[Federal Register Volume 59, Number 242 (Monday, December 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30413]
[[Page Unknown]]
[Federal Register: December 19, 1994]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
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24 CFR Parts 203 and 3500
Real Estate Settlement Procedures Act, Section 6, Transfer of Servicing
of Mortgage Loans and Real Estate Settlement Procedures Act (Regulation
X); Escrow Accounting Procedures; Technical Correction; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Parts 203 and 3500
[Docket Nos. R-94-1538; FR-2942-F-04 and R-94-1688; FR-3255-F-04]
RIN: 2502-AG27
Real Estate Settlement Procedures Act, Section 6, Transfer of
Servicing of Mortgage Loans (Regulation X); and Real Estate Settlement
Procedures Act (Regulation X); Escrow Accounting Procedures; Technical
Correction
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, (HUD).
ACTION: Final rule.
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SUMMARY: This final rule replaces the Interim Rule dated April 26,
1991, and implements the provisions of section 6 of the Real Estate
Settlement Procedures Act (RESPA). Most recently, the Riegle Community
Development and Regulatory Improvement Act of 1994 provides alternate
methods for disclosure of mortgage servicing history. Section 6 also
sets forth procedures regarding the transfer of mortgage servicing for
any federally related mortgage loan, as defined in section 3 of RESPA
and the definition is refined in the implementing regulation for RESPA
and 24 CFR 3500.2. Although RESPA was extended by section 908 of the
Housing and Community Development Act of 1992 to subordinate liens, in
this rule the Secretary has exempted from RESPA's mortgage servicing
coverage all federally related mortgage loans that are not secured by a
first lien. In addition, the Department has adopted conforming
amendments to 24 CFR part 203, the FHA Single Family Mortgage Insurance
program.
The Department is also publishing a conforming amendment to its
final rule on escrow accounting procedures, published on October 26,
1994 (59 FR 53890). This amendment will update a cross-reference in
another section of part 3500 that references enforcement of escrow
accounting provisions.
EFFECTIVE DATE: June 19, 1995.
FOR FURTHER INFORMATION CONTACT: David R. Williamson, Director, RESPA
Staff, Room 5239, Department of Housing and Urban Development, 451 7th
Street SW., Washington, D.C. 20410, telephone (202) 708-4560. The TDD
number for hearing-impaired persons is (202) 708-4594. (These are not
toll-free numbers.)
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act Statement
The information collection requirements contained in this rule have
been approved by the Office of Management and Budget under section
3504(h) of the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h)), and
assigned OMB control number 2502-0458.
Justification for Final Rulemaking--Part 203
In general, the Department publishes a rule for public comment
before issuing a rule for effect, in accordance with its own
regulations on rulemaking, 24 CFR part 10. However, part 10 does
provide for exceptions from that general rule where the agency finds
good cause to omit advance notice and public participation. The good
cause requirement is satisfied when prior public procedure is
``impracticable, unnecessary, or contrary to the public interest.'' (24
CFR 10.1) The Department finds that good cause exists to publish for
effect without first soliciting public comment the sections of this
rule that pertain to 24 CFR part 203, and that prior public procedure
is unnecessary because those portions of this rule merely conform part
203 to the provisions of Section 6 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2605) that have been developed
through notice and comment rulemaking.
Background
Section 941 of the Cranston-Gonzalez National Affordable Housing
Act (Pub. L. 101-625, approved November 28, 1990) amended the Real
Estate Settlement Procedures Act of 1974, 12 U.S.C. 2601 et seq.
(RESPA), by adding a new section 6, which addresses mortgage servicing
requirements (i.e., the right to collect mortgage payments for
principal, interest, and any escrow account items). Section 6 (12
U.S.C. 2605) requires disclosure to certain mortgage loan applicants of
historical data regarding the transfer of mortgage servicing, as well
as estimates regarding the potential transfer of servicing pertaining
to the applicant's mortgage loan and other mortgage loans. Section 6
was further amended on April 10, 1991, by Dire Emergency Supplemental
Appropriations Act (Pub. L. 102-27), to create a transition period
during which lenders and servicers would not be liable for violations
of the Act. This amendment also directed HUD to publish implementing
regulations effective no later than April 20, 1991. On April 26, 1991,
the Department published an Interim Rule implementing Section 6 (56 FR
19505). That rule remains in effect until it is replaced by this final
rule.
Section 6 requires that, at the time of application for federally
related mortgage loans, applicants be given information in a disclosure
statement (hereafter called ``Servicing Disclosure Statement'')
concerning the likelihood that the servicing of their mortgage may be
transferred and information regarding the history of mortgage servicing
transfers of the person making the loan. Section 6 sets forth
additional notice requirements at the time of a servicing transfer
(hereafter called ``Notice of Transfer'') and other rights for
borrowers, and provides for the collection of damages and costs by
borrowers from servicers for noncompliance. Finally, section 6 preempts
any State law or regulation regarding notice to borrowers at the time
of application or servicing transfer, as long as the lender or servicer
complies with the relevant provisions of section 6.
HUD originally complied with the requirements to promulgate a model
disclosure statement and applicant's acknowledgement by publication of
a notice in the Federal Register on March 20, 1991 (56 FR 11886). These
requirements were restated in an Interim Rule of April 26, 1991 (56 FR
19505). HUD encourages persons covered by this new rule to implement
its provisions earlier than its effective date. (The Department also
recently published a related rule on escrow accounting procedures under
section 10 of RESPA (59 FR 53890, October 26, 1994).
Comments on Interim Rule and Responses
In the interim rule the Department requested comments on the
provisions of the rule. The following is a summary of comments received
and HUD's position on the issues in the final rule.
Questions Regarding Definitions
Business day. There were two comments about the definition of
``business day.'' Both recommended that the definition be put in
Sec. 3500.2, so that it would apply to the entire regulation, and that
it be the same definition in Regulation X and Regulation Z (Truth in
Lending).
HUD response. The current RESPA rule defines a ``business day''
utilizing language conforming with the definition in Regulation Z,
which implements the Truth in Lending Act. Section 6 of RESPA does not
specifically define ``business day'', but in certain provisions
excludes public holidays, Saturdays, and Sundays from references to
``days''. To assure uniform statutory construction, as well as to
continue uniformity with related Federal regulatory statutes, the
Department is applying the ``business day'' definition of the
Regulation X in this rule. Therefore, business day means a day on which
the offices of the business entity are open to the public for carrying
on substantially all of the entity's business functions. If a day is
not specified as a business day in this rule, the reference is to a
calendar day.
Effective date of transfer. There were three comments on this
definition. One commenter approved of the definition because the date
was pinpointed. Another commenter disagreed and considered the date
indefinite, particularly as it relates to delinquent mortgages. The
third thought the effective date of transfer should be the date the
contract between the parties states that the transfer takes place.
HUD response. The term ``effective date of transfer'' is defined in
Section 6 of the Act as the date on which the mortgage payment of a
borrower is first due to the transferee servicer (new servicer)
pursuant to the assignment, sale, or transfer of the servicing of the
mortgage loan. The statute controls and HUD does not have discretion to
consider the suggested alternatives.
