transferred from a prior consumer, provided that the transfer
falls under an exemption specified in the appropriate section of the
Garn-St Germain Act. The Bureau intends the proposed definition to
apply throughout the proposed rule and commentary.
The Bureau solicits comment on whether certain categories of
successors in interest protected by the Garn-St Germain Act should not
be covered by the Bureau's definition of successor in interest. The
Bureau also solicits comment on whether additional categories of
successors in interest, beyond those protected by the Garn-St Germain
Act, should be covered by the Bureau's definition of successor in
interest.
Section 1026.36 Prohibited Acts or Practices and Certain Requirements
for Credit Secured by a Dwelling
36(c) Servicing Practices
36(c)(1) Payment Processing
The Bureau is proposing commentary to Sec. 1026.36(c)(1) to
clarify how servicers must treat periodic payments made by consumers
who are performing under either temporary loss mitigation programs or
permanent loan modifications. (As described in the section-by-section
analysis of Sec. 1026.41(d), the Bureau is also proposing commentary
to Sec. 1026.41 clarifying certain periodic statement disclosures
relating to temporary loss mitigation programs and permanent loan
modifications.) Proposed comment 36(c)(1)(i)-4 provides that if the
loan contract has not been permanently modified but the consumer has
agreed to a temporary loss mitigation program, a periodic payment under
Sec. 1026.36(c)(1)(i) remains an amount sufficient to cover principal,
interest, and escrow (if applicable) for a given billing cycle under
the loan contract, irrespective of the payment due under the temporary
loss mitigation program. Accordingly, if a consumer submits a payment
under a temporary loss mitigation program that is less than an amount
sufficient to cover principal, interest, and escrow (if applicable) for
a given billing cycle under the loan contract, the servicer should
generally treat the payment as a partial payment under Sec.
1026.36(c)(1)(i), even though the consumer may have made the payment
due under the temporary loss mitigation program.
The Bureau is proposing this comment in response to several
inquiries regarding payment processing for payments due under temporary
loss mitigation programs, which are quite common and not addressed by
the Bureau's existing rules or commentary. The Bureau acknowledges that
in the 2013 TILA Final Servicing Rule, it stated that ``if a consumer
makes a payment sufficient to cover the principal, interest and escrow
due under a trial modification plan, these funds should be applied.''
\207\ This statement may have suggested that a periodic payment under a
temporary loss mitigation program is the payment due under the
temporary loss mitigation program, rather than the amount sufficient to
cover principal, interest, and escrow (if applicable) for a given
billing cycle under the loan contract. However, the Bureau believes
that this suggestion, which was not accompanied by any further
explanation, is inaccurate. A temporary loss mitigation program is only
a temporary or trial program, during which the consumer may be
accumulating a delinquency according to the loan contract. The Bureau
believes that it is appropriate to require servicers to credit payments
in a way that reflects the continuing contractual obligation between
the parties and that reflects any delinquency accumulating during the
program. Further, if a consumer fails to comply with the terms of a
temporary loss mitigation program, the servicer and consumer will
typically revert back to the terms of the loan contract, treating
payments submitted during the temporary loss mitigation program as if
the program had not existed. Accordingly, the Bureau believes that it
would be unnecessarily burdensome for servicers to treat the payment
due under a temporary loss mitigation program as a periodic payment,
and then to have to undo that treatment if the consumer later fails to
comply with the terms of the temporary loss mitigation program. The
Bureau also understands that consumers are not assessed a late fee for
such payments so long as the payment is the payment due under the
temporary loss mitigation program. Accordingly, the Bureau does not
believe that consumers would be harmed by treating payments that are
less than the amount due under the loan contract, but that are the
payments due under a temporary loss mitigation program, as partial
payments.
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\207\ 78 FR 10901, 10954 (Feb. 14, 2013).
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By contrast, proposed comment 36(c)(1)(i)-5 provides that if the
loan contract has been permanently modified, a periodic payment under
Sec. 1026.36(c)(1)(i) is an amount sufficient to cover principal,
interest, and escrow (if applicable) for a given billing cycle under
the modified loan contract.
The Bureau believes that if the loan contract has been permanently
modified, it is appropriate for the periodic payment to be an amount
sufficient to cover principal, interest, and escrow (if applicable) for
a given billing cycle under the modified loan contract. The Bureau
believes that once a loan has been permanently modified, the obligation
under the previous loan contract is not relevant to the periodic
payment because only the modified loan contract, and not the original
contract, now binds the consumer and the servicer.
The Bureau is also proposing a technical change to Sec.
1026.36(c)(1). Section 1026.36(b) provides that Sec. 1026.36(c)(1)
applies to closed-end consumer credit transactions secured by
[[Page 74238]]
a consumer's principal dwelling. However, current Sec. 1026.36(c)(1)
refers to consumer credit transactions secured by a consumer's
principal dwelling, without referring to closed-end transactions.
Consistent with Sec. 1026.36(b), proposed Sec. 1026.36(c)(1) modifies
the existing language to refer directly to closed-end consumer credit
transactions secured by a consumer's principal dwelling.
36(c)(2) No Pyramiding of Late Fees
The Bureau is also proposing a technical change to Sec.
1026.36(c)(2). Section 1026.36(b) provides that Sec. 1026.36(c)(2)
applies to closed-end consumer credit transactions secured by a
consumer's principal dwelling. However, current Sec. 1026.36(c)(2)
refers to consumer credit transactions secured by a consumer's
principal dwelling, without referring to closed-end transactions.
Consistent with Sec. 1026.36(b), proposed Sec. 1026.36(c)(2) modifies
the existing language to refer directly to closed-end consumer credit
transactions secured by a consumer's principal dwelling.
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(a) In General
As described above, proposed Sec. 1026.2(a)(11) provides that a
successor in interest is a consumer for purposes of Sec. 1026.41 once
a servicer confirms the successor in interest's status. Accordingly,
the servicer would be required to provide the confirmed successor in
interest with ongoing periodic statements.
Proposed comment 41(a)(1)-5.i. reiterates for clarity that a
servicer must provide a confirmed successor in interest with a periodic
statement meeting the requirements of Sec. 1026.41. The Bureau is
proposing this comment to ensure that the effect of proposed Sec.
1026.2(a)(11) with respect to providing periodic statements to
confirmed successors in interest is clear.
Proposed comment 41(a)(1)-5.ii provides that if a servicer sends a
periodic statement meeting the requirements of Sec. 1026.41 to another
consumer, the servicer need not also send a periodic statement to a
successor in interest; a single statement may be sent. The proposed
comment also provides that if a servicer confirms more than one
successor in interest's identity and ownership interest in the
dwelling, the servicer need not send periodic statements to more than
one of the confirmed successors in interest. This proposed comment is
consistent with current comment 41(a)(1)-1, which provides that, when
two consumers are joint obligors with primary liability on a closed-end
consumer credit transaction secured by a dwelling, the periodic
statement may be sent to either one of them. The Bureau is proposing
comment 41(a)(1)-5.ii because the Bureau believes that it is
appropriate to treat periodic statements sent to successors in interest
consistently with how periodic statements for multiple obligors are
treated. Servicers should not be required to send more than one
periodic statement with respect to a mortgage loan. Alternatively, the
Bureau is also considering the contrary rule that each successor in
interest must receive a periodic statement.
The Bureau solicits comment on whether only one successor in
interest should receive a periodic statement or whether instead each
successor in interest should receive a periodic statement. The Bureau
also solicits comment on whether other circumstances exist, beyond
death orrelief of the obligation on the mortgage loan, in which the
requirement to send periodic statements should not apply with respect
to the prior consumer.
41(d) Content and Layout of the Periodic Statement
The Bureau is proposing to amend comment 41(d)-1, which addresses
the requirement in Sec. 1026.41(d) that several disclosures on the
periodic statement be provided in close proximity to one another.
Current comment 41(d)-1 states that items in close proximity may not
have any intervening text between them. The close proximity standard is
found in other parts of Regulation Z, including Sec. Sec. 1026.24(b)
and 1026.48. The proposed amendment would relax this requirement for
purposes of Sec. 1026.41(d) and instead provide that items in close
proximity may not have any unrelated text between them. This proposal
mirrors the standard for open-end credit plans secured by a consumer's
dwelling found in Sec. 1026.40(a) and its corresponding comment
40(a)(1)-3, which explain that while most of the disclosures required
by Sec. 1026.40(d) must be grouped together and segregated from all
unrelated information, a creditor is permitted to include information
that explains or expands upon the required disclosures.
Specifically, the proposed amendment to comment 41(d)-1 provides
that items in close proximity may not have any unrelated text between
them and explains that text is unrelated if it does not explain or
expand upon the required disclosures. Text that explains or expands
upon the required disclosures may include, for example, an additional
explanation of the amount due when: a fee has been charged to the
consumer but will not be collected until payoff (e.g., attorney's
fees); the consumer has agreed to a temporary loss mitigation program
(as discussed further in the section-by-section analysis of Sec.
1026.41(d)(2)); the consumer makes an advance payment; or the servicer
reverses a fee. The Bureau believes that the proposed amendment to
comment 41(d)-1 may provide servicers with additional flexibility to
clarify or explain information on the periodic statement and may enable
servicers to address circumstances not expressly provided for in Sec.
1026.41(d). The Bureau seeks comment generally on this proposal to
amend comment 41(d)-1 to relax the prohibition on intervening text to
include only related text that explains or expands upon the required
disclosures.
The Bureau is proposing additional commentary to Sec. 1026.41(d)
clarifying certain periodic statement disclosure requirements relating
to temporary loss mitigation programs. (As described in the section-by-
section analysis of Sec. 1026.36(c), the Bureau is also proposing
commentary to Sec. 1026.36(c) relating to the periodic payment under
temporary loss mitigation programs.) Proposed comment 41(d)-4 provides
that, if the consumer has agreed to a temporary loss mitigation
program, the disclosures required by Sec. 1026.41(d)(2), (3), and (5)
regarding how payments will be and were applied should nonetheless
identify how payments are applied according to the loan contract,
irrespective of the payment due under the temporary loss mitigation
program.
The Bureau is proposing this commentary in response to several
inquiries regarding how temporary loss mitigation programs affect
certain disclosures on the periodic statement. Currently, the Bureau's
rules and commentary do not address this issue. As described in the
section-by-section analysis of Sec. 1024.36(c)(1), proposed comment
36(c)(1)(i)-4 provides that if the consumer has agreed to a temporary
loss mitigation program, a periodic payment under Sec.
1026.36(c)(1)(i) remains an amount sufficient to cover principal,
interest, and escrow (if applicable) for a given billing cycle under
the loan contract, irrespective of the payment due under the temporary
loss mitigation program. Accordingly, the Bureau believes that it is
appropriate for the disclosures on the periodic statement required by
Sec. 1026.41(d)(2), (3), and (5) to identify how payments
[[Page 74239]]
will be and are applied according to the loan contract, irrespective of
the payment due under the temporary loss mitigation program, because
this is how servicers would actually be applying the payments under
proposed comment 36(c)(1)(i)-4. The Bureau believes that the periodic
statement should reflect how payments are actually being applied. The
Bureau believes that this treatment is appropriate so that the consumer
is kept apprised of how payments are being applied, including being
notified of any delinquency that may be accumulating during a temporary
loss mitigation program.
The Bureau is also proposing comment 41(d)-5 to address the
disclosures that servicers must make on the first periodic statement
provided to a consumer after an exemption under Sec. 1026.41(e)
terminates. The proposal clarifies that the first post-exemption
periodic statement may be limited to disclosing the fees and charges
imposed, payments received and applied, and transaction activity since
the last payment due date that occurred while the exemption was in
effect.
Section 1026.41(d) requires that a periodic statement include three
disclosures concerning account activity that occurred ``since the last
statement.'' First, Sec. 1026.41(d)(2)(ii) requires the explanation of
amount due to identify ``[t]he total sum of any fees or charges imposed
since the last statement.'' Second, Sec. 1026.41(d)(3)(i) requires the
past payment breakdown to disclose ``all payments received since the
last statement, including a breakdown showing the amount, if any, that
was applied to principal, interest, escrow, fees and charges, and the
amount, if any, sent to any suspense or unapplied funds account.''
Finally, Sec. 1026.41(d)(4) requires the transaction activity to
include ``[a] list of all transaction activity that occurred since the
last statement.''
The Bureau has received inquiries regarding a servicer's disclosure
obligations under Sec. 1026.41(d)(2)(ii), (3)(i), and (4) for purposes
of the first periodic statement provided after an exemption under Sec.
1026.41(e) terminates. The Bureau understands that such circumstances
may arise when a servicer provided periodic statements, became exempt
from the requirements for one of the reasons under Sec. 1026.41(e),
and the exemption subsequently terminated, thereby requiring the
servicer to resume providing statements. For example, a servicer may
have been exempt from providing periodic statements for the duration of
a consumer's bankruptcy case, may have provided coupon books but has
now decided to begin providing periodic statements, or may have been
exempt from the periodic statement requirement as a small servicer but
no longer qualifies for that exemption. Alternatively, a mortgage loan
might be transferred from a servicer that provides coupon books or was
an exempt small servicer to a servicer that provides periodic
statements.
Sections 1026.41(d)(2)(ii), (3)(i), and (4) could be interpreted as
requiring the periodic statement to include information about account
activity for the duration of the exemption period--literally ``since
the last statement.'' However, the Sec. 1026.41(d)(2)(ii), (3)(i), and
(4) disclosures generally cover a time period equivalent to a billing
cycle and the first post-exemption periodic statement should arguably
cover a similar time period. Accordingly, the Bureau believes that it
may be necessary to clarify the requirements of Sec.
1026.41(d)(2)(ii), (3)(i), and (4) with respect to the first post-
exemption periodic statement.
The Bureau recognizes that there may be benefits to providing a
consumer with information regarding all fees and charges imposed, all
payments received and applied, and all transaction activity that
occurred during the exemption period. A consumer could review this
information to determine if a servicer imposed any erroneous fees,
failed to properly credit payments, or made other mistakes with respect
to the consumer's mortgage loan while the exemption applied.
Nonetheless, the Bureau believes that consumers and servicers may
be better served if the first post-exemption periodic statement
includes account activity only since the final payment due date that
occurred while the exemption was in effect. First, requiring the
disclosure of all fees and charges imposed, payments received, and
transaction activity during an exemption period--which could have
spanned several months or years--may place an undue burden on
servicers. The Bureau understands that servicers' systems are generally
not equipped to provide months' or years' worth of account activity on
a single periodic statement. The Bureau does not believe that servicers
should incur the costs associated with providing a potentially lengthy
first post-exemption periodic statement.
Second, including account activity for the duration of the
exemption period, such as the total of all fees and charges imposed,
could overwhelm or mislead consumers to believe that those fees and
charges are presently due, even though the consumer may have previously
paid many or all of them.
Third, including account activity for the duration of the exemption
period undermines, in part, the rationale for the exemptions. For
example, Sec. 1026.41(e)(3) recognizes the value of a coupon book as
striking a balance between ensuring consumers receive important
information, and providing a low-burden method for servicers to comply
with the periodic statement requirements.\208\ Requiring the first
post-exemption periodic statement to include the disclosures required
under Sec. 1026.41(d)(2)(ii), (3)(i), and (4) for the duration of the
exemption arguably upsets the balance struck by the coupon book
exemption. Similarly, the Bureau has recognized that servicers
qualifying for the small servicer exemption have incentives to maintain
``high-touch,'' customer-centric customer servicer models and that
consumers generally have easy access to these small, community-based
servicers to obtain any information they desire.\209\ In light of this
ability to access information, in the circumstance in which a servicer
begins sending periodic statements because it was previously but is no
longer a small servicer, it may be unnecessary for the first post-
exemption periodic statement to include disclosures related to the
entire duration of the exemption period.
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\208\ 78 FR 10901, 10973 (Feb. 14, 2013).
\209\ Id. at 10975.
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Finally, consumers will receive, or have alternative methods of
obtaining, much of the account information that under this proposal
would not be included in the first post-exemption periodic statement.
Consumers who receive coupon books have a right to request the
information set forth in Sec. 1026.41(d)(2)(ii), (3)(i), and (4).
Similarly, for servicers subject to Regulation X's servicing
requirements, a consumer may obtain this information by submitting a
written information request. In addition, even if the first post-
exemption periodic statement does not include the past payment
breakdown since the last pre-exemption periodic statement, Sec.
1026.41(d) requires the statement to identify ``[t]he total of all
payments received since the beginning of the current calendar year . .
..'' This year-to-date information, while not covering the entire
exemption period, provides consumers with a broad overview of the costs
of their mortgage loan and how their payments are being allocated to
interest or fees as opposed to principal.\210\
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\210\ Id. at 10966.
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[[Page 74240]]
Accordingly, the Bureau is proposing comment 41(d)-5, which
provides that for purposes of the first periodic statement following
termination of an exemption under Sec. 1026.41(e), the disclosures
required by Sec. 1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be
limited to the period since the final payment due date that occurred
while the exemption was in effect. Proposed comment 41(d)-5 provides
the following example: if a borrower's payments are due on the first of
each month and a servicer's exemption under Sec. 1026.41(e) terminated
on January 15, the first statement provided to the consumer after
January 15 may be limited to the total sum of any fees or charges
imposed, the total of all payments received, and a list of all
transaction activity only since January 1.
The Bureau seeks comment on proposed comment 41(d)-5, including
whether to disclose account activity since a date other than the final
payment due date that occurred while the exemption was in effect.
41(d)(1)
The Bureau is proposing commentary to Sec. 1026.41(d)(1)
clarifying certain periodic statement disclosure requirements relating
to acceleration, temporary loss mitigation programs, and permanent loan
modifications. The Bureau is proposing this commentary in response to
several inquiries regarding how acceleration, temporary loss mitigation
programs, and permanent loan modification affect disclosure of the
amount due on the periodic statement. Currently, the Bureau's rules and
commentary do not address this issue.
Section 1026.41(d)(1)(iii) provides that the periodic statement
required by Sec. 1026.41(d) must include the amount due, shown more
prominently than other disclosures on the page. Proposed comment
41(d)(1)-1 provides that if the balance of a mortgage loan has been
accelerated but the servicer will accept a lesser amount to reinstate
the loan, the amount due disclosed on the periodic statement under
Sec. 1026.41(d)(1) should identify only the lesser amount that will be
accepted to reinstate the loan, not the entire accelerated balance.
The Bureau is aware that after accelerating a mortgage loan, a
servicer may be willing to accept a lesser amount to reinstate the
loan, sometimes because doing so may be required by State law. The
Bureau believes that it would be counterproductive in these
circumstances for the borrower to receive a periodic statement
disclosing the amount due as the full accelerated balance, which may be
quite large. Because the borrower is much more likely to be able to pay
a reinstatement amount than the full accelerated balance, the Bureau
believes that receiving a periodic statement indicating that the amount
due is the reinstatement amount would make the borrower more likely to
actually pay the reinstatement amount, thereby possibly preventing
foreclosure. The Bureau also believes it may confuse borrowers to
receive a periodic statement indicating that the amount due is the full
accelerated balanced when, in fact, the borrower is informed elsewhere
that the borrower may pay only the reinstatement amount. Furthermore,
the borrower may be deterred from reading other disclosures or
documents if the borrower sees the full accelerated balance as the
amount due, so the borrower may not actually become aware that
reinstatement is possible, possibly leading to unnecessary foreclosure.
Proposed comment 41(d)(1)-2 provides that if the consumer has
agreed to a temporary loss mitigation program, the amount due under
Sec. 1026.41(d)(1) may identify either the payment due under the
temporary loss mitigation program or the amount due according to the
loan contract. The Bureau believes that it may be confusing for
borrowers who have agreed to a loss mitigation program to receive a
periodic statement identifying the amount due under the loan contract
when that amount is different from the payment due under the temporary
loss mitigation program. Accordingly, the Bureau is proposing that
servicers may, but are not required to, identify the payment due under
the temporary loss mitigation program, instead of the amount due
according to the loan contract.
The Bureau is not proposing to require that the payment due under
the temporary loss mitigation program must be identified as the amount
due because the Bureau is concerned about the consequences of requiring
servicers to modify periodic statements whenever a borrower agrees to a
temporary loss mitigation program. The Bureau understands that
temporary loss mitigation programs are common and may be entered into
for very short durations, so requiring servicers to modify periodic
statements whenever a borrower agrees to a temporary loss mitigation
program may be unduly burdensome for servicers. Furthermore, the Bureau
is concerned that imposing additional requirements on servicers when a
borrower agrees to a temporary loss mitigation program may deter
servicers from offering temporary loss mitigation programs. In the
alternative, however, the Bureau is considering requiring that if the
consumer has agreed to a temporary loss mitigation program, the amount
due under Sec. 1026.41(d)(1) must identify the amount that the
consumer has agreed to pay under the temporary loss mitigation program,
rather than the amount due according to the loan contract.
The Bureau solicits comment on whether, if the consumer has agreed
to a temporary loss mitigation program, servicers should be required,
rather than permitted, to identify the amount due under Sec.
1026.41(d)(1) as the payment due under the temporary loss mitigation
program, rather than the amount due according to the loan contract.
Proposed comment 41(d)(1)-3 provides that if the loan contract has
been permanently modified, the amount due under Sec. 1026.41(d)(1)
should identify only the amount due under the modified loan contract.
The Bureau believes that once a loan has been permanently modified, the
obligation under the previous loan contract is not relevant to the
periodic statement because only the modified loan contract, and not the
original contract, now binds the consumer and the servicer.
41(d)(2)
The Bureau is proposing commentary to Sec. 1026.41(d)(2)
clarifying certain periodic statement disclosure requirements relating
to acceleration and temporary loss mitigation programs. The Bureau is
proposing this commentary because, as noted in the section-by-section
analysis of Sec. 1026.41(d), the Bureau has received several inquiries
regarding how acceleration and temporary loss mitigation programs
affect disclosure of the explanation of amount due on the periodic
statement and the Bureau's rules and commentary do not currently
address this issue.
Section 1026.41(d)(2)(i) provides that the explanation of amount
due on periodic statements required by Sec. 1026.41 must include the
monthly payment amount, including a breakdown showing how much, if any,
will be applied to principal, interest, and escrow (if applicable) and,
if a mortgage loan has multiple payment options, a breakdown of each of
the payment options along with information on whether the principal
balance will increase, decrease, or stay the same for each option
listed. Proposed comment 41(d)(2)-1 provides that if the balance of a
mortgage loan has been accelerated but the servicer will accept a
lesser amount to reinstate the loan, the explanation of amount due
under
[[Page 74241]]
Sec. 1026.41(d)(2) should omit the monthly payment amount that would
generally be required under Sec. 1026.41(d)(2)(i) and should include
both the reinstatement amount and the accelerated amount. The proposed
comment provides that the statement must also include an explanation
that the reinstatement amount will be accepted to reinstate the loan.
The proposed comment provides that this explanation should be on the
front page of the statement or, alternatively, may be included on a
separate page enclosed with the periodic statement or in a separate
letter.
The Bureau is proposing this comment in conjunction with proposed
comment 41(d)(1)-1 (discussed in the section-by-section analysis of
Sec. 1026.41(d)(1)), which provides that if the balance of a mortgage
loan has been accelerated but the servicer will accept a lesser amount
to reinstate the loan, the amount due disclosed on the periodic
statement under Sec. 1026.41(d)(1) should identify only the lesser
amount that will be accepted to reinstate the loan. The Bureau is
proposing comment 41(d)(2)-1 because, given that the amount due will
reflect the reinstatement amount, the Bureau believes that the periodic
statement should elsewhere identify the accelerated balance, which is
the amount that the borrower technically owes under the loan contract
and is significant information that the borrower should have. The
Bureau believes that the explanation of amount due is where this
disclosure is most appropriate. The Bureau is proposing that the
monthly payment amount be omitted from the explanation of amount due
after acceleration because the Bureau believes that once a loan has
been accelerated, the monthly payment obligation is not relevant to the
borrower, as the servicer will no longer accept this amount.
Because identification of both the reinstatement amount and the
accelerated amount in the explanation of amount due may present some
possibility of borrower confusion, the Bureau believes that the
periodic statement should also include an explanation indicating that
the reinstatement amount will be accepted to reinstate the loan.
Consistent with the requirement under Sec. 1026.41(d)(5) that partial
payment information must be on the front page of the periodic statement
or, alternatively, may be included on a separate page enclosed with the
statement or in a separate letter, the Bureau believes it is
appropriate that this explanation should be on the front page of the
periodic statement or, alternatively, may be included on a separate
page enclosed with the statement or in a separate letter.
Proposed comment 41(d)(2)-2 provides that if the consumer has
agreed to a temporary loss mitigation program and the amount due on the
periodic statement identifies the payment due under the temporary loss
mitigation program, the explanation of amount due under Sec.
1026.41(d)(2) should include both the amount due according to the loan
contract and the payment due under the temporary loss mitigation
program. The proposed comment provides that the statement should also
include an explanation that the amount due is being disclosed as a
different amount because of the temporary loss mitigation program. The
proposed comment provides that this explanation should be on the front
page of the statement or, alternatively, may be included on a separate
page enclosed with the periodic statement or in a separate letter.
The Bureau is proposing this comment in conjunction with proposed
comment 41(d)(1)-2 regarding amount due, which provides that if the
consumer has agreed to a temporary loss mitigation program, the amount
due under Sec. 1026.41(d)(1) may identify either the payment due under
the temporary loss mitigation program or the amount due according to
the loan contract. The Bureau believes that when the amount due is
disclosed on the periodic statement as the payment due under the
temporary loss mitigation program, the periodic statement should
elsewhere identify the amount due according to the loan contract, as
this amount is significant information that the borrower should have.
For example, under proposed comment 36(c)(1)(i)-4, the amount due
according to the loan contract would be the amount promptly credited by
the servicer. The Bureau believes that the explanation of amount due
under Sec. 1026.41(d)(2) is where this disclosure is most appropriate.
Because identification of both the payment due under the temporary
loss mitigation program and the amount due according to the loan
contract may present some possibility of borrower confusion, the Bureau
believes that the statement should also include an explanation
indicating that the amount due is being disclosed as a different amount
than the amount due under the loan contract because of the temporary
loss mitigation program. Consistent with the requirement under Sec.
1026.41(d)(5) that partial payment information must be on the front
page of the statement or, alternatively, may be included on a separate
page enclosed with the periodic statement or in a separate letter, the
Bureau believes it is appropriate that this explanation should be on
the front page of the statement or, alternatively, may be included on a
separate page enclosed with the periodic statement or in a separate
letter.
41(d)(8)
Section 1026.41(d)(8) requires a servicer to include a so-called
``delinquency box'' containing certain prescribed information in
periodic statements sent to consumers who are more than 45 days
delinquent.\211\ The Bureau is proposing certain revisions to Sec.
1026.41(d)(8) to align the requirements of that section with the
proposed definition of delinquency under Regulation X Sec. 1024.31.
Specifically, the Bureau is proposing to revise Sec. 1026.41(d)(8) and
add commentary to mirror the language in proposed Sec. 1024.31
(Delinquency) and its related comments.
---------------------------------------------------------------------------
\211\ 12 CFR 1026.41(d)(8).
---------------------------------------------------------------------------
Current Sec. 1026.41(d)(8) requires a servicer to include in each
periodic statement certain information about a consumer's delinquency
when the consumer is more than 45 days delinquent, including the date
on which the consumer became delinquent. However, Regulation Z does not
include an explanation of how a servicer must determine the length of a
consumer's delinquency. The Bureau believes that it may confuse
consumers if a servicer calculates the length of delinquency pursuant
to Sec. 1026.41(d)(8)(i) differently from the length of delinquency
for purposes of the servicing requirements in subpart C of Regulation
X. As such, the Bureau is proposing Regulation Z comment 41(d)(8)-1,
which mirrors the proposed Regulation X definition of delinquency and
accompanying comment 31 (Delinquency)-1. Specifically, proposed
Regulation Z comment 41(d)(8)-1 clarifies that delinquency begins on
the date a consumer misses a payment of principal, interest, and escrow
(if applicable), notwithstanding any grace period the servicer affords
the consumer.
In addition, the Bureau is proposing to add comment 41(d)(8)-2 to
address how a creditor should disclose the length of a consumer's
delinquency as required by Sec. 1026.41(d)(8) if a servicer applies a
borrower's payment to the oldest outstanding delinquency first. As
discussed in the section-by-section analysis of Sec. 1024.31, the
Bureau is proposing a comment to the definition of delinquency to
clarify that, if a servicer applies a consumer's payment
[[Page 74242]]
to the oldest outstanding delinquency, the servicer must advance the
date of the consumer's delinquency for purposes of calculating the
length of a borrower's delinquency under the various applicable
provisions of Regulation X's mortgage servicing rules. To ensure that a
servicer's method of calculating the length of the consumer's
delinquency for purposes of Regulation Z Sec. 1026.41(d)(8)(i) is
consistent with the method for doing the same under the proposed
definition of delinquency in Regulation X, the Bureau proposes to
include the same commentary in proposed Regulation Z comment 41(d)(8)-
2.
Finally, the Bureau is proposing to revise Sec. 1026.41(d)(8)(i)
to harmonize its language with the notion that the date a borrower's
delinquency begins advances as payments are applied to the oldest
outstanding delinquency. Section 1026.41(d)(8)(i) requires servicers to
include ``[t]he date on which the consumer became delinquent'' on a
delinquent consumer's periodic statement. If comment 41(d)(8)-2 is
adopted as proposed, ``the date on which a consumer became delinquent''
would advance as the consumer's payments are applied to prior missed
payments, which may confuse consumers. Accordingly, the Bureau is
proposing to revise Sec. 1026.41(d)(8)(i) to require servicers to
disclose the length of a consumer's delinquency as of the date of the
periodic statement.
Legal Authority
The proposed amendments to Sec. 1026.41(d) implement section
128(f)(1)(H) of TILA, which requires inclusion in periodic statements
of any information that the Bureau may prescribe by regulation.
41(e) Exemptions
41(e)(4) Small Servicers
41(e)(4)(iii) Small Servicer Determination
41(e)(4)(iii)(A)
The Bureau is proposing to amend certain criteria for determining
whether a servicer qualifies for the small servicer exemption under
Sec. 1026.41(e)(4). In determining whether a servicer qualifies for
the small servicer exemption, Sec. 1026.41(e)(4)(iii)(A) currently
excludes from consideration mortgage loans voluntarily serviced by a
servicer for a creditor or assignee that is not an affiliate of the
servicer and for which the servicer does not receive any compensation
or fees. The proposed amendment would remove the requirement that the
non-affiliate must be a creditor or assignee, while continuing to
exclude from consideration mortgage loans voluntarily serviced by a
servicer for a non-affiliate for which the servicer does not receive
any compensation or fees.
The Bureau's Mortgage Servicing Rules exempt small servicers from
certain mortgage servicing requirements. Specifically, Regulation Z
exempts small servicers, defined in Sec. 1026.41(e)(4)(ii), from the
requirement to provide periodic statements for residential mortgage
loans.\212\ Regulation X incorporates this same definition by reference
to Sec. 1026.41(e)(4) and thereby exempts small servicers from: (1)
certain requirements relating to obtaining force-placed insurance,\213\
(2) the general servicing policies, procedures, and requirements,\214\
and (3) certain requirements and restrictions relating to communicating
with borrowers about, and evaluation of applications for, loss
mitigation options.\215\
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\212\ 12 CFR 1026.41(e) (requiring delivery each billing cycle
of a periodic statement, with specific content and form). For loans
serviced by a small servicer, a creditor or assignee is also exempt
from the Regulation Z periodic statement requirements. See 12 CFR
1026.41(e)(4)(i).
\213\ 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed
insurance in certain circumstances).
\214\ 12 CFR 1024.30(b)(1) (exempting small servicers from
Sec. Sec. 1024.38 through 41, except as otherwise provided under
Sec. 1024.41(j), as discussed in note 215, infra). Sections 1024.38
through 40 respectively impose general servicing policies,
procedures, and requirements; early intervention requirements for
delinquent borrowers; and policies and procedures to maintain
continuity of contact with delinquent borrowers.
\215\ See 12 CFR 1024.41 (loss mitigation procedures). Though
exempt from most of the rule, small servicers are subject to the
prohibition of foreclosure referral before the loan obligation is
more than 120 days delinquent and may not make the first notice or
filing for foreclosure if a borrower is performing pursuant to the
terms of an agreement on a loss mitigation option. 12 CFR
1024.41(j).
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Section 1026.41(e)(4)(ii) defines the term ``small servicer'' as a
servicer that: (1) services, together with any affiliates,\216\ 5,000
or fewer mortgage loans, for all of which the servicer (or an
affiliate) is the creditor or assignee; (2) is a Housing Finance
Agency, as defined in 24 CFR 266.5; or (3) is a nonprofit entity that
services 5,000 or fewer mortgage loans, including any mortgage loans
serviced on behalf of associated nonprofit entities, for all of which
the servicer or an associated nonprofit entity is the creditor.
Generally, under Sec. 1026.41(e)(4)(ii)(A), a servicer cannot be a
small servicer if it services any loan for which the servicer or its
affiliate is not the creditor or assignee.
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\216\ ``Affiliate'' is defined in Sec. 1026.32(b)(5) as any
company that controls, is controlled by, or is under common control
with another company, as set forth in the Bank Holding Company Act
of 1956, 12 U.S.C. 1841 et seq. (BHCA). Under the BHCA, a company
has ``control'' over another company if it (i) ``directly or
indirectly . . . owns, controls, or has power to vote 25 per centum
or more of any class of voting securities'' of the other company;
(ii) ``controls . . . the election of a majority of the directors or
trustees'' of the other company; or (iii) ``directly or indirectly
exercises a controlling influence over the management or policies''
of the other company (based on a determination by the Board). 12
U.S.C. 1841(a)(2).
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However, current Sec. 1026.41(e)(4)(iii) excludes from
consideration certain types of mortgage loans for purposes of
determining whether a servicer qualifies as a small servicer: (1)
mortgage loans voluntarily serviced by the servicer for a creditor or
assignee that is not an affiliate of the servicer and for which the
servicer does not receive any compensation or fees; (2) reverse
mortgage transactions; and (3) mortgage loans secured by consumers'
interests in timeshare plans.
In the May 2013 Mortgage Servicing Proposal, the Bureau proposed
the exclusion for voluntarily serviced mortgage loans codified at
current Sec. 1026.41(e)(4)(iii)(A).\217\ At that time, the Bureau had
received feedback that certain servicers that would otherwise be
considered small servicers voluntarily service mortgage loans for
unaffiliated non-profit entities for charitable purposes and do not
receive compensation or fees from engaging in that servicing.\218\
Except for one comment received from a national trade association, see
section-by-section analysis of Sec. 1026.41(e)(4)(iii)(D), the Bureau
received comments with respect to the voluntarily serviced proposal
that focused only on charitable servicing for nonprofit
organizations.\219\ The language of current Sec.
1026.41(e)(4)(iii)(A), however, does not require that the mortgage loan
must have been made by a nonprofit organization to qualify for the
voluntarily serviced exception. And as the Bureau explained,
``volunteer servicing is not limited to the servicing of mortgage loans
owned or originated by nonprofit organizations . . . .''\220\ Current
Sec. 1026.41(e)(4)(iii)(A) applies to any mortgage loan voluntarily
serviced by a servicer for a non-affiliate creditor or assignee and for
which the servicer does not receive any compensation or fees.
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\217\ 78 FR 25638, 25644 (May 2, 2013).
\218\ Id.
\219\ 78 FR 44685, 44697 (July 24, 2013). Since that time, the
Bureau has finalized its proposal to add an alternative definition
of small servicer that applies to certain nonprofit entities that
service, for a fee, only loans for which the servicer or an
associated nonprofit entity is the creditor. 79 FR 65300, 65304
(Nov. 3, 2014).
\220\ 78 FR 44685, 44697 (July 24, 2013).
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[[Page 74243]]
The Bureau has learned that certain depository institutions, which
may qualify for the small servicer exemption, service for their
depository customers seller-financed sales of residential real
estate.\221\ The Bureau understands that typically under these
arrangements, the depository institution receives scheduled periodic
payments from the purchaser of the property pursuant to the terms of
the sale and deposits into the account of the seller (the depository
institution's customer) the payments of principal and interest and such
other payments with respect to the amounts received from the purchaser
as may be required pursuant to the terms of the sale.\222\ The Bureau
understands that in some cases, the depository institution may elect to
voluntarily service seller-financed sales of residential real estate on
behalf of its depository customers without receiving any compensation
or fees. The Bureau further understands that under these arrangements,
although the depository customer is not an affiliate of the servicer,
typically, the customer is neither a creditor\223\ nor an assignee as
required by current Sec. 1026.41(e)(4)(iii)(A). Therefore, a
depository institution that would otherwise qualify for the small
servicer exemption and that voluntarily services seller-financed sales
of residential real estate without receiving any compensation or fees
would likely no longer qualify for the small servicer exemption.
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\221\ Seller financer is a defined term under Sec.
1026.36(a)(5). This analysis generally refers to the practice of
seller-financed sales of residential real estate unless specifically
referring to the defined term.
\222\ See 12 U.S.C. 2605(i)(3) (definition of servicing
applicable to TILA, as amended by section 1401 of the Dodd-Frank
Act).
\223\ See 12 CFR 1026.2(a)(17).
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The Bureau understands that certain depository institutions engage
in this practice to provide their depository customers this service
when, particularly in small or remote communities, there may not be an
alternative service provider in the state. The Bureau believes that
such seller-financed sales of residential real estate generally are
limited and not widespread. For the reasons discussed in this section,
the Bureau believes that, to the extent servicing cost savings are
passed on to consumers, it may be beneficial to consumers for a
depository institution that otherwise qualifies for the small servicer
exemption to be able to voluntarily service transactions for a non-
affiliate, who is neither a creditor nor an assignee, without losing
its small servicer status, and that these benefits may outweigh the
consumer protections provided by the servicing rules.
Accordingly, the Bureau is proposing to amend the voluntarily
serviced exception under current Sec. 1026.41(e)(4)(iii)(A) to exclude
mortgage loans voluntarily serviced by a servicer for a non-affiliate
of the servicer and for which the servicer does not receive any
compensation or fees from consideration in determining whether a
servicer qualifies as a small servicer, while no longer requiring that
the non-affiliate be a creditor or assignee. Specifically, proposed
Sec. 1026.41(e)(4)(iii)(A) provides that mortgage loans voluntarily
serviced by the servicer for a non-affiliate of the servicer and for
which the servicer does not receive any compensation or fees would not
be considered in determining whether a servicer qualifies as a small
servicer.
Under the existing rule, mortgage loans voluntarily serviced by the
servicer for a creditor or assignee that is not an affiliate of the
servicer and for which the servicer does not receive any compensation
or fees are not considered in determining whether a servicer qualifies
as a small servicer. Because depository customers who seller-finance
sales of residential real estate typically are neither creditors nor
assignees, a depository institution that voluntarily services even a
single such transaction likely would not qualify as a small servicer
under the current rule. The Bureau is proposing to amend the current
voluntarily serviced exception to exclude from consideration mortgage
loans voluntarily serviced by a servicer for a non-affiliate for which
the servicer does not receive any compensation or fees, while removing
the requirement that the non-affiliate be a creditor or assignee. The
Bureau is concerned that if a depository institution that would
otherwise qualify for the small servicer exemption voluntarily services
even a single transaction for which the non-affiliate is neither a
creditor nor an assignee and does not receive any compensation or fees,
it would be subject to all of the servicing rules for all of the
mortgage loans that it services, including those that would otherwise
be exempt for being owned or originated by the servicer. Although the
Bureau believes the servicing rules provide important protections for
consumers, the Bureau is concerned that these protections may not
outweigh the potential for increased costs to consumers served by
depository institutions that qualify for the small servicer exemption.
The Bureau has narrowly tailored the proposed amendment to the
voluntarily serviced exception. The Bureau believes that continuing to
limit the voluntarily serviced exception to mortgage loans voluntarily
serviced by a servicer and for which the servicer does not receive any
compensation or fees reduces the risk that the proposed amendment to
Sec. 1026.41(e)(4)(iii)(A) will be used to circumvent the servicing
rules. The Bureau also believes that removing the requirement that the
non-affiliate be a creditor or assignee does not unduly expand the
existing exception. Rather, the Bureau believes that the rationale for
the exception applies equally well to those non-affiliates who seller-
finance sales of residential real estate and do not meet the definition
of creditor under Sec. 1026.2(a)(17) because they extend five or fewer
mortgage loans in a year. The Bureau seeks comment on whether amending
the voluntarily serviced exception to exclude from consideration
mortgage loans voluntarily serviced by the servicer for a non-
affiliate, without requiring that the non-affiliate be a creditor or
assignee, is appropriate. The Bureau also seeks comment on whether it
should grandfather existing mortgage loans voluntarily serviced by the
servicer for a servicer's non-affiliate, which is not a creditor or
assignee, and for which the servicer does not receive any compensation
or fees.
Legal Authority
The Bureau is proposing to amend the voluntarily serviced exception
under current Sec. 1026.41(e)(4)(iii)(A) and exempt mortgage loans
voluntarily serviced by a servicer for a non-affiliate of the servicer
and for which the servicer does not receive any compensation or fees
from the periodic statement requirement under section 128(f) of TILA
pursuant to its authority under section 105(a) and (f) of TILA and
section 1405(b) of the Dodd-Frank Act.
For the reasons discussed above, the Bureau believes that the
proposed amendment is necessary and proper under section 105(a) of TILA
to facilitate TILA compliance. As discussed above, the Bureau believes
that if a depository institution that would otherwise qualify for the
small servicer exemption voluntarily services a transaction for a non-
affiliate that does not meet the definition of creditor or assignee, it
would likely no longer qualify for the small servicer exemption.
Accordingly, the current rule may result in depository institutions
that would otherwise qualify for the small servicer exemption being
unable to provide high-contact servicing or to comply with other
applicable regulatory requirements due to the costs that would be
imposed to comply with all of the servicing rules
[[Page 74244]]
for all of the mortgage loans they service, including those mortgage
loans that would otherwise be exempt for being owned or originated by
the servicer. Accordingly, the Bureau believes that the proposal to
amend the voluntarily serviced exception to no longer require that the
non-affiliate be a creditor or assignee facilitates compliance with
TILA by allowing depository institutions to voluntarily service seller-
financed sales of residential real estate, without losing status as a
small servicer, in order to cost-effectively service loans in
compliance with applicable regulatory requirements.
In addition, consistent with section 105(f) of TILA and in light of
the factors in that provision, for servicers that voluntarily service
mortgage loans for a non-affiliate and for which the servicer does not
receive any compensation or fees, the Bureau believes that requiring
them to comply with the periodic statement requirement in section
128(f) of TILA would not provide a meaningful benefit to consumers in
the form of useful information or protection. The Bureau believes, as
noted above, that requiring provision of periodic statements would
impose significant costs and burden. Specifically, the Bureau believes
that the proposal will not complicate, hinder, or make more expensive
the credit process. In addition, consistent with section 1405(b) of the
Dodd-Frank Act, for the reasons discussed above, the Bureau believes
that exempting transactions voluntarily serviced by a servicer for a
non-affiliate, without requiring the non-affiliate to be a creditor or
assignee, from the requirements of section 128(f) of TILA would be in
the interest of consumers and in the public interest.
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 the
proposed rule is necessary and appropriate to carry out the purpose
under section 1021(a) of the Dodd-Frank Act of ensuring that all
consumers have access to markets for consumer financial products and
services that 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.
41(e)(4)(iii)(D)
The Bureau is proposing to amend certain criteria for determining
whether a servicer qualifies for the small servicer exemption set forth
under Sec. 1026.41(e)(4). The proposal adds a new category of
transactions that would not be considered in determining whether a
servicer qualifies as a small servicer. Specifically, the proposal
excludes transactions serviced by the servicer for a seller financer
that meet all of the criteria identified in Sec. 1026.36(a)(5).
As explained in the section-by-section analysis of Sec.
1026.41(e)(4)(iii)(A), the Bureau's Mortgage Servicing Rules exempt
small servicers from certain mortgage servicing requirements. In May
2013, along with other proposed amendments to Regulations X and Z, the
Bureau proposed the exclusion for voluntarily serviced mortgage loans
and requested comment on whether other mortgage loans serviced through
similar limited arrangements should not be considered in determining
whether a servicer is a small servicer.\224\ The Bureau did not receive
comments recommending that any other servicing arrangements be excluded
from consideration for purposes of determining small servicer status.
The Bureau received one comment from a national trade association
requesting guidance regarding certain depository services some of its
bank members provide for depositors who ``owner-finance'' the sale of
residential real estate. The Bureau determined in the July 2013
Mortgage Final Rule that the comment was outside the scope of the
proposal and that the commenter did not provide sufficient information
about the service described for the Bureau to be able to provide
guidance at that time.\225\
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\224\ 78 FR 25638, 25644 (May 2, 2013).
\225\ 78 FR 44685, 44697-98 (July 24, 2013).
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Since that time, the Bureau has learned more about the depository
service described in the national trade association's comments.
Specifically, the Bureau understands that certain depository
institutions that may otherwise qualify for the small servicer
exemption service, for a fee, seller-financed sales of residential real
estate for their depository customers. However, because the depository
institution is neither the creditor nor the assignee, the depository
institution that engages in this practice likely would not qualify for
the small servicer exemption because it is servicing, for a fee, a
mortgage loan it does not own or did not originate.\226\
---------------------------------------------------------------------------
\226\ The Bureau further understands that, in some cases, the
depository institution provides periodic payment receipts as well as
annual tax reporting (for example, Internal Revenue Service Form
1098) and may assess late fees to the purchaser when the payment is
late.
---------------------------------------------------------------------------
As explained in the section-by-section analysis of Sec.
1026.41(e)(4)(iii)(A), the Bureau understands that certain depository
institutions engage in this practice to provide their depository
customers this service when, particularly in small or remote
communities, there may not be an alternative service provider in the
state. The Bureau believes that such seller-financed sales of
residential real estate generally are limited and not widespread. The
Bureau further understands that purchasers of seller-financed
residential real estate, who may be unable to secure credit through
traditional means, may benefit from a depository institution receiving
their scheduled periodic payments and providing an independent
accounting as a third party to the transaction. The Bureau believes
that the Dodd-Frank Act and Mortgage Servicing Rules were intended to
address systemic problems in the mortgage servicing industry and may
not have contemplated the practice described here. For the reasons
discussed in this section, the Bureau believes that, to the extent
servicing cost savings are passed on to consumers, it may be beneficial
to consumers for a depository institution that otherwise qualifies for
the small servicer exemption to be able to service transactions for a
seller financer that meet all of the criteria identified in Sec.
1026.36(a)(5), without losing its small servicer status, and that these
benefits may outweigh the consumer protections provided by the
servicing rules.
Accordingly, the Bureau is proposing to add a new category of
transactions that would not be considered in determining whether a
servicer qualifies as a small servicer for transactions serviced by the
servicer for a seller financer. Specifically, proposed Sec.
1026.41(e)(4)(iii)(D) provides that transactions serviced by the
servicer for a seller financer that meet all of the criteria identified
in Sec. 1026.36(a)(5) are not considered in determining whether a
servicer qualifies as a small servicer. Section 1026.36(a)(5)
identifies a seller financer as a natural person, estate, or trust that
provides seller financing for the sale of only one property in any 12-
month period to purchasers of such property, which is owned by the
natural person, estate, or trust and serves as
[[Page 74245]]
security for the financing.\227\ The natural person, estate, or trust
cannot have constructed, or acted as a contractor for the construction
of, a residence on the property in its ordinary course of
business.\228\ The financing must have a repayment schedule that does
not result in negative amortization and must have a fixed rate or an
adjustable rate that is adjustable after five or more years, subject to
reasonable annual and lifetime limitations on interest rate increases.
If the financing agreement has an adjustable rate, the rate is
determined by the addition of a margin to an index rate and is subject
to reasonable rate adjustment limitations. The index the adjustable
rate is based on is a widely available index such as indices for U.S.
Treasury securities or the London Interbank Offered Rate (LIBOR).\229\
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\227\ 12 CFR 1026.36(a)(5)(i).
\228\ 12 CFR 1026.36(a)(5)(ii).
\229\ 12 CFR 1026.36(a)(5)(iii).
---------------------------------------------------------------------------
The Bureau has narrowly tailored the proposed new category of
transactions that are not considered in determining whether a servicer
qualifies as a small servicer. For example, the proposal relates only
to transactions serviced by the servicer for a seller financer that
meet all of the criteria identified in Sec. 1026.36(a)(5). In contrast
to the seller financer criteria identified in Sec. 1026.36(a)(4),
which permits seller financing for the sale of up to three properties
in any 12-month period, the seller financer criteria identified in
Sec. 1026.36(a)(5) permits seller financing for the sale of only one
property in any 12-month period. The Bureau believes that limiting the
seller financer criteria to the sale of only one property in any 12-
month period reduces the risk that this proposed new category of
transactions not considered in determining whether a servicer qualifies
as a small servicer will be used to circumvent the servicing rules.
Under the existing rule, a servicer qualifies for the small
servicer exemption if it services, together with any affiliates, 5,000
or fewer mortgage loans, for all of which the servicer (or an
affiliate) is the creditor or assignee. Because seller-financed
transactions are not typically structured to meet this definition, a
depository institution that services, for a fee, even a single seller-
financed transaction likely would not qualify as a small servicer under
the current rule. The Bureau is proposing to add a new category of
transactions that would be excluded from consideration in determining
whether a servicer qualifies as a small servicer to permit a depository
institution that would otherwise qualify for the small servicer
exemption to enter into servicing arrangements for seller-financed
transactions without losing its small servicer status. The Bureau
understands that, in some cases, the seller financer is not a
``creditor'' under the relevant definition\230\ and that such seller-
financed transactions are therefore not federally related mortgage
loans, and likely would not be subject to Regulation X.\231\ The Bureau
is concerned that if a depository institution that would otherwise
qualify for the small servicer exemption services even a single seller-
financed transaction, it would be subject to all of the servicing rules
for all of the mortgage loans that it services, including those that
would otherwise be exempt for being owned or originated by the
servicer. Although the Bureau believes that the servicing rules provide
important protections for consumers, the Bureau is concerned that these
protections may not outweigh the potential for increased costs to
consumers served by depository institutions that would otherwise
qualify for the small servicer exemption.
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\230\ 12 CFR 1024.2(b) (definition of federally related mortgage
loan requires that the loan be made in whole or in part by a
creditor, as defined in 15 U.S.C. 1602(g), that makes or invests in
residential real estate loans aggregating more than $1,000,000 per
year).
\231\ 12 CFR 1024.5(a).
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The Bureau seeks comment on whether excluding transactions serviced
by a servicer for a seller financer that meet all of the criteria
identified in Sec. 1026.36(a)(5) in determining small servicer status
is appropriate. The Bureau also seeks comment on whether it should
grandfather existing transactions serviced by a servicer for a seller
financer that meet all of the criteria identified in Sec.
1026.36(a)(5).
Legal Authority
The Bureau is proposing to exempt transactions serviced by a
servicer for a seller financer that meet all of the criteria identified
in Sec. 1026.36(a)(5) from the periodic statement requirement under
section 128(f) of TILA pursuant to its authority under section 105(a)
and (f) of TILA and section 1405(b) of the Dodd-Frank Act.
