Transcript Sample Presentation Headline

CFPB’s FINAL RULE ON SERVICING
STANDARDS
February 27, 2013
Nanci L. Weissgold – 202.778.9314
[email protected]
Krista Cooley – 202.778.9257
[email protected]
Kerri M. Smith – 202.778.9445
[email protected]
Copyright © 2013 by K&L Gates LLP. All rights reserved.
How We Got Here: 2008 to Present
2008 - FRB attempts to address abusive servicing
2010 - Congress gets into the act - Dodd-Frank Act
2011 - Who needs laws and regulations? OCC/FRB
Consent Orders
2012 - Global foreclosure settlement continues to make
regulation through enforcement and raises the ante
2013 - CFPB adopts Final Rule establishing national
mortgage servicing standards
1
9 Major Topics Covered by Final Rule
1)
2)
3)
4)
5)
6)
Periodic Billing - TILA
ARM Notices - TILA
Payment Crediting and Payoff - TILA
Force-Placed Insurance - RESPA
Error Resolution & Information Requests - RESPA
General Servicing Policies, Procedures and
Requirements (P&P Requirements) - RESPA
7) Early Intervention - RESPA
8) Continuity of Contact - RESPA
9) Loss Mitigation - RESPA
2
Nuts and Bolts: Remedies
RESPA: Except for P&P Requirements and Continuity of Contact, a
“servicer” may face liability for:
 Actual damages
 Statutory damages up to $2,000 for an individual action or
$2,000 per member of a class not to exceed the lesser
$1,000,000 or 1% net worth of servicer, upon showing of a
pattern of noncompliance
 Attorneys fees and costs
TILA: For alleged violations of the regulations implementing TILA, a
“creditor” may face liability for:
 Actual damages
 Statutory damages of up to $4,000 in an individual action or in a
class action up to $1,000,000 or 1% of the creditor’s net worth
 Attorneys fees and costs
3
Nuts and Bolts: RESPA Effective Date and
Applicability
Effective Date: January 10, 2014
RESPA: Applies to a “federally related mortgage loan” (closed-end
loans secured by 1-4 family residential real property) but note:
 Open-end loans generally exempt from new servicing standards
(but not escrow requirements)
 Reverse mortgage loans are not subject to P&P Requirements,
Early Intervention, Continuity of Contact and Loss Mitigation
 Exclusion for temporary financing and business purpose loans
 Early Intervention, Continuity of Contact, and Loss Mitigation
apply only to loans on a borrower’s principal residence
4
Nuts and Bolts: TILA Effective Date and
Applicability
Effective Date: January 10, 2014
TILA: Applies with respect to:
 Prompt Payment Crediting and Payoff: closed- and open-end
consumer credit transaction secured by a consumer's principal
dwelling
 Periodic Billing: closed-end consumer credit transaction secured
by a dwelling, excluding reverse mortgages and timeshares
 ARM Disclosures: closed-end consumer credit transaction
secured by consumer’s principal dwelling where APR
may increase after consummation (except ARMs with term of 1
year or less)
5
Nuts and Bolts: Exemption and Preemption
Exemptions: A “small servicer” - one who either services 5,000
or fewer mortgage loans, for all of which the servicer or an
affiliate is the creditor or assignee or is a HFA - is exempt from
P&P Requirements, Early Intervention, Continuity of Contact,
and (most of) Loss Mitigation
Preemption: States can provide borrowers broader consumer
protections relating to servicing except the Final Rule:
 Bars a servicer from making the first notice/filing required
for a foreclosure process until the borrower is more than
120 days delinquent
 Preserves preexisting preemption of certain state
mortgage servicing transfer disclosures
6
TILA Requirements
 Payment crediting and payoff statements
 Revises ARM Disclosures:
 Initial adjustment notice
 Payment adjustment notice
 Non-payment change annual notice is eliminated
 Periodic Billing Statement:
 Within a reasonably prompt time (i.e., 4 days) after the due date
or end of the courtesy or grace period provided for the previous
billing cycle, servicers (including creditor, assignee or
servicer) must provide, for each billing cycle, a periodic
statement
 Statements may be sent electronically, with borrower consent
 Coupon book alternative for fixed-rate loans if certain conditions
are met
7
Error Resolution and Borrower Requests for
Information
Error resolution (1024.35) and information request requirements
(1024.36) are structured similarly to:
 Define the scope of written communications to which a servicer must
respond
 Set out timelines and notice requirements for responding to qualifying
borrower communications
 Carve out certain requests (i.e., duplicative, overbroad or untimely)
 Allow the servicer to establish one or more addresses which borrowers
must use to submit notices of errors and requests for information
 Limit the fees a servicer may charge for responding to a notice of error
or request for information
 Subsume QWR requirements
Note: Servicers should not rely on the borrower’s classification of a request as
a notice of error or a request for information. It could be both!
8
Error Resolution: Notice of Error
Generally, a servicer must comply with the error resolution
requirements for any written notice from the borrower that
asserts an error and includes the borrower’s name,
information sufficient to identify the borrower’s mortgage
loan account, and the error the borrower believes has
occurred (but not the reasons for his/her belief).
9
Error Resolution: 11 Covered Errors in Final
Rule vs. 9 in Proposed Rule
Eight covered errors in Final Rule substantially track proposed rule:
 Failure to accept a payment that conforms to the servicer’s written
requirements to follow in making payments
 Failure to apply an accepted payment to principal, interest, escrow, or
other charges under the terms of the mortgage loan and applicable law
 Failure to credit a payment to a borrower’s mortgage loan account as
of date of receipt in violation of TILA
 Failure to pay taxes, insurance premiums, or other charges, including
charges that the borrower and servicer have voluntarily agreed that the
servicer should collect in a timely manner or to refund an escrow
account balance
 Imposition of a fee or charge that the servicer lacks a reasonable
basis to impose upon a borrower
 Failure to provide an accurate payoff balance amount upon a
borrower’s request in those circumstances in which TILA Section 129G
applies
 Failure to provide accurate information to a borrower regarding loss
mitigation options and foreclosures, as required by the early
intervention requirements
 Failure to transfer accurately and timely information relating to the
servicing of a borrower’s mortgage loan account to a transferee
servicer
10
Error Resolution: New Covered Errors –
including “Catch-all”
 Making the first foreclosure notice or filing in violation of
§ 1024.41(f) or (j)
 Moving for foreclosure judgment or order of sale, or conducting
a foreclosure sale in violation of § 1024.41(g) or (j)
 Any other error relating to the servicing of a borrower’s
mortgage loan
 Broad but not all consuming. Does not include matters
relating to:
 Origination or underwriting
 Subsequent sale or securitization
 Sell, assign or transfer the servicing (but failure to
transfer accurate and timely information to a borrower’s
loan account is an error)
11
Error Resolution: Timing & Response
Requirements
Timing requirements generally follow QWR:
 Provide written acknowledgment of receipt within 5 business
days (unless servicer corrects error(s) within that time frame)
 Respond to notice of error within 30 business days (shorter time
frames for certain types of errors; possibly 15 day extension) by:
 correcting the error (and providing written notification with
the effective date of correction and contact information), or
 conducting a reasonable investigation and determining that
no error occurred (and providing written notification of the
basis for the conclusion and the borrower’s right to request
documents the servicer relied on, and contact information)
12
Error Resolution: Additional Procedural
Provisions
A servicer must:
 Correct any additional errors a servicer finds during its investigation
and provide written notification to the borrower
 Provide at no cost and within 15 business days of borrower’s request,
copies of documents relied on in making a “no error” determination
(unless they are “confidential, proprietary or privileged information”)
 Not charge a fee or require a borrower payment as a condition of
responding to a notice of error
 Not furnish adverse information regarding any payment subject to valid
notice of error to a CRA for 60 days after receipt of error notice (unless
duplicative, overbroad or untimely)
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Information Request: Timing & Response
Requirements
A servicer must:
 Respond to any written information request (other than payoff balance)
that includes the borrower’s name, sufficient information to identify the
account and states the information the borrower is requesting by:
 providing the borrower with the requested information, or
 conducting a reasonable search for the requested information (and
notify borrower why information is unavailable)
 Acknowledge receipt of a request for information within 5 business
days of receiving such request (unless the servicer provides the
borrower with the information requested within that time frame)
 Respond to information requests:
 within 10 business days of a request for the identity of, and contact
information for, the owner or assignee
 for all other information requests, within 30 business days (possibly
15 day extension)
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Request for Information – Fees
 A servicer shall not charge a fee or require a borrower to make
any payment that may be owed on a borrower’s account as a
condition of investigating and responding to a valid information
request
 Fee for providing beneficiary notice is specifically permitted, as
allowed under applicable state law
 The CFPB did not amend the rule in light of industry comments
arguing that it would be unfair and economically burdensome to
prohibit a servicer from charging certain fees for providing
documents in connection with borrower inquiries, such as
duplicate statements
15
Exceptions to Error Resolution/Information Request
Requirements
A servicer is not required to acknowledge, investigate, or respond to an error
notice or information request or suspend credit reporting if servicer reasonably
determines that the request is:
 Duplicative
 Overbroad
 Untimely
Additionally, a servicer is not required to acknowledge, investigate or respond
to a request for information if the servicer reasonably determines that the
information requested is:
 Confidential, proprietary, privileged information
 Irrelevant
 Unduly burdensome
If an exception applies, servicer must notify borrower in writing of its
determination and the basis upon which the servicer relied within 5 business
days of its determination
16
P&P Requirements
 A servicer must maintain policies and procedures (P&P) that are
reasonably designed to manage information and documents
and achieve certain objectives to comply with servicing
requirements
 Whether P&P are reasonable will be judged in light of the size,
nature and scope of the servicer’s operations
 Whereas proposed rule indicated a servicer’s failure to maintain
reasonable policies will be judged on a “pattern or practice
basis,” Final Rule does not contain that limitation
 A private right of action is not contemplated. CFPB will evaluate
whether servicers are achieving the objectives through
enforcement and supervision
17
Five Broad Objectives
Policies and procedures must be reasonably designed to ensure that
the servicer can:
 Access and provide timely and accurate information
 Properly evaluate loss mitigation applications
 Facilitate oversight of, and compliance by, service providers
 Facilitate transfer of information during servicing transfers
 Inform borrowers of the written error resolution and information
request procedures
Each objective has a subsequent list of objectives that need to be
satisfied
18
P&P Requirements: Record Retention
A servicer shall retain records that document actions taken by the
servicer with respect to a borrower’s mortgage loan account until 1
year after the date the loan is discharged or servicing of the loan is
transferred by the servicer to a transferee servicer
Beginning on or after January 10, 2014, a servicer must maintain the
following documents in a manner that facilitates compiling such
documents and data into a servicing file within 5 calendar days:
 a schedule of all transactions posted to the account
 a copy of the security instrument
 servicer notes
 a report of any data fields relating to the borrower’s loan
account (to the extent applicable)
 copies of documents provided to the borrower in accordance
with error resolution and loss mitigation requirements
19
Force-Placed Insurance & Escrow Accounts
 Generally, if a borrower who has established an escrow account
is more than 30 days past due, a servicer may not purchase
force-placed insurance unless a servicer is unable to disburse
funds from the borrower’s account (including, by advancing its
own funds).
 Servicer is not required to advance premiums to the insurance
company on a non-escrowed loan.
 Prior to charging a borrower for force-placed insurance, servicer
must have a “reasonable basis to believe” that the borrower has
failed to comply with his or her contractual obligations to
maintain insurance.
20
Force-Placed Insurance: Notices
Before charging a borrower for force-placed insurance, the servicer
must send an initial notice (at least 45 days before the fee or premium
is assessed) and, if applicable, a reminder notice (at least 30 days
later) and must not have received verification that the borrower has
had insurance in place continuously.
 For the initial notice, do not need to provide an estimate of fees,
but such information is needed for the reminder notice.
 Commentary notes that a servicer may require a copy of the
borrower’s declarations page.
Before charging a borrower for renewing or replacing force-placed
insurance, the servicer must send a written renewal notice at least 45
days before the fee or premium is assessed and not have received
verification that the borrower has obtained hazard insurance.
21
Force-Placed Insurance: Cancellation and
Charges
 Within 15 days of receiving verification that the borrower has
hazard insurance in place, a servicer must cancel the forceplaced insurance and for any period of overlapping coverage,
refund to the borrower all related fees and charges.
 Generally, all charges must be “bona fide and reasonable.” The
CFPB did not provide a standard for the amount of coverage
(i.e., replacement value vs. last known amount of coverage vs.
outstanding loan balance).
 A servicer may assess charges for force-placed insurance
retroactively to the first day of any period in which the borrower
did not have hazard insurance in place, if not prohibited by state
law.
22
Scope of Default Servicing Standards
 The CFPB expands the default servicing standards (early
intervention, continuity of contact, loss mitigation) beyond the
global settlement to apply to first- and second-lien loans.
 But, unlike the proposed rule, the Final Rule’s default provisions
only apply to loans on the borrower’s principal residence.
 Default servicing standards would generally not apply to small
servicers and reverse mortgage loans.
 The CFPB withdrew its proposal to impose a duty to identify
senior or subordinate lienholders once a servicer receives a
complete loss mitigation application.
23
Early Intervention: Live Contact
Servicers are required to establish or make good faith efforts to
establish live contact with a delinquent borrower by the 36th day of
delinquency.
 No specific “good faith effort” standard. Commentary says that
servicer must take “reasonable steps under the circumstances.”
 For purposes of this section, a borrower performing on a loss
mitigation plan is not “delinquent.”
After establishing live contact, must notify delinquent borrower of loss
mitigation options, if appropriate (according to servicer’s reasonable
discretion).
24
Early Intervention: Written Notice
Not later than the 45th day after a missed payment, the servicer must
provide borrower with a prescribed written notice. The content of the
notice must include, among other items, examples of loss mitigation
options available, if applicable, and information on how to obtain more
loss mitigation information.
 Only need to provide one notice in any 180-day period.
 Final Rule provides model notices - serve as a safe harbor for
compliance.
Do not need to establish live contact or send written notice if prohibited
by applicable law.
25
Continuity of Contact
Requires servicers to have policies and procedures in place that are
reasonably designed to assign personnel to a delinquent borrower by
the time the borrower receives the written early intervention notice, but
no later than 45 days after delinquency
 May be a team of personnel.
Like general P&P requirements, CFPB will evaluate whether servicers
are achieving the continuity of contact objectives through enforcement
and supervision – no private right of action.
26
Continuity of Contact
Servicer must have policies and procedures in place to:
 Make personnel available to the borrower via telephone
 Ensure that personnel perform certain specified functions
including, among others:
 accessing the borrower’s records; and
 providing the borrower with information about how and when
to apply for a loss mitigation option and about the status of
the application.
 Continue until borrower has made two consecutive mortgage
payments under a permanent modification or is no longer
delinquent.
Obligation to assign personnel exists even if borrower is nonresponsive or borrower is in bankruptcy.
27
Loss Mitigation: Scope and Enforcement
While a borrower may enforce the loss mitigation requirements through private
litigation, the rule specifically states that it does not require servicers to offer
specific forms of loss mitigation at all or on any specific terms.
 Servicers will not be required to evaluate borrowers for any programs
for which a borrower does not qualify based on eligibility criteria
established by investors or guarantors.
 Does not create a right for a borrower to enforce the terms of a
servicing agreement.
Does not mandate outcomes of the loss mitigation process, based on, for
example, a “positive NPV.”
28
Loss Mitigation: Sliding Scale Approach
Five categories of borrower’s rights/servicer’s obligations:
 Borrowers who submit applications before the 121st day of
delinquency or first notice or filing of foreclosure;
 Borrowers who submit applications after first notice but 90 days
or more before foreclosure sale;
 Borrowers who submit applications 89 to 45 days before
foreclosure sale;
 Borrowers who submit complete applications 44 to 38 days
before foreclosure sale; and
 Borrowers who submit complete applications 37 days or less
before foreclosure sale. (In this instance, servicer has no
obligations under the loss mitigation section of Regulation X, but
is still required to follow investor requirements.)
A borrower is only entitled to an evaluation based on a single complete
application.
29
Dual Tracking: Foreclosure Referral
A servicer (including a small servicer) is prohibited from initiating the
foreclosure process unless a borrower is more than 120 days
delinquent.
A servicer may not make the first notice or filing of foreclosure if a
borrower has submitted a complete loss mitigation application unless:
 the servicer has rejected the application and appeal process is
not applicable, the borrower has not requested an appeal within
allowed time frame or borrower’s appeal has been denied;
 the borrower rejects the servicer’s offer; or
 the borrower fails to perform under the loss mitigation option.
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Dual Tracking: Foreclosure Sale
If a borrower submits a complete loss mitigation application after the
servicer has initiated foreclosure but more than 37 days before a
foreclosure sale, a servicer may not move for foreclosure judgment or
order of sale, or conduct a foreclosure sale if a borrower has submitted
a complete loss mitigation application until:
 the servicer has rejected the application and appeal process is
not applicable, the borrower has not requested an appeal within
required time frame or the appeal has been denied;
 borrower rejects the servicer’s offer; or
 the borrower fails to perform under the loss mitigation option.
31
Loss Mitigation: Complete Applications
A complete loss mitigation application means an
application in connection with which a servicer has
received all the information that the servicer requires from
a borrower in evaluating applications for the loss mitigation
options available to the borrower.
 Servicer has flexibility to establish its own application
requirements and to decide the type and amount of
information it will require.
 Considered complete when the borrower provides all
information required within the borrower’s control.
32
Loss Mitigation: Incomplete Applications
A servicer shall exercise reasonable diligence in obtaining documents
and information to complete a loss mitigation application.
If incomplete, the acknowledgment notice must state the additional
documents and information the borrower must submit to make it
complete.
Must also disclose the application “deadline” (the earliest remaining
date of):
 The date by which any document or information submitted by a
borrower will be considered stale or invalid;
 The date that is the 120th day of the borrower’s delinquency;
 The date that is 90 days before a foreclosure sale; or
 The date that is 38 days before a foreclosure sale.
The “deadline” is the date the borrower should complete the
application, not when the borrower “must” complete the application.
33
Loss Mitigation: Acknowledgment of
Applications
If a servicer receives a loss mitigation application 45 days or more
before a foreclosure sale, a servicer must:
 Review the loss mitigation application to determine if the loss
mitigation application is complete; and
 Send borrower an acknowledgment notice within 5 days
(excluding public holidays and weekends) after receiving the
loss mitigation application that the servicer has determined that
the loss mitigation application is either complete or incomplete.
 The notice must include a statement that the borrower
should consider contacting servicers of any other mortgage
loans secured by the same property to discuss available
loss mitigation options.
34
Loss Mitigation: Evaluation
If a servicer receives a complete loss mitigation application more than
37 days before a foreclosure sale, then, within 30 days of receiving
application, a servicer must:
 Evaluate the borrower for all loss mitigation options available to
the borrower (offered by an owner or assignee of borrower’s
mortgage loan); and
 Provide the borrower with a written notice of which loss
mitigation options, if any, it will offer to the borrower.
“All loss mitigation options” include home retention and non-home
retention options (short sales/DILs).
Can evaluate borrowers based on owner/assignee’s loss mitigation
hierarchy (“waterfall”)
35
Loss Mitigation: Denials of Loan Modifications
If borrower’s complete application is denied for any trial or
permanent modification, a servicer must state in the notice:
 If applicable, that the borrower may appeal the
servicer’s determination, the deadline to make an
appeal, and any requirements for making an appeal;
and
 The specific reasons for the servicer’s determination
for each such trial or permanent loan modification
option.
36
Loss Mitigation: Acceptance/Rejection by
Borrower
Borrower has the following days to accept or reject the offer or appeal
(if applicable):
 14 days if the complete application is received 90 days or more
from the foreclosure sale.
 7 days if the complete application is received less than 90 days
but more than 37 days before the foreclosure sale.
If borrower appeals the denial of a loan modification, borrower must
get at least 14 days from receiving appeal notice from servicer.
If borrower does not satisfy the servicer’s requirements for accepting a
trial modification, but submits the trial payment within deadline
established above, servicer must provide a “reasonable period of time”
to fulfill obligations.
37
Loss Mitigation: Appeal Process
If a servicer receives a complete application 90 days or more before a
foreclosure sale (or before first notice or filing of foreclosure), servicer
must permit borrower to appeal loan modification denial.
 A borrower must be given 14 days from receiving denial notice
to appeal.
 Appeals must be decided within 30 days by different personnel
than those responsible for the initial decision.
 Must send borrower a notice explaining the determination.
 No further appeal.
38
Interplay between Final Rule and FHA
Servicing Requirements
 Servicers of FHA-insured loans will need to comply with both
FHA requirements and the requirements in the Final Rule.
 Two areas HUD is focused on in the Final Rule:
 Communication with Borrowers – Drafting a Mortgagee
Letter updating FHA requirements for communications with
delinquent borrowers.
 Dual Tracking – Drafting a Mortgagee Letter that will
address FHA requirements for conducting loss mitigation
during the foreclosure process.
 HUD is working with the CFPB to ensure that these
requirements do not differ from the Final Rule.
39
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