Mortgage servicing loan. The Department received several comments
regarding the extent and limitations of coverage under this rule. The
term ``federally related mortgage loan'' was the starting point for
delineating coverage and is defined in Sec. 3500.2, subject to the
exemptions in Sec. 3500.5. Pursuant to section 19(a) of RESPA, at this
time the Secretary has exempted from the requirements of this rule any
subordinate lien federally related mortgage loans and has excluded all
open-end lines of credit (home equity plans), whether secured by a
first or subordinate lien, that are covered under the Truth in Lending
Act and Regulation Z. The penalty provisions of the Truth in Lending
Act are similar to those of Section 6 of RESPA, and the error
resolution section of Regulation Z (12 CFR 226.13) provides protections
similar to Section 6 of RESPA. Any other federally related mortgage
loan secured by a first lien and not exempted under Sec. 3500.5, is
covered by these requirements and called a ``mortgage servicing loan.''
Other Terms
Four commenters asked for definitions of additional terms. One
commenter suggested that ``loans made'' be distinguished from ``loans
originated'', and that ``servicing transfer'' be defined.
HUD response. The terms ``loans made'' and ``loans originated'' are
synonymous, but the Department agrees that consistent use of
terminology would avoid confusion and, therefore, has eliminated the
term ``loans made.'' HUD considers a ``servicing transfer'' to be a
sale, assignment, or transfer of servicing to a person or legal entity
other than the maker of the loan named in the legal documents. Also, as
discussed more fully later in this preamble, a servicing transfer
occurs as part of a table-funding (defined in Sec. 3500.2) between the
mortgage broker, as transferor, and the funding lender, as transferee.
Refinancing Transactions
The Department received 18 comments relating to refinancing
transactions. Seven commenters recommended that refinancing be defined.
Three commenters questioned the statutory authority for covering
refinancing transactions. Since HUD received these comments, the
Housing and Community Development Act of 1992 amended RESPA to state
specifically that refinancing transactions are covered. A definition of
refinancing was added to part 3500 in revisions published on February
10, 1994 (59 FR 6505, concerning subordinate liens), and is applicable
to this section. The impact of this definition is that transactions
specifically excluded from the definition of refinancing do not require
new disclosures.
Questions Involving State Law Preemption
One commenter asked about the effect of Section 6 on State laws.
While Section 18 of RESPA (12 U.S.C. 2616) sets forth general
provisions regarding preemption, Section 6 contains its own preemption
provision.
The Secretary believes that one of the significant achievements of
Section 6 was the elimination of perceived difficulties in the
marketing of servicing rights for mortgage loans originated in various
States. In part, Section 6 constituted a recognition of the de facto
national market for mortgages and mortgage servicing and represented an
attempt to facilitate such a market by establishing uniform standards.
Therefore, Section 6 is determinative of the information required for
the Servicing Disclosure Statement and the Notice(s) of Transfer; any
other similar State requirements are preempted. Other provisions of
State laws, such as those requiring additional notices to insurance
companies or taxing authorities are not preempted by Section 6 or this
rule. If permitted under State law, such additional information may be
added to a notice prepared under this section.
Requests for Exemption
(1) Nine commenters requested that their institutions be exempted
from providing Servicing Disclosure Statements, either because they
were not institutions that transferred servicing or because they were
chartered to make certain public purpose loans. Another commenter
wanted an exemption for lenders that always transfer loans at closing;
three commenters requested an exemption for lenders that do not sell
the servicing rights.
HUD response. While the Secretary has the authority to create
classes of exemptions under Section 19 of RESPA, no commenter advanced
a reason that would justify an exempted class. The Servicing Disclosure
Statement is particularly appropriate when a lender always transfers
loans at closing. When a servicer never sells servicing rights, it can
simply state that fact. In any event, the information relating to
complaint resolution must be provided, although lenders that do not
transfer servicing may incorporate this information into the HUD-1 or
HUD-1A. HUD amended the Servicing Disclosure Statement to include a
sentence in the heading suggesting that a borrower save the statement
if a loan is approved and to include alternate language regarding the
history of mortgage servicing transfers that is allowed under the 1994
amendments of Section 6.
(2) In the event a lender changes its policy and begins to sell the
servicing, a commenter suggested that these lenders have to follow the
rule within six months after beginning sale of servicing.
HUD response. When a lender determines that it will sell servicing,
the lender will be subject to the requirement that it furnish to the
borrower a 15-day Notice of Transfer. The lender may also be required
to revise its Servicing Disclosure Statement at the next calendar year
revision. There is no obligation to send an amended Servicing
Disclosure Statement for previously closed loans at the time of the
sale of servicing; the 15-day Notice of Transfer provides the required
information.
(3) Three commenters suggested that mortgage brokers should be
exempt from furnishing the Servicing Disclosure Statement, because
furnishing the Statement is the obligation of the funding lender.
However, another commenter suggested that a face-to-face meeting with
the mortgage broker should satisfy the face-to-face meeting requirement
for a lender. Two other commenters stated that the time (3 business
days) should begin to run after the lender receives the written
application from another party.
HUD response. The general rule is that the Servicing Disclosure
Statement shall be provided within 3 days of receipt of the borrower's
written loan application, unless the application for credit is turned
down within that time. If an application is received by a mortgage
broker that will close the loan in its own name using table funding,
the table funding mortgage broker is to provide the Servicing
Disclosure Statement, using the ``we do not service mortgage loans''
optional language in Sec. 3500.21(b)(4). Similarly, for first-lien
dealer loans, the dealer should provide the Servicing Disclosure
Statement, using the ``we do not service mortgage loans'' optional
language.
(4) A commenter questioned whether a Servicing Disclosure Statement
is required when the mortgage servicing function is transferred to an
affiliated entity. A question was also posited as to how to treat a
circumstance when a lender had a program that always sold servicing and
another where no servicing was required.
HUD response. A Notice of Transfer generally is required when there
is a transfer of servicing between or to affiliates, unless there are
no substantial changes in the way the borrower makes payments (see
discussion below). However, the information regarding affiliate or
subsidiary transfers is not required to be included in the statistical
computations found in the Servicing Disclosure Statement. In the
interest of full disclosure, this information may be provided
voluntarily; the model format allows for this disclosure. If the lender
is providing the historical data, the lender should indicate whether
the Servicing Disclosure Statement includes assignments, sales or
transfers to affiliates or subsidiaries. When the lender has a variety
of programs, some of which sell servicing and some of which do not,
information may be added to the model format to allow the servicer to
describe this situation, or some variation of this situation. Further,
while the use of the acknowledgment is mandatory, the use of the model
format is not, and the incorporation in a footnote or otherwise of
reasonable additional information, to describe situations that do not
fit conveniently into the format is anticipated and expected. Sample
language describing other alternative situations has been included with
the model format.