For the reasons discussed above, the Bureau believes that the
proposed exemption is necessary and proper under section 105(a) of TILA
to facilitate TILA compliance. As discussed above, the Bureau believes
that if a depository institution that would otherwise qualify for the
small servicer exemption services a transaction for a seller financer,
it would likely no longer qualify for the small servicer exemption.
Accordingly, the current rule may result in depository institutions
that would otherwise qualify for the small servicer exemption being
unable to provide high-contact servicing or to comply with other
applicable regulatory requirements due to the costs that would be
imposed to comply with all of the servicing rules for all of the
mortgage loans they service, including those mortgage loans that would
otherwise be exempt for being owned or originated by the servicer.
Accordingly, the Bureau believes that the proposal to exempt
transactions serviced by a servicer for a seller financer that meet all
of the criteria identified in Sec. 1026.36(a)(5) facilitates
compliance with TILA by allowing depository institutions to service
seller-financed transactions, without losing status as a small
servicer, in order to cost-effectively service loans in compliance with
applicable regulatory requirements.
In addition, consistent with section 105(f) of TILA and in light of
the factors in that provision, for small servicers that service
transactions for a seller financer that meet all of the criteria
identified in Sec. 1026.36(a)(5), the Bureau believes that requiring
them to comply with the periodic statement requirement in section
128(f) of TILA would not provide a meaningful benefit to consumers in
the form of useful information or protection. The Bureau believes, as
noted above, that requiring provision of periodic statements would
impose significant costs and burden. Specifically, the Bureau believes
that the proposal will not complicate, hinder, or make more expensive
the credit process. In addition, consistent with section 1405(b) of the
Dodd-Frank Act, for the reasons discussed above, the Bureau believes
that exempting transactions serviced by a servicer for a seller
financer that meet all of the criteria identified in Sec.
1026.36(a)(5) from the requirements of section 128(f) of TILA would be
in the interest of consumers and in the public interest.
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 the
proposed rule is necessary and appropriate to carry out the purpose
under section 1021(a) of the Dodd-Frank Act of ensuring that all
consumers have access to markets for consumer financial products and
services that are fair,
[[Page 74246]]
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.
41(e)(5) Certain Consumers in Bankruptcy
The Bureau is proposing to revise Sec. 1026.41(e)(5) to limit the
circumstances in which a servicer is exempt from the periodic statement
requirements with respect to a consumer who is a debtor in bankruptcy.
Current Sec. 1026.41(e)(5) provides that a servicer is exempt from the
requirement to provide periodic statements for a mortgage loan while
the consumer is a debtor in bankruptcy. Comment 41(e)(5)-3 states that
if there are multiple obligors on the mortgage loan, the exemption
applies if any of the obligors is in bankruptcy, and comment 41(e)(5)-
2.ii explains that a servicer has no obligation to resume providing
periodic statements with respect to any portion of the mortgage debt
that is discharged in bankruptcy. In general, the proposed revisions to
Sec. 1026.41(e)(5) limit the exemption to consumers in bankruptcy who
are surrendering the property or avoiding the lien securing the
mortgage loan and to consumers who have requested that a servicer cease
providing periodic statements (or coupon books, as applicable). In
cases where a mortgage loan has multiple obligors and not all of them
are in bankruptcy, the exemption would apply to a non-bankrupt obligor
only when (i) one of the obligors is in Chapter 12 or Chapter 13
bankruptcy, and (ii) the non-bankrupt obligor requests that a servicer
cease providing periodic statements or coupon books.
Specifically, proposed Sec. 1026.41(e)(5)(i) limits the exemption
to when two conditions are satisfied. First, the consumer must be a
debtor in a bankruptcy case, must have discharged personal liability
for the mortgage loan through bankruptcy, or must be a primary obligor
on a mortgage loan for which another primary obligor is a debtor in a
Chapter 12 or Chapter 13 bankruptcy case. Second, one of the following
circumstances must apply: (1) The consumer requests in writing that the
servicer cease providing periodic statements or coupon books; (2) the
consumer's confirmed plan of reorganization provides that the consumer
will surrender the property securing the mortgage loan, provides for
the avoidance of the lien securing the mortgage loan, or otherwise does
not provide for, as applicable, the payment of pre-bankruptcy
arrearages or the maintenance of payments due under the mortgage loan;
(3) a court enters an order in the consumer's bankruptcy case providing
for the avoidance of the lien securing the mortgage loan, lifting the
automatic stay pursuant to 11 U.S.C. 362 with respect to the property
securing the mortgage loan, or requiring the servicer to cease
providing periodic statements or coupon books; or (4) the consumer
files with the bankruptcy court a Statement of Intention pursuant to 11
U.S.C. 521(a) identifying an intent to surrender the property securing
the mortgage loan.
The proposal also provides that the exemption terminates and a
servicer must resume providing periodic statements or coupon books in
two general circumstances. First, notwithstanding meeting the above
conditions for an exemption, the proposal requires servicers to provide
periodic statements or coupon books if the consumer requests them in
writing (unless a court has entered an order requiring otherwise).
Second, with respect to any portion of the mortgage debt that is not
discharged through bankruptcy, a servicer must resume providing
periodic statements or coupon books within a reasonably prompt time
after the next payment due date that follows the earliest of the
following outcomes in either the consumer's or the joint obligor's
bankruptcy case, as applicable: the case is dismissed, the case is
closed, the consumer reaffirms the mortgage loan under 11 U.S.C. 524,
or the consumer receives a discharge under 11 U.S.C. 727, 1141, 1228,
or 1328.
Section 1420 of the Dodd-Frank Act amended section 128(f) of TILA
to require periodic statements for residential mortgage loans. On
January 17, 2013, the Bureau issued the 2013 TILA Servicing Final Rule
implementing the periodic statement requirements and related exemptions
in Sec. 1026.41. (In certain circumstances, servicers may provide
borrowers with a coupon book in place of periodic statements.) In the
preamble to the final rule, the Bureau acknowledged industry's concern
that the Bankruptcy Code's automatic stay prevents attempts to collect
a debt from a consumer in bankruptcy, but the Bureau explained that it
did not believe the Bankruptcy Code would prevent a servicer from
sending a consumer a statement on the status of the mortgage loan.\232\
The Bureau further explained that the final rule allowed servicers to
make changes to the periodic statement that they believe are necessary
when a consumer is in bankruptcy, such as including a message about the
bankruptcy and presenting the amount due to reflect payment obligations
determined by the individual bankruptcy proceeding.\233\
---------------------------------------------------------------------------
\232\ 78 FR 10901, 10966 (Feb. 14, 2013).
\233\ Id. at 10966 n.125.
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After publication of the final rule, industry stakeholders
expressed more detailed concerns about the requirement to provide
periodic statements to consumers under bankruptcy protection. Industry
commenters expressed continued concerns about potential conflicts with
bankruptcy law and many indicated that the periodic statement would
need to be redesigned for consumers in bankruptcy. The Bureau received
numerous inquiries and requests for clarification regarding how to
reconcile the periodic statement requirement with various bankruptcy
law requirements. Industry stakeholders expressed concern that
bankruptcy courts, under certain circumstances, may find that a
periodic statement violates the automatic stay or discharge injunction,
even if a disclaimer were included. They requested guidance regarding
whether and how servicers could permit consumers to opt-out of
receiving statements. Bankruptcy trustees raised similar concerns and
explained that sending a periodic statement that fails to recognize the
unique character of Chapter 13's treatment of a mortgage in default
arguably violates the Bankruptcy Code's automatic stay. Servicers and
trustees further questioned how periodic statements could be adapted to
the specific circumstances that may arise depending on the type of
bankruptcy proceeding (i.e., liquidation under Chapter 7, or
reorganization under Chapter 11, Chapter 12, or Chapter 13).
Based on these inquiries, the Bureau determined that the
interaction of bankruptcy law and the periodic statement requirement
necessitated further study and that there was insufficient time before
the rule's January 10, 2014 effective date to provide further
calibration of the requirements. Accordingly, the Bureau issued the
October 2013 IFR, which added current Sec. 1026.41(e)(5) to exempt
servicers from the periodic statement requirement with respect to
consumers in bankruptcy.\234\ The Bureau explained in commentary that
the exemption in Sec. 1024.41(e)(5) applies with respect to any person
sharing primary liability on a mortgage loan with a debtor in
bankruptcy,\235\ and that a servicer has no obligation to resume
compliance
[[Page 74247]]
with Sec. 1024.41 with respect to any portion of a mortgage loan that
is discharged under applicable provisions of the Bankruptcy Code.\236\
---------------------------------------------------------------------------
\234\ 78 FR 62993, 63000-02 (Oct. 23, 2013).
\235\ Comment 41(e)(5)-3.
\236\ Comment 41(e)(5)-2.ii.
---------------------------------------------------------------------------
In issuing the IFR, the Bureau did not take a position as to
whether providing periodic statements to a consumer in bankruptcy
violates the automatic stay or discharge injunction. The Bureau also
did not discourage servicers that send tailored periodic statements to
consumers in bankruptcy from continuing to do so. The Bureau further
expressed its belief that some consumers facing the complexities of
bankruptcy may benefit from receiving a periodic statement, tailored to
their circumstances.\237\
---------------------------------------------------------------------------
\237\ 78 FR 62993, 63001 (Oct. 23, 2013).
---------------------------------------------------------------------------
In the IFR, the Bureau stated that it would continue to examine
this issue and might reinstate the requirement to provide a consumer in
bankruptcy with a periodic statement. However, the Bureau explained
that it would not reinstate any such requirement without notice and
comment rulemaking and an appropriate implementation period. The Bureau
solicited comment on the scope of the exemption, when a servicer
qualifies for the exemption and when it must resume sending statements,
and how the content of the periodic statement might be tailored to meet
the particular needs of consumers in bankruptcy.\238\
---------------------------------------------------------------------------
\238\ Id. at 63002.
---------------------------------------------------------------------------
Since issuing the IFR, the Bureau has continued to engage various
stakeholders on the scope of this exemption, including hosting the
roundtable discussion on June 16, 2014, among representatives of
consumer advocacy groups, bankruptcy attorneys, servicers, trade
groups, bankruptcy trustees, and the U.S. Trustee's Office. The Bureau
has also sought comment from bankruptcy judges and experts and
conducted its own further analysis of the intersection of the periodic
statement requirement and bankruptcy law.\239\
---------------------------------------------------------------------------
\239\ Written or oral presentations to the Bureau imparting
information or argument directed to the merits or outcome of the IFR
were subject to the Bureau's policy on ex parte presentations. See
CFPB Bulletin 11-3.
---------------------------------------------------------------------------
Based upon its review of the comments received and its study of the
intersection of the periodic statement requirements and bankruptcy law,
the Bureau believes it may be appropriate to reinstate the periodic
statement requirements with respect to consumers in bankruptcy under
certain circumstances. The Bureau is proposing to do so in the present
rulemaking because, as noted in the IFR, the Bureau believes that it
would be preferable to use notice and comment rulemaking, rather than
simply finalizing the IFR with modifications, to reinstate the periodic
statement requirements with respect to such consumers. The Bureau
believes that this approach will provide stakeholders the opportunity
to more fully consider and comment on the Bureau's specific proposal.
The Bureau also believes that it is appropriate to address comments it
already received in response to the IFR. Accordingly, the following
discussion of the proposal with respect to the periodic statement
requirements also contains discussion of the comments received on the
IFR, as well comments received after the IFR's official comment period
ended.
Comments on the Scope of the Exemption
Comments on the scope of the exemption addressed two broad issues:
(1) whether to maintain the current exemption; and (2) if a more
limited exemption is appropriate, under what circumstances should a
consumer in bankruptcy receive periodic statements.
On the first issue, several servicers and trade groups requested
that the Bureau maintain the exemption without any adjustments. Some
trade groups argued that the exemption provides a clear rule to
servicers that periodic statements are not required for consumers in
bankruptcy, whereas the original 2013 TILA Servicing Final Rule was
unclear about the information periodic statements should contain and
when it may be permissible to not provide periodic statements to a
consumer in bankruptcy. These trade groups also commented that the
amount due and other disclosures mandated by Sec. 1026.41 could be
confusing to consumers who are making payments according to a
bankruptcy plan. During the bankruptcy roundtable discussion, a credit
union and a community bank stated that their systems are not equipped
to produce periodic statements that reflect Chapter 13's unique
accounting practices and that tracking payments in a Chapter 13 case
requires a significant amount of time and effort. These participants
maintained that the cost of upgrading their systems outweighed any
benefit to the relatively few bankrupt consumers in their portfolios.
The credit union suggested that, at a minimum, the Bureau adopt a
modified exemption from any future periodic statement requirement for
entities with a limited number of consumers in bankruptcy or a limited
percentage of their mortgage loans subject to bankruptcy proceedings.
Consumer advocacy groups strongly objected to the exemptions set
forth in the IFR. They argued that consumers in bankruptcy need
information about their mortgage loan accounts in order to make timely
payments, determine whether the servicer correctly calculated and
applied payments, and object to any account errors. The consumer
advocacy groups stated that, in the past, such consumers have suffered
improper fees and charges because servicers have avoided implementing
protocols to account for payments made during bankruptcy. Moreover, the
consumer advocacy groups argued that servicers' concerns that providing
periodic statements would violate the automatic stay are exaggerated
because court decisions finding stay violations have generally involved
extreme facts--for example, servicers overtly attempting to collect
payments outside of the bankruptcy process or ignoring a consumer's
request to cease receiving statements.
An association of Chapter 13 trustees commented that periodic
statements are necessary in Chapter 13 cases to determine whether
servicers are correctly applying payments. The trustees echoed the
consumer advocacy groups' concerns that servicers have not established
systems to properly track and apply payments and that consumers are
often subject to erroneous fees and charges. They argued that requiring
servicers to disclose bankruptcy accounting practices would likely
force servicers to improve their practices.
A bankruptcy law professor commented that in light of consumers' in
bankruptcy demonstrated difficulty in paying their debts, such
consumers need periodic statements to remind them of their payment
obligations and that depriving them of statements is antithetical to
bankruptcy's purpose of financial rehabilitation. One bankruptcy judge
commented that requiring periodic statements in Chapter 13 cases may
force servicers to improve their systems and more accurately apply
consumer payments. Another bankruptcy judge suggested that, in lieu of
monthly statements, the Bureau could require servicers to send initial
notices acknowledging a consumer's bankruptcy case and identifying the
monthly payment amount, followed by semi-annual or annual statements
disclosing how the servicer has applied payments and the amount of
outstanding fees.
Several servicers and trade groups, while supporting a temporary
exemption, commented that a narrower exemption would be appropriate
depending on whether the consumer
[[Page 74248]]
intends to retain the property, as discussed more below.
The Bureau also received comments regarding which consumers should
receive periodic statements if the exemption did not apply to all
consumers in bankruptcy. Commenters were generally in agreement that
periodic statements would be appropriate for some consumers but not
others. Some industry commenters drew a distinction between consumers
who intend to retain their property and those who intend to surrender
it or cease making payments on the mortgage loan. Specifically, these
commenters took the position that periodic statements are not
appropriate when a consumer intends to surrender the property or avoid
(i.e., render unenforceable) the lien securing the mortgage loan, when
a consumer requests that a servicer cease providing periodic
statements, when a court order or local rule prohibits providing
statements, or after a court enters an order lifting the automatic stay
to permit a servicer to pursue foreclosure. However, these commenters
suggested that consumers in Chapter 11, Chapter 12, and Chapter 13
bankruptcy should receive statements when the plan of reorganization
provides that the consumer will retain the property and continue making
payments on the mortgage loan. In cases where a consumer retains the
property, commenters noted, the consumer can benefit from information
about the payments they must make to keep the property. Similarly,
certain industry commenters suggested that consumers in Chapter 7
bankruptcy should receive statements if they file a Statement of
Intention with the bankruptcy court stating that they intend to retain
the property.
With some distinctions discussed below, consumer advocacy groups
and trustees agreed that it may be appropriate to distinguish between
consumers retaining the property and those surrendering it through
bankruptcy. However, consumer advocacy groups also argued that comments
41(e)(5)-2.ii and 3 are unnecessarily broad in stating that the
exemption applies to all joint obligors of a consumer in bankruptcy and
that servicers have no obligation to resume providing periodic
statements with respect to any portion of a mortgage loan that is
discharged in bankruptcy. These groups maintained that joint obligors
and consumers who have discharged a mortgage loan should be able to
receive periodic statements in appropriate circumstances.
Despite general agreement on when periodic statements may be
appropriate, commenters disagreed on three points. First, they
disagreed on whether Chapter 7 consumers should be required to opt-in
to receive periodic statements. Consumer advocacy groups argued that,
as a default rule, a consumer in Chapter 7 bankruptcy should receive
periodic statements. A law professor and bankruptcy judge generally
agreed with this approach. On the other hand, servicers and trade
groups favored an opt-in method, in which consumers would receive
periodic statements only if their Statement of Intention filed with the
court pursuant to 11 U.S.C. 521(a) identified an intent to retain the
property or if they otherwise affirmatively requested statements. One
servicer added that bankruptcy courts might not agree that checking the
box to retain property on the Statement of Intention suffices as an
affirmative request to receive periodic statements and that a court
might therefore view the statement as an unwanted collection attempt.
Second, two trade groups initially maintained that periodic
statements are unnecessary when a consumer is making all payments on
the mortgage loan through a Chapter 13 trustee (and not directly to the
servicer), though one of the groups stated in subsequent comments that
all consumers in Chapter 13 should receive statements. Chapter 13
trustees strenuously argued that statements are necessary in all cases
to determine whether servicers are correctly applying plan payments.
Several servicers took the position that there should be a uniform
approach in all Chapter 13 cases so that servicers do not have to
implement different protocols depending on the procedures governing a
particular Chapter 13 case.
Third, commenters were divided on whether a trustee overseeing a
consumer's Chapter 13 case should receive periodic statements.
Bankruptcy trustees argued that a trustee's access to periodic
statements is vital because it would enable the trustee to monitor how
servicers are applying payments and engage servicers to correct payment
application errors early on. Some trustees suggested that servicers be
required to provide statements upon a trustee's request. Similarly, a
law professor commented that there are compelling reasons to provide
statements to trustees, particularly in those cases where a consumer is
required to send periodic payments to a trustee and the trustee acts as
a disbursing agent by remitting the payments to the servicer.
Industry participants objected on several grounds to providing
statements to trustees. First, they maintained that trustees do not
need statements because they receive all the information they need
pursuant to the Federal Rules of Bankruptcy Procedure. Two trade groups
argued that in the event that a trustee needs a periodic statement
during the bankruptcy case, a trustee may simply request a copy from
the consumer. Second, industry participants objected to the burden
imposed by providing additional statements to trustees, either on a
regular or as- needed basis. Finally, industry participants argued that
privacy concerns are implicated by sending statements to a trustee who
is not a fiduciary of the consumer. For example, some servicers that
are also banks use combined statements that provide information not
only related to the mortgage loan, but also related to other accounts a
consumer has with the bank. Industry participants argued that, in those
circumstances, the bank would need to redact the information pertaining
to the consumer's other accounts, leading to further burden and costs
to produce the statements.
Benefits to Consumers in Bankruptcy of Receiving Periodic Statements
Based upon the comments outlined above, continued outreach and
monitoring efforts, and further analysis, the Bureau believes that
certain consumers in bankruptcy will benefit from receiving periodic
statements (or coupon books, in the case of servicers that provide them
instead of periodic statements under Sec. 1026.41(e)(3)). Since the
January 10, 2014 effective date, the Bureau has received complaints
from consumers who are debtors in bankruptcy and have requested to
receive periodic statements or other written information regarding
upcoming payments, but have had their requests denied by servicers.
Consumers have complained that, as a result, they may inadvertently
fall behind on payments or at a minimum lack basic information about
the status of their loans. Case law indicates that bankruptcy courts
have heard similar complaints and that consumers are often frustrated
by the lack of payment information provided to them.\240\ To that end,
the Bureau
[[Page 74249]]
understands that nearly 30 bankruptcy courts have adopted local rules
permitting or requiring servicers to provide periodic statements or
coupon books under certain circumstances.\241\
---------------------------------------------------------------------------
\240\ See, e.g., Henry v. Assocs. Home Equity Servs., Inc. (In
re Henry), 266 B.R. 457, 471 (Bankr. C.D. Cal. 2001) (``A secured
creditor should be encouraged to send out payment coupons, envelopes
and periodic statements if a debtor has filed a statement that the
debtor plans to keep property subject to secured debt and to make
payments. Debtors frequently complain to the court that they want to
make their payments, but their creditors do not cooperate by
providing payment coupons.''); In re Freeman, 352 B.R. 628 (Bankr.
N.D. W. Va. 2006) (overruling creditor's objection to the debtor's
request for periodic statements that were normally required by State
law); cf. Payne v. Mortg. Elec. Registration Sys., Inc. (In re
Payne), 387 B.R. 614, 626 (Bankr. D. Kan. 2008) (``[The servicer]'s
representative testified [that the servicer] does not send payments
books to mortgagors in bankruptcy because [the servicer] cannot
present a true and accurate accounting of the loan payments [the
servicer] is receiving from the Trustee as opposed to debtors'
payments history.'').
\241\ See, e.g., LBR 4001-2, Bankr. M.D. Ala.; LBR 4072-1,
Bankr. N.D. Ala.; Model Chapter 13 Plan, Bankr. S.D. Ala.; Bankr. D.
Colo. LBR 4001-4; Bankr. S.D. Ill. Model Chapter 13 Plan; Bankr.
E.D. La. General Order 2012-1 (adopting model Chapter 13 plan);
Bankr. D. Md. L.R. 4001-5; Bankr. D. Mass. L.R. 4001-3; Bankr. E.D.
Mich. Model Chapter 13 Plan; Bankr. E.D. Mo. L.R. 3021; Bankr. W.D.
Mo. L.R. 4001-4; Mont. LBR 4001-3; D. Kan. Bk. S.O. 08-4; District
of New Jersey Local Bankruptcy Rules, D.N.J LBR 4001-3; Bankr.
N.D.N.Y. Model Chapter 13 Plan; E.D.N.C. LBR 4001-2; Bankr. M.D.N.C
Standing Order, In re Terms and Provisions Available for
Incorporation into Chapter 13 Confirmation Orders; W.D.N.C. LBR
4001-1; Bankr. D.N.H. L. Form 3015-1A, Model Chapter 13 Plan; Bankr.
N.D. Ohio Admin. Order 13-02, In re Form Chapter 13 Plan; Bankr. D.
Or. L.R. 3015-1; R.I. LBR 4001-1; SC LBR 3015-1 (adopting model
Chapter 13 plan); Bankr. N.D. TX General Order 2010-1, In re Amended
Standing Order Concerning All Chapter 13 Cases; Bankr. S.D. TX
Uniform Plan and Motion for Valuation of Collateral; Bankr. W.D. TX
(Austin Div.), Consolidated Standing Order for Chapter 13 Case
Administration for Austin Division (adopting model Chapter 13 plan);
Bankr. W.D. TX (San Antonio Div.), Model Chapter 13 Plan; Vt. LBR
3071-1; Bankr. W.D. Wash. L. Form 13-4; Bankr. E.D. Wis. Model
Chapter 13 Plan.
---------------------------------------------------------------------------
The Bureau does not believe that a consumer's status in bankruptcy
should act as a bar to receiving fundamental information about the
mortgage loan account. The Bureau believes that, like all consumers,
those in bankruptcy may benefit from information regarding the
application of their payments to principal, interest, escrow, and fees.
As the Bureau noted in the 2013 TILA Servicing Final Rule, the
explanation of amount due, transaction activity, and past payment
breakdown give consumers the information they need to identify possible
errors on the account and enable consumers to understand the costs of
their mortgage loan.\242\
---------------------------------------------------------------------------
\242\ 78 FR 10901, 10964-67 (Feb. 14, 2013).
---------------------------------------------------------------------------
The Bureau understands that in the absence of a requirement that
servicers provide periodic statements, however, consumers in bankruptcy
often lack such crucial information about their mortgage loan account.
The Bureau understands that, for example, consumers in Chapter 7
bankruptcy or those who have discharged personal liability for a
mortgage loan often do not receive written information regarding their
mortgage payments. This lack of information is particularly troubling
for consumers in Chapter 7 bankruptcy who use the so-called ``ride-
through'' option--that is, consumers who discharge personal liability
for the mortgage loan through bankruptcy but continue making mortgage
payments to forestall foreclosure, which enables them to remain in
their home. In that instance, the lien is unaffected by bankruptcy,
such that a consumer's post-bankruptcy failure to stay current on the
mortgage would enable a servicer to foreclose on the property, but the
servicer could not pursue collection efforts or a deficiency judgment
against the consumer personally.\243\ The Bureau understands that in
many cases, using this option may be a strategic decision by a consumer
to avoid a future deficiency judgment, but that, in some instances,
courts will not permit consumers to reaffirm a mortgage loan, forcing
them to use the ride-through option despite a willingness to reaffirm.
Because the ride-through option discharges a consumer's personal
liability, current Sec. 1026.41(e)(5) exempts a servicer from
providing periodic statements for the life of the mortgage loan--even
if the maturity date is years away. The Bureau does not believe that
this is an optimal result for consumers, nor is it the result Congress
may have intended when it amended the Bankruptcy Code in 2005 to
expressly provide that a mortgage creditor does not violate the
discharge injunction by seeking to obtain periodic payments on a
discharged mortgage loan in the ordinary course of its relationship
with a debtor in lieu of pursuing foreclosure.\244\ In light of a
Bankruptcy Code provision apparently contemplating that consumers will
use the ride-through option with respect to their principal
residence,\245\ as well as the fact that in some circumstances courts
will not permit a consumer to reaffirm a mortgage loan, the Bureau
believes that consumers who continue making payments after discharging
a mortgage loan should not be denied periodic statements or coupon
books. The Bureau therefore declines to follow the suggestion that
periodic statements or coupon books be conditioned on a consumer
reaffirming the mortgage loan.
---------------------------------------------------------------------------
\243\ See Henry, 266 B.R. at 476 (discussing the ride-through
option and disagreement among courts as to whether the Bankruptcy
Code permits it); In re Covel, 474 B.R. 702, 708 (Bankr. W.D. Ark.
2012) (holding that Congress eliminated the ride-through option for
personal property in 2005, but ``[b]y not making corresponding
changes concerning real property, Congress appears to tacitly
recognize a ride through option for real property.''); Kibler v. WFS
Fin., Inc. (In re Kibler), No. 00-2604, 2001 WL 388764, at *5
(Bankr. E.D. Cal. Mar. 19, 2001) (``In jurisdictions that recognize
the `ride-though' option, debtors may want to preserve their
property, yet not incur the potential personal liability imposed by
a reaffirmation agreement. These debtors . . . need to receive
normal monthly billings to avoid a contract default and potential
foreclosure.'').
\244\ 11 U.S.C. 524(j) (``Subsection (a)(2) does not operate as
an injunction against an act by a creditor that is the holder of a
secured claim, if--(1) such creditor retains a security interest in
real property that is the principal residence of the debtor; (2)
such act is in the ordinary course of business between the creditor
and the debtor; and (3) such act is limited to seeking or obtaining
periodic payments associated with a valid security interest in lieu
of pursuit of in rem relief to enforce the lien.'').
\245\ See 4 Collier on Bankruptcy ] 524.09 (Alan N. Resnick &
Henry J. Sommer eds., 16th ed. 2014) (``Section 524(j) clarifies
that when a debtor does not reaffirm a mortgage debt secured by real
estate that is the debtor's principal residence, the creditor may
continue to send statements to the debtor in the ordinary course of
business and collect payments made voluntarily by the debtor. The
provision makes clear that debtors do not have to reaffirm such
debts in order to keep paying them. In fact, it has long been the
practice that mortgage debts are not reaffirmed.'').
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The Bureau also believes that consumers in Chapter 13 would benefit
from receiving the information set forth in periodic statements or
coupon books provided under Sec. 1026.41. The Bureau understands that,
effective December 1, 2011, the Federal Rules of Bankruptcy Procedure
require servicers to disclose certain mortgage loan information to
consumers whose Chapter 13 plans provide that the consumer will cure
pre-bankruptcy arrearages and maintain regular periodic payments.\246\
Thus, a consumer with a Chapter 13 plan may receive more information
and greater protections than a consumer in a Chapter 7 case. The Bureau
understands, however, that these disclosure requirements were motivated
by pervasive and documented servicer failures to make accurate filings
or disclose fees during Chapter 13 cases.\247\
[[Page 74250]]
Consumers would often successfully make all payments required under
their Chapter 13 plan, only to find that the servicer claimed
substantial additional amounts were still owed.\248\
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\246\ Fed. R. Bankr. P. 3002.1 (requiring, among other things,
servicers to provide 21-day advance notice of a change in payment
amount and notice within 180 days after a servicer incurs a fees or
expense for which the consumer is liable, and also providing for a
reconciliation process at the end of the case to determine if a
servicer disputes whether the consumer is current on the mortgage
loan).
\247\ Fed. R. Bankr. P. 3002.1 Advisory Committee's Notes (2011)
(``[Rule 3002.1] is added to aid in the implementation of Sec.
1322(b)(5), which permits a chapter 13 debtor to cure a default and
maintain payments on a home mortgage over the course of the debtor's
plan. It applies regardless of whether the trustee or the debtor is
the disbursing agent for postpetition mortgage payments. In order to
be able to fulfill the obligations of Sec. 1322(b)(5), a debtor and
the trustee have to be informed of the exact amount needed to cure
any prepetition arrearage, see Rule 3001(c)(2), and the amount of
the postpetition payment obligations.''); In re Sheppard, No. 10-
33959-KRH, 2012 WL 1344112, at *2 (Bankr. E.D. Va. Apr. 18, 2012)
(``Bankruptcy Rule 3002.1 was adopted to resolve significant and
often hidden problems encountered by Chapter 13 debtors who utilized
Sec. 1322(b)(5) of the Bankruptcy Code to cure mortgage defaults in
their confirmed plans. While debtors could cure an arrearage on
their principal residence under Sec. 1322(b)(5), they often
incurred significant fees and other costs as a result of
postpetition defaults or from interest or escrow fluctuations under
the terms of the original loan documents. Fearful that any attempt
to address these fees and charges could be construed as a violation
of the automatic stay, many creditors would not inform debtors that
these charges had been incurred until after the Chapter 13 case was
closed. As the fees and charges were postpetition obligations not
included in the plan and thus not discharged at the conclusion of
the case, these debtors would emerge from bankruptcy only to face a
substantial and previously undisclosed arrearage. This outcome was
inconsistent with the goal of providing debtors with a fresh
start.''); In re Thongta, 480 B.R. 317, 319 (Bankr. E.D. Wis. 2012)
(similar).
\248\ See, e.g., Sheppard, 2012 WL 1344112, at *2; Thongta, 480
B.R. at 319.
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The Bureau understands from its outreach that some servicers have a
long history of misapplying payments in Chapter 13 cases and that
consumers often lack information about how servicers are applying
payments during bankruptcy. With respect to mortgage loans, Chapter 13
contains unique provisions that allow a consumer to repay pre-
bankruptcy arrearages over a reasonable period of time while also
making the regular periodic payments as they come due under the
mortgage loan.\249\ Under Chapter 13, servicers may need to adopt
special accounting practices for consumers with these ``cure and
maintain'' plans and separately track payments made on the pre-
bankruptcy arrearages and the regular periodic payments.\250\ These
accounting practices differ from a servicer's usual practice because,
so long as a consumer is timely making all the payments due under the
plan, a servicer should not treat a consumer as delinquent by, among
other things, assessing late fees.
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\249\ 11 U.S.C. 1322(b)(5).
\250\ See, e.g., Boday v. Franklin Credit Mgmt. Corp. (In re
Boday), 397 B.R. 846, 850-51 (Bankr. N.D. Ohio 2008) (``Section
1322(b)(5), by splitting a claim, means that a creditor is no longer
permitted to allocate payments according to the terms of its
contract. Instead, its effect is to require that any prepetition
arrearage claim must be paid separately, according to the terms of
the debtor's confirmed plan, based upon the creditor's allowed
claim. The remaining debt, consisting of those payments which become
due after the petition is filed, is then paid according to the terms
of the parties' contract and original loan amortization as if no
default ever existed . . . . From an accounting standpoint, this
requires that a creditor allocate a debtor's loan payments in the
following manner: First, the creditor must apply the arrearage
payments it receives during the plan's duration in accordance with
the terms of the plan, so that upon completion of the plan the
debtor is deemed current on the prepetition amortization schedule.
Second, payments received from the debtor to service those payments
which contractually accrue postpetition[] must be allocated
according to the terms of the parties' contract as if no default had
occurred.''); In re Wines, 239 B.R. 703, 708 (Bankr. D.N.J. 1999)
(``Crediting payments outside the plan to the installments due
contemporaneously according to the original schedule is the only way
to put the debtors in the same position as if default had never
occurred.''); In re Collins, No. 07-30454, 2007 WL 2116416, at *13
(Bankr. E.D. Tenn. July 19, 2007) (holding that Chapter 13 cure and
maintain plan can include provisions requiring servicer to apply
payments separately and stating that such a provision ``is not only
reasonable but required''); see also Fannie Mae, Fannie Mae Single
Family 2012 Servicing Guide, at 705-35 through 705-36 (Mar. 14,
2012), available at https://www.fanniemae.com/content/guide/svc031412.pdf (``The servicer must maintain detailed records of any
payments it receives during the confirmation process--the type of
payment (pre-petition or post-petition), the amount received, the
receipt date, the source of the payment, and the allocation of the
payment (principal, interest, late charges, etc.). The servicer
should generally hold any pre-petition payments it receives as
`unapplied' funds until an amount equal to the full monthly (or
biweekly) payment that is due under the mortgage note is available
for application to the mortgage loan balance. However, if the court
requires the payments to be applied under the terms of the repayment
plan, the servicer must apply the payments in its records as
required.'').
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Courts have detailed some servicers' failure to properly credit
payments made pursuant to Chapter 13 plans, noting that servicers'
systems and accounting practices often fail to adjust to the needs of
Chapter 13, and courts have sanctioned servicers or disallowed
fees.\251\ These difficulties were also documented in and formed the
basis of part of the National Mortgage Settlement, which required,
among other things, that the subject servicers properly account for
payments received in bankruptcy.\252\
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\251\ See, e.g., In re Jones, 366 B.R. 584, 594-98 (Bankr. E.D.
La. 2007) (sanctioning servicer that applied all amounts received to
pre- and post-petition charges, interest, and non-interest bearing
debt, resulting ``in such a tangled mess'' that neither the CPA
debtor nor the servicer could explain the accounting, and stating
that ``[i]n this Court's experience, few, if any, lenders make the
adjustments necessary to properly account for a reorganized debt
repayment plan.''); In re Hudak, No. 08-10478-SBB, 2008 WL 4850196,
at *5 (Bankr. D. Colo. Oct. 24, 2008) (``Many courts have noted that
mortgage lenders simply do not accommodate for the accounting
intricacies created by Chapter 13.''); Payne v. Mortg. Elec.
Registration Sys., Inc. (In re Payne), 387 B.R. 614, 627 (Bankr. D.
Kan. 2008) (``[The servicer] admitted their computer system does not
allow debtors who make all their payments in a timely manner to exit
bankruptcy current on their mortgage obligation.''); In re Myles,
395 B.R. 599, 606 (Bankr. M.D. La. 2008) (holding that debtors
stated claim for stay violation where creditor allegedly treated a
Chapter 13 debtor as in default due to improper payment application
and applied payments to improper fees as a result); Boday, 397 B.R.
at 850-51 (holding that creditor violated plan and Sec. 1322(b)(5)
by applying plan payments to interest rather than principal under
daily simply interest loan); In re Rathe, 114 B.R. 253, 256-57
(Bankr. D. Idaho 1990) (``[The servicer]'s accounting procedure
applied payments to the earliest payments due and not to the
payments due and owing during the pendency of the plan. The purpose
of a Chapter 13 plan is to allow a debtor to pay arrearages during
the pendency of the plan while continuing to make payments at the
contract rate. Payments made during the pendency of the Chapter 13
plan should have been applied by [the servicer] to the current
payments due and owing with the arrearage amounts to be applied to
the back payments. [The servicer] cannot utilize its accounting
procedures to contravene the terms of a confirmed Chapter 13 plan
and the Bankruptcy Code.''); In re Stewart, 391 B.R. 327 (Bankr.
E.D. La. 2008) (sanctioning servicer for misapplying payments and
noting that ``[t]he reconciliation of Debtor's account took [the
servicer] four months to research and three hearings before this
Court to explain,'' that ``[a]n account history was not produced
until two months after the filing of the Objection,'' and that
``[a]n additional two months were spent obtaining the necessary
information to explain or establish the substantial charges, costs,
and fees reflected on the account''), vacated in part, 647 F.3d 553
(5th Cir. 2011).
\252\ See, e.g., Exhibit A at 9, United States v. Bank of Am.,
(2014) (No. 12-361 (RMC), 2014 WL 1016286 (National Mortgage
Settlement)), available at https://d9klfgibkcquc.cloudfront.net/Ocwen-Consent-Judgment-Ex-A.pdf (providing that, among other things,
``[i]n active chapter 13 cases, Servicer shall ensure that: a.
prompt and proper application of payments is made on account of (a)
pre-petition arrearage amounts and (b) postpetition payment amounts
and posting thereof as of the successful consummation of the
effective confirmed plan; b. the debtor is treated as being current
so long as the debtor is making payments in accordance with the
terms of the then effective confirmed plan and any later effective
payment change notices'').
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In light of these documented concerns about servicers not properly
applying payments in Chapter 13 cases, the Bureau agrees with consumer
advocacy groups and Chapter 13 trustees that periodic statements would
benefit consumers in Chapter 13 cases. The Bureau believes that, as
with all consumers, those in bankruptcy may be able to use the
information set forth in the explanation of amount due, transaction
activity, and past payment breakdown to understand their payments
obligations and identify possible servicer errors.\253\ This
information may be particularly valuable to a consumer in Chapter 13,
given the greater risk of payment application errors. The Bureau also
agrees with commenters that in cases where a consumer was current as of
the date of the bankruptcy petition or is making periodic payments
directly to a servicer, a monthly reminder of amounts due may help a
consumer make timely payments.
---------------------------------------------------------------------------
\253\ 78 FR 10901, 10964-67 (Feb. 14, 2013).
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The Bureau understands and appreciates the concerns expressed by
many servicers that their systems are not currently set up to easily
track how payments are applied in Chapter 13 cases and that, in order
to be able to disclose this information on a periodic statement, they
may need to incur significant costs to upgrade their systems. Servicers
and trade groups also argued that consumers may not understand the
complexities of accounting for payments made under a
[[Page 74251]]
Chapter 13 plan. As the Bureau noted in the 2013 TILA Servicing Final
Rule, however, it is precisely this complexity that necessitates
providing a consumer with a periodic statement. The Bureau believes
that providing this information will enable consumers to make payments,
detect errant payment application, and understand the costs of their
mortgage loans. In addition, the Bureau notes that while the Bankruptcy
Rules provide for a reconciliation procedure once the consumer
completes all payments under a Chapter 13 plan, most Chapter 13 cases
are dismissed prior to completion.\254\ As a result, most consumers in
Chapter 13 bankruptcy will not have a trustee or court oversee and
ultimately determine whether a servicer correctly applied payments. For
these consumers, having a record of payments made and applied may help
resolve disputes once the bankruptcy case is over.\255\ Accordingly,
the Bureau believes that all consumers in Chapter 13 cases who intend
to retain the property, including those making payments through a
trustee, would benefit from receiving periodic statements (or coupon
books in the case of servicers that provide them instead of periodic
statements under Sec. 1026.41(e)(3)).
---------------------------------------------------------------------------
\254\ See Ed Flynn, Chapter 13 Revisited: Can It Help Solve the
Judiciary's Fiscal Problems?, 32 a.m. Bankr. Inst. J. 20, 20 (Dec.
2013).
\255\ The Bureau further notes that in instances where
bankruptcy courts have local rules expressly permitting periodic
statements or coupon books, the rules predominantly apply when the
consumer is a debtor under Chapter 13. See supra, note 241.
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Scope of Exemption
The Bureau is proposing to limit the scope of the exemption in
Sec. 1026.41(e)(5) to consumers in bankruptcy who have made a
determination to surrender the property or avoid the lien securing the
mortgage loan or who have requested that a servicer cease providing
periodic statements or coupon books. The Bureau believes that drawing a
distinction between consumers who intend to retain the property and
those who intend to surrender the property may strike an appropriate
balance between consumers' need for information about their mortgage
loans and the burden on servicers to provide information to such
consumers while also avoiding violations of bankruptcy law.
The Bureau believes that this approach, favored by many commenters,
also is consistent with bankruptcy case law. Courts have observed that
whether periodic statements are appropriate in bankruptcy typically
depends on whether ``the debtor needed the information contained in the
statements when the statements were sent'' and that debtors need
information about their mortgage loan when they intend to retain
property, not when they intend to surrender it.\256\ Indeed, some
courts have found that a periodic statement was permissible when the
debtor planned to retain the property, but that the same form of
periodic statement violated the automatic stay after the same debtor
changed his mind and decided to surrender his home.\257\
---------------------------------------------------------------------------
\256\ Connor v. Countrywide Bank NA (In re Connor), 366 B.R.
133, 136, 138 (Bankr. D. Haw. 2007)); see also Henry, 266 B.R. at
471 (collecting cases).
\257\ Connor, 366 B.R. at 138 (debtor failed to state a claim
for stay violation related to periodic statements received prior to
Chapter 13 plan confirmation, but debtor did state a claim related
to statements received after conversation to Chapter 7 because
debtor had indicated his intent to surrender the property); In re
Joens, No. 03-02077, 2003 WL 22839822, at *2-3 (Bankr. N.D. Iowa
Nov. 21, 2003) (creditor violated automatic stay by sending
collection letters and periodic statements to Chapter 7 debtor who
intended to surrender, but noting that it would have been proper to
send statements if the debtor had intended to retain).
---------------------------------------------------------------------------
Using this framework, courts have held that periodic statements are
appropriate for Chapter 7 debtors if the Statement of Intention
identifies an intent to retain the property\258\ or if a consumer
otherwise continues to make voluntary payments after the bankruptcy
case.\259\ Similarly, courts have found that Chapter 13 debtors who
have not yet proposed a plan of reorganization may benefit from
periodic statements because they need information about the amount of
their mortgage loan debt in order to formulate a plan of
reorganization\260\ and that Chapter 13 debtors also benefit from
periodic statements if their proposed or confirmed plan provides that
they will retain the property and continue making payments.\261\
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\258\ Henry, 266 B.R. at 471 (holding that creditor did not
violate the automatic stay by sending periodic statements and notice
of default to debtors who retain their property by continuing to
make payments without reaffirming the mortgage loan); Kibler v. WFS
Fin., Inc. (In re Kibler), No. 00-2604, 2001 WL 388764 (Bankr. E.D.
Cal. Mar. 19, 2001) (noting that borrowers who retain their property
by continuing to make payments without reaffirming the mortgage loan
``need to receive normal billings to avoid a contract default and
potential foreclosure'').
\259\ See 4 Collier on Bankruptcy ] 524.04 (``Section 524(j)
clarifies that when a debtor does not reaffirm a mortgage debt
secured by real estate that is the debtor's principal residence, the
creditor may continue to send statements to the debtor in the
ordinary course of business and collect payments made voluntarily by
the debtor.'') (citing Jones v. Bac Home Loans Servicing, LP (In re
Jones), No. 09-50281, 2009 WL 5842122, at *3 (Bankr. S.D. Ind. Nov.
25, 2009)); cf. Ramirez v. Gen. Motors Acceptance Corp. (In re
Ramirez), 280 B.R. 252, 257-58 (C.D. Cal. 2002) (holding that
creditor did not violate discharge injunction by sending periodic
statements and a ``summary of voluntary payments'' to a debtor who
his vehicle without reaffirming the loan).
\260\ Connor, 366 B.R. at 138 (holding that debtor failed to
state a claim for stay violation related to periodic statements
received prior to Chapter 13 plan confirmation); Pultz v. NovaStar
Mortg., Inc. (In re Pultz), 400 B.R. 185, 190-92 (Bankr. D. Md.
2008) (noting that sending of single loan statement was useful to
the debtor for forecasting the amount of the unsecured debt she
could pay through her Chapter 13 plan); Schatz v. Chase Home Fin.
(In re Schatz), 452 B.R. 544 (Bankr. M.D. Pa. 2011) (``I also
recognize that such information could assist a Chapter 13 debtor in
drafting his Chapter 13 plan.'').
\261\ Henry, 266 B.R. at 471 (``A secured creditor should be
encouraged to send out payment coupons, envelopes and periodic
statements if a debtor has filed a statement that the debtor plans
to keep property subject to secured debt and to make payments.'');
Cousins v. CitiFinancial Mortg. Co. (In re Cousins), 404 B.R. 281,
286-87 (Bankr. S.D. Ohio 2009) (stating in dicta that periodic
statements can be helpful to Chapter 13 debtors making direct
payments to understand amounts due).
---------------------------------------------------------------------------
Conversely, bankruptcy courts have determined that periodic
statements can constitute impermissible collection attempts in
violation of the automatic stay when a consumer has indicated an intent
to surrender the property, either through the Statement of Intention in
a Chapter 7 case or a plan of reorganization in a Chapter 13 case.\262\
Similarly, courts have held that a Chapter 13 consumer with a plan of
reorganization that provides for ``avoiding'' a junior lien--that is,
rendering the lien unenforceable and treating the mortgage debt as an
unsecured claim--has no need for statements regarding the amounts due
under the mortgage loan.\263\ Finally, courts have found that consumers
do not need statements when they have actually surrendered or vacated
the
[[Page 74252]]
property,\264\ or requested that the servicer not send periodic
statements.\265\
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\262\ Joens, 2003 WL 22839822, at *2-3 (holding that creditor
violated automatic stay by sending several collection letters and
periodic statements to Chapter 7 debtor who had indicated an intent
to surrender); Connor, 366 B.R. at 138 (holding that debtor stated a
claim related to periodic statements and demand letter received
after conversion to Chapter 7 because he had indicated his intent to
surrender the property).
\263\ Curtis v. LaSalle Nat'l Bank (In re Curtis), 322 B.R. 470,
484-85 (Bankr. D. Mass. 2005) (holding that wholly unsecured junior
lienholder violated automatic stay by, among other things, sending a
RESPA transfer letter demanding payment to a Chapter 13 debtor whose
plan provided for avoiding the lien).
\264\ In re Roush, 88 B.R. 163, 164-65 (Bankr. S.D. Ohio 1988)
(holding that creditor violated the discharge injunction when it
sent a collection letter to debtor three years after debtor
surrendered property); In re Bruce, No. 00-50556 C-7, 2000 WL
33673773, at *4 (Bankr. M.D.N.C. Nov. 7, 2000) (holding that
creditor violated the discharge injunction by sending periodic
statements and calling the debtor at his place of employment after
receiving notice that the debtor had vacated the property).
\265\ In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. Fla. 1999)
(holding that creditor violated the stay by sending periodic
statements to Chapter 13 debtor who had asked not to receive them).
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Therefore, the Bureau is proposing to revise the scope of the
exemption in Sec. 1026.41(e)(5). Consistent with most comments the
Bureau received and the case law discussed above, proposed Sec.
1026.41(e)(5) limits the scope of the exemption to those consumers who
no longer need the information in the periodic statement. Specifically,
proposed Sec. 1026.41(e)(5)(i) limits the exemption to when two
conditions are satisfied. First, the consumer must be a debtor in a
bankruptcy case, must have discharged personal liability for the
mortgage loan through bankruptcy, or must be a primary obligor on a
mortgage loan for which another primary obligor is a debtor in a
Chapter 12 or Chapter 13 case. The purpose of this requirement is to
limit the exemption to consumers who may be protected by the Bankruptcy
Code's automatic stay or discharge injunction provisions.
Second, one of the following circumstances must also apply: (1) the
consumer requests in writing that the servicer cease providing periodic
statements or coupon books;\266\ (2) the consumer's confirmed plan of
reorganization provides that the consumer will surrender the property
securing the mortgage loan, provides for the avoidance of the lien
securing the mortgage loan, or otherwise does not provide for, as
applicable, the payment of pre-bankruptcy arrearages or the maintenance
of payments due under the mortgage loan; (3) a court enters an order in
the consumer's bankruptcy case providing for the avoidance of the lien
securing the mortgage loan, lifting the automatic stay pursuant to 11
U.S.C. 362 with respect to the property securing the mortgage loan, or
requiring the servicer to cease providing periodic statements or coupon
books; or (4) the consumer files with the overseeing bankruptcy court a
Statement of Intention pursuant to 11 U.S.C. 521(a) identifying an
intent to surrender the property securing the mortgage loan. As
commenters noted, in each of these situations, a consumer is no longer
retaining the property, is no longer making regular periodic payments
on the mortgage loan, or has affirmatively requested not to receive
statements or coupon books. As a result, the Bureau believes that the
statement's value is diminished and may be outweighed by a
correspondingly increased risk of a court finding that a servicer
violated the automatic stay by sending periodic statements or coupon
books in this circumstance.
---------------------------------------------------------------------------
\266\ The Bureau understands from its outreach that at least one
large national bank that provides periodic statements to all of its
consumers in bankruptcy, except those who opt-out, has not
encountered problems with the automatic stay.
---------------------------------------------------------------------------
With respect to joint obligors who are not in bankruptcy, proposed
Sec. 1026.41(e)(5)(i) effectively limits the exemption to those joint
obligors who (i) share primary liability with a consumer who is a
debtor in a Chapter 12 or Chapter 13 case, and (ii) have requested that
a servicer cease providing periodic statements or coupon books. As
discussed in the section-by-section analysis of Sec. 1024.39(d)(1), a
non-debtor joint obligor is protected by the Bankruptcy Code's
automatic stay provisions only in Chapter 12 or Chapter 13 cases.\267\
The Bureau understands from outreach that these joint obligors
generally have a need to continue receiving periodic statements or
coupon books. Moreover, these joint obligors are not bound by a
debtor's decision to surrender the property securing the mortgage loan.
Accordingly, the Bureau believes that it is appropriate for the non-
debtor joint obligors to continue receiving periodic statements or
coupon books unless non-debtor joint obligors have requested that the
servicer cease providing them.
---------------------------------------------------------------------------
\267\ See 11 U.S.C. 1201, 1301.
---------------------------------------------------------------------------
Proposed comment 41(e)(5)(i)-1 clarifies the exemption's
applicability with respect to joint obligors. The proposed comment
states that when two or more consumers are primarily liable on a
mortgage loan, an exemption under Sec. 1026.41(e)(5)(i) with respect
to one of the primary obligors does not affect the servicer's
obligations to comply with Sec. 1026.41 with respect to the other
primary obligors. The Bureau believes that the proposed comment will
serve to eliminate ambiguity concerning whether a servicer must
continue to provide statements or coupon books to joint obligors when
an exemption under Sec. 1026.41(e)(5)(i) applies to one of the
obligors. The proposed comment also references Sec. 1026.41(f),
explaining that if one of the joint obligors is in bankruptcy and no
exemption under Sec. 1026.41(e)(5)(i) applies, the servicer would be
required to provide periodic statements or coupon books with certain
bankruptcy-specific modifications set forth in Sec. 1026.41(f). In
that instance, the servicer could provide the periodic statements or
coupon books with the bankruptcy-specific modifications to any of the
primary obligors on the mortgage loan, even if not all of them are in
bankruptcy.
