I. INTRODUCTION
The Bureau of Consumer Financial Protection (CFPB) has issued final regulations that amend the mortgage servicing provisions of Regulation Z and Regulation X, which are the regulations that promulgate the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), respectively. The Mortgage Servicing Rules address the servicing of mortgage loans, and are implemented in both Regulation X and Regulation Z.
The Regulation X rule addresses:
The Regulation Z rule addresses:
The final rules cover almost all aspects of loan servicing including: initial and subsequent interest rate adjustment notices for adjustable-rate mortgages (ARMs): periodic statements for residential mortgage loans; prompt crediting of mortgage payments; responses to requests for payoff amounts; servicers’ obligation to correct errors asserted by mortgage loan borrowers; to provide certain information requested by such borrowers; and to provide protections to such borrowers in connection with force-placed insurance.
Also, the rules cover: servicers’ obligation to establish reasonable policies and procedures to achieve certain delineated objectives; to provide information about mortgage loss mitigation options to delinquent borrowers; to establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel capable of performing certain functions; and to evaluate borrowers’ applications for available loss mitigation options.
II. EFFECTIVE DATE
These rules took effect on January 10, 2014. ARM regulations 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date. However, no servicer is required to comply with the rule until the effective date. (See Section XVIII, C, below).
III. SCOPE OF COVERAGE
The mortgage servicing rule is applicable to any “mortgage loan.” This term includes “federally related mortgage loans,” but does not include open-end lines of credit. Therefore, these provisions generally apply to closed-end first and subordinate liens (subject to certain exceptions explained below).
IV. SMALL SERVICER EXEMPTIONS
Servicers that meet certain requirements are exempt from specified provisions of the CFPB’s servicing rules. These are notcomplete exemptions. Specifically, small servicers are exempt from the periodic statement provisions, the prohibition on purchasing force-placed insurance where a servicer could continue the consumer’s existing hazard insurance coverage by advancing funds to escrow under certain circumstances, (when the cost of force-placed insurance is less than the cost of advancing for hazard insurance), the general servicing policies and procedures and requirements provisions, the early intervention provisions, the continuity of contact provisions, and certain loss mitigation requirements contained in the Mortgage Servicing Rules. To qualify as a small servicer, a servicer must service 5,000 or fewer mortgage loans, all of which the servicer (or an affiliate) owns or originated. Small servicers must comply with the ARMs disclosure provisions, prompt crediting and payoff statement provisions, force-placed insurance provisions, error resolution and information request provisions and certain loss mitigation requirements of the Mortgage Servicing Rules.
A servicer that services any mortgage loans for which a servicer or an affiliate is not the creditor or assignee is not a small servicer. The CFPB explains that, a servicer that owns mortgage servicing rights for mortgage loans that are not owned by the servicer or an affiliate, or for which the servicer or an affiliate was not the entity to whom the obligation was initially payable, is not a small servicer.
Servicers that sell mortgage loans into the secondary market “servicing retained” are not disqualified from being eligible for the small servicer exemption.
Both a master servicer and a subservicer must meet the requirements of a small servicer. For example, if a master servicer meets the definition of a small servicer, but retains a subservicer that does not meet the definition of a small servicer, the subservicer is not a small servicer for the purposes of determining any exemption, and must comply with the requirements of a servicer.
Any mortgage loans obtained by a servicer or an affiliate as part of a merger or acquisition, or as part of the acquisition of all of the assets or liabilities of a branch office of a lender, should be considered mortgage loans for which the servicer or an affiliate is the creditor to which the mortgage loan is initially payable.
In determining whether a small servicer services 5,000 or fewer mortgage loans, a servicer is evaluated based on the number of mortgage loans serviced by the servicer and any affiliates as of January 1 for the remainder of the calendar year. A servicer that crosses the threshold will have six months or until the next January 1, whichever is later, to comply with any requirements for which a servicer is no longer exempt as a small servicer.
V. SCOPE OF CERTAIN SECTIONS
A. Servicing Disclosure Statement – First Liens Only
The requirement to provide a servicing disclosure statement within three days after a person applies for a mortgage loan only applies to mortgage loans that are secured by a first lien.
B. Early Intervention, Continuity of Contact, and Loss Mitigation – Principal Residence Only
Requirements pertaining to early intervention with delinquent borrowers, continuity of contact, and loss mitigation procedures apply only to a mortgage loan that is secured by a property that is a borrower’s principal residence.
VI. GENERAL DISCLOSURE REQUIREMENTS
Disclosures required by the Mortgage Servicing Rule must be clear and conspicuous, in writing, and in a form the recipient may keep. A servicer may include additional information in the required disclosures or may combine disclosures, unless expressly prohibited by law.
VII. MORTGAGE SERVICING TRANSFERS
A. Servicing Disclosure Statement
1. General Requirement
Within three days after a person applies for a first-lien mortgage loan, the lender must provide a servicing disclosure statement that states whether the servicing of the loan may be assigned, sold, or transferred at any time.
2. Model Form
Appendix MS-1 of Regulation X contains a model disclosure form.
3. Applicant Denied Credit
The servicing disclosure statement is not required if a person applies for a first-lien mortgage, but is denied credit within the three-day period.
B. Notice of Transfer of Loan Servicing
Each transferor servicer and each transferee servicer must provide to the borrower a Notice of Transfer for any assignment, sale or transfer of the servicing of a mortgage loan.
2. Exceptions
a. In general, the following are excluded from the Notice of Transfer of Loan Servicing if there is no change in the payee, payment address, account number, or amount of payment due:
(1) A transfer between affiliates;
(2) A transfer that results from mergers or acquisitions of servicers or subservicers; and
(3) A transfer that occurs between master servicers without changing the subservicer.
3. Required Content
The Notices of Transfer of Loan Servicing must include the following information:
a. The effective date of the transfer of servicing;
b. The name, address, and a collect call or toll-free telephone number for an employee or department of the transferee servicer that can be contacted by the borrower to obtain answers to servicing transfer inquiries;
c. The name, address, and a collect call or toll-free telephone number for an employee or department of the transferor servicer that can be contacted by the borrower to obtain answers to servicing transfer inquiries;
d. 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;
e. Whether the transfer will affect 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 such coverage; and
f. A statement that the transfer of servicing does not affect any term or condition of the mortgage loan other than terms directly related to the servicing of the loan.
4. Model Disclosure
Appendix MS-2 of Regulation X contains a model disclosure form.
5. Timing
a. Transferor Servicer. Must notify the borrower at least 15 days before the effective date of the servicing transfer.
b. Transferee Servicer. Must provide the notice not more than 15 days after the effective date of the servicing transfer.
c. Single Notice Permitted. The transferee servicer and the transferor servicer may provide a single notice, which must be provided at least 15 days before the effective date of the servicing transfer.
d. Notice at Settlement. Notices of Transfer provided at settlement by the transferor servicer and transferee servicer (whether separate or a combined notice) satisfy the timing requirements.
e. Extended Time. In the following situations, transferee servicer or the transferor servicer must provide the Notice of Transfer at least 30 days after the effective date of the servicing transfer:
(1) Termination of the servicing contract for cause;
(2) Commencement of proceedings for bankruptcy of the servicer;
(3) Commencement of proceedings by the FDIC for conservatorship or receivership of the servicer or an entity that owns or controls the servicer.
C. Payments During Transfer of Servicing
1. Payments Not Considered Late
For 60 days after the servicing transfer, a servicer may not treat a payment as late if a borrower makes a timely but misdirected payment to the transferor servicer. Assessing late fees is prohibited in this circumstance.
2. Payments Received Incorrectly
If a transferor servicer incorrectly receives a mortgage payment, the transferor must promptly either:
a. Transfer the payment to the transferee servicer for application to the borrower’s account; or
b. Return the payment to the person that made the payment and notify such person of the proper recipient of the payment.
D. Preemption of State Law
The CFPB has preempted state laws requiring notice to the borrower at the time of application or at the time of transfer of servicing of the loan. Therefore, servicers that comply with the CFPB’s notice requirements described above will be deemed 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.
1. Certain State Laws Not Preempted
Section 6 of RESPA and Regulation X do not preempt certain servicing-related provisions of state law, such as those requiring additional notices to insurance companies or taxing authorities.
VIII. TIMELY ESCROW PAYMENTS AND TREATMENT OF ESCROW ACCOUNT BALANCES
A. Timely Escrow Disbursements Required
Servicers must make payments from escrow accounts in a timely manner (on or before the deadline to avoid a penalty). Servicers should note that this requirement now applies to first and second liens.
B. Refund of Escrow Balance
In general, within 20 days of a mortgage loan being paid in full, a servicer must return to the borrower any amounts remaining in an escrow account that is within the servicer’s control.
1. Netting of Funds Permitted
A servicer may net any remaining funds in an escrow account against the outstanding balance of the borrower’s mortgage loan.
2. “Same Lender/Same Servicer” Exception
If the borrower agrees, a servicer may credit any amounts remaining in an escrow account to an escrow account for a new mortgage loan if the new mortgage loan is provided by a lender that (1) was also the lender to whom the prior mortgage loan was initially payable; (2) is the owner or assignee of the prior mortgage loan; or (3) uses the same servicer that serviced the prior mortgage loan to service the new loan.
3. Borrower Agreement – Oral or Written
A borrower may agree either orally or in writing to a servicer’s crediting of any remaining balance to a new escrow account.
IX. ERROR RESOLUTION PROCEDURES
A. Generally
This section establishes procedural requirements for responding to a written notice from the borrower that asserts an error (Notice of Error) and prevents servicers from furnishing adverse information with respect to disputed amounts.
1. Required Content
The written notice must include the name of the borrower, information that enables the servicer to identify the borrower’s mortgage loan account, and the servicing-related error the borrower believes has occurred. The substance of the Notice of Error will determine the servicer’s obligation to comply with the error resolution requirements; no particular language is necessary.
2. Payment Coupons
A notice written or appearing on a payment coupon or other payment form supplied by the servicer need not be treated by the servicer as a Notice of Error.
3. Qualified Written Requests
A Qualified Written Request that asserts an error relating to the servicing of a mortgage loan is a Notice of Error, and a servicer must comply with all requirements applicable to a Notice of Error with respect to such Qualified Written Request.
4. Oral Notices of Error
Borrowers may continue to assert errors orally. However, servicers are not required to comply with the formal error resolution requirements for such notices. Instead, the CFPB requires servicers to maintain policies and procedures that are reasonably designed to ensure that servicers (1) make corrections in response to borrower complaints (whether oral or written) and (2) inform borrowers of the procedures for submitting written notices of error and written Information Requests. See Sections XII.B.1.c and XII.B.6.b of this outline.
B. Covered Errors
The rule provides a finite list of errors to which the error resolution requirements apply.
1. Failure to accept a payment that conforms to the servicer’s written requirement for the borrower to follow in making payments;
2. Failure to apply an accepted payment to principal, interest, escrow, or other charges under the terms of the mortgage loan and applicable law;
3. Failure to credit a payment to a borrower’s mortgage loan account as of the date of receipt;
4. Failure to pay taxes, insurance premiums, or other charges, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay, in a timely manner, or to refund an escrow account balance;
5. Imposition of a fee or charge that the servicer lacks a reasonable basis to impose upon the borrower;
a. Examples of non-bona fide charges. Late fees for payments that were not late, default property management fees for borrowers that are not in a delinquency status that would justify the charge, charges for services from service providers that were not actually rendered with respect to a borrower’s mortgage loan account, and charges for force-placed insurance where a servicer lacks a reasonable basis to impose the charge on the borrower.
6. Failure to provide an accurate payoff balance amount upon a borrower’s request;
7. Failure to provide accurate information to a borrower regarding loss mitigation options and foreclosure;
8. Failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer;
9. Filing for foreclosure if the borrower is 120 days or less delinquent; or
10. Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale if the borrower is 120 days or less delinquent; or
11. Any other error relating to the servicing of a borrower’s mortgage loan.
C. Non-Covered Errors
A servicer is not required to comply with the error resolution requirements if a Notice of Error relates to something other than one of the types of covered errors described above.
1. Examples
The staff commentary provides examples of categories of excluded errors that would not be considered covered errors, including errors relating to the origination of a mortgage loan, the underwriting of a mortgage loan, subsequent sale or securitization of a mortgage loan, or the determination to sell, assign, or transfer the servicing of a mortgage loan. However, an error relating to the failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer would constitute a covered error.
2. Borrower Characterization
A servicer should not rely on the borrower’s description of a submission to determine whether the submission constitutes a Notice of Error. For example, such notice may actually contain an Information Request.
