I. INTRODUCTION
The Consumer Financial Protection Bureau (CFPB) has issued a compliance bulletin and policy guidance entitled “Compliance Bulletin and Policy Guidance—Mortgage Servicing Transfers” in light of potential risks to consumers that may arise in connection with transfers of residential mortgage servicing rights.
Servicers engaged in significant servicing transfers should expect that the CFPB will, in appropriate cases, require them to prepare and submit informational plans describing how they will be managing the related risks to consumers.
The guidance advises mortgage servicers that the CFPB will be carefully reviewing servicers’ compliance with Federal consumer financial laws applicable to servicing transfers. These may include, among others, the RESPA and its implementing regulation, Regulation X, the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, the Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, the Fair Debt Collection Practices Act (FDCPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibitions on unfair, deceptive, or abusive acts or practices (UDAAPs).
The bulletin was effective October 23, 2014, and applciable beginning August 19, 2014.
II. BACKGROUND
A mortgage servicer, among other things, collects and processes loan payments on behalf of the owner of the mortgage note. Servicing transfers are common and may occur in several ways. The mortgage owner may sell the rights to service the loan, called the Mortgage Servicing Rights (MSR), separately from the note ownership. The owner of the loan or MSR may, rather than servicing the loan itself, hire a vendor – typically called a subservicer – to take on the servicing duties. MSR owners frequently sell MSR outright as an asset. Servicing transfers may also occur through whole loan servicing transfers or whole loan portfolio transfers, rather than through sales of MSR. For purposes of the Bulletin, the term “transfer” is used broadly to cover transfers of servicing rights as well as transfers of servicing responsibilities through subservicing or whole loan servicing arrangements.
III. GENERAL TRANSFER-RELATED POLICIES AND PROCEDURES
CFPB mortgage servicing examinations now include reviews for compliance with the new servicing rule. Among other things, the rule requires servicers to maintain policies and procedures that are reasonably designed to achieve the objective of facilitating the transfer of information during mortgage servicing transfers.
The following are examples of policies and procedures that CFPB examiners may consider in future examinations as contributing to meeting these requirements:
In future examinations, CFPB examiners may also consider the following post-transfer policies and procedures, among others, for transferee servicers as contributing to meeting this requirement:
Moreover, the new servicing rule requires servicers, among other things, to maintain policies and procedures that are reasonably designed to achieve the objective of properly evaluating loss mitigation applications. There is heightened risk inherent in transferring loans in loss mitigation, including the risk that documents and information are not accurately transferred. CFPB examiners will therefore pay particular attention to servicers’ handling of loss mitigation in the context of transfers. In cases where servicers choose to engage in transfers of loans with pending loss mitigation applications or approved trial modification plans, CFPB examiners may consider the following policies and procedures, among others, as contributing to meeting this requirement:
CFPB examiners may consider the following practices, among others, as indicating that a servicer’s policies and procedures are not reasonably designed to achieve the rule’s objectives of facilitating the transfer of information during mortgage servicing transfers or properly evaluating loss mitigation applications, including:
IV. APPLICABILITY OF OTHER PARTS OF THE NEW SERVICING RULE TO TRANSFERS
In addition to the transfer-related policies and procedures requirements described above, transfers may implicate other requirements under the new servicing rule:
A. Error Resolution Procedures and Requests for Information
Servicers are required to meet certain procedural requirements for responding to notices of error and written information requests.
B. Force-Placed Insurance
Before a servicer assesses any premium charge or fee related to force-placed insurance on a borrower, the servicer must comply with certain requirements, including sending notices to the borrower.
C. Early Intervention
A servicer must establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency. As clarified in CFPB Bulletin 2013–12, servicers are required to make good faith efforts to establish live contact for each billing cycle for which a borrower has been delinquent for at least 36 days.
D. Continuity of Contact
Servicers must maintain policies and procedures that are reasonably designed to achieve certain objectives related to personnel assigned to assist delinquent borrowers.
E. Successors in Interest
The 2016 Mortgage Servicing Rule makes several changes related to successors in interest, which are effective on April 19, 2018. First, it adds similar definitions of “successor in interest” to Subpart C of Regulation X and to Regulation Z.