Proposed comment 41(e)(5)(i)-2 also clarifies that, for purposes of
Sec. 1026.41(e)(5), the term ``plan of reorganization'' refers to a
consumer's plan of reorganization filed under applicable provisions of
the Bankruptcy Code and confirmed by a court with jurisdiction over a
consumer's bankruptcy case. The proposed comment is intended to avoid
confusion about the meaning of the term ``plan of reorganization'' and
whether the term refers to a proposed plan or one that has been
confirmed by a court.
Finally, proposed comment 41(e)(5)(i)(B)(4)-1 further clarifies
that, for purposes of determining whether a servicer is exempt under
Sec. 1026.41(e)(5)(i) based on a consumer's Statement of Intention
filed in the consumer's bankruptcy case, a servicer must rely on a
consumer's most recently filed Statement of Intention. Thus, under the
proposed rule, if a consumer originally filed a Statement of Intention
identifying an intent to retain the property, but the consumer then
files an amended Statement of Intention identifying an intent to
surrender the property, a servicer must rely on the amended filing to
determine that the exemption applies. The Bureau believes that the
proposed comment will avoid uncertainty about whether the exemption
applies when a consumer has filed multiple or amended Statements of
Intention.
Proposed Sec. 1026.41(e)(5)(ii) states when a servicer must resume
providing periodic statements or coupon books in compliance with Sec.
1024.41. First, proposed Sec. 1026.41(e)(5)(ii)(A) provides that a
servicer is not exempt from the requirements of Sec. 1024.41 with
respect to a consumer who submits a written request to continue
receiving periodic statements or coupon books, unless a court enters an
order requiring otherwise. The Bureau believes that consumers should
have the right to receive information regarding their mortgage loan.
Further, allowing consumers to opt-in will enable consumers to receive
statements or coupon books when their intent with regard to retaining
the property changes. The Bureau understands that, for example, some
Chapter 7 debtors will file a Statement of Intention that initially
discloses an intent to surrender
[[Page 74253]]
the property but subsequently decide to keep the property. In that
case, the Bureau believes a consumer should be able to receive periodic
statements or coupon books. Proposed comment 41(e)(5)(ii)-1 clarifies
that a servicer must comply with a consumer's most recent written
request to cease or to continue, as applicable, providing periodic
statements or coupon books.
Second, proposed Sec. 1026.41(e)(5)(ii)(B) provides that a
servicer must resume compliance with Sec. 1026.41 within a reasonably
prompt time after the next payment due date that follows the earliest
of the following outcomes in either the consumer's or the joint
obligor's bankruptcy case, as applicable: (1) the case is dismissed;
(2) the case is closed; (3) the consumer reaffirms the mortgage loan
under 11 U.S.C. 524; or (4) the consumer receives a discharge under 11
U.S.C. 727, 1141, 1228, or 1328. Proposed Sec. 1026.41(e)(5)(ii)(B)
largely tracks current comment 41(e)(5)-2.i, and the Bureau believes
that a bankruptcy exemption is no longer necessary once the borrower
has exited bankruptcy or reaffirmed personal liability for the mortgage
loan. One commenter requested that the obligation to resume providing
periodic statements should be triggered only upon a servicer's receipt
of a proper notice indicating that the case has been dismissed, closed,
or discharged. The Bureau understands that servicers ordinarily receive
notice of the dismissal, closing, or discharge, as applicable, and it
has not received comments indicating that servicers often fail to
receive the required notices. The Bureau also believes that the
``reasonably prompt'' standard is flexible enough to account for
instances in which a servicer had no reason to know that the consumer's
bankruptcy case was terminated. Additionally, reaffirmation agreements
require a creditor's consent, and the Bureau understands that a
servicer should be aware of when such an agreement is entered into and
approved.
In combination, proposed Sec. 1026.41(e)(5)(ii)(A) and (B) require
a servicer to resume providing periodic statements or coupon books
within a reasonably prompt time after the next payment due date
following receipt of a consumer's written request, the case closing or
dismissal, the consumer's reaffirmation of the mortgage loan, or the
consumer receiving a discharge. Proposed comment 41(e)(5)(ii)-2
clarifies that delivering, emailing or placing the periodic statement
or coupon book in the mail within four days after the next payment due
date, or within four days of the close of any applicable courtesy
period, generally would be considered reasonably prompt. (With respect
to coupon books, resuming compliance requires providing a new coupon
book only to the extent the servicer has not previously provided the
consumer with a coupon book that covers the upcoming billing cycle(s);
duplicate coupon books are not required.) This interpretation of
``reasonably prompt'' is consistent with the Bureau's interpretation
currently set forth in comment 41(b)-1.
Finally, proposed comment 41(e)(5)-1 clarifies that, if an agent of
a consumer submits a request to cease or to continue providing periodic
statements or coupon books, the request is deemed submitted by the
consumer. The Bureau understands that attorneys or housing counselors
often communicate with a servicer on a consumer's behalf, and the
Bureau believes that it is important to clarify that a servicer must
comply with a request to cease or commence providing periodic
statements or coupon books by such an agent of a consumer.
The Bureau has also considered, but declines to propose at this
time, four suggestions regarding the scope of Sec. 1026.41(e)(5).
First, the Bureau declines to propose to require a consumer in Chapter
7 bankruptcy to opt-in affirmatively to receiving periodic statements
or coupon books. As explained above, the Bureau believes that servicers
should provide statements or coupon books to consumers in Chapter 7
unless one or more of the specified exceptions applies. The Bureau is
concerned that requiring a consumer to affirmatively opt-in may disrupt
the flow of periodic statements or coupon books shortly after the
bankruptcy filing and may cause a consumer to fail to make a timely
mortgage loan payment. Additionally, the Bureau is concerned that
consumers, particularly those not represented by counsel, may not be
aware of the right to request periodic statements or coupon books.
Second, the Bureau declines to adopt a consumer advocacy group's
suggestion that a consumer should continue receiving periodic
statements unless the consumer discloses an intent to surrender the
property, is in default, and has been denied for all loss mitigation
options. The Bureau appreciates that this approach would ensure that a
consumer would receive statements until all retention options have been
exhausted, but the Bureau is concerned that it may unduly burden
servicers. The Bureau believes that a more simple test based on the
consumer's intent to retain or surrender the property may provide a
less ambiguous standard and assist servicers in determining whether the
exemption applies.
Third, the Bureau does not believe that it would be appropriate to
create a special exemption from the periodic statement requirement for
servicers with a limited number of consumers in bankruptcy or a limited
percentage of their portfolio subject to bankruptcy proceedings. The
Bureau believes that the existing small servicer exemption in Sec.
1026.41(e)(4) sufficiently balances the potential costs of providing
periodic statements with the potential burden on smaller servicers.
Furthermore, the Bureau notes that an exemption based upon the number
of customers a servicer has in bankruptcy (rather than total number of
loans in a servicer's portfolio) would lead to uncertainty, as factors
outside of the servicer's control--for example, regional economic
conditions--may cause a servicer to lose the exemption for a given
year.
Finally, at this time, the Bureau does not believe that servicers
should be required to provide Chapter 13 trustees with periodic
statements, either as a matter of course or upon a trustee's request.
The Bureau is concerned that requiring a servicer to send statements to
a trustee may unduly increase the burden on servicers. The Bureau also
recognizes the privacy concerns raised by servicers. If servicers were
in some cases required to redact certain information based on privacy
concerns, this could further increase costs to servicers. Additionally,
the Bureau understands that there may be other ways for trustees to
obtain copies of periodic statements, such as requesting them from a
consumer or obtaining a court order requiring them in a particular
case. The Bureau seeks comment on whether a servicer should be required
to provide periodic statements to a Chapter 13 trustee overseeing a
consumer's case and, if so, under what circumstances. The Bureau also
seeks comment on whether trustees have sufficient alternative means of
obtaining periodic statements or similar information from consumers or
servicers.
In addition, the Bureau seeks comment on the scope of the proposed
exemption, the requirements for qualifying for the exemption, and when
servicers must resume sending periodic statements or coupon books. In
particular, the Bureau solicits comment on whether consumers in
bankruptcy should be required to opt-in to receive periodic statements
or coupon books and, if so, whether documents filed with
[[Page 74254]]
the bankruptcy court, such as a Statement of Intention or plan of
reorganization, are sufficient to qualify as a request to receive
periodic statements or coupon books. The Bureau further requests
comment on how consumers in bankruptcy may be made aware of their
ability to opt-in or opt-out of receiving periodic statements or coupon
books, whether such requests must be made in writing, whether oral
requests should be sufficient, and whether servicers should be able to
designate an exclusive mailing address for receiving written requests.
With respect to resuming compliance after the case closing or dismissal
or borrower's discharge, as applicable, the Bureau solicits comment on
whether servicers ordinarily receive sufficient notice of these events.
Legal Authority
The Bureau is proposing to exercise its authority under sections
105(a) and (f) of TILA and section 1405(b) of the Dodd-Frank Act to
exempt servicers from the requirement in section 128(f) of TILA to
provide periodic statements for a mortgage loan in certain bankruptcy-
related circumstances. For the reasons discussed above, the Bureau
believes this exemption is necessary and proper under section 105(a) of
TILA to facilitate compliance. In addition, consistent with section
105(f) of TILA and in light of the factors in that provision, the
Bureau believes that imposing the periodic statement requirement for
certain consumers in bankruptcy may not currently provide a meaningful
benefit to those consumers in the form of useful information.
Consistent with section 1405(b) of the Dodd-Frank Act, the Bureau also
believes that the modification of the requirements in section 128(f) of
TILA to provide this exemption is in the interest of consumers and in
the public interest.
41(e)(6) Charged-off Loans
The Bureau is proposing to add a new exemption from the requirement
to provide periodic statements under Sec. 1026.41. The proposed
exemption would apply to a mortgage loan that a servicer has charged
off in accordance with loan-loss provisions if the servicer will not
charge any additional fees or interest on the account, provided that
the servicer must provide the consumer a final periodic statement
within 30 days of charge off or the most recent periodic statement.
The periodic statement rule set forth in Sec. 1026.41 requires the
creditor, assignee, or servicer of a closed-end consumer credit
transaction secured by a dwelling (a mortgage loan) to provide the
consumer, for each billing cycle, a periodic statement meeting certain
time, form, and content requirements.\268\ The Bureau's February 2013
TILA Servicing Final Rule and October 2013 IFR provide certain
exemptions from the periodic statement rule. Specifically, the current
exemptions apply to reverse mortgage transactions, timeshare plans,
fixed-rate loans if the servicer provides the consumer a coupon book,
small servicers, and mortgage loans while the consumer is a debtor in
bankruptcy under Title 11.\269\
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\268\ For purposes of Sec. 1026.41, ``servicer'' includes the
creditor, assignee, or servicer, as applicable. 12 CFR
1026.41(a)(2).
\269\ 12 CFR 1026.41(e)(1) through (5). For loans serviced by a
small servicer, a creditor or assignee is also exempt from the
Regulation Z periodic statement requirements. 12 CFR
1026.41(e)(4)(i). The proposal provides amendments to the periodic
statement exemption for a consumer that is a debtor in bankruptcy.
See section-by-section analysis of Sec. 1026.41(e)(5).
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The Bureau understands that a servicer, pursuant to certain
accounting standards and at a creditor's direction, may be required to
charge off a delinquent mortgage loan in accordance with applicable
loan-loss provisions. Charge off is an accounting practice that
indicates that the creditor or servicer no longer considers the
mortgage loan to be an asset. However, charge off does not release the
consumer from liability for the mortgage loan. In some cases, although
the mortgage loan has been charged off, the underlying lien secured by
the dwelling remains in place. Therefore, even after charge off, the
credit transaction is still secured by a dwelling. It is the Bureau's
position that under the current rule, unless the lien is released, the
periodic statement is required for all charged-off mortgage loans,
regardless of whether the mortgage loan was charged off prior to the
effective date of the rule (January 10, 2014).
The Bureau has learned that the manner in which charged-off
mortgage loans are serviced may differ from the manner in which non-
charged-off mortgage loans are serviced. The Bureau understands that a
servicer's software, systems, and platforms may treat charged-off
mortgage loans distinctly, such that providing a periodic statement for
a charged-off mortgage loan may be more burdensome, and therefore more
costly, than providing a periodic statement for a non-charged-off
mortgage loan. The Bureau also understands, however, that even after
charge off, a servicer may pass along various fees to the consumer,
such as attorney's fees, court costs, filing fees, garnishment fees,
property maintenance fees, taxes, insurance, and fees for maintaining
the lien. The Bureau believes that where a servicer continues to charge
a consumer fees and interest, the periodic statement may provide
significant value to a consumer. As the Bureau stated in the February
2013 TILA Servicing Final Rule, the Bureau carefully considered
concerns expressed about circumstances in which the periodic statement
should not be required (e.g., after acceleration), and acknowledged
that some circumstances could make providing a periodic statement more
complicated. However, the Bureau noted that ``such circumstances are
often precisely when a consumer most needs the periodic statement,'' as
the Bureau ``believes an important role of the periodic statement is to
document fees and charges to the consumer; as long as such charges may
be assessed, the consumer is entitled to receive a periodic
statement.''\270\
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\270\ 78 FR 10901, 10960 (Feb. 14, 2013).
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The Bureau has considered the competing concerns posed by the costs
to a servicer to provide periodic statements for charged-off mortgage
loans and the benefits to a consumer to continue to be informed of fees
and charges that a servicer may assess after charge off. Although the
periodic statement rule provides important consumer protections, the
Bureau believes that if a servicer will not charge any additional fees
or interest on the account, the benefit to a consumer of receiving a
periodic statement may be outweighed by the potential for increased
costs passed on to consumers. Therefore, when the servicer will assess
no further fees or interest, the Bureau believes that it may be
appropriate to exempt a servicer from the requirements of Sec. 1026.41
for a mortgage loan that a servicer has charged off in accordance with
loan-loss provisions.
Accordingly, the Bureau is proposing to add a new exemption from
the periodic statement requirement for certain mortgage loans that a
servicer has charged off. Specifically, proposed Sec. 1026.41(e)(6)
provides that a servicer is exempt from the requirements of Sec.
1026.41 for a mortgage loan if the servicer has charged off the loan in
accordance with loan-loss provisions and will not charge any additional
fees or interest on the account, provided that the servicer must,
within 30 days of charge off or the most recent periodic statement,
provide a final periodic statement, clearly and conspicuously labeled
``Final Statement--Retain This Copy for Your Records.'' The Bureau is
also proposing that the final periodic statement convey, in simple and
clear terms, additional information to the
[[Page 74255]]
consumer. The Bureau believes that providing this final periodic
statement with the additional consumer information may provide
important consumer protections that outweigh any potential burden on
servicers associated with providing this one-time, final statement.
The proposed exemption is similar to existing Sec.
1026.5(b)(2)(i), which provides an exemption for certain charged-off
accounts from the periodic statement requirement in Sec. 1026.7 for
open-end credit transactions. Section 1026.5(b)(2)(i) states, in
relevant part, that ``[a] periodic statement need not be sent for an
account . . . if the creditor has charged off the account in accordance
with loan-loss provisions and will not charge any additional fees or
interest on the account. . . .''\271\ In finalizing this exemption
under Sec. 1026.5(b)(2)(i), the Board weighed the costs and benefits
and determined that ``the value of a periodic statement does not
justify the cost of providing the disclosure because the amount of a
consumer's obligation will not be increasing,'' while reiterating that
``this provision does not apply if a creditor has charged off the
account but continues to accrue new interest or charge new fees.''\272\
The Bureau agrees with the Board's reasoning and believes that a
similar analysis may apply with respect to the proposed exemption from
the periodic statement requirement in Sec. 1026.41 for a mortgage loan
that a servicer has charged off in accordance with loan-loss provisions
if the servicer will not charge any additional fees or interest on the
account.
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\271\ 12 CFR 1026.5(b)(2)(i).
\272\ 74 FR 5244, 5276 (Jan. 29, 2009).
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However, because closed-end consumer credit transactions secured by
a dwelling are distinct from unsecured, open-end credit transactions by
virtue of the underlying lien, the Bureau believes that it is
appropriate to impose additional requirements in this context.
Specifically, proposed Sec. 1026.41(e)(6) provides that for a servicer
to take advantage of the exemption, the servicer must, within 30 days
of charge off or the most recent periodic statement,\273\ provide a
final periodic statement, clearly and conspicuously labeled ``Final
Statement--Retain This Copy for Your Records.'' Under proposed Sec.
1026.41(e)(6), the final periodic statement may be the last piece of
information or documentation that a consumer receives with respect to
the charged-off mortgage loan. Consumers may need this information for
further tax-reporting and other financial accounting purposes.
Additionally, the Bureau believes that consumers may need to later
demonstrate the status of the loan to the servicer or a subsequent
purchaser, assignee, or transferee. Consequently, the Bureau believes
that a consumer should be advised to retain the final periodic
statement for record-keeping purposes.
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\273\ The proposal provides that a servicer may provide the
final periodic statement within 30 days of the most recent periodic
statement. This would allow servicers that appropriately complied
with the periodic statement requirement for previously charged-off
mortgage loans to now take advantage of the proposed exemption.
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Further, the Bureau is concerned that consumers may misconstrue the
charge off to mean that the mortgage loan obligation or lien has been
released, or the debt forgiven, when in fact this is generally not the
case. Therefore, the Bureau believes that the proposed final periodic
statement must also convey, in simple and clear terms, important
information to the consumer about what it means for a mortgage loan to
be charged off. Proposed Sec. 1026.41(e)(6) provides that the final
periodic statement must explain in simple and clear terms that: the
mortgage loan has been charged off and the servicer will not charge any
additional fees or interest on the account; the lien on the property
remains in place and the consumer remains liable for the mortgage loan
obligation; the consumer may be required to pay the balance on the
account in the future, for example, upon sale of the property; the
balance on the account is not being cancelled or forgiven; and the loan
may be purchased, assigned, or transferred.
The Bureau is aware that mortgage loans may be purchased, assigned,
or transferred after charge off. The Bureau recognizes that such
situations may pose special accounting challenges for both servicers
and consumers. The Bureau notes that nothing in this proposal is
intended to impact a debt collector's obligations under the FDCPA,
including, for example, the requirement to send a consumer a written
notice validating the debt under section 809 of the FDCPA.
Additionally, the Bureau is proposing comment 41(e)(6)-1 to explicate
the relationship between proposed Sec. 1026.41(e)(6) and Sec.
1026.39, which requires certain disclosures upon the purchase,
assignment, or transfer of a mortgage loan. First, the proposed comment
reiterates that if a charged-off mortgage loan is subsequently
purchased, assigned, or transferred, a covered person, as defined in
Sec. 1026.39(a)(1), must provide the transfer disclosure required by
Sec. 1026.39. Second, the proposed comment provides that a covered
person, as defined in Sec. 1026.39(a)(1), who would otherwise be
subject to the requirements of Sec. 1026.41, may take advantage of the
exemption in Sec. 1026.41(e)(6) as long as it treats the mortgage loan
as charged off and will not charge any additional fees or interest on
the account. Third, the proposed comment further explains that if the
consumer previously received a final periodic statement, a covered
person (the purchaser, assignee, or transferee) is not also required to
provide a final periodic statement, unless it began sending the
consumer periodic statements and then later met the criteria under
proposed Sec. 1026.41(e)(6). The Bureau seeks comment on whether
proposed comment 41(e)(6)-1 appropriately addresses circumstances under
which a charged-off mortgage loan may be purchased, assigned, or
transferred, and whether there are additional considerations related to
purchase, assignment, or transfer of a charged-off mortgage loan for
which the Bureau should account.
The Bureau is also proposing comment 41(e)(6)-2 to clarify that the
obligation to provide a periodic statement for a charged-off mortgage
loan resumes if a servicer or a covered person, as defined in Sec.
1026.39(a)(1), who would otherwise be subject to the requirements of
Sec. 1026.41, fails to treat the mortgage loan as charged off at any
time or charges any additional fees or interest on the account.
Proposed comment 41(e)(6)-2 further provides that the servicer or
covered person may not retroactively assess fees or interest on the
account for the period of time during which the exemption in Sec.
1026.41(e)(6) applied. If the servicer or covered person were to at any
time no longer treat the mortgage loan as charged off, begin charging
fees or interest on the account, or retroactively assess fees or
interest on the account, such conduct would contravene the purpose of
the proposed exemption from the otherwise applicable periodic statement
requirement for charged-off mortgage loans.
The Bureau has narrowly tailored the proposed new exemption from
the requirements of Sec. 1026.41. The proposed exemption applies only
to mortgage loans that have been charged off in accordance with loan-
loss provisions and only if the servicer will not charge any additional
fees or interest on the account. Additionally, the proposed exemption
requires that the servicer provide the consumer a final periodic
statement within 30 days of charge off or the most recent periodic
statement, that such statement includes basic consumer information
about the
[[Page 74256]]
nature of the charge off, and that the obligation to make periodic
statements resumes if a servicer or covered person charges fees or
interest on the account in the future. The Bureau believes that
limiting the proposed exemption in this fashion reduces the risk that
this proposed exemption will be used to circumvent the servicing rules.
The Bureau seeks comment on whether limiting the proposed exemption for
charged-off mortgage loans as described above is appropriate.
Additionally, the Bureau seeks comment on whether mortgage loans that
were charged off prior to the rule's effective date (January 10, 2014)
should be granted a grandfather period to provide servicers additional
time to comply with either the proposed exemption for charged-off
mortgage loans or the otherwise applicable periodic statement rule.
Finally, the Bureau seeks comment on whether there are alternatives to
periodic statements for charged-off mortgage loans, such as an annual
reminder to the consumer of a loan's status, including what might be
the associated benefits to consumers and costs to servicers of such
alternatives.
Legal Authority
The Bureau is proposing to exempt from the periodic statement
requirement under section 128(f) of TILA a mortgage loan that a
servicer has charged off in accordance with loan-loss provisions if the
servicer will not charge any additional fees or interest on the
account, provided that the servicer must provide the consumer a final
periodic statement within 30 days of charge off or the most recent
periodic statement. The Bureau is proposing this exemption pursuant to
its authority under section 105(a) and (f) of TILA and section 1405(b)
of the Dodd-Frank Act.
For the reasons discussed above, the Bureau believes that the
proposed exemption is necessary and proper under section 105(a) of TILA
to facilitate TILA compliance. As discussed above, the Bureau believes
that the proposal to exempt certain mortgage loans that a servicer has
charged off facilitates compliance with TILA by allowing servicers to
service loans cost effectively in compliance with applicable regulatory
requirements.
In addition, consistent with section 105(f) of TILA and in light of
the factors in that provision, for servicers that are required to
charge off mortgage loans in accordance with loan-loss provisions, the
Bureau believes that requiring them to comply with the periodic
statement requirement in section 128(f) of TILA would not provide a
meaningful benefit to consumers in the form of useful information or
protection. The Bureau believes, as noted above, that requiring
provision of periodic statements would impose significant costs and
burden. Specifically, the Bureau believes that the proposal will not
complicate, hinder, or make more expensive the credit process. In
addition, consistent with section 1405(b) of the Dodd-Frank Act, for
the reasons discussed above, the Bureau believes that exempting a
mortgage loan that a servicer has charged off in accordance with loan-
loss provisions if the servicer will not charge any additional fees or
interest on the account, provided that the servicer must provide the
consumer a final periodic statement within 30 days of charge off or the
most recent periodic statement, from the requirements of section 128(f)
of TILA would be in the interest of consumers and in the public
interest.
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 the
proposed rule is necessary and appropriate to carry out the purpose
under section 1021(a) of the Dodd-Frank Act of ensuring that all
consumers have access to markets for consumer financial products and
services that 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.
41(f) Modified Periodic Statements and Coupon Books for Certain
Consumers in Bankruptcy
The Bureau is proposing Sec. 1026.41(f) to modify the periodic
statement and coupon book requirements with respect to certain
consumers who are in bankruptcy or have discharged personal liability
for a mortgage loan through bankruptcy. As discussed in the section-by-
section analysis of Sec. 1026.41(e)(5), proposed Sec. 1026.41(e)(5)
exempts servicers from the requirement to provide periodic statements
or coupon books to such consumers in some but not all circumstances.
When no exemption under proposed Sec. 1026.41(e)(5) applies, proposed
Sec. 1026.41(f) specifies various clarifications and modifications to
the periodic statements or coupon books provided to such consumers. The
following discussion first addresses the proposed clarifications and
modifications to the periodic statement requirements. It then addresses
proposed changes with respect to coupon books provided instead of
periodic statements under Sec. 1026.41(e)(3).
The Bureau is proposing two sets of modifications to the required
layout and content for periodic statements provided to consumers in
bankruptcy. The first set of modifications, in proposed Sec.
1026.41(f)(1) and (2), applies to periodic statements provided to any
consumer who is a debtor in a case under any chapter of the Bankruptcy
Code, as well to a consumer who has discharged personal liability for a
mortgage loan through bankruptcy. Proposed Sec. 1026.41(f)(1) provides
that servicers may exclude from the periodic statement the amount of
any late fee and the date on which that fee will be imposed if payment
has not been received. Proposed Sec. 1026.41(f)(1) also provides that
servicers may exclude the delinquency-related disclosures set forth in
Sec. 1024.41(d)(8)(i), (ii), and (v)--that is, the date on which the
consumer became delinquent; a notification of possible risks, such as
foreclosure and expenses, that may be incurred if the delinquency is
not cured; and a notice of whether the servicer has made the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process, if applicable. Proposed Sec.
1026.41(f)(2) requires the periodic statement to include on the first
page a statement acknowledging the consumer's bankruptcy case or the
discharged nature of the mortgage loan and a statement that the
periodic statement is for informational purposes only.
The second set of modifications, in proposed Sec. 1026.41(f)(3),
applies specifically to periodic statements provided to a consumer who
is a debtor in a case under Chapter 12 or Chapter 13 of the Bankruptcy
Code. Proposed Sec. 1026.41(f)(3)(i) provides that, in addition to the
information identified in proposed Sec. 1026.41(f)(1), a servicer may
also omit the remainder of the delinquency information normally
required by Sec. 1026.41(d)(8). Proposed Sec. 1026.41(f)(3)(ii)
through (v) clarify and modify certain disclosures required by Sec.
1026.41(d), including the amount due, explanation of amount due, past
payment breakdown, and transaction activity. The changes are intended
to ensure that these disclosures accurately portray the consumer's
payment obligations while in bankruptcy. Proposed Sec.
1026.41(f)(3)(vi) and (vii) require a servicer to include new
disclosures related to a consumer's pre-bankruptcy arrearage (if any),
as well as
[[Page 74257]]
disclaimers related to the consumer's status in bankruptcy and the
accuracy of the information provided in the periodic statement.
Proposed Sec. 1026.41(f)(4) addresses the situation where more
than one consumer is primarily obligated on a mortgage loan and a
servicer is required to provide at least one of the primary obligors
with a modified periodic statement pursuant to Sec. 1026.41(f).
Proposed Sec. 1026.41(f)(4) provides that a servicer may provide the
modified version of the periodic statement to any or all of the primary
obligors instead of periodic statements not including the bankruptcy-
specific modifications, even if not all primary obligors are debtors in
bankruptcy. On the other hand, as proposed comment 41(e)(5)(i)-1 and
the section-by-section analysis of Sec. 1026.41(e)(5) explain, if a
servicer were exempt under proposed Sec. 1026.41(e)(5)(i) from
providing periodic statements to the obligor in bankruptcy, the
servicer would continue to provide regular periodic statements, without
any of the bankruptcy-specific modifications, to the obligors who are
not in bankruptcy.
Proposed Sec. 1026.41(f)(5) provides that the modifications set
forth above also apply to coupon books provided instead of periodic
statements under Sec. 1026.41(e)(3). Specifically, proposed Sec.
1026.41(f)(5) provides that the modifications set forth in proposed
Sec. 1026.41(f)(1) and (3)(i) through (v) and (vii) apply to coupon
books and other information a servicer provides to the consumer under
Sec. 1026.41(e)(3). Proposed Sec. 1026.41(f)(5) permits the servicer
to put the disclosures required under proposed Sec. 1026.41(f)(2) and
(3)(vii) anywhere in the coupon book or give them on a separate page
enclosed with the coupon book provided to the consumer. The servicer
must also make available upon request the pre-petition arrearage
information set forth in proposed Sec. 1026.41(f)(3)(vi).
As discussed in the section-by-section analysis of Sec.
1026.41(e)(5), the Bureau sought comment in the October 2013 IFR as to
how the content of periodic statements might be tailored to meet the
particular needs of consumers in bankruptcy. The Bureau received
written comments in response to that solicitation during the official
comment period. Since then, the Bureau has continued to receive
comments and, as part of its Implementation Plan, has consulted with
servicers, trade groups, consumer advocacy groups, bankruptcy
attorneys, bankruptcy trustees, and bankruptcy judges regarding how
periodic statements may be tailored for purposes of bankruptcy,
including hosting the roundtable discussion on June 16, 2014.
Accordingly, the following discussion of proposed Sec. 1026.41(f)
contains discussion of the comments received during the official
comment period, as well as discussion of ex parte comments received
after that period ended. The following discussion first addresses the
proposed clarifications and modifications to the periodic statement
requirements; it then addresses proposed changes with respect to coupon
books provided instead of periodic statements under Sec.
1026.41(e)(3). The clarifications and modifications proposed for
periodic statements generally apply to coupon books as well.
Modified Statements for Consumers in Bankruptcy
Commenters agreed that the required content and layout of the
periodic statement, which is governed by Sec. 1026.41(d), would need
to be clarified or modified for at least some consumers in bankruptcy.
Commenters suggested different modifications depending on whether a
consumer is a debtor in a liquidation case under Chapter 7 or a
reorganization case under Chapter 13 of the Bankruptcy Code. Most
commenters did not specifically address how the Sec. 1026.41(d)
disclosures should be modified with respect to a consumer in a Chapter
11 or Chapter 12 case.\274\ As discussed in more detail below, comments
focused on whether certain language or disclosures--such as past due
amounts or delinquency information--could be construed as an
impermissible attempt to collect a debt in violation of the Bankruptcy
Code's automatic stay, as well as whether other disclosures--such as
the amount due and past payment breakdown--could be adjusted to reflect
the payment terms of a consumer's bankruptcy plan. Commenters were also
concerned about whether periodic statements could accurately reflect
amounts due and paid under a bankruptcy plan or whether the disclosures
would be unavoidably confusing or inaccurate. Finally, industry
commenters expressed concern about the potential operational challenges
and costs associated with providing periodic statements to consumers in
bankruptcy.
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\274\ The lack of comments about Chapter 11 and Chapter 12 is
consistent with the fact that relatively few consumers seek to
reorganize their debts under those chapters. In 2013, for example,
only 1,320 nonbusiness cases were filed under Chapter 11, and just
495 cases were filed under Chapter 12. By comparison, in the same
year, approximately 705,000 nonbusiness cases were filed under
Chapter 7 and another 330,000 under chapter 13. See Administrative
Office of the U.S. Courts, U.S. Bankruptcy Courts--Business and
Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code,
During the 12-Month Period Ending December 31, 2013, available at
http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf.
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Based on the comments received, the Bureau's outreach, and the
Bureau's understanding of periodic statements that some servicers use
for consumers in bankruptcy, the Bureau believes that it is appropriate
to modify or omit certain of the disclosures required by Sec.
1026.41(d) with respect to periodic statements provided to consumers in
bankruptcy. As explained in more detail in the section-by-section
analyses of Sec. 1026.41(f)(1) through (3), the Bureau believes that
the modifications and omissions are necessary to ensure that servicers
do not violate the Bankruptcy Code's automatic stay by providing
periodic statements and to ensure that periodic statements accurately
reflect the payments made by consumers in bankruptcy. The Bureau
further believes that it is appropriate to require certain
modifications to the periodic statement specifically for consumers who
have filed under Chapter 12 or Chapter 13. The Bureau believes
different forms may be appropriate in part because of the special
treatment of mortgage loans secured by a consumer's principal residence
under Chapter 12 and Chapter 13, which permit a consumer to repay pre-
bankruptcy arrearages over a reasonable time while continuing to make
monthly periodic payments due under the loan.\275\
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\275\ See 11 U.S.C. 1222(b)(5), 1322(b)(5) (both stating that a
plan ``may provide for the curing of any default within a reasonable
time and maintenance of payments while the case is pending on any
unsecured claim or secured claim on which the last payment is due
after the date on which the final payment under the plan is due.'').
Under Chapter 12, moreover, a court may modify the terms of a
mortgage loan secured by a principal residence. 11 U.S.C.
1222(b)(2).
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Accordingly, proposed Sec. 1024.41(f) provides that unless a
servicer is exempt under Sec. 1026.41(e), a servicer must comply with
the requirements of Sec. 1024.41 with respect to a consumer who is a
debtor in bankruptcy or has discharged personal liability for a
mortgage loan through bankruptcy, subject to certain modifications set
forth in Sec. 1026.41(f)(1) through (3), as applicable. Briefly
stated, proposed Sec. 1026.41(f)(1) permits servicers to exclude from
periodic statements certain of the disclosures ordinarily required by
Sec. 1026.41(d), and proposed Sec. 1026.41(f)(2) requires servicers
to include statements identifying the consumer's status in bankruptcy
and advising that the periodic statement is for informational purposes.
While the modifications sets forth in proposed
[[Page 74258]]
Sec. 1026.41(f)(1) and (2) apply to any periodic statement provided to
a consumer in bankruptcy (or who has discharged personal liability for
a mortgage loan through bankruptcy), proposed Sec. 1026.41(f)(3)
specifies additional modifications required for consumers in Chapter 12
or Chapter 13 bankruptcy.
Proposed comment 41(f)-1 clarifies that a servicer must resume
providing regular periodic statements in accordance with Sec. 1026.41
if the consumer's bankruptcy case is closed or dismissed. The comment
also clarifies that the requirements of Sec. 1026.41(f) continue to
apply, however, if the consumer has discharged personal liability for
the mortgage loan. The purpose of this comment is to clarify when a
servicer is no longer required to provide periodic statements with the
modifications set forth in proposed Sec. 1026.41(f)(1) through (3).
Terminology and Other Modifications
Commenters agreed on the need to allow servicers to use alternative
terminology on periodic statements for consumers in bankruptcy. Two
trade groups stated that bankruptcy courts sometimes disfavor language
such as ``amount due,'' ``payment due date,'' and ``overdue'' or ``past
due payments,'' as those terms call to mind an attempt to collect a
debt. These groups suggested that servicers be allowed to use
alternatives, such as ``payment amount,'' ``payment date,'' or ``unpaid
past payments.'' Servicers, trustees, and consumer advocacy groups had
similar suggestions, noting that terms like ``voluntary payment
amount'' or ``contractual payment date'' are more consistent with the
notion that the periodic statements would be informational in nature.
Commenters also agreed that alternative terminology is necessary in
Chapter 13 cases, in which a borrower may make two streams of payments.
Commenters suggested that servicers be able to refer to the payments as
``pre-petition payments'' (to describe pre-bankruptcy arrearages) or
``post-petition payments'' (to describe periodic payments), or use
other terms that reflect that dual stream of payments. A consumer
advocacy group noted that such terminology is pervasive in bankruptcy
and that, while a normal consumer may not be familiar such terms, a
consumer in bankruptcy usually would be.
The Bureau agrees with the comments that servicers may need to use
alternative terminology in periodic statements provided to consumers in
bankruptcy. Commenters' concerns about collection language appear to be
borne out by court decisions that have occasionally focused on the
precise language of the terms used on periodic statements.\276\
Similarly, the Bureau believes that the need to distinguish between
pre-petition and post-petition payments in a Chapter 13 case may
require different terminology than that used on other periodic
statements. The Bureau further notes that it intends to conduct
consumer testing on sample forms and will attempt to discern whether
any particular terminology is more or less understandable for
consumers.
---------------------------------------------------------------------------
\276\ See, e.g., In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D.
Fla. 1999) (statement listed the ``total amount due''); Butz v.
People First Fed. Credit Union (In re Butz), 444 B.R. 301 (Bankr.
M.D. Pa. 2011) (statement requested immediate payment of an ``amount
due''); Harris v. Mem'l Hosp. (In re Harris), 374 B.R. 611, 614
(Bankr. N.D. Ohio 2007) (statement advised that the ``account is
past due'').
---------------------------------------------------------------------------
Accordingly, the Bureau is proposing comment 41(f)-2, which
provides that servicers may use terminology other than that found on
the sample periodic statement in appendix H-30, so long as the new
terminology is commonly understood. Current comment 41(d)-3 provides
similar flexibility with respect to, for example, regional differences,
but the Bureau believes that it is important to clarify that, for
purposes of Sec. 1026.41(f)(1) through (3), servicers may use
terminology specific to the circumstances of bankruptcy.
Commenters, particularly servicers and trade groups, also
emphasized the need for general flexibility in the periodic statement
requirements for consumers in bankruptcy. They stated that many
bankruptcy courts and trustees have their own local rules and
procedures, and industry commenters argued that servicers need to be
able to modify statements to reflect these local practices or the
unique circumstances of a consumer's individual bankruptcy case. Two
trade groups further argued that servicers should be permitted to craft
disclosures they believe are necessary to convey to consumers that a
servicer is not attempting to collect a debt or to explain how a
consumer can request to not receive further statements and that the
Bureau should not prescribe a ``one size fits all'' disclosure regime.
The Bureau agrees with the commenters that servicers may need
flexibility to modify the periodic statement's content to comply with
applicable rules and guidelines. The Bureau understands that many local
bankruptcy rules already have certain requirements in place regarding
periodic statements, and the Bureau believes that servicers should be
able to comply with both those rules and Regulation Z. The Bureau
further believes that giving servicers the flexibility to include
disclosures related to a consumer's status in bankruptcy is important
and necessary to permit servicers to comply with local practice or
rules.
Accordingly, the Bureau is proposing comment 41(f)-3, which states
that a periodic statement provided under Sec. 1026.41(f) may be
modified as necessary to facilitate compliance with the Bankruptcy
Code, the Federal Rules of Bankruptcy Procedure, court orders, and
local rules, guidelines, and standing orders. Proposed comment 41(f)-3
further provides that servicers may include additional disclaimers
related to a borrower's status in bankruptcy or that advise a consumer
how to submit a written request to cease receiving periodic statements.
The Bureau seeks comment on proposed comment 41(f)-3, including whether
it may afford servicers too little or too much flexibility with respect
to the required content of periodic statements.
41(f)(1) Requirements Not Applicable
Section 1026.41(d) requires periodic statements to disclose
information related to a consumer's failure to make timely payments.
Section 1026.41(d)(1)(ii) sets forth one such disclosure, requiring a
periodic statement to include the amount of any late fee and the date
on which the fee will be imposed if payment has not been received.
Section 1026.41(d)(8) requires that a periodic statement include
certain information for consumers who are 45 days or more delinquent on
a mortgage loan. Specifically, Sec. 1024.41(d)(8)(i), (ii), and (v)
require the disclosure of the date on which the consumer became
delinquent; a notification of possible risks, such as foreclosure and
expenses, that may be incurred if the delinquency is not cured; and a
notice of whether the servicer has made the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure
process, if applicable. Section 1026.41(d) also contains certain layout
requirements, including the requirement in Sec. 1026.41(d)(1)(iii)
that the amount due be displayed more prominently than other
disclosures on the page.
Proposed Sec. 1026.41(f)(1) provides that certain of Sec.
1026.41(d)'s disclosures and layout requirements do not apply to
periodic statements provided to consumers in bankruptcy under proposed
Sec. 1026.41(f). Servicers may exclude the disclosures set forth in
Sec. 1026.41(d)(1)(ii) and (8)(i), (ii), and (v), and servicers do not
need to comply
[[Page 74259]]
with Sec. 1026.41(d)(1)(iii)'s requirement to display the amount due
more prominently than other disclosures on the page.
Industry commenters maintained that certain disclosures required by
Sec. 1026.41(d) could be interpreted as a violation of the Bankruptcy
Code's automatic stay because they threaten consequences for non-
payment or emphasize past due amounts. Specifically, some industry
participants commented that the notice of potential late fees required
by Sec. 1026.41(d)(1)(ii) and the delinquency information required by
Sec. 1026.41(d)(8) could be viewed as collection attempts.
Additionally, two trade groups objected to the amount due being the
most prominent disclosure on the page, as required by Sec.
1026.41(d)(1)(iii), arguing that servicers should be allowed to make
bankruptcy disclaimers the most prominent disclosures on the page.
Consumer advocacy groups objected to removing the delinquency
information, stating that it is valuable information for consumers to
receive and that a court would not find that a servicer violated the
automatic stay by including this on a statement that also contained
appropriate bankruptcy disclaimers.
Proposed Sec. 1026.41(f)(1) addresses these concerns by modifying
the required content and layout of periodic statements for consumers in
bankruptcy. The proposal provides that the requirement set forth in
Sec. 1026.41(d)(1)(iii) that the amount due be the most prominent
disclosure on the page would not apply when a consumer is in bankruptcy
or has discharged personal liability for a mortgage loan through
bankruptcy. Consistent with the flexibility the Bureau would afford
servicers in modifying the periodic statement as necessary, discussed
above, the Bureau believes it is appropriate for other disclosures,
such as a disclaimer acknowledging the consumer's bankruptcy case and
advising that the statement is for informational purposes only, to be
the most prominent disclosures on the page.\277\ The Bureau notes that
the amount due disclosures required by Sec. 1026.41(d)(1) would still
be required to be located at the top of the first page of the
statement.\278\
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\277\ Compare Pearson v. Bank of Am., No. 3:12-cv-00013, 2012 WL
2804826, *5-6 (W.D. Va. July 10, 2012) (holding that creditor did
not violate discharge injunction because, among other things, the
periodic statements included a prominent bankruptcy disclaimer
noting that creditor could not collect debt or pressure debtor for
payment) with Harlan v. Rosenberg & Assocs. (In re Harlan), 402 B.R.
703, 716 (Bankr. W.D. Va. 2009) (holding that Chapter 7 debtors
stated a plausible claim for violation of the discharge injunction
where, among other things, creditor's letters stated that ``this is
an attempt to collect a debt'' and had bankruptcy disclaimers in
regular-sized font in the middle of the page).
\278\ 12 CFR 1026.41(d)(1) (stating that the (d)(1) disclosures
must be ``[g]rouped together in close proximity to each other and
located at the top of the first page of the statement'').
---------------------------------------------------------------------------
The Bureau believes that receiving information regarding the
consequences of late payments or continued delinquencies, such as
disclosures regarding potential fees and possible foreclosure, provides
tangible benefits to consumers.\279\ Nonetheless, the Bureau
understands that, in certain instances, bankruptcy courts have found
that statements regarding potential late fees or foreclosure and other
language that could be construed as threatening consequences for a
failure to make payments could violate the automatic stay.\280\
Furthermore, the Bureau believes that a consumer in bankruptcy may
already be aware of the consequences of non-payment and may have filed
for bankruptcy precisely to avoid those consequences. The Bureau
therefore believes that it may be appropriate to permit servicers to
exclude from the periodic statement certain information regarding
consequences of late payment or continued non-payment.
---------------------------------------------------------------------------
\279\ 78 FR 10901, 10971-72 (Feb. 14, 2013).
\280\ Compare Brown v. Bank of Am. (In re Brown), 481 B.R. 351,
360 (Bankr. W.D. Pa. 2012) with Schatz, 452 B.R. at 550 (no stay
violation where among other things, creditor did not threaten any
late fees); see also Duke, 79 F.3d at 45 (``[T]he respite provided
by Sec. 362 `is not from communication with creditors, but from the
threat of immediate action by creditors, such as a foreclosure or a
lawsuit.''') (quoting Brown v. Pa. State Emps. Credit Union, 851
F.2d 81, 86 (3d Cir. 1988)).
---------------------------------------------------------------------------
As such, for consumers in bankruptcy or who have discharged
personal liability for a mortgage loan through bankruptcy, proposed
Sec. 1026.41(f)(1) permits servicers to exclude from the periodic
statement the amount of any late payment fee that will be imposed and
the date on which that fee will be imposed if payment has not been
received.\281\ Proposed Sec. 1026.41(f)(1) also permits servicers to
exclude the delinquency-related disclosures set forth in Sec.
1024.41(d)(8)(i), (ii), and (v)--that is, the date on which the
consumer became delinquent; a notification of possible risks, such as
foreclosure and expenses, that may be incurred if the delinquency is
not cured; and a notice of whether the servicer has made the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process, if applicable. While the Bureau believes
that this is valuable information for any consumer, including a
consumer in bankruptcy, the Bureau is concerned that courts or
consumers may interpret a periodic statement containing such
disclosures as attempting to compel payment of a debt, rather than
simply providing information to a consumer.
---------------------------------------------------------------------------
\281\ 12 CFR 1026.41(d)(1)(ii).
---------------------------------------------------------------------------
On the other hand, the Bureau believes that the remainder of the
delinquency disclosures required by Sec. 1026.41(d)(8) may be
appropriate for consumers in a Chapter 7 or Chapter 11 case, and for
consumers who have discharged personal liability for a mortgage loan.
For example, references to any loss mitigation program to which the
consumer has agreed \282\ or to homeownership counselor information
\283\ do not relate to amounts owed, nor do they threaten consequences
for non-payment. No commenter specifically identified this information
as problematic and none cited case law indicating that providing it
would cause a servicer to violate the automatic stay.
---------------------------------------------------------------------------
\282\ 12 CFR 1026.41(d)(8)(iv).
\283\ 12 CFR 1026.41(d)(8)(vii).
---------------------------------------------------------------------------
Additionally, the Bureau believes that consumers in Chapter 7 or
Chapter 11 bankruptcy (or those who have discharged personal liability
for a mortgage loan through bankruptcy) who are intending to retain
their homes have a need for information regarding recent account
activity \284\ and the amount needed to bring the loan current.\285\ As
the Bureau stated in the 2013 TILA Servicing Final Rule, the accounting
associated with mortgage loan payments is complicated and can be even
more so in delinquency situations.\286\ The account history helps a
consumer better understand the exact amount owed on the loan and how
that total was calculated and it enables a consumer to better identify
errors in payment application. Moreover, the Bureau understands that
many housing counselors believe that this information is vital when
trying to assist a consumer to pursue home retention options and cure
prior defaults because it enables the counselor to understand the
circumstances of a consumer's delinquency. The Bureau believes that
this information may have unique benefits for a consumer in bankruptcy
because such a consumer may be facing an immediate decision whether to
retain or surrender a home and in that situation the consumer needs
accurate information about the amounts they owe.
---------------------------------------------------------------------------
\284\ 12 CFR 1026.41(d)(8)(iii).
\285\ 12 CFR 1026.41(d)(8)(vi).
\286\ 78 FR 10901, 10971 (Feb. 14, 2013).
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The Bureau further notes that the disclosures in Sec.
1026.41(d)(8) do not require a servicer to use any specific
[[Page 74260]]
language.\287\ A servicer is therefore permitted to describe those
disclosures in any numbers of ways to avoid concerns about the account
history appearing to be a collection attempt rather than simply
providing useful information.
---------------------------------------------------------------------------
\287\ Id. at 10972 (``[T]he Bureau notes that specific language
is not required by the regulation. * * *'').
---------------------------------------------------------------------------
The Bureau solicits comment on the modifications to the periodic
statement set forth in proposed Sec. 1026.41(f)(1). Specifically, the
Bureau solicits comment on whether the proposed modifications are
appropriate and whether additional modifications are necessary.
Further, the Bureau solicits comment on whether the proposed
modifications or additional modifications would be necessary if the
Bureau required a consumer in Chapter 7 or Chapter 11 (or a consumer
who has discharged personal liability for the mortgage loan through
bankruptcy) to opt-in to receiving periodic statements by submitting a
written request to a servicer.
41(f)(2) Bankruptcy Notices
All commenters suggested that a periodic statement provided to a
consumer in bankruptcy should contain a disclaimer acknowledging, at a
minimum, that the consumer is in bankruptcy and that the statement is
for informational purposes only. As noted above, two trade groups
commented that this should be the most prominent disclosure on the
page. Bankruptcy courts have frequently cited servicers' inclusion, or
failure to include, this type of disclaimer as a factor in determining
whether servicer has violated the automatic stay,\288\ and some
bankruptcy courts have adopted local rules permitting or requiring
periodic statements so long as they clearly identify that they are for
informational purposes and are not attempts to collect a debt.\289\
---------------------------------------------------------------------------
\288\ Compare Jones v. Bac Home Loans Servicing, LP (In re
Jones), No. 09-50281, 2009 WL 5842122, at *3 (Bankr. S.D. Ind. Nov.
25, 2009) (no discharge violation where letter acknowledged the
discharge and uncollectability of the debt); Pearson v. Bank of Am.,
No. 3:12-cv-00013, 2012 WL 2804826, at *5-6 (W.D. Va. July 10, 2012)
(holding that creditor did not violate discharge injunction for
debtor who had intent to surrender by sending a statement asking for
payment and noting late charge because the statement included
prominent bankruptcy disclaimer noting that creditor could not
collect debt or pressure debtor for payment and an opt-out clause);
Schatz v. Chase Home Fin. (In re Schatz), 452 B.R. 544, 550 (Bankr.
M.D. Pa. 2011) (holding that creditor did not violate the stay where
the disclaimer was located in the center of the first page, ``not
buried in boilerplate language, nor hidden on the backside of the
document'') with Brown v. Bank of Am. (In re Brown), 481 B.R. 351,
360 (Bankr. W.D. Pa. 2012) (holding that the creditor violated the
discharge injunction by sending periodic statements that lacked any
bankruptcy disclaimers, threatened late fees, and listed amounts
past due); Harlan v. Rosenberg & Assocs., LLC (In re Harlan), 402
B.R. 703, 716 (Bankr. W.D. Va. 2009) (finding stay violation where
bankruptcy disclaimer was in regular-sized font in the middle of the
page rather than more prominent than other disclosures); Sipe v.
Conseco Fin. Servicing Corp. f/k/a Green Tree Fin. Servicing Corp.
(In re Sipe), No. 99-40166, 2001 WL 35672616, at *4 (Bankr. W.D.N.C.
July 18, 2001) (finding a stay violation in part because ``[t]here
is nothing in `bold letters' across the front of the statements to
indicate that their sole purpose is to advise the debtor of the
receipt of funds from the Chapter 13 Trustee''); Curtis v. LaSalle
Nat'l Bank (In re Curtis), 322 B.R. 470, 484 n.18 (Bankr. D. Mass.
2005) (finding a stay violation where the bankruptcy disclaimers
were ``[o]n the backside of the first page of the . . . letter, and
without the capital letters and bold print employed for other
sections of the letter'').
\289\ See, e.g., Bankr. D. Colo. L.B.R. 4001-4(a)(1) (``In order
for communication to be protected under this [local rule], the
communication must indicate it is provided for information purposes
and does not constitute a demand for payment.''); D. Kan. Bk. S.O.
08-4, ] (c)(2) (``In order for communication to be protected under
this provision, the communication must indicate it is provided for
information purposes and does not constitute a demand for
payment.'').