3. Borrower Representative
A Notice of Error is considered submitted by a borrower if it is submitted by an agent of the borrower. A servicer may engage in reasonable efforts to determine if a person that claims to be an agent of the borrower does, in fact, have the authority to act on the borrower’s behalf.
D. Contact Information for Borrowers to Assert Errors
Servicers may establish an address that a borrower must use to assert an error.
1. Exclusive Address Not Required
A servicer is not required to designate a specific address that a borrower must use to assert an error. However, if a servicer does not designate a specific address that a borrower must use, a servicer must respond to a Notice of Error received by any office of the servicer.
2. Servicer Elects to Establish an Exclusive Address
a. Written Notice. If a servicer chooses to use a specific address for receipt of Notices of Error, the servicer must provide the borrower a written notice containing such information (“Notice of Exclusive Address”). The Notice of Exclusive Address must include a statement that the borrower must use the established address to assert an error. This written notice may be included with a different disclosure, such as a notice of transfer.
b. Address Notification Requirements. In addition to the foregoing Notice of Exclusive Address, if a servicer establishes a specific address that a borrower must use to assert an error, the servicer must also provide that address to the borrower in the following contexts: (1) any periodic statement or coupon book, (2) any website the servicer maintains in connection with the servicing of the loan, and (3) any notice required pursuant to the CFPB’s Early Intervention requirements or the Loss Mitigation requirements.
c. Policies and Procedures. While servicers will not specifically be required to provide the designated address in contexts other than those listed above, servicers must have policies and procedures reasonably designed to ensure that the servicer informs the borrower of the procedures for submitting written notices of error and information requests.
3. Multiple Offices
A servicer may designate multiple office addresses for receiving Notices of Errors. However, a servicer is required to comply with the error resolution requirements with respect to a Notice of Error received at any such designated address regardless of whether that specific address was provided to a specific borrower asserting an error.
4. Internet Intake
A servicer may establish a process for receiving Notices of Error through email, a website, or other online intake methods. Any such online processes must be in addition to (and not in lieu of) any process for receiving notices of error by mail.
5. Same Address for Information Requests
If a servicer designates an address for receiving Notices of Error, the servicer must use the same address for receiving Information Requests. See Section X.C., below.
6. Change in Address
A servicer must provide a written notice to a borrower before any change in the address used for receiving a Notice of Error.
E. Response to Notice of Error
The rule establishes the following requirements for responding to a Notice of Error.
1. Acknowledgement of Receipt
Within five days, a servicer must provide a borrower with a written response acknowledging that it received the Notice of Error.
2. Investigation and Response
After receiving a Notice of Error, a servicer must either:
a. Correct the Error and provide the borrower with a written notification of the correction, the effective date of the correction, and contact information, including a telephone number for further assistance; or
b. Conduct a Reasonable Investigation and provide the borrower with a written notification stating:
(1) That the servicer determined that no error occurred;
(2) The reason(s) for this determination;
(3) The borrower’s right to request documents relied upon by the servicer in reaching its determination;
(4) Information regarding how the borrower can request such documents; and
(5) Contact information, including a telephone number, for further assistance.
3. Separate/Single Responses Permitted
If a borrower submits a Notice of Error that alleges multiple errors, the servicer may respond through either a single response or separate responses that address each asserted error.
4. Different or Additional Error
If a servicer, during the course of a reasonable investigation, determines that a different or additional error has occurred, the servicer is required to correct that different or additional error and provide the borrower a written notice describing the error(s) the servicer identified, the corrective action taken, the effective date of the correction, and contact information (including a telephone number) for further assistance.
5. Notices of Error Incorrectly Sent to Addresses Associated with Submission of Loss Mitigation Applications or the Continuity of Contact
A servicer’s policies and procedures must be reasonably designed to ensure that if a borrower incorrectly submits a Notice of Error to any address given to the borrower in connection with submission of a Loss Mitigation Application or the Continuity of Contact, the servicer will inform the borrower of the procedures for submitting written Notices of Error, including the correct address. Alternatively, the servicer could redirect such notices to the correct address.
F. Requesting Information from Borrower
A servicer may request that a borrower provide documentation in connection with the investigation of an asserted error. The servicer may not:
1. Require a borrower to provide such information as a condition of investigating an asserted error; or
2. Determine that no error occurred based solely on the fact that the borrower failed to provide any requested documentation. The servicer must conduct a reasonable investigation as described above, even if the borrower does not provide the requested information.
G. Time Limits
In general, servicers must respond to a Notice of Error not later than 30 days (excluding Saturdays, Sundays, and legal public holidays) after the borrower notifies the servicer of the asserted error.
1. Two Exceptions
There are two exceptions to the 30-day time limit.
a. Payoff Balances. Within 7 days of receipt (excluding weekends and legal holidays), a servicer must respond to a Notice of Error relating to failure to provide an accurate payoff balance.
b. Certain Errors Relating to Foreclosure. If a borrower submits a Notice of Error asserting that a servicer submitted improper foreclosure filings or improperly moved for a foreclosure judgment, the servicer must investigate and respond to the asserted error prior to the date of the foreclosure sale or within 30 days after receiving the Notice of Error.
(1) Foreclosure Sale Timing. If a servicer cannot comply with the timeframes above, it may cancel or postpone a foreclosure sale in order to comply with the error resolution requirements.
2. Extension of Time Limit
Generally, a servicer may extend the time period for investigating and responding to a Notice of Error by 15 days if, before the end of the 30-day period, the servicer notifies the borrower of the extension and the reasons for the delay in responding. However, a servicer may not extend the time period for responding to asserted errors involving (1) failure to provide an accurate payoff statement or (2) improper foreclosure proceedings.
a. Multiple Errors. A servicer may treat a Notice of Error that alleges multiple errors as separate notices of error and may extend the time period for responding to each asserted error.
H. Copies of Documentation
If a borrower requests copies of documents and information that a servicer relied upon to determine that no error occurred, the servicer must provide such documents at no charge within 15 days of receiving the borrower’s request.
1. Types of Documents to Be Provided
A servicer must provide only the documents it actually relied upon to determine that no error occurred. Such documents may include documents reflecting information entered in a servicer’s collection system. For example, in response to an asserted error regarding payment allocation, a servicer may provide a printed screen-capture showing amounts credited to principal, interest, escrow, or other charges in the servicer’s system for the borrower’s mortgage loan account.
2. Confidential, Proprietary, or Privileged Information
A servicer is not required to provide documents relied upon that constitute confidential, proprietary or privileged information. If a servicer withholds documents relied upon because it has determined that such documents constitute confidential, proprietary or privileged information, the servicer must notify the borrower of its determination in writing within 15 days (excluding weekends and legal holidays) of receipt of the borrower’s request.
I. Alternative Compliance
Servicers are not required to comply with the Acknowledgement of Receipt or the Response to Notice of Error requirements in two situations:
1. Early Correction
The servicer corrects the error within 5 days of receiving the Notice of Error.
2. Error Asserted Prior to Foreclosure Sale
The servicer receives a Notice of Error regarding improper foreclosure proceedings 7 or fewer days before a foreclosure sale. In this situation, a servicer must make a good faith attempt to respond to the borrower, orally or in writing, and either correct the error or state the reason the servicer has determined that no error has occurred.
J. Requirements Not Applicable
A servicer is not be required to comply with requirements pertaining to Acknowledgement of Receipt, Response to Notice of Error, and Servicer Remedies if the servicer reasonably determines that:
1. The Notice of Error is Duplicative
The asserted error is substantially the same as an error previously asserted by the borrower for which the servicer has previously complied with the Acknowledgement of Receipt and Response to Notice of Error requirements, unless the borrower provides new and material information.
a. New and Material Information. New and material information means information that was not reviewed by the servicer in connection with investigating a prior notice of the same error and is reasonably likely to change the servicer’s prior determination about the error.
2. The Notice of Error is Overbroad
A Notice of Error is overbroad if the servicer cannot reasonably determine the specific error that the borrower is asserting. However, to the extent a servicer can reasonably identify a valid assertion of an error in a Notice of Error that is otherwise overbroad, the servicer must comply with all of the applicable requirements.
a. Examples of Overbroad Notices of Error.
(1) Assertions of errors regarding substantially all aspects of a mortgage loan, including errors relating to all aspects of mortgage origination, mortgage servicing, and foreclosure, as well as errors relating to the crediting of substantially every borrower payment and escrow account transaction;
(2) Assertions of errors in the form of a judicial action complaint, subpoena, or discovery request that purports to require servicers to respond to each numbered paragraph; and
(3) Assertions of errors in a form that is not reasonably understandable or is included with voluminous tangential discussion or requests for information, such that a servicer cannot reasonably identify any error.
3. The Notice of Error is Untimely
A Notice of Error is untimely if it is delivered to the servicer more than one year after (1) servicing for the mortgage loan was transferred from the servicer receiving the Notice of Error to a transferee servicer; or (2) the mortgage loan is discharged. (A mortgage loan is discharged when both the debt and all corresponding liens have been extinguished or released, as applicable.)
K. Notice to Borrower-Servicer Not Required to Comply
If a servicer determines that it is not required to comply with the Error Resolution requirements, the servicer must notify the borrower within 5 days of such determination. The notice must explain the basis for the servicer’s conclusion.
L. Payment Requirements Prohibited
A servicer may not charge a fee, or require a borrower to make any payment as a condition of responding to a Notice of Error. However, the assertion of an error does not alter or otherwise affect a borrower’s obligation to make mortgage payments owed pursuant to the terms of a mortgage loan.
M. Effect on Servicer Remedies
1. Adverse Information
A servicer may not, for 60 days, furnish to any consumer reporting agency adverse information regarding any payment that is the subject of a Notice Error.
2. Remedies Permitted/Ability to Pursue Foreclosure
Except for errors relating to certain improper foreclosure filings and proceedings, a Notice of Error does not restrict lenders or servicers from pursuing any remedies under applicable law, including initiating foreclosure or proceeding with a foreclosure sale.
N. Fair Debt Collection Practices Act Implications
CFPB Bulletin 2013-12 concludes that servicers that are debt collectors are not liable under the Fair Debt Collection Practices Act if they comply with the Error Resolution provisions of the Servicing Rules, notwithstanding a “cease communication” instruction sent by the borrower.
X. INFORMATION REQUESTS
Servicers must comply with certain procedural requirements upon receiving a written Information Request from a borrower.
1. Borrower’s Representative
An Information Request is submitted by a borrower if the request is submitted by an agent of the borrower. A servicer may undertake reasonable procedures to determine if a person that claims to be an agent of a borrower has authority to act on the borrower’s behalf.
B. Required Information
To trigger the requirements of the rule, a written Information Request must include the borrower’s name, information that enables the servicer to identify the borrower’s mortgage loan account, and the information that the borrower is requesting with respect to the mortgage loan.
1. Requests on Payment Coupons/Forms
A request for information on a payment coupon or other payment form supplied by the servicer need not be treated as an Information Request.
2. Payoffs
A request for a payoff balance need not be treated by the servicer as a request for information.
3. Qualified Written Request
A Qualified Written Request that requests information relating to the servicing of the mortgage loan is a request for information for purposes of this requirement.
C. Specific Address for Borrowers to Request Information
Similar to the provisions for receipt of Notices of Error, a servicer may establish a specific address that a borrower must use to submit an Information Request. If a servicer chooses to do so, it must also provide written notices to borrowers in the same fashion as required for receipt of Notices of Error and must use the same address as used for receipt of Notices of Error. Other provisions relating to use of a specific notice address for Notices of Error are similarly applicable to Requests for Information.
D. Acknowledgement of Receipt
A servicer must provide a borrower a written acknowledgement of a written Information Request within five days of receipt.
E. Response to Information Request
The CFPB has established specific requirements for how a servicer must respond to an Information Request.
1. Generally
A servicer must respond to an Information Request by either (1) providing the borrower with the requested information and contact information for further assistance in writing or (2) conducting a reasonable search for the requested information and providing the borrower with written notification stating that the servicer has determined that the requested information is not available, provides a basis for the servicer’s determination, and provides contact information, including a telephone number, for further assistance.
a. “Unavailable”. Information is unavailable if it (1) is not in the servicer’s control or possession or (2) cannot be retrieved in the ordinary course of business through reasonable efforts.
2. Timing
Generally, servicers must respond to Information Requests within 30 days of receipt, with one exception.
a. Shortened Time Limit to Provide Information Regarding the Identity of the Owner or Assignee. A servicer must respond to such Information Requests within 10 days of receipt.
b. Extension. A servicer may extend the time for responding to an Information Request by 15 days if, before the end of the 30-day period, the servicer notifies the borrower of the extension and the reasons for the delay in responding. The extension allowance does not apply to Information Requests regarding the identity of the owner or assignee.