(5) Several commenters discussed proposed variations to the
Servicing Disclosure Statement. These variations included permitting a
lender to: (i) state its reasons for servicing or not servicing loans;
(ii) identify the types of loans it services and, by the percentages of
each type of loan transferred, the types of loans it sells; and (iii)
advise the borrower of the new servicer, if any, at settlement. One
commenter suggested that Sec. 3500.21(c) contain a statement that the
use of the sample language in the appendices be considered as
compliance with the disclosure requirements of that paragraph. Fifteen
commenters recommended that lenders should not be required to obtain
written acknowledgements of the Servicing Disclosure Statement from
loan applicants whose applications are rejected or withdrawn. One
commenter recommended that actual percentages be used rather than
rounding to the nearest quartile. Commenters also requested that HUD
permit longer than 31 days to calculate the percentage after the end of
the calendar year.
HUD response. The elements contained in the rule and Servicing
Disclosure Statement comply with the Secretary's mandate under Section
6 of RESPA. The Secretary is required to develop a disclosure statement
that would notify applicants for federally related mortgage loans about
the servicing procedures, transfer practices and requirements, and the
available complaint resolution process. In addition, the Secretary must
develop an acknowledgement that the disclosure has been read and
understood, as evidenced by signatures of the applicants when such a
statement appears in the application. As in the interim rule, the
Secretary has determined that is in the applicant's best interest for
the signature to be at the end of the Servicing Disclosure Statement,
because this directs the applicant's attention particularly to the
servicing transfer issue.
While the precise wording of the Servicing Disclosure Statement is
left to the lender's discretion, HUD presumes that lenders will use the
sample language in developing their own forms. However, HUD will not
give blanket approval to forms that it has not seen; the lender must
determine the appropriate language to make proper disclosure to the
borrower. Only the language in the model Applicant's Acknowledgement is
mandatory and must be followed precisely.
Even though the Department believes that most lenders will use the
simpler alternative language allowed by the Riegle Community
Development and Regulatory Improvement Act of 1994 (Pub. L. 103-325,
approved September 23, 1994), the Department has adopted the suggestion
of permitting a longer time for computation of the previous year's
percentages. The final rule allows the lender to calculate the
percentages no later than the end of the first quartile in the next
calendar year (March 31). Under his Section 19 authority, the Secretary
has also created an exemption to the disclosure requirement, including
the signed acknowledgment, if an applicant is turned down for credit
within three business days of receipt of the application. This
exemption makes all the mortgage servicing notice provisions consistent
with good faith estimate amendments in section 951 of the Housing and
Community Development Act of 1992.
Merger and/or Acquisition of Servicing
(1) Several commenters asked various questions as to what
disclosures were necessary when a servicer buys another servicer, with
or without changing the servicer's name, or merges one servicer into
another servicer. In addition, two comments concerned the functions of
``master servicers'' and ``subservicers.'' The entity holding servicing
rights is frequently called the ``master servicer,'' and the entity
performing the actual servicing is called the ``subservicer''. Two
situations were posited: first, the rights to servicing are sold, but
the subservicer remains the same. Second, the subservicer changes, but
the master servicer remains the same.
HUD response. The controlling consideration in whether a Notice of
Transfer must be delivered for a sale, transfer, or assignment is
whether there is a significant change of servicing that potentially
affects the borrower. In ordinary transfers of servicing between
distinct entities, the Notice of Transfer is always required. In
certain other situations--e.g., transfers between affiliates, transfers
because a servicer or subservicer is bought or merged into another
entity, and transfers between master servicers when the subservicer
stays the same and when the subservicer changes--a Notice of Transfer
is required unless there is no change in the payee, the collection
address, account number, or the amount of the payment.
(2) Six commenters suggested that when there are multiple
applicants, it should be sufficient for the lender to give the
Servicing Disclosure Statement to one of the co-applicants in a face-
to-face interview. One commenter requested that a co-signer not be
considered as a person who applies for a loan, therefore obviating the
need for the co-signer to receive a Servicing Disclosure Statement.
Another commenter asked how long a lender must keep co-signers'
signatures on file.
HUD response. Delivery of a single Servicing Disclosure Statement
in a face-to-face meeting with one or more applicants is acceptable,
and the Acknowledgement may be signed at that time. For each applicant
or co-applicant who is not present, the Servicing Disclosure Statement
may be delivered on his or her behalf to an applicant who is present,
or may be mailed within 3 business days by first class mail, postage
prepaid. While a co-signer might be an integral party to the
transaction, a co-signer is primarily interested in timely payments of
the mortgage, not in who holds the mortgage servicing. Therefore, a co-
signer's acknowledgment is not required.
The signed acknowledgments are to be in the loan package.
Consistent with other record-retention requirements of part 3500, the
lender must keep the signed acknowledgments for five years after the
date of settlement of the loan unless the lender disposes of its
interest in the loan and does not service the mortgage. In this case,
the Servicing Disclosure Statement would be part of the transferred
loan file.
(3) One comment suggested that requiring prepaid, first-class
postage for a Servicing Disclosure Statement that is mailed is
unnecessary, costly, and inconsistent with the disclosure mailed in
compliance with the Truth in Lending and Equal Credit Opportunity Acts.
If the transaction is handled by mail, one commenter suggested, the
period of three business days should begin only after the lender
receives a written application from the borrower.
HUD response. The use of prepaid, first-class mail is common
business practice. The practice reasonably assures that the borrower
will receive the Servicing Disclosure Statement and, thus, affords
protection to those responsible for delivering the statement. The 3-
business day period begins only when the application is received.
(4) Four commenters suggested that lenders be permitted to include
in the Servicing Disclosure Statement a statement that ``the loan
cannot be funded unless the acknowledgements are signed and returned.''
One commenter asked that no follow-up correspondence be required if the
lender has provided the Servicing Disclosure Statement to the borrower
and the borrower has not returned a signed Acknowledgement.
HUD response. The Department has deleted in this final rule the
provision that no loan should be funded unless the signed
Acknowledgement was contained in the loan package. HUD has determined
that there is sufficient oversight by regulators and secondary market
purchasers, and no overriding reason to highlight the Servicing
Disclosure Statement over any other required statement. However, the
Acknowledgement is still required to be a part of the loan package. The
Department has also eliminated the mandatory follow-up requirement that
was included in the interim rule.
(5) One commenter stated that if the servicing is always sold,
transferred, or assigned, there is not a ``present servicer'' or a
``new servicer'' at the time of application for the loan. The model
language of the Notice of Transfer indicates that the borrower will be
informed about the servicer, but the language fails to state when and
in what format the borrower will receive this information.
HUD response. The Department disagrees with the content of this
comment. Whoever sells, transfers, or assigns a federally related
mortgage loan is considered the present servicer and is called the
``transferor servicer'' in this rule. The servicer that buys, is
transferred, or is assigned the mortgage servicing function is the new
servicer and is called the ``transferee servicer.'' A mortgage broker
that closes a table-funded transaction in its own name is in the
position of a transferor servicer. A dealer in a first lien dealer loan
situation is also a transferor servicer. Appendix B of the interim rule
presented sample language for the Notice of Transfer; the language is
retained in substantial degree in this final rule. As with the
Servicing Disclosure Statement, discretion is allowed concerning the
exact wording of the Notice of Transfer, but the various elements that
the notice must contain are detailed in Sec. 3500.21(e).
(6) Two commenters requested clarification about who bears the
primary responsibility for notifying the borrower of a transfer of
servicing when the transferor and transferee choose to notify the
borrower in a single, joint Notice of Transfer.
HUD response. HUD believes that in normal business transactions,
the timing and issuance of Notices of Transfer would be resolved as
part of the purchase and sale agreement. If a joint notice is not
feasible, both notices will be required.
(7) Several commenters were concerned about the impact of the
requirements on the servicer's ability to administer collection
practices consistent with investor requirements. A commenter questioned
whether a late payment could be assessed prior to the 60-day period if
the payment had not been made to the transferee. Also, two commenters
asked whether late fees due prior to the transfer could be assessed.
HUD position. If within the 60-day period the borrower has
mistakenly mailed a payment to the transferor instead of the
transferee, a late fee may not be imposed. However, if neither the
transferor nor the transferee has received a regularly scheduled
payment within the 60-day period, or any longer applicable grace
period, late payment charges may be assessed in accordance with the
servicer's established practices. Late charges due from the borrower
before the effective date of transfer of servicing are not covered by
RESPA or this rule.
Questions Relating To Qualified Written Requests
(1) Two comments addressed the type of information that HUD permits
a borrower to include in a ``qualified written request.'' One commenter
wished to limit the requirements to those inquiries asserting errors
that have been caused by the transfer of servicing on a mortgage
account. The other commenter wanted clarification on whether the
requirements were limited to inquiries on payments and account
balances. Another question concerned the length of time a servicer has
to respond to qualified written requests after a loan is paid off or
after servicing has been transferred.
HUD response. The statute encompasses all information relating to
the servicing of a mortgage loan and does not restrict the subject
matter to questions concerning the transfer of servicing, installment
payments, or account balances. For example, a written inquiry
concerning a collection for or disbursement from an escrow account
would be a qualified written request if the correspondence contains the
required identifying elements. In Sec. 3500.21(f)(2), the Department
establishes a 1-year period in which a qualified written request is
valid after the date of loan pay-off or mortgage servicing transfer.
(2) Three commenters were concerned about how written requests were
received. One said that the regulations should state that ``a qualified
written request'' must be mailed to an address supplied by the servicer
in the coupon book or written correspondence and not the address for
the mortgage payment. Another wanted to disregard requests that lacked
the account number or were attached to the borrower's check, as
distinguished from being placed in the same envelope. The third
suggested that the regulations should specifically disqualify written
inquiries that the borrower includes with the loan payment. A commenter
suggested that the Department require a servicer to provide to the
borrower information identifying the name and telephone number of a
representative or the office or department of the servicer through
which the borrower will receive assistance after submitting a qualified
written request.
HUD response. (i) This rule does not require that a servicer
establish an office to handle borrowers' complaints. It does, however,
allow the servicer to do so. In the event the servicer establishes such
an office and complies with all the necessary notice provisions of this
rule, then the borrower must deliver its request to that office in
order for the inquiry to be a ``qualified written request'' (see the
optional language in Appendix MS-2 to part 3500).
(ii) If the servicer determines that a borrower's correspondence
does not constitute a qualified written request (the most likely
disqualification would be writing the inquiry on the payment coupon),
the servicer should retain sufficient information to support its
determination.
(3) A commenter sought clarification of when the Department
considers an inquiry to be resolved.
HUD response. An inquiry is resolved when the servicer supplies the
requested information or corrects an error. See, for example,
Regulation Z, 12 U.S.C. 226.13(e) and (f) for similar complaint
resolution provisions.
(4) Eight commenters discussed the protection of the borrower's
credit rating during a dispute. Most commenters asked whether a lender
could provide payment information to a consumer reporting agency prior
to the end of the 60-business day period if the dispute was resolved.
Two commenters noted that a servicer would be in an unfair position if
the servicer has previously reported a borrower's loan as past due and
then is not allowed to report the payment. The commenters suggested
that the servicer be permitted to advise the credit agency that the
servicer is prohibited by law from providing additional information at
that time. As a benefit to the borrower, one comment suggested that the
servicer be allowed to report prior to the 60-business day period to
clear a borrower's record. One commenter raised a question about
whether a lender should assume that a third party is acting as the
borrower's agent, or should require proof from the borrower of this
delegation of authority. Furthermore, the commenter asked if the 20-
business day time-frame, in which the borrower must receive a written
acknowledgement from the servicer, is calculated from when the request
is received or when the servicer confirms that the third party is the
borrower's agent.
HUD response. HUD interprets the statute to mean that no adverse
information relating to a borrower's overdue payment information may be
provided to a credit reporting agency within the 60-day period after
the servicing function is transferred, assigned, or sold or after the
servicer receives a qualified written request for information. The
statute is implemented by this rule in a manner that does not prohibit
a servicer from reporting an improvement (such as a payment found or
received) in the borrower's record within the 60 day period. It is the
servicer's responsibility to determine whether it has sufficient
information that a third party is acting as the borrower's agent or the
borrower should verify the agent's representative capacity. When the
servicer is in doubt as to the status of the third party, the written
acknowledgement can also be mailed to the borrower to ask that the
borrower verify the status of the third party.
(5) One comment asked for clarification of whether the servicer was
prohibited from reporting delinquencies unrelated to a dispute.
HUD response. A servicer may report a delinquency to a credit
reporting agency provided that the report does not concern a pending
qualified written request, which questions the correctness of the
account, or a loan payment sent by the borrower to the transferor,
rather than the transferee, within 60 days after the servicing of the
loan is transferred.
(6) One commenter hypothesized a situation in which a borrower
sends a qualified request in September concerning a late charge
assessed on the March payment, yet the borrower has not made his April
through August payments. Is the servicer prohibited from reporting
these delinquencies in September, although they are unrelated to the
March dispute?
HUD position. The receipt of a qualified written request by the
servicer determines when the 60-business day period begins. If the
April through August delinquencies are caused by the problem or issue
identified by the borrower in the request, adverse information related
to all of these delinquencies may not be submitted or resubmitted, if
previously reported. In this instance, the 60-business day period
begins when the qualified written request is received in September.
However, there is nothing in RESPA that prohibits the servicer from
initiating foreclosure action, or taking other remedial actions under
the applicable mortgage documents, against the mortgaged property based
on the delinquent payments in March through August. The servicer's
timing on initiating foreclosure action is governed by the provisions
of the borrower's mortgage document.
Servicing Involving Certain Government-Related Agencies or Enterprises
Section 6 provides that certain government or government-sponsored
entities that have oversight or other relationships with servicers are
not themselves servicers for purposes of Section 6. These entities
include the Federal Deposit Insurance Corporation (FDIC) and the
Resolution Trust Corporation (RTC) in connection with assets acquired,
assigned, sold, or transferred pursuant to section 13(c) of the Federal
Deposit Insurance Act or as receiver or conservator of an insured
depository institution. Section 6 also makes provisions for certain
circumstances involving mortgage servicing loans when government or
government-sponsored entities have to deal with the termination for
cause of the contract for servicing a loan or with the commencement of
proceedings for bankruptcy of the servicer in a program involving such
entity. In addition, in giving the transfer notice the statute also
allows a delay of up to 30 days after the transfer of servicing. HUD
believes that Congress exempted these entities from most mortgage
servicing transfer requirements so as not to interfere with the
fiduciary responsibilities of the entities with regard to protective
actions needed to be taken by such entities, and not to create for such
governmental entities potential liability that could inhibit the
orderly transfer of servicing. Also, imposition of standard business
requirements in troubled situations involving a fiduciary could
adversely affect the underlying value of the related mortgage
servicing. Because the rationales discussed above apply equally well to
other Federal entities not specifically enumerated in Section 6(i)(2)
of the Act, the Secretary has exercised his authority under Section
19(a) of RESPA and has added certain other Federal agencies (HUD,
including FHA; VA; NCUA; and FmHA) that might also be in a fiduciary
position or need to protect a borrower in an otherwise covered mortgage
loan situation.
In addition, under Section 19 the Secretary has exempted FHA from
having to provide the Notice of Transfer in those instances where the
mortgage has been assigned (along with the servicing) to FHA for the
payment of the mortgage insurance benefits pursuant to section 230 of
the National Housing Act (12 U.S.C. 1715u). Under the assignment
program, the mortgagor actively provides information to both the
mortgagee and FHA in order to show that the mortgagor meets certain
eligibility criteria. The assignment of the mortgage to FHA is not a
business decision. Rather, it is a means by which eligible mortgagors
can avoid foreclosure and keep their homes.
Mortgagors are aware early on in the process that, if deemed
eligible, HUD will become their mortgagee and servicer. HUD also
accepts assignment of other single-family insured mortgage loans under
certain specialty programs. These assignments are not comparable to the
normal sale and purchase transactions that the mortgage servicing
transfer provisions of Section 6 were designed to address. Thus,
requiring HUD to provide the notice of transfer in cases where
mortgages are assigned to HUD would not serve the purposes of Section
6, and these assignments have been exempted under the Secretary's
authority in Section 19.
Damages and Costs
(1) The statute provides that whoever fails to comply with any
provision of Section 6 shall be liable to the borrower. These damages
include actual damages and, in an action brought by an individual, up
to $1,000 for a pattern of noncompliance; in a class action, the
additional damages may not exceed the lesser of $500,000 or 1% of the
servicer's net worth.
A commenter noted that ``actual damages'' should be clarified. If a
servicer reported a debt to a credit bureau within the 60-business day
proscribed period, and the borrower alleges that the reporting resulted
in the borrower's inability to obtain credit, the servicer could be
liable for damages, even if the report was correct. Therefore, the
commenter suggested that to prove actual damages the borrower must
show:
(a) The servicer made the report to a credit company within the
proscribed period;
(b) The borrower was correct, the dispute was resolved in the
borrower's favor; and
(c) The borrower would have otherwise been approved for the credit.
HUD position. If a servicer violates Sec. 3500.21(g) by reporting
information on a borrower to a credit agency relating to a dispute
regarding the borrower's payments within 60 business days of receiving
a qualified written inquiry from the borrower, that servicer will be
liable for all proven actual damages that the borrower suffered because
of the servicer's action. Further, if a pattern of noncompliance can be
established, the servicer may be liable to that borrower for additional
damages not to exceed $1,000. The costs of the action and attorneys
fees also can be recovered. The statute requires no qualifying criteria
that the borrower must meet before actual damages may be sought from
the servicer.
(2) One commenter suggested that the date on the Servicing
Disclosure Statement was unnecessary. Another commenter noted that the
Acknowledgment Form requires the applicant to state that he has read
and ``understands'' its contents; however, the commenter stated, this
might create potential legal complications.
HUD response. Since the servicer is liable for damages and costs,
it is in the servicer's own interest to note, by dating the form, when
the Servicing Disclosure Statement was given (or placed in the mail) to
the borrower. In any event, the requirement is statutory and has been
retained in the final rule. Similarly, the language concerning the
applicant's understanding of the disclosure statement reflects the
statute and follows common business practice.
Conforming Amendment to Escrow Rule
The Department is also publishing a conforming amendment to its
final rule on escrow accounting procedures, published on October 26,
1994 (59 FR 53890).
Other Matters
Regulatory Flexibility Act
Under 5 U.S.C. 605(b), the Regulatory Flexibility Act, the
undersigned hereby certifies that this rule will not have a significant
economic impact on a substantial number of small entities. HUD finds
that there are no anticompetitive aspects of the interim rule that are
discriminatory with regard to small entities nor are there any unusual
procedures that would need to be complied with by small entities. In
any event, by statute, the requirements of this rule must be adhered to
by all lenders and servicers.
Environmental Impact
At the time of publication of the interim rule, a finding of no
significant impact with respect to the environment was made in
accordance with HUD regulations in 24 CFR part 50 that implement
section 102(2)(C) of the National Environmental Policy Act of 1969 (42
U.S.C. 4332). This final rule does not make changes to the interim rule
that are significant in this context. Accordingly, the initial finding
of no significant impact remains applicable, and is available for
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
office of the Rules Docket Clerk at the above address.
Executive Order 12866
This rule was reviewed by the Office of Management and Budget under
Executive Order 12866, Regulatory Planning and Review. Any changes made
to the rule as a result of that review are clearly identified in the
docket file, which is available for public inspection in the office of
the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street,
S.W., Washington, DC 20410-0500.
Executive Order 12616, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12616, Federalism, has determined that the policies
contained in this regulation do not have significant federalism
implications and, thus, are not subject to review under the Order.
Issuance of the regulation does not change existing Federal, State or
local governmental relationships, except that, under the statute,
compliance with the disclosure provisions of this rule will preempt
State law requirements dealing with identical subject matter. Given the
lack of discretion pertaining to the preemption issue by the statute,
further analysis of the federalism implications of the rule would serve
no purpose.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12606, the Family, has determined that the policies
contained in this regulation do not have a potential significant impact
on family function, maintenance and general well being, and, thus, are
not subject to review under the order.
Semiannual Agenda of Regulations
This final rule was listed as Item No. 1813 on the Department's
Semiannual Agenda of Regulations, published on November 14, 1994 (59 FR
57632, 57659), as required by Executive Order 12866 and the Regulatory
Flexibility Act.
List of Subjects
24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
24 CFR Part 3500
Consumer protection, Condominiums, Housing, Mortgages, Mortgage
servicing, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, parts 203 and 3500 of title
24 of the Code of Federal Regulations are amended as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority citation for part 203 is revised to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b and 1715u; 42 U.S.C.
3535(d).
2. In Sec. 203.502, paragraph (b) is revised to read as follows:
Sec. 203.502 Responsibility for servicing.
* * * * *
(b) Whenever servicing of any mortgage is transferred from one
mortgagee or servicer to another, notice of the transfer of service
shall be delivered:
(1) By the transferor mortgagee or servicer:
(i) To the mortgagor. The notification shall be delivered not less
than 15 days before the effective date of the transfer and shall
contain the information required in Sec. 3500.21(e)(2) of this title;
and
(ii) To the Secretary. This notification shall be delivered within
15 days of the transfer, on a form approved by the Secretary; and
(2) By the transferee mortgagee or servicer to the mortgagor. The
notification shall be delivered not more than 15 days after the
effective date of the transfer and shall contain the information
required in Sec. 3500.21(e)(2) of this title.
3. Section 203.508 is amended by adding a new paragraph (e), to
read as follows:
Sec. 203.508 Providing information.
* * * * *
(e) Each servicer of a mortgage shall deliver to the mortgagor a
written notice of any assignment, sale, or transfer of the servicing of
the mortgage. The notice must be sent in accordance with the provisions
of Sec. 3500.21(e)(1) of this title and shall contain the information
required by Sec. 3500.21(e)(2) of this title. Servicers must respond to
mortgagor inquiries pertaining to the transfer of servicing in
accordance with Sec. 3500.21(f) of this title.
* * * * *
4. Section 203.554 is amended by adding a new paragraph (d), to
read as follows:
Sec. 203.554 Enforcement of late charges.
* * * * *
(d) During the 60-day period beginning on the effective date of
transfer of the servicing of a mortgage, a late charge shall not be
imposed on the mortgagor with respect to any payment on the loan. No
payment shall be treated as late for any other purpose if the payment
is received by the transferor servicer, rather than the transferee
servicer that should receive the payment, before the due date
(including any applicable grace period allowed under the mortgage
documents) applicable to such payment.
PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT
5. The authority citation for 24 CFR part 3500 continues to read as
follows:
Authority: 12 U.S.C. 2601 et seq.
6. Section 3500.2 is amended by revising the definition of
``Business day'', to read as follows:
Sec. 3500.2 Definitions.
* * * * *
Business day means a day on which the offices of the business
entity are open to the public for carrying on substantially all of the
entity's business functions.
* * * * *
7. In Sec. 3500.19, paragraph (a) is amended by revising the second
sentence, to read as follows:
Sec. 3500.19 Enforcement.
(a) * * * Specific provisions for enforcing the escrow account
statement provisions (12 U.S.C. 2609(c) and (d)) are set out in
Sec. 3500.17. * * *
* * * * *
8. A new Sec. 3500.21 is added, to read as follows:
Sec. 3500.21 Mortgage servicing transfers.
(a) Definitions. As used in this section:
Effective date of transfer means the date on which the mortgage
payment of a borrower is first due to the transferee servicer of a
mortgage servicing loan pursuant to the assignment, sale or transfer of
the servicing of the mortgage servicing loan.
Master servicer means the owner of the right to perform servicing,
which may actually perform the servicing itself or may do so through a
subservicer.
Mortgage servicing loan means a federally related mortgage loan, as
that term is defined in Sec. 3500.2, subject to the exemptions in
Sec. 3500.5, when the mortgage loan is secured by a first lien. The
definition does not include subordinate lien loans or open-end lines of
credit (home equity plans) covered by the Truth in Lending Act and
Regulation Z, including open-end lines of credit secured by a first
lien.
Qualified written request means a written correspondence from the
borrower to the servicer prepared in accordance with paragraph (f)(2)
of this section.
Servicer means the person responsible for the servicing of a loan
(including the person who makes or holds a loan if such person also
services the loan). The term does not include:
(1) The Federal Deposit Insurance Corporation (FDIC) or the
Resolution Trust Corporation (RTC), in connection with assets acquired,
assigned, sold, or transferred pursuant to section 13(c) of the Federal
Deposit Insurance Act or as receiver or conservator of an insured
depository institution; or
(2) The Federal National Mortgage Corporation (FNMA); the Federal
Home Loan Mortgage Corporation (Freddie Mac); the Resolution Trust
Corporation (RTC); the Federal Deposit Insurance Corporation (FDIC);
the Department of Housing and Urban Development (HUD), including the
Government National Mortgage Association (GNMA) and the Federal Housing
Administration (FHA); the National Credit Union Administration (NCUA);
the Farmers Home Administration (FmHA); and the Department of Veterans
Affairs (VA), in any case in which the assignment, sale, or transfer of
the servicing of the mortgage servicing loan is preceded by termination
of the contract for servicing the loan for cause, commencement of
proceedings for bankruptcy of the servicer, or commencement of
proceedings by the FDIC or RTC for conservatorship or receivership of
the servicer (or an entity by which the servicer is owned or
controlled).
(3) The Federal Housing Administration (FHA), in cases where a
mortgage insured under the National Housing Act is assigned to HUD.
Servicing means receiving any scheduled periodic payments from a
borrower pursuant to the terms of any mortgage servicing loan,
including amounts for escrow accounts under section 10 of RESPA, and
making the payments to the owner of the loan or other third parties of
principal and interest and such other payments with respect to the
amounts received from the borrower as may be required pursuant to the
terms of the mortgage servicing loan documents or servicing contract.
In the case of a home equity conversion mortgage or reverse mortgage as
defined in Sec. 3500.2, servicing includes making payments to the
borrower.
Subservicer means a servicer who does not own the right to perform
servicing, but who does so on behalf of the master servicer.
Transferee servicer means a servicer who obtains or who will obtain
the right to perform servicing functions pursuant to an agreement or
understanding.
Transferor servicer means a servicer, including a table funding
mortgage broker or dealer on a first lien dealer loan, who transfers or
will transfer the right to perform servicing functions pursuant to an
agreement or understanding.
(b) Servicing Disclosure Statement and Applicant Acknowledgement;
requirements. (1) At the time an application for a mortgage servicing
loan is submitted, or within 3 business days after submission of the
application, the lender, mortgage broker who anticipates using table
funding, or dealer who anticipates a first lien dealer loan shall
provide to each person who applies for such a loan a Servicing
Disclosure Statement. This requirement shall not apply when the
application for credit is turned down within three business days after
receipt of the application. A format for the Servicing Disclosure
Statement appears as Appendix MS-1 to this part. Except as provided in
paragraph (b)(2) of this section, the specific language of the
Servicing Disclosure Statement is not required to be used, but the
Servicing Disclosure Statement must include the information set out in
paragraph (b)(3) of this section, including the statement of the
borrower's rights in connection with complaint resolution. The
information set forth in Instructions to Preparer on the Servicing
Disclosure Statement need not be included on the form given to
applicants, and material in square brackets is optional or alternative
language.
(2) The Applicant's Acknowledgement portion of the Servicing
Disclosure Statement in the format stated is mandatory. Additional
lines may be added to accommodate more than two applicants.
(3) The Servicing Disclosure Statement must contain the following
information, except as provided in paragraph (b)(3)(ii) of this
section:
(i) Whether the servicing of the loan may be assigned, sold or
transferred to any other person at any time while the loan is
outstanding. If the lender, table funding mortgage broker, or dealer in
a first lien dealer loan does not engage in the servicing of any
mortgage servicing loans, the disclosure may consist of a statement to
the effect that there is a current intention to assign, sell, or
transfer servicing of the loan.
(ii) The percentages (rounded to the nearest quartile (25%)) of
mortgage servicing loans originated by the lender in each calendar year
for which servicing has been assigned, sold, or transferred for such
calendar year. Compliance with this paragraph (b)(3)(ii) is not
required if the lender, table funding mortgage broker, or dealer on a
first lien dealer loan chooses option B in the model format in
paragraph (b)(4) of this section, including in square brackets the
language ``[and have not serviced mortgage loans in the last three
years.]''. The percentages shall be provided as follows:
(A) This information shall be set out for the most recent three
calendar years completed, with percentages as of the end of each year.