---------------------------------------------------------------------------
The Bureau therefore believes it may be appropriate to require
servicers to include a similar disclaimer on periodic statements
provided to consumers in bankruptcy or who have discharged personal
liability for a mortgage loan through bankruptcy. Proposed Sec.
1026.41(f)(2) requires the periodic statement to include on the first
page a statement acknowledging the consumer's bankruptcy case or the
discharged nature of the mortgage loan and a statement that the
periodic statement is for informational purposes only. The Bureau
understands that this requirement is consistent with the practice of
servicers that currently provide periodic statements to consumers in
bankruptcy. The Bureau seeks comment on whether servicers should be
permitted to include the disclosures under proposed Sec. 1026.41(f)(2)
on a separate page enclosed with the periodic statement, whether the
disclosures under proposed Sec. 1026.41(f)(2) should be permissive
rather than mandatory, and whether there are other appropriate
disclosures that should be permitted or required.
41(f)(3) Chapter 12 and Chapter 13 Consumers
Proposed Sec. 1026.41(f)(3) sets forth additional modifications
for periodic statements provided to consumers in Chapter 12 or Chapter
13 cases. Proposed Sec. 1026.41(f)(3)(i) provides that, in addition to
the information identified in proposed Sec. 1026.41(f)(1), a servicer
may also omit the remainder of the delinquency information normally
required by Sec. 1026.41(d)(8). Proposed Sec. 1026.41(f)(3)(ii)
through (v) clarify and modify certain disclosures required by Sec.
1026.41(d), including the amount due, explanation of amount due, past
payment breakdown, and transaction activity. Finally, proposed Sec.
1026.41(f)(3)(vi) and (vii) require a servicer to include new
disclosures related to the pre-petition arrearage (if any), as well as
disclaimers related to the consumer's status in bankruptcy and the
accuracy of the information provided in the statement.
The Bureau is proposing three comments to clarify the meaning of
certain terms used in proposed Sec. 1026.41(f)(3) and related
commentary. First, proposed comment 41(f)(3)-1 clarifies that for
purposes of Sec. 1026.41(f)(3), the term ``plan of reorganization''
refers to a consumer's plan of reorganization filed under the
applicable provisions of Chapter 12 or Chapter 13 of the Bankruptcy
Code and confirmed by a court with jurisdiction over the consumer's
bankruptcy case. The Bureau believes that this comment will help avoid
any confusion about the meaning of the term ``plan of reorganization''
and whether the term refers to a proposed plan or one that has been
confirmed by a court.
Second, proposed comment 41(f)(3)-2 clarifies that for purposes of
Sec. 1026.41(f)(3), ``pre-petition payments'' are payments made under
a plan of reorganization to cure the consumer's pre-bankruptcy
defaults, if any, and that ``post-petition payments'' are payments made
under a plan of reorganization to satisfy the mortgage loan's periodic
payments as they come due after the bankruptcy case is filed. The
Bureau believes that these terms are appropriate because the Bureau
understands that they are commonly used to describe these two primary
types of payments made under a plan of reorganization.
Third, proposed comment 41(f)(3)-3 clarifies that for purposes of
Sec. 1026.41(f)(3), post-petition fees and charges are those fees and
charges incurred after the bankruptcy case is filed. In light of
proposed Sec. 1026.41(f)(3)'s requirement (discussed below) that
servicers make certain disclosures about the amount of post-petition
fees and charges, this proposed comment is intended to clarify the
distinction between fees and charges imposed before the bankruptcy case
was filed and those imposed after filing.
In addition, the Bureau is also proposing comment 41(f)(3)-4 to
address the disclosures that must be made on the first periodic
statement provided to a consumer under proposed Sec. 1024.41(f)(3)
after an exemption under Sec. 1026.41(e) expires. Section
[[Page 74261]]
1026.41(f)(3)(iii) through (vi) require the disclosure of the total sum
of any post-petition fees or charges imposed, the total of all post-
petition payments received and how they were applied, the total of all
payments applied to post-petition fees or charges imposed, a list of
all transaction activity, and the total of all pre-petition payments
received ``since the last statement.'' For purposes of the first
periodic statement provided to the consumer following termination of an
exemption under Sec. 1026.41(e), proposed comment 41(f)(3)-4 clarifies
that the disclosures required by Sec. 1026.41(f)(3)(iii) through (vi)
may be limited to account activity since the last payment due date that
occurred while the exemption was in effect. Proposed comment 41(f)(3)-4
tracks proposed comment 41(d)-5, discussed in the section-by-section
analysis of Sec. 1026.41(d), and is intended to ensure that the
disclosures required under Sec. 1026.41(f)(3)(iii) through (vi) cover
the same time period as the disclosures normally required by Sec.
1026.41(d).
41(f)(3)(i) Requirements Not Applicable
Proposed Sec. 1026.41(f)(3)(i) provides that, in addition to the
information a servicer may omit from the periodic statement under
proposed Sec. 1026.41(f)(1), a servicer may also omit the remainder of
the delinquency information required by Sec. 1026.41(d)(8) (i.e., a
servicer may also omit the information required by Sec.
1026.41(d)(8)(iii), (iv), (vi) and (vii)). Several servicers and trade
groups argued that delinquency information is particularly
inappropriate for Chapter 13 consumers because these consumers can be
contractually delinquent but still have made all payments due under the
plan of reorganization. Those commenters suggested that reminding these
consumers about their contractual delinquency could be confusing and
provide limited value. Several industry commenters also argued that
delinquency information related to failures to make plan payments is
unnecessary, as the bankruptcy court is in a position to resolve
matters related to post-petition defaults. Two consumer advocacy groups
and other industry participants agreed that delinquency information may
be confusing or provide little value to consumers in Chapter 13
bankruptcy. The two consumer advocacy groups recommended, in lieu of
delinquency information, that the periodic statement should contain
statements indicating that the consumer had not made all of the
required payments and encouraging the consumer to contact an attorney
or the trustee. Finally, an industry participant favored requiring a
periodic statement to include a more general disclosure that the
consumer must continue to make payment in order to retain the property.
The Bureau agrees with commenters that the delinquency information
may be confusing or of little value to consumers in a Chapter 13 case.
As commenters noted, information related to pre-bankruptcy defaults may
not be helpful, and in fact may be confusing, to a consumer whose plan
of reorganization is designed to repay those defaults over time.
Further, the Bureau understands that a consumer who fails to make
several plan payments will likely face immediate consequences in
bankruptcy, such as a trustee's motion to dismiss or a servicer's
motion for relief from the automatic stay, and the delinquency
information may serve less value in that scenario. Accordingly,
proposed Sec. 1026.41(f)(3)(i) provides that a servicer may omit the
delinquency information required by current Sec. 1026.41(d)(8).
41(f)(3)(ii) and (iii) Amount Due and Explanation of Amount Due
Under Sec. 1026.41(d)(1), a periodic statement must disclose,
among other things, the payment due date and the amount due. Section
1026.41(d)(2) requires disclosure of an explanation of amount due,
including (a) the monthly payment amount, including a breakdown showing
how much, if any, will be applied to principal, interest, and escrow;
(b) the total sum of any fees or charges imposed since the last
statement; and (c) any payment amount past due.
Proposed Sec. 1026.41(f)(3)(ii) and (iii) modify the requirements
of Sec. 1026.41(d)(1) and (2) for purposes of periodic statements
provided to consumers in Chapter 12 or Chapter 13 bankruptcy. The
proposal states that the amount due and explanation of amount due
disclosures may be limited to the monthly post-petition payments due
under the mortgage loan and any post-petition fees or charges imposed
since the last periodic statement. Proposed comments 41(f)(3)(ii)-1 and
(iii)-1 further clarify that these disclosures would not be required to
include the amounts of any payments on account of a consumer's pre-
petition arrearages or that are due under a court order.
Commenters raised three concerns about the amount due, payment due
date, and explanation of amount due disclosures required by Sec.
1026.41(d)(1) and (2) in the bankruptcy context. First, industry
participants and bankruptcy trustees requested clarification about what
payments and due dates should be included in these disclosures. These
commenters stated that listing the amount owed under the contract,
including all pre-petition arrearages, would conflict with the terms of
a bankruptcy plan, which allows the consumer to repay those arrearages
over time. They also noted that in Chapter 13 cases, consumers may be
making two sets of payments that may be due on two different dates (and
potentially due to two different parties), and they requested
clarification about whether the amount due must include one or both of
these payments. These commenters further noted that additional amounts
may be due pursuant to specific court orders and they inquired whether
those additional amounts must be included in the amount due and
explanation of amount due.
Industry, consumer advocacy groups, and bankruptcy trustees agreed
that the amount due should reflect the post-petition payments--that is,
the periodic payments due after the bankruptcy filing--and should not
include amounts attributable to the pre-petition arrearage or amounts
due under individual court orders. Commenters noted that the amount of
the post-petition payments is determined by the mortgage loan contract
and thus is information within a servicer's control, while the pre-
petition payments and amounts owed under a court order are determined
by the plan of reorganization or the court order. Industry commenters
further stated that that it would be difficult to accurately capture
these additional amounts and argued that they are unnecessary in a
periodic statement, given that the plan or court order identifies the
payment schedule and amount. During the bankruptcy roundtable
discussion that the Bureau held on June 16, 2014, participants agreed
that the amount due and explanation of amount due could be limited to
post-petition payments and that a servicer should include a disclaimer
advising that the plan may require the consumer to make additional
payments.
As the Bureau stated in the 2013 TILA Servicing Final Rule, the
Bureau believes that it may be appropriate to tailor the amount due
disclosures to the amounts due under a consumer's plan of
reorganization.\290\ Additionally, in light of the comments received,
the Bureau believes that it is appropriate to allow servicers to limit
the amount due and explanation of amount due disclosures to include
only post-petition payments. In addition to the reasons
[[Page 74262]]
provided by commenters, the Bureau understands that some local rules
adopted by bankruptcy courts that address periodic statements provide
that the statements should reflect the post-petition payments, and that
these local rules would not require a servicer to include pre-petition
payments or amounts due under a court order in the amount due
field.\291\ Accordingly, proposed Sec. 1026.41(f)(2)(ii) and (iii)
require a servicer to include post-petition payments in the amount due
and explanation of amount due, including any past due post-petition
payments, but do not require a servicer to include pre-petition
payments that may be due under the plan of reorganization.
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\290\ 78 FR 10901, 10966 (Feb. 14, 2013).
\291\ See, e.g., Mont. LBR 4001-3 (stating that if a mortgage
creditor provides periodic statements to a Chapter 13 debtor, the
``statements shall contain at least the following information
concerning postpetition mortgage payments to be made directly to the
mortgagee * * * (A) the date of the statement and the date the next
payment is due; (B) the amount of the current monthly payment'');
Vt. LBR 3071-1 (similar).
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The second concern that commenters raised pertained to the
explanation of amount due. Specifically, industry requested that the
explanation of amount due not include a breakdown of how much, if any,
of the post-petition payment will be applied to principal, interest,
and escrow, as would normally be required under Sec. 1026.41(d)(2)(i).
Two trade groups argued that this breakdown would confuse a consumer
because a servicer must apply the post-petition payment to the oldest
outstanding unpaid periodic payment, which often has a different
breakdown of principal and interest than the current month's payment.
The trade groups commented that consumers would not understand why the
allocation under the explanation of amount due would not correspond to
how the servicer actually applied the payment. The trade groups and a
servicer further commented that servicers cannot always discern how a
trustee may allocate payments to principal, interest, and escrow, so
the breakdown on the periodic statement may not match the trustee's
records, which could foster further confusion.
Comments from bankruptcy trustees and consumer advocacy groups took
the opposing view, arguing that disclosing how payments will be
allocated (and how they were applied, as discussed below) is vital to
ensuring that servicers are correctly applying payments. These
commenters stated that servicers have particular difficulty accounting
for escrow payments in bankruptcy and that disclosing the amount to be
applied to escrow is crucial to ensuring compliance with the bankruptcy
plan. Bankruptcy trustees noted that a breakdown of principal and
interest is helpful for determining whether servicers correctly applied
payments due under a daily simple interest loan. The trustees and
consumer advocacy groups also strongly disagreed with industry's legal
premise, arguing that Chapter 13 plans can in fact require a servicer
to apply a post-petition payment to the current month rather than to
the oldest outstanding debt.
Although the Bureau understands industry commenters' concerns about
the potential for consumer confusion, the Bureau believes that this
concern may be outweighed by the benefits of disclosing the breakdown
of the post-petition payments by principal, interest, and escrow. This
breakdown is intended to give a consumer a snapshot of why the consumer
is being asked to pay the amount due.\292\ Without an explanation of,
for example, the amount attributable to escrow, a consumer and the
consumer's attorney may be unable to discern how a servicer calculated
the amount due. Furthermore, as described in the section-by-section
analysis of Sec. 1026.41(f)(3)(vii), to address the potential for
borrower confusion, proposed Sec. 1026.41(f)(3)(vii) requires a
servicer to include a statement that the application of payments on the
periodic statement may not reflect the trustee's allocations and a
statement encouraging the consumer to contact the consumer's attorney
or trustee with any questions. Moreover, the Bureau notes that it
intends to conduct consumer testing on a proposed sample statement for
Chapter 13 consumers and that it will test whether consumers are in
fact confused by any discrepancy between the allocation in the amount
due and the allocation in the past payment breakdown. Accordingly,
proposed Sec. 1026.41(f)(3)(iii) leaves in place Sec.
1026.41(d)(2)(i)'s requirement to include a breakdown of the amount of
the monthly payment, if any, that will be applied to principal,
interest and escrow.
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\292\ See 78 FR 10901, 10965 (Feb. 14, 2013).
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Finally, commenters inquired about whether post-petition fees and
charges--that is, fees and charges imposed after the bankruptcy
filing--are required or permitted to be included in the amount due and
explanation of amount due. Two consumer advocacy groups maintained that
no law prevents servicers from advising consumers of fees or charges
that have been assessed during a bankruptcy case and that consumers
would benefit from being informed of these fees and charges when they
are imposed, rather than later in the bankruptcy case. One large
servicer agreed that consumers would benefit from learning about fees
as they are incurred. A trade group, two large servicers, and an
industry representative stated in joint comments that most servicers
would prefer to include fees and charges on a periodic statement so
that they could collect the fees shortly after assessing them and that
operationally it would be easier to include fees and charges on a
periodic statement than to not include them. These commenters noted,
however, that a minority of servicers are concerned that they should
first disclose any post-petition fees and charges to the bankruptcy
court through the procedures outlined in Federal Rule of Bankruptcy
Procedure 3002.1.
The Bureau agrees with the comments that consumers, including those
in bankruptcy, benefit from learning of fees and charges that have been
imposed on their account. The Bureau believes that this would assist
consumers' efforts to budget their finances and timely pay fees and
charges. The Bureau further believes that a servicer also benefits from
fees or charges being disclosed on the periodic statement because it
enables the servicer to quickly collect the fees or charges. The Bureau
appreciates the concern of some servicers that they would prefer to
first disclose the fees and charges to a bankruptcy court through the
procedures set forth in Federal Rule of Bankruptcy Procedure 3002.1. In
the bankruptcy context, however, a servicer that defers collecting a
fee or charge until after complying with the Federal Rule of Bankruptcy
Procedure 3002.1 procedures, and thus after a potential court
determination on the allowability of the fee or charge, is not required
to disclose the fee or charge until complying with such procedures. For
these reasons, proposed Sec. 1026.41(f)(2)(ii)(A) and (B) require a
servicer to include in the explanation of amount due the total sum of
any post-petition fees or charges imposed since the last periodic
statement. A servicer that defers collecting a fee or charge until
after complying with the Federal Rule of Bankruptcy Procedure 3002.1
procedures, and thus after a potential court determination on the
allowability of the fee or charge, is not required to disclose the fee
or charge until complying with such procedures.
Proposed comment 41(f)(3)(ii)-1 is intended to clarify the amounts
that must be included in the amount due and the amounts that may be
included in the amount due at a servicer's
[[Page 74263]]
discretion. The proposed comment clarifies that, for a consumer in
Chapter 12 or Chapter 13 bankruptcy, the amount due is not required to
include any amounts other than the post-petition payments or post-
petition fees and charges that a servicer has imposed. Additionally,
the proposed comment explains that a servicer has not imposed a fee or
charge if it will comply with Federal Rule of Bankruptcy Procedure
3002.1 before attempting to collect a fee or charge. The comment
further explains that while only post-petition payments and post-
petition fees and charges are required to be included in the amount
due, a servicer has the flexibility to include other amounts, such as
the amount owed under an agreed court order, in the amount due, so long
as those other amounts are also disclosed in the explanation of amount
due and transaction activity.
Proposed comment 41(f)(3)(iii)-1 provides similar clarification
with respect to the explanation of amount due. It states that the
explanation of amount due is not required to include any amounts other
than the post-petition payments and post-petition fees and charges that
a servicer has imposed. A servicer nonetheless has the flexibility to
include other amounts, such as amounts payable under an agreed court
order, in the explanation of amount due, so long as those other amounts
are disclosed in the amount due and transaction activity. The Bureau
believes that proposed comments 41(f)(3)(ii)-1 and (iii)-1 will assist
servicers in understanding what amounts must be, and are permitted to
be, included in the amount due and explanation of amount due.
The Bureau solicits comment on whether the explanation of amount
due should include a breakdown of the amount of the monthly payment
that will be applied to principal, interest and escrow, or whether a
more limited disclosure is appropriate, such as listing the monthly
payment as a lump sum or listing the principal and interest as a
combined figure with the escrow amount disclosed separately.
Additionally, the Bureau requests comment on whether a servicer should
be permitted or required to include post-petition fees and charges in
the amount due disclosure.
41(f)(3)(iv) Past Payment Breakdown
Proposed Sec. 1026.41(f)(3)(iv) is intended to provide a consumer
with a snapshot of how their payments have been applied, much the same
as Sec. 1026.41(d)(3). Specifically, proposed Sec. 1026.41(f)(3)(iv)
requires the periodic statement to include the total of all post-
petition payments received since the last statement and a breakdown of
the amounts, if any, applied to principal, interest, and escrow, as
well as the amount, if any, currently held in any suspense or unapplied
funds account and a total of all payments applied to post-petition fees
or charges since the last statement. Proposed Sec. 1026.41(f)(3)(iv)
also requires the periodic statement to include the total of all post-
petition payments received since the beginning of the calendar year and
a breakdown of the amounts, if any, applied to principal, interest, and
escrow, as well as a the amount, if any, currently held in any suspense
or unapplied funds account and total of all payments applied to post-
petitions fees or charges since the beginning of the calendar year.
Industry commenters objected to the requirement that a periodic
statement must contain a past payment breakdown including a breakdown
of payments by the amount applied to principal, interest, and escrow,
maintaining that this could confuse consumers because it may not be
consistent with the trustee's records. Industry commenters requested
that the post-petition payments received be disclosed as a lump sum
total. A credit union commented that, although it tracks the amounts
applied to post-petition fees and charges, its systems are not
currently configured to display that total on a periodic statement. The
credit union further commented that similar smaller entities would need
to upgrade their systems to disclose this information.
Consumer advocacy groups and bankruptcy trustees commented that
receiving a breakdown of how post-petition payments were applied to
principal, interest, and escrow is vital to determining whether a
servicer is correctly applying payments due under a plan of
reorganization. These commenters stated that a lump sum disclosure
would be of significantly less value.
The Bureau understands servicers' concerns about borrower
confusion, but as discussed in the section-by-section analysis of
41(f)(3)(ii) with respect to the explanation of amount due, the Bureau
believes that these concerns may be outweighed by the benefits of
disclosing the breakdown of the post-petition payments by principal,
interest, and escrow. This breakdown allows a consumer to identify
potential errors in payment application, including any misapplication
of payments to escrow or fees. The Bureau believes that this breakdown
also plays an important role in educating a consumer. The Bureau also
believes that the information pertaining to payments received since the
last statement inform consumers of how much their outstanding principal
has decreased, while the year-to-date information educates consumers
about the costs of their mortgage loan.\293\ Furthermore, as set forth
below, to address the potential for borrower confusion, proposed Sec.
1026.41(f)(3)(vii) requires a servicer to include a statement that the
application of payments on the periodic statement may not reflect the
trustee's allocations, as well as a statement encouraging the consumer
to contact the consumer's attorney or trustee with any questions.
Therefore, the Bureau is proposing Sec. 1026.41(f)(3)(iv) to require a
servicer to include a breakdown of the amount of the post-petition
payments that was applied to principal, interest and escrow.
---------------------------------------------------------------------------
\293\ Id. at 10966 (Feb. 14, 2013).
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The Bureau solicits comment on whether the past payment breakdown
should include a breakdown of the amount of the post-petition payments
that were applied to principal, interest and escrow, or whether a more
limited disclosure is appropriate, such as listing the amounts applied
as a lump sum or listing the principal and interest as a combined
figure with the escrow amount broken out separately.
41(f)(3)(v) Transaction Activity
Proposed Sec. 1026.41(f)(3)(v) provides that the transaction
activity information required to be disclosed on a periodic statement
under Sec. 1026.41(d)(4) must include any post-petition payments, pre-
petition payments, and payments of post-petition fees or charges the
servicer has received since the last statement.
Consumer advocacy groups and bankruptcy trustees commented that the
transaction activity should include both pre-petition payments and
post-petition payments received by the servicer so that a consumer and
the trustee have a record of which payments a servicer has received and
when. Industry commenters did not object to disclosing these amounts,
though they commented that it would be extremely difficult for a
servicer to identify the source of any payments--whether a payment came
from a trustee, a consumer, or a third-party-and that the source of
payment is not important to the consumer. During the bankruptcy
roundtable that the Bureau held on June 16, 2014, representatives from
consumer advocacy groups and bankruptcy trustees agreed that the source
of payments is not as important as simply identifying the amount of the
payment received. Additionally, consumer
[[Page 74264]]
advocacy groups stated that there is no prohibition on disclosing post-
petition fees or charges that have been imposed on a consumer, and that
a consumer would benefit from having those fees disclosed on a periodic
statement. Several servicers stated that their preference would be to
disclose fees and charges as they are imposed so that they can be
collected on a real-time basis.
As discussed in the 2013 TILA Servicing Final Rule, the Bureau
believes that it is important for consumers to understand account
activity that credits or debits the amount due, including any fees or
charges that have been assessed.\294\ The Bureau believes that
consumers in bankruptcy would similarly benefit from these disclosures.
Additionally, the Bureau believes that consumers in bankruptcy may
benefit if the transaction activity includes pre-petition payments.
Although those payments would not affect the amount due (which would be
limited to post-petition payments and fees), the pre-petition payments
do reduce a consumer's pre-petition arrearage and thus serve to reduce
a consumer's delinquency. Generally, the Bureau believes that having an
accurate picture of a delinquency is essential for consumers to engage
in financial planning. Moreover, the Bureau understands that there may
be a significant delay between when a consumer sends a pre-petition
payment to a trustee and when a servicer ultimately receives that
payment, and the Bureau believes it may benefit consumers to have a
record of when such payments are received. Accordingly, proposed Sec.
1026.41(f)(3)(v) provides that the transaction activity information set
forth in Sec. 1026.41(d)(4) must include any post-petition payments,
pre-petition payments, and payments of post-petition fees or charges
the servicer has received since the last statement.
---------------------------------------------------------------------------
\294\ 78 FR 10901, 10967 (Feb. 14, 2013).
---------------------------------------------------------------------------
Proposed comment 41(f)(3)(v)-1 clarifies that the brief description
of the transaction activity required by Sec. 1026.41(d)(4) does not
need to identify the source of the payments received by the servicer.
The Bureau believes that this clarification is necessary in light of
servicers' comments that they are not able to provide this information
on a periodic statement.
The Bureau solicits comment on whether the transaction activity
should including post-petition payments, pre-petition payments, and
post-petition fees and charges, or whether it should disclosure
different or additional types of activity.
41(f)(3)(vi) Pre-petition Arrearage
For consumers in Chapter 12 or Chapter 13 bankruptcy, proposed
Sec. 1026.41(f)(3)(vi) requires a servicer to disclose, if applicable,
the total of all pre-petition payments received by the servicer since
the last periodic statement, the total of all pre-petition payments
received by the servicer since the beginning of the current calendar
year, and the current balance of the consumer's pre-petition arrearage.
As discussed in the section-by-section analyses of Sec.
1026.41(f)(3)(ii) through (iv), some industry representatives submitted
ex parte comments objecting to a requirement to break down payment
application by principal, interest, and escrow, and industry commenters
voiced a stronger objection to doing so for pre-petition payments.
Industry commenters stated that the pre-petition arrearage is treated
essentially as a lump sum claim in bankruptcy, and that each payment
received goes to reduce the amount of that claim. They maintained that,
as a result, it is unnecessary to disclose whether a portion of a
payment is being applied to principal or pre-petition escrow shortages,
and that it is equally unnecessary and unhelpful to advise the consumer
if any portion of the payment is being held in suspense. These
commenters further stated that a Chapter 13 trustee and a servicer may
allocate a different portion of the pre-petition payments to, for
example, principal or fees, and that the differing allocations would be
extremely difficult to reconcile. Several servicers stated that they
could disclose the amount of any pre-petition payments received as well
as the current balance the pre-petition arrearage. A credit union
commented that it and other smaller-sized entities currently lack the
capacity to export information about pre-petition payments onto a
periodic statement, however, and that any requirement to do so would
require them to modify their systems.
Consumer advocacy groups and bankruptcy trustees commented that
breaking down pre-petition payments by principal, interest, and escrow
would be unnecessary for purposes of periodic statements because the
arrearage is treated as a lump sum claim in bankruptcy. They expressed
comfort with the idea of servicers disclosing the amount of pre-
petition payments received and the current balance of pre-petition
arrearage.
The Bureau believes that consumers need a record of payments
received by a servicer, including pre-petition payments, in order to
better understand the status of their mortgage loans and any
delinquencies. The Bureau also believes that, in light of the comments
from industry, consumer advocacy groups, and bankruptcy trustees,
servicers should not be required to break down pre-petition payments by
principal, interest, and escrow and that consumers would benefit from
disclosure of the aggregate amounts of these payments. Although the
Bureau understands that some servicers may not be currently equipped to
identify the amount of the pre-petition arrearage on a periodic
statement, the Bureau understands that servicers keep records of this
information and believes that, with an appropriate implementation
period, servicers would be able to provide it on a periodic statement.
Accordingly, proposed Sec. 1026.41(f)(3)(vi) requires a servicer to
disclose, if applicable, the total of all pre-petition payments
received since the last periodic statement, the total of all pre-
petition payments received since the beginning of the current calendar
year, and the current balance of the consumer's pre-petition arrearage.
The Bureau understands that, in some instances, such as before a
servicer files a proof of claim in a consumer's bankruptcy case or if a
consumer or trustee objects to a servicer's claim, the amount of the
pre-petition arrearage may not be determined or may be in dispute. In
that instance, the Bureau believes that it may be appropriate for the
periodic statement to reflect the unresolved nature of the arrearage.
Accordingly, proposed comment 41(f)(3)(vi)-1 provides that to the
extent the amount of a consumer's pre-petition arrearage is subject to
dispute or has not yet been determined, the periodic statement may
include a statement acknowledging the unresolved nature of the pre-
petition arrearage.
The Bureau solicits comment on whether periodic statements should
be required to disclose the pre-petition payments received and applied
and the balance of the pre-petition arrearage, and whether there are
alternative avenues for apprising consumers of this information.
41(f)(3)(vii) Additional Disclosures
Proposed Sec. 1026.41(f)(3)(vii) requires a servicer to include
four additional statements on the periodic statement, as applicable,
when a consumer is in Chapter 12 or Chapter 13 bankruptcy. First, Sec.
1026.41(f)(3)(vii)(A) requires a statement that the amount due includes
only post-petition payments and does not include other payments that
may be due under the terms of the consumer's bankruptcy plan. The
purpose of this disclosure is to ensure that a consumer
[[Page 74265]]
understands that there may be additional amounts due under the plan
that relate to the mortgage debt. Several industry participants and
consumer advocacy groups recommended that periodic statements include
such a disclaimer, and the Bureau believes that it may be appropriate
to avoid consumer confusion.
Second, proposed Sec. 1026.41(f)(3)(vii)(B) requires a statement
that if the consumer's bankruptcy plan requires the consumer to make
the post-petition mortgage payments directly to a bankruptcy trustee,
the consumer should send the payment to the trustee and not to the
servicer. This proposed disclosure is intended to avoid consumer
confusion about whether to send a post- petition payment to the trustee
or servicer. Several industry participants and consumer advocacy groups
stated that such a disclosure would be helpful to avoid confusion and
that some servicers already include such a disclosure on their periodic
statement. The Bureau believes that such a disclosure is appropriate.
Third, proposed Sec. 1026.41(f)(3)(vii)(C) requires a statement
that the information disclosed on the periodic statement may not
reflect payments the consumer has made to the trustee and may not be
consistent with the trustee's records. Finally, proposed Sec.
1026.41(f)(3)(vii)(D) requires a statement that encourages the consumer
to contact the consumer's attorney or the trustee with questions
regarding the application of payments. Several industry participants
stated that these disclosures would be helpful because there can be a
delay between when a trustee receives a payment from a consumer and
when the trustee remits that payment to a servicer, and a consumer may
wonder why the statement does not reflect all payments the consumer has
made. For pre-petition payments, in particular, the Bureau understands
that the delay can be weeks or even months as a trustee may not
distribute payments on pre-petition claims until the creditor files a
proof of claim or until higher priority claims have been paid in full.
Additionally, the Bureau understands that a trustee may allocate
payments differently than a servicer, and until the allocations are
reconciled, a periodic statement provided by a servicer may reflect
different allocations than a trustee's records. Based on these timing
and allocation issues, the Bureau believes that it is appropriate to
advise consumers of the differences between a servicer's records and a
trustee's records and that encouraging consumers to contact their
attorney of the trustee may be a helpful disclosure.
The Bureau solicits comment on whether servicers should be
permitted to include the disclosures under proposed Sec.
1026.41(f)(3)(vii) on a separate page enclosed with the periodic
statement, whether the disclosures under proposed Sec.
1026.41(f)(3)(vii) should be permissive or mandatory when applicable,
and whether there are other disclosures that a servicer should be
required to include in a periodic statement under proposed Sec.
1026.41(f).
41(f)(4) Multiple Obligors
Proposed Sec. 1026.41(f)(4) addresses the situation where more
than one consumer is primarily obligated on a mortgage loan and a
servicer is required to provide at least one of the primary obligors
with a modified periodic statement pursuant to Sec. 1026.41(f).
Proposed Sec. 1026.41(f)(4) provides that the servicer may provide the
modified version of the periodic statement to any or all of the primary
obligors instead of any statements not including the bankruptcy-
specific modifications, even if not all primary obligors are debtors in
bankruptcy. On the other hand, as proposed comment 41(e)(5)(i)-5 and
the section-by-section analysis of Sec. 1026.41(e)(5) explain, if a
servicer were exempt under proposed Sec. 1026.41(e)(5)(i) from
providing periodic statements to the obligor in bankruptcy, the
servicer would continue to provide regular periodic statements, without
any of the bankruptcy-specific modifications, to the obligors who are
not in bankruptcy.
During the bankruptcy roundtable discussion, representatives from
industry and consumer advocacy groups agreed that if a servicer is
required to provide a periodic statement with bankruptcy-specific
information to a consumer, the servicer should be permitted to send the
same modified form of statement to any or all of the consumer's co-
obligors on the mortgage loan, even if not all the obligors are debtors
in bankruptcy. One large servicer noted that sending one type of
statement to all joint obligors on a mortgage loan reflects its current
practice when one or more obligors is a debtor in bankruptcy. Industry
representatives stated that sending one type of statement per mortgage
loan account would be less burdensome and would be easier to administer
than sending different types of statements to different obligors on the
same account.
The Bureau agrees with the bankruptcy roundtable participants that
a servicer should be permitted to provide only one type of periodic
statement per mortgage loan account. The Bureau believes that it would
impose an undue burden on servicers to have to send one version of the
periodic statement to a consumer in bankruptcy and a different version
to the consumer's non-bankrupt co-obligors. Moreover, the Bureau
believes such a result would be inconsistent with comment 41(a)-1,
which clarifies that when more than one consumer is primarily obligated
on a mortgage loan, a servicer may send the periodic statement to any
one of the primary obligors; the servicer is not required to provide
periodic statements to all primary obligors, let alone different
versions of the periodic statement.
Accordingly, proposed Sec. 1026.41(f)(4) provides that if a
servicer is required to provide periodic statements with the
modifications set forth in proposed Sec. 1026.41(f) in connection with
a mortgage loan for which more than one consumer is primarily
obligated, the servicer may provide the modified statements to any or
all of the primary obligors instead of any statements not including the
bankruptcy-specific modifications, even if not all of the primary
obligors are debtors in bankruptcy.
Proposed comment 41(f)(4)-1 provides an illustration of a
servicer's obligations with respect to a mortgage loan where two
spouses are obligors on a mortgage loan, and only one spouse files for
Chapter 13 bankruptcy. In this example, the plan of reorganization for
the spouse in bankruptcy provides for the retention of the property
securing the mortgage loan by making pre-petition and post-petition
payments, thus requiring the servicer to provide a periodic statement
with the modifications set forth in proposed Sec. 1026.41(f)(1)
through (3). Proposed comment 41(f)(4)-1 clarifies that the servicer
can provide the periodic statements with the modifications set forth in
proposed Sec. 1026.41(f)(1) through (3) to either spouse, even though
one spouse is not in bankruptcy.
41(f)(5) Coupon Books
Proposed Sec. 1026.41(f)(5) provides that certain modifications in
proposed Sec. 1026.41(f)(1) and (3) apply to coupon books provided
instead of periodic statements under Sec. 1026.41(e)(3). Proposed
Sec. 1026.41(f)(5) permits the servicer to put the disclosures
required under proposed Sec. 1026.41(f)(2) and (3)(vii) anywhere in
the coupon book or provide them on a separate page enclosed with the
coupon book provided to the consumer. The servicer also must make
available upon request
[[Page 74266]]
to the consumer by telephone, in writing, in person, or electronically,
if the consumer consents, the pre-petition arrearage information listed
in proposed Sec. 1026.41(f)(3)(vi), as applicable. Lastly, proposed
Sec. 1026.41(f)(5) provides that the modifications set forth in
proposed Sec. 1026.41(f)(1) and (3)(i) through (v) and (vii) apply to
coupon books and other information a servicer provides to the consumer
under Sec. 1026.41(e)(3).
The Bureau believes that proposed Sec. 1026.41(f)(5) will not
impose significant burdens on servicers that use coupon books. The
statements set forth in proposed Sec. 1026.41(f)(1) and (3)(vii) are
the only new, bankruptcy-specific disclosures that a servicer must
include in a coupon book. These are standardized statements--servicers
will not need to craft language for individual borrowers. Additionally,
the Bureau is proposing to allow servicers to include these statements
anywhere in the coupon book or on a separate page enclosed with the
coupon book. The remainder of the modifications set forth in proposed
Sec. 1026.41(f)(1) and (3)(i) through (v) and (vii) do not require a
servicer to modify any of the disclosures in the coupon book or provide
new information to a consumer. Rather, these modifications provide that
certain disclosures (such as a description of late payment fees) are
not required when a consumer is in bankruptcy and clarify the
requirements for certain other disclosures (such as amount due) in a
manner that is consistent with the information already provided in a
coupon book. Thus, while a servicer has the option to modify its coupon
books to omit certain disclosures that are not required when a consumer
is in bankruptcy, the proposal does not require servicers to redesign
their coupon books specifically for consumers in bankruptcy, and
servicers can determine the most cost-efficient method of providing the
required information. Moreover, proposed Sec. 1026.41(f)(5) permits a
servicer to provide modified coupon books according to its normal
schedule. For example, if a servicer provided a 12-month coupon book to
a consumer in January and the consumer filed for bankruptcy in March,
the servicer would not need to issue a new, modified coupon book
accompanied by the proposed Sec. 1026.41(f)(1) and (3)(vii)
disclosures until the following January.
Providers of coupon books will also, at the consumer's request,
have to provide the pre-petition arrearage information set forth in
proposed Sec. 1026.41(f)(3)(vi). The Bureau understands, however, that
servicers already maintain internal records regarding pre-petition
payments and the balance of the pre-petition arrearage; therefore, the
Bureau does not believe that the cost of providing this information
upon a consumer's request will impose significant new burdens.
The Bureau solicits comment on applying the modifications set forth
in proposed Sec. 1026.41(f)(1) and (3)(i) through (v) and (vii) when a
servicer provides coupon books under Sec. 1026.41(e)(3). In
particular, the Bureau solicits comment on whether there may be
alternative means to providing consumers with substantially the same
information regarding the mortgage loan account while they are in
bankruptcy. Additionally, the Bureau solicits comment on whether
servicers should be required to issue a new coupon book or other
disclosures immediately upon a consumer's bankruptcy filing. Finally,
the Bureau solicits comment on servicers' current practices with
respect to providing coupon books to consumers in bankruptcy.
Sample Forms
Proposed sample forms for periodic statements are provided in
proposed appendices H-30(E) and (F). Section 1026.41(c) specifies that
sample forms for periodic statements are provided in appendix H-30 and
that proper use of these forms complies with the form and layout
requirements of Sec. 1026.41(c) and (d). The Bureau believes that
sample forms are appropriate to provide servicers with guidance for
complying with the requirements of Sec. 1026.41(c) and (d) as modified
by proposed Sec. 1026.41(f). The Bureau therefore exercises its
authority under, among other things, section 128(f) of TILA to propose
sample forms for Sec. 1026.41(c) and 1026.41(d), as modified by Sec.
1026.41(f). Proposed appendix H-30(E) provides a sample form for
complying with the requirements of Sec. 1026.41(f) with respect to a
consumer in a Chapter 7 or Chapter 11 bankruptcy case or a consumer who
has discharged personal liability for a mortgage loan. This form
includes the delinquency information required by Sec. 1026.41(d)(8) as
an example; a servicer is not required to include this information if
it is not applicable to a consumer. Proposed appendix H-30(F) provides
a sample form for complying with the requirements of proposed Sec.
1026.41(f) with respect to a consumer in a Chapter 12 or Chapter 13
bankruptcy case. The Bureau notes that these are not required forms and
that any arrangements of the information that meet the requirements of
Sec. 1026.41 would be considered in compliance with the section.
The Bureau intends to conduct consumer testing on the sample forms
in proposed appendices H-30(E) and H-30(F) following publication of
this proposed rule. Prior to finalizing any such sample forms, the
Bureau will publish and seek comment on a report summarizing the
methods and results of the consumer testing.
Legal Authority
The Bureau is proposing Sec. 1026.41(f)--which contains content
and layout requirements for periodic statements in bankruptcy--to
implement section 128(f) of TILA as well as section 105(a) of TILA and
section 1032(a) of the Dodd-Frank Act. Section 128(f)(1)(e) of TILA
requires the periodic statement to include a description of any late
payment fees. For the reasons discussed above, the Bureau is proposing
to use its authority under section 105(a) and (f) of TILA to exempt
servicers from having to include this information in periodic
statements provided to consumers who are in bankruptcy or have
discharged personal liability for a mortgage loan. This proposed
exemption is additionally authorized under section 1405(b) of the Dodd-
Frank Act.
Appendix H--Closed-End Model Forms and Clauses
Appendix H--4(C) to Part 1026
The 2013 TILA Servicing Final Rule revised the commentary to Sec.
1026.19(b) to reflect the revised Sec. 1026.20(c) and revised Sec.
1026.20(d) ARM notices. This proposal modifies the Variable-Rate Model
Clauses in appendix H--4(C) to reflect the language in the revised
commentary. No change to the table of contents of appendix H is
necessary.
Appendix H--14 to Part 1026
The 2013 TILA Servicing Final Rule changed the commentary to Sec.
1026.19(b) to reflect the revised Sec. 1026.20(c) and revised Sec.
1026.20(d) ARM notices. This proposal modifies the Variable-Rate
Mortgage Sample form in appendix H--14 to reflect the language in the
revised commentary. No change to the table of contents of appendix H is
necessary.
Appendix H--30(C) to Part 1026
This proposal makes a minor technical revision to the entry for H--
30(C) in the table of contents at the beginning of this appendix and
republishes sample form H--30(C). The technical change amends ``Sample
Form of Periodic Statement for a Payment-Options Loan (Sec. 1026.41)''
to ``Sample Form of Periodic Statement for a Payment-Option Loan (Sec.
1026.41).''
[[Page 74267]]
Appendices H--30(E) and H--30(F) to Part 1026
This proposal provides proposed sample forms for periodic
statements for certain consumers in bankruptcy in proposed appendices
H--30(E) and H--30(F) and makes corresponding additions to the table of
contents for appendix H. Section 1026.41(c) specifies that sample forms
for periodic statements are provided in appendix H--30 and that proper
use of these forms complies with the form and layout requirements of
Sec. 1026.41(c) and (d). The Bureau believes that sample forms may be
appropriate to provide servicers with guidance for complying with the
requirements of Sec. 1026.41(c) and (d) as modified by proposed Sec.
1026.41(f). The Bureau therefore exercises its authority under, among
other things, section 128(f) of TILA to provide sample forms for Sec.
1026.41(c) and (d), as modified by Sec. 1026.41(f). Appendix H--30(E)
provides a sample form for complying with the requirements of Sec.
1026.41(f) with respect to a consumer in a Chapter 7 or Chapter 11
bankruptcy case or a consumer who has discharged personal liability for
a mortgage loan. Appendix H--30(F) provides a sample form for complying
with the requirements of Sec. 1026.41(f) with respect to a consumer in
a Chapter 12 or Chapter 13 bankruptcy case. They would not be required
forms, however, and any arrangements of the information that meet the
requirements of Sec. 1026.41 would be considered in compliance with
the section.
The Bureau intends to conduct consumer testing on the sample forms
in proposed appendices H--30(E) and H--30(F) following publication of
this proposed rule. Prior to finalizing any such sample forms, the
Bureau will publish and seek comment on a report summarizing the
methods and results of the consumer testing.
VI. Dodd-Frank Act Section 1022(b)
A. Overview
In developing the proposed rule, the Bureau has considered the
proposed rule's potential benefits, costs, and impacts.\295\ The Bureau
requests comment on the preliminary analysis presented below as well as
submissions of additional data that could inform the Bureau's analysis
of the benefits, costs, and impacts. In developing the proposed rule,
the Bureau has consulted, or offered to consult with, the prudential
regulators, the Securities and Exchange Commission, HUD, the Federal
Housing Finance Agency, the Federal Trade Commission, and the
Department of the Treasury, including regarding consistency with any
prudential, market, or systemic objectives administered by such
agencies.
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\295\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
requires the Bureau to consider the potential benefits and costs of
the regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products and services; the impact of proposed rule on insured
depository institutions and insured credit unions with less than $10
billion in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas.
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The Bureau is now proposing several additional amendments to the
Mortgage Servicing Rules to revise regulatory provisions and official
interpretations relating to the Regulation X and Z mortgage servicing
rules. The proposals cover nine major topics, summarized below
generally in the order they appear in the proposed rule. More details
can be found in the proposed rule.
1. Successors in interest. The Bureau is proposing three sets of
rule changes relating to successors in interest. First, the Bureau is
proposing to apply all of the Mortgage Servicing Rules to successors in
interest once a servicer confirms the successor in interest's identity
and ownership interest in the property. Second, the Bureau is proposing
rules relating to how a mortgage servicer confirms a successor in
interest's status. Third, the Bureau is proposing that, to the extent
that the Mortgage Servicing Rules apply to successors in interest, the
rules apply with respect to all successors in interest who acquire an
ownership interest in a transfer protected from acceleration, and
therefore foreclosure, under Federal law.
2. Definition of delinquency. The Bureau is proposing to add a
general definition of delinquency that would apply to all of the
servicing provisions of Regulation X and the provisions regarding
periodic statements for mortgage loans in Regulation Z. Under the
proposed definition, a borrower and a borrower's mortgage loan
obligation are delinquent beginning on the date a payment sufficient to
cover principal, interest, and, if applicable, escrow, becomes due and
unpaid.
3. Requests for information. The Bureau is proposing amendments
that would change how a servicer must respond to requests for
information asking for ownership information for loans in trust for
which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor.
4. Force-placed insurance. The Bureau is proposing to amend the
required disclosures to account for when a servicer wishes to force-
place insurance when the borrower has insufficient, rather than
expiring or expired, hazard insurance coverage on the property.
Additionally, the Bureau is proposing to give servicers the option to
include a borrower's mortgage loan account number on the notices
required under Sec. 1024.37. The Bureau is also proposing several
technical edits to correct discrepancies between the model forms and
the text of Sec. 1024.37.
5. Early intervention. The Bureau is proposing to clarify generally
the early intervention live contact obligations and written early
intervention notice obligations. The Bureau is also proposing to
require servicers to provide written early intervention notices to
certain borrowers who are in bankruptcy or who have invoked their cease
communication rights under the FDCPA.
6. Loss mitigation. The Bureau is proposing to: (1) Require
servicers to meet the loss mitigation requirements more than once in
the life of a loan for borrowers who become current after a
delinquency; (2) Modify the existing exception to the 120-day
prohibition on foreclosure filing to allow a servicer to join the
foreclosure action of a senior lienholder; (3) Clarify that servicers
have significant flexibility in setting a reasonable date by which a
borrower must return documents and information to complete an
application, so long as the date maximizes borrower protections and
allows borrowers a reasonable period of time to return documents and
information; (4) Clarify that servicers must take affirmative steps to
delay a foreclosure sale, even where the sale is conducted by a third
party; clarify the servicer's duty to instruct foreclosure counsel to
take steps to comply with the dual-tracking prohibitions; and indicate
that a servicer who has not taken, or caused counsel to take, all
reasonable affirmative steps to delay the sale, is required to dismiss
the foreclosure action if necessary to avoid the sale; (5) Require that
servicers promptly provide a written notice once they receive a
complete loss mitigation application; require that the notice indicate
that the servicer has received a complete application but clarify that
the servicer might later request additional information if needed;
require that the notice provide the date of completion and a disclosure
indicating whether a foreclosure sale was scheduled as of that date,
the date foreclosure protections began, a statement informing the
borrower of applicable appeal rights, and a statement that the servicer
will complete its evaluation within 30 days from the date of the
complete
[[Page 74268]]
application; (6) Address and clarify how servicers obtain information
not in the borrower's control and evaluate a loss mitigation
application while waiting for such third party information; prohibit
servicers from denying borrowers based upon delay in receiving such
third party information; require that servicers promptly provide a
written notice to the borrower if the servicer lacks third party
information 30 days after receiving the borrower's complete
application; and require servicers to notify borrowers of their
determination in writing promptly upon receipt of the third party
information; (7) Permit servicers to offer a short-term repayment plan
based upon an evaluation of an incomplete application; (8) Clarify that
servicers may stop collecting documents and information from a borrower
pertaining to a loss mitigation option after receiving information
confirming that the borrower is ineligible for that option; and (9)
Address and clarify how loss mitigation procedures and timelines apply
to a transferee servicer that receives a mortgage loan for which there
is a loss mitigation application pending at the time of a servicing
transfer.
7. Prompt payment crediting. The Bureau is proposing to clarify how
servicers must treat periodic payments made by consumers who are
performing under either temporary loss mitigation programs or permanent
loan modifications. Under the Bureau's proposal, periodic payments made
pursuant to temporary loss mitigation programs would continue to be
credited according to the loan contract and could, if appropriate, be
credited as partial payments, while periodic payments made pursuant to
a permanent loan modification would be credited under the terms of the
permanent loan agreement.
8. Periodic statements. The Bureau is proposing to: (1) Clarify
certain periodic statement disclosure requirements relating to mortgage
loans that have been accelerated, are in temporary loss mitigation
programs, or have been permanently modified, to conform generally the
disclosure of the amount due with the Bureau's understanding of the
legal obligation in each of those circumstances; (2) Require servicers
to send modified periodic statements to consumers who have filed for
bankruptcy, subject to certain exceptions, with content varying
depending on whether the consumer is a debtor in a Chapter 7 or Chapter
13 bankruptcy case; and to conduct consumer testing on proposed sample
periodic statement forms that servicers could use for consumers in
bankruptcy to ensure compliance with Sec. 1026.41; and (3) Exempt
servicers from the periodic statement requirement for charged-off
mortgage loans if the servicer will not charge any additional fees or
interest on the account and provides a final periodic statement.
9. Small servicer. The proposal would make certain changes to the
small servicer definition. The small servicer definition generally
applies to servicers who service 5,000 or fewer mortgage loans for all
of which the servicer is the creditor or assignee. The proposal would
exclude certain seller-financed transactions from being counted toward
the 5,000 loan limit, allowing servicers that would otherwise qualify
for small servicer status to retain their exemption while servicing
those transactions.
The proposed rule also makes technical corrections to several
provisions of Regulations X and Z.
B. Provisions to Be Analyzed
The analysis below considers the potential benefits, costs, and
impacts to consumers and covered persons of key provisions of the
proposed rule (proposed provisions), which include:
1. Requirements related to successors in interest.
2. A new definition of ``delinquency'' for purposes of Regulation
X's mortgage servicing rules.
3. Early intervention written notice requirements for certain
consumers.
4. Changes to loss mitigation procedures, including:
Requiring a notice of complete application for loss
mitigation applications;
Requirements applicable when determination of what loss
mitigation options to offer a borrower is delayed because information
outside the borrower's control is missing;
Clarifications to the Mortgage Servicing Rules' dual-
tracking protections;
Requiring review of multiple loss mitigation applications
from the same borrower in some circumstances;
Clarification of how loss mitigation timelines apply in
the case of servicing transfers; and
Permitting evaluation for short-term repayment plans based
on incomplete applications.
5. Periodic statement requirements applicable to consumers in
bankruptcy.
6. An exemption from the servicing rule's periodic statement
requirement for loans that have been charged off.
7. Revisions to the small servicer definition.
In addition to the proposed changes listed above, the Bureau is
proposing to modify or clarify other provisions of the Mortgage
Servicing Rules. These other changes include: proposed commentary
relaxing certain information provision requirements under Sec.
1024.36(a) when a borrower requests information about the owner of a
GSE loan; a proposed amendment to the force-placed insurance notice
described in Sec. 1024.37(c) through (e) to require the notice to
state that coverage is insufficient (rather than expiring), when
applicable, and to allow inclusion of the account number on the notice;
a proposed policies and procedures requirement under Sec.
1024.38(b)(2)(vi) regarding identifying and obtaining documents not in
the borrower's control that a servicer requires to determine what loss
mitigation options, if any, to offer a borrower; proposed commentary
regarding a servicer's flexibility in collecting documents and
information to complete a loss mitigation application under Sec.
1024.41(b)(1); proposed commentary relevant to the reasonable date for
return of documents under Sec. 1024.41(b)(2)(ii); proposed amendments
to Sec. 1024.41(c)(2)(iv) clarifying when a loss mitigation
application is considered facially complete; a proposed exception to
Sec. 1024.41(f)(1)'s 120-day pause for circumstances in which a
subordinate lienholder joins the foreclosure action of a senior
lienholder; proposed commentary clarifying the effect of Sec.