F. Alternative Compliance
A servicer is not required to comply with the Information Request procedural requirements if the servicer provides the information requested by a borrower as well as contact information, including a telephone number for further assistance, within five days of receiving the request.
G. Requirements Not Applicable
In general, any information requested by a borrower regarding the borrower’s mortgage loan is subject to the Information Request requirements, unless the request is subject to one of the following exceptions:
1. Duplicative Information
The requested information is substantially the same information previously requested by the borrower and the servicer has previously responded to such request.
a. Substantially the Same. A borrower’s request for a type of information that can change over time is not substantially the same as a previous Information Request for the same type of information if the subsequent request covers a different time period.
The commentary provides the following examples: information regarding management or profitability of a servicer, including information provided to investors in the servicer; compensation, bonuses, or personnel actions; records of examination reports, compliance audits, borrower complaints, and internal investigations or external investigations; information protected by the attorney-client privilege.
3. Irrelevant Information
The information requested is not directly related to the borrower’s mortgage loan account. The commentary provides the following examples: information relating to the servicing of mortgage loans other than a borrower’s loan, including information reported to the owner of a mortgage loan regarding individual or aggregate collections for mortgage loans owned by that entity; the servicer’s training program for servicing personnel; the servicer’s servicing program guide; or investor instructions or requirements for servicers regarding criteria for negotiating or approving any program with a borrower, including any loss mitigation option.
4. Overbroad or Unduly Burdensome Information Request
a. “Overbroad.” The Information Request asks a servicer to provide an unreasonable volume of documents or information to a borrower.
b. “Unduly Burdensome.” A diligent servicer could not respond to the Information Request without either exceeding the maximum timeframe for responding or incurring costs or dedicating resources that would be unreasonable in light of the circumstances.
c. Identification of Valid Request. If a servicer can identify a proper Information Request from a request that is otherwise overbroad or unduly burdensome, a servicer would be required to respond to those Information Requests it could identify.
d. Examples. The commentary provides the following examples of overbroad or unduly burdensome requests: requests seeking documents relating to substantially all aspects of mortgage origination, servicing, sale or securitization, and foreclosure, including requests for all mortgage loan file documents, recorded mortgage instruments, servicing information and documents, and sale or securitization information and documents; requests that are not reasonably understandable or are included with voluminous tangential discussion or assertions of errors; requests that purport to require servicers to provide information in specific formats when such information is not ordinarily stored in such format; and requests for information that are not reasonably likely to assist a borrower with the borrower’s account (e.g., copies of the front and back of all physical payment instruments that show payments made by the borrower to the servicer and payments made by a servicer to an owner or assignee of a mortgage loan).
5. Untimely Information Request
An Information Request is untimely if the servicer receives the request more than one year after either (1) servicing for the loan was transferred from the servicer to a transferee servicer or (2) the loan was paid in full.
H. Notice to Borrower
If a servicer determines it is not required to comply with the Information Request requirements because the request meets one of the criteria in Section X.G, above, the servicer must notify the borrower within five days of this determination.
I. Payment Requirement Limitations
Servicers may not charge a fee, or require a borrower to make a payment as a condition of responding to an Information Request. However, servicers may charge a fee for providing a beneficiary notice under applicable state law, if such a fee is not prohibited by applicable law.
J. Servicer Remedies
The existence of an outstanding Information Request does not prohibit a servicer from furnishing adverse information to a consumer reporting agency or from pursuing any remedies, including initiating or proceeding with a foreclosure sale.
K. Fair Debt Collection Practices Act Implications
CFPB Bulletin 2013-12 concludes that servicers that are debt collectors are not liable under the Fair Debt Collection Practices Act if they comply with the Information Request provisions of the Servicing Rules, notwithstanding a “cease communication” instruction sent by the borrower.
XI. FORCE-PLACED INSURANCE
The CFPB limits the circumstances under which a servicer may charge a borrower for force-placed insurance. These limits include:
In general there is no small servicer exception from the force-placed insurance provisions.
B. Definition
“Force-placed” insurance means hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan on a property securing such loan.
1. Exclusions
The following do not constitute force-placed insurance:
a. Hazard insurance required by the Flood Disaster Protection Act of 1973.
b. Hazard insurance obtained by a borrower but renewed by the borrower’s servicer.
c. Hazard insurance obtained by a borrower but renewed by the borrower’s servicer at its discretion, if the borrower agrees.
C. Reasonable Basis Required
A servicer must have a reasonable basis to believe that the borrower has failed to comply with the loan contract’s requirement to maintain property insurance before charging a borrower a premium charge or fee relating to force-placed insurance. Information from a borrower, the borrower’s insurance provider, or the borrower’s insurance agent may provide a servicer with a reasonable basis to believe that the borrower has complied or failed to comply with the requirement to maintain hazard insurance. If the servicer receives no such information, the servicer may satisfy the reasonable basis standard if the servicer acts with reasonable diligence to ascertain a borrower’s hazard insurance status and does not receive from the borrower, or otherwise have evidence of insurance coverage. A servicer who complies with the notification requirements described in Section XI. D, below has acted with reasonable diligence.
D. Other Requirements for Charging Borrower for Force-Placed Insurance
In addition to requiring a “reasonable basis,” the CFPB establishes three additional requirements for charging for force-placed insurance.
1. 45-day Notice
A servicer must provide a borrower with a written notice containing specific disclosure information established by the CFPB. CFPB also prescribes disclosure formatting requirements (See Form MS-3A in Appendix MS-3 of Regulation X). Such disclosures must be provided at least 45 days before the premium charge or any fee is assessed.
2. Reminder Notice
Servicers must provide borrowers with a reminder notice at least 15 days before charging a fee related to force-placed insurance. This notice must be provided at least 30 days after the 45-day notice. The content of the disclosure information will vary depending on whether (1) the servicer receives no insurance information from the borrower or (2) the servicer received information but did not receive verification of continuous coverage. CFPB also establishes specific formatting requirements for the notice. (See Forms MS-3B and MS-3C in Appendix MS-3 of Regulation X)
3. No Evidence of Continuous Coverage
The third requirement for charging for force placed insurance coverage is that the servicer does not receive evidence demonstrating that the borrower has had continuous hazard insurance in place that complies with the loan contract. If a premium payment is made within the grace period and the insurance company accepts the payment with no lapse in insurance coverage, then the borrower’s hazard insurance is deemed to have had hazard insurance coverage continuously for purposes of this regulation.
a. Evidence Demonstrating Insurance. A servicer may require a copy of the borrower’s hazard insurance policy declaration page, the borrower’s insurance certificate, the insurance policy or other similar forms of written confirmation as evidence of continuous hazard insurance coverage. A servicer may reject evidence of hazard insurance coverage information if (1) neither the borrower’s insurance provider nor insurance agent confirms the information submitted by the borrower, or (2) if the terms and conditions of the borrower’s hazard insurance policy do not comply with the borrower’s loan contract requirements.
E. Assessing a Premium or Fee – Retroactive Charges
A servicer may charge a borrower for force-placed insurance the servicer purchased, retroactive to the first day of any period of time in which the borrower did not have hazard insurance in place, if not prohibited by state or other applicable law.
F. Renewing or Replacing Force-Placed Insurance
A servicer must send the borrower a renewal notice at least 45 days before charging a borrower a fee for renewing or replacing force-placed insurance. A servicer is not required to provide this notice more than once a year. CFPB specifies the content and format of the renewal notice (See Form MS-3D in Appendix MS-3 of Regulation X). If not prohibited by State or other applicable law, if a servicer has renewed or replaced existing force-placed insurance and receives evidence demonstrating that the borrower lacked insurance coverage for some period of time following the expiration of the existing force-placed insurance, the servicer may promptly assess a premium charge or fee related to renewing or replacing existing force-placed insurance for that period of time.
G. First Class Mail Required
Servicers must send the required notices regarding force placed insurance by at least first-class mail.
H. Cancellation
Within 15 days of receiving verification that the borrower has hazard insurance in place, a servicer must (1) cancel the force-placed insurance and (2) refund to the borrower all force-placed insurance premium charges and related fees for any period of overlapping insurance coverage.
I. Bona Fide and Reasonable
Charges related to force-placed insurance must be bona fide and reasonable. A bona fide and reasonable charge is a charge for a service actually performed that bears a reasonable relationship to the servicer’s cost of providing the service, and is not otherwise prohibited by applicable law.
J. Relationship to Flood Disaster Protection Act of 1973
A servicer may place force-placed insurance notices and certain flood insurance notices on separate pieces of paper contained in the same transmittal (if permitted by applicable flood insurance regulations).
CFPB Bulletin 2013-12 concludes that servicersthat are debt collectors are not liable under the Fair Debt Collection Practices Act if they comply with the Force-Placed provisions of the Servicing Rules, notwithstanding a “cease communication” instruction sent by the borrower.
L. Model Forms
Appendix MS-3 of Regulation X contains four model forms relating to force placed insurance.
XII. GENERAL SERVICING POLICIES, PROCEDURES, AND REQUIREMENTS
A. Overview
The new servicing regulations require that a servicer establish policies and procedures that are reasonably designed to maintain and manage information and documents relating to a borrower’s mortgage loan. The CFPB has established a very specific and highly detailed framework for such policies and procedures. Small servicers are exempt from the requirements of this section.
B. Required Content
A servicer’s policies and procedures must address the following objectives:
1. Accessing and Providing Accurate Information
Policies and procedures must be reasonably designed to ensure that the servicer can: (1) provide accurate and timely disclosures to borrowers; (2) investigate, respond to and, as appropriate, make corrections in response to borrower complaints; (3) provide borrower with requested information; (4) provide owners or assignees of mortgage loans with accurate and current information and documents about all mortgage loans they own; (5) submit documents or filings required for a foreclosure process that reflect accurate and current information and comply with applicable law; and (6) upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.
a. Errors Committed by Service Providers. Policies and procedures must provide for promptly obtaining information from service providers to facilitate achieving the objective of correcting errors resulting from actions of service providers.
b. Loan Modifications. Providing relevant current information to owners or assignees of a mortgage loan includes providing information about a servicer’s evaluation of a borrower’s loss mitigation options and a servicer’s agreements with borrowers on loss mitigation options.
c. Oral and Written Complaints. The preamble to the final rule states CFPB’s expectation that servicers will have policies and procedures for responding to oral and written complaints, even though the Error Resolution Requirements apply only to written assertions of error.
2. Policies and Procedures Regarding Successors in Interest to the Property of a Deceased Borrower
The following are examples of servicer practices the CFPB would consider to be components of policies and procedures that are reasonably designed to achieve the objectives of the successor in interest provision:
a. Promptly providing to any party claiming to be a successor in interest a list of all documents or other evidence the servicer requires, which should be reasonable in light of the laws of the relevant jurisdiction, for the party to establish (1) the death of the borrower and (2) the identity and legal interest of the successor in interest. Such documents might include, for example, a death certificate, an executed will, or a court order determining a succession to real property.
b. Upon notification of the death of a borrower, promptly identifying and evaluating any issues that the servicer must consider in reviewing the rights and obligations of successors in interest with respect to the property and mortgage loan, including, for example:
c. Promptly providing successors in interest with information about the above issues, including any servicer prerequisites for the successor in interest to: continue payment on the mortgage loan, assume the mortgage loan, and, where appropriate, qualify for available loss mitigation options.
d. Promptly providing successors in interest with any documents, forms, or other materials the servicer requires for the successor in interest to continue making payments and to apply and be evaluated for an assumption and, where appropriate, loss mitigation options.
e. Upon receipt from the successor in interest of required documents, forms or other materials, promptly evaluating the successor in interest for and, where appropriate, implementing options set forth above.
f. Providing employees with information and training regarding the effect of laws and investor and other requirements on the servicer’s obligations following the death of a borrower, and complying with those laws and requirements, including:
In addition to the above, servicers should consider whether best practices with regard to their policies and procedures regarding successors in interest would include the following:
a. Upon notification of the death of a borrower, promptly evaluating whether to postpone or withdraw any pending or planned foreclosure proceeding to provide a successor in interest with reasonable time to establish ownership rights and pursue assumption and, if applicable, loss mitigation options.
b. Promptly providing a successor in interest with information about the possible consequences of assuming the mortgage loan, such as any costs and the fact that a later loss mitigation option is not guaranteed if the successor in interest assumes the loan without a loss mitigation option already in place or arranged to commence simultaneous with the assumption.