Generally, a person is a successor in interest for purposes of Regulation X if a borrower transfers an ownership interest in a property securing a mortgage loan to the person by means of one of the types of transfers enumerated in the 2016 Mortgage Servicing Rule. These types of transfers are: (i) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; (ii) a transfer to a relative resulting from the death of a borrower; (iii) a transfer where the spouse or children of the borrower become an owner of the property; (iv) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or (v) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property. A person does not have to assume or otherwise be liable on the mortgage loan in order to be a successor in interest under the 2016 Mortgage Servicing Rule.
Second, the 2016 Mortgage Servicing Rule includes provisions related to how a servicer confirms a successor in interest’s identity and ownership interest in the property securing the mortgage loan. A servicer must respond to a written request from a person indicating that the person may be a successor in interest if the request includes the name of the borrower from whom the person received an ownership interest and information that enables the servicer to identify the mortgage loan. The response must generally provide a written description of the documents the servicer reasonably requires to confirm the person’s identify and ownership interest in the property as well as contact information for further assistance.
The 2016 Mortgage Servicing Rule generally requires servicers, other than small servicers and qualified lenders, to maintain certain policies and procedures with respect to successors in interest. These policies and procedures must be reasonably designed to ensure that, upon receiving notice of the existence of a potential successor in interest, the servicer can (1) promptly provide a potential successor in interest with a description of the documents the servicer reasonably requires to confirm the person’s identity and ownership interest in the property; and (2) upon receiving those documents, the servicer can promptly notify a potential successor in interest of the servicer’s determination regarding the potential successor’s status (i.e., confirmation of the person’s status as a successor in interest, a request for additional documents needed to make a determination, or a determination that the person is not a successor in interest).
Third, the 2016 Mortgage Servicing Rule provides that a confirmed successor in interest shall be considered a borrower for purposes of the Regulation X mortgage servicing provisions (including the servicing transfer, error resolution, request for information, early intervention, continuity of contact, loss mitigation, force-placed insurance, and escrow provisions) and a consumer for purposes of the Regulation Z mortgage servicing provisions (including the periodic statement requirements for mortgage loans, provisions on interest rate adjustment notices, the payment processing and payoff statement requirements, and the mortgage transfer notice requirement). The rights discussed in these provisions generally apply to confirmed successors in interest in the same way that they would apply to another borrower or consumer. If a servicer, such as a small servicer, is otherwise exempt from a requirement, such as the early intervention requirement, it does not need to comply with that requirement with regard to a confirmed successor in interest.
A servicer must respond to a confirmed successor in interest’s request for information but can omit location, contact, and personal financial information (other than information about the mortgage loan’s terms, status, and payment history) if the information pertains to a borrower other than the confirmed successor in interest requesting the information. Similarly, in response to a borrower’s request for information, a servicer may omit location, contact, and personal financial information (other than information about the mortgage loan’s terms, status, and payment history) that pertains to a potential or confirmed successor in interest who is not the requester.
The 2016 Mortgage Servicing Rule does not require a servicer to send a specific written disclosure or notice to a confirmed successor in interest if the servicer provides the same written disclosure or notice to another borrower or consumer, including another confirmed successor in interest. For example, if a servicer provides a force-placed insurance disclosure to a borrower, the servicer does not need to send the same force-placed insurance disclosure to a confirmed successor in interest. Similarly, a servicer that is subject to the early intervention requirements is not required to comply with the live contact requirements with respect to a confirmed successor in interest if it is complying with those requirements with respect to another borrower, including another confirmed successor in interest. A confirmed successor in interest who does not receive servicing communications because the servicer is providing them to another borrower on the account can request additional information as needed through the request for information process under Regulation X.
Unless a servicer is exempt from the loss mitigation requirements, it must review and evaluate a loss mitigation application received from a confirmed successor in interest in accordance with the Regulation X loss mitigation procedures if the property is the confirmed successor in interest’s principal residence. This requirement includes a loss mitigation application that a servicer received but did not review and evaluate prior to confirmation of a successor in interest. Although a servicer who is required to comply with the loss mitigation requirements cannot require a confirmed successor in interest to assume the mortgage loan before evaluating a complete loss mitigation application, the 2016 Mortgage Servicing Rule does not prohibit a servicer from conditioning an offer for a loss mitigation option on the successor in interest assuming the mortgage loan under state law.