1026.36(c)'s and Sec. 1026.41(d)'s prompt crediting and periodic
statement requirements with regard to loan modifications; proposed
commentary to clarify the information that must be included in a
periodic statement pursuant to Sec. 1026.41(d) following a period when
the servicer was exempt from sending periodic statements; a proposal to
remove the phrase ``creditor or assignee'' from the description of
voluntarily serviced loans that may be excluded in applying the small
servicer exemption under Sec. 1026.41(e)(4), and certain other minor
changes. The Bureau believes these proposed modifications and
clarifications would generally benefit consumers and/or covered persons
and impose minimal new costs on consumers or covered persons.
C. Data Limitations and Quantification of Benefits, Costs and Impacts
The discussion in this part relies on data that the Bureau has
obtained from industry, other regulatory agencies, and publicly
available sources. The Bureau has done extensive outreach on many of
the issues addressed by the proposed rule, including discussions with
several servicers of different sizes, consultations with other
stakeholders, and convening
[[Page 74269]]
a roundtable on the application of the Mortgage Servicing Rules in the
case of bankrupt borrowers. However, as discussed further below, the
data are generally limited with which to quantify the potential costs,
benefits, and impacts of the proposed rule.
Quantifying the benefits of the rule for consumers presents
particular challenges. As discussed further below, certain proposed
provisions may directly save consumers time and money while others may
benefit consumers by, for example, facilitating household budgeting,
supporting the consumer's ability to obtain credit, and reducing
default and avoidable foreclosure. Many of these benefits are
qualitative in nature, while others are quantifiable but would require
a wide range of data that is not currently available to the Bureau. The
Bureau continues to seek data from available sources regarding the
benefits to consumers of the proposed rule.
In addition, the Bureau believes, based on industry outreach, that
many servicers already follow procedures that comply with at least some
provisions of the proposed rule. However, the Bureau does not have
representative data on the extent to which servicer operations
currently comply with the proposed rule, which means the Bureau is
unable to quantify the benefits to consumers or the costs to servicers
of the proposed rule. The Bureau continues to seek data from available
sources regarding the extent to which servicer operations currently
comply with the proposed rule. Even with this data, the Bureau would
need information on the cost of changing current servicer practices in
order to quantify the cost of closing any gaps between current
practices and those mandated by the proposed rule. The Bureau continues
to seek data from available sources regarding the costs of improving
servicer operations, as specified by the proposed rule, in order to
quantify the costs to covered persons of the proposed rule.
In light of these data limitations, the analysis below generally
provides a qualitative discussion of the benefits, costs, and impacts
of the proposed rule. General economic principles, together with the
limited data that are available, provide insight into these benefits,
costs, and impacts. The Bureau requests additional data or studies that
could help quantify the benefits and costs to consumers and covered
persons of the proposed rule.
D. Small Servicer Exemption
Small servicers--generally, those that service 5,000 or fewer
mortgage loans, all of which the servicer or affiliates own or
originated--are exempt from many of the provisions of the Mortgage
Servicing Rules, including most of the provisions affected by the
proposed rule.\296\ Therefore, most of the discussion of potential
benefits and costs below generally does not apply to small servicers or
to consumers whose mortgage loans are serviced by small servicers. The
two exceptions among the provisions discussed in this part are (1) the
proposed provisions related to successors in interest, which would
extend the protections of the Mortgage Servicing Rules, including
certain provisions from which small servicers are not exempt, to
successors in interest and (2) the proposed definition of delinquency
in Sec. 1024.31, which may affect the scope of the 2013 RESPA
Servicing Final Rule's prohibition on initiating foreclosure
proceedings unless a borrower's mortgage loan obligation is more than
120 days delinquent.
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\296\ Section 1026.41(e)(4)(ii) defines the term ``small
servicer'' as a servicer that either: (1) Services, together with
any affiliates, 5,000 or fewer mortgage loans, for all of which the
servicer (or an affiliate) is the creditor or assignee; or (2) is a
Housing Finance Agency, as defined in 24 CFR 266.5.
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E. Potential Benefits and Costs to Consumers and Covered Persons
The Bureau believes that, compared to the baseline established by
the Mortgage Servicing Final Rules, an important benefit of many of the
proposed provisions to both consumers and covered persons is an
increase in clarity and precision of the servicing rules and an
accompanying reduction in compliance costs. Other benefits and costs
are considered below.
1. Successors in Interest
The Bureau is proposing new requirements on mortgage servicers with
respect to successors in interest. For purposes of the proposed
provisions, successors in interest include individuals who receive an
ownership interest in a property securing a mortgage loan in a transfer
protected by the Garn-St Germain Act, including individuals who
acquired an ownership interest in the property securing a mortgage loan
in transfers resulting from the death of the borrower or through
transfers to the borrower's spouse or children, transfers incident to
divorce, and certain other transfers. As described in more detail
below, the proposed provisions would relate to how mortgage servicers
confirm a successor in interest's identity and ownership interest in
the property, and would apply the Mortgage Servicing Rules to
successors in interest whose identity and ownership interest in the
property have been confirmed by the servicer.
Proposed Sec. 1024.36(i) requires a servicer to respond to a
written request that indicates that the person making the request may
be a successor in interest by providing that person with information
regarding the documents the servicer requires to confirm the person's
identity and ownership interest in the property. Proposed Sec.
1024.38(b)(1)(vi) requires servicers to maintain certain policies and
procedures with respect to successors in interest, which are generally
intended to facilitate the process of confirming a person's status as a
successor in interest and communicating with the person about the
status.
Proposed Sec. 1024.30(d) provides that a successor in interest
shall be considered a borrower for the purposes of Regulation X's
mortgage servicing rules once a servicer confirms the successor in
interest's identity and ownership interest in the property. Similarly,
proposed Sec. 1026.2(a)(11) provides that a confirmed successor in
interest is a consumer with respect to Regulation Z's mortgage
servicing rules. Under the proposed rule, the Mortgage Servicing Rules
apply with respect to a confirmed successor in interest regardless of
whether that person has assumed the mortgage loan obligation (i.e.,
legal liability for the mortgage debt) under State law.
Potential benefits and costs to consumers. As described in more
detail below, the proposal would benefit successors in interest by
permitting them to protect and manage their interest in the property,
and to make key decisions about that interest, without unnecessary
delays and associated costs.
The Bureau understands, based on discussions with certain large
servicers, that only a small number of properties for which they
service mortgage loans are transferred to successors in interest in any
given year.\297\ The Bureau does
[[Page 74270]]
not have representative data on current servicer policies toward such
successors in interest. Because the Garn-St Germain Act prevents
foreclosure solely on the basis that a home was transferred to a
successor in interest, the Bureau expects that servicers currently are
servicing loans for successors in interest, even before such successors
in interest assume the mortgage loan. The Bureau does not have
representative information on the standards servicers use in servicing
loans for successors in interest; however, as discussed below, the
Bureau believes, based on information it has received from consumers
and other stakeholders, that in many cases successors in interest would
benefit from additional protections.
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\297\ One large servicer indicated that in recent years the
number of successors in interest applying to assume a mortgage loan
each year represented less than 0.03 percent of the total loans it
services. However, this number does not include successors in
interest that did not apply to assume the loan but nonetheless might
have benefitted from the proposed rule (for example, because they
would have been able to obtain more information about the loan
before deciding whether to apply to assume the loan). Data from the
American Housing Survey indicate that in 2011, 239,000 homeowners
(approximately 0.5 percent of those with a mortgage) had assumed the
mortgage loan on their home; however, these data do not indicate
whether the homeowner was a successor in interest as defined in the
proposed rule at the time the loan was assumed. HUD Office of Policy
Dev. and Research and U.S. Census Bureau, American Housing Survey
for the United States: 2011, at 79 (Sept. 2013), available at http://www.census.gov/content/dam/Census/programs-surveys/ahs/data/2011/h150-11.pdf.
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The proposed revisions to the ``policies and procedures''
requirements in Sec. 1024.38(b)(1)(vi), together with the requirement
in proposed Sec. 1024.36(i) that servicers respond to written requests
regarding what documents the servicer requires to confirm the person's
identity as a successor in interest, would benefit consumers that
succeed to ownership of a home that is subject to a mortgage by
reducing the time and effort required to establish their status in the
eyes of the servicer. The Bureau believes, based on information it has
received from consumers, consumer advocacy groups, and other
stakeholders, that successors in interest often have difficulty
demonstrating their identity and ownership interest in the property to
servicers' satisfaction, and that some servicers currently require
successors in interest to submit documents that are unreasonable in
light of the particular situation of that successor in interest or in
light of the laws of the relevant jurisdiction. The Bureau has also
heard repeated reports that some servicers have taken a long time to
confirm the successor in interest's status, even after receipt of
appropriate documentation. The Bureau has also heard reports that
servicers may fail to communicate to the successor in interest whether
the servicer has confirmed the successor in interest's status.
Unnecessary delays and other difficulties can harm successors in
interest because successors in interest that have not been confirmed by
the servicer may not be able to obtain information about the mortgage,
and in some instances servicers may be unwilling to accept payment from
the unconfirmed successor in interest. These problems may lead the
successor in interest to incur unnecessary costs related to the
mortgage or deprive the person of rights to which he or she would
otherwise be entitled, and may even lead to unnecessary foreclosure on
the property.
The Bureau's proposal extends the protections of the Mortgage
Servicing Rules to confirmed successors in interest, even prior to such
time as they may assume the obligations of the mortgage loan under
State law. The benefits of the Mortgage Servicing Rules to consumers
generally are discussed in the 2013 RESPA Servicing Final Rule and the
2013 TILA Servicing Final Rule, in which the Bureau noted that the need
for the Mortgage Servicing Rules arises in part from the fact that,
because borrowers generally do not choose their servicers, it is
difficult for consumers to protect themselves from shoddy service or
harmful practices.\298\ This reasoning is particularly applicable to
successors in interest because they may not be parties to the mortgage
loan. In addition, successors in interest may find that they have a
particular need for access to information about the mortgage loan
secured by the property that they now own, which may help them avoid
unwarranted or unnecessary costs and fees on the mortgage loan and
prevent unnecessary foreclosure.
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\298\ See 78 FR 10695, 10842-61 (Feb. 14, 2013); 78 FR 10901,
10978-94 (Feb. 14, 2013).
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Furthermore, successors in interest may benefit in particular from
Regulation X's rules relating to loss mitigation procedures,
particularly when deciding whether to assume the obligations of the
mortgage loan. Successors in interest may often experience a disruption
in household income due to death or divorce and therefore may be more
likely than other homeowners to need loss mitigation to avoid
foreclosure. If the servicer does not evaluate the successor in
interest promptly for loss mitigation options, or if the servicer
requires the successor in interest to assume the mortgage obligation
before evaluating the successor in interest for loss mitigation
options, the successor in interest will be required to decide whether
to assume the mortgage obligation without knowing whether a loan
modification will be available and, if so, what terms will be offered.
The proposal would allow the successor in interest to make a fully
informed decision about whether to accept the mortgage obligation.
Potential benefits and costs to covered persons. The costs of
complying with the proposed provisions related to successors in
interest depend on servicers' current policies and procedures. Because
the Garn-St Germain Act protects successors in interest from
foreclosure after transfer of homeownership to them, servicers are
effectively required to continue servicing loans following their
transfer to successors in interest. Thus, the Bureau believes that
servicers likely already have some policies and procedures in place for
confirming a successor in interest's identity and ownership interest in
the property (and thereby determining whether the Garn-St Germain Act
is applicable) and for servicing a loan secured by property that has
been transferred to a successor in interest. The proposed provisions
establish certain standards for the performance of these activities. To
the extent to which some servicers are meeting these standards already,
the costs for these servicers may be minimal. However, many servicers
may need to significantly alter certain of their policies and
procedures to comply with the proposed provisions.
The proposed revisions to Sec. 1024.38(b)(1)(vi) and proposed
Sec. 1024.36(i) may require servicers to develop and implement new
policies and procedures for confirming a successor's interest in a
property and communicating with potential successors in interest about
documents the servicer requires to confirm the person's status. Under
current Sec. 1024.38(b)(1)(vi), servicers must maintain policies and
procedures designed to identify and facilitate communication promptly
with the successor in interest of a deceased borrower. As discussed
above, the Bureau believes that, because the Garn-St Germain Act
protects successors in interest from foreclosure, servicers likely
already have some policies and procedures in place for confirming the
identity and ownership interest in the property of a successor in
interest following transfers covered by the proposed rule. However, the
Bureau does not have data on the extent to which servicers' current
policies and procedures may comply with the proposed provisions or the
extent of the changes that would be required to bring policies and
procedures into compliance with the proposed provisions. The Bureau
requests additional information about servicers' current policies and
procedures for confirming a successor in interest's status and the
incremental cost to servicers of complying with the proposed
requirements.
Proposed Sec. Sec. 1024.30(d) and 1026.2(a)(11), which extend the
[[Page 74271]]
protections of the Regulation X and Z mortgage servicing rules to
confirmed successors in interest, would not require servicers to
develop new policies and procedures, but rather to continue to apply
existing policies and procedures to a set of loans that were subject to
the Mortgage Servicing Rules prior to being transferred to the
successor in interest. As discussed above, the Bureau expects that such
loans make up a small fraction of the total loans serviced by any
particular servicer. For these reasons, the Bureau expects that the
cost to servicers of complying with the Mortgage Servicing Rules with
respect to confirmed successors in interest will be small.
The Bureau acknowledges that, due to the unique circumstances of a
successor in interest who has recently obtained an interest in the
property, there may be additional costs associated with complying with
the Mortgage Servicing Rules with respect to successors in interest.
For example, successors in interest may have experienced a disruption
in household income due to death or divorce and therefore may be more
likely to seek loss mitigation to avoid foreclosure, thereby possibly
delaying the foreclosure process. Successors in interest may also be
more likely to seek information regarding the loan that is secured by
the property in which they now hold an interest. Nonetheless, because
the Bureau believes that the number of successors in interest serviced
at any given time is small and that many servicers are already
performing servicing tasks with respect to successors in interest, the
Bureau expects that servicers would not incur significant additional
costs as a result of the proposed provisions. The Bureau requests
additional information about the benefits to successors in interest of
the proposed requirements and the incremental cost to servicers of
applying the Mortgage Servicing Rules to these loans.
2. Definition of ``Delinquency''
The Bureau is proposing to add a general definition of delinquency
in Sec. 1024.31 that would apply to all sections of subpart C of
Regulation X, replacing the existing definition of delinquency for
purposes of Sec. Sec. 1024.39 and 1024.40(a). Under the proposal,
delinquency is defined as a period of time during which a borrower and
the borrower's mortgage loan obligation are delinquent, and a borrower
and a borrower's mortgage loan obligation are delinquent beginning on
the day a periodic payment sufficient to cover principal, interest,
and, if applicable, escrow, became due and unpaid, until such time as
the payment is made. Proposed comment 31 (Delinquency)-2 clarifies
that, if a servicer applies payments to the oldest outstanding periodic
payment, the date of the borrower's delinquency must advance
accordingly. The Bureau understands from its outreach that the majority
of servicers credit payments made to a delinquent account to the oldest
outstanding periodic payment. The Bureau also understands that some
servicers that use this method may be concerned about how to calculate
the length of a borrower's delinquency without increased certainty from
the Bureau.\299\
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\299\ See Am. Bankers Ass'n. Letter to Consumer Fin. Prot.
Bureau (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
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The Bureau believes that the proposed provision will clarify the
application of the servicing rules without imposing significant new
burdens on servicers. The Bureau recognizes that, in principle, the
proposed provision could affect the circumstances under which a
servicer may initiate foreclosure proceedings, because the definition
of ``delinquency'' affects the application of Sec. 1024.41(f)(1)'s
prohibition on initiating foreclosure proceedings unless ``a borrower's
mortgage loan obligation is more than 120 days delinquent.'' In
particular, the proposed commentary clarifies that a servicer that
otherwise applies payments to the oldest outstanding periodic payment
may not initiate foreclosure proceedings unless the borrower has missed
the equivalent of four monthly payments. Absent this clarification,
Sec. 1024.41(f)(1) could be interpreted to permit the servicer to
commence foreclosure even if the borrower has missed only one payment,
so long as the payment was missed at least 120 days ago and the
borrower has not become current since. However, information gathered in
industry outreach indicates that servicers generally would not treat
borrowers who are behind by three or fewer payments as seriously
delinquent. More specifically, servicers contacted by the Bureau during
outreach, when asked about policies for referring a loan for
foreclosure, uniformly told the Bureau that they generally would not
initiate foreclosure in cases where a borrower is making regular
payments, even if such a borrower has a long-standing delinquency of up
to three months' payments. In addition, Fannie Mae and Freddie Mac
guidelines generally prevent servicers from initiating foreclosure if a
loan is delinquent by fewer than four monthly payments. Therefore, the
Bureau expects that the proposed provision will not impose meaningful
new constraints on servicers.
3. Early Intervention Written Notices
The Bureau is proposing to revise the scope of the exemptions from
the ``early intervention'' requirements in Sec. 1024.39(d) for two
groups of borrowers: those who are debtors in bankruptcy and those who
have exercised their ``cease communication'' rights under the FDCPA.
Servicers are currently exempt from each of Sec. 1024.39's early
intervention requirements with respect to these two groups of
borrowers. Under the proposed provisions, servicers would generally
remain exempt from the ``live contact'' requirement of Sec. 1024.39(a)
with respect to these borrowers. However, if loss mitigation options
are available to borrowers who are debtors in bankruptcy or who have
exercised cease communication rights under the FDCPA, the proposed
provisions require that a servicer, with certain exceptions, provide
them with the written early intervention notice that is generally
required by Sec. 1024.39(b). With respect to consumers that have
exercised their cease communication rights under the FDCPA, the
proposal provides that servicers must provide a modified written notice
that may not contain a request for payment and prohibits a servicer
from providing the modified written notice more than once during any
180-day period.
Potential benefits and costs to consumers. As discussed in more
detail below, the proposed provision may benefit borrowers who are in
bankruptcy or who have exercised their cease communication rights under
the FDCPA by providing them with information about loss mitigation
options that could enable them to remain in their homes or avoid other
costs associated with default on their mortgages.
The Bureau recognizes that many borrowers affected by this
provision will have already received early intervention communications
prior to filing for bankruptcy or invoking FDCPA protections. Most
homeowners that file for bankruptcy have become delinquent on their
mortgage payments prior to filing for bankruptcy, in which case their
servicers frequently will have been required to send early intervention
communications prior to the filing.\300\
[[Page 74272]]
However, many borrowers filing for bankruptcy are not delinquent on
their mortgages at the time of filing, and so under the current rule
will not receive required communications about loss mitigation options
if they become delinquent while in bankruptcy. Even borrowers who do
receive an early intervention written notice prior to their bankruptcy
filing may benefit from information about available loss mitigation
options after filing for bankruptcy, given that the borrower's servicer
may have changed or new options may have otherwise become available
since the borrower initially became delinquent. Information regarding
loss mitigation may have unique value for borrowers in bankruptcy as
they make decisions about how best to eliminate or reorganize their
debts.
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\300\ One study found that among homeowners that file for
bankruptcy, more than 60 percent of homeowners with prime mortgages
and more than 75 percent of homeowners with subprime mortgages
became delinquent on their mortgages prior to filing for bankruptcy.
Wenli Li and Michelle White, Mortgage Default, Foreclosure, and
Bankruptcy (Nat'l Bureau of Economic Research, Working Paper No.
15472, Nov. 2009), available at http://www.nber.org/papers/w15472.
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Borrowers have FDCPA protections only with respect to debt
collectors, and a servicer generally is considered a debt collector for
purposes of the FDCPA only if the servicer acquires servicing rights to
a mortgage loan after the mortgage loan is in default. Therefore, at
the time borrowers first become delinquent on a mortgage loan they do
not have rights under the FDCPA and their servicers are thus generally
obligated to provide early intervention communications. When servicing
of borrowers' loans is subsequently transferred while the loans are in
default, the borrowers have FDCPA protections with respect to the new
servicer and may exercise cease communication rights. Because the
initial early intervention communications came from a different
servicer that may have offered different loss mitigation options, such
borrowers may still benefit from information about loss mitigation
options available from the new servicer. Because borrowers who have
FDCPA protections will generally have a longer history of delinquency,
they may be more likely to face difficulty making mortgage payments and
therefore to benefit from information about loss mitigation options.
The proposal also may impose costs on some borrowers in both groups
who would prefer not to receive any servicer communications regarding
their mortgage loan. Both the Bankruptcy Code's automatic stay and the
FDCPA's cease communication right are intended to protect borrowers
from being harassed by creditors while the borrowers are attempting to
work through difficult financial circumstances. By requiring servicers
to send early intervention written notices to such borrowers, the
proposal may cause some borrowers to receive unwanted communications.
However, the Bureau notes that the proposed provision limits the
content and frequency of such communications so as to reduce any
perceived harassment. Specifically, the written notice is required to
be sent only once in any 180 day period, and in the case of borrowers
who have exercised cease communications rights under the FDCPA, the
written notice may not contain a request for payment. Furthermore, the
written notice is not required to be sent to consumers in bankruptcy if
they indicate that they intend to surrender the property.
Potential benefits and costs to covered persons. The proposal to
require servicers to send notices to borrowers who are in bankruptcy or
who have sent a cease communication request under the FDCPA will result
in certain compliance costs for non-exempt servicers. These servicers
will incur one-time costs from changing their systems to provide early
intervention notices to these groups of borrowers and will incur
ongoing costs from distributing these notices to an additional
population. The Bureau believes that most if not all servicers are
likely to service at least some mortgages for homeowners in bankruptcy.
Fewer servicers are likely to service mortgage loans for borrowers who
have FDCPA rights with respect to the mortgage loan, because these
rights are triggered only if the servicer acquired the servicing rights
at a time when the mortgage loan was delinquent. Servicers that do not
have a practice of acquiring servicing rights from others would
therefore never become subject to the FDCPA and are not affected by the
proposed changes.
The Bureau expects that the one-time costs of the proposed
provision will be small with respect to borrowers in bankruptcy.
Servicers currently are required to identify borrowers in bankruptcy,
and under the proposal servicers may send the same written early
intervention notice to borrowers in bankruptcy that they send to any
other borrower. Therefore, the Bureau expects that servicers will need
to make only minor changes to their procedures to begin sending early
intervention written notices to borrowers in bankruptcy. For servicers
that are subject to the FDCPA with respect to some borrowers, up-front
costs may be somewhat greater, because the modified written notice for
such borrowers includes additional disclosures that are not required
for other borrowers. These servicers would need to develop a separate
form of notice that complies with the proposed provision and change
their systems to insure that this form is sent to borrowers who have
exercised their cease communication rights. The Bureau notes that the
proposal would mitigate these costs by providing a model clause for the
specific disclosures required in the modified written notice.
Servicers will also incur ongoing costs from the requirement to
distribute notices to these additional groups of borrowers. However,
the Bureau believes that the number of additional notices that would be
required as a result of the proposal is relatively small. With respect
to borrowers in bankruptcy, FHFA data indicate that for homeowners with
GSE loans, between 0.4 percent and 0.5 percent of borrowers were in
bankruptcy during 2013.\301\ Based on information from industry and
other Federal agencies, the Bureau believes that the percentage of
homeowners with non-GSE loans in bankruptcy may be higher, but that the
overall percentage of homeowners with mortgage loans in bankruptcy is
less than 1 percent. The Bureau expects that the share of borrowers who
have exercised the FDCPA cease communication right is likely relatively
small, since the right is available only to borrowers for whom the
servicer acquired servicing rights after the loan is in default.
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\301\ Fed. Housing Fin. Agency, Foreclosure Prevention Report,
at 6 (January 2014), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/ForeclosurePreventionReportJan2014FINAL.pdf.
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4. Loss Mitigation Procedures
Notice of Complete Loss Mitigation Application
Proposed Sec. 1024.41(c)(3) requires a servicer to provide a
borrower a written notice promptly upon receiving the borrower's
complete loss mitigation application, subject to certain limitations
discussed below. The required notice would inform the borrower that the
application is complete; the date the servicer received the complete
application; whether a foreclosure sale was scheduled as of the date
the servicer received the complete application and, if so, the date of
that scheduled sale; the date the borrower's foreclosure protections
began under Sec. 1024.41(f)(2) and (g); and certain other information
regarding the borrower's
[[Page 74273]]
rights under the servicing rules. Under the proposal, a notice is not
required if the application was not complete or facially complete more
than 37 days before a scheduled foreclosure sale; the servicer has
already notified the borrower under Sec. 1024.41(b)(2)(i)(B) that the
application is complete and the servicer has not subsequently requested
additional documents or information from the borrower to complete the
application; or the servicer has already provided a notice approving or
denying the application.
Potential benefits and costs to consumers. Under the existing rule,
servicers are not required to notify a borrower that a loss mitigation
application is complete unless it is complete at the time the servicer
provides the notice acknowledging receipt of an application under Sec.
1024.41(b)(2)(i)(B). The Bureau understands based on its outreach that
many servicers currently notify borrowers in writing once their
applications are complete. However, such notices may not include all
the information borrowers need to determine when the application was
considered complete for purposes of determining their protections under
Regulation X's mortgage servicing rules. The proposed provision is
intended to benefit borrowers by providing them with more information
about their application status, thereby allowing them to better protect
their interests during the loss mitigation application process.
Borrowers who have not yet received a notice will be able to infer that
their applications are not yet complete and, if necessary, to follow up
with the servicer to determine what remains missing. Once borrowers
have received the notice, they will know that the servicer is
prohibited from completing the foreclosure process until the
application has been evaluated and will be able to plan based on the
expectation that a decision will be reached within 30 days (unless the
servicer determines that more information is needed). The notice will
also provide the borrower, the servicer's compliance function,
regulators, and courts with a written record that can help them
evaluate a servicer's compliance with Sec. 1024.41(c)(1)'s 30-day
evaluation requirement.
The Bureau notes that several servicers informed the Bureau during
outreach efforts that they already provide a notice informing the
borrower that an application is complete. To the extent that servicers
are already providing a notice that includes some of the information
required by the proposed notice, the incremental benefit to borrowers
of the proposed provision may be reduced.
Potential benefits and costs to covered persons. Servicers will
incur costs associated with changing their policies and procedures to
ensure that they are sending notices in compliance with the proposed
provision, and in addition will incur distribution costs associated
with sending notices to borrowers. However, the Bureau expects that
these costs may be less than those associated with some other
disclosure requirements, for two reasons. First, the existing rules
already require servicers to determine the time at which an application
is complete; thus, servicers will not be required to make any new
determinations in order to comply with the requirement. Second, based
on industry outreach, the Bureau understands that many servicers are
already sending a written notification informing applicants that their
applications are complete, so the costs of the proposed provision will
be limited for these servicers.
In addition, the Bureau notes that certain provisions of the
proposal are intended to prevent servicers from incurring unnecessary
costs in connection with the proposed requirement. The proposal
provides that the notice be sent ``promptly'' rather than within a
prescribed timeframe (and states in commentary that five days would
generally be considered reasonably prompt), thereby allowing servicers
some flexibility in cases where it would be particularly burdensome to
send the notice immediately. Furthermore, the notice is not required
under certain circumstances in which a borrower would not benefit from
the notice, including when the servicer is able to notify the borrower
of the outcome of its evaluation before the notice is sent.
The Bureau requests data and other information regarding servicers'
current practices for informing borrowers that a loss mitigation
application is complete and the incremental cost to servicers of
complying with the proposed requirement.
Information Outside of the Borrower's Control
The Bureau is proposing to amend Sec. 1024.41(c)(1) and add Sec.
1024.41(c)(4) to address a servicer's obligations with respect to
information not in the borrower's control that the servicer requires to
determine which loss mitigation options, if any, it will offer the
borrower. The proposed provision requires a servicer to exercise
reasonable diligence in obtaining such information. The proposed
provision also prohibits a servicer from denying a borrower's complete
application due to a lack of information not in the borrower's control;
requires that a servicer inform a borrower in writing if the servicer
is unable to complete its evaluation within 30 days of receiving a
complete application because it lacks information from a party other
than the borrower or the servicer; and requires that a servicer
promptly provide the borrower written notice stating the servicer's
determination upon receipt of missing information from a party other
than the borrower or the servicer.
Potential benefits and costs to consumers. Under the existing rule,
if a servicer receives a complete loss mitigation application more than
37 days before a foreclosure sale, the servicer must, within 30 days of
receipt, determine what loss mitigation options, if any, it will offer
a borrower, regardless of whether it has received required information
not in the borrower's control. The proposed provision would benefit
borrowers applying for loss mitigation in situations in which the
servicer cannot determine what loss mitigation options to offer within
30 days because it has not received necessary information from a party
other than the servicer or the borrower, such as homeowner association
payoff information or approval of the loan owner, investor, or mortgage
insurance company. The proposal would reduce the impact on the borrower
of such delays by preventing the borrower's application from being
denied on the basis of missing information outside the borrower's
control and ensuring that the borrower is aware of the application's
status.
The Bureau understands from industry outreach that servicers
currently follow different practices in the event they have not
received information that is outside the borrower's control 30 days
after receipt of a complete loss mitigation application. Some servicers
have informed the Bureau that they exceed the 30-day evaluation
timeframe in Sec. 1024.41(c)(1) and wait to receive the information
before making any decision on the application. One servicer informed
the Bureau that it sends a denial notice to borrowers but also informs
them that the servicer will reevaluate the application upon receipt of
the third-party information. As a result, borrowers may be receiving
confusing or conflicting messages from servicers about the status of
their applications, and in some cases borrowers' applications for loss
mitigation may be denied because the
[[Page 74274]]
servicer has experienced a delay in receiving required information that
is not in the borrower's control. The proposed provision would give
borrowers clearer information about their application status.
Potential benefits and costs to covered persons. The proposed
provision would benefit servicers by clarifying servicer
responsibilities when non-borrower information has not been received
within 30 days of receiving a complete application from the borrower
and prevent servicers from risking non-compliance with the evaluation
requirement in order to provide a benefit to borrowers seeking loss
mitigation options. The proposed changes would also require servicers
to review and perhaps change their policies applicable to gathering
information from parties other than the borrower and informing
borrowers of their loss mitigation decisions, which would impose one-
time costs of revising policies and systems in addition to the ongoing
cost of providing the new notices required by the proposed provision.
The proposed provision also may impose costs on servicers because
the requirement not to make a determination until information outside
of the borrower's control is obtained may delay the foreclosure process
for a servicer that would otherwise deny an application without having
received such information. The Bureau notes, however, that servicers
are not required to wait for non-borrower information to make a
determination with respect to an application if a decision can be made
without such information. Furthermore, the Bureau understands from
industry outreach that, in cases where investor approval has not been
delegated to the servicer, the missing non-borrower information is
frequently investor approval of the application. Because the investor
ultimately bears the cost of any delay in a foreclosure proceeding, the
investor is in the best position to weigh the cost of expediting its
approval process against the potential delay in a foreclosure
proceeding.
The Bureau requests additional information regarding the frequency
with which non-borrower information is not available to a servicer
within 30 days of a servicer's receipt of a complete loss mitigation
application, the types of information that may be missing at that
point, the consequences for borrowers when this occurs, and the
incremental cost to servicers of complying with the proposed
requirement.
Clarification of the 2013 RESPA Servicing Final Rule's Dual-
tracking Protections
The Bureau is proposing revised commentary to Sec. 1024.41(g) that
would clarify servicers' obligations with respect to Sec. 1024.41(g)'s
prohibition against moving for foreclosure judgment or order of sale,
or conducting a sale, during evaluation of a complete loss mitigation
application received more than 37 days before a foreclosure sale. As
revised, proposed comment 41(g)-1 clarifies that if, upon receipt of a
complete loss mitigation application, a servicer or its foreclosure
counsel fails to take reasonable steps to avoid a ruling on a pending
motion for judgment or the issuance of an order of sale, the servicer
must dismiss the foreclosure proceeding if necessary to avoid the sale.
Proposed new comment 41(g)-5 would clarify that Sec. 1024.41(g)
prohibits a servicer from conducting a foreclosure sale even if a
person other than the servicer administers or conducts the foreclosure
sale proceedings and that servicers must take reasonable steps to delay
the sale until one of the conditions under Sec. 1024.41(g)(1)-(3) is
met. The Bureau also proposing to revise comment 41(g)-3 to clarify
servicers' obligations under Sec. 1024.41(g) when acting through
foreclosure counsel. Similarly, the Bureau is proposing comment
38(b)(3)(iii)-1 to clarify that policies and procedures required under
Sec. 1024.38(b)(3)(iii) to facilitate sharing of information with
service provider personnel responsible for handling foreclosure
proceedings must be reasonably designed to ensure that servicer
personnel promptly inform service provider personnel handling
foreclosure proceedings that the servicer has received a complete loss
mitigation application. The proposed comments, taken together, would
clarify that, when a foreclosure sale has been scheduled but the
servicer is evaluating a complete loss mitigation application received
more than 37 days before the scheduled foreclosure sale, the servicer
must take all reasonable steps to delay the foreclosure sale.
Section 1024.41(g) is intended to protect borrowers by preventing a
foreclosure sale from going forward while review of a complete loss
mitigation application is pending. The proposed commentary would
clarify the steps that servicers must take to protect borrowers from
foreclosure when a complete loss mitigation application is pending late
in the foreclosure process. The proposed commentary would also reduce
servicer compliance costs by adding clarity regarding the application
of Sec. 1024.41(g) when a foreclosure sale has been scheduled. At the
same time, servicers would bear costs in confirming that their policies
and procedures for foreclosures, including communication with counsel,
meet the requirements of Sec. 1024.41(g) in light of the revised
commentary. However, the Bureau does not believe that the proposed
revisions would impose significant burdens on servicers because Sec.
1024.41(g) and its existing commentary already require servicers to
take reasonable steps to prevent a scheduled foreclosure sale from
going forward when a timely loss mitigation application has been
received. The proposed commentary is intended to aid servicers in
complying with Sec. 1024.41(g) by elaborating upon and clarifying a
servicer's obligations under the existing requirement, but does not
impose new obligations on servicers.
The proposed revision to comment 41(g)-1 contemplates dismissal of
the foreclosure action if the servicer has not taken, or caused its
foreclosure counsel to take, all reasonable affirmative steps to delay
the foreclosure sale when a timely loss mitigation application is
pending. The costs of dismissal may be significant in the context of a
particular mortgage. However, the Bureau does not believe that the
proposed comment would impose significant overall costs on servicers
because servicers are already obligated to take reasonable steps to
delay a foreclosure sale when a timely loss mitigation application is
pending. Thus, servicers generally will be able to avoid the costs of
dismissal so long as they comply with existing requirements.
Review of multiple loss mitigation applications
Currently, Sec. 1024.41(i) requires a servicer to comply with the
requirements of Sec. 1024.41 for only a single complete loss
mitigation application for a borrower's mortgage loan account. The
Bureau is proposing to revise Sec. 1024.41(i) to require servicers to
comply with the requirements of Sec. 1024.41 each time a borrower
submits a complete loss mitigation application, unless the servicer has
previously complied with Sec. 1024.41 for a borrower's complete loss
mitigation application and the borrower has been delinquent at all
times since the borrower submitted the application.
Potential benefits and costs to consumers. Section 1024.41's loss
mitigation procedures are intended to protect borrowers from harm in
connection with the process of evaluating a borrower for loss
mitigation options and proceeding to foreclosure. As discussed in the
2013 RESPA Servicing Final Rule, benefits to these borrowers include a
period of 120 days
[[Page 74275]]
in which to submit a loss mitigation application before foreclosure can
commence, restrictions on dual tracking, an appeals process for denials
of loss mitigation applications, and consideration for all available
loss mitigation alternatives.\302\ The proposed provision would make
these benefits available to borrowers who complete a loss mitigation
application, become (or remain) current following the initial
submission of a loss mitigation application, and subsequently encounter
difficulties making payments and desire to apply for loss mitigation
again. The provision would thereby benefit borrowers in two general
circumstances: First, borrowers who have previously applied for and
received a loan modification, then subsequently have difficulty making
payments on the modified loan (perhaps due to an unrelated hardship
months or years after the modification), will be able to apply for loss
mitigation under Sec. 1024.41's procedures. Second, borrowers who have
previously applied for loss mitigation but were not offered an option
that they chose to accept will be able to apply for loss mitigation
under Sec. 1024.41's procedures if they become (or remain) current on
their loan following the application.
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\302\ See 78 FR 10695, 10857-60 (Feb. 14, 2010).
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With regard to the first group, a significant percentage of the
borrowers who receive loan modifications subsequently becomes
delinquent. The OCC Mortgage Metrics Report indicates that for
modifications completed since the fourth quarter of 2012, 11.5 to 13.8
percent of modified loans were 60 or more days delinquent six months
after modification, and 16.8 to 18.5 percent were 60 or more days
delinquent after one year.\303\ For the HAMP program, the FHFA reports
that as of May 2014, of 625,199 permanent modifications that became
effective between April 2009 and May 2014, 173,791 (27.8 percent) had
defaulted by the end of the period.\304\ These numbers suggest that a
significant fraction of borrowers receiving loan modifications could
potentially benefit from the proposed provision, because they would
have the protection of Sec. 1024.41's loss mitigation procedures in
the wake of these subsequent delinquencies. On the other hand, the
large number of borrowers who become delinquent as soon as six months
after completing a loan modification suggests that in many cases the
subsequent delinquency may reflect not a new adverse event, but instead
the failure of the modification to achieve an affordable monthly
payment for the borrower in light of the circumstances that preceded
the modification. To the extent that a borrower's circumstances have
not changed significantly, a subsequent loss mitigation application may
not yield a new option for which the borrower is eligible and that the
borrower finds more beneficial.
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\303\ Fed. Reserve Sys., Office of the Comptroller of the
Currency, OCC Mortgage Metrics Report: Disclosure of Nat'l Bank and
Fed. Savings Ass'n Mortgage Loan Data, at 30 (Q1 2014), available at
http://www.occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics-2014/mortgage-metrics-q1-2014.pdf.
\304\ Fed. Housing Fin. Agency, Foreclosure Prevention Report,
at 3 (May 2014), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/ForeclosurePreventionReportMay2014FINAL.pdf.
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The Bureau does not have data indicating the number of borrowers in
the second group--that is, those who apply for loss mitigation, are not
approved for any option that they choose to accept, and subsequently
become or remain current on their mortgage. The Bureau notes that the
proposed provision may provide additional flexibility to borrowers who
are current on their mortgage but might benefit from a loss mitigation
option, because such borrowers could apply and determine whether they
are eligible for loss mitigation without losing the opportunity to
apply for loss mitigation in the future. For example, homeowners who
are able to make their mortgage payments but would like to determine
whether a short sale is possible would be able to apply for a short
sale without losing the protection of Sec. 1024.41's loss mitigation
procedures in connection with any future application for loss
mitigation.
The benefits to borrowers of the proposal depend on whether and
under what circumstances investors make loss mitigation options
available to borrowers who have completed an earlier loss mitigation
application and perhaps received a loan modification. Section 1024.41
does not require a servicer to make any loss mitigation options
available to a borrower, but only governs a servicer's evaluation of a
borrower for any loss mitigation option that is available. Many
borrowers may not realize benefits from the proposed provision because,
even though it may entitle them to apply for a second loan
modification, they are not eligible to receive one. For example, Fannie
Mae and Freddie Mac's servicing guidelines generally do not permit a
subsequent loan modification under certain circumstances, including
when a borrower has become 60 days delinquent within the 12 months
after a borrower receives a prior loan modification.\305\ The Bureau
notes, however, that for some borrowers affected by the proposal, any
loss mitigation option provided as a result of the proposed revision
may be the first loss mitigation option offered to that borrower, even
if it is not the first evaluation of a complete application.
---------------------------------------------------------------------------
\305\ See Fannie Mae Single Family 2012 Servicing Guide, Sec.
602.05, Redefault, available at https://www.fanniemae.com/content/guide/svc031412.pdf; Freddie Mac Single Family Servicing Guide,
Sec. B65.14, Ineligibility for Freddie Mac Standard Modification,
available at http://www.allregs.com/tpl/Main.aspx.
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Potential benefits and costs to covered persons. The proposed
provision will impose costs on servicers by requiring them to evaluate
certain borrowers for subsequent loss mitigation applications in
accordance with Sec. 1024.41's requirements. Costs of complying with
Sec. 1024.41's requirements include those arising from the
requirements to send specific notices, comply with the rule's timelines
for evaluation of loss mitigation applications, evaluate the borrower
for all loss mitigation options, and under certain circumstances to
delay initiation of foreclosure proceedings. The extent to which these
requirements impose additional costs on servicers depends on their
current policies with respect to subsequent loss mitigation
applications. The Bureau has learned through its outreach efforts that
many servicers already reevaluate borrowers who reapply for loss
mitigation using the procedures set forth in Sec. 1024.41. To the
extent that servicer practices already meet the requirements of the
rule, the burden on servicers will be reduced.
The costs imposed by the rule are also mitigated by the fact that
servicers can determine whether any loss mitigation options are
available to borrowers and set the eligibility criteria for any second
loss mitigation application. To the extent that the cost of providing
subsequent loss mitigation opportunities is significant, servicers and
creditors will have the opportunity to revise eligibility criteria for
borrowers who have previously been evaluated for loss mitigation
pursuant to the servicing rules, which will reduce the cost of
complying with the proposed provision. In addition, the requirement
that the borrower bring the loan current before Sec. 1024.41's loss
mitigation procedures apply to a subsequent application mitigates the
costs of the proposed revision for servicers by limiting the risk that
a borrower will use multiple loss mitigation applications as a way to
postpone foreclosure.
[[Page 74276]]
Loss Mitigation Timelines and Servicing Transfers
The Bureau is proposing Sec. 1024.41(k) to address the
requirements applicable to loss mitigation applications pending at the
time of a servicing transfer. Proposed Sec. 1024.41(k) clarifies that,
subject to certain exceptions, a transferee servicer must comply with
Sec. 1024.41's requirements within the same timeframes that were
applicable to the transferor servicer. The proposed exceptions include
a five-day extension of time for a transferee servicer to provide the
written notification required by Sec. 1024.41(b)(2)(i)(B), and a
provision ensuring that a transferee servicer that acquires servicing
through an involuntary transfer has at least 15 days after the transfer
to evaluate a borrower's pending complete loss mitigation application.
The proposal also provides that if a borrower's appeal under Sec.
1024.41(h) is pending as of the transfer date, a transferee servicer
must evaluate the appeal if it is able to determine whether it should
offer the borrower the loan modification options subject to the appeal;
a transferee servicer that is unable to evaluate an appeal must treat
the appeal as a complete loss mitigation application and evaluate the
borrower for all loss mitigation options available to the borrower from
the transferee servicer.
Potential benefits and costs to consumers. The proposed provision
is intended to benefit borrowers who have loss mitigation applications
in process at the time their mortgage loan is transferred to another
servicer by ensuring that the transfer does not unnecessarily delay the
evaluation of their applications. Delays in the processing of loss
mitigation applications can prolong a borrower's delinquency, during
which time fees and other costs may accrue, making it more difficult
for the borrower to recover from financial distress.
The Bureau does not have representative data on how quickly
servicers currently comply with the various loss mitigation
requirements in the event of a servicing transfer, but believes that
timelines vary significantly across servicers. The Bureau understands
that, while some servicers may already be complying with the proposed
timelines, others may not. To the extent that servicer practices
already comply with the proposed provision, consumer benefits from the
proposal will be lower.
Potential benefits and costs to covered persons. The proposed
provision is intended to reduce the costs to servicers that engage in
servicing transfers of complying with the proposed provision by
clarifying the application of loss mitigation timelines in the context
of a servicing transfer. At the same time, while transferor and
transferee servicers are currently required under Sec. 1024.38 to have
policies and procedures in place to ensure the timely transfer and
receipt of accurate data, including through the devotion of appropriate
personnel and resources, the proposed provision would impose
incremental costs on servicers to the extent that under their current
transfer procedures their transfers do not comply with the proposed
timelines. Transferor and transferee servicers both may be required to
devote more personnel and other resources in the days or weeks before
and after a transfer to ensure that the data is accurately transferred
in a way that permits the transferee servicer to comply with the
timelines with respect to all loss mitigation applications in process.
The proposed exceptions, including extended timelines in connection
with the initial notice confirming receipt of a loss mitigation
application and in connection with involuntary servicing transfers, are
intended to mitigate the costs to servicers of complying with the
proposal in specific circumstances in which the Bureau understands that
complying with the timelines that are otherwise applicable would be
especially difficult. Additionally, the Bureau understands that due to
the unique circumstances and complications that may arise in connection
with a transfer, there may be times when, despite the transferee
servicer's good faith efforts, it may be impracticable to comply with
the requirements of Sec. 1024.41(c)(1) and (4) within 30 days of when
the transferor servicer received the borrower's complete loss
mitigation application. The proposal mitigates compliance costs in such
circumstances by allowing that, where complying with the timelines with
respect to evaluating complete loss mitigation applications is
impracticable under the circumstances, the servicer must comply with
the requirements within a reasonably prompt time, while stating in
commentary that, in general, a reasonably prompt time would be within
an additional five days.
The Bureau requests data and information regarding servicer
timelines for complying with loss mitigation requirements following a
servicing transfer, the extent to which consumers are affected by
delays in the loss mitigation process that result from servicing
transfers, and the costs to servicers of complying with the proposed
requirement.
Evaluation for Repayment Plans Based on Incomplete Applications
The Bureau is proposing to revise Sec. 1024.41(c)(2)(iii) to
permit a servicer to offer short-term repayment plans based upon an
evaluation of an incomplete loss mitigation application. The proposal
would be an exception to the general rule under Sec. 1024.41(c)(2)(i)
that a servicer may not evaluate a borrower for loss mitigation options
based on an incomplete application, and would parallel the existing
exception to this rule which permits a servicer to offer a short-term
payment forbearance program based upon an incomplete application.
Borrowers who are evaluated for a short-term repayment plan based on an
incomplete application would not lose their protections under Sec.
1024.41 with respect to a subsequent loss mitigation application.
As with the existing exception for short-term payment forbearance
plans, the proposal is intended to benefit borrowers and servicers by
permitting servicers to offer a short-term loss mitigation option to
address a temporary financial setback, while preserving borrowers' loss
mitigation protections, in situations in which completing an
application would be time-consuming or burdensome or would
significantly delay a decision. The proposal would not impose costs on
borrowers because a borrower would always have the option to reject a
short-term repayment plan based on review of an incomplete loss
mitigation application, provide a complete loss mitigation application,
and be reviewed for all loss mitigation options available to the
borrower (and receive other protections) under Sec. 1024.41.
Similarly, the proposal would impose no costs on servicers because it
does not impose any new obligations on servicers.
5. Periodic Statement Requirements Applicable to Consumers in
Bankruptcy.
The Bureau is proposing to revise Sec. 1026.41(e)(5) to limit the
circumstances in which a servicer is exempt from the periodic statement
requirements with respect to a consumer who is a debtor in bankruptcy.
Currently, Sec. 1026.41(e)(5) provides that a servicer is exempt from
the requirement to provide periodic statements for a mortgage loan
while the consumer is a debtor in bankruptcy. In general, the proposed
revisions to Sec. 1026.41(e)(5) limit the exemption to consumers in
bankruptcy who are surrendering the property or avoiding the lien
securing the mortgage loan, to
[[Page 74277]]
consumers who have requested that a servicer cease providing periodic
statements or coupon books, and in certain other circumstances.
Notwithstanding meeting the above conditions for an exemption, the
proposal requires servicers to provide periodic statements or coupon
books if the consumer requests them in writing (unless a court has
entered an order requiring otherwise) and to resume providing periodic
statements when the consumer exits bankruptcy with respect to any
portion of the mortgage debt that is not discharged through bankruptcy.
Potential benefits and costs to consumers. The periodic statement
requirements in Sec. 1026.41 are intended to benefit consumers by
providing accurate information about payments that consumers can use to
monitor the servicer, assert errors if necessary, and track the
accumulation of equity so that they can effectively determine how to
allocate income and consider options for refinancing. The proposal is
intended to make these benefits available to consumers in bankruptcy
who own a home subject to a mortgage and intend to retain the home
post-bankruptcy, subject to the constraints of the Bankruptcy Code's
automatic stay. The Bureau does not have representative data describing
the number of consumers in the bankruptcy process that own a home and
intend to retain it through the bankruptcy process. The FHFA reports
that of the mortgage loans serviced for Fannie Mae and Freddie Mac,
between 0.4 percent and 0.5 percent were in bankruptcy during
2013.\306\ However, based on information the Bureau has received from
servicers and other Federal agencies, the Bureau believes that the
percentage of non-GSE loans in bankruptcy may be significantly higher.
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\306\ Fed. Housing Fin. Agency, Foreclosure Prevention Report,
at 6 (Jan. 2014), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/ForeclosurePreventionReportJan2014FINAL.pdf.
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There are at least two reasons to expect that consumers who are in
bankruptcy and intend to retain their homes are particularly likely to
benefit from receiving periodic statements. First, consumers in
bankruptcy have demonstrated difficulties in managing their financial
obligations and face unique challenges in rehabilitating their
finances. Such consumers may derive particular benefit from a reminder
of their payment obligations and information about the status of their
mortgages that enables them to allocate income and make other decisions
about their finances. Second, as discussed in the section-by-section
analysis of Sec. 1026.41(e)(5), there is evidence that some servicers
may be especially prone to error in applying payments of consumers in
bankruptcy, particularly in the context of Chapter 13 cases. This
evidence indicates that it may be especially important for consumers in
bankruptcy to be able to monitor how servicers apply their payments.
Potential benefits and costs to covered persons. The proposed
provision would impose costs on servicers by requiring them to modify
systems to provide statements that show how payments are applied for
consumers in bankruptcy, particularly those in Chapter 13 bankruptcy.
The Bureau understands from industry outreach that the principal
systems some servicers currently use to process and apply mortgage
payments are not designed to accommodate payments from consumers in
Chapter 13 bankruptcy and that many servicers account for payments from
consumers in Chapter 13 bankruptcy using a separate system or process.
Servicer systems for producing periodic statements are generally not
designed to produce statements for consumers in Chapter 13 bankruptcy,
and accounting for payments from consumers in Chapter 13 bankruptcy
currently may not be done on a timeline that permits statements to be
produced on a regular billing cycle. The proposed provision will
require servicers either to modify the systems they use to process
payments and produce periodic statements for non-bankrupt consumers so
that those systems can accommodate consumers in Chapter 13 bankruptcy
or to modify the systems they currently use to process payments on
behalf of bankrupt consumers to permit them to produce periodic
statements for consumers in Chapter 13 bankruptcy. Servicers will also
incur additional vendor costs associated with distributing statements.
With respect to servicers that provide consumers with coupon books, the
proposed provision will require servicers to provide transaction
activity and past payment application information to consumers upon a
consumer's request, consistent with current Sec. 1026.41(e)(3)(iii).
The Bureau does not believe that providing this information will impose
significant new costs on servicers that provide coupon books because
the Bureau understands that the vast majority of servicers would
already be required to provide such information in response to a
consumer's written information request pursuant to Sec. 1024.36.
The Bureau is proposing to reduce the burden of complying with the
proposed provision by providing model forms for periodic statements in
bankruptcy. Model forms would lower costs to servicers by eliminating
the need to develop compliant forms of periodic statements, and may
also increase the overall usefulness to consumers of the periodic
statements.