3. Evaluating Loss Mitigation Options
Policies and procedures must be reasonably designed to ensure that the servicer can: (1) provide accurate information to borrowers regarding loss mitigation options; (2) identify with specificity all loss mitigation options for which a borrower may be eligible; (3) provide servicer personnel with prompt access to all documents and information submitted by a borrower; (4) identify documents and information that a borrower is required to submit to make a loss mitigation application complete; and (5) properly evaluate a borrower’s loss mitigation application for all loss mitigation options for which the borrower may be eligible.
a. Identifying All Available Loss Mitigation Options. Policies and procedures must address how a servicer specifically identifies, with respect to each owner or assignee, all of the loss mitigation options that the servicer may consider and the criteria that the servicer should apply when evaluating a borrower for such options.
b. Thresholds. A servicer’s policies and procedures must address how the servicer will apply any specific thresholds for eligibility for a particular loss mitigation option. For example, if the owner or assignee requires that a servicer only make a particular loss mitigation option available to a certain percentage of loans that the servicer services for that owner or assignee, then the servicer’s policies and procedures must be reasonably designed to determine in advance how the servicer will apply that threshold to those mortgage loans.
c. Owner or Assignee Requirements. A servicer must have policies and procedures reasonably designed to implement owner or assignee requirements, even if such loss mitigation requirements or evaluations are not required by the CFPB’s Loss Mitigation Requirements described in Section XV.
4. Facilitating Oversight of and Compliance by Service Providers
Policies and procedures must be reasonably designed to ensure that the servicer can: (1) provide servicer personnel with access to documents and information reflecting actions performed by service providers; (2) facilitate periodic reviews of service providers (including by providing appropriate servicer personnel with documents and information necessary to audit compliance by service providers with the servicer’s contractual obligations and applicable law); and (3) facilitate the sharing of information among appropriate servicer personnel and appropriate service provider personnel regarding the status of an evaluation of a borrower’s completed loss mitigation application and any foreclosure proceeding.
5. Facilitating Transfer of Information During Servicing Transfers
Policies and procedures must be reasonably designed to ensure that the servicer can: (1) as transferor servicer, timely transfer all information and documents in its possession or control relating to a transferred mortgage to the transferee servicer in a form and manner that ensures the accuracy of the information and documents transferred and that enables a transferee servicer to comply with the terms of its obligations; and (2) as transferee servicer, identify necessary documents or information that may not have been transferred and obtain such documents from the transferor.
a. Transferor/Transferee. For purposes of this requirement, the transferor and the transferee include master servicers and subservicers.
b. Electronic Document Transfers. A transferor’s policies and procedures may provide for transferring documents and information electronically. A transferor must have policies and procedures reasonably designed to ensure that data can be properly and promptly boarded by a transferee servicer’s electronic systems and that all necessary documents are available to, and can be appropriately identified by, a transferee servicer.
c. Loss Mitigation Documents. A transferor servicer’s policies and procedures must be reasonably designed to ensure that the transfer includes any information reflecting the current status of discussions with a borrower regarding loss mitigation options, any agreements entered into with a borrower on a loss mitigation option, and any analysis by a servicer with respect to potential recovery from a non-performing mortgage loan, as appropriate.
d. Missing Loss Mitigation Documents. A transferee servicer must have policies and procedures reasonably designed to ensure that it receives information regarding any loss mitigation discussions with a borrower, including any copies of loss mitigation agreements. The transferee servicer’s policies and procedures must also address obtaining any such missing information or documents from a transferor servicer before attempting to obtain such information from a borrower.
6. Informing Borrowers of the Written Error Resolution and Information Request Procedures
Policies and procedures must be reasonably designed to ensure that the servicer informs borrowers of the procedures for submitting Notices of Error and Information Requests (See Sections IX. and X. of this outline).
a. Manner of Informing Borrowers. A servicer may comply with this requirement by informing borrowers through a notice or a website. For example, a servicer may include in the periodic statement a brief statement informing borrowers that borrowers have certain rights under Federal law related to resolving errors and requesting information about their account, and that they may learn more about their rights by contacting the servicer, and a statement directing borrowers to a website that provides a description of the Error Resolution and Information Request procedures.
b. Oral Complaints and Requests. A servicer’s policies and procedures must be reasonably designed to provide information to borrowers who are not satisfied with the resolution of a complaint or request for information submitted orally. This information must describe the procedures for submitting Notices of Error and Information Requests.
c. Different Addresses for Different Purposes. Servicers may provide delinquent borrowers with different addresses for different purposes. For example, a servicer may provide a delinquent borrower with one designated address for asserting errors and a separate address for submission of loss mitigation applications.
d. Notices of Error Incorrectly Sent to Addresses Associated with Submission of Loss Mitigation Applications or the Continuity of Contact. A servicer’s policies and procedures must be reasonably designed to ensure that if a borrower incorrectly submits a Notice of Error to any address given to the borrower in connection with submission of a Loss Mitigation Application or the Continuity of Contact, the servicer will inform the borrower of the procedures for submitting written Notices of Error, including the correct address. Alternatively, the servicer could redirect such notices to the correct address.
C. Other Standard Requirements
In addition to the objectives above,the rule includes two additional requirements that servicers must include in policies and procedures:
1. Record Retention
Servicers must document and retain information regarding actions taken with respect to a borrower’s mortgage loan until one year after the loan is paid in full or servicing is transferred to a transferee servicer.
2. Servicing File
Servicers must maintain the following documents and data on each mortgage loan account in a manner that facilitates compiling such documents and data into a servicing file within five days: a schedule of all transactions credited or debited to the account, including escrow and suspense accounts; a copy of the security instrument that establishes the lien securing the loan; any notes created by servicer personnel reflecting communications with the borrower; to the extent applicable, a report of any data fields relating to a borrower’s mortgage loan account created by the servicer’s electronic systems in connection with servicing practices; and copies of any information or documents that the borrower provided to the servicer in accordance with Error Resolution and Loss Mitigation procedures.
a. Compliance With Five Day Requirement. A servicer is not required to comply with the servicing file requirement with respect to information created prior to January 10, 2014. For example, if a mortgage loan was originated on January 1, 2013, a servicer is not required to maintain information regarding transactions credited or debited to that mortgage loan account in any particular manner for payments made prior to January 10, 2014. However, for payments made on or after January 10, 2014, a servicer must maintain such information in a manner that facilitates compiling such information into a servicing file within five days.
b. Borrower Requests for Servicing File. Upon receipt of a borrower’s request for a servicing file, a servicer shall provide the borrower with a copy of the information contained in the servicing file for the borrower’s mortgage loan, subject to the procedures and limitations that the CFPB established for Information Requests.
D. Policies and Procedures: Servicer Discretion
A servicer may determine the specificpolicies and procedures it will adopt and the methods by which it will implement them so long as they are reasonably designed to achieve the objectives established by the CFPB. Policies and procedures may be tailored to the scope of the servicer’s operations, such as the volume and aggregate unpaid principal balance of mortgage loans serviced, the credit quality (including the default risk) of loans serviced, and the servicer’s history of consumer complaints.
XIII. EARLY INTERVENTION REQUIREMENTS FOR CERTAIN BORROWERS
A. Live Contact
A servicer must establish or make a good faith effort to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency. Promptly after establishing live contact, the servicer must inform the borrower about the availability of loss mitigation options, if appropriate.
1. Scope
Early intervention applies only to mortgage loans that are secured by a borrower’s principal residence.
2. What Constitutes Live Contact
Live contact includes telephoning or conducting an in-person meeting with a borrower, but not leaving a recorded phone message. A servicer may, but need not, rely on live contact established at the borrower’s initiative to satisfy the live contact requirement.
3. Good Faith Efforts
Good faith efforts to establish live contact consist of reasonable steps under the circumstances to reach a borrower and may include telephoning the borrower on more than one occasion or sending written or electronic communication encouraging the borrower to establish live contact with the servicer.
For delinquencies that begin on or after January 10, 2014, the CFPB would consider the following communication reasonable steps under the circumstances to establish live contact:
a. Borrower working with servicer to obtain loss mitigation. The live contact requirement is satisfied with regard to cases in which a borrower is delinquent in consecutive billing cycles if the servicer has established and is maintaining ongoing contact with the borrower with regard to the borrower’s completion of a loss mitigation application and the servicer’s evaluation of that borrower for loss mitigation options.
b. Borrower stops paying under a loss mitigation plan or becomes delinquent after curing a prior default. As specified in the commentary to the final rule, a borrower is not delinquent under the rule if “performing as agreed under a loss mitigation option designed to bring the borrower current on a previously missed payment . . . .” This includes forbearance plans and trial modifications. However, if the borrower fails to make a loss mitigation payment, a new delinquency begins and the servicer has an obligation to make good faith efforts to contact the borrower within 36 days of the start of the delinquency- and for each of any subsequent billing periods for which the borrower’s obligation is due and unpaid. Similarly, if a borrower successfully cures a prior default but becomes delinquent again, the servicer has an obligation to make good faith efforts to contact the borrower within 36 days for each of the subsequent billing periods for which the borrower’s obligation is due and unpaid.
c. Communication in conjunction with other contact. A servicer may, but need not, rely on live contact established at the borrower’s initiative to satisfy the live contact requirement. Servicers may also combine contacts made pursuant to the Early Intervention Rule with contacts made with borrowers for other reasons, for instance by adding a brief script to collection calls to inform consumers that loss mitigation options may be available in accordance with the rule.
d. Unresponsive borrower. The CFPB believes that a borrower’s failure to respond to a servicer’s repeated attempts at communication pursuant to the Early Intervention Rule is a relevant circumstance to consider. For example, “good faith efforts” to establish live contact with regard to delinquencies occurring after six or more consecutive delinquencies might require no more than making a single telephone call or including a sentence requesting the borrower to contact the servicer with regard to the delinquencies in the periodic statement or in an electronic communication. Such efforts might be appropriate where there is little or no hope of home retention, such as when all applicable loss mitigation possibilities have been exhausted (including a short sale or deed in lieu of foreclosure), as may occur in the later stages of foreclosure.
4. Delinquency
A borrower is considered to be considered delinquency as follows:
a. Generally. Delinquency begins on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee.
b. Loss Mitigation. A borrower who is performing as agreed under a loss mitigation option designed to bring a borrower current is not considered delinquent.
c. Servicing Transfer. During the 60-day period beginning on the effective date of the servicing transfer, a borrower is not delinquent (for purposes of the Early Intervention requirements) if the transferee servicer learns that the borrower has made a timely payment that has been misdirected to the transferor servicer and the transferee servicer documents its files accordingly.
d. Full Payment Before 36th Day. If a borrower satisfies a payment in full before the end of the 36-day period, the servicer need not establish live contact.
5. Servicer Discretion to Notify About Loss Mitigation Options
It is within a servicer’s reasonable discretion to determine whether informing a borrower about the availability of loss mitigation options is appropriate under the circumstances.
6. Borrower’s Representative
A servicer may meet the live contact requirement by establishing live contact with and providing information about loss mitigation options to the borrower’s representative. A servicer may undertake reasonable procedures to determine if that person is, in fact, an agent of the borrower.
B. Delinquency Notice
A servicer must provide a delinquent borrower a written notice not later than the 45thday of the borrower’s delinquency. CFPB specifies the minimum content that servicers must provide in the delinquency notice, including a brief description of examples of loss mitigation options that may be available from the servicer. A servicer may provide additional information that it deems helpful or that may be required by applicable law or the owner or assignee of the mortgage loan. The CFPB also provides model clauses that may be used to comply with this requirement.
1. Examples of Loss Mitigation Options
The loss mitigation options described in the Delinquency Notice are not required to be tailored to the borrower. A servicer may include a generic list of loss mitigation options that it offers to borrowers. The servicer may include a statement that not all borrowers will qualify for the listed options.
2. Relationship to “Live Contact” Requirement
A servicer must provide the written notice even if the servicer provided information about loss mitigation and foreclosure previously during an oral communication with the borrower as part of the requirement to establish or make a good faith effort to establish live contact.
3. Frequency
A servicer is not required to provide the written notice more than once during any 180-day period. However, the CFPB has issued an interim final rule intended to clarify how mortgage servicers can communicate with borrowers at risk of foreclosure. The interim final rule became effective on October 19, 2017.
Prior to adoption of the interim final rule, under the 2016 Mortgage Servicing Final Rule, the written notices (early intervention notices) were required to be sent by servicers to certain consumers at risk of foreclosure who requested a cease in communications under the Fair Debt Collection Practices Act (FDCPA). Although consumers have the right under the FDCPA to ask companies to stop contacting them (except for limited purposes), the Mortgage Servicing Final Rule also required mortgage servicers to send notices every 45 days to borrowers who become delinquent to inform them of the available foreclosure prevention options, but prohibits the notices from being sent more than once during any 180-day period.