This information shall be updated in the disclosure no later than March
31 of the next calendar year. Each percentage should be obtained by
using as the numerator the number of mortgage servicing loans
originated during the calendar year for which servicing is transferred
within the calendar year and, as the denominator, the total number of
mortgage servicing loans originated in the calendar year. If the volume
of transfers is less than 12.5 percent, the word ``nominal'' or the
actual percentage amount of servicing transfers may be used.
(B) This statistical information does not have to include the
assignment, sale, or transfer of mortgage loan servicing by the lender
to an affiliate or subsidiary of the lender. However, lenders may
voluntarily include transfers to an affiliate or subsidiary. The lender
should indicate whether the percentages provided include assignments,
sales, or transfers to affiliates or subsidiaries.
(C) In the alternative, if applicable, the following statement may
be substituted for the statistical information required to be provided
in accordance with paragraph (b)(3)(ii) of this section: ``We have
previously assigned, sold, or transferred the servicing of federally
related mortgage loans.''
(iii) The best available estimate of the percentage (0 to 25
percent, 26 to 50 percent, 51 to 75 percent, or 76 to 100 percent) of
all loans to be made during the 12-month period beginning on the date
of origination for which the servicing may be assigned, sold, or
transferred. Each percentage should be obtained by using as the
numerator the estimated number of mortgage servicing loans that will be
originated for which servicing may be transferred within the calendar
year and, as the denominator, the estimated total number of mortgage
servicing loans that will be originated in the calendar year.
(A) If the lender, mortgage broker, or dealer anticipates that no
loan servicing will be sold during the calendar year, the word ``none''
may be substituted for ``0 to 25 percent.'' If it is anticipated that
all loan servicing will be sold during the calendar year, the word
``all'' may be substituted for ``76 to 100 percent.''
(B) This statistical information does not have to include the
estimated assignment, sale, or transfer of mortgage loan servicing to
an affiliate or subsidiary of that person. However, this information
may be provided voluntarily. The Servicing Disclosure Statements should
indicate whether the percentages provided include assignments, sales or
transfers to affiliates or subsidiaries.
(iv) The information set out in paragraphs (d) and (e) of this
section.
(v) A written acknowledgement that the applicant (and any co-
applicant) has/have read and understood the disclosure, and understand
that the disclosure is a required part of the mortgage application.
This acknowledgement shall be evidenced by the signature of the
applicant and any co-applicant.
(4) The following is a model format, which includes several
options, for complying with the requirements of paragraph (b)(3) of
this section. The model format may be annotated with additional
information that clarifies or enhances the model language. The lender
or table funding mortgage broker (or dealer) should use the language
that best describes the particular circumstances.
(i) Model Format: The following is the best estimate of what will
happen to the servicing of your mortgage loan:
(A) Option A. We may assign, sell, or transfer the servicing of
your loan while the loan is outstanding. [We are able to service your
loan[.][,] and we [will] [will not] [haven't decided whether to]
service your loan.]; or
(B) Option B. We do not service mortgage loans[.][,] [and have not
serviced mortgage loans in the past three years.] We presently intend
to assign, sell, or transfer the servicing of your mortgage loan. You
will be informed about your servicer.
(C) As appropriate, the following paragraph may be used:
We assign, sell, or transfer the servicing of some of our loans
while the loans are outstanding, depending on the type of loan and
other factors. For the program for which you have applied, we expect
to [assign, sell, or transfer all of the mortgage servicing][retain
all of the mortgage servicing] [assign, sell, or transfer ____% of
the mortgage servicing].
(ii) [Reserved]
(c) Servicing Disclosure Statement and Applicant Acknowledgement;
delivery. The lender, table funding mortgage broker, or dealer that
anticipates a first lien dealer loan shall deliver Servicing Disclosure
Statements to each applicant for mortgage servicing loans. Each
applicant or co-applicant must sign an Acknowledgement of receipt of
the Servicing Disclosure Statement before settlement.
(1) In the case of a face-to-face interview with one or more
applicants, the Servicing Disclosure Statement shall be delivered at
the time of application. An applicant present at the interview may sign
the Acknowledgment on his or her own behalf at that time. An applicant
present at the interview also may accept delivery of the Servicing
Disclosure Statement on behalf of the other applicants.
(2) If there is no face-to-face interview, the Servicing Disclosure
Statement shall be delivered by placing it in the mail, with prepaid
first-class postage, within 3 business days from receipt of the
application. If co-applicants indicate the same address on their
application, one copy delivered to that address is sufficient. If
different addresses are shown by co-applicants on the application, a
copy must be delivered to each of the co-applicants.
(d) Notices of Transfer; loan servicing. (1) Requirement for
notice. (i) Except as provided in this paragraph or paragraph
(d)(1)(ii) of this section, each transferor servicer and transferee
servicer of any mortgage servicing loan shall deliver to the borrower a
written Notice of Transfer, containing the information described in
paragraph (d)(3) of this section, of any assignment, sale, or transfer
of the servicing of the loan. The following transfers are not
considered an assignment, sale, or transfer of mortgage loan servicing
for purposes of this requirement if there is no change in the payee,
address to which payment must be delivered, account number, or amount
of payment due:
(A) Transfers between affiliates;
(B) Transfers resulting from mergers or acquisitions of servicers
or subservicers; and
(C) Transfers between master servicers, where the subservicer
remains the same.
(ii) The Federal Housing Administration (FHA) is not required under
paragraph (d) of this section to submit to the borrower a Notice of
Transfer in cases where a mortgage insured under the National Housing
Act is assigned to FHA.
(2) Time of notice. (i) Except as provided in paragraph (d)(2)(ii)
of this section:
(A) The transferor servicer shall deliver the Notice of Transfer to
the borrower not less than 15 days before the effective date of the
transfer of the servicing of the mortgage servicing loan; and
(B) The transferee servicer shall deliver the Notice of Transfer to
the borrower not more than 15 days after the effective date of the
transfer.
(C) The transferor and transferee servicers may combine their
notices into one notice, which shall be delivered to the borrower not
less than 15 days before the effective date of the transfer of the
servicing of the mortgage servicing loan.
(ii) The Notice of Transfer shall be delivered to the borrower by
the transferor servicer or the transferee servicer not more than 30
days after the effective date of the transfer of the servicing of the
mortgage servicing loan in any case in which the transfer of servicing
is preceded by:
(A) Termination of the contract for servicing the loan for cause;
(B) Commencement of proceedings for bankruptcy of the servicer; or
(C) Commencement of proceedings by the Federal Deposit Insurance
Corporation (FDIC) or the Resolution Trust Corporation (RTC) for
conservatorship or receivership of the servicer or an entity that owns
or controls the servicer.
(iii) Notices of Transfer delivered at settlement by the transferor
servicer and transferee servicer, whether as separate notices or as a
combined notice, will satisfy the timing requirements of paragraph
(d)(2) of this section.
(3) Notices of Transfer; contents. The Notices of Transfer required
under paragraph (d) of this section shall include the following
information:
(i) The effective date of the transfer of servicing;
(ii) The name, payment amount, and consumer inquiry addresses
(including, at the option of the servicer, a separate address where
qualified written requests must be sent), and a toll-free or collect-
call telephone number of the transferee servicer;
(iii) A toll-free or collect-call telephone number for an employee
or department of the servicer that can be contacted by the borrower for
answers to servicing transfer inquiries;
(iv) 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;
(v) Information concerning any effect the transfer may have on the
terms or the continued availability of mortgage life or disability
insurance, or any other type of optional insurance, and any action the
borrower must take to maintain coverage; and
(vi) A statement that the transfer of servicing does not affect any
other term or condition of the mortgage documents, other than terms
directly related to the servicing of the loan.
(4) Notices of Transfer; sample notice. Sample language that may be
used to comply with the requirements of paragraph (d) of this section
is set out in Appendix MS-2 of this part. Minor modifications to the
sample language may be made to meet the particular circumstances of the
servicer, but the substance of the sample language shall not be omitted
or substantially altered.
(5) Consumer protection during transfer of servicing. During the
60-business day period beginning on the effective date of transfer of
the servicing of a mortgage servicing loan, a late fee may not be
imposed on the borrower with respect to any payment on the loan. In
addition, a payment made within that time by the borrower may not be
treated as late for any other purposes if the payment is received by
the transferor servicer, rather than by the transferee servicer, before
the due date (including any applicable grace period allowed under the
mortgage documents) applicable to the payment.
(e) Duty of loan servicer to respond to borrower inquiries. (1)
Notice of receipt of inquiry. Within 20 business days of a servicer of
a mortgage servicing loan receiving a qualified written request from
the borrower for information relating to the servicing of the loan, the
servicer shall provide to the borrower a written response acknowledging
receipt of the qualified written response. This requirement shall not
apply if the action requested by the borrower is taken within that
period and the borrower is notified of that action in accordance with
the paragraph (f)(3) of this section. By notice either included in the
Notice of Transfer or separately delivered by first-class mail, postage
prepaid, a servicer may establish a separate and exclusive office and
address for the receipt and handling of qualified written requests.
(2) Qualified written request; defined. (i) For purposes of
paragraph (f) of this section, a qualified written request means a
written correspondence (other than notice on a payment coupon or other
payment medium supplied by the servicer) that includes, or otherwise
enables the servicer to identify, the name and account of the borrower,
and includes a statement of the reasons that the borrower believes the
account is in error, if applicable, or that provides sufficient detail
to the servicer regarding information relating to the servicing of the
loan sought by the borrower.
(ii) A written request does not constitute a qualified written
request if it is delivered to a servicer more than 1 year after either
the date of transfer of servicing or the date that the mortgage
servicing loan amount was paid in full, whichever date is applicable.
(3) Action with respect to the inquiry. Not later than 60 business
days after receiving a qualified written request from the borrower,
and, if applicable, before taking any action with respect to the
inquiry, the servicer shall:
(i) Make appropriate corrections in the account of the borrower,
including the crediting of any late charges or penalties, and transmit
to the borrower a written notification of the correction. This written
notification shall include the name and telephone number of a
representative of the servicer who can provide assistance to the
borrower; or
(ii) After conducting an investigation, provide the borrower with a
written explanation or clarification that includes:
(A) To the extent applicable, a statement of the servicer's reasons
for concluding the account is correct and the name and telephone number
of an employee, office, or department of the servicer that can provide
assistance to the borrower; or
(B) Information requested by the borrower, or an explanation of why
the information requested is unavailable or cannot be obtained by the
servicer, and the name and telephone number of an employee, office, or
department of the servicer that can provide assistance to the borrower.
(4) Protection of credit rating. (i) During the 60 business day
period beginning on the date of the servicer receiving from a borrower
a qualified written request relating to a dispute on the borrower's
payments, a servicer may not provide adverse information regarding any
payment that is the subject of the qualified written request to any
consumer reporting agency (as that term is defined in section 603 of
the Fair Credit Reporting Act, 15 U.S.C. 1681a).
(ii) In accordance with section 17 of RESPA, 12 U.S.C. 2615, the
protection of credit rating provision of paragraph (e)(4)(i) of this
section does not impede a lender or servicer from pursuing any of its
remedies, including initiating foreclosure, allowed by the underlying
mortgage loan instruments.
(f) Damages and costs. (1) Whoever fails to comply with any
provision of this section shall be liable to the borrower for each
failure in the following amounts:
(i) Individuals. In the case of any action by an individual, an
amount equal to the sum of any actual damages sustained by the
individual as the result of the failure and, when there is a pattern or
practice of noncompliance with the requirements of this section, any
additional damages in an amount not to exceed $1,000.
(ii) Class Actions. In the case of a class action, an amount equal
to the sum of any actual damages to each borrower in the class that
result from the failure and, when there is a pattern or practice of
noncompliance with the requirements of this section, any additional
damages in an amount not greater than $1,000 for each class member.
However, the total amount of any additional damages in a class action
may not exceed the lesser of $500,000 or 1 percent of the net worth of
the servicer.
(iii) Costs. In addition, in the case of any successful action
under paragraph (f) of this section, the costs of the action and any
reasonable attorneys' fees incurred in connection with the action.
(2) Nonliability. A transferor or transferee servicer shall not be
liable for any failure to comply with the requirements of this section,
if within 60 days after discovering an error (whether pursuant to a
final written examination report or the servicer's own procedures) and
before commencement of an action under this section and the receipt of
written notice of the error from the borrower, the servicer notifies
the person concerned of the error and makes whatever adjustments are
necessary in the appropriate account to ensure that the person will not
be required to pay an amount in excess of any amount that the person
otherwise would have paid.
(g) Timely payments by servicer. If the terms of any mortgage
servicing loan require the borrower to make payments to the servicer of
the loan for deposit into an escrow account for the purpose of assuring
payment of taxes, insurance premiums, and other charges with respect to
the mortgaged property, the servicer shall make payments from the
escrow account in a timely manner for the taxes, insurance premiums,
and other charges as the payments become due, as governed by the
requirements in Sec. 3500.17(k).
(h) Preemption of State laws. A lender who makes a mortgage
servicing loan or a servicer shall be considered to have complied with
the provisions of any State law or regulation requiring notice to a
borrower at the time of application for a loan or transfer of servicing
of a loan if the lender or servicer complies with the requirements of
this section. Any State law requiring notice to the borrower at the
time of application or at the time of transfer of servicing of the loan
is preempted, and there shall be no additional borrower disclosure
requirements. Provisions of State law, such as those requiring
additional notices to insurance companies or taxing authorities, are
not preempted by Section 6 of RESPA or this section, and this
additional information may be added to a notice prepared under this
section, if the procedure is allowable under State law.
9. Appendices K through M are reserved and appendices MS-1 and MS-2
are added to part 3500, to read as follows:
BILLING CODE 4210-27-P
TR19DE94.007
TR19DE94.008
TR19DE94.009
TR19DE94.010
TR19DE94.011
TR19DE94.012
TR19DE94.013
BILLING CODE 4210-27-C
Dated: December 6, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-30413 Filed 12-16-94; 8:45 am]
BILLING CODE 4210-27-P