6. Periodic Statements Following Charge Off
The Bureau proposes to add a new exemption from the requirement to
provide periodic statements under Sec. 1026.41. The proposed exemption
would apply to a mortgage loan that a servicer has charged off in
accordance with loan-loss provisions if the servicer will not charge
any additional fees or interest on the account, provided that the
servicer must provide the consumer a final periodic statement within 30
days of charge off or the most recent periodic statement. The proposed
final periodic statement must convey in simple and clear terms that:
the mortgage loan has been charged off and the servicer will not charge
any additional fees or interest on the account; the lien on the
property remains in place and the consumer remains liable for the
mortgage loan obligation; the consumer may be required to pay the
balance on the account in the future, for example, upon sale of the
property; the balance on the account is not being canceled or forgiven;
and the loan may be purchased, assigned or transferred.
Potential benefits and costs to consumers. The periodic statement
requirements in Sec. 1026.41 are intended to benefit consumers by
providing accurate information about payments that consumers can use to
monitor the servicer, assert errors if necessary, and track the
accumulation of equity. Where a consumer's loan has been charged off
and the servicer will no longer charge any additional fees or interest
on the account, these benefits are significantly decreased. So long as
the consumer is aware that no additional fees or interest will be
charged, monthly statements will include no new information useful to
the consumer, and the consumer may find it confusing and bothersome to
continue to receive identical monthly statements. A final notice, on
the other hand, could provide consumers with important information
about the ongoing status of the loan and the significance of its
status. The proposed final statement would clarify that, although the
mortgage loan has been charged off, the obligation remains in place and
describe the implications of the remaining lien for the consumer.
Although periodic statements would not provide new information to
consumers where accounts have been
[[Page 74278]]
charged off and fees and interest will no longer accrue, they may
provide a benefit to some consumers as a reminder that the lien on the
property remains in place. It is possible that, particularly years
after a charge-off, a consumer (or successor in interest to the
property securing the loan) may not realize that the obligation remains
outstanding and the lien is still in place. A final statement that
details the status could mitigate this issue but may not completely
address it in all cases. This represents a potential cost of the
proposal to some consumers. The Bureau requests additional information
regarding the benefits to consumers of receiving periodic statements or
other communications from the servicer about a mortgage loan, such as
an annual reminder to the consumer of a loan's status, after the loan
is charged off and will no longer accrue fees or additional interest.
Potential benefits and costs to covered persons. Because the
provision does not impose any new requirements on servicers, it would
not impose any new costs. The proposal would benefit servicers by
giving them the option to send a final periodic statement in lieu of
continuing to send periodic statements for charged-off mortgage loans
when they find it less costly to do so.
7. Small Servicer Exemption
The Bureau is proposing to amend certain criteria for determining
whether a servicer qualifies for the small servicer exemption set forth
under Sec. 1026.41(e)(4). The proposal provides that transactions
serviced by the servicer for a seller financer that meet certain
criteria would not be considered in determining whether a servicer
qualifies as a small servicer. Under the Mortgage Servicing Rules,
small servicers (generally, those that service, together with any
affiliates, 5,000 or fewer mortgage loans, for all of which the
servicer (or an affiliate) is the creditor or assignee) are exempt from
certain mortgage servicing requirements, including Regulation Z's
requirement to provide periodic statements for residential mortgage
loans and several of Regulation X's requirements, including certain
provisions related to force-placed insurance, general servicing
policies and procedures, and communicating with borrowers about, and
evaluation of applications for, loss mitigation options. The proposal
would permit small servicers to maintain their small servicer status if
they service transactions for a limited class of seller financers:
those that provide seller financing for only one property in any 12-
month period for the purchase of a property that they own, so long as
they did not construct a residence on the property in the ordinary
course of business and the financing meets certain restrictions.
The Bureau believes that the proposed changes would have little or
no effect on consumers that are not parties to seller-financed
transactions, because the Bureau expects that, in the absence of the
proposed changes, small servicers would generally choose not to service
seller-financed transactions in order to maintain their status as small
servicers. The Bureau understands that the practice of servicing
seller-financed transactions is not widespread and that depository
institutions offering this service do not obtain significant revenue
from the practice, but instead offer the service as an accommodation to
depository customers that are seller financers. Thus, the Bureau does
not expect that servicers' status as small servicers will ultimately be
affected by the rule, meaning that the proposal would not have any
significant effect on the number of consumers whose servicer qualifies
for the small servicer exemption.
Given the limited nature of servicing loans for seller financers,
and given the Bureau's understanding that these services are offered by
depository institutions to their customers when alternative service
providers are generally not available, the Bureau believes that if
seller financers are unable to obtain servicing from the depository
institution where they do their banking then, in many cases, they are
likely to instead service the loan themselves. Consumers who purchase
homes from seller financers may benefit from the servicing of the loan
by a small servicer rather than directly by the seller financer.
Purchasers of seller-financed residential real estate, who may be
unable to secure credit through traditional means, may benefit from a
bank receiving scheduled periodic payments and providing an independent
accounting as a third party to the transaction. In addition, small
servicers may be able to process payments and perform other servicing
activities at a lower cost than seller financers, and this cost savings
may be passed on to purchasers of seller-financed residential real
estate.
F. Potential Specific Impacts of the Proposed Rule
Depository Institutions and Credit Unions with $10 Billion or Less in
Total Assets, As Described in Section 1026
The Bureau believes that a large fraction of depository
institutions and credit unions with $10 billion or less in total assets
that are engaged in servicing mortgage loans qualify as ``small
servicers'' for purposes of the Mortgage Servicing Rules because they
service 5,000 or fewer loans, all of which they or an affiliate own or
originated. The Bureau estimates that 96 percent of insured
depositories and credit unions with $10 billion or less in total assets
service 5,000 mortgage loans or fewer.\307\ The Bureau believes that
servicers that service loans that they neither own nor originated tend
to service more than 5,000 loans, given the returns to scale in
servicing technology. The impact of the proposed rule on small
servicers, which are exempt from many of the provisions of the
servicing rules that would be affected by the proposed rule, is
discussed below in connection with the Regulatory Flexibility Act.
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\307\ Based on an analysis of March 2014 Call Report data as
compiled by SNL Financial.
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With respect to servicers that are not small servicers as defined
in the Mortgage Servicing Rules, the Bureau believes that the
consideration of benefits and costs of covered persons presented above
provides a largely accurate analysis of the impacts of the proposed
rule on depository institutions and credit unions with $10 billion or
less in total assets that are engaged in servicing mortgage loans.
Impact of the Proposed Provisions on Consumer Access to Credit and on
Consumers in Rural Areas
The Bureau believes that the additional costs to servicers from the
final rule are not likely to be extensive enough to have a significant
impact on consumer access to credit. The exemption of small servicers
from many provisions of the proposed rule will help maintain consumer
access to credit through these providers.
Consumers in rural areas may experience benefits from the proposed
rule that are different in certain respects from the benefits
experienced by consumers in general. Consumers in rural areas may be
more likely to obtain mortgages from small local banks and credit
unions that either service the loans in portfolio or sell the loans and
retain the servicing rights. These servicers may already provide most
of
[[Page 74279]]
the benefits to consumers that the proposed rule is designed to
provide. It is also possible, however, that a lack of alternative
lenders in certain rural areas may make it possible for the proposed
rule to provide rural consumers with greater benefits than consumers
elsewhere.
The Bureau will further consider the impact of the proposed rule on
consumers in rural areas. The Bureau therefore asks interested parties
to provide data, research results and other factual information on the
impact of the proposed rule on consumers in rural areas.
VII. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct an initial regulatory flexibility analysis (IRFA) and a
final regulatory flexibility analysis of any rule subject to notice-
and-comment rulemaking requirements, unless the agency certifies that
the rule will not have a significant economic impact on a substantial
number of small entities.\308\ The Bureau also is subject to certain
additional procedures under the RFA involving the convening of a panel
to consult with small business representatives prior to proposing a
rule for which an IRFA is required.\309\
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\308\ 5 U.S.C. 601 et seq.
\309\ 5 U.S.C. 609.
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An IRFA is not required for this proposal because the proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities.
A. Application of the Proposed Rule to Small Entities
The analysis below evaluates the potential economic impact of the
proposed rule on small entities as defined by the RFA.\310\ The
analysis uses as a baseline the Mortgage Servicing Final Rules as
currently in effect. The Bureau has identified five categories of small
entities that may be subject to the proposed rule for purposes of the
RFA: Commercial banks/savings institutions (NAICS 522110 and 522120),
credit unions (NAICS 522130), firms providing real estate credit (NAICS
522292), firms engaged in other activities related to credit
intermediation (NAICS 522390), and small non-profit organizations.
Commercial banks, savings institutions, and credit unions are small
businesses if they have $550 million or less in assets. Firms providing
real estate credit are small businesses if average annual receipts do
not exceed $38.5 million, and firms engaged in other activities related
to credit intermediation are small businesses if their average annual
receipts do not exceed $20.5 million. A small non-profit organization
is any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field.
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\310\ For purposes of assessing the impacts of the proposed rule
on small entities, ``small entities'' is defined in the RFA to
include small businesses, small not-for-profit organizations, and
small government jurisdictions. 5 U.S.C. 601(6). A ``small
business'' is determined by application of Small Business
Administration regulations and reference to the North American
Industry Classification System (``NAICS'') classifications and size
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small
governmental jurisdiction'' is the government of a city, county,
town, township, village, school district, or special district with a
population of less than 50,000. 5 U.S.C. 601(5).
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The Bureau estimates that there are approximately 11,323 insured
depositories (banks, thrifts and credit unions) and 1,388 non-
depositories that engage in mortgage servicing and are therefore
subject to the Mortgage Servicing Rules.\311\ Of these, the Bureau
estimates that approximately 9,724 depositories and 1,370 non-
depositories are ``small entities'' as defined in the RFA.\312\
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\311\ The estimated number of insured depositories engaged in
mortgage servicing is based on the March 2014 Call Report data as
compiled by SNL Financial, and the estimated number of non-
depositories is based on a special analysis of 2011 data from the
Nationwide Mortgage Licensing System and Registry.
\312\ The estimated number of insured depositories engaged in
mortgage servicing that are small entities is based on the March
2014 Call Report data as compiled by SNL Financial, and the
estimated number of non-depositories that are ``small entities'' as
defined in the RFA is based on data on servicer rank and portfolio
size from Inside Mortgage Finance. Non-profits and small non-profits
engaged in mortgage loan servicing would be included in this
estimate if their primary activity is originating or servicing
loans. The Bureau has not been able to separately estimate the
number of non-profits and small non-profits engaged in loan
servicing.
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The large majority of these small entities qualify as ``small
servicers'' for purposes of the Mortgage Servicing Rules: Generally,
servicers that service 5,000 or fewer mortgage loans, all of which the
servicer or affiliates own or originated. The Bureau estimates that,
among 11,094 small entities subject to the Mortgage Servicing Rules,
all but approximately 19 depositories and all but approximately 55 non-
depositories (collectively, approximately 0.6% of all small entities
subject to the Mortgage Servicing Rules) service 5,000 loans or
fewer.\313\ The Bureau does not have data to indicate whether these
institutions service loans that they do not own and did not originate.
However, as discussed in the 2013 RESPA Servicing Final Rule, the
Bureau believes that a servicer that services 5,000 loans or fewer is
unlikely to service loans that it did not originate, because a servicer
that services loans for others is likely to see servicing as a stand-
alone line of business and would likely need to service substantially
more than 5,000 loans to justify its investment in servicing
activities.\314\
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\313\ For insured depositories, the estimate is based on an
analysis of the March 2014 Call Report data as compiled by SNL
Financial. For depository institutions that are ``small entities''
as defined in the RFA, the Bureau estimates that all but 4 percent
service 5,000 loans or fewer. Assuming a similar relationship
between servicing revenue and loan counts holds for non-depository
servicers, all but 4 percent of non-depository servicers that are
small entities, or approximately 55 entities, would service 5,000
loans or less. The Bureau's methodology for these estimates is
described in more detail in the 2013 RESPA Servicing Final Rule, 78
FR 10695, 10866 (Feb. 14, 2013).
\314\ 78 FR 10695, 10866 (Feb. 14, 2013).
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Small servicers are exempt from many of the servicing provisions of
Regulation X and Regulation Z. Pursuant to Sec. 1024.30, small
servicers are exempt from Regulation X's general servicing policies and
procedures requirements (Sec. 1024.38), early intervention and
continuity of contact requirements (Sec. Sec. 1024.39 and 1024.40),
and all loss mitigation procedures requirements of Sec. 1024.41 other
than Sec. 1024.41(j), which makes applicable to small servicers Sec.
1024.41(f)(1)'s prohibition on initiating foreclosure proceedings
unless a borrower is more than 120 days delinquent and prohibits
servicers from initiating foreclosure proceedings while a borrower is
performing pursuant to the terms of an agreement on a loss mitigation
option. Similarly, pursuant to Sec. 1026.41(e)(4), small servicers are
exempt from Regulation Z's requirement to provide periodic statements
for residential mortgage loans pursuant to Sec. 1026.41.
Given the Bureau's estimate that all but approximately 0.6 percent
of small entities subject to the rule are small servicers, the proposed
provisions that amend sections of Regulation X and Regulation Z from
which small servicers are exempt will not have any economic impact on a
substantial number of small entities. Most provisions of the proposed
rule would amend Sec. Sec. 1024.38 through 1024.41 and Sec. 1026.41,
and would therefore not affect small servicers.
In addition, certain provisions of the proposed rule would apply to
small servicers but would reduce servicer compliance costs by relaxing
the existing rules. This includes changes to the commentary to Sec.
1024.36 to reduce disclosure requirements when a borrower requests
information about ownership of a GSE loan; an additional exception to
Sec. 1024.41(f)(1)'s 120-day
[[Page 74280]]
pause on initiating foreclosure proceedings for a servicer joining the
foreclosure action of a senior lienholder; and revisions to the
definition of small servicer in Sec. 1026.41(e)(4)(iii) that would
permit small servicers to service loans for seller financers under
certain circumstances.
There are three provisions of the proposed rule that do apply to
small servicers and could potentially impose new costs on a substantial
number of small entities: (1) Proposed provisions related to successors
in interest, which would extend the protections of all the Mortgage
Servicing Rules, including certain provisions from which small
servicers are not exempt, to successors in interest; (2) the definition
of delinquency in proposed Sec. 1024.31, which may affect the scope of
the 2013 RESPA Servicing Final Rule's prohibition on initiating
foreclosure proceedings unless a borrower's mortgage loan obligation is
more than 120 days delinquent; and (3) a minor revision to the content
of force-placed insurance notices required by Sec. 1024.37(c). The
following sections of this part discuss in greater detail the potential
impact of these three provisions of the proposed rule on small
servicers.
B. Successors in Interest
The Bureau is proposing rule changes that would impose new
requirements on mortgage servicers with respect to successors in
interest. For purposes of the proposed provision, successors in
interest would include individuals who acquired property securing a
mortgage loan in a transfer protected by the Garn-St Germain Act,
including individuals who acquired an ownership interest in the
property securing a mortgage loan in transfers resulting from the death
of the borrower or through transfers to the borrower's spouse or
children, transfers incident to divorce, and certain other transfers.
The proposed provisions relate to how mortgage servicers confirm a
successor in interest's identity and ownership interest in the
property, and apply the Mortgage Servicing Rules to successors in
interest whose identity and ownership interest in the property have
been confirmed by the servicer.
Small servicers currently must comply with some, but not all, of
the Mortgage Servicing Rules, and the proposed changes would require
small servicers to comply with that same set of rules with respect to
confirmed successors in interest. Small servicers must comply with
Regulation X's requirements regarding general disclosure requirements
(Sec. 1024.32), mortgage servicing transfers (Sec. 1024.33), timely
escrow payments and treatment of escrow account balances (Sec.
1024.34), error resolution procedures (Sec. 1024.35), requests for
information (Sec. 1024.36), and force-placed insurance (Sec. 1024.37)
and the prohibition on initiating foreclosure proceedings if a
borrower's mortgage loan obligation is not more than 120 days
delinquent or if a borrower is performing pursuant to the terms of an
agreement on a loss mitigation option (Sec. 1024.41(f)(1) and (j)),
and with Regulation Z's requirements regarding ARM disclosures (Sec.
1026.20(c) and (d)) and regarding payment processing, the prohibition
on pyramiding of late fees, and the requirement to provide payoff
statements (Sec. 1026.36(c)). The proposed provision requires small
servicers to comply with each of these provisions with respect to
successors in interest once a servicer has confirmed the successor in
interest's identity and ownership interest in the property.
The Bureau does not believe that the application of these
requirements to confirmed successors in interest would have a
significant impact on the small entities subject to the Mortgage
Servicing Rules. While the Bureau does not have representative data on
the number of loans that are serviced by small servicers and for which
the underlying property has been transferred to a successor in
interest, the Bureau expects that such loans make up a small fraction
of the total loans serviced by any small servicer. The proposed
provision would not require small servicers to develop new policies and
procedures, but rather to continue to apply existing policies and
procedures for servicing loans subject to the servicing rules to what
the Bureau believes is a relatively small set of loans previously
subject to the Mortgage Servicing Rules before the interest in the
property was transferred to a successor in interest.
In addition, given that under the Garn-St Germain Act small
servicers are effectively obligated to service loans secured by
property that has been transferred to a successor in interest, there
are reasons to expect that many small servicers are servicing such
loans using the same policies and procedures that they use to service
other mortgage loans that are already subject to the Mortgage Servicing
Rules. Given that there are fixed costs associated with developing
servicing policies and procedures and systems to implement those
policies and procedures, it may be less costly for servicers to apply
the same policies and procedures with respect to successors in interest
that they apply to all other loans they service, rather than developing
separate policies, procedures and systems to service loans for
successors in interest. Moreover, as discussed in the 2013 RESPA
Servicing Final Rule and the 2013 TILA Servicing Final Rule, the Bureau
believes that small servicers generally depend on a ``relationship''-
based business model that depends on repeat business and could suffer
significant harm from any major failure to treat customers properly
because small servicers are particularly vulnerable to ``word of
mouth.'' \315\ A servicer that had a practice of servicing loans for
confirmed successors in interest using lower standards than those used
to service other loans would risk reputational harm and an associated
loss of business.
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\315\ 78 FR 10696, 10843 (Feb. 14, 2013); 78 FR 10902, 10978
(Feb. 14, 2013).
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Small servicers would also be subject to proposed Sec. 1024.36(i),
which requires a servicer to respond to a written request that
indicates that the person making the request may be a successor in
interest by providing the person with information regarding the
documents the servicer requires to confirm the person's identity and
ownership interest in the property. Small servicers would be required
to treat the person making the request as a borrower for the purposes
of the procedural requirements of Sec. 1024.36(c) through (g)--that
is, for instance, the servicer would be required to acknowledge receipt
of the request within five days and respond within 30 or 45 days
without charge. However, because small servicers are exempt from Sec.
1024.38, they would not be subject to proposed Sec. 1024.38(b)(1)(vi),
which requires servicers to have policies and procedures in place to
identify and facilitate communication promptly with potential
successors in interest, to provide promptly upon request a description
of what documents the servicer reasonably requires to confirm the
person's status, and, upon the receipt of such documents, notify the
person promptly, as applicable, that the servicer has confirmed the
person's status, has determined that additional documents are required
(and what those documents are), or has determined that the person is
not a successor in interest. Therefore, the proposal would not require
small servicers to make any changes to their policies and procedures
for identifying successors, but only to communicate to potential
successors, using the same procedures they use to respond to other
borrower requests, what documents they require to confirm a person's
status as a successor in interest. Because small servicers will
typically already know what documents
[[Page 74281]]
they require, are not subject to the requirement only to request
documents that are reasonably required to determine a person's status,
and will already have procedures in place for responding to borrower
requests generally, the Bureau believes that the costs to small
servicers of complying with Sec. 1024.36(i) will be minimal.
C. Definition of Delinquency
The Bureau is proposing to add a general definition of delinquency
in Sec. 1024.31 that would apply to all sections of subpart C of
Regulation X, replacing the existing definition of delinquency for
purposes of Sec. Sec. 1024.39 and 1024.40(a). Under the proposal,
delinquency is defined as a period of time during which a borrower and
the borrower's mortgage loan obligation are delinquent, and a borrower
and a borrower's mortgage loan obligation are delinquent beginning on
the day a periodic payment sufficient to cover principal, interest,
and, if applicable, escrow, became due and unpaid, until such time as
the payment is made. Proposed comment 31 (Delinquency)-2 clarifies
that, if a servicer applies payments to the oldest outstanding periodic
payment, the date of the borrower's delinquency must advance
accordingly. The Bureau understands from its outreach that the majority
of servicers credit payments made to a delinquent account to the oldest
outstanding periodic payment. The Bureau also understands that some
servicers that use this method may be concerned about how to calculate
the length of a borrower's delinquency without increased certainty from
the Bureau.\316\
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\316\ See Am. Bankers Ass'n. Letter to Consumer Fin. Prot.
Bureau (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
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The Bureau believes that the proposed provision will clarify the
application of the servicing rules--thereby reducing the costs to small
servicers of complying with the rules--without imposing significant new
burdens on servicers. The Bureau recognizes that, in principle, the
proposed provision could affect the circumstances under which a
servicer may initiate foreclosure proceedings, because the definition
of ``delinquency'' affects the application of Sec. 1024.41(f)(1)'s
prohibition on initiating foreclosure proceedings unless ``a borrower's
mortgage loan obligation is more than 120 days delinquent.'' \317\ In
particular, the proposed provision would prohibit a servicer that
otherwise applies payments to the oldest outstanding periodic payment
from initiating foreclosure proceedings unless the borrower has missed
the equivalent of four monthly payments. In contrast, the existing rule
could be interpreted to permit the servicer to commence foreclosure
even if the borrower has missed only one payment, so long as the
payment was missed at least 120 days ago and the borrower has not
become current since. However, information gathered in industry
outreach indicates that the majority of servicers generally do not
initiate foreclosure proceedings in the case of consumers that are
behind by three or fewer payments. In addition, Fannie Mae and Freddie
Mac servicing guidelines generally prevent servicers from initiating
foreclosure if a loan is delinquent by fewer than four monthly
payments. For servicers that do not apply payments to the oldest
outstanding periodic payment, the proposal would not affect their
application of the 120-day rule.
---------------------------------------------------------------------------
\317\ Small servicers, while otherwise exempt from the
provisions of Sec. 1024.41, are not exempt from Sec. 1024.41(f)(1)
pursuant to Sec. 1024.41(j).
---------------------------------------------------------------------------
In addition, the Bureau believes that it is particularly unlikely
that a small servicer would initiate foreclosure proceedings with
respect to a borrower who is not at least four payments behind. As the
Bureau stated in the 2013 RESPA Servicing Final Rule, the vast majority
of small servicers are community banks and credit unions that generally
maintain a ``relationship'' model that depends on repeat business and
are particularly vulnerable to reputational harm from a failure to
treat customers well. The Bureau believes that such servicers would be
particularly unlikely to initiate foreclosure proceedings in a case
where a consumer had fallen behind by a few mortgage payments but
continued to make regular payments going forward. For these reasons,
the Bureau expects that the proposed provision will not impose
meaningful new constraints on servicers.
D. Changes to Force-Placed Insurance Notices
The Bureau is proposing changes to force-placed insurance notices,
which pursuant to Sec. 1024.37(c) servicers must deliver to borrowers
before they can charge borrowers for force-placed insurance, to modify
the prescribed notices slightly to accommodate the circumstance where a
consumer's hazard insurance coverage is insufficient, rather than
expiring. The proposed rule is intended to reduce the burden on
servicers and borrowers by providing greater clarity in circumstances
where the form of notice that is currently required does not accurately
describe the deficiency in the borrower's insurance coverage. The
proposed change represents a minor amendment to the required force-
placed insurance notice and the Bureau does not believe that it will
impose any significant burden on servicers.
Certification
Accordingly, the undersigned certifies that this proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities. The Bureau requests comment on the analysis
above and requests any relevant data.
VIII. Paperwork Reduction Act
Certain provisions of this notice of proposed rulemaking contain
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (Paperwork
Reduction Act or PRA). The collection of information contained in this
notice of proposed rulemaking, and identified as such, has been
submitted to OMB for review under section 3507(d) of the PRA.
Notwithstanding any other provision of law, under the PRA, the Bureau
may not conduct or sponsor, and a person is not required to respond to,
this information collection unless the information collection displays
a currently valid control number.
This proposed rule would amend 12 CFR 1024 (Regulation X), which
implements the Real Estate Settlement Procedures Act (RESPA), and 12
CFR 1026 (Regulation Z), which implements the Truth in Lending Act
(TILA). Regulations X and Z currently contain collections of
information approved by OMB. The Bureau's OMB control number for
Regulation X is 3170-0016 and for Regulation Z is 3170-0015.
Information collections for the proposed rule would be authorized under
OMB control numbers 3170-0027 for Regulation X and 3170-0028 for
Regulation Z.
The Bureau is proposing six new information collection
requirements, or changes to existing information collection
requirements, in Regulation X:
1. Proposals to require servicers to communicate with potential
successors in interest about their requirements for confirming a
successor in interest's identity and interest in the property and to
treat successors in interest as borrowers for purposes of Regulation
X's mortgage servicing rules.
2. Minor changes to force-placed insurance notices to address the
circumstance in which a borrower's hazard insurance coverage is
[[Page 74282]]
insufficient (rather than expired) and permit the consumer's account
number to be included on the notice.
3. Provisions requiring servicers to provide early intervention
written notices to consumers in bankruptcy and to consumers who have
provided the servicer with a cease communications notice under the
FDCPA.
4. Requirement that servicers provide a notice to consumers when a
loss mitigation application is complete.
5. Requirement that servicers provide a notice to consumers if
their determination with respect to a loss mitigation application is
delayed beyond a date that is 30 days after receipt of a complete loss
mitigation application because information from third parties required
to evaluate the application has not been submitted.
6. Requirement that servicers comply with the loss mitigation
provisions of RESPA with respect to multiple loss mitigation
applications from the same borrower. Servicers that offer loss
mitigation options in the ordinary course of business are required to
follow certain procedures when evaluating loss mitigation applications,
including (1) providing a notice telling the borrower if the loss
mitigation application is incomplete, approved, or denied (and, for
denials of loan modification requests, a more detailed notice of the
specific reason for denial and appeal rights), (2) providing a notice
of the appeal determination, and (3) providing servicers of senior or
second liens encumbering the property that is the subject of the loss
mitigation application copies of the loss mitigation application.
The Bureau is also proposing two new information collection
requirements, or changes to existing information collection
requirements, in Regulation Z:
7. Proposals requiring servicers to treat successors in interest as
consumers for purposes of Regulation Z's mortgage servicing rules.
8. Requirement that servicers provide periodic statements to
consumers in bankruptcy.
These information collections would be required to provide benefits
for consumers and would be mandatory. See 15 U.S.C. 1601 et seq.; 12
U.S.C. 2601 et seq. Because the Bureau does not collect any
information, no issue of confidentiality arises. The likely respondents
would be federally insured depository institutions (such as commercial
banks, savings banks, and credit unions) and non-depository
institutions (such as mortgage brokers, real estate investment trusts,
private-equity funds, etc.) that service consumer mortgages.\318\
---------------------------------------------------------------------------
\318\ For purposes of this PRA analysis, references to
``creditors'' or ``lenders'' shall be deemed to refer collectively
to commercial banks, savings institutions, credit unions, and
mortgage companies (i.e., non-depository lenders), unless otherwise
stated. Moreover, reference to ``respondents'' shall generally mean
all categories of entities identified in the sentence to which this
footnote is appended, except as otherwise stated or if the context
indicates otherwise.
---------------------------------------------------------------------------
Under the proposed rule, the Bureau accounts for the entire
paperwork burden for respondents under Regulation X. The Bureau
generally also accounts for the paperwork burden associated with
Regulation Z for the following respondents pursuant to its
administrative enforcement authority: Insured depository institutions
with more than $10 billion in total assets, their depository
institution affiliates, and certain nondepository institutions. The
Bureau and the FTC generally both have enforcement authority over
nondepository institutions for Regulation Z. Accordingly, the Bureau
has allocated to itself half of the estimated burden to nondepository
institutions. Other Federal agencies are responsible for estimating and
reporting to OMB the total paperwork burden for the institutions for
which they have administrative enforcement authority. They may, but are
not required to, use the Bureau's burden estimation methodology.
Using the Bureau's burden estimation methodology, the Bureau
believes the total estimated industry burden under Regulation X for the
approximately 12,711 respondents subject to the proposed rule would be
approximately 67,000 hours for one time changes and 64,000 hours
annually. Using the Bureau's burden estimation methodology, the total
estimated industry burden under Regulation Z for the approximately
12,711 banks, savings institutions, credit unions, and mortgage
companies subject to the proposed rule, including Bureau
respondents,\319\ is approximately 2,900 hours for one-time changes and
8,300 hours annually. The estimates presented in this part VIII
represent weighted averages across respondents. The Bureau expects that
the amount of time required to implement each of the changes for a
given institution may vary based on the size, complexity, and practices
of the respondent. The estimated burdens in this PRA analysis represent
averages for all respondents. The Bureau expects that the amount of
time required to implement each of the proposed changes for a given
institution may vary based on the size, complexity, and practices of
the respondent.
---------------------------------------------------------------------------
\319\ For purposes of this PRA analysis, the Bureau's depository
respondents with respect to the proposed changes to Regulation Z are
120 depository institutions and depository institution affiliates
that service closed-end consumer mortgages. The Bureau's non-
depository respondents are an estimated 1,388 non-depository
servicers. Unless otherwise specified, all references to burden
hours and costs for the Bureau respondents for the collection
requirements under the proposed changes to Regulation Z are based on
a calculation of the burden from all of the Bureau's depository
respondents and half of the burden from the Bureau's non-depository
respondents.
---------------------------------------------------------------------------
For purposes of this PRA analysis, the Bureau estimates that there
are 11,323 depository institutions and credit unions subject to the
proposed rule, and an additional 1,388 non-depository institutions.
Based on discussions with industry, the Bureau assumes that all
depository respondents except for one large entity and 95% of non-
depository respondents (and 100% of small non-depository respondents)
use third-party software and information technology vendors. Under
existing contracts, vendors would absorb the one-time software and
information technology costs associated with complying with the
proposal for large- and medium- sized respondents but not for small
respondents.
A. Information Collection Requirements--Regulation X
The Bureau believes the following aspects of the proposed rule
would be information collection requirements under the PRA.
1. Successors in Interest
Under the Bureau's proposal, servicers would be required (1) to
respond to a written request from a person that indicates that the
person may be a successor in interest by providing that person with
information regarding what documents the servicer requires to confirm
the person's identity and ownership interest in the property and (2) to
have policies and procedures to ensure that the servicer can provide
promptly upon request a description of what documents the servicer
reasonably requires to confirm the person's identity and ownership
interest in the property, and, upon the receipt of such documents,
notify the person promptly, as applicable, that the servicer has
confirmed the person's status, has determined that additional documents
are required (and what those documents are), or has determined that the
person is not a successor in interest. Servicers would also be subject
to Regulation X's requirements, including loss mitigation requirements,
with respect to successors in interest.
All respondents would have a one-time burden under this proposed
[[Page 74283]]
requirement associated with reviewing the regulation. Certain
respondents will have one-time burden in hours from training personnel
in compliance with the proposed requirement. The Bureau estimates that
one-time hourly burden to comply with the proposed disclosure
requirements to be four hours and forty minutes, on average, per
respondent.
Respondents would have ongoing burden in hours and/or vendor costs
associated with the information technology used in producing the
disclosure. All respondents would have ongoing vendor costs associated
with distributing (e.g., mailing) the disclosure and some will have
production costs associated with the new disclosure. The Bureau
estimates this ongoing burden to be 10 minutes and $0.37, on average,
for each respondent.
2. Changes to Force-Placed Insurance Disclosures
The proposed rule makes minor changes to the content of required
force-placed insurance notices, which are required before a servicer
may charge a borrower for force-placed insurance.
All respondents would have a one-time burden under this requirement
associated with reviewing the regulation. All respondents will also
have one-time burden in hours or vendor costs from changing existing
systems to accommodate the required new disclosure. The Bureau
estimates that one-time hourly burden to comply with the proposed
disclosure requirements to be 20 minutes and $70, on average, per
respondent.
Because the content of the required notices would not change
substantially under the proposed rule and the circumstances under which
the disclosures are required would not change, there would not be an
ongoing burden under the proposed rule.
3. Early Intervention Written Notices
The proposed rule requires that servicers send written early
intervention notices to consumers in bankruptcy and consumers who have
exercised their cease communication rights under the FDCPA. For
consumers in bankruptcy, the servicer would be required to send the
same early intervention notice that is required to be sent to other
consumers. However, for notices sent to consumers who have exercised
their FDCPA cease communication rights, the notices would be subject to
certain additional requirements. Note that consumers have rights under
the FDCPA only with respect to accounts that were delinquent at the
time the servicer acquired the servicing rights. Therefore, servicers
that do not acquire servicing rights in the course of their business
would not be subject to the rule's requirements.
All respondents would have a one-time burden under this requirement
associated with reviewing the regulation. Certain respondents will have
one-time burden in hours or vendor costs from changing existing systems
to accommodate the required new disclosure. The Bureau estimates that
one-time hourly burden to comply with the proposed disclosure
requirements to be one hour and 40 minutes, on average, per respondent.
Respondents would have ongoing burden in hours and/or vendor costs
associated with the information technology used in producing the
disclosure. All respondents would have ongoing vendor costs associated
with distributing (e.g., mailing) the disclosure and some will have
production costs associated with the new disclosure. The Bureau
estimates this ongoing burden to be four hours and $446, on average,
for each respondent.
4. Notice of Complete Loss Mitigation Application
The Bureau's proposal requires a servicer to provide a written
notice to a borrower promptly upon receiving the borrower's complete
application. The Bureau understands that the practice of providing
borrowers with a written notice informing them that their loss
mitigation application is complete is a common business practice (i.e.,
a ``usual and customary'' business practice) today for most mortgage
servicers. However, the Bureau understands that the specific content of
the proposed notices may not reflect common practices.
All respondents would have a one-time burden under this requirement
associated with reviewing the regulation. In addition, while the Bureau
considers borrower notifications that loss mitigation applications are
complete as the normal course of business, institutions may still have
to incur one-time costs associated with modifying their existing
disclosures to comply with the Bureau's proposed disclosure provisions.
As a result, the Bureau's one-time burden incorporates these costs. The
Bureau estimates this one-time burden to be three hours, on average,
for each respondent.
5. Notice Regarding Outstanding Third-Party Information
The proposed rule requires written notice to borrowers if, thirty
days following submission of a complete loss mitigation application,
the servicer has not received information from a party other than the
servicer or the borrower and is necessary to evaluate the application.
All respondents would have a one-time burden under this requirement
associated with reviewing the regulation. Certain respondents will have
one-time burden in hours or vendor costs from creating software and
information technology capability to produce the proposed disclosure.
The Bureau estimates that one-time hourly burden to comply with the
proposed disclosure requirements to be three hours, on average, per
respondent.
Respondents would have ongoing burden in hours and/or vendor costs
associated with the information technology used in producing the
disclosure. All respondents would have ongoing vendor costs associated
with distributing (e.g., mailing) the disclosure and some will have
production costs associated with the new disclosure. The Bureau
estimates this ongoing burden to be 10 minutes and $13, on average, for
each respondent.
6. Requirement To Evaluate Multiple Loss Mitigation Applications
Currently, servicers (other than small servicers) are required to
comply with the loss mitigation provisions of Sec. 1024.41 only once
during the life of a loan, including the provision of up to three
notices per loss mitigation application. Under the proposed rule,
servicers would be required to comply with the loss mitigation
provisions of Sec. 1024.41 for borrowers who have previously completed
a loss mitigation application, so long as the borrower has become
current in the period following the completion of the application.
All respondents would have a one-time burden under this requirement
associated with reviewing the regulation. Certain respondents would
have one-time burden from revising their systems to provide for
evaluation of borrowers for subsequent loss mitigation applications.
The Bureau estimates this one-time burden to be 40 minutes, on average,
for each respondent. The Bureau estimates the ongoing burden to be 121
hours and $213, on average, for each respondent.
B. Information Collection Requirements--Regulation Z
1. Successors in Interest Under Regulation Z
Under the Bureau's proposal, servicers would be subject to
Regulation Z's requirements with respect to successors in interest. All
respondents would have a one-time burden under this proposed
requirement associated with reviewing the regulation. The
[[Page 74284]]
Bureau estimates that one- time hourly burden to comply with the
proposed disclosure requirements to be 10 minutes, on average, per
respondent.
Certain respondents would have ongoing vendor costs associated with
distributing (e.g., mailing) the disclosure and some will have
production costs associated with the new disclosure. The Bureau
estimates this ongoing burden to be 10 minutes and $7, on average, for
each respondent.
2. Periodic Statements
Under the proposed rule, all respondents would be required to
provide periodic statements to certain borrowers in bankruptcy.
All respondents would have a one-time burden under this requirement
associated with reviewing the regulation. Certain respondents will have
one-time burden in hours or vendor costs from changing existing systems
to produce the required new disclosure. The Bureau estimates that one-
time hourly burden to comply with the proposed disclosure requirements
to be 18 hours, on average, per respondent.
Respondents would have ongoing burden in hours and/or vendor costs
associated with the information technology used in producing the
disclosure. Certain respondents would have ongoing vendor costs
associated with distributing (e.g., mailing) the disclosure and some
will have production costs associated with the new disclosure. The
Bureau estimates this ongoing burden to be 53 hours and $5,270, on
average, for each respondent.
C. Summary of Burden Hours--Regulation X
The estimated burden on Bureau respondents from the proposed
changes to Regulation X is summarized below. Under the proposed rule,
the Bureau accounts for the entire paperwork burden for respondents
under Regulation X.
----------------------------------------------------------------------------------------------------------------
Disclosures Hours burden Total burden Total vendor
Respondents per respondent per disclosure hours costs
----------------------------------------------------------------------------------------------------------------
Ongoing .............. .............. .............. .............. ..............
Successors in 12,711 6 0.013 1,086 $4,731
Interest_Regulation X......
Force-Placed Insurance...... 12,711 0 0 0 0
Early Intervention Written 502 1,487 0.003 2,239 223,890
Notices....................
Notice of Complete Loss 502 0 0 0 0
Mitigation Application.....
Third-Party Information..... 502 52 0.003 67 6,681
Loss Mitigation_Subsequent 502 837 0.144 60,571 107,100
Applications...............
One-Time .............. .............. .............. .............. ..............
Successors in 12,711 1 4.7 59,742 0
Interest_Regulation X......
Force-Placed Insurance...... 12,711 1 0.269 3,418 879,048
Early Intervention Written 502 1 1.695 851 0
Notices....................
Notice of Complete Loss 502 1 2.640 1,326 0
Mitigation Application.....
Third-Party Information..... 502 1 2.690 1,351 0
Loss Mitigation_Subsequent 502 1 0.578 290 0
Applications...............
----------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.
D. Summary of Burden Hours--Regulation Z
The estimated burden on Bureau respondents from the proposed
changes to Regulation Z is summarized below. The Bureau accounts for
the paperwork burden associated with Regulation Z for the following
respondents pursuant to its administrative enforcement authority:
Insured depository institutions with more than $10 billion in total
assets, their depository institution affiliates, and certain
nondepository institutions. The Bureau and the FTC generally both have
enforcement authority over nondepository institutions for Regulation Z.
Accordingly, the Bureau has allocated to itself half of the estimated
burden to nondepository institutions.
----------------------------------------------------------------------------------------------------------------
Total burden Total vendor
Bureau Disclosures Hours burden hours for costs for
respondents per bureau per disclosure bureau bureau
respondent respondents respondents
----------------------------------------------------------------------------------------------------------------
Ongoing .............. .............. .............. .............. ..............
Successors in 814 24 0.003 56 $5,678
Interest_Regulation Z......
Periodic Statements in 157 29,521 0.002 8,247 $824,670
Bankruptcy.................
One-Time .............. .............. .............. .............. ..............
Successors in 814 1 0.05 41 $0
Interest_Regulation Z......
Periodic Statements in 157 1 17.835 2,791 $0
Bankruptcy.................
----------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.
E. Comments
Comments are specifically requested concerning: (1) Whether the
proposed collections of information are necessary for the proper
performance of the functions of the Bureau, including whether the
information will have practical utility; (2) the accuracy of the
estimated burden associated with the proposed collections of
information; (3) how to enhance the quality, utility, and clarity of
the information to be collected; and (4) how to minimize the burden of
complying with the proposed collections of information, including the
application of automated collection techniques or other forms of
information technology. Comments on the collection of information
requirements should be sent to the Office of Management and Budget
(OMB), Attention: Desk Officer for the Consumer Financial Protection
Bureau, Office of Information and Regulatory Affairs, Washington, DC
20503, or by the Internet to http://[email protected], with
copies to the Bureau at the Consumer Financial
[[Page 74285]]
Protection Bureau (Attention: PRA Office), 1700 G Street NW.,
Washington, DC 20552, or by the Internet to [email protected].
List of Subjects
12 CFR Part 1024
Condominiums, Consumer protection, Housing, Mortgage servicing,
Mortgages, Reporting and recordkeeping requirements.
12 CFR Part 1026
Advertising, Consumer protection, Credit, Credit unions, Mortgages,
National banks, Reporting and recordkeeping requirements, Reporting,
Savings associations, Truth in lending.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau proposes to
amend 12 CFR parts 1024 and 1026 as follows:
PART 1024--
REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)
0
1. The authority citation for part 1024 continues to read as follows:
Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532,
5581.
Subpart C--
Mortgage Servicing
0
2. Section 1024.30 is amended by adding paragraph (d) to read as
follows:
Sec. 1024.30 Scope.
* * * * *
(d) Successors in interest. A successor in interest shall be
considered a borrower for the purposes of this subpart once a servicer
confirms the successor in interest's identity and ownership interest in
a property that secures a mortgage loan covered by this subpart.
0
3. Section 1024.31 is amended by adding definitions of Delinquency and
Successor in interest in alphabetical order to read as follows:
Sec. 1024.31 Definitions.
* * * * *
Delinquency means a period of time during which a borrower and a
borrower's mortgage loan obligation are delinquent. A borrower and a
borrower's mortgage loan obligation are delinquent beginning on the
date a periodic payment sufficient to cover principal, interest, and,
if applicable, escrow became due and unpaid, until such time as the
outstanding payment is made.
* * * * *
Successor in interest means a person to whom an ownership interest
in a property securing a mortgage loan is transferred from a prior
borrower, provided that the transfer falls under an exemption specified
in section 341(d) of the Garn-St Germain Depository Institutions Act of
1982, 12 U.S.C. 1701j-3(d).
* * * * *
0
4. Section 1024.36 is amended by adding paragraph (i) to read as
follows:
Sec. 1024.36 Requests for information.
* * * * *
(i) Successors in interest. With respect to any written request
from a person that indicates that the person may be a successor in
interest and that includes the name of the prior borrower and
information that enables the servicer to identify that borrower's
mortgage loan account, a servicer shall respond by providing the
potential successor in interest with information regarding the
documents the servicer requires to confirm the person's identity and
ownership interest in the property. With respect to the written
request, a servicer shall treat the person as a borrower for the
purposes of the requirements of paragraphs (c) through (g) of this
section. If a servicer has established an address that a borrower must
use to request information pursuant to paragraph (b) of this section, a
servicer must comply with the requirements of this paragraph only for
requests received at the established address.
0
5. Section 1024.37 is amended by revising paragraphs (c)(2)(v) and
(c)(4), (d)(2)(ii) introductory text, (d)(2)(ii)(B), (d)(3) and (4),
and (e)(4) to read as follows:
Sec. 1024.37 Force-placed insurance.
* * * * *
(c) * * *
(2) * * *
(v) A statement that:
(A) The borrower's hazard insurance is expiring, has expired, or
provides insufficient coverage, as applicable;
(B) The servicer does not have evidence that the borrower has
hazard insurance coverage past the expiration date or evidence that the
borrower has hazard insurance that provides sufficient coverage, as
applicable; and
(C) If applicable, identifies the type of hazard insurance for
which the servicer lacks evidence of coverage;
* * * * *
(4) Additional Information. Except for the mortgage loan account
number, a servicer may not include any information other than
information required by paragraphs (c)(2) of this section in the
written notice required by paragraph (c)(1)(i) of this section.
However, a servicer may provide such additional information to a
borrower on separate pieces of paper in the same transmittal.
(d) * * *
(2) * * *
(ii) Servicer not receiving demonstration of continuous coverage. A
servicer that has received hazard insurance information after
delivering to a borrower or placing in the mail the notice required by
paragraph (c)(1)(i) of this section, but has not received, from the
borrower or otherwise, evidence demonstrating that the borrower has had
sufficient hazard insurance coverage in place continuously, must set
forth in the notice required by paragraph (c)(1)(ii) of this section
the following information:
* * * * *
(B) The information required by paragraphs (c)(2)(ii) through (iv),
(ix) through (xi), and (d)(2)(i)(B) and (D) of this section;
* * * * *
(3) Format. A servicer must set the information required by
paragraphs (d)(2)(i)(B) and (D) of this section in bold text. The
requirements of paragraph (c)(3) of this section apply to the
information required by paragraph (d)(2)(i)(C) of this section. A
servicer may use form MS-3B in appendix MS-3 of this part to comply
with the requirements of paragraphs (d)(1) and (d)(2)(i) of this
section. A servicer may use form MS-3C in appendix MS-3 of this part to
comply with the requirements of paragraphs (d)(1) and (d)(2)(ii) of
this section.
(4) Additional information. Except for the borrower's mortgage loan
account number, a servicer may not include any information other than
information required by paragraph (d)(2)(i) or (ii) of this section, as
applicable, in the written notice required by paragraph (c)(1)(ii) of
this section. However, a servicer may provide such additional
information to a borrower on separate pieces of paper in the same
transmittal.
* * * * *
(e) * * *
(4) Additional information. Except for the borrower's mortgage loan
account number, a servicer may not include any information other than
information required by paragraph (e)(2) of this section in the written
notice required by paragraph (e)(1) of this section. However, a
servicer may provide such additional information to a borrower on
separate pieces of paper in same transmittal.
* * * * *
[[Page 74286]]
0
6. Section 1024.38 is amended by revising paragraph (b)(1)(vi) and
adding paragraph (b)(2)(vi) to read as follows:
Sec. 1024.38 General servicing policies, procedures, and
requirements.
* * * * *
(b) * * *
(1) * * *
(vi)(A) Upon notification of the death of a borrower or of any
transfer of the property securing a mortgage loan, promptly identify
and facilitate communication with any potential successors in interest
regarding the property;
(B) Upon identification of a potential successor in interest,
including through any request made by a potential successor in interest
under Sec. 1024.36(i) or any loss mitigation application received from
a potential successor in interest, promptly provide to the potential
successor in interest a description of the documents the servicer
reasonably requires to confirm that person's identity and ownership
interest in the property and how the person may submit a written
request under Sec. 1024.36(i) (including the appropriate address); and
(C) Upon the receipt of such documents, promptly notify the person,
as applicable, that the servicer has confirmed the person's status, has
determined that additional documents are required (and what those
documents are), or has determined that the person is not a successor in
interest.
(2) * * *
(vi) Promptly identify and obtain documents or information not in
the borrower's control that the servicer requires to determine which
loss mitigation options, if any, to offer the borrower in accordance
with the requirements of Sec. 1024.41(c)(4).
* * * * *
0
7. Section 1024.39 is amended by revising paragraphs (a), (b)(1), and
(d) to read as follows:
Sec. 1024.39 Early intervention requirements for certain borrowers.
(a) Live contact. A servicer shall establish or make good faith
efforts to establish live contact with a delinquent borrower not later
than the 36th day of a borrower's delinquency, and again no later than
36 days after each payment due date so long as the borrower remains
delinquent. Promptly after establishing live contact, the servicer
shall inform such borrower about the availability of loss mitigation
options if appropriate.
(b) Written notice--(1) Notice required. Except as otherwise
provided in this section, a servicer shall provide to a delinquent
borrower a written notice with the information set forth in paragraph
(b)(2) of this section not later than the 45th day of the borrower's
delinquency, and again no later than 45 days after each payment due
date so long as the borrower remains delinquent. However, a servicer is
not required to provide the written notice more than once during any
180-day period. If the borrower is or becomes 45 days delinquent after
any 180-day period, a servicer must provide the written notice again no
later than 45 days after the payment due date.
* * * * *
(d) Exemptions--(1) Borrowers in bankruptcy--(i) Live Contact. A
servicer is exempt from the requirements of paragraph (a) of this
section for a borrower if:
(A) The borrower is a debtor in bankruptcy;
(B) Any borrower on the mortgage loan is a debtor in Chapter 12 or
Chapter 13 bankruptcy; or
(C) The borrower has discharged personal liability for the mortgage
loan through bankruptcy.
(ii) Written notice. A servicer is exempt from the requirements of
paragraph (b) of this section for a borrower if:
(A) Any of the conditions identified in paragraph (d)(1)(i) of this
section are satisfied and no loss mitigation options are available;
(B) The borrower is a debtor in bankruptcy and the borrower's
confirmed plan of reorganization provides that the borrower will
surrender the property securing the mortgage loan, provides for the
avoidance of the lien securing the mortgage loan, or otherwise does not
provide for, as applicable, the payment of pre-bankruptcy arrearage or
the maintenance of payments due under the mortgage loan;
(C) The borrower is a debtor in bankruptcy and the borrower files
with the court a Statement of Intention pursuant to 11 U.S.C. 521(a)
identifying an intent to surrender the property securing the mortgage
loan; or
(D) The borrower is a debtor in bankruptcy and a court enters an
order in the bankruptcy case providing for the avoidance of the lien
securing the mortgage loan or lifting the automatic stay pursuant to 11
U.S.C. 362 with respect to the property securing the mortgage loan.
(2) Fair Debt Collection Practices Act. With regard to a mortgage
loan for which a borrower has sent a notification pursuant to the Fair
Debt Collections Practices Act (FDCPA) section 805(c) (15 U.S.C.
1692c(c)), a servicer subject to the FDCPA with respect to that
borrower's loan:
(i) Is exempt from the requirements of paragraph (a) of this
section; and
(ii) Is exempt from the requirements of paragraph (b) of this
section if no loss mitigation options are available; but
(iii) Must comply with the requirements of paragraph (b) of this
section, as modified herein, if loss mitigation options are available:
(A) In addition to the information required pursuant to paragraph
(b)(2) of this section, the written notice must include a statement
that the servicer may or intends to invoke its specified remedy of
foreclosure. Model clause MS-4(D) in appendix MS-4 to this part may be
used to comply with this requirement.
(B) The written notice may not contain a request for payment.
(C) A servicer is prohibited from providing the written notice more
than once during any 180-day period.
0
8. Section 1024.41 is amended by revising paragraph (c)(1) introductory
text and paragraphs (c)(2)(iii) and (iv), adding paragraphs (c)(3) and
(4), revising paragraph (f)(1)(iii) and paragraph (i), and adding
paragraph (k) to read as follows:
Sec. 1024.41 Loss mitigation procedures.
* * * * *
(c) * * *
(1) Complete loss mitigation application. Except as provided in
paragraph (c)(4)(ii) of this section, if a servicer receives a complete
loss mitigation application more than 37 days before a foreclosure
sale, then, within 30 days of receiving a borrower's complete loss
mitigation application, a servicer shall:
* * * * *
(2) * * *
(iii) Payment forbearance. Notwithstanding paragraph (c)(2)(i) of
this section, a servicer may offer a short-term payment forbearance
program or a short-term repayment plan to a borrower based upon an
evaluation of an incomplete loss mitigation application. A payment
forbearance program or a repayment plan offered under this paragraph
must be provided to the borrower in writing before the program or plan
begins and must clearly specify the payment terms and duration. A
servicer shall not make the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process,
and shall not move for foreclosure judgment or order of sale, or
conduct a foreclosure sale, if a borrower is performing pursuant to the
terms of a payment forbearance program or
[[Page 74287]]
repayment plan offered pursuant to this section. A servicer may offer a
short-term forbearance program in conjunction with a short-term
repayment plan under this paragraph.
(iv) Facially complete application. A loss mitigation application
shall be considered facially complete when a borrower submits all the
missing documents and information as stated in the notice required
under paragraph (b)(2)(i)(B) of this section, no additional information
is requested in such notice, or when the servicer is required under
paragraph (c)(3) of this section to send the borrower a notice of
complete application. If the servicer later discovers additional
information or corrections to a previously submitted document are
required to complete the application, the servicer must promptly
request the missing information or corrected documents and treat the
application as complete for the purposes of paragraphs (f)(2) and (g)
of this section until the borrower is given a reasonable opportunity to
complete the application. If the borrower completes the application
within this period, the application shall be considered complete as of
the date it first became facially complete, for the purposes of
paragraphs (d), (e), (f)(2), (g), and (h) of this section, and as of
the date the application was actually complete for the purposes of
paragraph (c). A servicer that complies with this paragraph will be
deemed to have fulfilled its obligation to provide an accurate notice
under paragraph (b)(2)(i)(B).
(3) Notice of complete application. (i) Subject to paragraph
(c)(3)(ii) of this section, upon receiving a borrower's complete loss
mitigation application, the servicer shall promptly provide the
borrower a written notice including the following information:
(A) That the loss mitigation application is complete;
(B) The date the servicer received the complete application;
(C) Whether a foreclosure sale was scheduled as of the date the
servicer received the complete application and, if so, the date of that
scheduled sale;
(D) The date the borrower's protections began under paragraph
(f)(2) and (g) of this section, as applicable, and a concise
description of those protections;
(E) That the servicer expects to complete its evaluation within 30
days of the date it received the complete application;
(F) A statement that, although the application is complete, the
borrower may need to submit additional information at a later date if
the servicer determines that it is necessary; and
(G) If applicable, that the borrower will have the opportunity to
appeal the servicer's determination to deny the borrower for any trial
or permanent loan modification pursuant to paragraph (h) of this
section.
(ii) A servicer is not required to provide the notice under
paragraph (c)(3)(i) of this section if:
(A) The servicer has already provided the borrower a notice under
paragraph (b)(2)(i)(B) of this section informing the borrower that the
application is complete and the servicer has not subsequently requested
additional information or a corrected version of a previously submitted
document from the borrower pursuant to paragraph (c)(2)(iv) of this
section;
(B) The application was not complete or facially complete more than
37 days before a foreclosure sale; or
(C) The servicer has already provided the borrower a notice under
paragraph (c)(1)(ii) of this section.
(4) Information not in the borrower's control--(i) Reasonable
diligence. If a servicer requires documents or information not in the
borrower's control to determine which loss mitigation options, if any,
it will offer to the borrower, the servicer must exercise reasonable
diligence in obtaining such documents or information.
(ii) Effect in case of delay. (A) A servicer shall not deny a
complete loss mitigation application solely because the servicer has
not received documents or information not in the borrower's control.
(B) If, 30 days after a complete application is received, the
servicer is unable to make a determination as to which loss mitigation
options, if any, it will offer to the borrower because the servicer
lacks documents or information from a party other than the borrower or
the servicer, the servicer must promptly provide the borrower a written
notice stating:
(1) That the servicer has not received documents or information not
in the borrower's control that the servicer requires to determine which
loss mitigation options, if any, the servicer will offer on behalf of
the owner or assignee of the mortgage;
(2) The specific documents or information that the servicer lacks;
(3) The date on which the servicer first requested that
documentation or information during the current loss mitigation
application process; and
(4) That the servicer will complete its evaluation of the borrower
for all available loss mitigation options promptly upon receiving the
documentation or information.
(C) If, due to a lack of documents or information from a party
other than the borrower or the servicer, a servicer is unable to
determine which loss mitigation options, if any, to offer a borrower
within 30 days of receiving a complete application, upon receiving such
documents or information, the servicer must promptly provide the
borrower written notice stating the servicer's determination in
accordance with paragraph (c)(1)(ii) of this section.
* * * * *
(f) * * *
(1) * * *
(iii) The servicer is joining the foreclosure action of a superior
or subordinate lienholder.
* * * * *
(i) Duplicative requests. A servicer must comply with the
requirements of this section for a borrower's loss mitigation
application, unless the servicer has previously complied with the
requirements of this section for a complete loss mitigation application
submitted by a borrower and the borrower has been delinquent at all
times since the same borrower submitted the complete application.
* * * * *
(k) Servicing Transfers--(1) In general--(i) Timing of compliance.
Except as provided in paragraphs (k)(2) through (4) of this section, if
a transferee servicer acquires the servicing of a mortgage loan for
which a loss mitigation application is pending as of the transfer date,
the transferee servicer must comply with the requirements of this
section for that loss mitigation application within the timeframes that
were applicable to the transferor servicer based on the date the
transferor servicer received the loss mitigation application. Any
protections under paragraphs (e) through (h) of this section that
applied to a borrower before a transfer continue to apply
notwithstanding the transfer.
(ii) Transfer date defined. For purposes of this paragraph (k), the
transfer date is the date on which the transfer of the servicing
responsibilities from the transferor servicer to the transferee
servicer occurs.
(2) Acknowledgement notices. If a transferee servicer acquires the
servicing of a mortgage loan for which the period to provide the notice
required by paragraph (b)(2)(i)(B) of this section has not expired as
of the transfer date, the transferee servicer must provide the notice
within 10 days (excluding legal public holidays, Saturdays, and
Sundays) of the date the transferor servicer received the loss
mitigation application.
[[Page 74288]]
(3) Complete loss mitigation applications pending at transfer--(i)
In general. Except as provided in paragraph (k)(3)(ii) and (iii) of
this section, if a transferee servicer acquires the servicing of a
mortgage loan for which a complete loss mitigation application is
pending as of the transfer date, the transferee servicer must comply
with the applicable requirements of paragraphs (c)(1) and (4) of this
section within 30 days of the date the transferor servicer received the
complete loss mitigation application.
(ii) Involuntary transfers--(A) Timing of evaluation. Except as
provided in paragraph (k)(3)(iii) of this section, if a transferee
servicer, as a result of an involuntary transfer, acquires the
servicing of a mortgage loan for which a complete loss mitigation
application is pending as of the transfer date, the transferee servicer
must comply with the applicable requirements of paragraphs (c)(1) and
(4) of this section within 30 days of the date the transferor servicer
received the complete loss mitigation application or within 15 days of
the transfer date, whichever is later.
(B) Involuntary transfer defined. For purposes of Sec.
1024.41(k)(3)(ii), a transfer is involuntary when an unaffiliated
investor or a court or regulator with jurisdiction requires, with less
than 30 days advance notice, the transferor servicer to transfer
servicing to another servicer and the transferor servicer is in breach
of, or default under, its servicing agreement for loss mitigation
related-servicing performance deficiencies or is in receivership or
bankruptcy.
(iii) Compliance not practicable. If compliance with the time
periods set forth in paragraph (k)(3)(i) or (k)(3)(ii)(A) of this
section, as applicable, is not practicable under the circumstances, a
transferee servicer must complete the evaluation of the complete loss
mitigation application and provide the applicable notices required by
paragraphs (c)(1) and (4) of this section within a reasonably prompt
time after the expiration of the applicable time period in paragraph
(k)(3)(i) or (k)(3)(ii)(A) of this section.
(4) Applications subject to appeal process. If a transferee
servicer acquires the servicing of a mortgage loan for which, as of the
transfer date, a borrower's appeal pursuant to paragraph (h) of this
section is pending or a borrower's time period to appeal pursuant to
paragraph (h) of this section has not expired, the transferee servicer
must evaluate the appeal if it is able to determine whether it should
offer the borrower the loan modification options subject to the appeal.
(i) Evaluating appeal. If a transferee servicer is able to evaluate
the borrower's appeal but compliance within 30 days of when the
borrower made the appeal is not practicable under the circumstances, a
transferee servicer must complete the evaluation and provide the notice
required by paragraph (h)(4) of this section within a reasonably prompt
time after expiration of the 30-day period.
(ii) Servicer unable to evaluate appeal. A transferee servicer that
is unable to evaluate an appeal must treat the borrower's appeal as a
pending complete loss mitigation application and comply with the
requirements of this section for such application, including evaluating
the borrower for all loss mitigation options available to the borrower
from the transferee servicer. For purposes of paragraphs (c) or (k)(3)
of this section, as applicable, such a pending complete loss mitigation
application shall be considered complete as of the date the appeal was
received. For purposes of paragraphs (e) through (h) of this section,
the transferee servicer must treat such a pending complete loss
mitigation application as facially complete as of the date it was
facially complete with respect to the transferor servicer.
(5) Pending loss mitigation offers. A transfer does not affect a
borrower's ability to accept or reject a loss mitigation option offered
under Sec. 1024.41(c) or (h). If a transferee servicer acquires the
servicing of a mortgage loan for which the borrower's time period under
Sec. 1024.41(e) or (h) for accepting or rejecting a loss mitigation
option offered by the transferor servicer has not expired as of the
transfer date, the transferee servicer must allow the borrower to
accept or reject the offer during the unexpired balance of the
applicable time period.
0
9. In Appendix MS-3 to part 1024, MS-3(A), MS-3(B), MS-3(C), and MS-
3(D) are revised to read as follows:
Appendix MS--Mortgage Servicing
Appendix MS-3 to Part 1024
Model Force-Placed Insurance Notice Forms
* * * * *
MS-3(A)--Model Form for Force-Placed Insurance Notice Containing
Information Required By Sec. 1024.37(c)(2)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Please provide insurance information for [Property Address]
Dear [Borrower's Name]:
Our records show that your [hazard] [Insurance Type] insurance
[is expiring] [expired] [provides insufficient coverage], and we do
not have evidence that you have obtained new coverage. Because
[hazard] [Insurance Type] insurance is required on your property,
[we bought insurance for your property] [we plan to buy insurance
for your property]. You must pay us for any period during which the
insurance we buy is in effect but you do not have insurance.
You should immediately provide us with your insurance
information. [Describe the insurance information the borrower must
provide]. [The information must be provided in writing.]
The insurance we [bought] [buy]:
May be significantly more expensive than the insurance
you can buy yourself.
May not provide as much coverage as an insurance policy
you buy yourself.
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
MS-3(B)--Model Form for Force-Placed Insurance Notice Containing
Information Required By Sec. 1024.37(d)(2)(i)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Second and final notice -- please provide insurance
information for [Property Address]
Dear [Borrower's Name]:
This is your second and final notice that our records show that
your [hazard] [Insurance Type] insurance [is expiring] [expired]
[provides insufficient coverage], and we do not have evidence that
you have obtained new coverage. Because [hazard] [Insurance Type]
insurance is required on your property, [we bought insurance for
your property] [we plan to buy insurance for your property]. You
must pay us for any period during which the insurance we buy is in
effect but you do not have insurance.
You should immediately provide us with your insurance
information. [Describe the insurance information the borrower must
provide]. [The information must be provided in writing.]
The insurance we [bought] [buy]:
[Costs $[premium charge]] [Will cost an estimated
$[premium charge]] annually, which may be significantly more
expensive than insurance you can buy yourself.
May not provide as much coverage as an insurance policy
you buy yourself.
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
MS-3(C)--Model Form for Force-Placed Insurance Notice Containing
Information Required By Sec. 1024.37(d)(2)(ii)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Second and final notice -- please provide insurance
information for [Property Address]
[[Page 74289]]
Dear [Borrower's Name]:
We received the insurance information you provided, but we are
unable to verify coverage from [Date Range].
Please provide us with insurance information for [Date Range]
immediately.
We will charge you for insurance we [bought] [plan to buy] for
[Date Range] unless we can verify that you have insurance coverage
for [Date Range].
The insurance we [bought] [buy]:
[Costs $[premium charge]] [Will cost an estimated
$[premium charge]] annually, which may be significantly more
expensive than insurance you can buy yourself.
May not provide as much coverage as an insurance policy
you buy yourself.
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
MS-3(D)--Model Form for Renewal or Replacement of Force-Placed
Insurance Notice Containing Information Required By Sec. 1024.37(e)(2)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Please update insurance information for [Property Address]
Dear [Borrower's Name]:
Because we did not have evidence that you had [hazard]
[Insurance Type] insurance on the property listed above, we bought
insurance on your property and added the cost to your mortgage loan
account.
The policy that we bought [expired] [is scheduled to expire].
Because [hazard][Insurance Type] insurance] is required on your
property, we intend to maintain insurance on your property by
renewing or replacing the insurance we bought.
The insurance we buy:
[Costs $[premium charge]] [Will cost an estimated
$[premium charge]] annually, which may be significantly more
expensive than insurance you can buy yourself.
May not provide as much coverage as an insurance policy
you buy yourself.
If you buy [hazard] [Insurance Type] insurance, you should
immediately provide us with your insurance information.
[Describe the insurance information the borrower must provide].
[The information must be provided in writing.]
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
0
10. In Appendix MS-4 to part 1024, MS-4(D) is added to read as follows:
Appendix MS-4--Model Clauses for the Written Early Intervention Notice
MS-4(D)--Written Early Intervention Notice for Servicers Subject to
FDCPA (Sec. 1024.39(d)(2)(iii))
This is a legally required notice sent to borrowers who are at
least 45 days delinquent. We have a right to invoke foreclosure.
Loss mitigation or other alternatives may be available to help you
avoid losing your home.
0
11. In Supplement I to Part 1024--Official Bureau Interpretations:
0
A. Under Section 1024.30--Scope:
0
i. The heading 30(d) Successors in interest is added, and paragraphs 1
and 2 under that heading are added.
0
B. Under Section 1024.31--Definitions:
0
i. The heading Delinquency is added, and paragraphs 1 through 3 under
that heading are added.
0
C. Under Section 1024.36--Requests For Information:
0
i. Under 36(a) Information request, paragraph 2 is revised.
0
ii. The heading 36(i) Successors in interest is added, and paragraph 1
under that heading is added.
0
D. Under Section 1024.37--Force-Placed Insurance:
0
i. The heading 37(d)(4) Updating notice with borrower information is
redesignated as heading 37(d)(5) Updating notice with borrower
information.
0
ii. Under 37(d)(5) Updating notice with borrower information, paragraph
1 is revised.
0
E. Under Section 1024.38-- General Servicing Policies, Procedures, and
Requirements:
0
i. Under 38(b) Objectives:
0
a. Under 38(b)(1) Accessing and providing timely and accurate
information, the heading Paragraph 38(b)(1)(vi) is added, and
paragraphs 1 through 3 under that heading are added.
0
b. The heading 38(b)(3) Facilitating oversight of, and compliance by,
service providers is added.
0
c. Under 38(b)(3) Facilitating oversight of, and compliance by, service
providers, the heading Paragraph 38(b)(3)(iii) is added, and paragraph
1 under that heading is added.
0
F. Under Section 1024.39--Early Intervention Requirements for Certain
Borrowers:
0
i. Under 39(a) Live contact, paragraphs 1 and 2 are revised, paragraphs
3 and 4 are redesignated as paragraphs 4 and 5, respectively, and
paragraphs 3 and 6 are added.
0
ii. Under 39(b) Written notice:
0
a. Under 39(b)(1) Notice required, paragraph 2 is revised, and
paragraphs 5 and 6 are added.
0
b. Under 39(b)(2) Content of the written notice, paragraph 4 is added.
0
iii. The heading 39(d) Exemptions is added.
0
iv. Under 39(d) Exemptions:
0
a. Under 39(d)(1) Borrowers in bankruptcy, paragraphs 1 and 3 are
removed and paragraph 2 is redesignated as paragraph 1 and revised.
0
b. The heading 39(d)(1)(i) Live contact is added, and paragraph 1 under
that heading is added.
0
c. The heading 39(d)(1)(ii) Written notice is added, and paragraphs 1
and 2 under that heading are added.
0
v. The heading 39(d)(2)(iii) Fair Debt Collection Practices Act is
added, and paragraphs 1 and 2 under that heading are added.
0
G. Under Section 1024.41--Loss Mitigation Procedures:
0
i. Under 41(b) Receipt of a loss mitigation application, paragraph 1 is
added.
0
a. Under 41(b)(1) Complete loss mitigation application, paragraphs 1
and 4.iii are revised.
0
b. Under 41(b)(2) Review of loss mitigation application submission:
0
c. Under 41(b)(2)(i) Requirements, paragraph 1 is added.
0
d. Under 41(b)(2)(ii) Time period disclosure, paragraph 1 is revised,
and paragraphs 2 and 3 are added.
0
ii. Under 41(c) Evaluation of loss mitigation applications:
0
a. Under 41(c)(2) Incomplete loss mitigation application evaluation:
0
b. Under 41(c)(2)(iii) Payment forbearance, paragraphs 1 through3 are
revised, and paragraph 4 is added.
0
c. The heading 41(c)(3) Notice of complete application is added.
0
d. The heading Paragraph 41(c)(3)(i) is added, and paragraphs 1 through
3 under that heading are added.
0
e. The heading 41(c)(4) Information not in the borrower's control is
added.
0
f. The heading 41(c)(4)(i) Diligence requirements is added, and
paragraphs 1 and 2 under that heading are added.
0
g. The heading 41(c)(4)(ii) Effect in case of delay is added, and
paragraph 1 under that heading is added.
0
h. The heading 41(c)(4)(ii)(C) Providing notification of determination
to borrower in case of delay is added, and paragraph 1 under that
heading is added.
0
iii. Under 41(g) Prohibition on foreclosure sale, paragraphs 1 and 3
are revised, and paragraph 5 is added.
0
iv. Under 41(i) Duplicative requests, paragraph 1 is revised and
paragraph 2 is removed.
0
v. The heading 41(k) Servicing transfers is added, and paragraph 1
under that heading is added.
0
a. The heading 41(k)(1) In general is added.
0
b. The heading 41(k)(1)(i) Timing of compliance is added, and
paragraphs 1 through 3 under that heading are added.
0
c. The heading 41(k)(1)(ii) Transfer date defined is added, and
paragraph 1 under that heading is added.
0
d. The heading 41(k)(3) Complete loss mitigation applications pending
at transfer is added.
[[Page 74290]]
0
e. The heading 41(k)(3)(i) In general is added, and paragraphs 1 and 2
under that heading are added.
0
f. The heading 41(k)(3)(iii) Compliance not practicable is added, and
paragraph 1 under that heading is added.
0
g. The heading 41(k)(4) Applications subject to appeal process is
added, and paragraphs 1 and 2 under that heading are added.
0
h. The heading 41(k)(5) Pending loss mitigation offers is added, and
paragraph 1 under that heading is added.
The additions and revisions read as follows:
Supplement I to Part 1024--Official Bureau Interpretations
Subpart C--Mortgage Servicing
Section 1024.30--Scope
* * * * *
30(d) Successors in interest.
1. Treatment of successors in interest. Under Sec. 1024.30(d),
a successor in interest must be considered a borrower for the
purposes of this subpart once a servicer confirms the successor in
interest's identity and ownership interest in the property. For
example, if a servicer receives a loss mitigation application from a
successor in interest after confirming the successor in interest's
identity and ownership interest in the property, the servicer must
review and evaluate the application and notify the successor in
interest in accordance with the procedures set forth in Sec.
1024.41. However, see Sec. 1024.36(i), which provides that a
servicer must respond to written requests for certain information
from a potential successor in interest in accordance with the
requirements of Sec. 1024.36(c) through (g) before confirming that
person's status.
2. Treatment of prior borrowers. Even after a servicer's
confirmation of a successor in interest's identity and ownership
interest in the property, the servicer is still required to comply
with the requirements of this subpart with respect to the prior
borrower, unless that borrower also has either died or been released
from the obligation on the mortgage loan. The prior borrower retains
any rights under this subpart that accrued prior to the confirmation
of the successor in interest to the extent these rights would
otherwise survive the prior borrower's death or release from the
obligation.
Section 1024.31--Definitions
Delinquency.
1. Length of delinquency. A borrower's delinquency begins on the
date an amount sufficient to cover a periodic payment of principal,
interest, and, if applicable, escrow became due and unpaid, and
lasts until such time as the payment is made, even if the borrower
is afforded a period after the due date to pay before the servicer
assesses a late fee.
2. Application of funds. If a servicer applies payments to the
oldest outstanding periodic payment, a payment by a delinquent
borrower advances the date the borrower's delinquency began. For
example, assume a borrower's mortgage loan obligation provides that
a periodic payment sufficient to cover principal, interest, and
escrow is due on the first of each month. The borrower fails to make
a payment on January 1 or on any day in January, and on January 31
the borrower is 30 days delinquent. On February 1, the borrower
makes a periodic payment. The servicer applies the payment it
received on February 1 to the outstanding January payment. On
February 2, the borrower is one day delinquent.
3. Payment tolerance. For any given billing cycle for which a
borrower's payment is less than the periodic payment due, a servicer
that elects to advance the missing funds to the borrower's mortgage
loan account may elect not to treat the borrower as delinquent. If a
servicer chooses not to treat a borrower as delinquent for purposes
of any section of subpart C, that borrower is not delinquent as
defined in section 1024.31.
* * * * *
Section 1024.36-Requests for Information
* * * * *
36(a) Information request.
* * * * *
2. Owner or assignee of a mortgage loan. i. When a loan is not
held in a trust for which an appointed trustee receives payments on
behalf of the trust, a servicer complies with Sec. 1024.36(d) by
responding to a request for information regarding the owner or
assignee of a mortgage loan by identifying the person on whose
behalf the servicer receives payments from the borrower. A servicer
is not the owner or assignee for purposes of Sec. 1024.36(d) if the
servicer holds title to the loan, or title is assigned to the
servicer, solely for the administrative convenience of the servicer
in servicing the mortgage loan obligation.
ii. When the loan is held in a trust for which an appointed
trustee receives payments on behalf of the trust, a servicer
complies with Sec. 1024.36(d) by responding to a borrower's request
for information regarding the owner, assignee, or trust of the
mortgage loan with the following information, as applicable:
A. If the request for information expressly requested the name
or number of the trust or pool: the name of the trust, and the name,
address, and appropriate contact information for the trustee.
Assume, for example, a mortgage loan is owned by Mortgage Loan
Trust, Series ABC-1, for which XYZ Trust Company is the trustee. The
servicer complies with Sec. 1024.36(d) by identifying the owner as
Mortgage Loan Trust, Series ABC-1, and providing the name, address,
and appropriate contact information for XYZ Trust Company as the
trustee.
B. If the request for information did not expressly request the
name or number of the trust or pool: the name of the trust, and the
name, address, and appropriate contact information for the trustee,
as in comment 36(a)-2.ii.A above, unless the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation
is the investor, guarantor, or trustee. In that case, the servicer
may respond to such a request by providing only the name and contact
information for the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation, as applicable, without also
providing the name of the trust. Other investors or guarantors,
including the Government National Mortgage Association, are not the
owners or assignees for purposes of such requests for information
solely as a result of their roles as investors or guarantors.
* * * * *
36(i) Successors in interest.
1. Other information. For the purposes of requests under Sec.
1024.36(i), before the servicer has confirmed the identity and
ownership interest of the potential successor in interest, a
servicer is only required to provide information regarding the
documents the servicer requires to confirm the person's identity and
ownership interest in the property. The servicer is not required to
provide any other information that may also be requested by the
person.
Section 1024.37--Force-Placed Insurance
* * * * *
37(d)(5) Updating notice with borrower information.
1. Reasonable time. A servicer may have to prepare the written
notice required by Sec. 1024.37(c)(1)(ii) in advance of delivering
or placing the notice in the mail. If the notice has already been
put into production, the servicer is not required to update the
notice with new insurance information received about the borrower so
long as the written notice was put into production within a
reasonable time prior to the servicer delivering or placing the
notice in the mail. For purposes of Sec. 1024.37(d)(5), five days
(excluding legal holidays, Saturdays, and Sundays) is a reasonable
time.
* * * * *
Section 1024.38--General Servicing Policies, Procedures, and
Requirements
* * * * *
38(b) Objectives.
* * * * *
Paragraph 38(b)(1)(vi).
1. Documents reasonably required. The documents a servicer
requires to confirm a potential successor in interest's identity and
ownership interest in the property must be reasonable in light of
the laws of the relevant jurisdiction, the specific situation of the
potential successor in interest, and the documents already in the
servicer's possession. The required documents may, where
appropriate, include, for example, a death certificate, an executed
will, or a court order.
2. Examples of reasonable requirements. Subject to the relevant
law governing each situation, the following examples illustrate
documents that a servicer may require to confirm a potential
successor in interest's identity and ownership interest in the
property and that generally would be reasonable:
i. Tenancy by the entirety or joint tenancy. A potential
successor in interest indicates (or the servicer knows from its
records or other sources) that the prior borrower and the potential
successor in interest owned the
[[Page 74291]]
property as tenants by the entirety or joint tenants and that the
prior borrower has died. To demonstrate that the potential successor
in interest has sole interest in the property upon the death of the
prior borrower, applicable law does not require a probate
proceeding, but requires only that there be a prior recorded deed
listing both the potential successor in interest and the prior
borrower as tenants by the entirety (e.g., married grantees) or
joint tenants. Under these circumstances, it would be reasonable for
the servicer to require the potential successor in interest to
provide documentation of the recorded instrument, if the servicer
does not already have it, and the death certificate of the prior
borrower. Because in this situation a probate proceeding is not
required under applicable law, however, it would not be reasonable
for the servicer to require documentation of a probate proceeding.
ii. Affidavits of heirship. A potential successor in interest
indicates that he or she acquired an ownership interest in the
property upon the death of the prior borrower as a result of an
affidavit of heirship. To demonstrate that the potential successor
in interest has an interest in the property upon the death of the
prior borrower, applicable law does not require a probate
proceeding, but requires only an appropriate affidavit of heirship
upon death. Under these circumstances, it would be reasonable for
the servicer to require the potential successor in interest to
provide the affidavit of heirship and the death certificate of the
prior borrower. Because a probate proceeding is not required under
applicable law, however, it would not be reasonable for the servicer
to require documentation of a probate proceeding.
iii. Divorce or legal separation. A potential successor in
interest indicates that he or she acquired an ownership interest in
the property from a spouse who is a borrower as a result of a
property agreement incident to a divorce proceeding. Under
applicable law, transfer from the borrower spouse is demonstrated by
a final divorce decree and accompanying separation agreement
executed by both spouses. Applicable law does not require a deed
conveying the interest in the property. Under these circumstances,
it would be reasonable for the servicer to require the potential
successor in interest to provide documentation of the final divorce
decree and an executed separation agreement. Because applicable law
does not require a deed, however, it would not be reasonable for the
servicer to require documentation of a deed.
iv. Living spouses or parents. A potential successor in interest
indicates that he or she acquired an ownership interest in the
property from a living spouse or parent who is a borrower by
quitclaim deed or act of donation. Under these circumstances, it
would be reasonable for the servicer to require the potential
successor in interest to provide the quitclaim deed or act of
donation. It would not be reasonable, however, for the servicer to
require additional documents.
3. Prompt confirmation and loss mitigation. A servicer's
policies and procedures must be reasonably designed to ensure that
the servicer can promptly notify the potential successor in interest
that the servicer has confirmed the person's status. Upon the
receipt of documents required by a servicer to confirm a successor
in interest's identity and ownership interest in the property, the
servicer's confirmation and notification must be sufficiently prompt
so as not to interfere with the successor in interest's ability to
apply for loss mitigation options according to the procedures
provided in Sec. 1024.41. In general, a servicer's policies and
procedures must be reasonably designed to ensure that the servicer
confirms a successor in interest's status and notifies the person of
the servicer's confirmation at least 30 days before the next
applicable milestone provided in comment 41(b)(2)(ii)-2.
* * * * *
38(b)(3) Facilitating oversight of, and compliance by, service
providers.
Paragraph 38(b)(3)(iii).
1. Sharing information with service provider personnel handling
foreclosure proceedings. A servicer's policies and procedures must
be reasonably designed to ensure that servicer personnel promptly
inform service provider personnel handling foreclosure proceedings
the servicer has received a complete loss mitigation application and
to instruct promptly foreclosure counsel to take any step required
by Sec. 1024.41(g) sufficiently timely to avoid violating the
prohibition against moving for judgment or order of sale, or
conducting a foreclosure.
* * * * *
Section 1024.39--Early Intervention Requirements for Certain
Borrowers
39(a) Live contact.
1. Delinquency. Section 1024.39 requires a servicer to establish
or attempt to establish live contact not later than the 36th day of
such a borrower's delinquency. This provision is illustrated as
follows:
i. Assume a loan mortgage obligation with a monthly billing
cycle and monthly payments of $2000 representing principal, interest
and escrow due on the first of each month.
A. The borrower fails to make a payment of $2000 on, and makes
no payment 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., on or before February
6.
B. The borrower fails to make a payment of $2000 on January 1,
February 1, and March 1, making the borrower 90 days delinquent as
of April 1. The servicer can time its attempts to establish live
contact such that a single attempt will meet the requirements of
Sec. 1024.39(a) for two missed payments. To illustrate, the
servicer complies with Sec. 1024.39(a) if the servicer makes a good
faith effort to establish live contact with the borrower, for
example, on February 5, and again on March 25. The February 5
attempt meets the requirements of Sec. 1024.39(a) for both the
January 1 and February 1 missed payments.
2. Establishing live contact. Live contact provides servicers an
opportunity to discuss the circumstances of a borrower's
delinquency. Live contact with a borrower includes telephoning or
conducting an in-person meeting with the borrower, but not leaving a
recorded phone message. 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). Servicers may also combine
contacts made pursuant to Sec. 1024.39(a) with contacts made with
borrowers for other reasons, for instance, by telling borrowers on
collection calls that loss mitigation options may be available in
accordance with the rule.
3. Good faith efforts. 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 length
of a borrower's delinquency, as well as a borrower's failure to
respond to a servicer's repeated attempts at communication pursuant
to Sec. 1024.39(a), are relevant circumstances to consider. For
example, whereas ``good faith efforts'' to establish live contact
with regard to a borrower with two consecutive missed payments might
require a telephone call, ``good faith efforts'' to establish live
contact with regard to an unresponsive borrower with six or more
consecutive missed payments might require no more than including a
sentence requesting that the borrower contact the servicer with
regard to the delinquencies in the periodic statement or in an
electronic communication. Such efforts might be sufficient where
there is little or no hope of home retention, such as may occur in
the later stages of foreclosure. See additional examples set forth
in comment 39(a)-6.
4. Promptly inform if appropriate. i. Servicer's determination.
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 following
examples demonstrate when a servicer has made a reasonable
determination regarding the appropriateness of providing information
about loss mitigation options.
A. A servicer provides information about the availability of
loss mitigation options to a borrower who 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.
B. 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.
ii. Promptly inform. If appropriate, a servicer may inform
borrowers about the availability of loss mitigation options orally,
in writing, or through electronic communication, but the servicer
must provide such information promptly after the servicer
establishes live contact. A servicer need not notify a borrower
about any particular loss mitigation options at this time; if
appropriate, a servicer need only inform
[[Page 74292]]
borrowers generally that loss mitigation options may be available.
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.
5. Borrower's representative. Section 1024.39 does not prohibit
a servicer from satisfying the requirements Sec. 1024.39 by
establishing live contact with and, if applicable, providing
information about loss mitigation options to a person authorized by
the borrower to communicate with the servicer on the borrower's
behalf. 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 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.
6. Compliance with Sec. 1024.41. A servicer complies with Sec.
1024.39(a) and need not otherwise establish or make good faith
efforts to establish live contact if the servicer has established
and is maintaining ongoing contact with the borrower with regard to
the borrower's completion of a loss mitigation application or the
servicer's evaluation of the borrower's complete loss mitigation
application, or if the servicer has sent the borrower a notice
pursuant to Sec. 1024.41(c)(1)(ii) that the borrower is not
eligible for any loss mitigation options. However, the servicer must
resume compliance with the requirements of Sec. 1024.39(a) for a
borrower who cures a prior default but becomes delinquent again.
39(b) Written notice.
39(b)(1) Notice required.
* * * * *
2. Frequency of the written notice. A servicer need not provide
the written notice under section 1024.39(b) more than once during a
180-day period beginning on the date on which the written notice is
provided. For example, a borrower has a payment due on March 1. The
amount due is not fully paid during the 45 days after March 1 and
the servicer provides the written notice within 45 days after March
1--i.e., by April 15. Assume the servicer provides the notice on
April 15. If the borrower subsequently fails to make a payment due
April 1 and the amount due is not fully paid during the 45 days
after April 1, the servicer need not provide the written notice
again during the 180-day period beginning on April 15--i.e., no
sooner than on October 12. If the borrower is delinquent on October
12, however, the servicer must again provide the written notice 45
days from the date the most recently missed payment was due. For
example, if the amount due on October 1 is not fully paid during the
45 days after October 1, the servicer will need to provide the
written notice again 45 days after October 1--i.e., by November 15.
* * * * *
5. Successors in interest. Where a servicer has already provided
a written notice to a prior borrower under Sec. 1024.39(b) before
confirming a successor in interest's identity and ownership interest
in the property, the servicer is not required also to provide that
notice to the successor in interest, but after confirming the
successor in interest's identity and ownership interest in the
property, the servicer must provide the successor in interest with
any additional written notices required under Sec. 1024.39(b) after
confirming the successor in interest's identity and ownership
interest in the property.
6. Servicing transfers. A transferee servicer is required to
comply with the requirements of Sec. 1024.39(b) regardless of
whether the transferor servicer provided a written notice to the
borrower in the preceding 180-day period. However, a transferee
servicer is not required to provide written notice under Sec.
1024.39(b) that the transferor servicer provided prior to the
transfer. For example, a borrower has a payment due on March 1. The
transferor servicer provides the notice required by Sec. 1024.39(b)
on April 10. The loan is transferred on April 12. Assuming the
borrower remains delinquent, the transferee servicer is not required
to provide another written notice until 45 days after the next
payment due date--i.e., by May 16.
39(b)(2) Content of the written notice.
* * * * *
4. Availability of loss mitigation options. If loss mitigation
options are available, a servicer must include in the written notice
the disclosures set forth in Sec. 1024.39(b)(2)(iii) and (iv). Loss
mitigation options are available if the owner or assignee of a
borrower's mortgage loan offers an alternative to foreclosure that
is made available through the servicer. The availability of loss
mitigation options does not depend upon a borrower's eligibility for
those options, but simply depends upon whether the owner or assignee
of a borrower's mortgage loan generally offers loss mitigation
options through the servicer.
* * * * *
39(d) Exemptions.
39(d)(1) Borrowers in bankruptcy.
1. Resuming compliance. i. With respect to a borrower who has
not discharged the mortgage debt, a servicer must resume compliance
with Sec. 1024.39(a) and (b), as applicable, as of the first
delinquency that follows the earliest of the following outcomes in
the bankruptcy case: the case is dismissed, the case is closed, the
borrower reaffirms the mortgage loan under 11 U.S.C. 524, or the
borrower receives a discharge under 11 U.S.C. 727, 1141, 1228, or
1328. However, this requirement to resume compliance with Sec.
1024.39 does not require a servicer to communicate with a borrower
in a manner that would be inconsistent with applicable bankruptcy
law or a court order in a bankruptcy case. To the extent necessary
to comply with such law or court order, a servicer may adapt the
requirements of Sec. 1024.39 as appropriate.
ii. Compliance with Sec. 1024.39(a) is not required for any
borrower who has discharged the mortgage debt under applicable
provisions of the U.S. Bankruptcy Code. If the borrower's bankruptcy
case is revived--for example if the court reinstates a previously
dismissed case or reopens the case--the servicer is again exempt
from the requirements of Sec. 1024.39(a).
39(d)(1)(i) Live contact.
1. Live contact. The requirements of Sec. 1024.39(a) do not
apply once a petition is filed under the U.S. Bankruptcy Code,
commencing any case in which the borrower is a debtor or a Chapter
12 or Chapter 13 case in which any borrower on the mortgage loan is
a debtor. The requirements of Sec. 1024.39(a) also do not apply if
the borrower has discharged personal liability for the mortgage loan
under 11 U.S.C. 727, 1141, 1228, or 1328.
39(d)(1)(ii) Written notice.
1. Plan of reorganization. For purposes of Sec.
1024.39(d)(1)(ii), ``plan of reorganization'' refers to a borrower's
plan of reorganization filed under the applicable provisions of
Chapter 11, Chapter 12, or Chapter 13 of the U.S. Bankruptcy Code
and confirmed by a court with jurisdiction over the borrower's
bankruptcy case.
2. Fair Debt Collections Practices Act. If the FDCPA applies to
a servicer's communications with a borrower in bankruptcy and the
borrower has sent a notification pursuant to FDCPA Sec. 805(c), see
comment 39(d)(2)(iii)-2.
39(d)(2)(iii) Fair Debt Collection Practices Act.
1. Communications under the FDCPA. To the extent the FDCPA
applies to a servicer's communications with a borrower, a servicer
does not violate FDCPA section 805(c) by providing the written
notice required by Sec. 1024.39(d)(2)(iii) after a borrower has
sent a notification pursuant to FDCPA section 805(c) with respect to
that borrower's loan. In providing the borrower the written notice,
the servicer must continue to comply with all other applicable
provisions of the FDCPA, including prohibitions on unfair,
deceptive, and abusive practices as contained in FDCPA sections 805
through 808 (15 U.S.C. 1692c through 1692f).
2. Borrowers in bankruptcy. To the extent the FDCPA applies to a
servicer's communications with a borrower and the borrower has sent
a notification pursuant to FDCPA section 805(c), a servicer is not
required to provide the written notice required by Sec.
1024.39(d)(2)(iii) if the borrower is in bankruptcy and is not
represented by a person authorized by the borrower to communicate
with the servicer on the borrower's behalf. If the borrower is
represented by a person authorized by the borrower to communicate
with the servicer on the borrower's behalf, however, the servicer
must provide the written notice required by Sec. 1024.39(d)(2)(iii)
to the borrower's representative. See comment 39(a)-4.
Section 1024.41--Loss Mitigation Procedures
* * * * *
41(b) Receipt of a loss mitigation application.
1. Successors in interest. i. If a servicer receives a loss
mitigation application, including a complete loss mitigation
application, from a potential successor in interest before
confirming that person's identity and ownership interest in the
property, the servicer may, but is not required to, review and
evaluate the loss mitigation application in accordance with the
[[Page 74293]]
procedures set forth in Sec. 1024.41. If a servicer complies with
the requirements of Sec. 1024.41 for a complete loss mitigation
application submitted by a potential successor in interest before
confirming that person's identity and ownership interest in the
property, Sec. 1024.41(i)'s limitation on duplicative requests
applies to that person, provided that confirmation of the successor
in interest's status would not affect the servicer's evaluation of
the application.
ii. If a servicer receives a loss mitigation application from a
potential successor in interest and elects not to review and
evaluate the loss mitigation application before confirming that
person's identity and ownership interest in the property, upon such
confirmation the servicer must review and evaluate that loss
mitigation application in accordance with the procedures set forth
in Sec. 1024.41. For purposes of Sec. 1024.41, the servicer must
treat the loss mitigation application as if it had been received on
the date that the servicer confirmed the successor in interest's
status.
41(b)(1) Complete loss mitigation application.
1. In general. A servicer has flexibility to establish its own
application requirements and to decide the type and amount of
information it will require from borrowers applying for loss
mitigation options. In the course of gathering documents and
information from a borrower to complete a loss mitigation
application, a servicer may stop collecting documents and
information for a particular loss mitigation option after receiving
information confirming that the borrower is ineligible for that
option. For example, if a particular loss mitigation option is only
available for military servicemembers, once a servicer receives
documents or information confirming that the borrower is not a
military servicemember, the servicer may stop collecting documents
or information from the borrower that the servicer would use to
evaluate the borrower for that loss mitigation option. Making such a
determination does not affect the servicer's obligation to exercise
reasonable diligence in obtaining documents and information to
complete a loss mitigation application; the servicer must continue
its efforts to obtain documents and information from the borrower
that pertain to all other available loss mitigation options. A
servicer may not stop collecting documents and information for any
loss mitigation option based solely upon the borrower's stated
preference for a particular loss mitigation option.
* * * * *
4. * * *
iii. A servicer offers a borrower a short-term payment
forbearance program or a short-term repayment plan based on an
incomplete loss mitigation application; the servicer notifies the
borrower that he or she is being offered a payment forbearance
program or repayment plan based on an evaluation of an incomplete
application, and that the borrower has the option of completing the
application to receive a full evaluation of all loss mitigation
options available to the borrower. If a servicer provides such a
notification, the borrower remains in compliance with the payment
forbearance program or repayment plan, and the borrower does not
request further assistance, the servicer could suspend reasonable
diligence efforts until near the end of the payment forbearance
program or repayment plan. Near the end of the program or plan, and
prior to the end of the forbearance or repayment period, if the
borrower remains delinquent, a servicer should contact the borrower
to determine if the borrower wishes to complete the application and
proceed with a full loss mitigation evaluation.
* * * * *
41(b)(2) Review of loss mitigation application submission.
41(b)(2)(i) Requirements.
1. Foreclosure sale not scheduled. For purposes of Sec.
1024.41(b)(2)(i), if no foreclosure sale has been scheduled as of
the date a loss mitigation application is received, a servicer must
treat the application as having been received 45 days or more before
any foreclosure sale.
* * * * *
41(b)(2)(ii) Time period disclosure.
1. Affording the borrower a reasonable period of time. In
setting a reasonable date for the return of documents and
information under Sec. 1024.41(b)(2)(ii), the servicer must allow a
reasonable period of time for the borrower to obtain and submit
documents and information necessary to make the loss mitigation
application complete. Generally, a reasonable period of time would
not be less than seven days.
2. Maximizing protections. A servicer must preserve maximum
borrower rights under Sec. 1024.41 in setting a reasonable date
under Sec. 1024.41(b)(2)(ii). Subject to comment 41(b)(2)(ii)-1, a
servicer generally should not set a reasonable date that is further
away than the nearest remaining milestone from the following list:
i. The date by which any document or information submitted by a
borrower will be considered stale or invalid pursuant to any
requirements applicable to any loss mitigation option available to
the borrower;
ii. The date that is the 120th day of the borrower's
delinquency;
iii. The date that is 90 days before a foreclosure sale;
iv. The date that is 38 days before a foreclosure sale.
3. Flexibility in setting a reasonable date. Subject to comments
41(b)(2)(ii)-1 and 2, a servicer has flexibility in selecting a
reasonable date for the return of documents and information under
Sec. 1024.41(b)(2)(ii). A servicer may select any date that it
determines both maximizes borrower rights under Sec. 1024.41 and
allows the borrower a reasonable period of time to obtain and submit
documents and information necessary to make the loss mitigation
application complete. For example, a servicer may set a reasonable
date that is earlier than the nearest remaining milestone listed in
comment 41(b)(2)(ii)-2 and does not need to select that milestone as
the reasonable date itself.
* * * * *
41(c) Evaluation of loss mitigation applications.
41(c)(2) Incomplete loss mitigation application evaluation.
* * * * *
41(c)(2)(iii) Payment forbearance.
1. Short-term payment forbearance program. The exemption in
Sec. 1024.41(c)(2)(iii) applies to, among other things, short-term
payment forbearance programs. A payment forbearance program is a
loss mitigation option pursuant to which a servicer allows a
borrower to forgo making certain payments or portions of payments
for a period of time. A short-term payment forbearance program
allows the forbearance of payments due over periods of no more than
six months. Such a program would be short-term regardless of the
amount of time a servicer allows the borrower to make up the missing
payments.
2. Payment forbearance and incomplete applications. Section
1024.41(c)(2)(iii) allows a servicer to offer a borrower a short-
term payment forbearance program or a short-term repayment plan
based on an evaluation of an incomplete loss mitigation application.
Such an incomplete loss mitigation application is still subject to
the other obligations in Sec. 1024.41, including the obligation in
Sec. 1024.41(b)(2) to review the application to determine if it is
complete, the obligation in Sec. 1024.41(b)(1) to exercise
reasonable diligence in obtaining documents and information to
complete a loss mitigation application (see comment 41(b)(1)-4.iii),
and the obligation to provide the borrower with the Sec.
1024.41(b)(2)(i)(B) notice that the servicer acknowledges the
receipt of the application and has determined the application is
incomplete.
3. Payment forbearance and complete applications. Even if a
servicer offers a borrower a short-term payment forbearance program
or a short-term repayment plan based on an evaluation of an
incomplete loss mitigation application, the servicer must still
comply with all the requirements in Sec. 1024.41 if the borrower
completes his or her loss mitigation application.
4. Short-term repayment plan. The exemption in Sec.
1024.41(c)(2)(iii) applies to, among other things, short-term
repayment plans. A repayment plan is a loss mitigation option
pursuant to which a servicer allows a borrower to repay past due
payments over a specified period of time until the mortgage loan
account is current. A short-term repayment plan allows for the
repayment of no more than three months of payments due and allows a
borrower to repay the arrearage over future payments for a period
lasting no more than six months.
* * * * *
41(c)(3) Notice of complete application.
Paragraph 41(c)(3)(i).
1. Prompt notification. Section 1024.41(c)(3)(i) requires that a
servicer promptly provide a borrower with written notice that the
servicer has received a complete loss mitigation application.
Generally, a servicer complies with this requirement by providing
the written notice within five days of receiving the complete
application.
2. Date that foreclosure protections began. Notifications sent
under Sec. 1024.41(c)(3)(i) must state, among other things, the
date on
[[Page 74294]]
which the borrower's protections began under Sec. 1024.41(f)(2) and
(g), as applicable. This date must be the date on which the
application became either complete or facially complete, as
applicable.
3. Additional notices. Section 1024.41(c)(3)(i) requires a
servicer to provide a notification, subject to the exceptions under
Sec. 1024.41(c)(3)(ii), every time a loss mitigation application
becomes complete. If, after providing a notice under Sec.
1024.41(c)(3)(i), a servicer requests additional information or a
corrected version of a previously submitted document required to
complete the application in accordance with Sec. 1024.41(c)(2)(iv),
the servicer might have to provide an additional notice under Sec.
1024.41(c)(3)(i) if the borrower completes the application. For
example, when a borrower submits a complete application and the
servicer provides the notice under Sec. 1024.41(c)(3)(i), a
servicer might later discover that it requires additional
information regarding a source of income that the borrower
previously identified to complete the application. In accordance
with Sec. 1024.41(c)(2)(iv) (and subject to that section's
additional requirements), the servicer must request this additional
information. If the borrower submits the additional information to
complete the application, the servicer must provide another notice
of complete application under Sec. 1024.41(c)(3)(i).
41(c)(4) Information not in the borrower's control.
41(c)(4)(i) Diligence requirements.
1. Within 30 days of receiving a complete application. A
servicer must act with reasonable diligence to collect information
not in the borrower's control that the servicer requires to
determine which loss mitigation options, if any, it will offer to
the borrower. Further, a servicer must request such information from
the appropriate person, at a minimum and without limitation:
i. Promptly upon determining that the servicer requires the
documents or information to determine which loss mitigation options,
if any, the servicer will offer the borrower; and
ii. To the extent practicable, by a date that will enable the
servicer to complete the evaluation within 30 days of receiving the
complete application as set forth under Sec. 1024.41(c)(1).
2. After the first 30 days. If a servicer has not received
documents or information not in the borrower's control within 30
days of receiving a complete loss mitigation application, the
servicer acts with reasonable diligence by attempting to obtain the
documents or information from the appropriate person as quickly as
possible.
41(c)(4)(ii) Effect in case of delay.
1. Third-party delay. Various third parties, such as mortgage
insurance companies, guarantors, owners, or assignees, might impose
requirements on servicers pertaining to the loss mitigation
evaluation process. A servicer must complete all possible steps in
the evaluation process within 30 days of receiving a complete
application, including by taking all steps mandated by such
requirements, notwithstanding delay in receiving information from
any third party. For example, if a servicer can determine a
borrower's eligibility for all available loss mitigation options
based upon the borrower's complete application subject only to
approval from the mortgage insurance company, it must do so within
30 days of receiving the complete application notwithstanding the
need to obtain such approval before offering any loss mitigation
options to the borrower.
41(c)(4)(ii)(C) Providing notification of determination to
borrower in case of delay.
1. Timing. If, due to a lack of documentation or information
from a party other than the borrower or the servicer, a servicer is
unable to determine which loss mitigation options, if any, to offer
a borrower within 30 days of receiving a complete application, the
servicer should not provide the borrower a written notice stating
the servicer's determination until the servicer receives the
documentation or information.
* * * * *
41(g) Prohibition on foreclosure sale.
1. Dispositive motion. The prohibition on a servicer moving for
judgment or order of sale includes making a dispositive motion for
foreclosure judgment, such as a motion for default judgment,
judgment on the pleadings, or summary judgment, which may directly
result in a judgment of foreclosure or order of sale. A servicer
that has made any such motion before receiving a complete loss
mitigation application has not moved for a foreclosure judgment or
order of sale if the servicer takes reasonable steps to avoid a
ruling on such motion or issuance of such order prior to completing
the procedures required by Sec. 1024.41, even if the servicer's
reasonable steps are unsuccessful in avoiding a ruling on a
dispositive motion or issuance of an order of sale. Where a servicer
or counsel retained by the servicer fails to take reasonable steps
to avoid a ruling on such motion that was pending at the time a
complete loss mitigation application is received or issuance of an
order with respect to such a motion, the servicer must dismiss the
foreclosure proceeding if necessary to avoid the sale.
* * * * *
3. Interaction with foreclosure counsel. The prohibitions in
Sec. 1024.41(g) against moving for judgment or order of sale or
conducting a sale may require a servicer to take steps through
foreclosure counsel retained by the servicer in foreclosure
proceedings. Thus, a servicer is not relieved of its obligations
because the foreclosure counsel's actions or inaction caused a
violation. If a servicer has received a complete loss mitigation
application, the servicer must promptly instruct counsel not to make
a dispositive motion for foreclosure judgment or order of sale; to
take reasonable steps, where such a dispositive motion is pending,
to avoid a ruling on the motion or issuance of an order of sale; and
to take reasonable steps to delay the conduct of a foreclosure sale
until the servicer satisfies one of the conditions in Sec.
1024.41(g)(1) through (3). These instructions may include
instructing counsel to move for a continuance with respect to the
deadline for filing a dispositive motion or to move for or request
that the foreclosure sale be stayed, otherwise delayed, or removed
from the docket, or that the foreclosure proceeding be placed in any
administrative status that stays the sale.
* * * * *
5. Conducting a sale. Section 1024.41(g) prohibits a servicer
from conducting a foreclosure sale, even if a person other than the
servicer administers or conducts the foreclosure sale proceedings.
Where a foreclosure sale is scheduled, and none of the conditions
under Sec. 1024.41(g)(1) through (3) are applicable, the servicer
must take reasonable steps to delay the foreclosure sale until one
of the conditions under Sec. 1024.41(g)(1) through (3) is met.
Reasonable steps include, but are not limited to, requesting that a
court or the official conducting the sale re-schedule or delay the
sale or remove the sale from the docket, or place the foreclosure
proceeding in any administrative status that stays the sale. If a
servicer, or counsel retained by the servicer, fails to take
reasonable steps to delay the foreclosure sale, or if a servicer
fails to instruct counsel retained by the servicer to take such
reasonable steps to delay a sale (see comment 41(g)-3), the servicer
must dismiss the foreclosure proceeding.
* * * * *
41(i) Duplicative requests.
1. Servicing transfers. A transferee servicer is required to
comply with the requirements of Sec. 1024.41 regardless of whether
a borrower received an evaluation of a complete loss mitigation
application from a transferor servicer.
* * * * *
41(k) Servicing transfers.
1. Pending loss mitigation application. For purposes of Sec.
1024.41(k), a loss mitigation application is pending if it was
subject to Sec. 1024.41 and had not been fully resolved before the
transfer date. For example, a loss mitigation application would not
be considered pending if a transferor servicer had denied a borrower
for all options and the borrower's time for making an appeal, if
any, had expired prior to the transfer date, such that the
transferor servicer had no continuing obligations under Sec.
1024.41 with respect to the application. A pending application is
considered a pending complete application if it was complete as of
the transfer date under the transferor servicer's criteria for
evaluating loss mitigation applications.
41(k)(1) In general.
41(k)(1)(i) Timing of compliance.
1. Obtaining loss mitigation documents and information. i. In
connection with a transfer, a transferee servicer must obtain from
the transferor servicer documents and information submitted by a
borrower in connection with a loss mitigation application,
consistent with policies and procedures adopted pursuant to Sec.
1024.38. A transferee servicer must comply with the applicable
requirements of Sec. 1024.41 with respect to a loss mitigation
application received as a result of a transfer, even if the
transferor servicer was not required to comply with Sec. 1024.41
with respect to that application (for example, because Sec.
1024.41(i) precluded applicability of Sec. 1024.41 with respect to
the transferor servicer). If an application was not subject to
[[Page 74295]]
Sec. 1024.41 prior to a transfer, then for purposes of Sec.
1024.41(b) and (c), a transferee servicer is considered to have
received a loss mitigation application on the transfer date.
ii. A transferee servicer must, in accordance with Sec.
1024.41(b), exercise reasonable diligence to complete a loss
mitigation application received as a result of a transfer. In the
transfer context, reasonable diligence includes ensuring that a
borrower is informed of any changes to the application process, such
as a change in the address to which the borrower should submit
documents and information to complete the application, as well as
ensuring that the borrower is informed about which documents and
information are necessary to complete the application.
2. Determination of protections. For purposes of Sec.
1024.41(e) through (h), a transferee servicer must consider
documents and information that constitute a complete loss mitigation
application for the transferee servicer to have been received as of
the date such documents and information were received by the
transferor servicer. An application that was facially complete with
respect to the transferor servicer remains facially complete with
respect to the transferee servicer as of the date it was facially
complete with respect to the transferor servicer. If an application
was complete with respect to the transferor servicer, but is not
complete with respect to the transferee servicer, the transferee
servicer must treat the application as facially complete as of the
date the application was complete with respect to the transferor
servicer.
3. Duplicative notices not required. A transferee servicer is
not required to provide notices under Sec. 1024.41 with respect to
a particular loss mitigation application that the transferor
servicer provided prior to the transfer. For example, if the
transferor servicer provided the notice required by Sec.
1024.41(b)(2)(i)(B) prior to the transfer, the transferee servicer
is not required to provide the notice again for that application.
For example, if the transferor servicer provided the notice required
by Sec. 1024.41(b)(2)(i)(B) prior to the transfer, the transferee
servicer is not required to provide the notice again for that
application.
41(k)(1)(ii) Transfer date defined.
1. Transfer date. Section 1024.41(k)(1)(ii) provides that the
transfer date is the date on which the transfer of the servicing
responsibilities from the transferor servicer to the transferee
servicer occurs. The transfer date corresponds to the date the
transferee servicer will begin accepting payments relating to the
mortgage loan, which must be disclosed on the notice of transfer of
loan servicing pursuant to Sec. 1024.33(b)(4)(iv). The transfer
date may not necessarily be the same date as the sale date
identified in a servicing transfer agreement.
41(k)(3) Complete loss mitigation applications pending at
transfer.
41(k)(3)(i) In general.
1. Additional information or corrections to a previously
submitted document. If a transferee servicer acquires the servicing
of a mortgage loan for which a complete loss mitigation application
is pending as of the transfer date and the transferee servicer
determines that additional information or a correction to a
previously submitted document is required based upon its criteria
for evaluating loss mitigation applications, the application is
considered facially complete under Sec. 1024.41(c)(2)(iv) as of the
date it was first facially complete or complete, as applicable, with
respect to the transferor servicer. Once the transferee servicer
receives the information or corrections necessary to complete the
application, Sec. 1024.41(c)(3) requires the transferee servicer to
provide a notice of complete application. An application that was
complete with respect to the transferor servicer remains complete
even if the transferee servicer requests that a borrower resubmit
the same information in the transferee servicer's specified format
or make clerical corrections to the application. A borrower's
failure to resubmit such information or make such clerical
corrections does not extend the time in which the transferee
servicer must complete the evaluation of the borrower's complete
application.
2. Applications first complete upon transfer. If the borrower's
loss mitigation application was incomplete based on the transferor
servicer's criteria prior to transfer but the transferee servicer
determines that the application is complete based upon its own
criteria, the application is considered a pending loss mitigation
application complete as of the transfer date for purposes of Sec.
1024.41(k)(3). For purposes of Sec. 1024.41(e) through (h), the
application is complete as of the date the transferor servicer
received the documents and information constituting the complete
application. See comment 41(k)(1)-2. In such circumstances, Sec.
1024.41(c)(3) requires a transferee servicer to provide a notice of
complete application.
41(k)(3)(iii) Compliance not practicable.
1. Reasonably prompt time. Section 1024.41(k)(3)(iii) requires
that if compliance with the time periods set forth in Sec.
1024.41(k)(3)(i) or (ii)(A), as applicable, is not practicable under
the circumstances, a transferee servicer must complete the
evaluation of the complete loss mitigation application and provide
the applicable notices required by Sec. 1024.41(c)(1) and (4)
within a reasonably prompt time. In general, completing the
evaluation and providing the applicable notices within an additional
five days after the expiration of the time periods set forth in
Sec. 1024.41(k)(3)(i) or (ii)(A) would be considered reasonably
prompt.
41(k)(4) Applications subject to appeal process.
1. Servicer unable to evaluate appeal. A transferee servicer may
be unable to evaluate an appeal when, for example, the transferor
servicer denied a borrower for a loan modification option that the
transferee servicer does not offer or when the transferee servicer
receives the mortgage loan through an involuntary transfer and the
transferor servicer failed to maintain proper records such that the
transferee servicer lacks sufficient information to evaluate the
appeal. In that circumstance, the transferee servicer is required to
treat the appeal as a pending complete application and it must
permit the borrower to accept or reject any loss mitigation options
offered by the transferor servicer, in addition to the loss
mitigation options, if any, that the transferee servicer determines
to offer the borrower based on its own evaluation of the borrower's
complete loss mitigation application. For example, assume a
transferor servicer denied a borrower for all loan modification
options but offered the borrower a short sale option, and assume
that the borrower's appeal of the loan modification denials was
pending as of the transfer date. If the transferee servicer is
unable to evaluate the borrower's appeal, the transferee servicer
must evaluate the borrower for all available loss mitigation options
in accordance with Sec. 1024.41(c) and (k)(3). At the conclusion of
such evaluation, the transferee servicer must permit the borrower to
accept the short sale option offered by the transferor servicer in
addition to any loss mitigation options the transferee servicer
determines to offer the borrower based upon its own evaluation.
2. Reasonably prompt time. Section 1024.41(k)(5) requires that
if a servicer is able to determine the outcome of an appeal, but
compliance within 30 days of when the borrower made the appeal is
not practicable under the circumstances, a transferee servicer must
complete the determination and provide the notice required by Sec.
1024.41(h)(4) within a reasonably prompt time. In general,
completing the evaluation and providing the notice within an
additional five days after the expiration of the original 30-day
evaluation period would be considered reasonably prompt.
41(k)(5) Pending loss mitigation offers.
1. Obtaining evidence of borrower acceptance. A transferee
servicer should expect that a borrower may provide an acceptance to
the transferor servicer after the transfer date, and, in accordance
with policies and procedures maintained pursuant to Sec.
1024.38(b)(4), a transferee servicer must obtain information or
documents reflecting such acceptances from the transferor servicer
and provide the borrower with the accepted loss mitigation option.
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
12. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511,
5512, 5532, 5581; 15 U.S.C. 1601 et seq.
Subpart A--General
0
13. Section 1026.2 is amended by revising paragraph (a)(11) and adding
paragraph (a)(27) to read as follows:
Sec. 1026.2 Definitions and rules of construction.
* * * * *
(a) * * *
(11) Consumer means a cardholder or natural person to whom consumer
credit is offered or extended. However, for purposes of rescission
under Sec. Sec. 1026.15 and 1026.23, the term also
[[Page 74296]]
includes a natural person in whose principal dwelling a security
interest is or will be retained or acquired, if that person's ownership
interest in the dwelling is or will be subject to the security
interest; and for purposes of Sec. Sec. 1026.20(c) through (e),
1026.36(c), and 1026.41, the term includes a successor in interest once
a servicer confirms the successor in interest's identity and ownership
interest in the dwelling.
* * * * *
(27) Successor in interest means a person to whom an ownership
interest in a dwelling securing a closed-end consumer credit
transaction is transferred from a prior consumer, provided that the
transfer falls under an exemption specified in section 341(d) of the
Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C. 1701j-
3(d)).
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
0
14. Section 1026.36 is amended by revising paragraphs (c)(1)
introductory text and (c)(2) introductory text to read as follows:
Sec. 1026.36 Prohibited acts or practices and certain requirements
for credit secured by a dwelling.
* * * * *
(c) * * *
(1) Payment processing. In connection with a closed-end consumer
credit transaction secured by a consumer's principal dwelling:
* * * * *
(2) No pyramiding of late fees. In connection with a closed-end
consumer credit transaction secured by a consumer's principal dwelling,
a servicer shall not impose any late fee or delinquency charge for a
payment if:
* * * * *
0
15. Section 1026.41 is amended by revising paragraphs (d)(8)(i) and
(e)(4)(iii)(A), adding paragraph (e)(4)(iii)(D), revising paragraph
(e)(5), and adding paragraphs (e)(6) and (f) to read as follows:
Sec. 1026.41 Periodic statements for residential mortgage loans.
* * * * *
(d) * * *
(8) * * *
(i) The length of the consumer's delinquency, as of the date of the
periodic statement;
* * * * *
(e) * * *
(4) * * *
(iii) * * *
(A) Mortgage loans voluntarily serviced by the servicer for a non-
affiliate of the servicer and for which the servicer does not receive
any compensation or fees.
* * * * *
(D) Transactions serviced by the servicer for a seller financer
that meet all of the criteria identified in 12 CFR 1026.36(a)(5).
(5) Certain Consumers in Bankruptcy--(i) Exemption. A servicer is
exempt from the requirements of this section, except as provided in
paragraph (e)(5)(ii) of this section, with respect to a consumer if:
(A) The consumer is a debtor in a case under the U.S. Bankruptcy
Code; the consumer is a primary obligor on a mortgage loan for which
another primary obligor is a debtor in a Chapter 12 or Chapter 13 case
under the U.S. Bankruptcy Code; or the consumer has discharged personal
liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228,
or 1328; and
(B) One of the following conditions is satisfied:
(1) The consumer requests in writing that the servicer cease
providing periodic statements or coupon books;
(2) The consumer's confirmed plan of reorganization provides that
the consumer will surrender the dwelling securing the mortgage loan,
provides for the avoidance of the lien securing the mortgage loan, or
otherwise does not provide for, as applicable, the payment of pre-
bankruptcy arrearage or the maintenance of payments due under the
mortgage loan;
(3) A court enters an order in the consumer's bankruptcy case
providing for the avoidance of the lien securing the mortgage loan,
lifting the automatic stay pursuant to 11 U.S.C. 362 with respect to
the dwelling securing the mortgage loan, or requiring the servicer to
cease providing periodic statements or coupon books; or
(4) The consumer files with the court overseeing the consumer's
bankruptcy case a Statement of Intention pursuant to 11 U.S.C. 521(a)
identifying an intent to surrender the dwelling securing the mortgage
loan.
(ii) Resuming compliance--(A) Consumer request. Notwithstanding
paragraph (e)(5)(i) of this section, a servicer must comply with the
requirements of this section if the consumer requests in writing that
the servicer continue providing periodic statements or coupon books,
unless a court enters an order in the consumer's bankruptcy case
requiring the servicer to cease providing periodic statements or coupon
books. A servicer must resume providing periodic statements or coupon
books in compliance with paragraph (f) of this section within a
reasonably prompt time after the next payment due date that follows a
servicer's receipt of a consumer's written request.
(B) Termination of bankruptcy case. With respect to any portion of
the mortgage debt that is not discharged pursuant to 11 U.S.C. 727,
1141, 1228, or 1328, a servicer must resume providing periodic
statements or coupon books in compliance with this section within a
reasonably prompt time after the next payment due date that follows the
earliest of the following outcomes in either the consumer's or the
joint obligor's bankruptcy case, as applicable: the case is dismissed,
the case is closed, the consumer reaffirms the mortgage loan under 11
U.S.C. 524, or the consumer receives a discharge under 11 U.S.C. 727,
1141, 1228, or 1328.
(6) Charged-off loans. A servicer is exempt from the requirements
of this section for a mortgage loan if the servicer:
(i) Has charged off the loan in accordance with loan-loss
provisions and will not charge any additional fees or interest on the
account; and
(ii) Provides, within 30 days of charge off or the most recent
periodic statement, a final periodic statement, clearly and
conspicuously labeled ``Final Statement--Retain This Copy for Your
Records.'' The final periodic statement must explain in simple and
clear terms that: the mortgage loan has been charged off and the
servicer will not charge any additional fees or interest on the
account; the lien on the property remains in place and the consumer
remains liable for the mortgage loan obligation; the consumer may be
required to pay the balance on the account in the future, for example,
upon sale of the property; the balance on the account is not being
cancelled or forgiven; and the loan may be purchased, assigned, or
transferred.
(f) Modified periodic statements and coupon books for certain
consumers in bankruptcy. With respect to a consumer who is a debtor in
a case under the U.S. Bankruptcy Code or has discharged personal
liability for a mortgage loan under 11 U.S.C. 727, 1141, 1228, or 1328,
the requirements of this section are subject to the following
modifications:
(1) Requirements not applicable. The periodic statement may omit
the information set forth in paragraphs (d)(1)(ii) and (d)(8)(i), (ii),
and (v) of this section. The requirement in paragraph (d)(1)(iii) of
this section to show the
[[Page 74297]]
amount due more prominently than other disclosures on the page shall
not apply.
(2) Bankruptcy notices. The periodic statement must include the
following on the first page:
(i) A statement identifying the consumer's status as a debtor in
bankruptcy or the discharged nature of the mortgage loan; and
(ii) A statement that the periodic statement is for informational
purposes only.
(3) Chapter 12 and Chapter 13 consumers. With respect to a consumer
who is a debtor in a Chapter 12 or Chapter 13 bankruptcy case, the
requirements of this section are subject to the following additional
modifications:
(i) Requirements not applicable. In addition to omitting the
information set forth in paragraph (f)(1) of this section, the periodic
statement may also omit the information set forth in paragraphs
(d)(8)(iii), (iv), (vi), and (vii) of this section.
(ii) Amount due. The amount due information set forth in paragraph
(d)(1) of this section may be limited to the date and amount of the
post-petition payments due and any post-petition fees and charges
imposed by the servicer.
(iii) Explanation of amount due. The explanation of amount due
information set forth in paragraph (d)(2) of this section may be
limited to the post-petition payments and any post-petition fees and
charges imposed by the servicer.
(iv) Past payment breakdown. The items required by paragraph (d)(3)
of this section must include the following:
(A) The total of all post-petition payments received since the last
statement, including a breakdown showing the amount, if any, that was
applied to principal, interest, and escrow, and the amount, if any,
sent to any suspense or unapplied funds account;
(B) The total of all post-petition payments received since the
beginning of the current calendar year, including a breakdown of that
total showing the amount, if any, that was applied to principal,
interest, escrow, and the amount, if any, currently held in any
suspense or unapplied funds account;
(C) The total of all payments applied to post-petition fees or
charges since the last statement; and
(D) The total of all payments applied to post-petition fees or
charges since the beginning of the current calendar year.
(v) Transaction activity. The transaction activity information set
forth in paragraph (d)(4) of this section must include any post-
petition payments, pre-petition payments, and payments of post-petition
fees or charges the servicer has received since the last statement.
(vi) Pre-petition arrearage. If applicable, a servicer must include
the following, grouped in close proximity to each other:
(A) The total of all pre-petition payments received since the last
statement;
(B) The total of all pre-petition payments received since the
beginning of the current calendar year; and
(C) The current balance of the consumer's pre-petition arrearage.
(vii) Additional disclosures. The periodic statement must include
the following, as applicable:
(A) A statement that the amount due includes only post-petition
payments and does not include other payments that may be due under the
terms of the consumer's bankruptcy plan;
(B) A statement that, if the consumer's plan of reorganization
requires the consumer to make the post-petition mortgage payments
directly to a bankruptcy trustee, the consumer should send the payment
to the trustee and not to the servicer;
(C) A statement that the information disclosed on the periodic
statement may not reflect payments the consumer has made to the trustee
and may not be consistent with the trustee's records; and
(D) A statement that encourages the consumer to contact the
consumer's attorney or the trustee with questions regarding the
application of payments.
(4) Multiple obligors. If a servicer is required to provide
periodic statements with the modifications set forth in Sec.
1026.41(f) in connection with a mortgage loan with more than one
primary obligor, the servicer may provide the modified statements to
any or all of the primary obligors and need not provide any statements
that do not include the modifications set forth paragraphs (f)(1)
through (3) of this section, even if not all of the primary obligors
are debtors in bankruptcy.
(5) Coupon books. A servicer that provides a coupon book instead of
regular periodic statement under paragraph (e)(3) of this section must
include in the coupon book the disclosures set forth in paragraph
(f)(2) and (f)(3)(vii) of this section, as applicable. The servicer may
include these disclosures anywhere in the coupon book provided to the
consumer or on a separate page enclosed with the coupon book. The
servicer must make available upon request to the consumer by telephone,
in writing, in person, or electronically, if the consumer consents, the
information listed in paragraph (f)(3)(vi) of this section, as
applicable. The modifications set forth in paragraph (f)(1) and
(f)(3)(i) through (v) and (vii) of this section apply to coupon books
and other information a servicer provides to the consumer under
paragraph (e)(3) of this section.
0
16. Appendix H to part 1026 is amended by:
0
A. Revising the entry for H-30(C) in the table of contents at the
beginning of the appendix;
0
B. Adding entries for H-30(E) and H-30(F) in the table of contents at
the beginning of the appendix;
0
C. Revising H-4(C);
0
D. Revising H-14;
0
E. Republishing H-30(C); and
0
F. Adding H-30(E) and H-30(F).
The additions, republication, and revisions read as follows:
Appendix H to Part 1026-- Closed-End Model Forms and Clauses
* * * * *
H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan
(Sec. 1026.41)
* * * * *
H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or
Chapter 11 Bankruptcy
H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or
Chapter 13 Bankruptcy
* * * * *
H-4(C)--Variable Rate Model Clauses
This disclosure describes the features of the adjustable-rate
mortgage (ARM) program you are considering. Information on other ARM
programs is available upon request.
How Your Interest Rate and Payment Are Determined
Your interest rate will be based on [an index plus a
margin] [a formula].
Your payment will be based on the interest rate, loan
balance, and loan term.
--[The interest rate will be based on (identification of index)
plus our margin. Ask for our current interest rate and margin.]
--[The interest rate will be based on (identification of
formula). Ask us for our current interest rate.]
--Information about the index [formula for rate adjustments] is
published [can be found] __--.
--[The initial interest rate is not based on the (index)
(formula) used to make later adjustments. Ask us for the amount of
current interest rate discounts.]
How Your Interest Rate Can Change
Your interest rate can change (frequency).
[Your interest rate cannot increase or decrease more
than _-- percentage points at each adjustment.]
Your interest rate cannot increase [or decrease] more
than _-- percentage points over the term of the loan.
[[Page 74298]]
How Your Payment Can Change
Your payment can change (frequency) based on changes in
the interest rate.
[Your payment cannot increase more than (amount or
percentage) at each adjustment.]
[You will be notified at least 210, but no more than
240, days before first payment at the adjusted level is due after
the initial interest rate adjustment of the loan. This notice will
contain information about the adjustment, including the interest
rate, payment amount, and loan balance.]
[You will be notified at least 60, but no more than
120, days before first payment at the adjusted level is due after
any interest rate adjustment resulting in a corresponding payment
change. This notice will contain information about the adjustment,
including the interest rate, payment amount, and loan balance.]
[For example, on a $10,000 [term] loan with an initial
interest rate of _-- [(the rate shown in the interest rate column
below for the year 19 _--)] [(in effect (month) (year)], the maximum
amount that the interest rate can rise under this program is _--
percentage points, to _--%, and the monthly payment can rise from a
first-year payment of $_-- to a maximum of $_-- in the _-- year. To
see what your payments would be, divide your mortgage amount by
$10,000; then multiply the monthly payment by that amount. (For
example, the monthly payment for a mortgage amount of $60,000 would
be: $60,000 / $10,000 = 6; 6 x _-- = $_-- per month.)]
[Example
The example below shows how your payments would have changed
under this ARM program based on actual changes in the index from
1982 to 1996. This does not necessarily indicate how your index will
change in the future.
The example is based on the following assumptions:
Amount................................... $10,000
Term..................................... .............................
Change date.............................. .............................
Payment adjustment....................... (frequency)
Interest adjustment...................... (frequency)
[Margin]*................................ .............................
Caps __ [periodic interest rate cap]
X [lifetime interest rate cap
X [payment cap]
[Interest rate carryover]
[Negative amortization]
[Interest rate discount]**
Index(identification of index or formula)
------------------------------------------------------------------------
------------------------------------------------------------------------
*This is a margin we have used recently, your margin may be different.
**This is the amount of a discount we have provided recently; your loan
may be discounted by a different amount.]
----------------------------------------------------------------------------------------------------------------
Margin
Year Index (%) (percentage Interest rate Monthly Remaining
points) (%) payment ($) balance ($)
----------------------------------------------------------------------------------------------------------------
1982............................ .............. .............. .............. .............. ..............
1983............................ .............. .............. .............. .............. ..............
1984............................ .............. .............. .............. .............. ..............
1985............................ .............. .............. .............. .............. ..............
1986............................ .............. .............. .............. .............. ..............
1987............................ .............. .............. .............. .............. ..............
1988............................ .............. .............. .............. .............. ..............
1989............................ .............. .............. .............. .............. ..............
1990............................ .............. .............. .............. .............. ..............
1991............................ .............. .............. .............. .............. ..............
1992............................ .............. .............. .............. .............. ..............
1993............................ .............. .............. .............. .............. ..............
1994............................ .............. .............. .............. .............. ..............
1995............................ .............. .............. .............. .............. ..............
1996............................ .............. .............. .............. .............. ..............
----------------------------------------------------------------------------------------------------------------
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then
multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount
of $60,000 taken out in 1982 would be: $60,000 / $10,000 = 6; 6 x __ = $o per month.)
* * * * *
H-14--Variable-Rate Mortgage Sample
This disclosure describes the features of the adjustable-rate
mortgage (ARM) program you are considering. Information on other ARM
programs is available upon request.
How Your Interest Rate and Payment Are Determined
Your interest rate will be based on an index rate plus
a margin.
Your payment will be based on the interest rate, loan
balance, and loan term.
--The interest rate will be based on the weekly average yield on
United States Treasury securities adjusted to a constant maturity of
1 year (your index), plus our margin. Ask us for our current
interest rate and margin.
--Information about the index rate is published weekly in the
Wall Street Journal.
Your interest rate will equal the index rate plus our
margin unless your interest rate ``caps'' limit the amount of change
in the interest rate.
How Your Interest Rate Can Change
Your interest rate can change yearly.
Your interest rate cannot increase or decrease more
than 2 percentage points per year.
Your interest rate cannot increase or decrease more
than 5 percentage points over the term of the loan.
How Your Monthly Payment Can Change
Your monthly payment can increase or decrease
substantially based on annual changes in the interest rate.
[For example, on a $10,000, 30-year loan with an
initial interest rate of 12.41 percent in effect in July 1996, the
maximum amount that the interest rate can rise under this program is
5 percentage points, to 17.41 percent, and the monthly payment can
rise from a first-year payment of $106.03 to a maximum of $145.34 in
the fourth year. To see what your payment is, divide your mortgage
amount by $10,000; then multiply the monthly payment by that amount.
(For example, the monthly payment for a mortgage amount of $60,000
would be: $60,000/$10,000=6; 6x106.03=$636.18 per month.)]
[You will be notified at least 210, but no more than
240, days before first payment at the adjusted level is due after
the initial interest rate adjustment of the loan. This notice will
contain information about the adjustment, including the interest
rate, payment amount, and loan balance.]
[You will be notified at least 60, but no more than
120, days before first payment at the adjusted level is due after
any interest rate adjustment resulting in a corresponding payment
change. This notice will contain information about the adjustment,
including the interest rate, payment amount, and loan balance.]
[Example
The example below shows how your payments would have changed
under this ARM program based on actual changes in the index from
1982 to 1996. This does not necessarily indicate how your index will
change in the future. The example is based on the following
assumptions:
Amount................................... $10,000
Term..................................... 30 years
Payment adjustment....................... 1 year
Interest adjustment...................... 1 year
Margin................................... 3 percentage points
Caps+ 2 percentage points annual interest rate
[[Page 74299]]
X 5 percentage points lifetime interest rate
Index+ Weekly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year.
------------------------------------------------------------------------
Margin *
Year (as of 1st week ending in Index (%) (percentage Interest rate Monthly Remaining
July) points) (%) payment ($) balance ($)
----------------------------------------------------------------------------------------------------------------
1982............................ 14.41 3 17.41 145.90 9,989.37
1983............................ 9.78 3 ** 15.41 129.81 9,969.66
1984............................ 12.17 3 15.17 127.91 9,945.51
1985............................ 7.66 3 ** 13.17 112.43 9,903.70
1986............................ 6.36 3 *** 12.41 106.73 9,848.94
1987............................ 6.71 3 *** 12.41 106.73 9,786.98
1988............................ 7.52 3 *** 12.41 106.73 9,716.88
1989............................ 7.97 3 *** 12.41 106.73 9,637.56
1990............................ 8.06 3 *** 12.41 106.73 9,547.83
1991............................ 6.40 3 *** 12.41 106.73 9,446.29
1992............................ 3.96 3 *** 12.41 106.73 9,331.56
1993............................ 3.42 3 *** 12.41 106.73 9,201.61
1994............................ 5.47 3 *** 12.41 106.73 9,054.72
1995............................ 5.53 3 *** 12.41 106.73 8,888.52
1996............................ 5.82 3 *** 12.41 106.73 8,700.37
----------------------------------------------------------------------------------------------------------------
* This is a margin we have used recently; your margin may be different.
** This interest rate reflects a 2 percentage point annual interest rate cap.
*** This interest rate reflects a 5 percentage point lifetime interest rate cap.
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then
multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount
of $60,000 taken out in 1982 would be: $60,000/$10,000=6; 6x$106.73=$640.38.)]
[You will be notified at least 210, but no more than
240, days before first payment at the adjusted level is due after
the initial interest rate adjustment of the loan. This notice will
contain information about the adjustment, including the interest
rate, payment amount, and loan balance.]
[You will be notified at least 60, but no more than
120, days before first payment at the adjusted level is due after
any interest rate adjustment resulting in a corresponding payment
change. This notice will contain information about the adjustment,
including the interest rate, payment amount, and loan balance.]
* * * * *
H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan
BILLING CODE 4810-AM-C
[[Page 74300]]
[GRAPHIC] [TIFF OMITTED] TP15DE14.000
* * * * *
H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or
Chapter 11 Bankruptcy
[[Page 74301]]
[GRAPHIC] [TIFF OMITTED] TP15DE14.001
H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or
Chapter 13 Bankruptcy
[[Page 74302]]
[GRAPHIC] [TIFF OMITTED] TP15DE14.002
BILLING CODE 4810-AM-P
* * * * *
0
17. In Supplement I to part 1026:
0
A. Under Section 1026.2--Definitions and Rules of Construction:
0
i. Under 2(a)(11) Consumer, paragraph 4 is added.
0
B. Under Section 1026.36--Prohibited Acts or Practices and Certain
Requirements for Credit Secured by a Dwelling:
0
i. Under 36(c) Servicing practices:
0
a. Under Paragraph 36(c)(1)(i), paragraphs 4 and 5 are added.
0
C. Under Section 1026.41--Periodic Statements for Residential Mortgage
Loans:
0
i. Under 41(a) In general, paragraph 5 is added.
0
ii. Under 41(d) Content and layout of the periodic statement, paragraph
1 is revised and paragraphs 4 and 5 are added.
0
a. The heading 41(d)(1) Amount due is added, and paragraphs 1 through 3
under that heading are added.
0
b. The heading 41(d)(2) Explanation of amount due is added, and
paragraphs 1 and 2 under that heading are added.
[[Page 74303]]
0
c. The heading 41(d)(8) Delinquency information is added, and
paragraphs 1 and 2 under that heading are added.
0
iii. Under 41(e)(5) Consumers in bankruptcy, the heading is revised.
0
iv. Under revised heading 41(e)(5) Certain consumers in bankruptcy,
paragraph 1 is revised and paragraphs 2 and 3 are removed.
0
a. The heading 41(e)(5)(i) Exemption is added, and paragraphs 1 and 2
under that heading are added.
0
b. The heading Paragraph 41(e)(5)(i)(B)(4) is added, and paragraph 1
under that heading is added.
0
c. The heading 41(e)(5)(ii) Resuming compliance is added, and
paragraphs 1 through 3 under that heading are added.
0
v. The heading 41(e)(6) Charged-off loans is added, and paragraphs 1
and 2 under that heading are added.
0
vi. The heading 41(f) Modified periodic statements and coupon books for
certain consumers in bankruptcy is added, and paragraphs 1 through 3
under that heading are added.
0
a. The heading 41(f)(3) Chapter 12 and Chapter 13 consumers is added,
and paragraphs 1 through 4 under that heading are added.
0
c. The heading 41(f)(3)(ii) Amount due is added, and paragraph 1 under
that heading is added.
0
d. The heading 41(f)(3)(iii) Explanation of amount due is added, and
paragraph 1 under that heading is added.
0
e. The heading 41(f)(3)(v) Transaction activity is added, and paragraph
1 under that heading is added.
0
f. The heading 41(f)(3)(vi) Pre-petition arrearage is added, and
paragraph 1 under that heading is added.
0
g. The heading 41(f)(4) Multiple obligors is added, and paragraph 1
under that heading is added.
The additions and revisions read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Subpart A--General
* * * * *
Section 1026.2-- Definitions and Rules of Construction
* * * * *
2(a)(11) Consumer.
* * * * *
4. Successors in interest. Even after a servicer's confirmation
of a successor in interest's identity and ownership interest in the
dwelling, the servicer is still generally required to comply with
the requirements of Sec. Sec. 1026.20(c) through (e), 1026.36(c),
and 1026.41 with respect to the prior consumer. However, a servicer
is not required to comply with the requirements of Sec. Sec.
1026.20(c) through (e) and 1026.41 if the prior consumer also has
either died or has been released from the obligation on the mortgage
loan, and a servicer is not required to comply with the requirements
of Sec. 1026.36(c) if the prior consumer also has been released
from the obligation on the mortgage loan. The prior consumer retains
any rights under Sec. Sec. 1026.20(c) through (e), 1026.36(c), and
1026.41 that accrued prior to the confirmation of the successor in
interest to the extent these rights would otherwise survive the
prior consumer's death or release from the obligation.
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Section 1026.36--Prohibited Acts or Practices and Certain
Requirements for Credit Secured by a Dwelling
* * * * *
36(c) Servicing practices.
Paragraph 36(c)(1)(i).
* * * * *
4. Temporary loss mitigation programs. If the loan contract has
not been permanently modified but the consumer has agreed to a
temporary loss mitigation program, a periodic payment under Sec.
1026.36(c)(1)(i) is the amount sufficient to cover principal,
interest, and escrow (if applicable) for a given billing cycle under
the loan contract, irrespective of the payment due under the
temporary loss mitigation program.
5. Permanent loan modifications. If the loan contract has been
permanently modified, a periodic payment under Sec.
1026.36(c)(1)(i) is an amount sufficient to cover principal,
interest, and escrow (if applicable) for a given billing cycle under
the modified loan contract.
* * * * *
Section 1026.41--Periodic Statements for Residential Mortgage Loans
* * * * *
41(a) In general.
* * * * *
5. Successors in interest.
i. Treatment of successors in interest. Under Sec.
1026.2(a)(11), a successor in interest is a consumer for purposes of
this section once a servicer confirms the successor in interest's
identity and ownership interest in the dwelling. Accordingly, a
servicer of a transaction subject to this section must provide a
successor in interest with a periodic statement meeting the
requirements of this section once the servicer confirms the
successor in interest's identity and ownership interest in the
dwelling.
ii. Multiple periodic statements unnecessary. If a servicer
sends a periodic statement meeting the requirements of Sec. 1026.41
to another consumer, the servicer need not also send a periodic
statement to a successor in interest; a single statement may be
sent. Also, if a servicer confirms more than one successor in
interest's identity and ownership interest in the dwelling, the
servicer need not send periodic statements to more than one of the
successors in interest.
* * * * *
41(d) Content and layout of the periodic statement.
1. Close proximity. Paragraph (d) requires several disclosures
to be provided in close proximity to one another. To meet this
requirement, the items to be provided in close proximity must be
grouped together, and set off from the other groupings of items.
This could be accomplished in a variety of ways, for example, by
presenting the information in boxes, or by arranging the items on
the document and including spacing between the groupings. Items in
close proximity may not have any unrelated text between them. Text
is unrelated if it does not explain or expand upon the required
disclosures.
* * * * *
4. Temporary loss mitigation programs. If the consumer has
agreed to a temporary loss mitigation program, the disclosures
required by Sec. 1026.41(d)(2), (3), and (5) regarding how payments
will be and were applied should identify how payments are applied
according to the loan contract, irrespective of the loss mitigation
program.
5. First statement after exemption terminates. Section
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) require the disclosure of
the total sum of any fees or charges imposed, the total of all
payments received, a breakdown of how payments were applied, and a
list of all transaction activity ``since the last statement.'' For
purposes of the first periodic statement provided to the consumer
following termination of an exemption under Sec. 1026.41(e), the
disclosures required by Sec. 1026.41(d)(2)(ii), (d)(3)(i), and
(d)(4) may be limited to account activity since the last payment due
date that occurred while the exemption was in effect. For example,
if mortgage loan payments are due on the first of each month and the
servicer's exemption under paragraph (e) terminated on January 15,
the first statement provided to the consumer after January 15 may be
limited to the total sum of any fees or charges imposed, the total
of all payments received, a breakdown of how the payments were
applied, and a list of all transaction activity since January 1.
41(d)(1) Amount due.
1. Acceleration. If the balance of a mortgage loan has been
accelerated but the servicer will accept a lesser amount to
reinstate the loan, the amount due under Sec. 1026.41(d)(1) should
identify only the lesser amount that will be accepted to reinstate
the loan.
2. Temporary loss mitigation programs. If the consumer has
agreed to a temporary loss mitigation program, the amount due under
Sec. 1026.41(d)(1) may identify either the payment due under the
temporary loss mitigation program or the amount due according to the
loan contract.
3. Permanent loan modifications. If the loan contract has been
permanently modified, the amount due under Sec. 1026.41(d)(1)
should identify only the amount due under the modified loan
contract.
41(d)(2) Explanation of amount due.
1. Acceleration. If the balance of a mortgage loan has been
accelerated but the servicer will accept a lesser amount to
[[Page 74304]]
reinstate the loan, the explanation of amount due under Sec.
1026.41(d)(2) should include both the reinstatement amount and the
accelerated amount, but not the monthly payment amount that would
otherwise be required under Sec. 1026.41(d)(2)(i). The statement
should also include an explanation that the reinstatement amount
will be accepted to reinstate the loan. The explanation should be on
the front page of the statement or, alternatively, may be included
on a separate page enclosed with the periodic statement or in a
separate letter.
2. Temporary loss mitigation programs. If the consumer has
agreed to a temporary loss mitigation program and the amount due
identifies the payment due under the temporary loss mitigation
program, the explanation of amount due under Sec. 1026.41(d)(2)
should include both the amount due according to the loan contract
and the payment due under the temporary loss mitigation program. The
statement should also include an explanation that the amount due is
being disclosed as a different amount because of the temporary loss
mitigation program. The explanation should be on the front page of
the statement or, alternatively, may be included on a separate page
enclosed with the periodic statement or in a separate letter.
* * * * *
41(d)(8) Delinquency information.
1. Length of delinquency. For purposes of Sec. 1026.41(d)(8), a
consumer's delinquency begins on the date an amount sufficient to
cover a periodic payment of principal, interest, and escrow (if
applicable) became due and unpaid, even if the consumer is afforded
a period after the due date to pay before the servicer assesses a
late fee. A consumer is delinquent if one or more periodic payments
of principal, interest, and escrow (if applicable) are due and
unpaid.
2. Application of funds. For purposes of Sec. 1026.41(d)(8), if
a servicer applies payments to the oldest outstanding periodic
payment, a payment by a delinquent consumer advances the date the
consumer's delinquency began. For example, assume a mortgage loan
obligation under which a consumer's periodic payment sufficient to
cover principal, interest, and escrow is due on the first of each
month. A consumer fails to make a payment on January 1, but makes a
periodic payment on February 1. The servicer applies the payment
received on February 1 to the outstanding January payment. On
February 2, the consumer is one day delinquent, and the following
periodic statement should disclose the length of the consumer's
delinquency using February 2 as the first day of delinquency.
* * * * *
41(e)(5) Certain consumers in bankruptcy.
1. Consumer's representative. If an agent of the consumer
submits a request under Sec. 1026.41(e)(5)(i)(B)(1) or (ii), the
request is deemed to be submitted by the consumer.
41(e)(5)(i) Exemption.
1. Multiple obligors. When two or more consumers are primarily
liable on a mortgage loan, an exemption under Sec. 1026.41(e)(5)(i)
with respect to one of the primary obligors does not affect the
servicer's obligations to comply with Sec. 1026.41 with respect to
the other primary obligors. For example, assume that two spouses
jointly own a home and are both liable on the note, and one of the
spouses files Chapter 7 bankruptcy. That spouse files a Statement of
Intention in the bankruptcy case identifying an intent to surrender
the home. The servicer is exempt under Sec. 1026.41(e)(i) from
providing periodic statements with respect to the spouse in
bankruptcy, but the servicer is required to comply with Sec.
1026.41 with respect to the other spouse. As a result, the other
spouse would continue to receive regular periodic statements, which
would not include any of the modifications set forth in Sec.
1026.41(f). On the other hand, if the spouse in bankruptcy had
instead filed a Statement of Intention identifying an intent to
retain the property and reaffirm the mortgage loan, the servicer
would not be exempt under Sec. 1026.41(e)(i) with respect to that
spouse. In that case, the servicer would have to provide periodic
statements with the modifications required under Sec. 1026.41(f)(1)
and (2). As comment 41(f)(4)-1 explains, the servicer could provide
a periodic statement with the modifications set forth in Sec.
1026.41(f)(1) and (2) to either of the two spouses, even though only
one of the spouses is in bankruptcy.
2. Plan of reorganization. For purposes of Sec. 1026.41(e)(5),
``plan of reorganization'' refers to a consumer's plan of
reorganization filed under the applicable provisions of Chapter 11,
Chapter 12, or Chapter 13 of the U.S. Bankruptcy Code, and confirmed
by a court with jurisdiction over the consumer's bankruptcy case.
Paragraph 41(e)(5)(i)(B)(4).
1. Statement of intention. A servicer must rely on the
consumer's most recently filed Statement of Intention to determine
whether the exemption under Sec. 1026.41(e)(5)(i) applies. For
example, if a consumer files a Statement of Intention on June 1
identifying an intent to retain the dwelling securing the mortgage
loan, but the consumer files an amended Statement of Intention on
June 15 identifying an intent to surrender the dwelling, the
servicer must rely on the June 15 Statement of Intention to
determine that it is exempt under Sec. 1026.41(e)(5)(i) with
respect to that consumer.
41(e)(5)(ii) Resuming compliance.
1. Multiple requests. A servicer must comply with a consumer's
most recent written request to cease or to continue, as applicable,
providing periodic statements or coupon books.
2. Reasonably prompt time. Section 1026.41(e)(ii) requires that
a servicer resume providing periodic statements or coupon books
within a reasonably prompt time after the next payment due date that
follows a servicer's receipt of a consumer's written request, the
closing or dismissal of a bankruptcy case, the consumer's
reaffirmation of the mortgage loan, or the consumer's discharge of
the mortgage loan. Delivering, emailing or placing the periodic
statement or coupon book in the mail within four days after the next
payment due date, or within four days of the close of any applicable
courtesy period, generally would be considered reasonably prompt.
3. Bankruptcy case revived. If the consumer's bankruptcy case is
revived--for example if the court reinstates a previously dismissed
case or reopens the case--Sec. 1026.41(e)(5) may be applicable
again.
41(e)(6) Charged-off loans.
1. Change in ownership. If a charged-off mortgage loan is
subsequently purchased, assigned, or transferred, a covered person,
as defined in Sec. 1026.39(a)(1), must provide the transfer
disclosure required by Sec. 1026.39. A covered person, who would
otherwise be subject to the requirements of Sec. 1026.41, may take
advantage of the exemption in Sec. 1026.41(e)(6) as long as it
treats the mortgage loan as charged off and will not charge any
additional fees or interest on the account. If the consumer
previously received a final periodic statement, a covered person is
not also required to provide a final periodic statement, unless it
began sending the consumer periodic statements and then later met
the criteria under Sec. 1026.41(e)(6).
2. Resuming compliance. If a servicer or a covered person, as
defined in Sec. 1026.39(a)(1), who would otherwise be subject to
the requirements of Sec. 1026.41, fails to treat the mortgage loan
as charged off at any time or charges any additional fees or
interest on the account, the obligation to provide a periodic
statement pursuant to Sec. 1026.41 resumes. The servicer or covered
person may not retroactively assess fees or interest on the account
for the period of time during which the exemption in Sec.
1026.41(e)(6) applied.
41(f) Modified periodic statements and coupon books for certain
consumers in bankruptcy.
1. Application of 41(f) if case is closed or dismissed. A
servicer must resume providing regular periodic statements or coupon
books in accordance with Sec. 1026.41 if the consumer's bankruptcy
case is closed or dismissed or the consumer reaffirms the mortgage
loan. However, the requirements of Sec. 1026.41(f) continue to
apply if the consumer has discharged personal liability for the
mortgage loan.
2. Terminology. With respect to a periodic statement provided
under Sec. 1026.41(f), a servicer may use terminology other than
that found on the sample periodic statements in appendix H-30, so
long as the new terminology is commonly understood. See comment
41(d)-3. For example, a servicer may take into account terminology
appropriate for consumers in bankruptcy and refer to the ``amount
due'' identified in Sec. 1026.41(d)(1), as the ``payment amount,''
``voluntary payment amount,'' or ``regular payment amount.''
Similarly, a servicer may refer to amounts past due as ``unpaid
post-petition payments'' or ``prior unpaid amounts.'' Additionally,
a servicer may refer to the delinquency information required by
Sec. 1026.41(d)(8) as an ``account history,'' and to the amount
needed to bring the loan current, referred to in Sec.
1026.41(d)(8)(vi) as ``the total payment amount needed to bring the
account current,'' as ``unpaid amounts.''
3. Further modifications. A periodic statement or coupon book
provided under Sec. 1026.41(f) may be modified as necessary to
facilitate compliance with the U.S. Bankruptcy Code, Federal Rules
of Bankruptcy Procedure, court orders, and local rules, guidelines,
and standing orders. A periodic statement or coupon book may
[[Page 74305]]
include additional disclosures or disclaimers not required under
Sec. 1026.41(f) but that are related to the consumer's status as a
debtor in bankruptcy or that advise the consumer how to submit a
written request under Sec. 1026.41(e)(5)(i)(B)(1).
41(f)(3) Chapter 12 and Chapter 13 consumers.
1. Plan of reorganization. For purposes of Sec. 1026.41(f)(3),
``plan of reorganization'' refers to a consumer's plan of
reorganization filed under the applicable provisions of Chapter 12
or Chapter 13 of the U.S. Bankruptcy Code, and confirmed by a court
with jurisdiction over the consumer's bankruptcy case.
2. Pre-petition payments and post-petition payments. For
purposes of Sec. 1026.41(f)(3), pre-petition payments are payments
made under a plan of reorganization to cure the consumer's pre-
bankruptcy defaults, if any. Post-petition payments are payments
made under a plan of reorganization to satisfy the mortgage loan's
periodic payments as they come due after the bankruptcy case is
filed. For example, assume a consumer has $3,600 in arrears as of
the bankruptcy filing date with respect to a mortgage loan requiring
monthly periodic payments of $2,000. The consumer's plan of
reorganization requires the consumer to make payments of $100 each
month for 36 months to pay the pre-bankruptcy arrearage, and $2,000
each month to satisfy the monthly periodic payments. In this
example, the $100 payments are the pre-petition payments and the
$2,000 payments are the post-petition payments.
3. Post-petition fees and charges. For purposes of Sec.
1026.41(f)(3), post-petition fees and charges are those fees and
charges imposed after the bankruptcy case is filed. To the extent
that the court overseeing the consumer's bankruptcy case requires
such fees and charges to be included as an amendment to a servicer's
proof of claim, such fees and charges are not considered post-
petition fees and charges for purposes of Sec. 1026.41(f)(3) but
should be included in the balance of the pre-petition arrearage
under Sec. 1026.41(f)(3)(vi)(C).
4. First statement after exemption terminates. Section
1026.41(f)(3)(iii) through (vi) requires the disclosure of the total
sum of any post-petition fees or charges imposed, the total of all
post-petition payments received and how they were applied, the total
of all payments applied to post-petition fees or charges imposed, a
list of all transaction activity, and the total of all pre-petition
payments received ``since the last statement.'' For purposes of the
first periodic statement provided to the consumer following
termination of an exemption under Sec. 1026.41(e), the disclosures
required by Sec. 1026.41(f)(3)(iii) through (vi) may be limited to
account activity since the last payment due date that occurred while
the exemption was in effect. See comment 41(d)-5.
41(f)(3)(ii) Amount due.
1. Amount due. The amount due under Sec. 1026.41(d)(1) is not
required to include any amounts other than the post-petition
payments the consumer is required to make under the terms of plan of
reorganization and post-petition fees and charges that a servicer
has imposed. The servicer is not required to include in the amount
due any pre-petition payments due under the plan of reorganization
or other amounts payable pursuant to a court order. With respect to
post-petition fees and charges, the amount due may be limited to
including those post-petition fees and charges that a servicer has
imposed. A servicer that defers collecting a fee or charge until
after complying with the Federal Rule of Bankruptcy Procedure 3002.1
procedures, and thus after a potential court determination on the
allowability of the fee or charge, is not required to disclose the
fee or charge until complying with such procedures. However, a
servicer may include in the amount due other amounts due to the
servicer, such as amount due under an agreed order, provided those
amounts are also disclosed in the explanation of amount due and
transaction activity.
41(f)(3)(iii) Explanation of amount due.
1. Explanation of amount due. The explanation of amount due
under Sec. 1026.41(d)(2) is not required to include any amounts
other than the post-petition payments and post-petition fees and
charges that a servicer has imposed. Consistent with Sec.
1026.41(d)(3)(i), the post-petition payments must be broken down by
the amount, if any, that will be applied to principal, interest, and
escrow. The servicer is not required to disclose, as part of the
explanation of amount due, any pre-petition payments or the amount
of the consumer's pre-bankruptcy arrearage. However, a servicer may
identify other amounts due to the servicer provided those amounts
are also disclosed in the amount due and transaction activity. See
comment 41(d)(4)-1.
41(f)(3)(v) Transaction activity.
1. Transaction activity. The transaction activity under Sec.
1026.41(d)(4) must include all payments the servicer has received
since the last statement that constitute post-petition payments,
pre-petition payments, and payments of post-petition fees or
charges. The brief description of the activity does not need to
identify the source of the payments.
41(f)(3)(vi) Pre-petition arrearage.
1. Pre-petition arrearage. To the extent that the amount of the
pre-petition arrearage is subject to dispute or has not yet been
determined, the periodic statement may include a statement
acknowledging the unresolved amount of the pre-petition arrearage.
41(f)(4) Multiple obligors.
1. Modified statements. When more than one consumer is primarily
obligated on a closed-end consumer credit transaction secured by a
dwelling, subject to Sec. 1026.41, the periodic statement may be
sent to any one of the primary obligors. See comment 41(a)-1.
Section 1026.41(f)(4) specifies that, if a servicer is required to
provide periodic statements with the modifications set forth in
Sec. 1026.41(f) in connection with a mortgage loan with multiple
obligors, the servicer may provide the modified statements to any or
all of the primary obligors instead of any statements not including
the modifications, even if not all primary obligors are debtors in
bankruptcy. For example, assume two spouses own a home, and only one
spouse files for Chapter 13 bankruptcy. That spouse's Chapter 13
plan of reorganization provides that the same spouse will retain the
home by making pre-petition and post-petition payments. The servicer
is thus required to provide periodic statements with the
modifications set forth in Sec. 1026.41(f)(1) though (3). The
servicer may provide periodic statements with the modifications set
forth in Sec. 1026.41(f)(1) through (3) to either of the two
spouses, even though only one of the spouses is in bankruptcy. On
the other hand, if the spouse in bankruptcy had a plan of
reorganization providing for that spouse to surrender the home, the
servicer would be exempt under Sec. 1026.41(e)(5)(i) from providing
periodic statements to that spouse. In this circumstance, the
servicer would be required to provide regular periodic statements,
without any of the modifications set forth in Sec. 1026.41(f), to
the spouse not in bankruptcy. See comment 41(e)(5)(i)-1.
Dated: November 19, 2014.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2014-28167 Filed 12-12-14; 8:45 am]
BILLING CODE 4810-AM-P