Concerns were raised that the 180-day prohibition technically required mortgage servicers to provide the notice exactly on the 180th day after providing a prior notice, regardless of whether that date fell on a holiday or a weekend. As a result, the interim final rule gives servicers a 10-day window at the end of the 180-day period within which to provide the modified notice at the end of the 180-day period. For example, if a servicer provides a written early intervention notice to a borrower who has exercised his or her FDCPA cease communication rights on October 16, 2017, the servicer would be prohibited from providing another written early intervention notice for 180-days. After 180-days, the servicer would have a 10-day window – from April 14 to April 24, 2018 – in which to provide the borrower another written early intervention notice, to the extent still required based upon the borrower’s delinquency status.
4. Bankruptcy and the Fair Debt Collection Practices Act
Servicers are exempt from the Early Intervention Rules while a borrower is a debtor in bankruptcy or has invoked the cease communication provisions under the Fair Debt Collections Practices Act.
a. Bankruptcy – Exemption Begins. The exemption begins once a petition has been filed commencing a case under Title 11 of the U.S. Code in which the borrower is a debtor. The exemption applies when any of the borrowers who are joint obligors with primary liability on the mortgage loan is a debtor in bankruptcy.
b. Bankruptcy – Compliance Requirements Resume. With respect to any portion of the mortgage debt that is not discharged, a servicer must resume compliance with the Early Intervention requirements after the first delinquency that follows the earliest of any of three potential outcomes in the bankruptcy case: (1) the case is dismissed; (2) the case is closed; or (3) the borrower receives a discharge under 11 U.S.C. §§ 727, 1141, 1228, or 1328.
c. Bankruptcy – Discharged Debt. Compliance with the Early Intervention Requirements is not required for any portion of the mortgage debt that is discharged.
d. Fair Debt Collection Practices Act. Exempts a servicer that is a debt collector under the FDCPA from compliance with the Early Intervention requirements after a borrower has exercised his/her “cease communication” right.
XIV. CONTINUITY OF CONTACT
No later than the 45th day of the borrower’s delinquency, the servicer must assign personnel to respond to the borrower’s inquiries and assist the borrower with the loss mitigation process.
B. Policies and Procedures
Servicers must establish policies and procedures reasonably designed to achieve the following objectives:
1. Personnel
Assign personnel to a delinquent borrower by the time the servicer provides the borrower with a written notice but in any event, not later than the 45th day of the borrower’s delinquency.
2. Availability – Two Consecutive Payments
Make assigned personnel available to a delinquent borrower, via telephone, until the borrower has made, without incurring a late charge, two consecutive mortgage payments in accordance with the terms of a permanent loss mitigation agreement.
3. Timely Live Response
If a borrower contacts the personnel assigned to the borrower and does not immediately receive a live response from such personnel, policies and procedures must ensure that the servicer can provide a live response in a timely manner.
C. Functions of Servicer Personnel (Additional Policies and Procedures)
A servicer must maintain policies and procedures reasonably designed to ensure that personnel assigned to a delinquent borrower perform the following functions:
1. Provide the borrower with information about (1) loss mitigation options available to the borrower; (2) actions the borrower must take to be evaluated for such loss mitigation options, including actions the borrower must take to submit a complete loss mitigation application, and if applicable, actions the borrower must take to appeal the servicer’s determination to deny a borrower’s loss mitigation application for any trial or permanent loan modification program offered by the servicer; (3) the status of any loss mitigation application that the borrower has submitted to the servicer; (4) the circumstances under which the servicer may make a referral to foreclosure; and (5) applicable loss mitigation deadlines established by an owner or assignee of the borrower’s mortgage loan or the CFPB’s Loss Mitigation requirements, discussed in Section XV.
2. Retrieve in a timely manner (1) a complete record of the borrower’s payment history; and (2) all written information the borrower has provided to the servicer, and if applicable, to prior servicers, in connection with a loss mitigation application; (3) provide the documents and information the borrower has provided to other persons required to evaluate a borrower for loss mitigation options made available by the servicer (if applicable); and (4) provide a delinquent borrower with information about the procedures for submitting a Notice of Error or an Information Request.
D. Computing Delinquencies
1. Introduction
The Consumer Financial Protection Bureau (CFPB), as part of its Mortgage Servicing final rule, has defined the term “delinquency” for specified mortgage servicing provisions of Regulation X, including the early intervention and continuity of contact requirements, as well as the 120-day prohibition on making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process. The final rule also makes corresponding changes to specific mortgage servicing provisions of Regulation Z regarding delinquency-related disclosures on periodic statements for mortgage loans. The changes relating to delinquency in the final rule are effective October 19, 2017.
2. Definition – Delinquency
The final rule defines “delinquency” as a period of time during which a borrower and the borrower’s mortgage loan obligation are delinquent, and states that a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and (if applicable) escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid. The delinquency begins on the date the periodic payment becomes due and unpaid even if the servicer will not assess a late charge if the borrower makes the periodic payment within a certain time frame after the periodic payment is due.
Example: Borrower’s mortgage loan requires borrower to make periodic payments of principal, interest, and escrow by the first of each month. However, borrower will not incur a late fee if borrower makes the periodic payment by the 15th of the month. If borrower fails to make the January periodic payment, the period of delinquency for purposes of Regulation X’s specified mortgage servicing provisions and Regulation Z’s periodic statement provision begins on January 2, not January 16.
3. Payment Tolerances
The final rule does not require a servicer to treat a periodic payment as timely if the amount paid is not sufficient to cover principal, interest, and (if applicable) escrow. It does, however, address how a servicer calculates a delinquency for purposes of the specified mortgage servicing provisions if the servicer has a policy of treating such payments as timely. It provides that, in this circumstance, the period of delinquency does not begin and a borrower is not delinquent for purposes of the specified mortgage servicing provisions if the servicer treats as timely a payment that is insufficient to cover a periodic payment of principal, interest, and (if applicable) escrow for any given billing cycle. Additionally, a servicer cannot rescind or change its decision to treat the payment as timely for purposes of determining the date on which the borrower’s delinquency began, but may later collect the amounts included in a payment tolerance from the borrower.
Example: Borrower’s mortgage loan requires borrower to make periodic payments of principal, interest, and escrow in the amount of $1010 by the first of each month. On June 1, the borrower makes a payment in the amount of $1001. In accordance with its policy, servicer treats the payment of $1001 as timely payment of the periodic payment due on June 1. Assume borrower does not have any other periodic payments that are due and unpaid as of June 1. Borrower is not delinquent for purposes of Regulation X’s specified mortgage servicing provisions or Regulation Z’s periodic statement provision. However, servicer may require borrower to pay the $9.00 difference.
Although the Bureau understands that servicers generally treat payments as timely only if the difference between the full amount of the periodic payment and the amount the borrower actually pays is a small amount, the 2016 Mortgage Servicing Rule does not require that the difference be within any specific dollar range.
4. Breaches of Other Terms of the Mortgage Loan Obligation
The definition of delinquency does not address whether a borrower can be delinquent under the specified mortgage servicing provisions due to other breaches of the mortgage loan obligation, such as a failure to pay property taxes or maintain required insurance outside of escrow, committing waste or violations of law on the property, or failing to occupy the property when required by the mortgage loan. Although a breach other than the failure to meet the periodic payment obligation will not begin a period of delinquency under the specified mortgage servicing provisions, a servicer may be able to exercise its rights to accelerate payment for such a breach if permitted by the mortgage loan contract and other applicable law. The final rule does not prohibit a servicer from accelerating the mortgage loan in such circumstances. If a servicer properly accelerates a mortgage loan, the periodic payment used to calculate the period of delinquency is the total amount due after acceleration. However, if the borrower reinstates the mortgage loan or cures the arrearage following acceleration, the borrower is no longer delinquent and the delinquency period ends.
Example: Borrower’s mortgage loan requires that the property securing the loan must be maintained in a habitable condition, but borrower fails to meet this obligation. Assume borrower does not have any periodic payments that are due and unpaid. Also, assume the mortgage loan and applicable law permit the servicer to accelerate the amount due on the mortgage loan because of the failure to maintain the property in a habitable condition. Servicer accelerates the amount due in accordance with the mortgage loan and applicable law, and the full balance of the mortgage loan becomes due on June 1. Borrower fails to pay the full amount due or reinstate the loan. On June 2, borrower and borrower’s mortgage loan are one day delinquent for purposes of Regulation X’s specified mortgage servicing provisions and Regulation Z’s periodic statement provision.
5. “Rolling” Delinquencies
The CFPB understands that many servicers apply a borrower’s payment to the oldest outstanding periodic payment due on the mortgage loan. Although the 2016 Mortgage Servicing Rule does not require a servicer to apply payments in this manner, it does address how a servicer calculates the period of delinquency in those circumstances. If a servicer applies a borrower’s payment to the oldest outstanding periodic payment, the borrower’s payment advances the date that the borrower’s delinquency began, regardless of whether there is a period during which a periodic payment is due and unpaid.
Example: Borrower’s mortgage loan requires borrower to make periodic payments of principal, interest, and escrow by the first of each month. Borrower does not make the payment that is due on January 1. On January 31, borrower is 30 days delinquent. On February 3, borrower makes a periodic payment. The servicer applies payments to the oldest outstanding periodic payment (i.e., the periodic payment that was due on January 1). On February 4, borrower is 3 days delinquent for purposes of Regulation X’s specified mortgage servicing provisions and Regulation Z’s periodic statement provision.
6. Loan Modifications
For permanently modified mortgage loans, the periodic payment due is the periodic payment amount that the modified loan contract requires, not the periodic payment amount that the pre-modified loan contract required. If the borrower has made the periodic payment that is due under the permanently modified loan contract, no periodic payment is due and unpaid. Because a delinquency only exists until no periodic payment is due and unpaid, a borrower performing on a permanent loan modification is not delinquent. In contrast, a temporary loss mitigation program does not modify the existing loan contract. A borrower may continue to accumulate a delinquency according to the loan contract during the duration of the temporary loss mitigation program.
7. Prohibition on Foreclosure Referrals
The final rule prohibits a servicer, including a small servicer, from making the first notice or filing required under applicable law for any judicial or non-judicial foreclosure process unless: (1) the mortgage loan is more than 120 days delinquent; (2) the foreclosure is based on a borrower’s violation of a due-on-sale clause; or (3) the servicer is joining the foreclosure of a superior or subordinate lienholder. The final rule requires servicers to apply the new definition of delinquency when determining if the mortgage loan is more than 120 days delinquent.
Example: Borrower’s mortgage loan requires borrower to make periodic payments of principal, interest, and escrow in the amount of $1500 by the first of each month. Borrower does not make the periodic payments that are due on January 1, February 1, or March 1. On April 1, borrower is 90 days delinquent. On April 29, borrower makes a payment in the amount of $1500. Assume servicer has a policy of applying payments to the oldest outstanding periodic payment and that borrower’s only failure to meet the terms of the mortgage loan obligation is the failure to make the January 1, February 1, and March 1 periodic payments. On April 30, borrower is 88 days delinquent, and servicer cannot make the first notice or filing required for any foreclosure process unless servicer is joining the foreclosure of a superior or subordinate lienholder.
8. Early Intervention Requirements
Generally, Regulation X requires servicers to comply with early intervention requirements. If a borrower has been delinquent for more than a set period of time, servicers must establish or make good faith efforts to establish live contact with and send a written notice to the borrower. When determining if a borrower is delinquent and calculating the length of the delinquency for the early intervention live contact and written notice requirements, a servicer must apply the final rule’s definition of delinquency.
Examples: Borrower’s mortgage loan has a monthly billing cycle. Periodic payments of principal, interest and escrow in the amount of $2000 are due on the first of each month. Borrower fails to make the payment that was due on March 1, and does not make any payments in March. Borrower also fails to make the payment that was due on April 1, but makes a payment of $2000 on April 2. Assume servicer has a policy of applying payments to oldest outstanding periodic payment. The payment received on April 2 is applied to the periodic payment that was due on March 1, and borrower is only 1 day delinquent. Servicer must establish or make good faith efforts to establish live contact if the borrower fails to make an additional payment of $2000 within 36 days of April 1, which would be on or before May 7. If servicer does not have a policy of applying payments to the oldest outstanding payment and instead applies the $2000 to the periodic payment that was due on April 1, servicer must establish or make good faith efforts to establish live contact on or before April 6.
9. Continuity of Contact
In general, servicers must have policies and procedures that are reasonably designed to assign personnel to a delinquent borrower not later than the 45th day of the borrower’s delinquency and to ensure that the assigned personnel can provide the delinquent borrower with accurate information about specified loss mitigation issues and can retrieve a complete record of the borrower’s payment history, among other things. Servicers may need to revise their policies and procedures to account for the revised definition of delinquency to ensure that they comply with the continuity of contact requirements.
10. Periodic Statements
In general, servicers must provide consumers with periodic statements that contain specific information about the consumer’s mortgage loan. When the consumer is more than 45 days delinquent, servicers must include in the periodic statement specific information about a consumer’s delinquency, including the date on which the consumer became delinquent. For fixed-rate loans, servicers may provide coupon books with specific information about the consumer’s mortgage loan instead of periodic statements. When the consumer is more than 45 days delinquent, servicers using coupon books must provide the consumer the required information about the consumer’s delinquency in a separate written notice.
The final rule revises the delinquency information that must be included on the periodic statement or in the written notice provided in addition to the coupon book, and it clarifies the method for calculating the length of the delinquency. Under the final rule, if the servicer is providing periodic statements, the periodic statement must include the length of the consumer’s delinquency (as of the date of the periodic statement) if the consumer is more than 45 days delinquent. If the servicer is providing coupon books, the delinquency information that the servicer provides in the written notice in addition to the coupon book if the consumer is more than 45 days delinquent must include the length of the consumer’s delinquency (as of the date of the written notice). In either case, the servicer must determine the length of the consumer’s delinquency as required in the final rule.
XV. LOSS MITIGATION PROCEDURES
A. Enforcement
Section 6(f) of RESPA (12 USC 2605(f)) provides borrowers with a private right of action to enforce the Loss Mitigation provisions of the rule.
B. Generally
The Servicing Rules establish very specific procedures and timeframes for servicers (other than small servicers) who choose to offer loss mitigation options to borrowers (the “Loss Mitigation Rules”). However, note that while small servicers are generally exempt from the Loss Mitigation Rules, they are not exempt from the rules governing the timing of foreclosure filings as discussed below. Importantly, the Servicing Rules do not mandate specific loss mitigation programs or outcomes, nor do they require creditors and servicers to offer loss mitigation options to troubled borrowers. A servicer has flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options. In addition, CFPB clarified that the Servicing Rules do not create a borrower right to enforce the terms of any agreement between a servicer and the owner or assignee of a mortgage loan, including the evaluation for, or offer of, any loss mitigation option. CFPB Bulletin 2013-12 concludes that servicers that are debt collectors are not liable under the Fair Debt Collection Practices Act if they comply with the Loss Mitigation provisions of the Servicing Rules, notwithstanding a “cease communication” instruction sent by the borrower.
C. Scope
The loss mitigation rules apply only to mortgage loans that are secured by a borrower’s principal residence.
D. Receipt of Loss Mitigation Application
The Loss Mitigation Rule establishes duties of servicers that receive a Loss Mitigation Application from a borrower.
1. Definition of Loss Mitigation Application
A Loss Mitigation Application is an oral or written request for a loss mitigation option that is accompanied by any information required by a servicer for evaluation for a loss mitigation option (a “Loss Mitigation Application”).
a. Information Requests Not an Application. If a borrower merely requests information about loss mitigation options or process without providing any information to evaluate no Loss Mitigation Application has been made under the Loss Mitigation Rules.
b. When an Inquiry or Prequalification Becomes and Application. A servicer is encouraged to provide borrowers with information about loss mitigation programs. If in giving information to the borrower, the borrower expresses an interest in applying for a loss mitigation option and provides information the servicer would evaluate in connection with a Loss Mitigation Application, the borrower’s inquiry or prequalification request has become a loss mitigation application. A Loss Mitigation Application is considered expansively and includes any “prequalification” for a loss mitigation option. For example, if a borrower requests that a servicer determine if the borrower is “prequalified” for a loss mitigation program by evaluating the borrower against preliminary criteria to determine eligibility for a loss mitigation option, the request constitutes a Loss Mitigation Application. The Commentary to the rule provides examples of inquiries that are not applications.
2. Prompt Review and Borrower Notice
If a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, the servicer must promptly review the application and notify the borrower in writing as to whether the application is complete. A servicer must provide this notice to a borrower within 5 days of receiving the application.
a. Complete Loss Mitigation Application. A complete loss mitigation application includes all the information that the servicer requires from a borrower to evaluate loss mitigation options that are available to the borrower. A servicer has the flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options.
b. Incomplete Loss Mitigation Application. If the Loss Mitigation Application is incomplete, the notice must specify the additional documents and information the borrower must submit as well as the date by which the borrower must submit such information.
(1) Reasonable Date. In establishing a “reasonable date,” a servicer should select the deadline that preserves the maximum borrower rights under the Loss Mitigation Rules, based on the remaining dates noted in the bullet points below, (except when doing so would be impracticable to permit the borrower sufficient time to obtain and submit the type of documentation needed). Generally, it would be impracticable for a borrower to obtain and submit documents in less than seven days. These dates for response are intended to match up to the time frames for evaluation of Loss Mitigation Applications set forth in the Loss Mitigation Rules, regarding Evaluation of Loss Mitigation Application and Borrower Response.
(2) Reasonable Diligence. Servicers must exercise reasonable diligence in obtaining documents and information to complete a Loss Mitigation Application. Servicers will want to document their efforts to demonstrate “reasonable diligence” through phone logs and written or electronic communications.
(3) Later Discovery of Additional Information Required to Evaluate Application. Even if a servicer has informed a borrower that a Loss Mitigation Application is complete (or notified the borrower of the specific information necessary to complete an incomplete Loss Mitigation Application). If the servicer subsequently determines that additional information or a corrected version of previously submitted document is required, the servicer must promptly request the additional information or corrected document from the borrower pursuant to the reasonable due diligence obligation (described above).
E. Evaluation of Loss Mitigation Application
1. Complete Loss Mitigation Application
If a servicer receives a complete Loss Mitigation Application more than 37 days before a foreclosure sale, then, within 30 days of receipt, a servicer must:
a. Evaluate the borrower for all loss mitigation options available to the borrower.
b. Provide the borrower with a notice in writing stating the servicer’s determination of which loss mitigation options (the “Determination Notice”), if any, it will offer to the borrower. This Determination Notice must specify the deadline for the borrower to accept or reject the servicer’s offer. Where applicable, the Determination Notice must specify the deadline and other requirements for the borrower to appeal the servicer’s denial of a loan modification option.
2. Incomplete Loss Mitigation Applications
a. Anti-Evasion Provision. With two key exceptions, servicers are generally prohibited from evading the requirement to evaluate a complete Loss Mitigation Application for all loss mitigation options available to the borrower by offering a loss mitigation option based on an evaluation of any information provided by a borrower in connection with an incomplete Loss Mitigation Application.
b. Exception: Reasonable Diligence & Significant Period of Time. If a servicer has exercised reasonable diligence in obtaining documents and information to complete a Loss Mitigation Application, but a Loss Mitigation Application remains incomplete for a significant period of time, a servicer may, evaluate an incomplete Loss Mitigation Application and offer the borrower a loss mitigation option.
F. Exception: Forbearance
A servicer may offer a short-term payment forbearance program to a borrower based upon an evaluation of an incomplete Loss Mitigation Application. A short term forbearance program allows the forbearance of payments due over periods of no more than six months. Such a program would be short-term regardless of the amount of time a servicer allows the borrower to make up the missing payments. The Loss Mitigation Rule does not preclude a servicer from offering multiple, successive short-term payment forbearance programs.
1. Other Servicer Obligations Still Apply
Even if a servicer offers payment forbearance, an incomplete Loss Mitigation Application is still subject to other obligations in the Loss Mitigation Rule, including the obligation to review the Loss Mitigation Application to determine if it is complete (and issue the Five-Day Notice) and the obligation to exercise reasonable diligence in obtaining documents and information to complete a Loss Mitigation Application. If a servicer offers a borrower a payment forbearance program based on an incomplete Loss Mitigation Application, the servicer must still comply with all of the requirements in the Loss Mitigation Rule if the borrower subsequently completes his or her Loss Mitigation Application.
2. Reasonable Diligence
If a servicer offers a borrower a payment forbearance program based on an incomplete Loss Mitigation Application and notifies the borrower that s/he has the option of completing the Loss Mitigation Application to receive a full evaluation of available loss mitigation options, the servicer could suspend reasonable diligence efforts until near the end of the payment forbearance program (assuming that the borrower does not request further assistance). Near the end of the program, and prior to the end of the forbearance period, it may be necessary for the servicer to contact the borrower to determine if the borrower wishes to complete the Loss Mitigation Application and proceed with a full loss mitigation evaluation.
3. Offer of Loss Mitigation Without a Loss Mitigation Application
The Loss Mitigation Rules permit a servicer to offer loss mitigation options to a borrower who has not submitted a Loss Mitigation Application. Similarly, a servicer may offer a loss mitigation option to a borrower who has submitted an incomplete Loss Mitigation Application where the loss mitigation offer is not based on any evaluation of information submitted by the borrower in connection with the Loss Mitigation Application. For example, if a servicer offers trial loan modification programs to all borrowers who become 150 days delinquent without an application or consideration of any information provided by a borrower in connection with a Loss Mitigation Application, the servicer’s offer of any such program does not violate the anti-evasion requirement, and a servicer is not required to comply with the Loss Mitigation Rules with respect to any such program, because the offer of the loss mitigation option is not based on an evaluation of a Loss Mitigation Application.
4. Facially Complete Application; Additional Information Required
If a borrower submits all the missing documents and information as stated in the Five-Day Notice or no additional information is required in the Five-Day Notice, the Loss Mitigation Application is considered facially complete. If the servicer later discovers additional information or corrections to a previously submitted document are required to complete the Loss Mitigation Application, the servicer must promptly request the missing information or corrected documents and provide the borrower with a reasonable timeframe to provide the missing materials before treating the Loss Mitigation Application as incomplete.
G. Denial of Loan Modification Options
If a borrower’s complete Loss Mitigation Application is denied for any trial or permanent loan modification option available to the borrower, a servicer must explain in writing (A “Denial Notice”) (1) the specific reason or reasons for the servicers determination or each such trial or permanent loan modification options; (2) any requirements for appealing this decision; and (3) the deadline for filing an appeal.
1. Investor Requirements
If a trial or permanent loan modification option is denied because of a requirement of an owner or assignee of a mortgage loan, the notice provided to the borrower must identify the owner or assignee of the mortgage loan and the requirement that is the basis of the denial. It is insufficient to simply state that the denial of a loan modification option is based on an investor requirement. However, where an owner or assignee has established an evaluation criteria that sets an order ranking for evaluation of loan modification options (commonly known as a waterfall) and a borrower has qualified for a particular loan modification option in the ranking established by the owner or assignee, it is sufficient for the servicer to inform the borrower, with respect to other loan modification options ranked below any such option offered to a borrower, that the investor’s requirements include the use of such a ranking and that an offer of a loan modification option necessarily results in a denial for any other loan modification options below the option for which the borrower is eligible in the ranking.
2. Net Present Value Calculation
If a trial or permanent loan modification is denied because of a net present value calculation, the specific reasons in the notice provided to the borrower must include the inputs used in the net present value calculation.
3. Combination With Other Notices
A servicer may combine other notices required by applicable law, including, without limitation, a notice with respect to an adverse action required by Regulation B or a notice required pursuant to the Fair Credit Reporting Act, with the loan modification denial notice, unless otherwise prohibited by applicable law.
4. Denials With Multiple Loss Mitigation Options
A servicer’s determination not to offer a borrower a loan modification available to the borrower constitutes a denial of the borrower for that loan modification option, notwithstanding whether a servicer offers a borrower a different loan modification option or other loss mitigation option. However, if a servicer’s systems establish a hierarchy of eligibility criteria and the first criterion causes a denial, a servicer complies with the Loss Mitigation Rules by providing only the reason or reasons with respect to which the borrower was actually evaluated and rejected (as long as the servicer does not also evaluate the borrower based on additional criteria). The servicer must also include a statement in the Denial Notice that the servicer did not evaluate the borrower on any additional criteria (which do not need to be listed) if such criteria were not actually considered.
H. Borrower Response
1. May Require Acceptance or Rejection
For complete loss mitigation applications received 90 days or more before a foreclosure sale, a servicer may require that a borrower accept or reject a loss mitigation offer no earlier than 14 days after the servicer makes the offer. If a loss mitigation application is received less than 90 days before a foreclosure sale, but more than 37 days before a foreclosure sale, a servicer may require that a borrower accept or reject a loss mitigation offer no earlier than seven days after the servicer makes the offer. The Loss Mitigation Rules establishes certain exceptions for trial loan modifications and loss mitigation offers that have been appealed.
2. Rejection
A servicer may deem a borrower to have rejected a loss mitigation offer if the borrower if the borrower does not accept the offer within the deadlines described above. The Loss Mitigation Rules establishes certain exceptions for trial loan modifications and loss mitigation offers that have been appealed.
3. Borrower Makes Payments
If a borrower does not satisfy the servicer’s requirements for accepting a trial loan modification plan, but begins to make payments in accordance with the loss mitigation offer within the applicable deadline, the servicer must give the borrower a reasonable period of time to complete the documentation necessary to accept the offer of a trial loan modification plan.
I. Prohibition on Foreclosure Referral/No Dual Tracking
1. Pre-foreclosure: Timing of Filing
A servicer may not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:
a. A borrower’s mortgage loan obligation is more than 120 days delinquent (the “Pre-Foreclosure Review Period”);
b. The foreclosure is based on a borrower’s violation of a due-on-sale clause; or
c. The servicer is joining the foreclosure action of a subordinate lienholder.
2. “First Notice or Filing”
Whether a document is considered the first notice or filing is determined on the basis of foreclosure procedure under applicable state law.
a. Judicial States. Where foreclosure procedure requires a court action or proceeding, a document is considered the first notice or filing if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding (e.g., complaint, petition, order to docket, or notice of hearing).
b. Non-Judicial States #1. Where foreclosure does not require an action or court proceeding (such as under a power of sale) a document is considered the first notice or filing if it is the earliest document required to be recorded or published to initiate the foreclosure process.
c. Non-Judicial States #2. Where foreclosure does not require any court filing or proceeding, and also does not require any document to be recorded or published, a document is considered the first notice or filing if it is the earliest document that establishes, sets, or schedules a date for the foreclosure sale.
d. Documents Provided to Borrower. A document or notice provided to the borrower, such as a default notice, but not initially required to be filed, recorded or published is not considered the first notice or filing on the sole basis that the document must later be included as an attachment accompanying another document that is required to be filed, recorded, or published to carry out a foreclosure. Examples also include state mandated notices regarding pre-foreclosure assistance, counseling, mediation or similar loss mitigation options and servicer initiated breach letters and notices of rights to cure (as long as all of the foregoing are not filed or recorded until after the Pre-Foreclosure Review Period has expired).
3. Application Received Before Foreclosure Referral
Except foreclosures arising out of a borrower’s violation of a due-on-sale clause, or the servicer joining the foreclosure action of a subordinate lienholder, if a borrower submits a complete loss mitigation application during the 120-day pre-foreclosure review period or before a servicer has made the first foreclosure notice or filing required by applicable law, a servicer is prohibited from making the first notice or filing required by applicable law unless:
a. The servicer has notified the borrower that the borrower is not eligible for any loss mitigation option and the appeal process is not applicable, the borrower has not requested an appeal within the applicable time period, or the borrower’s appeal has been denied;
b. The borrower rejects all loss mitigation options offered by the servicer; or
c. The borrower fails to perform under a loss mitigation agreement.
J. Prohibition on Foreclosure Sale
If a borrower submits a complete Loss Mitigation Application after a servicer has made the first notice or filing required by applicable law but more than 37 days before a foreclosure sale, a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, unless: (1) the servicer has notified the borrower that the borrower is not eligible for any loss mitigation option and the appeal process is not applicable, the borrower has not requested an appeal within the applicable time period, or the borrower’s appeal has been denied; (2) the borrower rejects all loss mitigation options offered by the servicer; or (3) the borrower fails to perform under a loss mitigation agreement.
1. Dispositive Motion
The prohibition on moving for a judgment or order of sale includes making a dispositive motion for foreclosure judgment, such as a motion for default judgment, judgment on the pleadings, or summary judgment, which may directly result in a judgment of foreclosure or order of sale. A servicer that has made any such motion before receiving a complete loss mitigation application has not moved for a foreclosure judgment or order of sale if the servicer takes reasonable steps to avoid a ruling on such motion or issuance of such order prior to completing the Loss Mitigation procedures, notwithstanding whether any such action successfully avoids a ruling on a dispositive motion or issuance of an order of sale.
2. Proceeding with Foreclosure Process
Servicers are not prohibited from proceeding with the foreclosure process, including any publication, arbitration, or mediation requirements established by applicable law, when the first notice or filing for a foreclosure proceeding occurred before a servicer receives a complete loss mitigation application, so long as any such steps in the foreclosure process do not cause or indirectly result in the issuance of a foreclosure judgment or order of sale, or the conduct of a foreclosure sale in violation of the Loss Mitigation requirements.
3. Interaction with Foreclosure Counsel
Servicers are responsible for promptly instructing foreclosure counsel retained by the servicer not to proceed with filing for foreclosure judgment or order of sale, or to conduct a foreclosure sale when a servicer has received a complete loss mitigation application. This may include instructing counsel to move for a continuance with respect to the deadline for filing a dispositive motion.
4. Loss Mitigation Applications Received 37 Days or Less Before Foreclosure Sale
Servicers are not required to comply with the Loss Mitigation requirements with respect to a loss mitigation application submitted 37 days or less before a foreclosure sale. However, the Servicing Rules’ policies and procedures provisions require that servicers properly evaluate a borrower who submits a Loss Mitigation Application for all loss mitigation options available to the borrower based on any requirements established by the owner or assignee of the mortgage loan. Such evaluation may be subject to requirements applicable to a review of a loss mitigation application submitted by a borrower 37 days or less before a foreclosure sale.
5. Short Sales
A borrower is deemed to be performing under an agreement on a short sale, or other similar loss mitigation option, during the term of a marketing or listing period. If a borrower has not obtained an approved short sale transaction at the end of any marketing or listing period, a servicer may determine that a borrower has failed to perform under a loss mitigation agreement. An approved short sale transaction is a short sale transaction that has been approved by all relevant parties, including the servicer, other affected lienholders, or insurers, if applicable, and the servicer has received proof of funds or financing, unless circumstances otherwise indicate that an approved short sale transaction is not likely to occur.
If a borrower submits a complete loss mitigation application after a servicer has made the first notice or filing required by applicable law but more than 37 days before a foreclosure sale, a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, unless:
K. Appeal Process
1. Appeal Process Required for Loan Modification Denials
If a servicer receives a complete loss mitigation application 90 days or more before a foreclosure sale or during the pre-foreclosure review period, a servicer must permit a borrower to appeal the servicer’s determination to deny a borrower’s loss mitigation application for any trial or permanent loan modification program available to the borrower.
2. Deadlines
A servicer must permit a borrower to make an appeal within 14 days after the servicer provides the offer of a loss mitigation option to the borrower.
3. Independent Evaluation
An appeal must be reviewed by different personnel than those responsible for evaluating the borrower’s complete loss mitigation application. However, the appeal may be evaluated by supervisory personnel that are responsible for oversight of the personnel that conducted the initial evaluation, as long as the supervisory personnel were not directly involved in the initial evaluation of the borrower’s complete loss mitigation application.
4. Appeal Determination
Within 30 days of a borrower making an appeal, the servicer must notify the borrower of the results of the appeal and, if applicable, how long the borrower has to accept or reject an offer or a prior offer of a loss mitigation option. A services may require that a borrower accept or reject an offer of a loss mitigation option after an appeal no earlier than 14 days after the servicer provides the notice to a borrower.
L. Duplicative Requests
A servicer is only required to comply with the Loss Mitigation requirements for a single complete Loss Mitigation Application for a borrower’s mortgage loan account.
1. Servicing Transfers
A transferee servicer is required to comply with the Loss Mitigation Requirements regardless of whether a borrower received an evaluation of a complete Loss Mitigation Application from the transferor servicer. Documents and information transferred from the transferor servicer to the transferee servicer may constitute a loss mitigation application to the transferee servicer and may cause a transferee servicer to be required to comply with the Loss Mitigation requirements.
2. Application in Process During Servicing Transfer
A transferee servicer must obtain documents and information submitted by a borrower in connection with a Loss Mitigation Application during a servicing transfer, consistent with the Servicing Rules’ policies and procedures requirements. As servicer that obtain the servicing of a mortgage loan for which an evaluation of a complete Loss Mitigation Application is in process should continue the evaluation to the extent possible. For purposes of the Servicing Rules’ requirements regarding borrower response to a loss mitigation offer, prohibition on foreclosure referral and sale, and the appeals process, a transferee servicer must consider documents and information received from a transferor servicer that constitute a complete Loss Mitigation Application for the transferee servicer to have been received by the transferee servicer as of the date such documents and information were provided to the transferor servicer.
M. Small Servicer Requirements
While small servicers are generally exempt from the Loss Mitigation Rules, small servicers are, nevertheless, prohibited from making the first notice or filing for foreclosure unless: (1) the borrower is more than 120 days delinquent; (2) the foreclosure is based on a borrower’s violation of a due-on sale clause; or (3) the servicer is joining the foreclosure action of a subordinate lienholder. In addition, except for due on sale and joining in the foreclosure by a subordinate lender, if a borrower is performing pursuant to the terms of a loss mitigation agreement, a small servicer may not make the first foreclosure notice or filing required by applicable law and shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale.
XVI. PERIODIC STATEMENTS
A. Scope of Periodic Statements Rule
The periodic statement requirement applies to any closed-end consumer credit transaction secured by a dwelling, unless an exemption applies. Periodic statements are not required for open-end transactions, reverse mortgages, timeshare loans, and in other circumstances. Small servicers are exempt from all requirements of the periodic statement requirement.
For loans subject to the periodic statement rule, consumers must be provided with statement each billing cycle showing (among other things) information on the payment due and the application of past payments.
Creditors, assignees, and servicers are responsible for sending periodic billing statements, however they do not each need to send a separate statement. The consumer needs to receive only one statement each billing cycle. Creditors or assignees that do not currently own the mortgage loan or the mortgage servicing rights do not have to provide a periodic statement.
B. Fair Debt Collection Practices Act
CFPB Bulletin 2013-12 concludes that servicers that are debt collectors arenot liable under the Fair Debt Collection Practices Act if they comply with the Periodic Statement Provisions of the Servicing Rules, notwithstanding a “cease communication” instructions sent by the borrower.
C. Communications With Certain Borrowers In Bankruptcy
The CFPB has issued a final rule to help mortgage servicers communicate with certain borrowers facing bankruptcy. The final rule gives mortgage servicers more latitude in providing periodic statements to consumers entering or exiting bankruptcy, as required by the CFPB’s 2016 Mortgage Servicing Rule.
The Truth-in-Lending Act requires mortgage servicers to provide periodic statements to borrowers, and the CPFB has developed sample forms for servicers to use. The 2016 mortgage servicing rule requires that servicers send modified periodic statements or coupon books to certain consumers in bankruptcy effective April 19, 2018. The 2016 final rule also addressed the timing for servicers to transition to providing or ceasing to provide modified periodic statements to consumers entering or exiting bankruptcy.
The final rule provides a clear single-statement exemption for servicers to make the transition, superseding the single-billing-cycle exemption included in the 2016 rule.
Effective April 19, 2018, Regulation Z will no longer contain the blanket exemption for providing statements to consumers in bankruptcy. Instead, servicers will now be required to provide to some consumers in bankruptcy a statement containing certain bankruptcy-specific modifications. To give servicers time to adjust their systems to provide compliant statements once they learn of a consumer’s bankruptcy, the CFPB finalized a single-billing-cycle-exemption in the 2016 Rule. In the original exemption, a servicer was exempt from the requirement to provide a statement to a consumer for a “single billing cycle.” The original exemption only applied, however, when the payment due date for that billing cycle was no more than 14 days after a specific triggering event, such as when a consumer on the mortgage loan becomes a debtor in bankruptcy. Under the amended final rule, the single-billing-cycle exemption is replaced with a single-statement exemption. Now, once a triggering event occurs, such as a new bankruptcy filing, servicers will be exempt from the requirement to provide the next statement, but must resume providing compliance statements starting with the next billing cycle.
D. Frequency of Sending Periodic Billing Statements
You must send a periodic statement each billing cycle. A billing cycle corresponds to the frequency of payments. Thus, if a loan requires the consumer to make monthly payments, that consumer will have a monthly billing cycle. Likewise, if a consumer makes quarterly payments (four payments a year), that consumer will have a quarterly billing cycle.
You need not send statements more frequently than once a month. If a mortgage loan has a billing cycle shorter than 31 days (for example, a biweekly billing cycle), you may send a periodic statement covering an entire month.
1. Statement Timing
You must deliver or mail the periodic statement within a “reasonably prompt” time after the payment due date or the end of any courtesy period provided for the previous billing cycle.
“Reasonably prompt” generally means delivering, emailing, or placing the periodic statement in the mail within four days of the close of the courtesy period of the previous billing cycle. The “courtesy period” is the period in which you do not impose a late fee. If there is no courtesy period, you must send the periodic statement no later than four days after the payment due date.
2. Terminating Periodic Statements
You no longer have to send periodic statements when:
3. Periodic Billing Statement Information and Formatting
The rule requires certain groupings of information, and has different requirements on where on the statement you must place these groupings. This information is summarized in the sample forms provided in Appendix H-30 of Regulation Z.
E. Content
The rule sets specific content and layout requirements. Required content includes:
1. The Amount Due
a. Payment due date;
b. Amount of any late payment fee; and
c. Date on which the fee will be imposed if payment has not been received.
2. Explanation of Amount Due
a. Monthly payment amount, including an explanation of how much will be applied to principal, interest, and escrow (if applicable);
b. The total sum of any fees or charges imposed since the last statement and any payment amount past due; and
c. If a consumer has a payment-option loan, a breakdown of each of the payment options would be required.
3. Past Payment Breakdown
a. Total of all payments received since the last statement and a breakdown of how those payments were applied to principal, interest, escrow, fees, and any partial payment or suspense account (if applicable). The periodic statement must disclose this information for payments received since the last statement as well as since the beginning of the calendar year.
4. Partial Payments
If a statement reflects a partial payment that was placed in a suspense of unapplied funds account, the statement must explain what must be done for the funds to be applied.
5. Contact Information
A toll-free number, and if applicable, an email address for the consumer to obtain information about the consumer’s account.
6. Account Information
a. Amount of outstanding principal balance;
b. Current interest rate;
c. Date after which the interest rate may change;
d. The existence of any prepayment penalty;
e. Web access to either the CFPB list or HUD list of homeownership; and
f. Counselors and organizations and the HUD toll-free telephone number to access contact information for such groups.
7. Delinquency Information
Note that this information is only required if the consumer is 45 days or more delinquent. This information could be on the first page of the statement, on a separate page in the statement, or sent in a separate letter:
F. Sample Forms
Appendix H-30 of Regulation Z has sample forms for periodic statements. Some elements of the sample forms are not required by the rules, such as a tear-off coupon or the use of legal-size paper. These elements were included in the sample forms to provide context. While they show one way you could comply with the rule, they are not required elements.
You do not have to use the exact terms or layout used in the sample periodic statements found in Appendix H-30 of Regulation Z. You may use terms consumers in your area commonly understand. For example, servicers in different parts of the country use the terms “escrow account” and “impound account” to describe the account in which servicers collect funds to pay consumers’ tax and insurance bills.
G. Delivery of Information and Periodic Billing Statements
1. Consumer Opt-Out
A consumer may not opt out of receiving periodic statements altogether. However, if a consumer chooses to receive statements electronically, that consumer may opt out of electronic notification that statements are ready to access online, if they demonstrate the ability to access statements online.
Such an ability may be demonstrated, for example, by the consumer receiving notification that the statements are available, going to the website where the information is available, viewing the information about their account, and selecting a link or option there to indicate they no longer would like to receive notifications when new statements are available.
2. Clear and Conspicuous
The information must be provided in a clear and conspicuous manner. The “clear and conspicuous” standard generally requires that disclosures be presented in a reasonably understandable form.
3. Additional Information
You may add information to the disclosures and combine disclosures, as long as:
For example, the Mortgage Servicing Rules do not require you to include certain information about the consumer’s escrow account (such as the account balance). You could put escrow information in the periodic statement or coupon book if you wanted to as long as the placement of that information didn’t break up a group of disclosures you are required to put together.
Similarly, you could combine the periodic statement with statements from a checking account or other account so long as you meet all the requirements of the periodic statement disclosure, and combining the statements is not prohibited by regulations governing the other account.
4. Close Proximity
Section 1026.41(d) requires you to put several disclosures in close proximity to one another. To meet this requirement, group the items together and set them off from other groupings.
You could, for example, present the information in boxes, or arrange items in groups and then put spaces between the groups. Items in close proximity may not have any intervening text between them.
5. Acceptable Forms
You can send paper statements by mail or provide them in person. If the consumer gives you affirmative consent, you may send periodic statements electronically. If you send electronic statements, they must be in a form the consumer can print or download.
If you are sending the statement electronically, instead of sending the statement itself, you may send consumers a link to an online site where they can securely access their statements.
If you are currently sending a consumer electronic disclosures for any account (for example, a mortgage or checking account), you do not have to seek affirmative consent again.
You do not need to follow the full E-Sign verification procedures before providing a statement electronically. If you wish to follow the E-Sign Act procedures to obtain consumer consent, you may, but you can also obtain affirmative consent through a simpler process.
XVII. USE OF COUPON BOOKS INSTEAD OF PERIODIC STATEMENTS
A coupon book is a book with a page for each billing cycle during a set period (often covering one year). The consumer tears off the page or a portion of the page and returns it to you with a payment for each billing cycle.
You may send a coupon book instead of a periodic statement as long as:
A. Information Required in a Coupon Book
Your coupon book must include two types of information:
Each coupon in your book must have this information:
You must include other information in your coupon book, but it does not have to be included on each coupon:
You can put the above information on the inside of the front or back cover of the coupon book or on filler pages.
B. Making Additional Information Available
If you opt to use a coupon book, you must make additional information available to consumers. This information could be made available via telephone, in writing, in person, or electronically (if the consumer consents). Upon request, you must provide any of these items as requested by the consumer:
1. An explanation of the amount due including:
2. A breakdown of past payments, including:
3. A list of the transaction activity that occurred since the last statement
“Transaction activity” means any activity that causes a credit or debit to the amount currently due.
4. If you are currently holding any funds in a suspense or unapplied funds account, include information explaining what the consumer must do for the funds to be applied.
C. Delinquent Coupon-Book Consumers
When a consumer becomes 45 days or more delinquent, you must provide this additional information in writing for each billing cycle during the delinquency:
XVIII. INTEREST RATE ADJUSTMENT NOTICES
A. Disclosures
You must make disclosures in connection with the initial reset of an adjustable-rate mortgage (ARM) and each time an interest rate adjustment results in a payment change. The rule contains model forms as guides to developing your own notices and sample forms to provide examples of what actual ARM notices might look like.
There are 2 types of notices:
B. Scope of Interest Rate Adjustment Notice Rule
You must provide these notices for ARMs secured by the consumer’s principal dwelling. For the purposes of this rule, an ARM is a closed-end consumer credit transaction in which the annual percentage rate may increase after consummation.
ARMs with a term of one year or less are exempt from both initial and ongoing disclosures. In some circumstances, certain ARMs may be subject to different timing rules.
In addition, a 20(c) ongoing interest rate adjustment disclosure is not required the first time the ARM adjusts if the first payment at the adjusted level is due within 210 days after consummation and the new interest rate you disclosed in the 20(d) notice at consummation was not an estimate.
Small servicers are subject to the interest rate adjustment notice requirements.
The creditor, assignee, or servicer is responsible for sending the ARM notices. Note they do not each need to send a separate notice; the consumer needs to receive only one notice each time it is required. A creditor or assignee that no longer owns the loan is not required to send ARM notices.
The Mortgage Servicing Rules:
C. Timing of Notices
In general, you must send the 20(d) initial interest rate adjustment disclosure at least 210 days, but no more than 240 days, before the first payment at the adjusted level is due.
In general, you must send the 20(c) ongoing interest rate adjustment notice disclosing an interest rate adjustment causing a payment change at least 60 days, but no more than 120 days, before the first payment at the adjusted level is due.
The rules also provide special timing requirements to address frequently-adjusting ARMs, ARMs with short look-back periods, and ARMs adjusting soon after consummation (timing exceptions):
D. Information Required on Initial and Ongoing Interest Rate Adjustment Notices
The notices must have the content and format specified in the rule and demonstrated in the model and sample forms. Proper use of the forms will comply with both the content and format requirements of this rule. The model forms may be filled out and used, while the sample forms demonstrate an example of the proper way to fill out the forms.
1. Estimates
For the initial interest rate notice, if the new interest rate (or the new payment calculated from the new interest rate) is not known as of the date of the disclosure, you must use an estimate and label it as such. This estimate must be based on the index as reported within 15 business days prior to the date of the disclosure.
2. Housing counseling information
The following housing counselor information must be provided in the 20(d) initial interest rate adjustment notice:
3. How must I arrange the information in the notices?
You must provide the information in the form of a table, substantially similar to the forms in Appendix H of Regulation Z.
4. How must the notices be sent?
The 20(d) initial interest rate adjustment disclosure must be a separate document. The 20(c) ongoing interest rate adjustment disclosure must be segregated from other information but may be on the same document as other information. Both ARM disclosures may be sent in the same envelope with other disclosures, such as the periodic statement.
XIX. PROMPT PAYMENT CREDITING AND PAYOFF STATEMENTS
A. Prompt Crediting and Payoff Statement Requirements
Periodic payments must be promptly credited as of the day of receipt. A periodic payment consists of the amount necessary to cover principal, interest, and escrow (if applicable).
If you receive a payment that is less than the amount due for a periodic payment, you may place the payment in a suspense account. When the amount in the suspense account covers a periodic payment, you must treat the accumulated amount as a periodic payment and promptly credit it to the consumer’s account.
In addition, creditors, assignees, and servicers must provide an accurate payoff balance to a consumer no later than seven business days after receipt of a written request from the consumer for that information.
B. Scope Of The Prompt Crediting And Payoff Statement Rules
The prompt crediting and payoff statement provisions apply to certain types of mortgage loans. Additionally, different parties are responsible for the different provisions. This information is set out in Table 5 below.
TABLE 5: PROMPT CREDITING AND PAYOFF STATEMENTS:
APPLICATION AND RESPONSIBLE PARTIES
RESPONSIBLE PARTY
OPEN / CLOSED-END LOANS?
PRINCIPAL / ALL DWELLINGS?
Prompt crediting
Servicer
Both
Principal only
Payoff statements
Creditor, assignee, or servicer
All dwellings
Small servicers are subject to the prompt crediting and payoff statement provisions.
C. Handling Periodic Payments
A periodic payment is an amount sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle. A payment qualifies as a periodic payment even if it does not include amounts required to cover late fees, other fees, or non-escrow payments you advanced on a consumer’s behalf.
You must credit a periodic payment to the consumer’s account as of the day of receipt, except when a delay in crediting does not result in any charge to the consumer, or in the reporting of negative information to a consumer reporting agency.
In cases where you specified in advance and in writing requirements for the consumer to follow when making payments and then accept a payment that does not conform to your requirements, you may wait up to five days after receipt to credit the payment. Any requirements you set must be reasonable.
Note that the legal obligation between the creditor and the consumer, subject to the applicable law, is what determines the method for crediting payments.
D. Handling Partial Payments
A partial payment is any payment that is less than a periodic payment. If you receive a partial payment from a consumer, to the extent that you are not prohibited by applicable law or the legal obligation between the parties, you may:
If you opt to retain a partial payment in a suspense or unapplied funds account, you must:
E. Handling Non-Conforming Payments
A non-conforming payment is a payment that a consumer sends without following any reasonable requirements that you set in advance in writing for making payments, such as:
Your payment requirements must be reasonable and cannot make it difficult for most consumers to make conforming payments. For example, it would be reasonable to require a cutoff time of 5 p.m. for receipt of a mailed check at the address you specify for receiving payments. You may not require consumers to pay solely by preauthorized electronic funds transfer.
In cases where you specify in writing requirements for the consumer to follow when making payments and then you accept a payment that does not conform to your requirements, you have up to five days after receipt to credit the payment.
If you do not set specific payment requirements, then you must allow consumers to make payments by cash, money order, draft, or other similar instrument in properly negotiable form during regular business hours at any location where you conduct business, or by electronic fund transfer, if you have agreed to accept electronic payments from the consumer. Under the general rule, such payments must be credited as of the day of receipt.
The partial payments you hold in a suspense or unapplied funds account, discussed above, would not be considered to have been “accepted,” so they are not required to be applied within five days.
F. How Must I Respond To Written Requests For Payoff Statements?
If a consumer (or any person acting on behalf of the consumer) makes a written request for a payoff statement, a creditor, assignee, or servicer must provide the statement within seven business days.
When a creditor, assignee, or servicer, as applicable, is not able to provide the statement within seven business days because the loan is in bankruptcy or foreclosure, the loan is a reverse mortgage or shared appreciation mortgage, or because of natural disasters or other similar circumstances, the payoff statement must be provided within a reasonable time.