Upon receiving a request from a confirmed successor in interest, a servicer must (1) send an acknowledgment of the receipt within five business days; or (2) after searching your system for the requested information or documents, you either provide the requested information or inform the consumer that you do not have the information, including the basis for the determination and the contact information, including a telephone number, for further assistance. This must be done within 10 business days for a request for the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan or 30 business days for all other requests.
If a potential successor in interest sends in a request for information that includes the name of the transferor or borrower and information that enables you to identify the account, you may send an acknowledgment of the receipt within five business days; or send a written description of the documents you reasonably require to confirm their identity and ownership interest in the property, contact information (including a telephone number) for further assistance and a statement that they may resubmit a request for information once confirmed as a successor in interest. If the potential successor in interest’s request does not provide sufficient information to enable you to identify the documents you reasonably require to confirm their identity and ownership interest in the property, you may respond by:
F. Loss Mitigation
A transferee that obtains the servicing of a mortgage loan for which an evaluation of a complete loss mitigation option is in process should continue the evaluation of the complete loss mitigation application to the extent practicable.
If a loan is transferred with a loss mitigation application pending or when a borrower is in a loss mitigation program, the transferor and transferee should manage their risk of non-compliance with 12 CFR 1024.41. One way to help manage this risk is by ensuring that all applicable loss mitigation information was sent to the transferee by the date of transfer, including, for example:
1. Before the Borrower Accepts an Offer
2. After the Borrower Accepts an Offer
V. PROTECTIONS UNDER FEDERAL CONSUMER FINANCIAL LAW
Other federal consumer financial laws may also apply in the transfer context. The FCRA provides protection for consumers by generally prohibiting the furnishing of information to a consumer reporting agency that the furnisher knows or has reasonable cause to believe is inaccurate. A servicer that furnishes information to consumer reporting agencies must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information furnished; in doing so, the servicer must consider applicable federal guidelines and must periodically review the policies and procedures and update them as necessary to ensure their continued effectiveness. The FCRA also gives consumers the ability to dispute credit reporting information with consumer reporting agencies and directly with their furnishers. Servicers, like other furnishers, must appropriately investigate such disputes and report their existence along with any other information reported to consumer reporting agencies.
The FDCPA imposes obligations on servicers to the extent they act as debt collectors within the meaning of the FDCPA. Among other obligations, the FDCPA requires that within five days after the initial communication with a borrower in connection with the collection of any debt, a debt collector must send the borrower a notice including the amount of the debt, the creditor’s name, the borrower’s right to request verification of the debt, and other required information. CFPB examiners have identified a number of entities that failed to send the notices within five days of initial contact and some entities that failed to send them at all. The FDCPA also prohibits deceptive representations, the use of unfair or unconscionable means, and harassing or abusive conduct in debt collection.
In addition to the notice requirements and other consumer protections described above, servicers must avoid engaging in UDAAPs.
CFPB expects all servicers under its jurisdiction, including those with significant transfer volume, to maintain a robust Compliance Management System (CMS). A robust CMS must, among other things, both ensure that violations of Federal consumer financial law do not occur during a transfer and must contain mechanisms for promptly identifying and remediating any violations of Federal consumer financial law that do occur. Entities with a robust CMS have strong policies and procedures, effective board oversight, regular and properly directed training, internal monitoring, external audits and complaint review.
CFPB expects servicers that identify any potential violations during a transfer to undertake all necessary corrective measures. Such corrective measures should include both steps to prevent the violation from occurring for subsequently transferred loans and to remediate any actual harm the violation may have caused the consumer whose loan was transferred. If the CFPB determines that a servicer has engaged in any acts or practices that violate the new servicing rule, that are unfair, deceptive, or abusive, or that otherwise violate Federal consumer financial law, it will take appropriate supervisory and enforcement actions to address violations and seek all appropriate corrective measures, including remediation of any harm to consumers. In determining the appropriate action, the CFPB will consider a variety of factors, including the timeliness of identification and the timeliness and scope of remediation of the violation by the servicer.
VI. PLANS FOR HANDLING SERVICING TRANSFERS
As part of its efforts to focus supervisory attention on the topics described above, the CFPB will, in appropriate cases, require servicers engaged in significant servicing transfers to prepare and submit written plans to the CFPB detailing how they will manage the associated consumer risks.
Servicers do not need approval from the CFPB before moving forward with servicing transfers unless specifically required to do so (e.g., by a consent order).
The information included in a plan would depend on the circumstances of the particular transfer. In general, however, the CFPB will request information regarding: