81 FR 72160 - Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)
BUREAU OF CONSUMER FINANCIAL PROTECTION
Federal Register Volume 81, Issue 202 (October 19, 2016)
Page Range
72160-72401
FR Document
2016-18901
The Bureau of Consumer Financial Protection (Bureau) is amending certain mortgage servicing rules issued by the Bureau in 2013. This final rule clarifies, revises, or amends provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and prompt crediting and periodic statement requirements under Regulation Z's servicing provisions. The final rule also addresses proper compliance regarding certain servicing requirements when a person is a potential or confirmed successor in interest, is a debtor in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. The final rule also makes technical corrections to several provisions of Regulations X and Z. The Bureau is issuing concurrently with this final rule an interpretive rule under the Fair Debt Collection Practices Act relating to servicers' compliance with certain mortgage servicing rules.
Federal Register, Volume 81 Issue 202 (Wednesday, October 19, 2016)
[Federal Register Volume 81, Number 202 (Wednesday, October 19, 2016)]
[Rules and Regulations]
[Pages 72160-72401]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-18901]
[[Page 72159]]
Vol. 81
Wednesday,
No. 202
October 19, 2016
Part II
Bureau of Consumer Financial Protection
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12 CFR Parts 1024 and 1026
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Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation
Z); Final Rule
Federal Register / Vol. 81 , No. 202 / Wednesday, October 19, 2016 /
Rules and Regulations
[[Page 72160]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Parts 1024 and 1026
[Docket No. CFPB-2014-0033]
RIN 3170-AA49
Amendments to the 2013 Mortgage Rules Under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
amending certain mortgage servicing rules issued by the Bureau in 2013.
This final rule clarifies, revises, or amends provisions regarding
force-placed insurance notices, policies and procedures, early
intervention, and loss mitigation requirements under Regulation X's
servicing provisions; and prompt crediting and periodic statement
requirements under Regulation Z's servicing provisions. The final rule
also addresses proper compliance regarding certain servicing
requirements when a person is a potential or confirmed successor in
interest, is a debtor in bankruptcy, or sends a cease communication
request under the Fair Debt Collection Practices Act. The final rule
also makes technical corrections to several provisions of Regulations X
and Z. The Bureau is issuing concurrently with this final rule an
interpretive rule under the Fair Debt Collection Practices Act relating
to servicers' compliance with certain mortgage servicing rules.
DATES: This final rule is effective on October 19, 2017, except that
the following amendments are effective on April 19, 2018: Amendatory
instructions 5, 6.b, 7, 8, 9, 11.b, 17.a.ii, 17.b.ii, 17.c, 17.d.ii,
17.f.i, 17.i.i, 17.k, 19, 20, 22, 23.c, 25.a, 25.b, 25.c.ii, and
25.d.ii. For additional discussion regarding the effective date of the
rule, see part VI of the SUPPLEMENTARY INFORMATION below.
FOR FURTHER INFORMATION CONTACT: Dania L. Ayoubi, David H. Hixson,
Alexandra W. Reimelt, or Joel L. Singerman, Counsels; or William R.
Corbett, Laura A. Johnson, or Amanda E. Quester, Senior Counsels;
Office of Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
In January 2013, the Bureau issued several final rules concerning
mortgage markets in the United States (2013 Title XIV Final Rules),
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).\1\ Two
of these rules were (1) the Mortgage Servicing Rules Under the Real
Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing
Final Rule); \2\ and (2) the Mortgage Servicing Rules Under the Truth
in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule).\3\
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\1\ Specifically, on January 10, 2013, the Bureau issued Escrow
Requirements Under the Truth in Lending Act (Regulation Z), 78 FR
4725 (Jan. 22, 2013) (2013 Escrows Final Rule), High-Cost Mortgage
and Homeownership Counseling Amendments to the Truth in Lending Act
(Regulation Z) and Homeownership Counseling Amendments to the Real
Estate Settlement Procedures Act (Regulation X), 78 FR 6855 (Jan.
31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and
Qualified Mortgage Standards Under the Truth in Lending Act
(Regulation Z), 78 FR 6407 (Jan. 30, 2013) (January 2013 ATR Final
Rule). The Bureau concurrently issued a proposal to amend the
January 2013 ATR Final Rule, which was finalized on May 29, 2013.
See 78 FR 6621 (Jan. 30, 2013) (January 2013 ATR Proposal) and 78 FR
35429 (June 12, 2013) (May 2013 ATR Final Rule). On January 17,
2013, the Bureau issued the Real Estate Settlement Procedures Act
(Regulation X) and Truth in Lending Act (Regulation Z) Mortgage
Servicing Final Rules, 78 FR 10901 (Feb. 14, 2013) (Regulation Z)
and 78 FR 10695 (Feb. 14, 2013) (Regulation X) (2013 Mortgage
Servicing Final Rules). On January 18, 2013, the Bureau issued the
Disclosure and Delivery Requirements for Copies of Appraisals and
Other Written Valuations Under the Equal Credit Opportunity Act
(Regulation B), 78 FR 7215 (Jan. 31, 2013) (2013 ECOA Valuations
Final Rule) and, jointly with other agencies, issued Appraisals for
Higher-Priced Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13,
2013) (2013 Interagency Appraisals Final Rule). On January 20, 2013,
the Bureau issued the Loan Originator Compensation Requirements
under the Truth in Lending Act (Regulation Z), 78 FR 11279 (Feb. 15,
2013) (2013 Loan Originator Final Rule).
\2\ 78 FR 10695 (Feb. 14, 2013).
\3\ 78 FR 10901 (Feb. 14, 2013).
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The Bureau clarified and revised those rules through notice and
comment rulemaking during the summer and fall of 2013 in the (1)
Amendments to the 2013 Mortgage Rules under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation
Z) (July 2013 Mortgage Final Rule) \4\ and (2) Amendments to the 2013
Mortgage Rules under the Equal Credit Opportunity Act (Regulation B),
Real Estate Settlement Procedures Act (Regulation X), and the Truth in
Lending Act (Regulation Z) (September 2013 Mortgage Final Rule).\5\ In
October 2013, the Bureau clarified compliance requirements in relation
to successors in interest, early intervention requirements, bankruptcy
law, and the Fair Debt Collection Practices Act (FDCPA),\6\ through an
Interim Final Rule (October 2013 IFR or IFR) \7\ and a contemporaneous
compliance bulletin (October 2013 Servicing Bulletin).\8\ In addition,
in October 2014, the Bureau added an alternative definition of small
servicer in the Amendments to the 2013 Mortgage Rules under the Truth
in Lending Act (Regulation Z).\9\ The purpose of each of these updates
was to address important questions raised by industry, consumer
advocacy groups, and other stakeholders. The 2013 RESPA Servicing Final
Rule and the 2013 TILA Servicing Final Rule, as amended in 2013 and
2014, are collectively referred to herein as the 2013 Mortgage
Servicing Final Rules.
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\4\ 78 FR 44685 (July 24, 2013).
\5\ 78 FR 60381 (Oct. 1, 2013).
\6\ 15 U.S.C. 1692 et seq.
\7\ 78 FR 62993 (Oct. 23, 2013).
\8\ Bureau of Consumer Fin. Prot., CFPB Bulletin 2013-12,
Implementation Guidance for Certain Mortgage Servicing Rules (Oct.
15, 2013), available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
\9\ 79 FR 65300, 65304 (Nov. 3, 2014).
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On November 20, 2014, the Bureau issued a proposed rule that would
have further amended the 2013 Mortgage Servicing Final Rules.\10\ The
proposal covered nine major topics, and focused primarily on
clarifying, revising, or amending provisions regarding force-placed
insurance notices, policies and procedures, early intervention, and
loss mitigation requirements under Regulation X's servicing provisions;
and prompt crediting and periodic statement requirements under
Regulation Z's servicing provisions. The proposal also addressed proper
compliance regarding certain servicing requirements when a person is a
potential or confirmed successor in interest, is a debtor in
bankruptcy, or sends a cease communication request under the Fair Debt
Collection Practices Act.
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\10\ 79 FR 74175 (Dec. 15, 2014).
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The Bureau is now finalizing the proposed amendments, with
additional clarifications and revisions, to revise regulatory
provisions and official interpretations relating to the Regulation X
and Z mortgage servicing rules.\11\ The final rule also covers nine
major topics, summarized below, generally in the order they appear in
the final rule. More details can be found in the section-by-section
analysis below.
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\11\ Note that RESPA and TILA differ in their terminology.
Whereas Regulation X generally refers to ``borrowers,'' Regulation Z
generally refers to ``consumers.''
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1. Successors in interest. The Bureau is finalizing three sets of
rule changes relating to successors in interest. First, the Bureau is
adopting definitions of successor in interest for purposes of
Regulation X's subpart C and Regulation Z that are modeled on the
categories of transfers protected under section 341(d) of the Garn-St
Germain Act. Second, the Bureau is finalizing rules relating to
[[Page 72161]]
how a mortgage servicer confirms a successor in interest's identity and
ownership interest.\12\ Third, the Bureau is applying the Regulation X
and Z mortgage servicing rules to successors in interest once a
servicer confirms the successor in interest's status.
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\12\ This final rule uses the term ``successor in interest's
status'' to refer to the successor in interest's identity and
ownership interest in the property.
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2. Definition of delinquency. The Bureau is finalizing a general
definition of delinquency that applies to all of the servicing
provisions of Regulation X and the provisions regarding periodic
statements for mortgage loans in Regulation Z. Delinquency means a
period of time during which a borrower and a borrower's mortgage loan
obligation are delinquent. A borrower and a borrower's mortgage loan
obligation are delinquent beginning on the date a periodic payment
sufficient to cover principal, interest, and, if applicable, escrow,
becomes due and unpaid, until such time as no periodic payment is due
and unpaid.
3. Requests for information. The Bureau is finalizing amendments
that change how a servicer must respond to requests for information
asking for ownership information for loans in trust for which the
Federal National Mortgage Association (Fannie Mae) or Federal Home Loan
Mortgage Corporation (Freddie Mac) is the owner of the loan or the
trustee of the securitization trust in which the loan is held.
4. Force-placed insurance. The Bureau is finalizing amendments to
the force-placed insurance disclosures and model forms to account for
when a servicer wishes to force-place insurance when the borrower has
insufficient, rather than expiring or expired, hazard insurance
coverage on the property. Additionally, servicers now will have the
option to include a borrower's mortgage loan account number on the
notices required under Sec. 1024.37. The Bureau also is finalizing
several technical edits to correct discrepancies between the model
forms and the text of Sec. 1024.37.
5. Early intervention. The Bureau is clarifying the early
intervention live contact obligations for servicers to establish or
make good faith efforts to establish live contact so long as the
borrower remains delinquent. The Bureau is also clarifying requirements
regarding the frequency of the written early intervention notices,
including when there is a servicing transfer. In addition, regarding
certain borrowers who are in bankruptcy or who have invoked their cease
communication rights under the FDCPA, the Bureau is finalizing
exemptions for servicers from complying with the live contact
obligations but requiring servicers to provide written early
intervention notices under certain circumstances.
6. Loss mitigation. The Bureau is finalizing several amendments
relating to the loss mitigation requirements. The final rule: (1)
Requires servicers to meet the loss mitigation requirements more than
once in the life of a loan for borrowers who become current on payments
at any time between the borrower's prior complete loss mitigation
application and a subsequent loss mitigation application; (2) modifies
an existing exception to the 120-day prohibition on foreclosure filing
to allow a servicer to join the foreclosure action of a superior or
subordinate lienholder; (3) clarifies how servicers select the
reasonable date by which a borrower should return documents and
information to complete an application; (4) clarifies that, if the
servicer has already made the first notice or filing, and a borrower
timely submits a complete loss mitigation application: (i) The servicer
must not move for foreclosure judgment or order of sale, or conduct a
foreclosure sale, even where the sale proceedings are conducted by a
third party, unless one of the specified circumstances is met (i.e.,
the borrower's loss mitigation application is properly denied,
withdrawn, or the borrower fails to perform on a loss mitigation
agreement); (ii) that absent one of the specified circumstances,
conduct of the sale violates the rule; (iii) that the servicer must
instruct foreclosure counsel promptly not to make any further
dispositive motion, to avoid a ruling or order on a pending dispositive
motion, or to prevent conduct of a foreclosure sale, unless one of the
specified circumstances is met; and (iv) that the servicer is not
relieved from its obligations by counsel's actions or inactions; (5)
requires that servicers provide a written notice to a borrower within
five days (excluding Saturdays, Sundays, or legal holidays) after they
receive a complete loss mitigation application and requires that the
notice: (i) Indicate that the servicer has received a complete
application; (ii) provide the date of completion, a statement that the
servicer expects to complete its evaluation within 30 days from the
date it received the complete application, and an explanation that the
borrower is entitled to certain specific foreclosure protections and
may be entitled to additional protections under State or Federal law;
(iii) clarify that the servicer might need additional information
later, in which case the evaluation could take longer and the
foreclosure protections could end if the servicer does not receive the
information as requested; (6) sets forth how servicers must attempt to
obtain information not in the borrower's control and evaluate a loss
mitigation application while waiting for third party information;
requires servicers to exercise reasonable diligence to obtain the
information and prohibits servicers from denying borrowers solely
because a servicer lacks required information not in the borrower's
control, except under certain circumstances; requires servicers in this
circumstance to complete all possible steps in the evaluation process
within the 30 days, notwithstanding the lack of the required third-
party information; requires that servicers promptly provide a written
notice to the borrower if the servicer lacks required third party
information 30 days after receiving the borrower's complete application
and cannot evaluate the application in accordance with applicable
requirements established by the owner or assignee of the mortgage loan;
and requires servicers to notify borrowers of their determination on
the application in writing promptly upon receipt of the third party
information it lacked; (7) permits servicers to offer a short-term
repayment plan based upon an evaluation of an incomplete loss
mitigation application; (8) clarifies that servicers may stop
collecting documents and information from a borrower for a particular
loss mitigation option after receiving information confirming that,
pursuant to any requirements established by the owner or assignee, the
borrower is ineligible for that option; and clarifies that servicers
may not stop collecting documents and information for any loss
mitigation option based solely upon the borrower's stated preference
but may stop collecting documents and information for any loss
mitigation option based on the borrower's stated preference in
conjunction with other information, as prescribed by requirements
established by the owner or assignee of the mortgage loan; and (9)
addresses and clarifies how loss mitigation procedures and timelines
apply when a transferee servicer receives a mortgage loan for which
there is a loss mitigation application pending at the time of a
servicing transfer.
7. Prompt payment crediting. The Bureau is clarifying how servicers
must treat periodic payments made by consumers who are performing under
either temporary loss mitigation programs or permanent loan
modifications. Periodic payments made
[[Page 72162]]
pursuant to temporary loss mitigation programs must continue to be
credited according to the loan contract and could, if appropriate, be
credited as partial payments, while periodic payments made pursuant to
a permanent loan modification must be credited under the terms of the
permanent loan agreement.
8. Periodic statements. The Bureau is finalizing several
requirements relating to periodic statements. The final rule: (1)
Clarifies certain periodic statement disclosure requirements relating
to mortgage loans that have been accelerated, are in temporary loss
mitigation programs, or have been permanently modified, to conform
generally the disclosure of the amount due with the Bureau's
understanding of the legal obligation in each of those circumstances,
including that the amount due may only be accurate for a specified
period of time when a mortgage loan has been accelerated; (2) requires
servicers to send modified periodic statements (or coupon books, where
servicers are otherwise permitted to send coupon books instead of
periodic statements) to consumers who have filed for bankruptcy,
subject to certain exceptions, with content varying depending on
whether the consumer is a debtor in a chapter 7 or 11 bankruptcy case,
or a chapter 12 or 13 bankruptcy case; and includes proposed sample
periodic statement forms that servicers may use for consumers in
bankruptcy to ensure compliance with Sec. 1026.41; and (3) exempts
servicers from the periodic statement requirement for charged-off
mortgage loans if the servicer will not charge any additional fees or
interest on the account and provides a periodic statement including
additional disclosures related to the effects of charge-off.
9. Small servicer. The Bureau is finalizing certain changes to the
small servicer determination. The small servicer exemption generally
applies to servicers who service 5,000 or fewer mortgage loans for all
of which the servicer is the creditor or assignee. The final rule
excludes certain seller-financed transactions and mortgage loans
voluntarily serviced for a non-affiliate, even if the non-affiliate is
not a creditor or assignee, from being counted toward the 5,000 loan
limit, allowing servicers that would otherwise qualify for small
servicer status to retain their exemption while servicing those
transactions.
In addition to the changes discussed above, the final rule also
makes technical corrections and minor clarifications to wording
throughout several provisions of Regulations X and Z that generally are
not substantive in nature.
II. Background
Title XIV Rules Under the Dodd-Frank Act
In response to an unprecedented cycle of expansion and contraction
in the mortgage market that sparked the most severe U.S. recession
since the Great Depression, Congress passed the Dodd-Frank Act, which
was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress
established the Bureau and generally consolidated the rulemaking
authority for Federal consumer financial laws, including the Truth in
Lending Act (TILA) and the Real Estate Settlement Procedures Act
(RESPA), in the Bureau.\13\ At the same time, Congress significantly
amended the statutory requirements governing mortgages with the intent
to restrict the practices that contributed to and exacerbated the
crisis.\14\ Under the statute, most of these new requirements would
have taken effect automatically on January 21, 2013, if the Bureau had
not issued implementing regulations by that date.\15\ To avoid
uncertainty and potential disruption in the national mortgage market at
a time of economic vulnerability, the Bureau issued several final rules
in January 2013 to implement these new statutory provisions and provide
for an orderly transition. These rules included the 2013 RESPA
Servicing Final Rule and the 2013 TILA Servicing Final Rule, issued on
January 17, 2013. Pursuant to the Dodd-Frank Act, which permitted a
maximum of one year for implementation, these rules became effective on
January 10, 2014. The Bureau issued additional corrections and
clarifications to the 2013 RESPA Servicing Final Rule and the 2013 TILA
Servicing Final Rule in the summer and fall of 2013 and in the fall of
2014.
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\13\ See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12
U.S.C. 5491 and 5511 (establishing and setting forth the purpose,
objectives, and functions of the Bureau); section 1061 of the Dodd-
Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking
authority for Federal consumer financial laws in the Bureau);
section 1100A of the Dodd-Frank Act (codified in scattered sections
of 15 U.S.C.) (similarly consolidating certain rulemaking authority
in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12
U.S.C. 5519 (subject to certain exceptions, excluding from the
Bureau's authority any rulemaking authority over a motor vehicle
dealer that is predominantly engaged in the sale and servicing of
motor vehicles, the leasing and servicing of motor vehicles, or
both).
\14\ See title XIV of the Dodd-Frank Act, Public Law 111-203,
124 Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C.,
15 U.S.C., and 42 U.S.C.).
\15\ See Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.
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III. Summary of the Rulemaking Process
A. Implementation Plan for New Mortgage Rules
On February 13, 2013, the Bureau announced an initiative to support
implementation of the new mortgage rules (Implementation Plan),\16\
under which the Bureau would work with the mortgage industry to ensure
that the 2013 Title XIV Final Rules could be implemented accurately and
expeditiously. The Implementation Plan included: (1) Coordination with
other agencies; (2) Publication of plain-language guides to the new
rules; (3) Ongoing conversations with stakeholders involved in
implementation with respect to questions and concerns they had
identified; (4) Publication of additional interpretive guidance and
corrections or clarifications of the new rules as needed; (5)
Publication of readiness guides for the new rules; and (5) Education of
consumers on the new rules.
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\16\ Press Release, Bureau of Consumer Fin. Prot., CFPB Lays Out
Implementation Plan for New Mortgage Rules (Feb. 13, 2013),
available at http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-lays-out-implementation-plan-for-new-mortgage-rules/.
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In the course of the implementation process, the Bureau identified
a number of respects in which the 2013 Mortgage Servicing Final Rules
posed implementation challenges. As a result, in July 2013 and
September 2013, following notice and comment, the Bureau issued two
final rules amending discrete aspects of the 2013 Mortgage Servicing
Final Rules. Among other things, the July 2013 Mortgage Final Rule
clarified, corrected, or amended provisions on the relation to State
law to Regulation X's servicing requirements; implementation dates for
certain adjustable-rate mortgage servicing notices under Regulation Z;
and the small servicer exemption from certain servicing rules. Among
other things, the September 2013 Mortgage Final Rule modified
provisions of Regulation X related to error resolution, information
requests, and loss mitigation procedures. In October 2013, the Bureau
issued an IFR, which among other things, provisionally suspended the
effectiveness of certain requirements of the 2013 Mortgage Servicing
Final Rules with respect to consumers in bankruptcy and consumers who
had exercised their rights under the FDCPA to direct that debt
collectors cease
[[Page 72163]]
contacting them with respect to outstanding debts. In the October 2013
Servicing Bulletin, the Bureau also clarified compliance requirements
regarding successors in interest, early intervention live contact
requirements, and the FDCPA. In addition, in October 2014, the Bureau
issued a final rule that, among other things, added an alternative
definition of small servicer that applies to certain nonprofit entities
that service, for a fee, only loans for which the servicer or an
associated nonprofit entity is the creditor.
B. Ongoing Monitoring
After the January 10, 2014 effective date of the rules, the Bureau
has continued to engage in ongoing outreach and monitoring with
industry, consumer advocacy groups, and other stakeholders. As a
result, the Bureau has identified further issues that continue to pose
implementation challenges or require clarification. The Bureau has also
recognized that there are instances in which the rules are creating
unintended consequences or failing to achieve desired objectives.
The Bureau recognizes that industry has incurred costs in the
implementation of the 2013 Mortgage Servicing Final Rules. The Bureau
believes that the majority of the provisions in this final rule would
impose, at most, minimal new compliance burdens, and in many cases
would reduce the compliance burden relative to the existing rules.
Where the Bureau is adding new requirements to the 2013 Mortgage
Servicing Final Rules, the Bureau is doing so after careful weighing of
incremental costs and benefits.
This final rule adopts the proposed amendments with some additional
clarifications and revisions. The purpose of these updates is to
address important questions raised by industry, consumer advocacy
groups, and other stakeholders.
C. Testing of Bankruptcy Periodic Statement Sample Forms
In the proposed rule, the Bureau indicated that it would conduct
consumer testing of the proposed sample periodic statement forms for
consumers who have filed for bankruptcy and would publish and seek
comment on a report summarizing the methods and results of such testing
prior to finalizing any sample forms. Following publication of the
proposed rule, the Bureau engaged Fors Marsh Group (FMG), a research
and consulting firm that specializes in designing disclosures and
consumer testing, to conduct one-on-one cognitive interviews to test
the Bureau's proposed sample periodic statement forms for consumers who
have filed for bankruptcy. As described in detail in the report
summarizing the testing,\17\ between May 2015 and August 2015, the
Bureau worked with the firm to conduct three rounds of one-on-one
cognitive interviews with a total of 51 consumers in Arlington,
Virginia, Fort Lauderdale, Florida, and Chicago, Illinois. Efforts were
made to recruit a significant number of participants who had filed for
bankruptcy, who had a mortgage (preferably when they filed for
bankruptcy), and who had trouble making mortgage payments in the last
two years.
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\17\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing (Feb. 2016), available at http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
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During the interviews, participants were shown sample modified
periodic statements. In general, participants who had filed for chapter
7 bankruptcy reviewed statements tailored to borrowers who are debtors
in a chapter 7 or chapter 11 bankruptcy case, while participants who
had filed for chapter 13 bankruptcy reviewed statements tailored to
borrowers who are debtors in a chapter 12 or chapter 13 bankruptcy
case. Participants were asked specific questions to test their
understanding of the information presented in the sample statements and
how easily they could find various pieces of information presented in
the sample statements, as well as to learn about how they would use the
information presented in the sample statements. The Bureau and FMG
jointly developed revisions to all of the forms between rounds to
address any apparent usability or comprehension issues and in response
to public comments the Bureau received on the proposed rule.
The Bureau conducted the consumer testing after the close of the
original comment period. The notice seeking public comment specifically
on the report summarizing the methods and results of the testing was
published in the Federal Register on April 26, 2016.\18\
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\18\ 81 FR 24519 (Apr. 26, 2016).
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D. Comments on the Proposed Rule and Testing of Bankruptcy Periodic
Statement Sample Forms
The Bureau issued the proposed rule on November 20, 2014, and the
proposal was published in the Federal Register on December 15,
2014.\19\ The comment period ended on March 16, 2015. The comment
period on the report summarizing the results of the consumer testing of
bankruptcy periodic statement sample forms ended on May 26, 2016. The
Bureau received more than 160 comments on the proposed rule and
approximately 20 comments on the testing report. The comments were
received from consumers, consumer advocacy groups, government agencies,
servicers, industry trade associations, and others. As discussed in
more detail below, the Bureau has considered these comments in adopting
this final rule.
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\19\ 79 FR 74175 (Dec. 15, 2014).
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The Bureau notes that a number of consumer advocacy group
commenters discussed language access and communications with consumers
with limited English proficiency (LEP) and indicated that this is an
area that needs further action and attention from the Bureau. One
commenter urged the Bureau to consider additional rulemaking to require
servicers to respond effectively to the needs of LEP borrowers. Another
commenter stated that servicers' failure to communicate effectively
with LEP homeowners remains a major unresolved issue, and said that
servicers fail to provide written communication in the homeowner's
preferred non-English language, fail to provide adequate oral
translation for LEP homeowners, and refuse to accept official
government documents in non-English languages. The commenter suggested
that the Bureau should ensure that materials and points of contact are
available in homeowners' preferred languages.
The Bureau takes seriously the important considerations of language
access. The Bureau believes that LEP consumers should be served fairly,
equitably, and in a nondiscriminatory manner. The Bureau recognizes
that LEP consumers face particular challenges and obstacles in
accessing effective loss mitigation. The Bureau believes that servicers
should communicate with borrowers clearly, including in the consumer's
preferred language, where possible, and especially when lenders
advertise in the consumer's preferred language.
The Bureau has not had the opportunity, however, to test either the
new disclosures that the Bureau is adopting in this final rule or the
pre-existing RESPA and TILA servicing disclosures in languages other
than English. Nor has the Bureau had the opportunity to take comment
from all interested parties about the significant operational
challenges implicated in addressing language access in the mortgage
servicing context. Accordingly, the Bureau is not imposing
[[Page 72164]]
mandatory language translation requirements or other language access
requirements at this time with respect to the mortgage servicing
disclosures and other mortgage servicing requirements.
Although the Bureau declines at this time to implement requirements
regarding language access, the Bureau reiterates the importance of
servicers communicating clearly and in a non-discriminatory manner with
all consumers, including those with limited English proficiency.
Servicers should ensure they are in compliance with all applicable law.
For instance, servicers may have separate responsibilities under State
law, which may, in certain circumstances, require that financial
institutions provide foreign language services. As the Bureau has
previously noted, the Final Servicing Rules do not have the effect of
prohibiting State law from affording borrowers broader consumer
protections relating to mortgage servicing than those conferred under
the mortgage servicing rules.\20\ The Bureau will continue to consider
language access generally in connection with mortgage servicing,
including access to effective loss mitigation. The Bureau continues to
explore the obstacles that LEP consumers face when attempting to access
credit, as well as the challenges that servicers and creditors face
when interacting with those consumers.\21\ The Bureau will consider
further requirements on servicer communications with LEP consumers in
the mortgage servicing context, if appropriate.
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\20\ 78 FR 10696, 10706 (Feb. 14, 2013).
\21\ The Bureau has created a Language Access Task Force, which
is an internal cross-divisional working group aimed at developing
and executing a Bureau-wide strategy to provide LEP consumers with
meaningful access to information produced by the Bureau. The
Language Access Task Force coordinated the development of the
Bureau's Language Access Plan, which describes the Bureau's policy
and how the current language access activities are implemented
across all of the Bureau's operations, programs, and services.
Bureau of Consumer Fin. Prot. Language Access Plan, available at
https://www.federalregister.gov/articles/2014/10/08/2014-24122/proposed-language-access-plan-for-the-consumer-financial-protection-bureau.
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IV. Legal Authority
As discussed more fully in the section-by-section analysis, the
Bureau is issuing this final rule pursuant to RESPA, TILA, the FDCPA,
and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred
to the Bureau the ``consumer financial protection functions''
previously vested in certain other Federal agencies, including the
Board of Governors of the Federal Reserve System (Board). The term
``consumer financial protection function'' is defined to include ``all
authority to prescribe rules or issue orders or guidelines pursuant to
any Federal consumer financial law, including performing appropriate
functions to promulgate and review such rules, orders, and
guidelines.'' Section 1061 of the Dodd-Frank Act also transferred to
the Bureau all of the Department of Housing and Urban Development's
(HUD's) consumer protection functions relating to RESPA. Title X of the
Dodd-Frank Act, including section 1061 of the Dodd-Frank Act, along
with RESPA, TILA, the FDCPA, and certain subtitles and provisions of
title XIV of the Dodd-Frank Act, are Federal consumer financial
laws.\22\
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\22\ See Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws,'' the provisions of title X of the Dodd-
Frank Act, and the laws for which authorities are transferred under
title X subtitles F and H of the Dodd-Frank Act); Dodd-Frank Act
section 1002(12), 12 U.S.C. 5481(12) (defining ``enumerated consumer
laws'' to include TILA); Dodd-Frank Act section 1400(b), 12 U.S.C.
5481(12) note (defining ``enumerated consumer laws'' to include
certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-
Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to
the Bureau all of HUD's consumer protection functions relating to
RESPA).
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A. RESPA
Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to
prescribe such rules and regulations, to make such interpretations, and
to grant such reasonable exemptions for classes of transactions, as may
be necessary to achieve the purposes of RESPA, which include its
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements
necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of
RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe
regulations that are appropriate to carry out RESPA's consumer
protection purposes. As identified in the 2013 RESPA Servicing Final
Rule, the consumer protection purposes of RESPA include ensuring that
servicers respond to borrower requests and complaints in a timely
manner and maintain and provide accurate information, helping borrowers
avoid unwarranted or unnecessary costs and fees and facilitating review
for foreclosure avoidance options. Each of the amendments or
clarifications to Regulation X is intended to achieve some or all these
purposes.
Additionally, as explained below, certain of the amendments to
Regulation X implement specific provisions of RESPA.
This final rule also includes amendments to the official Bureau
commentary in Regulation X. Section 19(a) of RESPA authorizes the
Bureau to make such reasonable interpretations of RESPA as may be
necessary to achieve the consumer protection purposes of RESPA. Good
faith compliance with the interpretations affords servicers protection
from liability under section 19(b) of RESPA.
B. TILA
Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to
prescribe regulations to carry out the purposes of TILA. Under section
105(a), such regulations may contain such additional requirements,
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for all or any class of
transactions, as in the judgment of the Bureau are necessary or proper
to effectuate the purposes of TILA, to prevent circumvention or evasion
thereof, or to facilitate compliance therewith. Under section 102(a),
15 U.S.C. 1601(a), the purposes of TILA include assuring the meaningful
disclosure of credit terms to enable consumers to compare more readily
the various credit terms available and avoid the uninformed use of
credit and to protect consumers against inaccurate and unfair credit
billing practices. The Bureau's amendments to Regulation Z carry out
TILA's purposes and such additional requirements, adjustments, and
exceptions as, in the Bureau's judgment, are necessary and proper to
carry out the purposes of TILA, prevent circumvention or evasion
thereof, or to facilitate compliance therewith.
Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to
exempt from all or part of TILA any class of transactions if the Bureau
determines that TILA coverage does not provide a meaningful benefit to
consumers in the form of useful information or protection. For the
reasons discussed in this notice, the Bureau exempts certain
transactions from the requirements of TILA pursuant to its authority
under section 105(f) of TILA.
Additionally, as explained below, certain of the amendments to
Regulation Z implement specific provisions of TILA.
This final rule also includes amendments to the official Bureau
commentary in Regulation Z. Good faith compliance with the
interpretations affords protection from liability under section 130(f)
of TILA.
[[Page 72165]]
C. FDCPA
As explained in the section-by-section analysis, the Bureau also is
issuing an FDCPA interpretive rule in a separate notice issued
concurrently with this Final Rule.\23\ The Bureau exercises its
authority to prescribe rules with respect to the collection of debts by
debt collectors pursuant to section 814(d) of the FDCPA, 15 U.S.C.
1692l(d), and its power to issue advisory opinions under section 813(e)
of the FDCPA, 15 U.S.C. 1692k(e). Under that section, ``[n]o provision
of [the FDCPA] imposing any liability shall apply to any act done or
omitted in good faith in conformity with any advisory opinion of the
Bureau, notwithstanding that after such act or omission has occurred,
such opinion is amended, rescinded, or determined by judicial or other
authority to be invalid for any reason.'' The Bureau relies on this
authority to issue an FDCPA interpretive rule interpreting the
exceptions set forth in section 805(c)(2) and (3) of the FDCPA to
include the written early intervention notice required by proposed
Sec. 1024.39(d)(2)(iii) as well as providing that loss mitigation
information or assistance provided in response to a borrower-initiated
communication should be considered outside the scope of a borrower's
invocation of the cease communication right. The interpretive rule also
interprets the term consumer for purposes of FDCPA section 805 to
include a confirmed successor in interest, as that term is defined in
Regulation X Sec. 1024.31 and Regulation Z Sec. 1026.2(a)(27)(ii).
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\23\ See Bureau of Consumer Fin. Prot., Official Bureau
Interpretations: Safe Harbors from Liability under the Fair Debt
Collection Practices Act for Certain Actions Taken in Compliance
with Mortgage Servicing Rules under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z) (Aug. 4, 2016), available at http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/safe-harbors-liability-under-fair-debt-collection-practices-act-certain-actions-taken-compliance-mortgage-servicing-rules-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z.
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D. The Dodd-Frank Act
Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1),
authorizes the Bureau to prescribe rules ``as may be necessary or
appropriate to enable the Bureau to administer and carry out the
purposes and objectives of the Federal consumer financial laws, and to
prevent evasions thereof.'' RESPA, TILA, the FDCPA, and title X of the
Dodd-Frank Act are Federal consumer financial laws.
Section 1032(a) of the Dodd-Frank Act, 12 U.S.C. 5532(a), provides
that the Bureau ``may prescribe rules to ensure that the features of
any consumer financial product or service, both initially and over the
term of the product or service, are fully, accurately, and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the product or service,
in light of the facts and circumstances.'' The authority granted to the
Bureau in section 1032(a) of the Dodd-Frank Act is broad and empowers
the Bureau to prescribe rules regarding the disclosure of the
``features'' of consumer financial products and services generally.
Accordingly, the Bureau may prescribe rules containing disclosure
requirements even if other Federal consumer financial laws do not
specifically require disclosure of such features.
Section 1032(c) of the Dodd-Frank Act, 12 U.S.C. 5532(c), provides
that, in prescribing rules pursuant to section 1032 of the Dodd-Frank
Act, the Bureau ``shall consider available evidence about consumer
awareness, understanding of, and responses to disclosures or
communications about the risks, costs, and benefits of consumer
financial products or services.'' Accordingly, in amending provisions
authorized under section 1032(a) of the Dodd-Frank Act, the Bureau has
considered available studies, reports, and other evidence about
consumer awareness, understanding of, and responses to disclosures or
communications about the risks, costs, and benefits of consumer
financial products or services.
V. Section-by-Section Analysis
A. Overview of Sections Relating to Successors in Interest in
Regulations X and Z
Introduction
Several aspects of the final rule affect provisions in both
Regulations X and Z. For example, the definition of delinquency in
Sec. 1024.31 affects requirements in Sec. Sec. 1024.39 through
1024.41 of Regulation X, as well as Sec. 1026.41 of Regulation Z.
Generally, the Bureau discusses each section of the final rule under
the heading designating the applicable regulation below--part V.B. for
Regulation X and part V.C. for Regulation Z. However, because the final
rule and commentary relating to successors in interest are interspersed
throughout Regulations X and Z and many commenters addressed multiple
sections of the proposal at once, this combined part V.A. provides an
overview of the successor in interest provisions in the final rule and
related issues raised by commenters for both Regulations X and Z. The
Bureau then discusses each specific section of the final rule relating
to successors in interest in more detail under the heading designating
the applicable regulation below.
Current Sec. 1024.38(b)(1)(vi) provides that servicers are
required to maintain policies and procedures that are reasonably
designed to ensure that the servicer can, upon notification of the
death of a borrower, promptly identify and facilitate communication
with the successor in interest of the deceased borrower with respect to
the property securing the deceased borrower's mortgage loan. The Bureau
adopted this requirement in the 2013 RESPA Servicing Final Rule because
it understood that successors in interest may encounter challenges in
communicating with mortgage servicers about a deceased borrower's
mortgage loan account.\24\
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\24\ 78 FR 10695, 10781 (Feb. 14, 2013).
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The Bureau provided guidance about this requirement in the October
2013 Servicing Bulletin. The Bureau noted that it had received reports
of servicers either refusing to speak to a successor in interest or
demanding documents to prove the successor in interest's claim to the
property that either did not exist or were not reasonably
available.\25\ The Bureau stated that these practices often prevented a
successor in interest from pursuing assumption of the mortgage loan
and, if applicable, loss mitigation options.\26\ The October 2013
Servicing Bulletin provided examples of servicer practices and
procedures that would accomplish the objectives set forth in Sec.
1024.38(b)(1)(vi) and alleviate these problems.\27\
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\25\ October 2013 Servicing Bulletin at 2.
\26\ Id.
\27\ Id. On July 17, 2014, the Bureau also issued an
interpretive rule clarifying that where a successor in interest who
has previously acquired a legal interest in a dwelling agrees to be
added as obligor on the mortgage loan, the servicer's express
acknowledgment of the successor in interest as obligor does not
constitute an ``assumption'' as that term is used in Regulation Z.
See 79 FR 41631, 41632-33 (July 17, 2014). Accordingly, the
Regulation Z Ability-to-Repay Rule does not apply when a creditor
expressly accepts a successor in interest as obligor on a loan under
these circumstances. See id. The interpretive rule also noted that
the servicer must comply with any ongoing obligations pertaining to
consumer credit, such as the ARM notice requirements (12 CFR
1026.20(c) and (d)) and periodic statement requirement (12 CFR
1026.41), after the successor in interest is added as an obligor on
the mortgage note. Id.
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Despite the Bureau's guidance regarding the requirements of the
existing rule, housing counselors and consumer advocacy groups continue
to report, in both published reports and their comments on this
rulemaking, that
[[Page 72166]]
successors in interest face a variety of challenges, including
difficulties in obtaining information about the status of mortgage
loans on their homes or the monthly payment amount, getting servicers
to accept their payments, and finding out their options to avoid
foreclosure.\28\ Housing counselors and consumer advocacy groups have
also reported that servicers often refuse to speak with successors in
interest, tell them they must assume the loan before they can apply for
a loss mitigation option, or accept payments for several months before
telling a successor in interest that the servicer will no longer accept
payments because the successor in interest is not a borrower.
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\28\ See, e.g., Alys Cohen, Nat'l Consumer Law Ctr., Snapshots
of Struggle: Saving the Family Home After a Death or Divorce,
Successors Still Face Major Challenges in Obtaining Loan
Modifications (Mar. 2016), available at https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf; Nat'l Hous. Res. Ctr.,
Servicer Compliance with CFPB Servicing Regulations (Feb. 2016),
available at http://www.hsgcenter.org/wp-content/uploads/2016/02/NHRC-2016-Servicing-Survey-Report.pdf; Nat'l Consumer Law Ctr., NCLC
Survey Reveals Ongoing Problems with Mortgage Servicing (May 2015),
available at http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf; Nat'l Council of La
Raza & Nat'l Hous. Res. Ctr., Are Mortgage Servicers Following the
New Rules? A Snapshot of Compliance with CFPB Servicing Standards 3,
7 (Jan. 9, 2015), available at http://www.nclr.org/Assets/uploads/Publications/mortgageservicesreport_11215.pdf; Nat'l Consumer Law
Ctr., Examples of Cases Where Successors in Interest and Similar
Parties Faced Challenges Seeking Loan Modifications and
Communicating with Mortgage Servicers (July 1, 2014), available at
http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/successor-stories-2014.pdf; Cal. Reinvestment
Coal., Chasm Between Words and Deeds X: How Ongoing Mortgage
Servicing Problems Hurt California Homeowners and Hardest-Hit
Communities (May 2014), available at http://www.calreinvest.org/publications/california-reinvestment-coalition-research; Nat'l Hous.
Res. Ctr., National Mortgage Settlement Servicing Standards and
Noncompliance: Results of a National Housing Counselor Survey 8
(June 5, 2013), available at http://www.hsgcenter.org/wp-content/uploads/2013/06/NMS_Findings.pdf; Cal. Reinvestment Coal., Chasm
Between Words and Deeds IX: Bank Violations Hurt Hardest Hit
Communities (April 2013), available at http://www.calreinvest.org/publications/california-reinvestment-coalition-research. The
Bureau's examiners have also observed non-compliance with Regulation
X's policy and procedure requirement relating to successors in
interest. See Bureau of Consumer Fin. Prot., Supervisory Highlights
Mortgage Servicing Special Edition (Issue 11) at 15-16 (June 2016).
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Consumer advocacy groups emphasized in their comments that
successors in interest also continue to face problems establishing
their successor status. For example, when surveyed by one consumer
advocacy organization about their experiences assisting successors in
interest, a large number of elder advocates including legal services
attorneys and housing counselors reported that they had been asked for
probate documents despite having provided the servicer with a right of
survivorship deed, had been asked to supply the same documents
regarding proof of successor status multiple times, had experienced a
servicer refusing to communicate with a successor in interest at all,
or had dealt with a servicer that was unclear about what documents were
needed to establish successor status. These reports suggest that
widespread confusion remains about the rights and options of successors
in interest.
Moreover, the protections established in the Bureau's existing
rules do not apply to many categories of successors in interest in need
of assistance. The office of a State Attorney General commented that it
continues to receive complaints on behalf of non-borrowers who obtain
property through divorce or other types of family transfers that are
not covered under the current rules.
The ability of successors in interest to sell, encumber, or make
improvements to their property is limited by the lien securing the
mortgage loan. As homeowners of property securing a mortgage loan,
successors in interest typically must satisfy the loan's payment
obligations to avoid foreclosure, even though a successor in interest
will not necessarily have assumed liability for the mortgage debt under
State law. A foreclosure or threatened foreclosure imperils a successor
in interest's ownership interest and poses significant risk of consumer
harm. Successors in interest, like other homeowners, can face serious
adverse consequences from foreclosure. These consumer harms may include
loss of the home and accumulated equity, displacement, and damage to
credit scores.
Successors in interest may also have difficulty, beyond that of
other homeowners, in avoiding foreclosure and may be more likely than
other homeowners to have experienced recently or to be experiencing an
income disruption due to death or divorce. Successors in interest may
also have more difficulty than other homeowners obtaining information
about the status of the mortgage loan, options for loss mitigation, and
payoff information and may be more likely than other homeowners to
experience difficulty with the prompt crediting of their payments,
resulting in unnecessary foreclosure. For all these reasons, successors
in interest are a particularly vulnerable group at risk of substantial
harms.
These difficulties present significant problems related to the
consumer protection purposes of RESPA and TILA and are similar to many
of the problems that prompted the Bureau to adopt the 2013 Mortgage
Servicing Rules. As the Bureau noted in its 2013 RESPA Servicing Final
Rule, RESPA's consumer protection purposes include ensuring that
servicers respond to borrower requests and complaints in a timely
manner and maintain and provide accurate information, helping borrowers
avoid unwarranted or unnecessary costs and fees, and facilitating
review for foreclosure avoidance options. The Dodd-Frank Act provides
the Bureau authority to establish prohibitions on servicers of
federally related mortgage loans appropriate to carry out the consumer
protection purposes of RESPA.\29\ As the proposal explained, the Bureau
believes that further modifications to Regulation X's mortgage
servicing rules relating to successors in interest serve these
purposes, in particular with respect to preventing unnecessary
foreclosure and other homeowner harms, much as the 2013 RESPA Servicing
Final Rule served these consumer protection purposes.
---------------------------------------------------------------------------
\29\ 12 U.S.C. 5512(b)(1).
---------------------------------------------------------------------------
The purposes of TILA are to assure a meaningful disclosure of
credit terms so that the consumers will be able to compare more readily
the various credit terms available and avoid the uninformed use of
credit and to protect consumers against inaccurate and unfair credit
billing practices.\30\ The Bureau believes these purposes are served by
extending the protections of Regulation Z's mortgage servicing rules to
confirmed successors in interest, who, as owners of dwellings securing
mortgage loans, have an interest in obtaining timely and accurate
account information as to the mortgage secured by their dwelling. The
Dodd-Frank Act authorizes the Bureau to modify or create an exemption
from the disclosure requirements of TILA regarding residential mortgage
loans if the Bureau determines that such exemption or modification is
in the interest of consumers and in the public interest.\31\
---------------------------------------------------------------------------
\30\ 15 U.S.C. 1601(a).
\31\ Dodd-Frank Act section 1405(b), 15 U.S.C. 1601 note.
---------------------------------------------------------------------------
As explained in more detail in the discussion that follows and in
the section-by-section analysis of the final rule sections,\32\ the
Bureau proposed three sets of rules relating to successors in interest.
First, the Bureau proposed rules to define successors in interest for
[[Page 72167]]
purposes of Regulation X's subpart C and Regulation Z as those persons
who acquired an ownership interest in the property securing a mortgage
loan in a transfer protected by the Garn-St Germain Depository
Institutions Act of 1982 (the Garn-St Germain Act).\33\ Second, the
Bureau proposed rules relating to how a mortgage servicer confirms a
successor in interest's identity and ownership interest in the
property. Third, the Bureau proposed to apply certain mortgage
servicing rules to successors in interest whose identity and ownership
interest in the property have been confirmed by the servicer.
---------------------------------------------------------------------------
\32\ See section-by-section analyses of Sec. Sec. 1024.30(d),
1024.31, 1024.36(i), 1024.38(b)(1)(vi), 1024.39(b)(1), 1024.41(b),
1026.2(a)(11), 1026.2(a)(27), and 1026.41(a), infra.
\33\ 12 U.S.C. 1701j-3(d).
---------------------------------------------------------------------------
The Bureau received more comments on the successor in interest
provisions than on any other aspect of the proposal. As noted above, in
their comments, consumer advocacy groups reported that successors in
interest continue to face challenges with respect to the servicing of
mortgage loans secured by their property. These commenters generally
expressed support for the Bureau's proposal and, in many instances,
urged the Bureau to adopt additional or broader protections for
successors in interest. Servicers, trade associations, and other
industry commenters, however, raised a variety of concerns about the
Bureau's proposal, including operational challenges, privacy concerns,
and questions about the Bureau's legal authority and the proposal's
interaction with other laws.
As explained in more detail in the discussion that follows and in
the section-by-section analysis of the final rule sections, the Bureau
is finalizing the three sets of rules relating to successors in
interest with significant adjustments to address concerns raised in the
comments. The Bureau believes that the successor in interest provisions
in the final rule are necessary to address the significant problems
successors in interest continue to encounter with respect to the
servicing of mortgage loans secured by their property, such as lack of
access to information about the mortgage loan. The Bureau also believes
that the rule, as finalized, addresses the operational, privacy, and
other significant concerns raised by commenters.
As explained below, the final rule defines successor in interest
and establishes requirements relating to confirming successors in
interest. It also extends to confirmed successors in interest the
protections of the mortgage servicing rules that the Bureau identified
in the proposal (Regulation X's subpart C and Sec. Sec. 1026.20(c),
(d), and (e), 1026.36(c), and 1026.41), as well as two additional
protections that were not part of the proposal (Sec. Sec. 1024.17 and
1026.39). These provisions are referred to herein collectively as the
Mortgage Servicing Rules.\34\
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\34\ The term Mortgage Servicing Rules has a broader meaning as
used herein than it did in the proposal, where the Bureau used it to
refer to the 2013 Mortgage Servicing Rules as amended in 2013 and
2014. The term Mortgage Servicing Rules as used herein includes
Sec. Sec. 1024.17 and 1026.39 in addition to the 2013 Mortgage
Servicing Rules as amended in 2013 and 2014.
---------------------------------------------------------------------------
Consistent with the proposal, coverage under the final rule does
not depend on whether a successor in interest has assumed the mortgage
loan obligation (i.e., legal liability for the mortgage debt) under
State law. Whether a successor in interest has assumed a mortgage loan
obligation under State law is a fact-specific question. The final rule
does not affect this question but applies with respect to a successor
in interest regardless of whether that person has assumed the mortgage
loan obligation under State law.\35\ As explained in comment 30(d)-2 to
Regulation X and in comment 2(a)(11)-4 to Regulation Z, if a successor
in interest assumes a mortgage loan obligation under State law or is
otherwise liable on the mortgage loan obligation, the protections the
successor in interest enjoys under Regulations X and Z are not limited
to the protections that apply under Sec. Sec. 1024.30(d) and
1026.2(a)(11) to a confirmed successor in interest.
---------------------------------------------------------------------------
\35\ As noted, the Bureau has also clarified in an interpretive
rule that where a successor in interest who has previously acquired
a legal interest in a dwelling agrees to be added as obligor on the
mortgage loan, the servicer's express acknowledgment of the
successor in interest as obligor does not constitute an
``assumption'' as that term is used in Regulation Z. See 79 FR
41631, 41632-33 (July 17, 2014).
---------------------------------------------------------------------------
Scope of Successor in Interest Rules
The Bureau proposed changes regarding who is considered a successor
in interest for purposes of Regulation X's subpart C and Regulation Z.
Current Sec. 1024.38(b)(1)(vi) refers to the successor in interest of
the deceased borrower. The Bureau proposed to define successor in
interest using definitions based on section 341(d) of the Garn-St
Germain Act, which generally prohibits the exercise of due-on-sale
clauses with respect to certain protected transfers.\36\ The Act
protects certain types of transfers involving the death of a
borrower.\37\ In addition, the Garn-St Germain Act protects other
categories of transfers: A transfer where the spouse or children of the
borrower become an owner of the property; a transfer resulting from a
decree of a dissolution of marriage, legal separation agreement, or
from an incidental property settlement agreement, by which the spouse
of the borrower becomes an owner of the property; a transfer into an
inter vivos trust in which the borrower is and remains a beneficiary
and which does not relate to a transfer of rights of occupancy in the
property; and any other transfer or disposition described in
regulations prescribed by the Federal Home Loan Bank Board.\38\
---------------------------------------------------------------------------
\36\ 12 U.S.C. 1701j-3(d).
\37\ Specifically, the Act protects a transfer to a relative
resulting from the death of a borrower and a transfer by devise,
descent, or operation of law on the death of a joint tenant or
tenant by the entirety. Id.
\38\ Id. The Garn-St Germain Act also prohibits exercise of due-
on-sale clauses with respect to certain other situations that do not
involve transfer of an ownership interest in the property. Id. The
Bureau's proposal would not have applied to these situations.
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The Bureau proposed that, to the extent that certain mortgage
servicing rules apply to successors in interest, the rules would apply
to all successors in interest who acquired an ownership interest in the
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act, rather than only successors in interest who acquired an
ownership interest upon a borrower's death. Accordingly, for the
purposes of Regulation X, the Bureau proposed to define successor in
interest in Sec. 1024.31 as a member of any of the categories of
successors in interest who acquired an ownership interest in the
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act. The Bureau also proposed to modify current Sec.
1024.38(b)(1)(vi) to account for all transfers to successors in
interest meeting this definition. Similarly, for the purposes of
Regulation Z, proposed Sec. 1026.2(a)(27) would have defined successor
in interest to cover all categories of successors in interest who
acquired an ownership interest in the dwelling securing a mortgage loan
in a transfer protected by the Garn-St Germain Act.
For the reasons that follow and that are explained in the section-
by-section analyses of Sec. Sec. 1024.31 and 1026.2(a)(27)(i), the
final rule includes definitions of successor in interest in Sec. Sec.
1024.31 and 1026.2(a)(27)(i) that are modeled on categories of
transfers protected in the Garn-St Germain Act, but the definitions do
not cross-reference the Garn-St Germain Act itself. Specifically, after
reviewing the comments, the Bureau is defining successor in interest
for purposes of subpart C of Regulation X in Sec. 1024.31 to mean a
person to whom an ownership interest in a property
[[Page 72168]]
securing a mortgage loan subject to subpart C is transferred from a
borrower, provided that the transfer falls in one or more of the
following categories:
A transfer by devise, descent, or operation of law on the
death of a joint tenant or tenant by the entirety;
A transfer to a relative resulting from the death of a
borrower;
A transfer where the spouse or children of the borrower
become an owner of the property;
A transfer resulting from a decree of a dissolution of
marriage, legal separation agreement, or from an incidental property
settlement agreement, by which the spouse of the borrower becomes an
owner of the property; or
A transfer into an inter vivos trust in which the borrower
is and remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property.\39\
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\39\ The Bureau interprets ``spouse'' to include married same-
sex spouses. See Memorandum on Ensuring Equal Treatment for Same-Sex
Married Couples (Same-Sex Married Couple Policy) (June 25, 2014),
available at http://files.consumerfinance.gov/f/201407_cfpb_memo_ensuring-equal-treatment-for-same-sex-married-couples.pdf.
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The Bureau is finalizing an analogous definition for Regulation Z
in Sec. 1026.2(a)(27)(i).\40\
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\40\ The final rule's definition of successor in interest for
Regulation Z is identical to the definition for subpart C of
Regulation X, except that the Regulation Z definition substitutes
``a dwelling securing a closed-end consumer credit transaction is
transferred from a consumer'' for ``a property securing a mortgage
loan is transferred from a borrower'' and substitutes ``consumer''
for ``borrower'' throughout. Both definitions of successor in
interest are limited to transferees who receive an ownership in
property that secures closed-end credit because Sec. 1024.31
defines mortgage loan for purposes of Regulation X subpart C to
exclude open-end lines of credit and Sec. 1026.2(a)(27)(i) refers
to closed-end consumer credit transactions. However, transferees of
properties that secure open-end credit are entitled to protection as
borrowers under RESPA and Regulation X and consumers under TILA and
Regulation Z if they assume the loan obligation under State law or
are otherwise liable on the mortgage loan obligation and may be
protected under other laws.
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Whether to use the Garn-St Germain Act categories at all in
defining successor in interest. Commenters offered different views on
whether the Bureau should use the Garn-St Germain Act categories at all
in defining the term successor in interest. Consumer advocacy groups
and some State and local government commenters expressed support for
including the Garn-St Germain Act categories in the definition.\41\ For
example, one consumer advocacy group indicated that, for a large
percentage of the successors in interest it has assisted, the
servicers' refusal to provide any information about the status of the
account to the successor in interest has led to prolonged delinquency
and unnecessary foreclosure proceedings. This group stated that it
believes that the proposed definition of successor in interest would
offer important protections to prevent unnecessary foreclosures and
reduce unnecessary delays in reaching agreements. Another consumer
advocacy group indicated that extending the rules to include all
protected transfers under the Garn-St Germain Act would significantly
benefit its vulnerable clients.
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\41\ As discussed infra, these commenters generally also favored
adding additional categories to the proposed definitions of
successor in interest for Regulation X subpart C and Regulation Z.
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The office of a State Attorney General expressed support for
extending protections to the Garn-St Germain Act categories and
indicated that servicers often refuse to communicate with divorcees and
other family transferees. A local government commenter also expressed
strong support for including in the definition successors in interest
who meet the criteria set forth in the Garn-St Germain Act based on its
experience running a mortgage foreclosure diversion program over the
past seven years.
Some industry commenters objected to the use of the Garn-St Germain
Act framework in defining who is a successor in interest. Two trade
associations stated that Congress did not intend for the Garn-St
Germain Act to protect against any consequences of delinquency. These
commenters stated that section 341 of the Garn-St Germain Act was
designed to address when lenders may and may not require a loan
modification. One of these trade associations suggested that the Garn-
St Germain Act categories are not well-suited for use in the successor
in interest definitions because a child who buys a property from a
parent would be protected but a parent who buys a property from a child
would not. Another trade association stated that the sole purpose of
the Garn-St Germain Act was to preempt acceleration based on certain
transfers of ownership on residential properties.
Despite the concerns expressed by some commenters, the Bureau
continues to believe that it is appropriate to align the successor in
interest definitions in Regulations X and Z in large part with the
categories in section 341(d) of the Garn-St Germain Act. Although a few
industry commenters attempted to characterize this provision
differently, the text of section 341(d) clearly provides a broad
exemption from due-on-sale enforcement for various categories of
transfers. The legislative history of the Garn-St Germain Act reflects
that Congress chose to create this broad exemption because it deemed
such enforcement unfair and inappropriate.\42\ For the same reasons
that due-on-sale enforcement would be inappropriate in the context of
these transfers, the Bureau believes it is also important to ensure
that servicers do not interfere in other ways with the transferees'
ability to take advantage of their ownership interest in the property.
For example, just as due-on-sale enforcement can result in a successor
in interest losing a property, a servicer's failure to provide
information to a successor in interest about the status of a mortgage
loan or to evaluate the successor in interest for available loss
mitigation options could result in unnecessary foreclosure and loss of
the successor in interest's ownership interest.
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\42\ See S. Rep. No. 536, 97th Cong., at 24 (1982), reprinted in
1982 U.S.C.C.A.N. 3054, 3078 (``The Committee believes that it would
be unfair and inappropriate for lenders to enforce due-on-sale
clauses under certain circumstances--such as involuntary transfers
resulting from the death of a borrower, transfers which rearrange
ownership rights within a family, or transfers resulting from a
separation or dissolution of a marriage. Similarly, further
encumbrances of the property, such as second mortgages which are
often used by families to send a child to college, or finance home
improvements, will not trigger due-on-sale enforcement as long as
the encumbrance does not relate to a transfer of rights of occupancy
in the property.'').
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Congress identified in the Garn-St Germain Act the categories that
it felt warranted protection from one type of foreclosure risk. The
Bureau agrees that these general categories include the most vulnerable
classes of transferees and has concluded that it is important to
protect such transferees from other types of foreclosure risk and
servicing abuses.
Notwithstanding the suggestion of one commenter to the contrary,
the Bureau also believes that the categories established in section
341(d) of the Garn-St Germain Act provide adequate protection for
transfers from child to parent. Section 341(d)(5) includes transfers
from a relative (including from a child to a parent or from a parent to
a child) that occur upon the death of a borrower. Section 341(d)(6)
also includes ownership transfers from a parent to a child and between
spouses that occur during the life of the borrower. The fact that
section 341(d) does not include transfers from a child to a parent that
occur during the life of the transferor reflects Congress's
determination that transfers from parent to child need greater
protection from due-on-sale enforcement. The Bureau
[[Page 72169]]
believes that the same policy choice is appropriate in defining
successor in interest in Regulations X and Z because lifetime transfers
to children and spouses are both more common than lifetime transfers to
parents and more central to ensuring that familial homesteads and
wealth will be available to the next generation.\43\
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\43\ Another commenter suggested that using the Garn-St Germain
Act categories could create inequitable results, noting that if
three descendants inherit an unencumbered property that is later
encumbered by only one descendant, there would be no successor in
interest, but if the parent had encumbered the property with a
mortgage loan prior to the inheritance, all three descendants would
be successors in interest. The Bureau believes, however, that those
situations are not comparable. In the former case, where the
transfer of ownership occurs before the encumbrance, the interests
of the heirs are generally only subject to the mortgage if they have
consented to the mortgage.
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Whether to cross-reference the Garn-St Germain Act in the
definitions and whether to incorporate limitations imposed by the Garn-
St Germain Act implementing regulations. Industry commenters asked
whether the Bureau intended to incorporate the occupancy requirements
of the Garn-St Germain Act implementing regulations administered by the
Office of the Comptroller of the Currency (OCC), 12 CFR 191.5(b). The
implementing regulations impose certain occupancy requirements and
expressly exclude reverse mortgages from the scope of Garn-St Germain
due-on-sale protection.\44\ Commenters indicated uncertainty about
whether the Bureau intended to apply the occupancy requirements that
appear only in the Garn-St Germain Act implementing regulations and not
in the Garn-St Germain Act.
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\44\ 12 CFR 191.5(b).
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An industry commenter suggested that the Bureau should omit
reference to the Garn-St Germain Act in Regulations X and Z and instead
enumerate the categories of transfers of ownership that would qualify
for regulatory protection, in order to avoid unintended consequences.
Other industry commenters asked the Bureau to clarify in the final rule
how the existing exemptions and scope limitations in Regulations X and
Z would apply to the servicing of a mortgage loan with respect to a
successor in interest.
A trade association urged the Bureau to exempt reverse mortgages
entirely. It stated that existing guidelines, protocols, and timelines
governing Home Equity Conversion Mortgages insured by the Federal
Housing Administration (FHA) require servicers of such reverse
mortgages to reach out to and deal with persons who might fall within
the Bureau's definition of successor in interest. This trade
association said that its membership indicated that servicers of non-
FHA-insured reverse mortgages follow similar processes. It also noted
that reverse mortgages are exempt from many of the mortgage servicing
requirements in Regulations X and Z. It suggested that applying the
successor in interest requirements to reverse mortgage servicers would
be burdensome and would provide little if any practical benefits given
the servicing protocols and requirements already in place in the
reverse mortgage industry.
A trade association requested that small servicers be exempted from
complying with the prescriptive requirements of the successor in
interest provisions. It stated that tracking successors in interest
could require costly system modifications. The commenter indicated that
an exemption for small servicers would be consistent with the Bureau's
approach to other general servicing requirements for small servicers.
By contrast, several consumer advocacy groups urged the Bureau to
expand the requirements for small servicers beyond those in the
proposal to require small servicers to comply with all of the proposed
requirements of Sec. 1024.38(b)(1)(vi).
Upon consideration, the Bureau has decided to incorporate the
relevant categories of transfers directly into the final rule, rather
than relying on a cross-reference to the Garn-St Germain Act.
Accordingly, the final rule lists the specific categories of transfers
that qualify a transferee to be a successor in interest, using
categories that are modeled on categories protected by the Garn-St
Germain Act. To ensure that the scope of the final rule does not change
over time without further rulemaking by the Bureau, the Bureau has
omitted the Garn-St Germain Act category that protects from due-on-sale
enforcement any other transfer or disposition described in the Garn-St
Germain Act implementing regulations.\45\ The Bureau believes that
listing the specific categories rather than including a cross-reference
makes the definitions in Regulations X and Z clearer and easier to
apply.
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\45\ 12 U.S.C. 1701j-3(d)(9). There are no such other categories
currently in the OCC's regulation. See 12 CFR 191.5(b)(1). The
Bureau has also omitted several categories in the Garn-St Germain
Act that do not result in a transfer of ownership interest and that
are therefore irrelevant for successor in interest status. See 12
U.S.C. 1701j-3(d)(1), (2), (4); see also 79 FR 74176, 74181 n.28
(Dec. 15, 2014) (noting that the proposal would not apply to the
situations described in these categories).
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In restating the categories in the final rule, the Bureau has not
incorporated certain scope limitations imposed by the Garn-St Germain
Act itself or its implementing regulations. The Bureau notes that many
of those limitations are similar in nature to those in the Mortgage
Servicing Rules themselves and believes that it will be easier for
servicers and more protective for consumers to let the Mortgage
Servicing Rules' limitations determine the scope of coverage
consistently for confirmed successors in interest as for other
borrowers under the Mortgage Servicing Rules, rather than to import
slightly varying limitations in the Garn-St Germain Act or OCC
regulations.\46\ The Mortgage Servicing Rules thus generally apply to
confirmed successors in interest in the same manner that they do to
other borrowers.
---------------------------------------------------------------------------
\46\ While the Garn-St Germain Act and its implementing
regulations define a category of transactions that should receive
protection from foreclosure through the exercise of a due-on-sale
clause, the focus of the Garn-St Germain Act and its implementing
regulations is solely on operation of due-on-sale protections, and
the Bureau's focus, while related, is somewhat different.
---------------------------------------------------------------------------
For example, section 341(d) of the Garn St-Germain Act by its terms
only applies with respect to a real property loan secured by a lien on
residential real property containing less than five dwelling units,
including a lien on the stock allocated to a dwelling unit in a
cooperative housing corporation, or on a residential manufactured
home.\47\ For ease of application and to align with other parts of
Regulations X and Z, the Bureau has not incorporated these limitations
into the definitions of successor in interest in the final rule.
Instead, the definitions of successor in interest in the final rule
incorporate the scope limitations from Regulations X and Z respectively
by, for example, referring to a mortgage loan in the definition of
successor in interest in Sec. 1024.31 and to a dwelling securing a
closed-end consumer credit transaction in Sec. 1026.2(a)(27)(i).\48\
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\47\ 12 U.S.C. 1701j-3(d).
\48\ See, e.g., Sec. 1024.31 (defining mortgage loan for
purposes of Regulation X subpart C as any federally related mortgage
loan, as that term is defined in Sec. 1024.2 subject to the
exemptions in Sec. 1024.5(b), but not including open-end lines of
credit (home equity plans)); Sec. 1026.2(a)(19) (defining dwelling
for Regulation Z as a residential structure that contains one to
four units, whether or not that structure is attached to real
property, and noting that the term includes an individual
condominium unit, cooperative unit, mobile home, and trailer, if it
is used as a residence).
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The Bureau has also decided not to incorporate certain limitations
imposed by the Garn-St Germain Act implementing regulations. The
implementing regulations issued by the OCC's predecessor, the Federal
Home
[[Page 72170]]
Loan Bank Board, exempt reverse mortgages from the due-on-sale
protections in Garn-St Germain Act section 341(d).\49\ They also impose
certain occupancy requirements, which limit protection from due-on-sale
enforcement to circumstances where the property was occupied or was to
be occupied by the borrower.\50\ The implementing regulations further
limit protection from due-on-sale enforcement to circumstances where
the transferee occupies or will occupy the property if it is an intra-
familial transfer and to circumstances where the borrower is and
remains an occupant of the property if it is a transfer to an inter
vivos trust.\51\
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\49\ 12 CFR 191.5(b)(1).
\50\ 12 CFR 191.5(b).
\51\ 12 CFR 191.5(b)(1)(v), (vi).
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Rather than incorporating these scope limitations into the final
rule, the Bureau has decided to apply the exemptions and scope
limitations in the existing Mortgage Servicing Rules to the servicing
of a mortgage loan with respect to a confirmed successor in interest,
as it proposed to do. For example, Sec. 1024.30(b) exempts small
servicers from Sec. Sec. 1024.38 through 1024.41 (except Sec.
1024.41(j)). Likewise, Sec. 1024.30(b) provides an exemption from
these sections with respect to reverse mortgage transactions and
mortgage loan for which the servicer is a qualified lender as that term
is defined in 12 CFR 617.7000. Accordingly, except as otherwise
provided in Sec. 1024.41(j), and consistent with the generally
applicable scope limitations of the Mortgage Servicing Rules,
Sec. Sec. 1024.38 through 1024.41 do not apply to confirmed successors
in interest with respect to small servicers, reverse mortgage
transactions, and mortgage loans for which the servicer is a qualified
lender. Similarly, Sec. 1024.30(c) provides that Sec. 1024.33(a) only
applies to reverse mortgage loan transactions and that Sec. Sec.
1024.39 through 1024.41 only apply to mortgage loans secured by
property that is a borrower's principal residence. Accordingly, with
respect to confirmed successors in interest, Sec. 1024.33(a) only
applies to reverse mortgage loan transactions, and Sec. Sec. 1024.39
through 1024.41 only apply to mortgage loans secured by property that
is the confirmed successor in interest's principal residence.\52\
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\52\ In response to questions raised by commenters, the final
rule clarifies in comments 30(d)-1 and 41(b)-1.ii to Regulation X
that a property must be the confirmed successor in interest's
primary residence for the procedures in Sec. 1024.41 to apply.
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The Mortgage Servicing Rules in Regulation Z contain similar
exemptions and scope limitations, which also apply to the treatment of
confirmed successors in interest under the final rule. For example,
creditors, assignees, and servicers are exempt from Sec. 1026.41's
periodic statement requirements for mortgage loans serviced by a small
servicer, as defined in Sec. 1026.41(e)(4).\53\
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\53\ Section 1026.41 defines servicers to mean creditors,
assignees, or servicers for the purposes of Sec. 1026.41. The
Bureau, therefore, also uses the term servicer to mean a creditor,
assignee, or servicer in this discussion and in the section-by-
section analysis of Sec. 1026.41.
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Applying these existing exemptions and scope limitations to the
servicing of a mortgage loan with respect to a confirmed successor in
interest promotes clarity and consistency with other aspects of
Regulations X and Z, making the rules easier to apply. It also furthers
the policy goals that led to the adoption of those exemptions and scope
limitations in the existing Mortgage Servicing Rules. In adopting the
2013 Mortgage Servicing Rules, the Bureau weighed relevant
considerations for the exemptions and scope limitations and made a
series of carefully calibrated judgments about the circumstances under
which each of the rule's protections should apply.\54\ For example, in
limiting the scope of Sec. Sec. 1024.39 through 1024.41 to mortgage
loans that are secured by a borrower's principal residence in Sec.
1024.30(c), the Bureau noted that the purpose of the early intervention
requirement, the continuity of contact requirement, and the loss
mitigation procedures is to help borrowers stay in their principal
residences, where possible, while mitigating the losses of loan owners
and assignees, by ensuring that servicers use clear standards of review
for loss mitigation options.\55\ The Bureau did not believe that this
purpose would be furthered by extending those protections to mortgage
loans for investment, vacation, or other properties that are not
principal residences.\56\ These same considerations support applying
the same exemptions and scope limitations in the context of confirmed
successors in interest.
---------------------------------------------------------------------------
\54\ See, e.g., 78 FR 10696, 10718-22 (Feb. 14, 2013).
\55\ Id. at 10722.
\56\ For example, the Bureau noted that, for properties that are
not the borrower's principal residence, the protections set forth in
Sec. Sec. 1024.39 through 41 might only serve to assist a non-
occupying borrower to maintain cash flow from rental revenue during
a period of delinquency. Id. Further, the Bureau recognized that,
for certain properties that are not principal residences, there is a
significant risk that a property may not be maintained and may
present hazards and blight to local communities. Id. The Bureau also
noted that this limitation is consistent with the California
Homeowner Bill of Rights and the National Mortgage Settlement and
that its incorporation would further the goal of creating uniform
standards. Id.
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Applying occupancy requirements from the Garn-St Germain Act
implementing regulations to successors in interest would make
Regulations X and Z more complex and difficult to implement and
administer and would offer less protection to successors in interest.
While certain Mortgage Servicing Rules will not apply due to existing
exemptions and scope limitations,\57\ the Bureau believes that
successors in interest will benefit from other protections of the
Mortgage Servicing Rules even if they do not occupy or intend to occupy
the property, just as non-occupant borrowers currently do. For example,
successors in interest, whether occupants or non-occupants, often
encounter difficulties accessing information about the mortgage account
and making payments and will benefit from the ability to submit
requests for information and request payoff statements once they are
confirmed.
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\57\ See, e.g., Sec. 1024.30(c)(2).
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The Bureau also believes it is appropriate to include reverse
mortgages to the same extent that they are covered under the existing
Mortgage Servicing Rules. The Bureau recognizes that there are many
ways in which reverse mortgages differ from other mortgages. The
exemptions and scope limitations in the existing Mortgage Servicing
Rules are already tailored to these differences and ensure that
consumers with reverse mortgages benefit from the protections that are
relevant to their situations and that reverse mortgage servicers are
not required to comply with Regulation X and Z protections that are not
relevant to reverse mortgages. When a reverse mortgage is secured by a
property that is acquired by a successor in interest, the successor in
interest will benefit upon confirmation from the ability to invoke the
Mortgage Servicing Rules that apply to reverse mortgages, just as the
transferor borrower might benefit. For example, in many instances,
successors in interest to properties that are secured by reverse
mortgages will need to pay off the reverse mortgage in order to protect
their ownership interest and will benefit from the information in a
payoff statement available under Sec. 1026.36(c). The Bureau believes
that it will be easier for servicers to follow consistent rules with
regard to reverse mortgages regardless of whether there has been a
succession of interest with respect to a particular property and that
such an approach provides greater protections to consumers that are
[[Page 72171]]
calibrated to the context of the Mortgage Servicing Rules.
The final rule also applies the same exemptions for small servicers
that currently apply under the Mortgage Servicing Rules. Although a
trade association suggested that it would be consistent with other
mortgage servicing requirements to exempt small servicers entirely from
the successor in interest provisions, the Bureau believes that the most
consistent approach is to apply the same exemptions that exist in
current Regulations X and Z to the final rule's new successor in
interest provisions. These exemptions reflect the unique circumstances
of small servicers, which may not have systems in place to implement
certain requirements in a cost-effective way given their size. Although
some consumer advocacy groups suggested that the Bureau should subject
small servicers to the policies and procedures requirements in Sec.
1024.38(b)(1)(vi), the Bureau believes that requiring small servicers
to develop such policies and procedures could cause small servicers to
incur incremental expenses which, because of their size, would be
burdensome for them. Under the final rule, as under the proposal, Sec.
1024.36(i), but not Sec. 1024.38(b)(1)(vi), applies to small
servicers. Accordingly, small servicers, for example, must respond to
requests for information under Sec. 1024.36(i) by providing a written
description of the documents the servicer reasonably requires to
confirm the person's identity and ownership interest in the property
within the timeframe set forth in Sec. 1024.36, even though small
servicers are not required to maintain policies and procedures to
determine promptly what documents the servicer reasonably requires to
confirm the successor in interest's identity and ownership interest in
the property. The Bureau believes that this approach appropriately
balances the burden on small servicers with confirmed successors in
interest's need to receive this information.
Whether to limit the Garn-St Germain Act categories to situations
involving death, to persons who have assumed the loan obligation, or in
other significant ways. Some industry commenters suggested narrowing
the scope of the successor in interest provisions in various ways. A
number of industry commenters suggested limiting the categories to
situations involving the death of an obligor, as the current rule does,
or the death of all obligors. These commenters said that providing
loan-related information to a successor in interest who is not liable
on the note could violate the financial privacy of living obligors and
result in liability for servicers.
Other industry commenters suggested limiting the scope to
successors in interest who obtain their interest through death or
divorce, sometimes with additional triggering criteria. An industry
commenter suggested limiting the scope to situations involving a
mortgage transaction where either the borrower is deceased or the loan
is in default due to delinquency and the borrower is unwilling to work
with the servicer to resolve the default. A trade association suggested
that the definition should be limited to circumstances where the
successor inherits property after death, has been awarded property in a
divorce action, or has received a quitclaim deed from the borrower.
Some industry commenters suggested other limiting factors for
recognizing successors in interest. A trade association stated that
transfers where the transferor borrower retains ownership rights and
remains obligated on the loan do not actually involve a succession of
interest. Some industry commenters also suggested that the Bureau
should impose occupancy restrictions in the definition--for example, by
limiting the definition to individuals who occupy the property as a
primary residence. Two industry commenters urged the Bureau to exclude
from the definition of successors in interest third parties who become
successors in interest through ``take over the payments,'' contracts
for deed, wrap notes, and similar sales transactions that are
unauthorized by mortgagees and are in violation of due-on-sale clauses
in the mortgage instruments.
In suggesting these limitations, some commenters expressed concern
about excessive regulatory burden. Other industry commenters asserted
that the scope of the successor in interest definitions in the proposal
would allow borrowers to transfer the property solely to delay
foreclosure and to influence whose income is considered in loss
mitigation, which would impose additional costs on the holder of the
mortgage. Others suggested that the definition should not include
transfers while the transferor borrower is living (such as transfers
where the child of a borrower becomes an owner or transfers into an
inter vivos trust) because living transferor borrowers always have the
option to create authority in a transferee through a power of attorney
or other means should they wish to do so.
A number of industry commenters suggested that the Bureau should
exclude anyone who has not assumed the mortgage loan obligation from
the definitions of successor in interest in order to address their
concerns about being required to interact with a person not legally
obligated on the note. One commenter stated that it would not be
appropriate to grant statutory rights to a person who is a legal
stranger to the owner of the loan and against whom the owner of the
loan may not proceed if the loan becomes delinquent. Another suggested
that the primary reason that borrowers receive many protections under
the mortgage servicing rules is because they have undertaken a
substantial obligation to repay a loan and could suffer significant
negative ramifications if they fail to meet that obligation. Some
commenters expressed concern that the proposal would allow someone who
is not a party to the loan agreement to modify its terms. A trade
association indicated that treating people who have not assumed the
loan as successors in interest would raise serious privacy concerns and
suggested that the Bureau should provide a safe harbor if the final
rule requires disclosure of nonpublic borrower information to non-
obligated co-owners. Other industry commenters urged the Bureau to
provide clarification, potentially in commentary, on the privacy
implications of the proposed provision's coverage of successors-in-
interest who have not assumed the mortgage loan obligation under State
law.
By contrast, consumer advocacy groups and government commenters
emphasized in their comments the need for broad coverage. A State
Attorney General's office noted that it often must intervene on behalf
of vulnerable non-borrowers who obtain an interest in a property
through divorce or otherwise. It observed that servicers fail to
communicate with these homeowners even when the loans at issue are
owned by Fannie Mae and Freddie Mac, both of which have long directed
servicers to work with divorcees. Several consumer advocacy groups
reported that a large number of attorneys and housing counselors
representing homeowners across the United States have been asked to
supply a quitclaim deed to the servicer, even where the successor in
interest had already provided a copy of a divorce decree that clearly
transferred the property. One consumer advocacy group noted that it has
seen cases involving divorced spouses and other intra-family transfers,
as well as heirs, and that a large percentage of its successor in
interest cases have led to prolonged delinquency and unnecessary
foreclosure proceedings due to the servicers' refusal to provide any
[[Page 72172]]
information about the status of the account to the successor in
interest.
Another consumer advocacy group expressed particular concern about
the need to protect successors in interest who have experienced
intimate partner violence. This commenter explained that, for example,
survivors of spousal abuse often receive the marital home in a divorce
only to have mortgage servicers refuse to provide them with information
about the mortgage loan if the loan is in the name of the former
spouse. It also noted that survivors of spousal abuse often need to
request loss mitigation assistance because of their changed economic
circumstances after a divorce but are told they cannot apply for loss
mitigation without the participation of the former spouse. The
commenter noted that giving abusers sole access to necessary
information about the loan or requiring their participation for loss
mitigation applications perpetuates the dynamics of power and control
inherent in abusive relationships.
A consumer advocacy group stated that assumption should not be a
requirement for confirmation because successors in interest cannot
evaluate whether it is in their best interests to assume a loan unless
they have information about the status of the loan and whether it will
be possible to avoid foreclosure. This commenter noted that successors
in interest are harmed if they assume liability on a loan that is in
default or foreclosure only to discover that there is no feasible loss
mitigation option. The office of a State Attorney General raised
similar concerns.
The Bureau is not limiting the scope, as industry commenters
suggested, and is expanding the scope beyond the current rule's
limitation to situations involving death. In issuing current Sec.
1024.38(b)(1)(vi), the Bureau relied on information about difficulties
faced by surviving spouses, children, and other relatives who succeed
in the interest of a deceased borrower to a property that the successor
in interest also occupied as a principal residence, when that property
is securing a mortgage loan account solely in the name of the deceased
borrower.\58\ Since that time, the Bureau has received additional
information that other categories of successors in interest who acquire
an ownership interest in the property securing a mortgage loan in a
transfer protected by the Garn-St Germain Act, such as divorced
spouses, face similar difficulties to those identified by the Bureau in
issuing the original policies and procedures requirement.\59\ Many
commenters confirmed that successors in interest who are transferred an
ownership interest in property securing a mortgage loan upon divorce
and through other protected transfers face similar challenges to those
faced by successors in interest after a borrower's death, including,
for example, difficulty obtaining information about the mortgage loan.
In light of the information received through comments and published
reports and the Bureau's market knowledge, the Bureau concludes that
many successors in interest in the Garn-St Germain Act categories that
do not involve a borrower's death face the same risk of unnecessary
foreclosure and other consumer harm with respect to the mortgage loan
and property as successors in interest who receive an ownership
interest upon a borrower's death.
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\58\ 78 FR 10695, 10781 (Feb. 14, 2013).
\59\ For example, a national survey of attorneys and housing
counselors representing homeowners in 2015 found that 55 percent of
respondents were asked by a servicer to supply a quitclaim deed in
circumstances where one was not needed or available because a
divorce decree clearly transferred the property. Nat'l Consumer Law
Ctr., NCLC Survey Reveals Ongoing Problems with Mortgage Servicing
1-2 (May 2015), available at http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf.
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The Bureau does not believe it would be appropriate to limit the
scope of the definition to transfers occurring upon death or to impose
any of the alternative limitations suggested by commenters. As many
commenters noted, divorcees and individuals who are legally separated
from their spouses often need to communicate with servicers regarding
mortgage loans that encumber property they have obtained through the
divorce or legal separation process. Similarly, children or spouses who
receive an ownership interest during the life of the transferor
borrower and beneficiaries of inter vivos trusts may need information
about the mortgage loan in order to ensure the property does not go
into default or foreclosure. This can be particularly important in
cases where the transferor borrower is unwilling or unable to handle
financial matters relating to the property. Congress included these
categories in the Garn-St Germain Act, as well as various categories
occurring on the death of the transferor borrower, because it concluded
that due-on-sale enforcement would be unfair and inappropriate with
respect to these transferees.\60\ The Bureau believes that these
transferees are also at risk of losing the home or falling behind on
the mortgage if they do not receive timely information from the
servicer and are unable to communicate with the servicer about the
mortgage loan. The Bureau, therefore, has decided not to exclude from
the scope of the final rule's successor in interest protections the
various Garn-St Germain Act categories of ownership interest transfers
that occur during the life of the transferor borrower.
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\60\ See S. Rep. No. 536, 97th Cong., 2d Sess. 23, reprinted in
1982 U.S.C.C.A.N. 3054, 3078.
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The Bureau has also decided not to limit the definitions of
successor in interest to those who have assumed the loan obligation. As
some commenters noted, successors in interest must have access to
information about the loan in order to evaluate the viability of a
legal assumption of the mortgage loan obligation. The Bureau recognizes
the potential privacy concerns expressed by commenters raised by
sharing information with successors in interest who are not obligated
on the loan. However, the Bureau does not believe that these concerns
warrant narrowing the scope of the successor in interest definitions.
Instead, the Bureau is authorizing servicers to withhold certain types
of sensitive information in response to requests for information and
notices of error that involve successors in interest, as discussed
below.
Commenters also expressed concern that defining successors in
interest to include persons who are not obligated on the loan might
needlessly delay foreclosure proceedings. The Bureau does not believe
that this is a significant risk and does not believe that borrowers are
likely to transfer ownership of real property simply as a delay tactic.
Moreover, the final rule does not extend dual tracking protections
during the pendency of the confirmation process. The final rule does,
however, require servicers to review and evaluate loss mitigation
applications from confirmed successors in interest in accordance with
the procedures set forth in Sec. 1024.41 if the property is the
confirmed successor in interest's principal residence and the
procedures set forth in Sec. 1024.41 are otherwise applicable. The
Bureau recognizes that, as with reviews and evaluations for other
borrowers, these reviews and evaluations could result in short delays
in some cases but believes it is important to extend these foreclosure
protections to confirmed successors in interest for the reasons
discussed in this discussion and in the section-by-section analysis of
Sec. 1024.30(d).
As noted above, two commenters suggested that the Bureau exclude
from the definitions of successor in interest third parties who become
successors in
[[Page 72173]]
interest through ``take over the payments,'' contracts for deed, wrap
notes, and similar sales transactions. The final rule's definitions of
successor in interest include transfers during the life of the
transferor only if the recipient is a spouse, former spouse, or child
of the transferor, or the beneficiary of an inter vivos trust. Third
parties who do not fall into these categories and acquire the property
during the life of the transferor are not successors in interest for
the purpose of the final rule, regardless of how they obtain the
property. Conversely, recipients who are spouses, former spouses, or
children of the transferor or who are the beneficiaries of an inter
vivos trust can be successors in interest even if they obtain the
property through the types of contracts for deed or similar
transactions to which the commenters are referring. For the reasons
stated in this discussion and in the section-by-section analyses of
Sec. Sec. 1024.31 and 1026.2(a)(27)(i), the Bureau believes that it is
appropriate to treat the categories of transferees described in
Sec. Sec. 1024.31 and 1026.2(a)(27)(i) as successors in interest for
purposes of the final rule regardless of how they obtain an interest in
the property, while not treating other transferees as successors in
interest.
Whether to include in the successor in interest definitions
additional categories, beyond those protected by the Garn-St Germain
Act. The Bureau also solicited comment on whether additional categories
of successors in interest, beyond those protected by the Garn-St
Germain Act, should be covered by the Bureau's definitions of successor
in interest. Consumer advocacy groups urged the Bureau to broaden the
definition to include various categories that are not covered by the
Garn-St Germain Act but that are similar to the Garn-St Germain Act
categories. They suggested, for example, that the definition should
include same-sex partners, as well as parents, siblings, and
grandchildren who obtain an interest in the home through a quitclaim
deed. Several consumer advocacy groups suggested that, in addition to
the Garn-St Germain Act categories, the definition should cover any
instance where there is not an enforceable due-on-sale clause,
including situations where there is no due-on-sale clause in the
mortgage.\61\
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\61\ One consumer advocacy group suggested that the Bureau
should include representatives of estates within the definitions of
successor in interest. Estates and their representatives have unique
interests and already benefit from protections under RESPA and TILA,
which the final rule is not curtailing. The Bureau therefore has
decided not to define estates or their representatives as successors
in interest for purposes of this final rule. Estate-related issues
are addressed further in the discussion of Regulation X comment
30(d)-3 in the section-by-section analysis of Sec. 1024.30(d) and
in the discussion of Regulation Z comment 2(a)(11)-4.iii in the
section-by-section analysis of Sec. 1026.2(a)(11), infra.
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A number of consumer advocacy groups urged the Bureau to expand the
definitions of successor in interest to include co-homeowners who did
not sign the original note. They indicated that homeowners who are not
borrowers on the note experience the same frustrations, problems, and
potential harms as successors in interest.
Industry commenters stated that mortgagors may have elected not to
sign the note. An industry commenter also stated that mortgagors always
have the option to refinance the loan in their own name should they
choose to do so.
The final rule does not cover categories of successors in interest
beyond the categories established in the Garn-St Germain Act. Some of
the categories that consumer advocacy groups suggested adding are
already covered in part by the final rule categories that are modeled
on the Garn-St Germain Act. For example, co-owners who did not sign the
note will be covered upon the death of their co-owner if they are a
joint tenant, a spouse who owns the property as a tenant by the
entirety, or a relative who inherits an additional interest in the
property. As finalized, the definitions also include transfers made
where there is no due-on-sale clause in the mortgage instrument as long
as the transfer falls within one of the specified categories listed in
the definitions (such as a transfer to a relative resulting from the
death of the transferor).
The Bureau considered adding certain additional categories to the
scope of the definitions, such as non-relatives who receive property
upon the death of a borrower, but decided not to do so for several
reasons. Because the Bureau is applying the Mortgage Servicing Rules to
confirmed successors in interest in large part to prevent unnecessary
foreclosure, the Bureau believes that it is appropriate to align
generally the successor in interest definitions with Congress's policy
choice about which categories of successors in interest should be
protected from foreclosure based on a lender's exercise of a due-on-
sale clause. The Bureau also believes that the Garn-St Germain Act
categories capture the most vulnerable classes of transferees that
warrant successor in interest protection. Basing the definitions on the
Garn-St Germain Act categories should assist servicers in identifying
successors in interest, since servicers already need to comply with the
Garn-St Germain Act. Further expansion of the scope of the successor in
interest definitions beyond the Garn-St Germain Act categories might
not be helpful to the property owners who would be added because, in
the absence of due-on-sale protection, a servicer might be able to
accelerate and foreclose independent of the final rule's successor in
interest protections.
How to address the rights of transferor borrowers and their
estates. A large number of commenters of various types described as
confusing or inaccurate the use of the terms prior borrower and prior
consumer in the proposal to refer to the person who transferred an
ownership interest to the successor in interest.\62\ Many of these
commenters noted that a borrower who transfers an interest typically
remains obligated on the mortgage loan. An industry commenter suggested
substituting ``transferor-borrower'' for ``prior borrower.'' A number
of commenters asserted that borrowers who retain ownership and remain
obligated under the mortgage loan should continue to receive mortgage
servicing rule protections, while a trade association suggested that
the transferor borrower should stop receiving communications when a
successor in interest is confirmed.
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\62\ ``Prior borrower'' appears in the proposed definition of
successor in interest in proposed Sec. 1024.31; proposed Sec.
1024.36(i); and proposed Regulation X comments 30(d)-2,
38(b)(1)(vi)-2, and 39(b)(1)-5. ``Prior consumer'' appears in
proposed Sec. 1026.2(a)(27) and proposed Regulation Z comment
2(a)(11)-4.
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A number of commenters expressed concern that the Bureau's proposal
would not provide adequate protection for the estates of transferor
borrowers. Several consumer advocacy groups explained that estate
representatives are protected by TILA and RESPA. These groups suggested
that estates and their representatives should be able to obtain
information and have payments applied correctly until the estate is
closed. A trade association agreed with two caveats: It indicated that:
(1) The servicer needs to verify that a person purporting to act as
administrator or executor is properly acting in that capacity, and (2)
If the estate is released from the loan obligation Regulation P may
limit the estate's ability to access future loan information. Another
trade association noted that the executor of an estate may ultimately
be legally obligated to dispose of property and needs information in
order to fulfill the executor's responsibilities. Other industry
commenters suggested that protection for the estate should
[[Page 72174]]
terminate upon confirmation of a successor in interest.
The final rule substitutes ``borrower'' for ``prior borrower'' and
``consumer'' for ``prior consumer'' in the definitions of successor in
interest and in other successor in interest provisions. As many
commenters noted, a borrower who transfers an ownership interest
typically remains obligated on the loan, making the word ``prior''
inapposite. In light of concerns raised by commenters regarding the
need to protect transferor borrowers and their estates, the Bureau is
also clarifying in comment 30(d)-3 to Regulation X and comment
2(a)(11)-4.iii to Regulation Z that, even after a servicer's
confirmation of a successor in interest, the servicer is still required
to comply with all applicable requirements of Regulations X and Z with
respect to the borrower who transferred the ownership interest to the
successor in interest. This final rule does not take away any existing
rights of transferor borrowers or their estates under Regulations X and
Z.
Confirming a Successor in Interest's Status
The Bureau proposed modifications to the Mortgage Servicing Rules
in Regulation X relating to how a mortgage servicer confirms a
successor in interest's identity and ownership interest in the property
securing the mortgage loan.\63\ Proposed Sec. 1024.36(i) would have
generally required a servicer to respond to a written request that
indicates that the person making the request may be a successor in
interest by providing that person with information regarding the
documents the servicer requires to confirm the person's identity and
ownership interest in the property. Proposed Sec. 1024.38(b)(1)(vi)
would have added several related modifications to the current policies
and procedures provision involving successors in interest.
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\63\ As the Bureau explained in the proposal, similar
modifications to the Mortgage Servicing Rules in Regulation Z
relating to how a mortgage servicer confirms a successor in
interest's identity and ownership interest in the dwelling are
unnecessary. The Mortgage Servicing Rules in Regulation X apply to
the vast majority of mortgage loans to which the Mortgage Servicing
Rules in Regulation Z apply. Accordingly, the rules under Regulation
X relating to how a mortgage servicer confirms a successor in
interest's identity and ownership interest in the property generally
apply to loans to which the Mortgage Servicing Rules in Regulation Z
apply, making unnecessary similar modifications to Regulation Z.
---------------------------------------------------------------------------
Proposed Sec. 1024.38(b)(1)(vi)(A) would have required servicers
to maintain policies and procedures that are reasonably designed to
ensure that the servicer can, upon notification of the death of a
borrower or of any transfer of the property securing a mortgage loan,
promptly identify and facilitate communication with any potential
successors in interest regarding the property. Proposed Sec.
1024.38(b)(1)(vi)(B) would have required servicers to maintain policies
and procedures reasonably designed to ensure that the servicer can,
upon identification of a potential successor in interest, promptly
provide to that person a description of the documents the servicer
reasonably requires to confirm the person's identity and ownership
interest in the property and how the person may submit a written
request under Sec. 1024.36(i) (including the appropriate address).
Proposed Sec. 1024.38(b)(1)(vi)(C) would have required servicers to
maintain policies and procedures reasonably designed to ensure that,
upon the receipt of such documents, the servicer can promptly notify
the person, as applicable, that the servicer has confirmed the person's
status, has determined that additional documents are required (and what
those documents are), or has determined that the person is not a
successor in interest. For the reasons set forth in this discussion and
in the section-by-section analyses of Sec. Sec. 1024.36(i) and
1024.38(b)(1)(vi), the Bureau is finalizing Sec. Sec. 1024.36(i) and
1024.38(b)(1)(vi) with a number of adjustments to clarify the parties'
obligations during the confirmation process.
Industry commenters asserted that the proposal would require
servicers to know the intricacies of real property law, contract law,
estate law, and family law in each of the fifty States; to apply the
applicable State's law to each successor in interest's factual
circumstances; and to provide legal advice to people claiming to be
successors in interest. One commenter indicated that servicers can
assist potential successors in interest by explaining, in general
terms, what information the servicer may need before the servicer can
recognize a successor as an owner, but servicers cannot give the
impression to potential successors in interest that the servicer's
determination resolves their property interest with finality or
provides the best outcome based on their particular situation. Some
commenters were also concerned that proposed Sec. 1024.38(b)(1)(vi)(A)
might require them to seek out potential successors in interest even in
the absence of affirmative notification. Other commenters stated that
broadening the scope of successor in interest rules would further
increase the complexity of confirming a successor in interest's status.
Many industry commenters requested greater precision about the
confirmation process and servicers' responsibilities with respect to
potential successors in interest. Some also requested that the Bureau
provide a safe harbor for confirmation decisions or indicate that
incorrect successorship determinations or non-determinations do not
give rise to claims of unfair, deceptive, or abusive acts or practices
in violation of the Dodd-Frank Act or other litigation.
As explained above, consumer advocacy groups reported in their
comments that successors continue to face problems establishing their
successor status. These groups urged the Bureau to create a private
right of action to allow potential successors in interest to enforce
the requirements of proposed Sec. Sec. 1024.36(i) and
1024.38(b)(1)(vi) and a privately enforceable notice of error
requirement related to successorship determinations. They suggested
that rights under the final rule should be triggered by a homeowner's
submission of documentation, rather than by the servicer's additional
step of confirming the successor in interest's status.\64\ They also
encouraged the Bureau to establish time limits for the confirmation
process and to institute other protections for potential successors in
interest.
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\64\ In the alternative, some consumer advocacy groups suggested
that the Bureau could include in the definition of borrower any
successor in interest who has provided reasonable proof of the
successor in interest's identity and ownership interest, unless the
servicer provides a timely and reasonable response stating that the
potential successor in interest will not be confirmed as a successor
in interest and the reason for the lack of confirmation.
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After reviewing the comments received, the Bureau is finalizing
Sec. Sec. 1024.36(i) and 1024.38(b)(1)(vi) with adjustments to clarify
the parties' obligations during the confirmation process. As finalized,
Sec. 1024.36(i) generally requires a servicer to respond to a written
request that indicates that the person making the request may be a
successor in interest by providing that person with a written
description of the documents the servicer reasonably requires to
confirm the person's identity and ownership interest in the property.
Section 1024.38(b)(1)(vi)(A) requires servicers to maintain policies
and procedures reasonably designed to ensure that the servicer can,
upon receiving notice of the death of a borrower or of any transfer of
the property, promptly facilitate communication with any potential or
confirmed successors in interest regarding the property. Section
[[Page 72175]]
1024.38(b)(1)(vi)(B) requires servicers to maintain policies and
procedures reasonably designed to ensure that the servicer can, upon
receiving notice of the existence of a potential successor in interest,
promptly determine the documents the servicer reasonably requires to
confirm the person's identity and ownership interest in the property
and promptly provide to the potential successor in interest a
description of those documents and how the person may submit a written
request under Sec. 1024.36(i) (including the appropriate address).
Section 1024.38(b)(1)(vi)(C) requires servicers to maintain policies
and procedures reasonably designed to ensure that the servicer can,
upon the receipt of such documents, promptly make a confirmation
determination and promptly notify the person, as applicable, that the
servicer has confirmed the person's status, has determined that
additional documents are required (and what those documents are), or
has determined that the person is not a successor in interest.
In response to the concerns raised by commenters, the Bureau has
made a number of adjustments to the proposed confirmation process to
delineate more clearly the parties' responsibilities during the
confirmation process. For example, final Sec. 1024.38(b)(1)(vi) makes
clear that servicers do not need to search for potential successors in
interest if the servicer has not received actual notice of their
existence. The comments on the confirmation process set forth in
proposed Sec. Sec. 1024.36(i) and 1024.38(b)(1)(vi) and the changes
that the Bureau has made in response to those comments are discussed in
more detail in the section-by-section analyses of Sec. Sec. 1024.36(i)
and 1024.38(b)(1)(vi).
Like the proposal, the final rule does not require servicers to
provide legal advice. The final rule does, however, require a servicer
to have policies and procedures in place that are reasonably designed
to ensure that the servicer can identify and communicate to potential
successors in interest the documents that the servicer will accept as
confirmation of the potential successor in interest's identity and
ownership interest in the property. While confirmation determinations
can in some cases raise complex issues, the relevant determinations
regarding identity and ownership interest are determinations that
servicers make on a regular basis in the course of their work already.
Servicers routinely need to determine who has an ownership interest in
the properties that secure their mortgage loans--for example, in
identifying who to serve in a foreclosure action or who should receive
other notices required by State law. Moreover, as explained in the
section-by-section analysis of Sec. 1024.38(b)(1)(vi), the final rule
allows servicers to request additional documentation if they reasonably
determine that they cannot make a determination of the potential
successor in interest's status based on the documentation provided.
The Bureau is not creating a safe harbor from liability for claims
alleging unfair, deceptive, or abusive acts or practices in violation
of the Dodd-Frank Act related to successorship determinations. Although
some industry commenters requested this type of protection, the Bureau
does not believe it is appropriate to shield a servicer categorically
from liability for unfair, deceptive, or abusive practices that may
occur during the confirmation process or otherwise in the servicer's
treatment of potential successors in interest.
Despite the urging of consumer advocacy groups, the final rule does
not provide potential successors in interest a private right of action
or a notice of error procedure for claims that a servicer made an
inaccurate determination about successorship status or failed to comply
with Sec. 1024.36(i) or Sec. 1024.38(b)(1)(vi).\65\ The Bureau
expects that the confirmation process established by the final rule
will address the problems that many successors in interest have
experienced to date in trying to get servicers to recognize their
status. The Bureau and other Federal and State agencies will review
servicers' compliance with respect to potential successors in interest
through the agencies' supervision and enforcement authority and through
complaint monitoring. Through that review, the Bureau can assess
whether any additional enforcement mechanisms are necessary.
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\65\ Confirmed successors in interest, however, have the same
private rights of action to enforce the Mortgage Servicing Rules as
other borrowers and consumers.
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The Bureau is finalizing the confirmation process in Sec. Sec.
1024.36(i) and 1024.38(b)(1)(vi) largely as proposed because it
continues to believe that successors in interest have difficulty
demonstrating their identity and ownership interest in the property to
servicers' satisfaction.\66\ The risk of harm to successors in interest
is highest when a servicer does not promptly confirm a successor in
interest's identity and ownership interest in the property. During this
period, successors in interest may have difficulty obtaining
information about the loan or finding out about loss mitigation
options. Accordingly, when confirmation is delayed, the potential risk
of foreclosure and other harms to the successor in interest increase.
The difficulties faced by successors in interest with respect to
confirmation of their status have thus caused successors in interest to
face unnecessary problems with respect to the mortgage loans secured by
the property, which may lead to unnecessary foreclosure on the
property.
---------------------------------------------------------------------------
\66\ See, e.g., Cal. Reinvestment Coal., Chasm Between Words and
Deeds X: How Ongoing Mortgage Servicing Problems Hurt California
Homeowners and Hardest-Hit Communities 20 (May 2014), available at
https://calreinvest.wordpress.com/2014/05/21/how-ongoing-mortgage-servicing-problems-hurt-california-homeowners-and-hardest-hit-communities/ (noting that majority of housing counselors surveyed
reported continuation of previously reported problems regarding
successors in interest, such as that ``servicers often . . . would
require [such homeowners] to go through costly and unnecessary
hoops'').
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The Bureau's October 2013 Servicing Bulletin addressed these
problems for a subset of successors in interest by requiring servicers
to have policies and procedures in place to facilitate the provision of
information to successors in interest who had inherited a property
securing a deceased borrower's mortgage loan. The October 2013
Servicing Bulletin indicated that servicers should have a practice of
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.\67\
Nonetheless, consumer advocacy groups indicated in their comments that
servicers continue to ask for unnecessary documents or multiple copies
of the same documents or refuse to communicate with successors in
interest at all. In addition, commenters reported that the categories
of successors in interest as defined in the proposal, including those
who inherit the property upon death of a family member, continue to
experience difficulties in having servicers confirm the successor in
interest's legal status.
---------------------------------------------------------------------------
\67\ October 2013 Servicing Bulletin at 2.
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Changes to the rules themselves are appropriate and necessary to
clarify servicers' obligations and to ensure that the requirements are
widely understood and enforceable. The rule changes establishing a more
structured and defined confirmation process are particularly important
to enable successors in interest to demonstrate efficiently their
status to servicers and, where they do, to require servicers to
[[Page 72176]]
confirm promptly this status. Such prompt confirmation is critical to
reduce the risk of unnecessary foreclosures and other consumer harm.
Because the Bureau is applying the Mortgage Servicing Rules to
confirmed successors in interest, enabling successors in interest to
demonstrate their status to servicers efficiently and requiring
servicers to confirm this status promptly will allow successors in
interest to access the Mortgage Servicing Rules' protections as quickly
as possible.
Applying Mortgage Servicing Rules to Confirmed Successors in Interest
The Bureau proposed to apply certain mortgage servicing rules in
Regulations X and Z to confirmed successors in interest. Accordingly,
proposed Sec. 1024.30(d) would have provided that a successor in
interest would be considered a borrower for purposes of Regulation X's
subpart C once a servicer confirms the successor in interest's identity
and ownership interest in a property that secures a mortgage loan
covered by subpart C. Similarly, proposed Sec. 1026.2(a)(11) would
have provided that a confirmed successor in interest is a consumer for
purposes of Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41.
Under the proposal, these specified mortgage servicing rules would have
applied with respect to a confirmed successor in interest regardless of
whether that person has assumed the mortgage loan obligation (i.e.,
legal liability for the mortgage debt) under State law. For the reasons
that follow and that are discussed in the section-by-section analyses
of Sec. Sec. 1024.30(d) and 1026.2(a)(11), the Bureau is finalizing
these provisions and related commentary with a number of adjustments to
address concerns raised by commenters. The adjustments include changes
to ensure that confirmed successors in interest can benefit from the
escrow-related protections in Sec. 1024.17 and mortgage transfer
disclosures in Sec. 1026.39, to clarify that the final rule generally
does not require servicers to provide multiple copies of the same
notice, to authorize servicers to withhold certain types of sensitive
information in responding to requests under Sec. Sec. 1024.35 or
1024.36, and to allow servicers to require confirmed successors in
interest to return an acknowledgment form before the servicer sends
servicing notices to them.\68\
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\68\ In discussing the successor in interest provisions,
commenters also raised a number of specific questions or concerns
relating to Regulations X and Z that could arise for borrowers or
consumers regardless of whether they are confirmed successors in
interest. The Bureau declines to address these issues in this
rulemaking. Except as otherwise indicated in the final rule, the
Mortgage Servicing Rules generally apply to confirmed successors in
interest in the same way that these provisions apply to other types
of borrowers and consumers.
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Whether confirmed successors in interest need the protections of
the Mortgage Servicing Rules. Many commenters of all types expressed
support for the Bureau's general objectives in this rulemaking.
Industry commenters were divided on whether successors in interest need
or will benefit from the protections of the mortgage servicing rules. A
trade association asserted that servicers restrict account information
due to restrictions in the FDCPA, the GLBA, and Regulation P and that
making changes to Regulations X and Z would not remove these
restrictions. It also suggested that, under current law, successors in
interest can obtain full account access by requesting it through a
borrower or the borrower's estate.
An industry commenter suggested that the additional requirements
and prohibitions could increase the cost of compliance by providing
protections and rights to individuals that do not have a contractual
obligation with the lender or servicer. This commenter suggested that
finalizing the proposal could therefore have a chilling effect on
consumer lending in the real estate market.
Some industry commenters raised specific concerns about extending
loss mitigation protections to confirmed successors in interest. A
trade association suggested, for example, that extending protections to
successors in interest who acquire an ownership interest in property as
a result of divorce, legal separation, transfers to a family trust, or
a transfer to a spouse or a child could disrupt and delay the
foreclosure process, as discussed above. Another industry commenter
suggested that a servicer should not be required to engage in loss
mitigation efforts with a successor in interest when the servicer is
actively working with the primary borrower concerning a delinquency or
loss mitigation effort involving the loan.\69\
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\69\ One industry commenter recommended that Sec. 1024.41
protections cover only confirmed successors in interest who have
applied to assume the loan and that assumption and loss mitigation
reviews should run concurrently. As explained above, the Bureau has
decided not to require assumption for successor in interest status
and for similar reasons does not believe that the final rule should
require individuals to apply for an assumption to receive
protections as confirmed successors in interest. The final rule does
not, however, prevent servicers from offering simultaneous reviews
for assumption and loss modification to successors in interest who
might be interested. The final rule also does not prevent a servicer
from conditioning an offer for a loss mitigation option on the
successor in interest's assumption of the mortgage loan obligation
under State law or from offering loss mitigation options to the
successor in interest that differ based on whether the successor in
interest would simultaneously assume the mortgage loan obligation.
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Consumer advocacy groups took a different view. In their comments,
they stated that surveys of attorneys and housing counselors
representing homeowners indicate that successor in interest problems
are widespread. They identified successor in interest problems as among
the most difficult problems that attorneys and counselors representing
homeowners face as they work to save homes from foreclosure. They
stated that the actions taken by Federal agencies to date have not
resolved the problems faced by successors in interest and that
homeowners' advocates still report widespread stonewalling and
obfuscation by servicers as they attempt to help successors obtain
information about the mortgage and apply for needed loan modifications.
A number of consumer advocacy group commenters predicted that the
number of successors in interest facing foreclosure or otherwise in
need of protection is likely to grow given demographic trends,
including the aging of baby boomers. They stated that, due to longer
life expectancies, women often experience the death of a spouse or
partner and that a large number of women who become the sole owner of a
home upon the death of a spouse will not have been an original borrower
on the loan. These consumer advocacy groups also noted that refinancing
is unlikely to be an option for an increasing number of successors in
interest because a significant percentage of homes now carry mortgage
debt in excess of the value of the property.
One consumer advocacy group stated that servicers routinely provide
misleading and incorrect information to survivors, which frequently
leads to foreclosure on the family home. It also stated that servicers
still refuse to share information about the mortgage with survivors and
routinely demand that successors in interest who are already on the
title or who have already provided proof that they inherited the
property probate the property. It also stated that servicers
persistently refuse to assist survivors with loan assumption, much less
loss mitigation and loan modifications.
A number of consumer advocacy groups explained that many successors
[[Page 72177]]
are eligible for loan modifications under applicable program rules but
are experiencing unnecessary delays, frustrations, and an elevated risk
of foreclosure due to servicers' unwillingness to review them properly
for these loan modification programs. These groups indicated that,
during each month of delay imposed by servicers in recognizing the
status of a successor in interest or processing a loan modification
application, the interest arrearage grows at the currently applicable
note rate rather than at a modified rate. They noted that these delays
can eat away at the equity in the home, push the loan further into
default, and make it more difficult for successors in interest to
qualify for a loan modification.
Another consumer advocacy group noted that the proposal might
assist in resolving a paralyzing Catch-22, in which successors in
interest are told that they cannot apply for loss mitigation without
assuming the loan and that they cannot assume the loan without its
being current, but they cannot bring the loan current without access to
loss mitigation. The office of a State Attorney General noted in its
comment that, by ensuring that servicers do not condition the review
and evaluation of a loss mitigation application on the successor in
interest's assumption of the mortgage obligation, the proposal would
address a longstanding dilemma faced by successors in interest: Whether
to assume a delinquent mortgage loan without knowing the terms of a
prospective loan modification or even whether a modification is
possible. This commenter explained that assuming any mortgage,
especially a distressed one, is a major financial decision and
successors in interest cannot know whether it is in their financial
interest to assume the loan without knowing whether they qualify for a
modification. It indicated that the initial loss mitigation review
required by the proposal would allow successors in interest to make a
more informed decision regarding whether to assume the mortgage loan
obligation.
The Bureau is particularly concerned about reports from commenters
and others indicating that successors in interest continue to have
difficulty receiving information about the mortgage loan secured by the
property or correcting errors regarding the mortgage loan account and
that servicers sometimes refuse to accept, or may misapply, payments
from successors in interest.\70\ The Bureau is also concerned about
reports that successors in interest often encounter difficulties when
being evaluated for loss mitigation options, including that servicers
often require successors in interest to assume the mortgage loan
obligation under State law before evaluating the successor in interest
for loss mitigation options.\71\ Applying the Mortgage Servicing Rules
in Regulation X to successors in interest provides these homeowners
with access to information about the mortgage, helps successors in
interest avoid unwarranted or unnecessary costs and fees, and prevents
unnecessary foreclosure.
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\70\ In one 2015 survey of attorneys and housing counselors
representing homeowners, 55 percent of respondents had been asked by
a servicer to supply a quitclaim deed where one was not needed or
available because a divorce decree clearly transferred the property;
63 percent had been asked to provide probate documents or proof that
the client was the estate representative even though the property
passed through a right of survivorship deed or tenancy by the
entirety; 66 percent had been asked to submit the same documents
over and over again in an attempt to prove an ownership interest to
the servicer; 28 percent reported that a servicer had demanded a
quitclaim deed when the borrower was deceased; and another 28
percent indicated that a servicer had refused to tell them what
documents they needed to prove successor in interest status. Alys
Cohen, Nat'l Consumer Law Ctr., Snapshots of Struggle: Saving the
Family Home After a Death or Divorce, Successors Still Face Major
Challenges in Obtaining Loan Modifications (Mar. 2016), available at
https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf; Nat'l Consumer Law Ctr., NCLC Survey Reveals Ongoing
Problems with Mortgage Servicing 2, 5 (May 2015), available at
http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf. A survey conducted
in the summer of 2014 found that 63 percent of housing counselors
reported servicers rarely or never had required policies in place to
promptly identify and communicate with a successor in interest for a
deceased borrower. Nat'l Council of La Raza & Nat'l Hous. Res. Ctr.,
Are Mortgage Servicers Following the New Rules? A Snapshot of
Compliance with CFPB Servicing Standards 3, 7 (Jan. 9, 2015),
available at http://www.nclr.org/Assets/uploads/Publications/mortgageservicesreport_11215.pdf.
\71\ A 2015 national survey asked attorneys and housing
counselors representing homeowners how frequently servicers refused
to provide information about the loan or allow them to apply for a
loan modification after proof of successor status was provided. Alys
Cohen, Nat'l Consumer Law Ctr., Snapshots of Struggle: Saving the
Family Home After a Death or Divorce, Successors Still Face Major
Challenges in Obtaining Loan Modifications 17-18 (Mar. 2016),
available at https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf. Seventy percent of respondents said this
happened sometimes, often, or most of the time in their successor in
interest cases. Id. A similar proportion of respondents indicated
that that they have not seen any recent improvement in problems with
successors in interest seeking mortgage modifications. Id. at 16.
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As many consumer advocacy groups recognized in their comments, it
is especially important for the loss mitigation procedures in Sec.
1024.41 to apply to successors in interest. When the Bureau issued the
2013 RESPA Servicing Final Rule, the Bureau observed that establishing
national mortgage servicing standards ensures that borrowers have a
full and fair opportunity to receive an evaluation for a loss
mitigation option before suffering the harms associated with
foreclosure.\72\ The Bureau also recognized that these standards are
appropriate and necessary to achieve the consumer protection purposes
of RESPA, including facilitating borrowers' review for loss mitigation
options, and to further the goals of the Dodd-Frank Act to ensure a
fair, transparent, and competitive market for mortgage servicing.\73\
These same consumer protection purposes are served by applying the loss
mitigation procedures in Sec. 1024.41 to confirmed successors in
interest who, as homeowners of property securing a mortgage loan, may
need to make payments on the loan to avoid foreclosure.
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\72\ 78 FR 10696, 10815 (Feb. 14, 2013).
\73\ Id.
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Successors in interest are a particularly vulnerable group of
consumers, who often must make complex financial decisions with limited
information during a period of extreme emotional stress. Successors in
interest may be more likely than other homeowners to experience a
disruption in household income and therefore may be more likely than
other homeowners to need loss mitigation to avoid foreclosure. The
Bureau therefore concludes that requiring servicers to evaluate a
complete loss mitigation application received from a confirmed
successor in interest under Sec. 1024.41's procedures serves RESPA's
consumer protection purposes.
Further, because a successor in interest's ability to repay the
mortgage loan generally was not considered in originating the mortgage
loan, successors in interest are particularly dependent on a prompt
loss mitigation evaluation to assess the mortgage loan's long-term
affordability as to the successor in interest.\74\ Requiring servicers
to evaluate a complete loss mitigation application received from a
confirmed successor in interest supports the successor in interest in
making a fully informed decision about whether to assume the mortgage
loan obligation under State law.
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\74\ Where a successor in interest who has previously acquired a
legal interest in a dwelling is added as an obligor on the mortgage
loan, the Regulation Z Ability-to-Repay Rule does not apply. See 79
FR 41631, 41632-33 (July 17, 2014).
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The Bureau also believes that requiring servicers to comply with
[[Page 72178]]
Sec. 1024.41's procedures with respect to confirmed successors in
interest will not impose significant costs on servicers. Although some
commenters expressed concern about the costs of originating loans, the
final rule, like the proposal, does not require servicers to originate
any loans. The Bureau is not providing confirmed successors in interest
any protections that are not already available to borrowers and
therefore does not anticipate the final rule will result in any unusual
disruption of the foreclosure process. Both industry and consumer
advocacy group commenters indicated that servicers are often already
subject to other non-regulatory requirements to communicate with
successors in interest and evaluate them for loan modifications. The
costs imposed by the final rule should therefore largely be limited to
ensuring that such requirements are met in a consistent and timely way.
The Bureau therefore does not expect any chilling effect on consumer
lending in the real estate market.
Notwithstanding the concerns expressed by industry commenters
regarding potential delays, confirmation of a successor in interest
will not reset the 180-day period in Sec. 1024.39(b) or the 120-day
period in Sec. 1024.41(f)(1)(i). Section 1024.39(b) provides that a
servicer is not required to provide a written early intervention notice
more than once during any 180-day period. Section 1024.41(f) provides
that a servicer shall not make the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process
unless a borrower's mortgage loan obligation is more than 120 days
delinquent or another specified condition is met. Confirmation of a
successor in interest does not change the date when a loan obligation
becomes delinquent.
With respect to Regulation Z, applying the Mortgage Servicing Rules
in Regulation Z to confirmed successors in interest will protect them
against inaccurate and unfair payment crediting practices by the
servicer of the mortgage loan on which they may be making payments and
which encumbers their property. It will also help prevent unnecessary
foreclosure by, for example, keeping confirmed successors in interest
informed of the status of the mortgage loan. Moreover, the amendments
to Regulation Z will help ensure that confirmed successors in interest
receive prompt information about the amount necessary to pay off the
mortgage loan, as other homeowners do under Regulation Z.
Whether to apply or clarify additional laws or regulations not
discussed in the proposal. Some commenters identified additional
sections of Regulations X and Z or of other laws or regulations that
they believed the Bureau should address in the final rule's provisions
relating to successors in interest. A number of consumer advocacy
groups stated that, in order to achieve the Bureau's goal of applying
all the mortgage servicing regulations to successors in interest, the
final rule should also define successors in interest as borrowers for
purposes of Sec. 1024.17. These groups suggested that successors in
interest are particularly likely to face escrow issues due to the
transfer of ownership. They indicated that a transfer of ownership
requires the new owner to take steps to obtain homeowner's insurance
and, usually, to apply for the property tax homestead exemption in the
new owner's own name.
A trade association also stated that a confirmed successor in
interest should be a borrower for purposes of the escrow requirement in
Sec. 1024.17 and a consumer for purposes of the mortgage transfer
disclosure requirements of Sec. 1026.39. This commenter also
identified various other laws and regulations that it suggested could
be affected by a regulation addressing successors in interest,
including additional provisions of Regulations X and Z; the Fair Credit
Reporting Act and its implementing regulation, Regulation V; the FDCPA;
the Servicemembers Civil Relief Act; and the Mortgage Assistance Relief
Services regulation, Regulation O.
As these commenters noted, successors in interest confront the same
types of escrow issues as borrowers protected by Sec. 1024.17 and are
particularly likely to experience escrow problems due to the transfer
of ownership through which they acquired their ownership interest in
the property. In issuing the proposal, the Bureau intended to include
all of the mortgage servicing protections of Regulations X and Z,
which, as the commenters noted, should include the escrow protections
of Sec. 1024.17. For the reasons set forth in this discussion and in
the section-by-section analysis of Sec. 1024.30(d), the Bureau is
expanding the protections applicable to confirmed successors in
interest in Sec. 1024.30(d) to include Sec. 1024.17. This effectuates
the Bureau's stated intent in the proposal to apply all of the mortgage
servicing rules in Regulation X to confirmed successors in interest and
will ensure that confirmed successors in interest can obtain necessary
escrow information.
The Bureau also believes that a confirmed successor in interest
should be treated as a consumer for purposes of the mortgage transfer
disclosure requirement in Sec. 1026.39, as a trade association
commenter suggested. The mortgage transfer disclosure notifies
consumers of valuable information regarding certain transfers of
ownership of a mortgage loan, including the name and contact
information for the new owner of the mortgage loan and an agent or
party authorized to resolve issues concerning the consumer's payments
on the loan (if the owner's information cannot be used for that
purpose).\75\ Information of this nature will be helpful to confirmed
successors in interest in many of the same ways that it is helpful to
other borrowers--for example, if they seek to engage in loss
mitigation, to ensure that payments on the account are properly
applied, or to identify who has a security interest in their property.
For the reasons set forth in this discussion and in the section-by-
section analysis of Sec. 1026.39, the Bureau is defining the term
consumer in Sec. 1026.2(a)(11) to include confirmed successors in
interest for purposes of Sec. 1026.39.
---------------------------------------------------------------------------
\75\ Sec. 1026.39(d).
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The Bureau has reviewed the other laws and regulations that
commenters suggested that the Bureau should address and has concluded
that they are largely outside the scope of this rulemaking.\76\ Except
as specifically addressed elsewhere in this final rule, the Bureau does
not believe that further discussion or clarification is necessary with
respect to these other laws and regulations as part of this rulemaking.
However, the Bureau will continue to engage in ongoing outreach and
monitoring with industry, consumer advocacy groups, and other
stakeholders to identify issues that pose implementation challenges,
create a risk of consumer harm, or require clarification.
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\76\ For example, a trade association commenter suggested that
the Bureau should address various issues relating to the right of
rescission under Sec. 1026.23. The Bureau did not propose any
changes to Sec. 1026.23 and is not making any changes to Sec.
1026.23 in the final rule. Pursuant to Sec. 1026.2(a)(11), a
consumer for purposes of rescission under Sec. Sec. 1026.15 and
1026.23 means a cardholder or natural person to whom consumer credit
is offered or extended and also includes a natural person in whose
principal dwelling a security interest is or will be retained or
acquired, if that person's ownership interest in the dwelling is or
will be subject to the security interest.
---------------------------------------------------------------------------
Two industry commenters also suggested that the final rule should
incorporate into Regulation Z or its commentary the Bureau's July 17,
2014, interpretive rule relating to the application of the Ability-to-
Repay Rule to certain situations involving
[[Page 72179]]
successors in interest.\77\ One commenter indicated that doing so would
increase servicer awareness. The Bureau plans to incorporate the
interpretive rule into the commentary to Regulation Z at a later date.
---------------------------------------------------------------------------
\77\ The interpretive rule clarified that, where a successor in
interest who has previously acquired a legal interest in a dwelling
agrees to be added as obligor on the mortgage loan, the servicer's
express acknowledgment of the successor in interest as obligor does
not constitute an ``assumption'' as that term is used in Regulation
Z. 79 FR 41631 (July 17, 2014). Accordingly, the Regulation Z
Ability-to-Repay Rule does not apply when a creditor expressly
accepts a successor in interest as obligor on a loan under these
circumstances. See id. The interpretive rule also noted that the
servicer must comply with any ongoing obligations pertaining to the
extension of consumer credit, such as the ARM notice requirements
under 12 CFR 1026.20(c) and (d) and the periodic statement
requirement under 12 CFR 1026.41, after the successor in interest is
added as an obligor on the mortgage note. Id. at 41633.
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Whether to require servicers to send duplicate copies of Mortgage
Servicing Rule notices to confirmed successors in interest. Proposed
Regulation Z comment 41(a)-5.ii would have provided that, if a servicer
sends a periodic statement meeting the requirements of Sec. 1026.41 to
another consumer, the servicer need not also send a periodic statement
to a successor in interest. The proposal did not address specifically
whether servicers must provide duplicate copies of other types of
required servicing notices.
A number of commenters asked the Bureau to clarify whether
servicers must send multiple copies of required servicing notices after
a successor in interest is confirmed. One industry commenter explained
that most servicing platforms only allow for automated delivery of
correspondence to one address. It indicated that a requirement to send
items to multiple addresses or through differing communication channels
(electronic or non-electronic) would create significant operational and
systems challenges with concomitant costs. Another industry commenter
suggested that the Bureau adopt, in Regulation X, language similar to
proposed Regulation Z comment 41(a)-5.ii, providing that servicers need
not send duplicative periodic statements to confirmed successors in
interest. Another industry commenter suggested that a servicer should
not be required to make live contact with a successor in interest when
the servicer is actively working with the primary borrower concerning a
delinquency or loss mitigation effort involving the loan.
Several consumer advocacy groups challenged the assumption that
successors in interest receive copies of notices provided to the
transferor borrower. They noted, for example, that the successor in
interest and transferor borrower may not have any form of communication
in a divorce or separation, especially in situations involving domestic
violence. These groups encouraged the Bureau to require servicers to
send additional copies of written early intervention notices to
confirmed successors in interest. Another consumer advocacy group also
suggested that anyone with an ownership interest should receive a copy
of the periodic statement, provided they have given their contact
information to the servicer.
The Bureau believes that it would be unnecessarily burdensome to
require a servicer to send additional copies of notices required by the
Mortgage Servicing Rules if the servicer is already providing the
notice to another borrower or consumer on the account. As explained in
the section-by-section analyses of Sec. Sec. 1024.32(c)(4) and
1026.2(a)(11), the Bureau is adding Sec. 1024.32(c)(4) and new
commentary to Sec. 1026.2(a)(11) to address whether duplicative
notices are required for confirmed successors in interest for all of
the Mortgage Servicing Rules. Section 1024.32(c)(4) provides that,
except as required by Sec. 1024.36, a servicer is not required to
provide to a confirmed successor in interest any written disclosure
required by Sec. 1024.17, Sec. 1024.33, Sec. 1024.34, Sec. 1024.37,
or Sec. 1024.39(b) if the servicer is providing the same specific
disclosure to another borrower on the account. Section 1024.32(c)(4)
also provides that a servicer is not required to comply with the live
contact requirements set forth in Sec. 1024.39(a) with respect to a
confirmed successor in interest if the servicer is complying with those
requirements with respect to another borrower on the account. Comment
2(a)(11)-4.iv clarifies that, except in response to an information
request as required by Sec. 1024.36, a servicer is not required to
provide to a confirmed successor in interest any written disclosure
required by Sec. 1026.20(c), (d), or (e), Sec. 1026.39, or Sec.
1026.41 if the servicer is providing the same specific disclosure to
another consumer on the account. These provisions clarify servicers'
obligations under the final rule and should alleviate the concern that
many commenters raised regarding the potential burden of providing
duplicative notices to confirmed successors in interest.
The Bureau recognizes, however, that successors in interest do not
in all cases have access to notices received by the transferor borrower
and may need such notices. The provisions discussed above with regard
to the servicer's obligations to send duplicative notices do not limit
the ability of any confirmed successor in interest to request copies of
notices and other information through an information request under
Sec. 1024.36. Thus, if a confirmed successor in interest is not in
contact with a borrower on the account who is receiving the
disclosures, the confirmed successor in interest can request
information as needed through the information request process.
Gramm-Leach-Bliley Act and privacy concerns. In the proposal, the
Bureau indicated that it believed that applying Regulation X's subpart
C to confirmed successors in interest does not present privacy
concerns. The proposal explained that the Bureau believed that a
confirmed successor in interest's ownership interest in the property
securing the mortgage loan is sufficient to justify enabling the
successor in interest to receive information about the mortgage loan.
However, because some people representing themselves as successors in
interest may not actually have an ownership interest in the property,
the Bureau recognized that requiring servicers to apply the
communication, disclosure, and loss mitigation requirements from
Regulations X and Z to successors in interest before servicers have
confirmed the successor in interest's identity and ownership interest
in the property might present privacy and other concerns. The Bureau
solicited comment on whether any information that could be provided to
successors in interest under Sec. Sec. 1024.35 and 1024.36 presents
privacy concerns and whether servicers should be permitted to withhold
any information from successors in interest out of such privacy
concerns.
Various industry commenters expressed concern that the proposal
would require them to violate privacy laws, including the Gramm-Leach-
Bliley Act (GLBA) and Regulation P, and would otherwise interfere with
borrowers' privacy rights.\78\ They noted
[[Page 72180]]
that sharing information about the mortgage--including even the limited
information about document requirements that would be available to
potential successors in interest--would constitute a disclosure of
nonpublic personal information to a nonaffiliated third party for
purposes of the GLBA and Regulation P. Some requested clarity regarding
what information they should release under the proposal, while others
suggested that an interagency GLBA rulemaking would be required to
adjust applicable privacy rules.
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\78\ Some industry commenters also suggested that the proposal
might cause them to violate the information security standards
required by the GLBA. Providing information to successors in
interest would not violate the GLBA information security provisions,
as long as disclosures are made in a manner consistent with those
standards. For example, the Interagency Guidelines Establishing
Information Security Standards require a financial institution to
consider and, if appropriate, adopt measures including encryption of
electronic customer information and controls to prevent employees
from providing customer information to unauthorized individuals who
may seek to obtain this information through fraudulent means. 66 FR
8616, 8633-34 (Feb. 1, 2001); 69 FR 77610 (Dec. 28, 2004). The final
rule does not prevent a servicer from complying with these
information security standards in dealing with successors in
interest.
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Some industry commenters provided specific examples of situations
that might raise concern--for example, releasing contact information or
sensitive information such as paystubs from a prior loss mitigation
application in the context of a divorce or a domestic violence
situation. Other industry commenters indicated that they were most
concerned about giving a party that is not obligated on the loan access
to financial records, especially in circumstances where the primary
obligor remains fully obligated to the loan transaction or where there
is litigation relating to the property and attendant obligation.
One industry commenter stated that these privacy concerns apply to
the disclosure of the confirmed successor in interest's personal,
private information to the existing borrower as well as to the
disclosure of an existing borrower's personal, private information to
the confirmed successor in interest. This commenter suggested that the
final rule should not require servicers to comply with the requirements
in Sec. Sec. 1024.35 and 1024.36 relating to notices of error and
requests for information if communicating with a confirmed successor in
interest is otherwise prohibited under applicable law, including the
FDCPA, or if the servicer reasonably determines that the response to
the asserted error or information request would result in the
disclosure of any personal, private information of the existing
borrower or of the successor in interest. Alternatively, this commenter
urged the Bureau to provide servicers a safe harbor from liability
under the FDCPA with respect to disclosing information regarding the
debt and other Federal and State laws with respect to disclosing
personal, private information for an existing borrower or a confirmed
successor in interest. It noted, for example, that the former husband
of an existing borrower could submit a request for information seeking
copies of loss mitigation efforts by his former wife, which might
include her contact information and copies of her paystubs. Other
industry commenters provided additional examples of types of sensitive
information that should not be disclosed, such as Social Security
numbers.
Some consumer advocacy groups and the office of a State Attorney
General asserted that there are no privacy concerns raised by the
proposal because of the successor in interest's ownership interest in
the property securing the mortgage loan. One of these consumer advocacy
groups stated that the original borrower's private financial
information, including credit score, income, or expenses, is not
relevant to the successor homeowner and need not be disclosed. This
group also indicated that no successor in interest should have a need
for the original borrower's location or contact information.\79\ It
stated that a successor in interest should not need access to other
financial information of the borrower, as it will not be relevant to
loss mitigation sought by the successor in interest.
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\79\ This consumer advocacy group suggested that the Bureau
create an FDCPA exemption for liability under FDCPA section 805(b).
It also suggested that in doing so the Bureau should indicate that
information that a debt collector is permitted to share with a
confirmed successor in interest regarding the mortgage loan account
should not include the location or contact information of the
original borrower or any financial information of the original
borrower other than the mortgage terms and status. As explained
above, concurrently with issuing this final rule, the Bureau is
issuing an interpretation of FDCPA section 805 that creates a safe
harbor pursuant to FDCPA section 813(e). In light of this
interpretation, no exemption from the requirements of FDCPA section
805(b) is required.
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The Bureau concludes that complying with the final rule does not
cause servicers to violate the GLBA or its implementing regulations but
recognizes the potential privacy and related concerns raised by
commenters and has made adjustments in the final rule to address these
concerns. Disclosing information to successors in interest as required
under the final rule will not cause a servicer to violate the GLBA or
Regulation P because the GLBA and Regulation P permit financial
institutions to disclose information to comply with a Federal law or
regulation.\80\
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\80\ 15 U.S.C. 6802(e)(8); 12 CFR 1016.15(a)(7)(i) (providing an
exception to the GLBA's general prohibition on disclosing nonpublic
personal information to a nonaffiliated third party absent notice
and an opportunity to opt out of such disclosure where the
disclosure is to comply with Federal, State, or local laws, rules,
and other applicable legal requirements). A trade association
suggested that, before disclosing information protected under
Regulation P, the servicer should be able to require the recipient
to agree not to redisclose the information unless permitted by law.
Although 12 CFR 1016.11(c) imposes certain restrictions on the
disclosure and use of information disclosed pursuant to a Regulation
P exception in 12 CFR 1016.14 or 1016.15, neither the GLBA nor
Regulation P requires the recipient of such information to enter
into an agreement relating to these restrictions with the financial
institution that discloses the information. The Bureau therefore
declines to establish such a requirement under Regulation X or Z.
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The Bureau continues to believe that a confirmed successor in
interest's ownership interest in the property securing the mortgage
loan is sufficient to warrant that person's access to information about
the mortgage loan. The Bureau also believes it is important for
confirmed successors in interest to be able to obtain information about
the terms, status, and payment history of the mortgage loan. However,
the Bureau agrees with commenters that confirmed successors in interest
are unlikely to need information regarding the location or contact
information of an original borrower or financial information of an
original borrower other than the mortgage terms, status, and payment
history. As commenters noted, providing additional financial, contact,
or location information of other borrowers could raise privacy concerns
and is not likely to assist the confirmed successor in interest in
maintaining the property. The Bureau believes that this is especially
true with respect to a borrower's Social Security number.
The Bureau believes that similar potential privacy concerns could
arise when borrowers request information about potential and confirmed
successors in interest. A potential or confirmed successor in interest
could, for example, submit a loss mitigation application containing a
Social Security number, contact information, and paystubs. Borrowers on
the account who are not the person to whom the information pertains are
unlikely to need to obtain from the servicer these types of information
about potential or confirmed successors in interest.
To address the potential privacy concerns raised in the comments,
the Bureau is adding new Sec. Sec. 1024.35(e)(5) and 1024.36(d)(3).
Pursuant to these provisions, a servicer responding to a request for
information or a notice of error request for documentation may omit
location and contact information and personal financial information
(other than information about the terms, status, and payment history of
the mortgage loan) if: (i) The information pertains to a potential or
confirmed successor in interest who is not the requester; or (ii) The
requester is a confirmed successor in interest and the information
pertains to any borrower who is not the requester. These
[[Page 72181]]
provisions allow servicers to limit the information that confirmed
successors in interest may obtain about other borrowers (including
other confirmed successors in interest) and that borrowers may obtain
about potential and confirmed successors in interest who are not the
requesting party.
FDCPA and related concerns. A number of industry commenters
indicated in their comments that the requirement to send servicing
notices and share information about the mortgage loan with confirmed
successors in interest could subject them to liability under the FDCPA.
While many mortgage servicers are not subject to the FDCPA, mortgage
servicers that acquired a mortgage loan at the time that it was in
default are subject to the FDCPA with respect to that mortgage
loan.\81\ Two specific areas of concern raised by commenters are
discussed in turn below: (1) Whether the proposal would cause servicers
that are debt collectors for purposes of the FDCPA to violate FDCPA
section 805(b)'s general prohibition on communicating with third
parties in connection with the collection of a debt, and (2) Whether
providing periodic statements and other servicing notices to confirmed
successors in interest who have not assumed the loan obligation under
State law would be confusing or harassing.
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\81\ A trade association commenter asserted that the FDCPA
should not apply to mortgage loans and suggested that the Bureau
exempt mortgage loans and mortgage servicers altogether from the
FDCPA or, alternatively, from the FDCPA's debt validation and cease
communication requirements. These comments are beyond the scope of
this rulemaking, and the Bureau declines to address them, other than
to note that mortgage servicers are not per se exempt from the
FDCPA.
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Some commenters expressed concern that sharing information about
the debt, such as periodic statements and responses to requests for
information, with confirmed successors in interest who are not
obligated on the loan could violate FDCPA section 805(b). They
suggested that, if the proposal is adopted, the Bureau should create an
FDCPA exemption or include commentary providing a safe harbor under the
FDCPA when a servicer contacts a successor in interest regarding a debt
that is not assumed by the successor in interest.
FDCPA section 805(b) generally prohibits debt collectors from
communicating with third parties in connection with the collection of a
debt, in the absence of a court order or prior consumer consent given
directly to the debt collector.\82\ FDCPA section 805(b) permits debt
collectors to communicate with a person who is a consumer for purposes
of section 805. FDCPA section 805(d), in turn, states that the term
consumer for purposes of section 805 includes the consumer's spouse,
parent (if the consumer is a minor), guardian, executor, or
administrator.\83\ The use of the word ``includes'' indicates that
section 805(d) is an exemplary rather than exhaustive list of the
categories of individuals that are ``consumers'' for purposes of FDCPA
section 805.
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\82\ 15 U.S.C. 1692c(b).
\83\ 15 U.S.C. 1692c(d).
---------------------------------------------------------------------------
The Bureau is issuing concurrently with this final rule an
interpretive rule that constitutes an advisory opinion under FDCPA
section 813(e) \84\ interpreting consumer for purposes of FDCPA section
805 to include a confirmed successor in interest, as that term is
defined in Regulation X Sec. 1024.31 and Regulation Z Sec.
1026.2(a)(27)(ii).\85\ As provided in FDCPA section 813(e), no
liability arises under the FDCPA for an act done or omitted in good
faith in conformity with an advisory opinion of the Bureau while that
advisory opinion is in effect. The Bureau's interpretive rule provides
a safe harbor from liability under FDCPA section 805(b) for servicers
communicating with a confirmed successor in interest about a mortgage
loan secured by property in which the confirmed successor in interest
has an ownership interest, in compliance with Regulations X and Z.
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\84\ 15 U.S.C. 1692k(e).
\85\ See Bureau of Consumer Fin. Prot., Official Bureau
Interpretations: Safe Harbors from Liability under the Fair Debt
Collection Practices Act for Certain Actions Taken in Compliance
with Mortgage Servicing Rules under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z) (Aug. 4, 2016), available at http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/safe-harbors-liability-under-fair-debt-collection-practices-act-certain-actions-taken-compliance-mortgage-servicing-rules-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z.
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As the interpretive rule explains, given their relationship to the
obligor, the mortgage loan, and the property securing the mortgage loan
and the Bureau's extension of certain protections of Regulations X and
Z to them, confirmed successors in interest are--like the narrow
categories of persons enumerated in FDCPA section 805(d)--the type of
individuals with whom the servicer needs to communicate. Interpreting
consumers in section 805 to include confirmed successors in interest
permits debt collectors to communicate with them about the mortgage
loan without engaging in a third-party communication in violation of
section 805(b). It also helps to ensure that confirmed successors in
interest benefit from the protections for ``consumers'' in FDCPA
section 805--including the debt collector generally being prohibited
from communicating at a time or place the collector knows or should
know is inconvenient and being required to cease communication upon
written request from the consumer. The Bureau therefore has concluded
that consumer as defined in section 805(d) includes a confirmed
successor in interest, as that term is defined in Regulations X and
Z.\86\ The Bureau's interpretive rule should resolve commenters'
concerns regarding potential liability under FDCPA section 805(b) for
disclosures to confirmed successors in interest.\87\
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\86\ Because the interpretive rule applies only to the use of
the term consumer in section 805, it does not affect the definition
of consumer under the remaining FDCPA provisions.
\87\ The interpretation does not relieve servicers that are debt
collectors of their obligations under the FDCPA. For example, they
must not: Engage in conduct the natural consequence of which is to
harass, oppress, or abuse any person in connection with the
collection of a debt; use any false, deceptive, or misleading
representation or means in connection with the collection of a debt;
or use unfair or unconscionable means to collect or attempt to
collect any debt.
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An industry commenter suggested that successors who are not liable
on the debt might be confused if they start receiving periodic
statements. Another industry commenter suggested that sending loss
mitigation-related letters and trying to establish right party contact
with individuals not liable on a delinquent loan could be viewed as
abusive or harassing debt collection efforts, in violation of FDCPA
section 806.\88\
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\88\ 15 U.S.C. 1692d.
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Under the final rule, confirmed successors in interest will receive
servicing notices only after they have proceeded through the
confirmation process. The servicing notices provide important
information that will assist confirmed successors in interest in
preserving their ownership interests in the properties secured by the
relevant mortgage loans. Given this context, the Bureau does not
believe that simply providing periodic statements and other servicing
notices to the confirmed successor in interest pursuant to Regulations
X and Z would be viewed as having the natural consequence of harassing,
oppressing, or abusing the confirmed successor in interest under FDCPA
section 806.
The Bureau recognizes, however, that some language appearing in the
model and sample form notices in Regulations X and Z could suggest that
the recipient of the notice is liable on the mortgage loan obligation
and that it is possible
[[Page 72182]]
that this language, on its own without modification, could confuse
confirmed successors in interest who have not assumed the mortgage loan
obligation under State law and are not otherwise liable for it as to
whether they are liable on the mortgage loan obligation. For example,
some of these forms state: ``your loan,'' ``your interest rate,''
``[y]ou are late on your mortgage payments,'' ``[y]ou must pay us for
any period during which the insurance we buy is in effect but you do
not have insurance,'' and ``you could be charged a penalty.'' \89\
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\89\ Regulation X appendices MS-3(A) & MS-4; Regulation Z
appendices H-4(D) & H-30.
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As modified by the final rule, Regulations X and Z offer servicers
various means that they can employ to ensure that communications
required by the Mortgage Servicing Rules do not mislead confirmed
successors in interest who have not assumed the mortgage loan
obligation under State law and are not otherwise liable for it. One
option available to servicers is to adjust the language in the notices
to replace any terminology that might suggest liability. Regulation Z
already permits modification of certain model and sample forms for ARM
disclosures to remove language regarding personal liability to
accommodate particular consumer circumstances or transactions not
addressed by the forms,\90\ and the final rule clarifies in revised
comment 2 to Regulation X's appendix MS and new comments 20(e)(4)-3 and
41(c)-5 to Regulation Z that similar changes may be made to other model
and sample form notices. For example, as revised, comment appendix MS
to part 1024-2 permits servicers to substitute ``this mortgage'' or
``the mortgage'' in place of ``your mortgage'' in notices sent to a
confirmed successor in interest who has not assumed the mortgage loan
obligation under State law or is not otherwise liable on the mortgage
loan obligation.
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\90\ Regulation Z comments 20(c)(3)(i)-1, 20(d)(3)(i)-1.
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Another option available to servicers to reduce the risk of any
potential confusion is to add an affirmative disclosure to the Mortgage
Servicing Rule notices that clarifies that a confirmed successor in
interest who has not assumed the mortgage loan obligation under State
law and is not otherwise liable for it has no personal liability. For
some of the required servicing notices, this type of disclosure could
be added into the notice,\91\ while for other types of notices the
rules prohibit additional information in the notice but would permit an
explanatory cover letter in the same transmittal.\92\
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\91\ See, e.g., Regulation X comment 39(b)(2)-1; Regulation Z
comment 41(c)-1.
\92\ See, e.g., Sec. 1024.37(c)(4), (d)(4), (e)(4).
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The Bureau recognizes that the foregoing options would require
servicers to incur some costs because these options would involve
customizing certain materials for confirmed successors in interest. To
address this concern, and for the reasons stated in the section-by-
section analyses of Sec. Sec. 1024.32(c), 1026.20(f), 1026.39(f), and
1026.41(g), new Sec. 1024.32(c)(1) allows servicers to provide an
initial explanatory written notice and acknowledgment form to confirmed
successors in interest who have not assumed the mortgage loan
obligation under State law and are not otherwise liable on it. The
notice explains that the confirmed successor in interest is not liable
unless and until the confirmed successor in interest assumes the
mortgage loan obligation under State law. The notice also indicates
that the confirmed successor in interest must return the acknowledgment
to receive servicing notices under the Mortgage Servicing Rules.
Sections 1024.32(c), 1026.20(f), 1026.39(f), and 1026.41(g) relieve
servicers that send this type of notice and acknowledgment form of the
obligations to provide Mortgage Servicing Rule notices and to engage in
live contacts with the confirmed successor in interest until the
confirmed successor in interest provides the servicer an executed
acknowledgment indicating a desire to receive the notices or assumes
the mortgage loan obligation under State law.
These provisions relieve servicers of the costs associated with
sending the notices to confirmed successors in interest who are not
liable on the mortgage loan obligation and do not want them. However,
the Bureau believes that when a confirmed successor in interest assumes
a mortgage loan obligation under State law there is no longer any
reason to suspend a servicer's obligation to provide notices and other
communications that are otherwise required by the Mortgage Servicing
Rules.\93\ Additionally, the Bureau expects that servicers will provide
additional copies of the written notice and acknowledgment form to
confirmed successors in interest upon request; the Bureau recognizes
that confirmed successors in interest who choose not to receive
servicing notices at the time of confirmation may later wish to receive
such notices and believes that servicers should facilitate subsequent
requests from confirmed successors in interest to receive the
notices.\94\
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\93\ However, other provisions of existing Regulations X and Z
may relieve servicers of the obligation to provide notices in those
circumstances. For example, Sec. Sec. 1026.17(d) and 1026.31(e)
generally provide that, if there is more than one consumer, the
disclosures required by Regulation Z subparts C and E may be made to
any consumer who is primarily liable on the obligation, and comment
41(a)-1 to Regulation Z provides that, when two consumers are joint
obligors with primary liability on a closed-end consumer credit
transaction secured by a dwelling, the periodic statement may be
sent to either one of them.
\94\ See section-by-section analyses of Sec. 1024.32(c)(2) and
(3).
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The final rule does not mandate that servicers use the initial
notice and acknowledgment option or either of the two other options
mentioned above but instead gives servicers the flexibility to use any
of these options as the servicer deems appropriate to ensure clarity in
its communications with confirmed successors in interest. Offering
servicers these options will allow servicers to use their business
judgment to determine the best approach in light of their particular
situations and operational considerations.
The Bureau considered providing a safe harbor from UDAAP claims or
FDCPA deception claims related to representations in notices about
whether a confirmed successor in interest is liable on the mortgage
loan obligation. The Bureau believes that such a safe harbor is
unnecessary. The Bureau believes that UDAAP claims are unlikely to
arise solely from servicers providing to confirmed successors in
interest notices and information required by and in compliance with
Regulations X or Z, particularly if servicers implement one of the
approaches described above. The Bureau also believes that a safe harbor
insulating servicers from liability related to their communications to
confirmed successors in interest could undermine incentives for
servicers to ensure that the overall effect of their communications
with successors in interest is not deceptive and does not create
consumer harm. The options that the Bureau is providing to servicers
should allow servicers to choose the most cost-effective way to ensure
that their communications do not confuse or deceive successors in
interest who are not liable on the mortgage loan obligation under State
law.
Legal Authority
Based on its experience and expertise with respect to mortgage
servicing, the Bureau believes that the amendments relating to
successors in interest promote the purposes of RESPA and TILA
effectuated by the Mortgage Servicing Rules. As discussed below,
[[Page 72183]]
the Mortgage Servicing Rules apply to borrowers (for the Regulation X
rules) and consumers (for the Regulation Z rules). As further discussed
below, the Bureau believes that the terms borrowers in RESPA and
consumers in TILA, as used in the relevant portions of the Mortgage
Servicing Rules, should be understood to include confirmed successors
in interest. In addition, the amendments relating to successors in
interest are authorized under sections 6(j)(3), 6(k)(1)(E), and 19(a)
of RESPA with respect to the Mortgage Servicing Rules in Regulation X
and under section 105(a) of TILA with respect to the Mortgage Servicing
Rules in Regulation Z. The amendments are also authorized under section
1022(b) of the Dodd-Frank Act, which authorizes the Bureau to prescribe
regulations necessary or appropriate to carry out the purposes and
objectives of Federal consumer financial laws.
Regulation X amendments relating to successors in interest. Some
trade associations raised questions about whether RESPA permits the
Bureau to regulate a servicer's conduct towards non-obligors and to
create a private right of action for non-obligors. Two trade
associations indicated that it is not clear that RESPA applies to
servicers unless the servicer receives ``payments from a borrower'' who
signed a federally related mortgage loan.\95\
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\95\ These trade associations also stated that the Bureau cannot
proceed with this rulemaking because it lacks rulemaking authority
under the Garn-St Germain Act. Because the Bureau is not purporting
to write regulations under the Garn-St Germain Act, it does not
require rulemaking authority under that Act.
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Other commenters asserted that the Bureau's rulemaking appeared
well within its legal authority. A consumer advocacy group noted that
the Bureau relied on its rulemaking authority under the Dodd-Frank Act
and RESPA to mandate a uniform loss mitigation framework that
establishes appropriate mortgage servicing standards in the private
market. It noted that RESPA already contained provisions with private
rights of action and said that the Bureau's servicing regulations and
proposed additions, including those related to successors in interest,
simply further that existing scheme. It stated that by integrating
successors in interest into the existing loss mitigation framework, the
Bureau is faithfully executing its mission to implement and enforce
consumer financial protection laws without imposing undue burdens on
servicers who are already following the loss mitigation rules.
As explained below in the section-by-section analysis of Sec.
1024.30(d), the final rule provides that a confirmed successor in
interest shall be considered a borrower for purposes of Sec. 1024.17
and subpart C of Regulation X. In light of its experience and expertise
with respect to mortgage servicing, the Bureau believes that this
interpretation promotes the purposes of RESPA effectuated through the
provisions of the Mortgage Servicing Rules in Regulation X, which in
turn were issued under, among other provisions, sections 6(j)(3),
6(k)(1)(E), and 19(a) of RESPA. Therefore, because the Bureau concludes
that confirmed successors in interest are borrowers for purposes of the
Mortgage Servicing Rules in Regulation X, these amendments are
authorized under the same authorities on which the applicable Mortgage
Servicing Rules are based.
Although a confirmed successor in interest will not necessarily
have assumed the mortgage loan obligation under State law, the
successor in interest, after the transfer of ownership of the property,
will have stepped into the shoes of the transferor borrower for many
purposes. As noted above, the successor in interest will typically need
to make payments on the loan in order to avoid foreclosure on the
property. The successor in interest's ability to sell, encumber, or
make improvements to the property will also be limited by the lien
securing the loan. In other words, the property rights of the confirmed
successor in interest, like those of the transferor borrower, are
subject to the mortgage loan.
The Bureau believes that State property law, which provides the
context for RESPA, also supports treating confirmed successors in
interest as borrowers. At common law, a successor in interest ``retains
the same rights as the original owner, with no change in substance.''
\96\ As a matter of State law, successors in interest have historically
been afforded many of the same rights and responsibilities as the
transferor borrower. For example, there is a significant amount of
State law indicating that a successor in interest, like the transferor
borrower, possesses the right to redeem following the mortgagee's
foreclosure on the property.\97\ Moreover, there is significant State
law providing that the contractual rights and obligations under the
mortgage loan of the transferor borrower are freely assignable to
successors in interest.\98\ Further, before the enactment of the Garn-
St Germain Act, several States had longstanding prohibitions on the
exercise of due-on-sale clauses, thereby limiting servicers to the same
contractual remedies with respect to successors in interest as were
available against the transferor borrower, whether or not the successor
in interest under State law assumed the legal obligation to pay the
mortgage.\99\ Additionally, while successors in interest may not be
personally liable on the mortgage note, absent their express assumption
of such liability under State law, in a significant number of
mortgages, the borrower on the note is also, under State law, not
personally liable for the debt upon foreclosure because a deficiency
judgment is not allowed.\100\ Accordingly, under State law, a successor
in interest is often in virtually the same legal position as the
borrower on the note with respect to foreclosure.\101\
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\96\ Black's Law Dictionary (9th ed. 2009).
\97\ `` `Property sold subject to redemption . . . may be
redeemed in the manner hereinafter provided, by the . . . [j]udgment
debtor, or his successor in interest in the whole or any part of the
property. . . . .' '' Phillips v. Hagart, 45 P. 843, 843 (Cal. 1896)
(quoting California Code of Civil Procedure section 705); see also,
e.g., Forty-Four Hundred E. Broadway Co. v. 4400 E. Broadway Co.,
660 P.2d 866, 868 (Ariz. Ct. App. 1982) (citing Call v. Thunderbird
Mortg. Co., 375 P.2d 169 (Cal. 1962)); Brastrup v. Ellingson, 161
NW. 553, 554 (N.D. 1917); Tate v. Dinsmore, 175 SW. 528, 529 (Ark.
1915).
\98\ See, e.g., Badran v. Household Fin. Corp., 2008 WL 4335098,
at *4 (Mich. Ct. App. 2008); Bermes v. Sylling, 587 P.2d 377, 384
(Mont. 1978); In re Fogarty's Estate, 300 N.Y.S. 231 (N.Y. Sur. Ct.
1937).
\99\ See, e.g., Continental Fed. Sav. & Loan Ass'n v. Fetter,
564 P.2d 1013, 1017 n.4 (Okla. 1977) (collecting cases). The Garn-St
Germain Act later preempted restrictions on due-on-sale clauses
generally but prohibited exercise of due-on-sale clauses with
respect to certain categories of successors in interest. See 12
U.S.C. 1701j-3(b) (preempting restrictions); id. section 1701j-3(d)
(prohibiting exercise for certain categories).
\100\ Deficiency judgments against borrowers upon foreclosure
are disallowed with respect to most residential mortgages in some
States. See Connecticut Gen. Assembly, Office of Legislative
Research, OLR Research Report 2010-R-0327, Comparison of State Laws
on Mortgage Deficiencies and Redemption Periods (Dec. 9, 2011)
(citing and updating Nat'l Consumer Law Ctr., Survey of State
Foreclosure Laws (2009)), available at http://www.cga.ct.gov/2010/rpt/2010-R-0327.htm.
\101\ The Bureau is aware that some courts have indicated that
successors in interest would not ordinarily be considered borrowers
under RESPA. These cases were decided without the benefit of or
consideration of the purposes of the regulations that the Bureau is
now finalizing.
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The Bureau also believes that this treatment of successors in
interest is consistent with other aspects of Federal law. The Garn-St
Germain Act protects successors in interest from foreclosure based on
the mortgage loan due-on-sale clause after transfer of homeownership to
them. Additionally, several bankruptcy courts have held that successors
in interest are entitled to the same treatment as transferor borrowers,
for example, with respect to curing an
[[Page 72184]]
arrearage on a mortgage and reinstating the loan.\102\
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\102\ See, e.g., In re Smith, 469 B.R. 198, 202 (Bankr. S.D.N.Y.
2012); In re Curinton, 300 B.R. 78, 82-86 (Bankr. M.D. Fla. 2003)
(quoting In re Garcia, 276 B.R. 627, 631 (Bankr. D. Ariz. 2002)).
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In addition, the amendments relating to successors in interest to
the Mortgage Servicing Rules in Regulation X are independently
authorized under sections 6(j)(3), 6(k)(1)(E), and 19(a) of RESPA.
RESPA section 6(j)(3) authorizes the Bureau to establish any
requirements necessary to carry out section 6 of RESPA; RESPA section
6(k)(1)(E) authorizes the Bureau to create obligations for servicers
through regulation that it finds appropriate to carry out the consumer
protection purposes of RESPA; and RESPA section 19(a) authorizes the
Bureau to prescribe such rules and regulations as may be necessary to
achieve the purposes of RESPA.\103\
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\103\ A trade association commenter stated that the Bureau does
not have the authority under RESPA to write loss mitigation or
successorship regulations or to create a private right of action. It
suggested that the Bureau's authority under RESPA sections 6(j)(3),
6(k), and 19(a) is circumscribed by the limited statutory purposes
set forth in RESPA section 2(b). The Bureau disagrees. It would not
be reasonable to read ``consumer protection purposes of this
chapter'' in section 6(k) and ``the purposes of this chapter'' in
section 19 in a way that would exclude Congress's purposes in
enacting various provisions in section 6 of RESPA relating to
servicing.
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Considered as a whole, RESPA, as amended by the Dodd-Frank Act,
reflects at least two significant consumer protection purposes: (1) To
establish requirements that ensure that servicers have a reasonable
basis for undertaking actions that may harm borrowers, and (2) To
establish servicers' duties to borrowers with respect to the servicing
of federally related mortgage loans.\104\ Specifically, with respect to
mortgage servicing, the consumer protection purposes of RESPA include
responding to borrower requests and complaints in a timely manner,
maintaining and providing accurate information, helping borrowers avoid
unwarranted or unnecessary costs and fees, and facilitating review for
foreclosure avoidance options.
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\104\ 78 FR 10696, 10709 (Feb. 14, 2013).
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The Bureau believes that establishing procedures for confirmation
of successors in interest and extending various protections in
Regulation X to confirmed successors in interest achieves these
purposes of RESPA.\105\ As noted above, successors in interest are a
vulnerable group of consumers. As owners of property securing a
mortgage loan, they may face foreclosure unless they satisfy the loan's
payment obligations. But, as also noted above, successors in interest
often cannot obtain information about the loan, including options for
loss mitigation, and may thus have difficulty avoiding foreclosure. The
Bureau therefore believes that applying servicing protections in
Regulation X to confirmed successors in interest is necessary and
appropriate to assist confirmed successors in interest with the types
of servicing problems and issues that are within the scope of RESPA's
consumer protection purposes. Specifically, as explained in the
section-by-section analysis of Sec. 1024.30(d), extending the various
Regulation X protections to confirmed successors in interest will
establish procedures by which servicers must respond to confirmed
successors in interest's requests and complaints in a timely manner,
will require servicers to maintain and provide accurate information
with respect to confirmed successors in interest, and will establish
safeguards to help confirmed successors in interest avoid unwarranted
or unnecessary costs and fees and to facilitate review of confirmed
successors in interest's applications for foreclosure avoidance
options.\106\
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\105\ A trade association commenter claimed that the Bureau
cannot now assert that successor in interest regulations are
necessary under RESPA section 6(j)(3) because the statute was
enacted in 1991 and HUD did not issue any successor in interest
RESPA regulations when it had rulemaking authority. However, section
6(j)(3) does not limit the Bureau's rulemaking authority based on
rules previously issued by HUD. The Bureau, like HUD before it,
evaluates what is necessary to carry out RESPA section 6 on an
ongoing basis.
\106\ A trade association commenter suggested that the Bureau's
authority under RESPA section 6(k)(1)(e) is limited by the canon of
ejusdem generis, which provides that, when a general phrase follows
a list of specific items, the general phrase must be construed to
include only items of the same class as the specific items on the
list. RESPA section 6(k)(1)(e) requires compliance with ``any other
obligation'' that the Bureau finds ``by regulation to be appropriate
to carry out the consumer protection purposes of'' RESPA. The
commenter suggested that ``any other obligation'' cannot relate to
successor in interest issues or loss mitigation issues because those
topics are different from the categories identified in RESPA section
6(k)(1)(a) through (d) (force-placed insurance; fees for qualified
written request responses; failure to timely correct errors; and
failure to provide owner or assignee contact information). However,
the Bureau does not agree that the canon of ejusdem generis is
relevant to determining the scope of section 6(k)(1)(e). That
provision generally authorizes the Bureau to create obligations for
services that are ``appropriate to carry out the consumer protection
purposes of [RESPA].'' In other words, it authorizes regulations
that would further RESPA's consumer protection purposes, which, as
explained above, the amendments related to successors in interest
do. Moreover, even if the canon applied, contrary to the commenter's
assertion, the disparate items listed in RESPA section 6(k)(1)(a)
through (d) are not similar in kind, nor are they all related in a
way that distinguishes them as a group from successor in interest
and loss mitigation issues.
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The Bureau also notes that confirmed successors in interest will
have a private right of action under RESPA to enforce these rules.
Under section 6(f) of RESPA, 12 U.S.C. 2605(f), ``[w]hoever fails to
comply with any provision of this section shall be liable to the
borrower for each such failure.'' For the reasons discussed above, the
Bureau believes that the term borrower as used in the mortgage
servicing provisions of RESPA should be understood to encompass
confirmed successors in interest.
Regulation Z amendments relating to successors in interest. As
noted in the section-by-section analysis of Sec. 1026.2(a)(11), the
Bureau is defining the term consumer to include a confirmed successor
in interest for purposes of Sec. Sec. 1026.20(c) through (e),
1026.36(c), 1026.39, and 1026.41. Those provisions establish certain
protections for consumers with respect to their mortgage loans, and, as
explained above in the context of the Regulation X, confirmed
successors in interest step into the shoes of the transferor consumer
for many purposes once they have obtained an ownership interest in the
property. In light of its experience and expertise, the Bureau believes
the term consumer in those provisions should be interpreted to include
confirmed successors in interest. The Mortgage Servicing Rules in
Regulation Z were authorized by, among other provisions, section 105(a)
of TILA. Therefore, because the Bureau concludes that confirmed
successors in interest are consumers for purposes of the Mortgage
Servicing Rules in Regulation Z, these amendments are authorized under
the same authorities on which the Mortgage Servicing Rules are based.
In addition, the amendments relating to successors in interest to
the Mortgage Servicing Rules in Regulation Z are independently
authorized under section 105(a) of TILA. That provision allows the
Bureau to issue regulations that may contain such additional
requirements, classifications, differentiations, or other provisions,
and may provide for such adjustments and exceptions for all or any
class of transactions, as in the judgment of the Bureau are necessary
or proper to effectuate the purposes of TILA, to prevent circumvention
or evasion thereof, or to facilitate compliance therewith. 15 U.S.C.
1604(a). The purposes of TILA include assuring the meaningful
disclosure of credit terms to enable consumers to compare more readily
the various credit
[[Page 72185]]
terms available and avoid the uninformed use of credit and to protect
consumers against inaccurate and unfair credit billing practices. 15
U.S.C. 1601(a).
The Bureau believes that the amendments to Regulation Z relating to
successors in interest are necessary or proper to effectuate TILA's
purposes. Successors in interest are owners of dwellings securing
mortgage loans and must typically meet the payment obligations on the
loan in order to avoid foreclosure on their property. Successors in
interest thus have a strong interest in obtaining timely and accurate
account information from servicers as to the mortgage loan secured by
their dwelling. As explained in the section-by-section analysis of
Sec. 1026.2(a)(11), to achieve TILA's purposes, confirmed successors
in interest warrant the protections of Sec. Sec. 1026.20(c) through
(e), 1026.36(c), 1026.39, and 1026.41.
Some trade associations stated that it is not clear that TILA can
apply to those who do not borrow. However, Regulation Z has defined
consumer for decades to include non-obligors for purposes of rescission
under Sec. Sec. 1026.15 and 1026.23.\107\ The Bureau is now
interpreting the term consumer to include confirmed successors in
interest for purposes of the Mortgage Servicing Rules in Regulation
Z.\108\
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\107\ 12 CFR 1026.2(a)(11) (defining consumer for purposes of
rescission under Sec. Sec. 1026.15 and 1026.23 to include a natural
person in whose principal dwelling a security interest is or will be
retained or acquired, if that person's ownership interest in the
dwelling is or will be subject to the security interest).
\108\ A trade association commenter also suggested that RESPA
section 17, 12 U.S.C. 2615, and TILA section 111(d), 15 U.S.C. 1610,
might bar this rulemaking. They do not because the successor in
interest provisions do not affect the validity or enforceability of
any loan or mortgage agreement. The commenter also stated that the
Bureau does not have the authority to rewrite State contract law or
the mortgage default remedies that are available under State law.
However, the final rule does not purport to alter State contract law
principles. The final rule simply extends the Federal regulatory
protections of the Mortgage Servicing Rules to confirmed successors
in interest and provides other related Federal protections under the
Mortgage Servicing Rules.
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B. Regulation X
Section 1024.6 Special Information Booklet at Time of Loan Application
6(d) Permissible Changes
Although the Bureau did not propose to amend Sec. 1024.6(d), for
the reasons set forth below, the Bureau is revising current Sec.
1024.6(d)(1)(i) and renumbering it as Sec. 1024.6(d)(1), eliminating
Sec. 1024.6(d)(1)(ii), and revising Sec. 1024.6(d)(2).
Under Sec. 1024.6(a), a lender must provide a copy of a special
information booklet to certain applicants for a federally related
mortgage loan. The special information booklet, adopted pursuant to
section 5 of RESPA, helps mortgage loan applicants understand the
nature and costs of settlement services.\109\ The Bureau's publication
entitled ``Your Home Loan Toolkit: A Step-by-Step Guide,'' updated the
special information booklet to incorporate statutory amendments, the
Bureau's Integrated Mortgage Disclosures Under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z) (TILA-RESPA Final Rule),\110\ and additional contact
information, online tools, and information on how to submit
complaints.\111\ Current Sec. 1024.6(d)(i) and (ii) set forth the
permissible changes that may be made to the special information
booklet. The Bureau is revising the final sentence of current Sec.
1024.6(d)(1)(i) to update the address to which requests for changes to
the booklet beyond those permitted by the rule must be submitted.
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\109\ 12 CFR 1024.2(b) (defining special information booklet for
purposes of Regulation X).
\110\ 78 FR 79730 (Dec. 31, 2013) (TILA-RESPA Final Rule).
\111\ 80 FR 17414 (April 1, 2015). See 12 CFR 1026.19(g)
(explaining similar requirements to those in Sec. 1024.6).
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Currently, Sec. 1024.6(d)(1)(i) provides in relevant part that a
request to the Bureau for the approval of certain changes to the
booklet shall be submitted in writing to the address indicated in Sec.
1024.3. However, Sec. 1024.3 no longer includes this address. As
revised and renumbered, final Sec. 1024.6(d)(1) instead provides that
a request to the Bureau for approval of certain changes shall be
submitted in writing to the address indicated in the definition of
Public Guidance Documents in Sec. 1024.2.
Current Sec. 1024.6(d)(1)(ii) sets forth three permissible changes
that may be made to the special information booklet. Current Sec.
1024.6(d)(1)(ii)(A) provides that, in the Complaints section of the
booklet, it is a permissible change to substitute ``the Bureau of
Consumer Financial Protection'' for ``HUD's Office of RESPA'' and ``the
RESPA office.'' Current Sec. 1024.6(d)(1)(ii)(B) provides that, in the
Avoiding Foreclosure section of the booklet, it is a permissible change
to inform homeowners that they may find information on and assistance
in avoiding foreclosures at http://www.consumerfinance.gov. It further
explains that the deletion of the reference to the HUD Web page, http://www.hud.gov/foreclosure/, in the Avoiding Foreclosure section of the
booklet, is not a permissible change. Current Sec. 1024.6(d)(1)(ii)(C)
provides that, in the appendix to the booklet, it is a permissible
change to substitute ``the Bureau of Consumer Financial Protection''
for the reference to the ``Board of Governors of the Federal Reserve
System'' in the No Discrimination section of the appendix to the
booklet. It also explains that, in the Contact Information section of
the appendix to the booklet, it is a permissible change to add the
following contact information for the Bureau: ``Bureau of Consumer
Financial Protection, 1700 G Street NW., Washington, DC 20006;
www.consumerfinance.gov/learnmore.'' Finally, it provides that it is
also a permissible change to remove the contact information for HUD's
Office of RESPA and Interstate Land Sales from the Contact Information
section of the appendix to the booklet.
To reflect the Bureau's exclusive authority with regard to the
special information booklet, the final rule eliminates Sec.
1024.6(d)(1)(ii). The Bureau is removing the references to permissible
changes that are no longer relevant because the stated language for
which substitutions are authorized does not in appear in the special
information booklet currently prescribed by the Bureau. A lender will
not be permitted to change the special information booklet in the ways
described above to reference the Department of Housing and Urban
Development and the Board of Governors of the Federal Reserve System.
Accordingly, the Bureau is renumbering Sec. 1024.6(d)(1)(i) as Sec.
1024.6(d)(1); removing Sec. 1024.6(d)(1)(ii)(A), (B), and (C); and
replacing the references to Sec. 1024.6(d)(1)(ii) in Sec.
1024.6(d)(1) with references to Sec. 1024.6(d)(2).
For similar reasons, the Bureau is removing the final sentence of
current Sec. 1024.6(d)(2), which provides that references to HUD on
the cover of the booklet may be changed to references to the Bureau.
Section 1024.9 Reproduction of Settlement Statements
9(a) Permissible Changes--HUD-1
Although the Bureau did not propose to amend Sec. 1024.9(a), for
the reasons set forth below, the Bureau is revising Sec. 1024.9(a).
Section 1024.9(a) sets forth the permissible changes and insertions
that may be made when the HUD-1 settlement statement is reproduced. The
HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) is defined
in Sec. 1024.2 as ``the statement that is prescribed in this part for
setting
[[Page 72186]]
forth settlement charges in connection with either the purchase or the
refinancing (or other subordinate lien transaction) of 1- to 4-[person]
family residential property.'' \112\ Current Sec. 1024.9(a)(5)
explains that certain variations in layout and format to the HUD-1 are
within the discretion of persons reproducing the HUD-1 and do not
require prior HUD approval.
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\112\ 12 CFR 1024.2.
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To reflect the Bureau's exclusive authority with regard to the HUD-
1, the final rule revises Sec. 1024.9(a)(5). Final Sec. 1024.9(a)(5)
explains that certain variations in layout and format to the HUD-1 are
within the discretion of persons reproducing the HUD-1 and do not
require prior Bureau approval.
9(c) Written Approval
The Bureau is revising Sec. 1024.9(c) to update the address to
which requests for deviations in the HUD-1 or HUD-1A forms beyond those
permitted by the rule must be submitted. Currently, Sec. 1024.9(c)
provides in relevant part that a request to the Bureau for the approval
of certain deviations shall be submitted in writing to the address
indicated in Sec. 1024.3. However, Sec. 1024.3 no longer includes
this address. Thus, as revised, Sec. 1024.9(c) instead provides that a
request to the Bureau for approval of the certain changes shall be
submitted in writing to the address indicated in the definition of
Public Guidance Documents in Sec. 1024.2.
Section 1024.17 Escrow Accounts
17(h) Format for Initial Escrow Account Statement
17(h)(1)
Although the Bureau did not propose to amend Sec. 1024.17(h)(1),
for the reasons set forth below, the Bureau is revising Sec.
1024.17(h)(1). Currently, Sec. 1024.17(h)(1) provides that the format
and a completed example for an initial escrow account statement are set
out in Public Guidance Documents entitled ``Initial Escrow Account
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure
Statement--Example,'' available in accordance with Sec. 1024.3.
However, Sec. 1024.3 no longer specifies how the public may request
copies of Public Guidance Documents. Thus, as revised, Sec.
1024.17(h)(1) instead provides that the format and a completed example
for an initial escrow account statement are set out in Public Guidance
Documents entitled ``Initial Escrow Account Disclosure Statement--
Format'' and ``Initial Escrow Account Disclosure Statement--Example,''
available in accordance with the direction in the definition of Public
Guidance Documents in Sec. 1024.2.
Section 1024.30 Scope
30(c) Scope of Certain Sections
Paragraph 30(c)(2)
Although the Bureau did not propose to add comment 30(c)(2)-1, for
the reasons set forth below, the Bureau is adopting new comment
30(c)(2)-1 to provide further clarification on the determination of
whether a property is a principal residence for purposes of Regulation
X.
Pursuant to Sec. 1024.30(c)(2), the procedures set forth in
Sec. Sec. 1024.39 through 1024.41 regarding early intervention,
continuity of contact, and loss mitigation only apply to a mortgage
loan secured by a property that is a borrower's principal residence.
Consequently, a borrower's protections under Regulation X depend on
whether or not the property securing the loan is the borrower's
principal residence. The Bureau has previously explained that the
determination of whether a property is the borrower's principal
residence is a fact specific inquiry, particularly when a property may
appear to be vacant.\113\ Several servicers have indicated to the
Bureau that they remain uncertain as to the applicability of, for
example, the 120-day foreclosure referral waiting period in Sec.
1024.41(f)(1)(i) when a property is vacant.
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\113\ See Amendments to the 2013 Mortgage Rules, 78 FR 60382,
60407 (Oct. 1, 2013).
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Accordingly, the Bureau is adopting comment 30(c)(2)-1, which
clarifies that, if a property ceases to be a borrower's principal
residence, the procedures set forth in Sec. Sec. 1024.39 through
1024.41 do not apply to a mortgage loan secured by that property. The
comment further explains that the determination of principal residence
status will depend on the specific facts and circumstances regarding
the property and applicable State law. It further clarifies this
explanation with an example explaining that a vacant property may still
be a borrower's principal residence.
The Bureau understands that a vacant property may still be the
principal residence of a borrower in certain circumstances. For
example, the Bureau understands that a property may still be the
borrower's principal residence where a servicemember relocates pursuant
to permanent change of station orders, was occupying the property as
his or her principal residence immediately prior to displacement,
intends to return to the property at some point in the future, and does
not own any other residential property.\114\ Comment 30(c)(2)-1
clarifies that the vacancy of a property does not necessarily mean that
the property is no longer the borrower's principal residence.
Accordingly, a vacant property may still be covered by Sec. 1024.41,
meaning that the 120-day foreclosure referral waiting period could
still apply to the mortgage loan securing that property.
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\114\ See Making Home Affordable Program, Handbook for Servicers
of Non-GSE Mortgages Version 5.0, HAMP Tier 1 Eligibility Criteria,
at 64 (2016), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_5.pdf; Fed. Reserve Sys., Bureau of
Consumer Fin. Prot., Fed. Deposit Ins. Corp., Nat'l Credit Union
Ass'n., Office of the Comptroller of the Currency, Interagency
Guidance on Mortgage Servicing Practices Concerning Military
Homeowners with Permanent Change of Station Orders, (June 21, 2012),
available at http://files.consumerfinance.gov/f/201206_cfpb_PCS_Orders_Guidance.pdf.
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New comment 30(c)(2)-1 provides servicers, borrowers, and other
stakeholders with additional guidance as to the applicability of
servicers' responsibilities under Sec. Sec. 1024.39 through 1024.41.
It should help ensure that borrowers do not lose critical protections
under the mortgage servicing rules to which they are entitled. At the
same time, the Bureau is not establishing a bright-line test in comment
30(c)(2)-1, as the determination of principal residence status will
depend on the specific facts and circumstances regarding the property
and applicable State law.
30(d) Successors in Interest
As explained in part V.A., the Bureau proposed to apply subpart C
of Regulation X to confirmed successors in interest (as defined by the
proposed definition of successor in interest, discussed in the section-
by-section analysis of Sec. 1024.31). Proposed Sec. 1024.30(d)
accordingly would have provided that a successor in interest must be
considered a borrower for the purposes of subpart C of Regulation X
once a servicer confirms the successor in interest's identity and
ownership interest in a property that secures a mortgage loan covered
by Regulation X's mortgage servicing rules. For the reasons set forth
in part V.A. and in this discussion, the Bureau is finalizing Sec.
1024.30(d) with only one substantive change. That change expands the
scope of protections that apply to confirmed successors in interest to
include the escrow-related requirements in Sec. 1024.17. The Bureau
has also made technical changes to incorporate the new definition of
confirmed successor
[[Page 72187]]
in interest in Sec. 1024.31 into Sec. 1024.30(d). As under the
proposal, the exemptions and scope limitations in Regulation X's
mortgage servicing rules apply to the servicing of a mortgage loan with
respect to a confirmed successor in interest under the final rule.\115\
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\115\ Section 1024.30(b) exempts small servicers from Sec. Sec.
1024.38 through 1024.41 (except Sec. 1024.41(j)). Likewise, Sec.
1024.30(b) provides an exemption from these sections with respect to
reverse mortgage transactions and mortgage loan for which the
servicer is a qualified lender. Accordingly, except as otherwise
provided in Sec. 1024.41(j), Sec. Sec. 1024.38 through 1024.41 do
not apply to confirmed successors in interest with respect to small
servicers, reverse mortgage transactions, and mortgage loans for
which the servicer is a qualified lender. Under the final rule,
however, Sec. Sec. 1024.30 through 1024.37 apply with respect to
reverse mortgages secured by a property acquired by a confirmed
successor in interest. Section 1024.30(c) provides that Sec.
1024.33(a) only applies to reverse mortgage transactions and that
Sec. Sec. 1024.39 through 1024.41 only apply to mortgage loans
secured by property that is a borrower's principal residence. With
respect to confirmed successors in interest, Sec. 1024.33(a) only
applies to reverse mortgage transactions, and Sec. Sec. 1024.39
through 1024.41 only apply to mortgage loans secured by property
that is the confirmed successor in interest's principal residence.
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Commenters raised a number of concerns about the scope of the
definition of successor in interest, which are discussed in part V.A.
and the section-by-section analysis of Sec. 1024.31. A number of
industry commenters urged the Bureau not to finalize the rule. These
commenters suggested, for example, that the Bureau might consider other
approaches, such as best practices, guidance, and consumer education,
or that the Bureau could delay action in order to solicit further
comment or conduct further outreach to industry, governmental offices,
and other stakeholders. Some industry commenters urged the Bureau to
narrow the protections that would apply to confirmed successors in
interest and not to add additional protections. For example, one
industry commenter suggested that the Bureau limit the successor in
interest rules and commentary to facilitating communication with
successors in interest, while another suggested that the Bureau adopt
only enhanced policies and procedures requirements setting forth
objectives for servicers to meet. A number of industry commenters also
urged the Bureau not to extend the protections of the mortgage
servicing rules to potential successors in interest, noting that doing
so could allow someone without a true ownership interest to initiate
actions that might jeopardize the interests of the true owner or the
privacy of any borrowers on the account.
One trade association submitted a comment listing a large number of
additional regulatory provisions that the Bureau should address from
Regulations X and Z and other regulations. As part of this list, this
commenter stated that a confirmed successor in interest should be a
borrower for purposes of Sec. 1024.17.
A number of consumer advocacy group commenters also urged the
Bureau to extend the protections of Sec. 1024.17 to successors in
interest. As discussed in part V.A. and the section-by-section analyses
of Sec. Sec. 1024.36(i) and 1024.38(b)(1)(vi), various consumer
advocacy groups also suggested that successors in interest should
receive additional protections prior to confirmation. Some consumer
advocacy groups urged the Bureau to create a privately enforceable
right triggered by the homeowner's submission of documentation, not the
servicer's additional step of confirming the person's status. They also
urged the Bureau to provide a limited notice of error procedure related
to successor status before a foreclosure sale and to make both the
request for information and notice of error procedures privately
enforceable. Consumer advocacy groups also stated that the final rule
should extend dual tracking protections to successors in interest even
prior to confirmation, to ensure that the house is not lost to
foreclosure before successor in interest status is determined. In their
view, once a successor in interest has submitted a complete loan
modification application, including reasonable documentation
establishing the successor in interest's identity and ownership
interest, within the timelines contained in Sec. 1024.41(f) and (g), a
servicer should not be permitted to initiate or continue with
foreclosure until it has reviewed the proof of successor status and the
application.
A large number of commenters of various types expressed concern
about the proposal's use of the term prior borrower because the
borrower who transfers an interest may still be liable on the loan
obligation (absent a release) and a borrower for purposes of Regulation
X.
For the reasons set forth in part V.A. and this discussion, the
Bureau is expanding the protections applicable to confirmed successors
in interest to include Sec. 1024.17. The Bureau agrees that successors
in interest confront the same types of escrow issues as borrowers who
are currently protected by Sec. 1024.17. As consumer advocacy groups
noted in their comments, successors in interest are particularly likely
to experience escrow problems due to the transfer of ownership through
which they acquired their ownership interest in the property. In
issuing the proposal, the Bureau intended to include all of the
mortgage servicing protections of Regulations X and Z, which, as
commenters noted, should include the escrow protections of Sec.
1024.17. Expanding the protections afforded to confirmed successors in
interest to include Sec. 1024.17 effectuates the Bureau's stated
intent in the proposal to extend all of the Regulation X mortgage
servicing protections to confirmed successors in interest and ensures
that confirmed successors in interest can obtain necessary escrow
information.
The Bureau has reviewed the other sections of Regulation X that
commenters suggested that the Bureau should address and does not
believe that it is appropriate to add them to the regulatory provisions
listed in Sec. 1024.30(d). For example, a trade association stated
that the final rule should define a confirmed successor in interest as
a borrower for purposes of Sec. 1024.11, which governs mailing of
documents under Regulation X. However, it is not necessary to do so
because Sec. 1024.11 does not use the term borrower and, by its terms,
already applies to any provision of Regulation X that requires or
permits mailing of documents.
Although many industry commenters questioned the need to extend the
protections of the Regulation X mortgage servicing rules to confirmed
successors in interest, the Bureau concludes that such protections are
necessary and appropriate. As numerous consumer advocacy groups, a
local government commenter, and the office of a State Attorney General
explained and illustrated in their comments, successors in interest
face many of the challenges that Regulation X's mortgage servicing
rules were designed to prevent. These comments are consistent with
various published reports and the Bureau's market knowledge.\116\ The
same reasons that
[[Page 72188]]
supported the Bureau's adoption of the 2013 RESPA Servicing Final Rule
also support Sec. 1024.30(d): Successors in interest are homeowners
whose property is subject to foreclosure if the mortgage loan
obligation is not satisfied, even though the successor in interest may
not have assumed that obligation under State law or otherwise be liable
on the obligation. In addition to Sec. 1024.17 as discussed above, the
Bureau has considered each section of subpart C of Regulation X and
believes that each section should apply to confirmed successors in
interest.\117\
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\116\ See part V.A., supra; see also Bureau of Consumer Fin.
Prot., Supervisory Highlights Mortgage Servicing Special Edition
(Issue 11) at 15-16 (June 2016); Alys Cohen, Nat'l Consumer Law
Ctr., Snapshots of Struggle: Saving the Family Home After a Death or
Divorce, Successors Still Face Major Challenges in Obtaining Loan
Modifications (Mar. 2016), available at https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf; Nat'l Hous. Res. Ctr.,
Servicer Compliance with CFPB Servicing Regulations (Feb. 2016),
available at http://www.hsgcenter.org/wp-content/uploads/2016/02/NHRC-2016-Servicing-Survey-Report.pdf; Nat'l Consumer Law Ctr., NCLC
Survey Reveals Ongoing Problems with Mortgage Servicing 2, 5 (May
2015), available at http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf; Nat'l Council of La Raza & Nat'l Hous. Res. Ctr., Are
Mortgage Servicers Following the New Rules? A Snapshot of Compliance
with CFPB Servicing Standards 3, 7 (Jan. 9, 2015), available at
http://www.nclr.org/Assets/uploads/Publications/mortgageservicesreport_11215.pdf; Nat'l Consumer Law Ctr., Examples
of Cases Where Successors in Interest and Similar Parties Faced
Challenges Seeking Loan Modifications and Communicating with
Mortgage Servicers (July 1, 2014), available at http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/successor-stories-2014.pdf; Cal. Reinvestment Coal., Chasm Between Words and
Deeds X: How Ongoing Mortgage Servicing Problems Hurt California
Homeowners and Hardest-Hit Communities (May 2014), available at
http://www.calreinvest.org/publications/california-reinvestment-coalition-research; Nat'l Hous. Res. Ctr., National Mortgage
Settlement Servicing Standards and Noncompliance: Results of a
National Housing Counsel Survey 8 (June 5, 2013), available at
content/uploads/2013/06/NMS_Findings.pdf; Cal. Reinvestment Coal.,
Chasm Between Words and Deeds IX: Bank Violations Hurt Hardest Hit
Communities (Apr. 2013), available at http://www.calreinvest.org/publications/california-reinvestment-coalition-research.
\117\ As explained in part V.A., supra, and in the section-by-
section analyses of Sec. 1024.32(c)(1) through (4), infra, the
final rule includes additional provisions governing how the Mortgage
Servicing Rules in Regulation X apply to confirmed successors in
interest.
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Specifically, the Bureau concludes that Sec. Sec. 1024.35 and
1024.36 should apply to confirmed successors in interest.\118\ When the
Bureau issued Sec. Sec. 1024.35 and 1024.36 in the 2013 RESPA
Servicing Final Rule, the Bureau acknowledged that both borrowers and
servicers would be best served if the Bureau were to define clearly a
servicer's obligation to correct errors or respond to information
requests.\119\ Clearly defining a servicer's obligation with respect to
a confirmed successor in interest will similarly benefit both servicers
and confirmed successors in interest. Under current Sec.
1024.38(b)(1)(vi), servicers are required to have policies and
procedures reasonably designed to ensure that the servicer can identify
and communicate with successors in interest upon notification of the
death of a borrower. Because Sec. Sec. 1024.35 and 1024.36 do not
currently necessarily apply to successors in interest, however, the
extent of the obligation to communicate with successors in interest and
how a successor in interest may obtain information from a servicer are
not clear. Sections 1024.35 and 1024.36 will provide important
protections to confirmed successors in interest. For instance, Sec.
1024.35 will provide confirmed successors in interest with protections
regarding a servicer's failure to accept payments conforming to the
servicer's written requirements for payments. Additionally, Sec.
1024.36's requirements to provide information about the mortgage loan
will help prevent unnecessary foreclosure on the confirmed successor in
interest's property by, for example, ensuring that a confirmed
successor in interest can obtain information about the payment history
of the loan. Because confirmed successors in interest, like transferor
borrowers, bear the risk of unnecessary foreclosure as homeowners of
the property, Sec. Sec. 1024.35 and 1024.36 should apply to confirmed
successors in interest.
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\118\ As described in the section-by-section analysis of Sec.
1024.36(i), infra, in addition to applying the Mortgage Servicing
Rules, including Sec. 1024.36, with respect to confirmed successors
in interest, the Bureau is also finalizing a new information request
requirement in Sec. 1024.36(i) that applies before the servicer has
confirmed the successor in interest's status.
\119\ 78 FR 10695, 10736 (Feb. 14, 2013).
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The Bureau solicited comment on whether any information that could
be provided to successors in interest under Sec. Sec. 1024.35 and
1024.36 presents privacy concerns and whether servicers should be
permitted to withhold any information from successors in interest out
of such privacy concerns. A number of commenters expressed concerns
regarding privacy issues, which are discussed in more detail in part
V.A. In light of these concerns, the Bureau is amending Sec. Sec.
1024.35 and 1024.36 to allow servicers to limit the information that
confirmed successors in interest may obtain about other borrowers and
that all borrowers may obtain about potential and confirmed successors
in interest, as discussed in the section-by-section analyses of
Sec. Sec. 1024.35 and 1024.36.\120\
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\120\ The Bureau also considered, as an alternative, the
approach suggested by an industry commenter that would have allowed
servicers to omit ``personal, private information.'' The Bureau
concluded that such a standard would have proved difficult to apply
and could, in many instances, have resulted in servicers withholding
information that confirmed successors in interest need to preserve
their ownership interest in the property.
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As explained in part V.A., after considering the comments received,
the Bureau has decided that the loss mitigation procedures contained in
Sec. 1024.41 should apply to confirmed successors in interest and that
servicers should be required to evaluate confirmed successors in
interest for loss mitigation options to prevent unnecessary
foreclosure. Significant consumer harm flows from a servicer's failure
to afford a confirmed successor in interest the same access to loss
mitigation as other homeowners. The Bureau also believes that requiring
servicers to evaluate confirmed successors in interest for loss
mitigation prior to the confirmed successor in interest's assumption of
liability for the mortgage debt under State law is consistent with
Fannie Mae and Freddie Mac guidelines and serves RESPA's purposes as
discussed in part V.A.\121\
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\121\ See Fannie Mae, Servicing Guide Announcement SVC-2013-17
(Aug. 28, 2013), available at https://www.fanniemae.com/content/announcement/svc1317.pdf; Freddie Mac, Bulletin 2013-3 (Feb. 15,
2013), available at http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1303.pdf.
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Consistent with the proposal and with Sec. 1024.41's treatment of
borrowers generally, the final rule does not require a servicer to
offer a successor in interest any particular loss mitigation
option.\122\ The final rule also does not prevent a servicer from
conditioning an offer for a loss mitigation option on the successor in
interest's assumption of the mortgage loan obligation under State law
or from offering loss mitigation options to the successor in interest
that differ based on whether the successor in interest would
simultaneously assume the mortgage loan obligation. Under the final
rule, however, a servicer cannot condition review and evaluation of a
loss mitigation application on a confirmed successor in interest's
assumption of the mortgage obligation. If the property is the confirmed
successor in interest's principal residence and the procedures set
forth in Sec. 1024.41 are otherwise applicable, a servicer is, for
example, required under Sec. 1024.41(b) to respond to a loss
mitigation application from the confirmed successor in interest and
exercise reasonable diligence in obtaining documents and information to
complete the loss mitigation application. The foreclosure prohibitions
under Sec. 1024.41(f) and (g) may also apply.
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\122\ A trade association also stated it was not clear if the
proposal would require servicers to allow confirmed successors in
interest to assume the loan. State law may require servicers to
allow confirmed successors in interest to assume the loan, but the
Bureau is not interpreting State law, and the final rule does not
require assumptions as a matter of Federal law.
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For similar reasons, the early intervention and continuity of
contact requirements contained in Sec. Sec. 1024.39 and 1024.40 should
apply to confirmed
[[Page 72189]]
successors in interest.\123\ In issuing these provisions in the 2013
RESPA Servicing Final Rule, the Bureau stated that Sec. Sec. 1024.39
and 1024.40 are appropriate to achieve the consumer protection purposes
of RESPA, including to help borrowers avoid unwarranted or unnecessary
costs and fees and to facilitate review of borrowers for foreclosure
avoidance options.\124\ The Bureau further determined that Sec. Sec.
1024.39 and 1024.40 are necessary and appropriate to carry out the
purposes of the Dodd-Frank Act of ensuring that markets for consumer
financial products and services are fair, transparent, and competitive;
that consumers are provided with timely and understandable information
to make responsible decisions about financial transactions; and that
markets for consumer financial products and services operate
transparently and efficiently to facilitate access and innovation.\125\
These same consumer protection purposes are served by applying
Sec. Sec. 1024.39 and 1024.40 to confirmed successors in interest,
who, as homeowners of a property securing a mortgage loan, may be
required to make payments on the loan to avoid foreclosure. In
particular, the protections provided by Sec. Sec. 1024.39 and 1024.40
serve to prevent unnecessary foreclosure by alerting confirmed
successors in interest to any delinquency on the mortgage loan secured
by their property and assisting with the process of applying for loss
mitigation options.
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\123\ Although one industry commenter expressed concern that
sending loss mitigation related letters and trying to establish
right party contact with individuals not liable on a delinquent loan
could constitute abusive or harassing debt collection efforts, in
violation of FDCPA section 806, 15 U.S.C. 1692d, the Bureau does not
believe that providing this important information about the property
at issue to confirmed successors in interest in a notice that is
required by Regulation X will be abusive or harassing absent other
conduct making the overall effect of the communication abusive or
harassing, as explained in part V.A., supra. Additionally, if upon
confirmation a servicer sends an initial written notice and
acknowledgment form to a confirmed successor in interest who is not
liable on the mortgage loan obligation in compliance with the
requirements of Sec. 1024.32(c)(1) through (3), the final rule
gives the servicer the option not to send Mortgage Servicing Rule
notices to the confirmed successor in interest until the confirmed
successor in interest requests them through the acknowledgment. See
part V.A., supra, and the section-by-section analysis of Sec.
1024.32(c), infra.
\124\ 78 FR 10696, 10791 (Feb. 14, 2013) (discussing Sec.
1024.39); see also id. at 10809-10 (discussing Sec. 1024.40).
\125\ Id. at 10791 (citing section 1021(a) and (b) of the Dodd-
Frank Act).
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Finally, the Bureau concludes that the requirements contained in
Sec. 1024.33 (regarding mortgage servicing transfers), Sec. 1024.34
(regarding escrow payments and account balances), and Sec. 1024.37
(regarding force-placed insurance) should apply to confirmed successors
in interest. The same rationale for applying these rules to any
borrower applies with respect to confirmed successors in interest, who
are also homeowners and may be required to make payments on the loan to
avoid foreclosure. Confirmed successors in interest, like other
borrowers, need to know where to send their mortgage payments in the
event of a servicing transfer. They also need to know the balance of
the escrow loan account, how their payments into that account are
applied, and the status of tax and homeowner's insurance payments made
from the escrow account. Like other borrowers, they also need
information about any force-placed insurance the servicer has taken out
on their property. Moreover, it would add unnecessary complexity to the
rules to apply the rest of the Mortgage Servicing Rules in Regulation X
to confirmed successors in interest but not to apply Sec. Sec.
1024.33, 1024.34, and 1024.37 to them. The Bureau believes it is
preferable to apply all of the Mortgage Servicing Rules in Regulation X
to confirmed successors in interest, unless there is a compelling
reason not to apply a particular rule. The Bureau solicited comment as
to whether any such compelling reasons exist with respect to Sec. Sec.
1024.33, 1024.34, and 1024.37. After reviewing the comments, the Bureau
has not identified any compelling reasons not to apply a particular
provision of the Mortgage Service Rules in Regulation X to confirmed
successors in interest.
While industry commenters expressed a number of concerns relating
to the cost of complying with the Regulation X mortgage servicing
requirements with respect to confirmed successors in interest, many of
the requirements that they identified as particularly burdensome or
costly are not part of the final rule. For example, a number of
industry commenters indicated that it would be costly and might require
systems changes if the final rule required servicers to send confirmed
successors in interest duplicate copies of mortgage servicing rule
notices that the servicer was also sending to another borrower on the
account. The final rule includes new Sec. 1024.32(c)(4), which
clarifies that such duplicate notices are generally not required. Other
industry commenters expressed concern that it would be costly if the
final rule required servicers to preserve until confirmation
information requests from potential successors in interest who request
information other than a list of documents required for confirmation.
Section 1024.36(i) does not require servicers to preserve this type of
request. Similarly, a number of industry commenters said that it would
be burdensome if the final rule allowed requests for information under
Sec. 1024.36(i) to be sent to any address for the servicer. Like the
proposal, the final rule permits the servicer to establish an exclusive
address. Some trade associations suggested that the Bureau should have
considered the costs for servicers to become equipped to originate
mortgage loans. Because the final rule does not require servicers to
originate mortgage loans, this type of cost, like many others mentioned
by commenters, is not one imposed by the final rule.\126\
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\126\ Successors in interest may have a right under State law to
assume the mortgage loan obligation, but that is independent of the
final rule, which does not mandate assumptions. In any event, a
successor in interest's assumption of the loan obligation generally
would not result in a new origination. The Bureau's July 2014
interpretive rule clarified that, where a successor in interest who
has previously acquired a legal interest in a dwelling is added as
an obligor on the mortgage loan, the Regulation Z Ability-to-Repay
Rule does not apply. See 79 FR 41631, 41632-33 (July 17, 2014).
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Nevertheless, the Bureau recognizes that providing confirmed
successors in interest with protections under Sec. 1024.17 and subpart
C will cause servicers to incur some costs. As many industry commenters
noted, servicers may need to devote additional resources to assessing
the identity and ownership interest of potential successors in interest
as part of the confirmation process established by the final rule. The
Bureau expects that these additional costs will be limited because
servicers already routinely make these types of determinations. For
example, servicers confirm the identity of potential successors in
interest and other third parties when such parties assume the mortgage
loan obligation under State law. Prior to bringing a foreclosure
action, servicers also generally have to determine who owns the
property at issue, in order to ensure that all proper parties are
notified. Moreover, the final rule allows a servicer to require
additional documentation from a potential successor in interest if it
reasonably determines that it cannot make a confirmation determination
based on the documentation provided by the potential successor in
interest.\127\ The
[[Page 72190]]
Bureau anticipates that these considerations will mitigate any
additional costs associated with making confirmation determinations in
conformance with the final rule.
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\127\ Comment 38(b)(1)(vi)-4 explains, for example, that, if
there is pending litigation involving the potential successor in
interest and other claimants regarding who has title to the property
at issue, a servicer may specify that documentation of a court
determination or other resolution of the litigation is required
before a confirmation determination can be made. Additionally, if a
servicer requires additional information in order to identify the
documents required for confirmation in response to a written request
under Sec. 1024.36(i), the final rule allows the servicer to
provide a response that includes examples of documents typically
accepted to establish identity and ownership interest in a property,
indicates that the person may obtain a more individualized
description of required documents by providing additional
information, specifies what additional information is required, and
provides contact information for further assistance.
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Servicers may also have to devote additional resources to tracking
successors in interest, providing responses to information requests
from confirmed successors in interest, handling error resolution,
responding to and evaluating loss mitigation applications from
successors in interest, and otherwise communicating with successors in
interest. Providing confirmed successors in interest with Sec.
1024.41's protections may delay foreclosure on the property securing
the mortgage loan in some cases, as discussed above. However, because
servicers are already required to comply with the requirements of Sec.
1024.17 and subpart C with respect to transferor borrowers, the
additional cost to servicers to apply these requirements to confirmed
successors in interest should be limited. Moreover, applying these
protections may result in the avoidance of unnecessary foreclosures
where loss mitigation options are available, thus providing benefits to
all parties.
The final rule limits the application of Sec. 1024.30(d) to
confirmed successors in interest.\128\ Because some people representing
themselves as successors in interest may not actually have an ownership
interest in the property, requiring servicers to apply Regulation X's
communication, disclosure, and loss mitigation requirements to
successors in interest before the servicer has confirmed the successor
in interest's identity and ownership interest in the property could
present privacy and other concerns, as many commenters noted. The
Bureau also believes it would be inappropriate to require servicers to
incur substantial costs before confirming the successor in interest's
identity and ownership interest in the property. The final rule
includes, however, a new information request for potential successors
in interest and revised policies and procedures requirements relating
to potential successors in interest, which are discussed in the
section-by-section analyses of Sec. Sec. 1024.36(i) and
1024.38(b)(1)(vi), as well as new Regulation Z commentary related to
payments by successors in interest, which is discussed in the section-
by-section analysis of Sec. 1026.36(c).
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\128\ However, a successor in interest could be a borrower for
purposes of the Mortgage Servicing Rules in Regulation X (both
currently and as amended by the final rule), even if the successor
in interest has not been confirmed, if the successor in interest has
assumed the mortgage loan obligation under State law or is otherwise
obligated on the mortgage loan. Section 1024.30(d) does not prevent
an unconfirmed successor in interest from being a borrower for
purposes of Regulation X.
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Proposed comment 30(d)-1 would have clarified the requirement in
proposed Sec. 1024.30(d) that a successor in interest must be
considered a borrower for the purposes of Regulation X's subpart C once
a servicer confirms the successor in interest's identity and ownership
interest in the property. The proposed comment included an example of
the application of Sec. 1024.41's loss mitigation procedures to
successors in interest and a cross-reference to Sec. 1024.36(i)'s
requirement that a servicer must respond to written requests for
certain information from a potential successor in interest.
The Bureau is finalizing proposed comment 30(d)-1 with a number of
changes. To conform to final Sec. 1024.30(d), the final version of
comment 30(d)-1 identifies Sec. 1024.17 as a protection applicable to
confirmed successors in interest. As finalized, comment 30(d)-1
explains that a confirmed successor in interest must be considered a
borrower for purposes of subpart C and Sec. 1024.17, regardless of
whether the successor in interest assumes the mortgage loan obligation
under State law. An industry commenter suggested that the Bureau
clarify that the treatment of a successor in interest may depend on
whether the property is the successor in interest's principal
residence, noting that, under Sec. 1024.30(c)(2), Sec. Sec. 1024.39
through 1024.41 only apply to mortgage loans that are secured by a
property that is a borrower's principal residence. In illustrating how
Sec. 1024.41's loss mitigation procedures apply to confirmed
successors in interest, the final version of comment 30(d)-1 indicates
that the property must be the confirmed successor in interest's
principal residence and that the procedures set forth in Sec. 1024.41
must otherwise be applicable. Because comment 30(d)-1 addresses the
treatment of confirmed successors in interest, the Bureau has
eliminated the cross-reference to Sec. 1024.36(i) that appeared in
proposed comment 30(d)-1 and has added the word confirmed in the
comment heading. The final version of comment 30(d)-1 also includes
technical changes to incorporate the new definition of confirmed
successor in interest.
The final version of comment 30(d)-1 also clarifies that treatment
of a confirmed successor in interest as a borrower for purposes of
Sec. 1024.17 and subpart C does not affect whether the confirmed
successor in interest is subject to the contractual obligations of the
mortgage loan agreement, which is determined by applicable State law.
This addition clarifies that confirmation of a successor in interest
who has not assumed the loan obligation and is not otherwise liable on
the obligation does not make the successor in interest a ``borrower''
for liability purposes.\129\ Consistent with an interpretive rule that
the Bureau is issuing concurrently with this final rule, comment 30(d)-
1 also clarifies that communications in compliance with Regulation X to
a confirmed successor in interest as defined in Sec. 1024.31 do not
violate FDCPA section 805(b) because the term consumer for purposes of
FDCPA section 805 includes any person who meets the definition in
Regulation X of confirmed successor in interest.
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\129\ Since confirmation does not affect liability under State
law, it would not be accurate, for example, for a servicer to report
to a consumer reporting agency that a confirmed successor in
interest is delinquent on the mortgage loan if the confirmed
successor in interest has not assumed the mortgage loan obligation
under State law and is not otherwise liable for it.
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The final rule also adds new comment 30(d)-2 relating to assumption
of the mortgage loan obligation under State law. This new comment
clarifies that a servicer may not require a confirmed successor in
interest to assume the mortgage loan obligation under State law to be
considered a borrower for purposes of Sec. 1024.17 and subpart C. As
explained in part V.A., the Bureau believes that it is important to
make the protections of the Mortgage Servicing Rules available to
confirmed successors in interest who have not assumed the mortgage loan
obligation under State law because confirmed successors in interest may
need information about the loan in order to decide whether to assume
the loan obligation and to protect their ownership interest.
New comment 30(d)-2 further explains that, if a successor in
interest assumes a mortgage loan obligation under State law or is
otherwise liable on the mortgage loan obligation, the protections that
the successor in interest enjoys under Regulation X are not limited to
the protections that apply under Sec. 1024.30(d) to a confirmed
[[Page 72191]]
successor in interest. This addition clarifies that Sec. 1024.30(d)
does not abrogate the Regulation X protections that already exist for
persons (including potential or confirmed successors in interest) who
assume a mortgage loan obligation under State law.
Proposed comment 30(d)-2 addressed how a servicer's confirmation of
a successor in interest's identity and ownership interest in the
property would affect the borrower who transferred the ownership
interest. The proposed comment would have provided that, even after a
servicer's confirmation of a successor in interest's identity and
ownership interest in the property, the servicer would still be
required to comply with the requirements of Regulation X's subpart C
with respect to the prior borrower, unless that borrower also had
either died or been released from the obligation on the mortgage loan.
The proposed comment also would have provided that the prior borrower
would retain any rights under Regulation X's subpart C that accrued
prior to the confirmation of the successor in interest to the extent
these rights would otherwise survive the prior borrower's death or
release from the obligation. For the reasons stated in part V.A. and in
this discussion, the Bureau is finalizing proposed comment 30(d)-2,
renumbered as comment 30(d)-3, with substantial revisions to make it
clear that confirmation of a successor in interest does not strip the
borrower who transferred the ownership interest of any protections
under Regulation X.\130\
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\130\ As described in the section-by-section analysis of Sec.
1026.2(a)(11), infra, the Bureau is making parallel revisions to
similar commentary with respect to Regulation Z's requirements.
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As explained in part V.A., the Bureau received many comments
objecting to the use of the term prior borrower on the grounds that it
was confusing and inaccurate. A number of commenters also expressed
concern that the Bureau's proposal would not provide adequate
protection to transferor borrowers or the estates of transferor
borrowers.
As many commenters noted, the term prior borrower is inapt because
a transferor borrower may still be liable on the mortgage note and may
have significant legal interests at stake with respect to the mortgage
loan. For example, the servicer may continue to report the performance
of the loan on the transferor borrower's credit report, and, in the
event of foreclosure, the transferor borrower could be liable for any
deficiency, depending on the contract terms and applicable State law.
The Bureau also recognizes that, when a transferor borrower dies, the
estate and its representative have an important role to play and that
Regulation X can provide valuable information and protections to
estates even after confirmation of a successor in interest.
In light of these considerations, the Bureau does not intend for
the final rule to take away the protections that Regulation X currently
provides for living transferor borrowers or for estates of transferor
borrowers and their representatives and has significantly revised
proposed comment 30(d)-2 to make this clear. As finalized, comment
30(d)-3 provides that, even after a servicer's confirmation of a
successor in interest, the servicer is still required to comply with
all applicable requirements of Regulation X with respect to the
borrower who transferred the ownership interest to the successor in
interest.
The Bureau acknowledges that, under the final rule, servicers will
sometimes be required to comply with the Mortgage Servicing Rules in
Regulation X with respect to more than one person--such as the
transferor borrower or the transferor borrower's estate and the
confirmed successor in interest, as well as, in some cases, multiple
confirmed successors in interest who each acquire an ownership interest
in a property. Although some commenters expressed concern about this,
the Bureau notes that the Mortgage Servicing Rules already may apply
with respect to more than one borrower for a particular mortgage loan.
Spouses, for example, are commonly jointly obligated on the mortgage
note, and the Mortgage Servicing Rules apply with respect to each
borrower in such cases. In addition, the final rule includes new Sec.
1024.32(c)(4), which makes it clear that servicers generally do not
need to send Regulation X notices to confirmed successors in interest
if the notices would be duplicative of notices sent to another borrower
on the account. Accordingly, the Bureau does not believe that applying
the Mortgage Servicing Rules in Regulation X to confirmed successors in
interest presents novel challenges for servicers in this regard.
Section 1024.31 Definitions
Confirmed Successor in Interest
For clarity and ease of reference, the Bureau is adding a
definition of confirmed successor in interest to Sec. 1024.31 in the
final rule. As finalized, Sec. 1024.31 defines confirmed successor in
interest for purposes of subpart C of Regulation X as a successor in
interest once a servicer has confirmed the successor in interest's
identity and ownership interest in a property that secures a mortgage
loan subject to subpart C of Regulation X. This new definition was not
part of the proposal but is consistent with how the Bureau used the
term confirmed successor in interest in the preamble to the proposal.
The Bureau is also finalizing a definition of successor in interest, as
discussed below.
Delinquency
Section 1024.31 contains definitions for various terms that are
used throughout the provisions of subpart C of Regulation X. It does
not contain a generally-applicable definition of the term
``delinquency.'' However, delinquency is defined for the specific
purposes of Sec. Sec. 1024.39(a) and (b) and 1024.40(a) as beginning
``on the day a payment sufficient to cover principal, interest, and, if
applicable, escrow for a given billing cycle is due and unpaid, even if
the borrower is afforded a period after the due date to pay before the
servicer assesses a late fee.'' \131\ Delinquency is not defined for
purposes of other sections of subpart C, including Sec. 1024.41(f)(1),
which prohibits a servicer from making the first notice or filing for
foreclosure unless ``[a] borrower's mortgage loan obligation is more
than 120 days delinquent.''
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\131\ Comments 39(a)-1.i and 40(a)-3.
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To ensure that the term ``delinquency'' is interpreted consistently
throughout Regulation X's mortgage servicing rules, the Bureau proposed
to remove the current definition of delinquency applicable to
Sec. Sec. 1024.39(a) and (b) and 1024.40(a) and to add a general
definition of delinquency in Sec. 1024.31 that would apply to all
sections of subpart C.\132\ The Bureau proposed to define delinquency
as a period of time during which a borrower and the borrower's mortgage
loan obligation are delinquent. The proposed definition would have
provided that a borrower and a borrower's mortgage loan obligation are
delinquent beginning on the day a periodic payment sufficient to cover
principal, interest, and, if applicable, escrow, became due and unpaid,
until such time as the outstanding payment is made.\133\ Delinquency
under the
[[Page 72192]]
proposed definition would not have been triggered by a borrower's
failure to pay a late fee, consistent with current comments 39(a)-1.i
and 40(a)-3. The Bureau believed that it was unlikely that servicers
would initiate foreclosure on borrowers who are current with respect to
principal, interest, and escrow payments solely because of a failure to
pay accumulated late charges. In contrast with the definition of
delinquency currently found in comments 39(a)-1.i and 40(a)-3, the
proposed definition would not have included the phrase ``for a given
billing cycle.'' The proposal explained that, as used in the context of
the live contact and continuity of contact requirements under
Sec. Sec. 1024.39 and 1024.40, respectively, ``for a given billing
cycle'' was intended to ensure that the servicer met the respective
requirements of those rules during each billing cycle in which the
borrower was delinquent. However, such a definition would have created
incongruities if applied to the 120-day foreclosure referral waiting
period in Sec. 1024.41(f)(1)(i).
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\132\ The proposed definition would not have affected the
interpretation of Sec. 1024.33(c), which prohibits servicers from
treating a borrower as ``late for any purpose'' if a transferee
servicer receives a payment from a borrower within the 60-day period
beginning on the effective date of a transfer.
\133\ All three concepts--delinquency, delinquent borrower, and
delinquent mortgage loan obligation--are used interchangeably
throughout subpart C. See, e.g., 12 CFR 1024.39(a) (``delinquent
borrower''; ``borrower's delinquency''); 12 CFR 1024.39(b) (same);
12 CFR 1024.41(f)(1)(i) (``A borrower's mortgage loan obligation is
more than 120 days delinquent'').
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The Bureau sought to provide servicers, borrowers, and other
stakeholders with clear guidance on how to determine whether a borrower
is delinquent for purposes of Regulation X's servicing provisions and
when the borrower's delinquency began. Since the publication of the
2013 RESPA Servicing Final Rule, the Bureau had received numerous
inquiries about how servicers should calculate delinquency with respect
to those provisions of the Mortgage Servicing Rules that refer to
delinquency but do not define delinquency. In particular, stakeholders
had asked the Bureau how servicers should calculate the 120-day
foreclosure referral waiting period set forth in Sec.
1024.41(f)(1)(i).\134\
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\134\ For example, in advance of the proposal, some servicers
that apply a borrower's payments to the oldest outstanding periodic
payment sought guidance from the Bureau about how to calculate the
length of a borrower's delinquency. See Am. Bankers Ass'n. Letter to
Bureau of Consumer Fin. Prot. (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
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The Bureau also proposed three new comments to the proposed
definition of delinquency. Proposed comment 31 (Delinquency)-1
essentially restated existing comments 39(a)-1.i and 40(a)-3 by stating
that a borrower becomes delinquent beginning the day on which the
borrower fails to make a periodic payment, even if the servicer grants
the borrower additional time after the due date to pay before charging
the borrower a late fee.
Proposed comment 31 (Delinquency)-2 addressed how delinquency
should be calculated if a servicer applies a borrower's payments to the
oldest outstanding periodic payment. Proposed comment 31 (Delinquency)-
2 would have clarified that, if a servicer applies payments to the
oldest outstanding periodic payment, the date of the borrower's
delinquency must advance accordingly. The proposed comment included an
example illustrating this concept. The Bureau understood from its
outreach that many servicers credit payments made to a delinquent
account to the oldest outstanding periodic payment; in fact, the Fannie
Mae's and Freddie Mac's model deeds of trust require this.\135\ The
Bureau also understood that most servicers already do not treat such a
borrower as seriously delinquent and do not initiate loss mitigation
procedures or seek to foreclose on that borrower. As such, the Bureau
explained that the proposed comment would not place a significant
additional burden on most servicers. Moreover, because the proposed
comment would not have required servicers to apply payments to the
oldest outstanding periodic payment, consistent with the Bureau's
decision in the context of the 2013 TILA Servicing Final Rule,
servicers who do not apply payments to the oldest outstanding periodic
payment would be unaffected.
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\135\ See, e.g., Fannie Mae, Security Instruments, https://www.fanniemae.com/singlefamily/security-instruments (security
instruments for various states but with a uniform covenant that
payments shall be applied to each periodic payment in the order in
which it became due); Fannie Mae & Freddie Mac, California Single
Family Uniform Instrument, Form 3005-4, available at https://www.fanniemae.com/content/legal_form/3005w.doc; Fannie Mae & Freddie
Mac, New York Single Family Uniform Instrument, Form 3033, available
at https://www.fanniemae.com/content/legal_form/3033w.doc.
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Proposed comment 31 (Delinquency)-3 would have permitted servicers
to apply a payment tolerance to partial payments under certain
circumstances. The Bureau learned from its pre-proposal outreach that
some servicers elect or are required to treat borrowers as having made
a timely payment even if they make payments that are less than the
amount due by some small amount (perhaps as a result of a scrivener's
error or a recent ARM payment adjustment), such that the account is
reflected as current in the servicer's systems. Proposed comment 31
(Delinquency)-3 would have permitted servicers that elect to advance
outstanding funds to a borrower's mortgage loan account to treat the
borrower's insufficient payment as timely, and therefore not
delinquent, for purposes of Regulation X's mortgage servicing rules.
The comment would have clarified, however, that if a servicer chooses
not to treat the borrower as delinquent for purposes of subpart C of
Regulation X, the borrower is not delinquent as defined in Sec.
1024.31. This clarification was intended to prevent servicers from
selectively applying a payment tolerance only where doing so benefits
the servicer. The Bureau sought comment on whether it should limit
servicers' use of a payment tolerance to a specific dollar amount or
percentage of the periodic payment amount and, if so, what the specific
amount or percentage should be.
The Bureau sought comment regarding whether the proposed definition
of delinquency had the potential of interfering with industry's
existing policies and procedures and on whether there were better ways
to articulate the proposed definition. The Bureau received a number of
comments. Most commenters generally supported the proposal, and some
stated that it reflected industry's general understanding of the term.
One industry commenter expressed concern with the proposal's treatment
of a borrower as delinquent until such time as the outstanding payment
is made. The commenter noted that, in the section-by-section analysis
of Sec. 1024.41(i) discussing duplicative requests, the Bureau assumed
that a borrower who is performing on a permanent loan modification does
not meet the definition of delinquency that the Bureau was proposing.
The commenter stated that a borrower performing on a permanent loan
modification may not have made all outstanding payments and therefore
would be considered delinquent under the proposal, contrary to the
Bureau's assumption.
Several industry commenters expressed concern that the proposal
addressed only breaches of the mortgage loan obligation regarding the
borrower's periodic payment obligation and did not specifically address
other breaches of the mortgage loan obligation. They stated that, in
addition to delinquency, borrowers may breach mortgage contracts in
other ways, including through, for example, non-occupancy of the
property, waste, damage to the property, and civil or criminal
violations that could result in forfeiture of the property.\136\ A few
industry
[[Page 72193]]
commenters expressed concern that a borrower's failure to pay taxes or
insurance outside of escrow would not meet the proposed definition of
delinquency. Some industry commenters requested that the Bureau clarify
whether these types of contractual defaults would be considered a
delinquency that would trigger the 120-day period under Sec.
1024.41(f)(1)(i) during which a servicer may not make the first notice
or filing required by applicable law for any judicial or non-judicial
foreclosure. Several industry commenters requested that the 120-day
foreclosure referral waiting period under Sec. 1024.41(f)(1)(i) not
apply when borrowers commit ``waste'' or abandonment in violation of
the underlying mortgage contract because these forms of default impair
the value of the collateral.
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\136\ The Bureau notes that these other types of breaches are
sometimes referred to as non-monetary breaches or non-monetary
defaults, even though they may involve a monetary aspect (such as
failure to pay homeowners association dues or taxes outside of
escrow).
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Many industry commenters also expressed concern that the proposal
did not specifically address ``rolling delinquencies.'' These
commenters described rolling delinquencies as situations where the
borrower becomes delinquent, resumes making payments but does not make
all outstanding payments to cure the delinquency, and the servicer's
application of payments to the oldest outstanding payment advances the
borrower's delinquency. A primary concern among commenters was a
situation where a servicer would never be able to pursue foreclosure
because a borrower is delinquent but never become more than 120 days
delinquent because of the rolling delinquency. In this circumstance,
Sec. 1024.41(f)(1)(i), as described above, would prohibit the servicer
from making the first notice or filing required by applicable law for
any judicial or non-judicial foreclosure. Industry commenters urged the
Bureau to provide clarity on the application of Sec. 1024.41(f)(1)(i)
to rolling delinquencies. A few commenters suggested the Bureau permit
servicers to file for foreclosure when a borrower has been continuously
delinquent for a period of time, but does not becomes more than 120
days delinquent. Two commenters requested that the Bureau clarify that
servicers have the right to accelerate the mortgage loan if permitted
by State law and the contract and can then refer the mortgage loan to
foreclosure if the accelerated amount is not paid after 120 days.
One consumer advocacy group expressed support for the clarification
in proposed comment 31 (Delinquency)-2 that, if a servicer applies
payments to the oldest outstanding periodic payment, a payment by a
delinquent borrower advances the date the borrower's delinquency began.
This commenter recommended the Bureau consider requiring servicers to
apply borrower payments to the oldest outstanding periodic payment.
This commenter said that this guidance is consistent with Fannie Mae
and Freddie Mac guidelines and, as such, should not impose significant
costs on industry.
Several industry commenters and one consumer advocacy group
expressed support for proposed comment 31 (Delinquency)-3. Some
industry commenters stated that servicers do not always advance
outstanding funds to address the insufficient payment. They said, for
example, that servicers may use escrow funds to make up the
delinquency. One consumer advocacy group recommended that the Bureau
limit servicers' use of a payment tolerance to 10 dollars. Several
industry commenters requested that a limit on payment tolerances not be
set, but recommended that, if the Bureau did set a limit, such a limit
should be set at a dollar amount rather than a percentage. One industry
commenter suggested that any limit be set at an amount not to exceed
five dollars.
For the reasons discussed below, the Bureau is adopting the
definition of delinquency in Sec. 1024.31 with changes from the
proposal. The Bureau is adopting a revised definition of delinquency in
Sec. 1024.31 and adopting comments 31 (Delinquency)-1 and -2 with
revisions for clarity. The Bureau is making minor revisions to comment
31 (Delinquency)-3 in light of comments, and is adopting new comment 31
(Delinquency)-4 for further clarity.
As adopted, the definition of delinquency in Sec. 1024.31 explains
that delinquency means a period of time during which a borrower and a
borrower's mortgage loan obligation are delinquent. It further explains
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 Bureau recognizes that the proposed language indicating that
the delinquency ends when the outstanding payment is made may have
caused uncertainty as to whether a borrower performing on a permanent
loan modification would have been delinquent under the proposed
definition of delinquency. Accordingly, the Bureau is revising the
definition of delinquency to clarify 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. By providing that the delinquency
exists only until no periodic payment is due and unpaid, the revised
definition of delinquency addresses a situation where a borrower may
not have made the outstanding payment, but no periodic payment is due
and unpaid. For example, a borrower performing under a permanent loan
modification agreement may not have made all outstanding payments but
may be making all periodic payments due and owing under the modified
contract terms. Thus, a borrower performing on a permanent loan
modification is not delinquent under Sec. 1024.31.
The definition of delinquency in Sec. 1024.31 applies only for
purposes of the mortgage servicing rules in Regulation X. It is not
intended to affect industry's existing policies and procedures for
identifying and working with borrowers who are late or behind on their
payments, or existing requirements imposed by other laws or
regulations, such as the Fair Credit Reporting Act and Regulation V.
Servicers may use different definitions of ``delinquency'' for
operational purposes. Servicers may also use different or additional
terminology when referring to borrowers who are late or behind on their
payments--for example, servicers may refer to borrowers as ``past due''
or ``in default,'' and may distinguish between borrowers who are
``delinquent'' and ``seriously delinquent.''
The Bureau is finalizing comment 31 (Delinquency)-1 to provide
further clarity and reflect the changes to Sec. 1024.31. Comment 31
(Delinquency)-1 explains that a borrower's delinquency begins on the
date an amount sufficient to cover a periodic payment of principal,
interest, and, if applicable, escrow becomes due and unpaid, and lasts
until such time as no periodic payment 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. Comment 31 (Delinquency)-1 clarifies that
the delinquency lasts until no periodic payment is due and unpaid.
The Bureau is finalizing comment 31 (Delinquency)-2 substantially
as proposed, with minor revisions for clarity. Comment 31
(Delinquency)-2 provides that if a servicer applies payments to the
oldest outstanding periodic payment, a payment by a
[[Page 72194]]
delinquent borrower advances the date the borrower's delinquency began.
It provides an illustrative example. The Bureau notes that some
commenters asked about how proposed comment 31 (Delinquency)-2 would
impact a servicer's obligations under the 120-day foreclosure referral
waiting period in Sec. 1024.41(f)(1)(i). Because the definition of
delinquency in Sec. 1024.31 applies to all provisions of subpart C of
Regulation X, it applies to Sec. 1024.41(f)(1)(i). Therefore, if a
servicer credits a payment by a delinquent borrower to the oldest
missed payment, the result is that the 120-day foreclosure referral
waiting period in Sec. 1024.41(f)(1)(i) is advanced.
The Bureau declines to adopt a requirement in the final rule that
servicers must apply payments to the oldest outstanding periodic
payment. As the Bureau has previously explained, such a requirement
would provide limited consumer benefit and may pose a conflict with
State law.\137\ The Bureau continues to believe, however, as it stated
in the 2012 TILA Servicing Proposal, that this method of crediting
payments provides greater consumer protection.\138\ The Bureau will
continue to monitor the market to evaluate servicers' payment crediting
practices and those practices' effects on consumers.
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\137\ 78 FR 10901, 10956 (Feb. 14, 2013).
\138\ See 77 FR 57318, 57352-53 (Sept. 17, 2012).
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The Bureau is finalizing comment 31 (Delinquency)-3 with changes
from the proposal. Final comment 31 (Delinquency)-3 provides that, for
any given billing cycle for which a borrower's payment is less than the
periodic payment due, if a servicer chooses not to treat a borrower as
delinquent for purposes of any section of subpart C, that borrower is
not delinquent as defined in Sec. 1024.31. Comment 31 (Delinquency)-3
thus does not specify a method by which a servicer covers a payment
tolerance, unlike the proposal. The Bureau received comments indicating
that servicers may cover a payment tolerance in a variety of ways,
including by advancing the outstanding payment amount to a borrower's
account, as suggested in the proposal, and applying escrow funds to
make up the delinquency. The Bureau understands that these servicers
would prefer not to initiate early intervention communications,
continuity of contact requirements, or loss mitigation procedures with
those borrowers for that given billing cycle. The Bureau does not
intend to mandate how servicers cover a payment tolerance. Servicers
are permitted to use any method permitted by applicable law to cover a
payment tolerance. However, the Bureau reminds servicers of their
obligations to make full and timely payments from escrow \139\ and
cautions that reliance on application of a payment tolerance to escrow
funds should not, for example, occasion a default in the payment of
property taxes.
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\139\ 12 CFR 1024.34(a).
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The Bureau understands that servicers may collect the amounts
included in a payment tolerance from the borrower at a later date. The
Bureau believes that such a practice would still fall within the scope
of the comment but cautions that a servicer may not cancel or rescind a
payment tolerance applied for a given billing cycle for purposes of
determining the date on which the borrower's delinquency began.
The Bureau declines to set a tolerance limit in the rule. The
Bureau understands that the maximum amount servicers use for a payment
tolerance is generally relatively small, ranging from $10 to $50.\140\
It is not clear from the comments that a tolerance limit should be
adopted, or what an appropriate limit would be. As a servicer's
application of a payment tolerance is voluntary and, as noted above,
prevents a borrower from becoming delinquent, the Bureau does not
believe a tolerance limit is necessary to protect against borrower
harm.
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\140\ The variation in the payment tolerance amounts used could
relate to whether the servicer is bound by the terms of the National
Mortgage Settlement, which includes a mandatory payment tolerance
policy: Servicers subject to the National Mortgage Settlement must
accept and credit up to two payments that come within $50 of the
scheduled payment to the borrower's account. The National Mortgage
Settlement is available at: http://www.nationalmortgagesettlement.com/. The five servicers subject to
the National Mortgage Settlement are Bank of America, JP Morgan
Chase, Wells Fargo, CitiMortgage, and Ally/GMAC. Ocwen reached a
separate settlement agreement containing an identical provision at a
later time, also available at http://www.nationalmortgagesettlement.com/.
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Finally, in light of comments, the Bureau is adopting new comment
31 (Delinquency)-4 to address a creditor's right to accelerate payment
under the contract. Comment 31 (Delinquency)-4 provides that subpart C
of Regulation X does not prevent a creditor from exercising a right
provided by a mortgage loan contract to accelerate payment for a breach
of that contract. Comment 31 (Delinquency)-4 further explains that
failure to pay the amount due after the creditor accelerates the
mortgage loan obligation in accordance with the mortgage loan contract
would begin or continue delinquency.
As noted above, several industry commenters requested that the
final rule address breaches of the underlying mortgage agreement other
than the borrower's monthly periodic payment obligation or rolling
delinquencies where the borrower is delinquent but does not become more
than 120 days delinquent. Two commenters requested that the final rule
clarify the right to accelerate the mortgage loan if permitted by State
law and the contract. The Bureau previously explained the relationship
between acceleration and delinquency in the preamble to the 2013 TILA
Servicing Final Rule. The Bureau explained that, because the definition
of ``periodic payment'' is intended to reflect the consumer's
contractual obligation, to the extent a consumer's mortgage loan has
been accelerated (such that the periodic payment constitutes the total
amount owed for all principal and interest), this total accelerated
amount may be appropriately accounted for within this definition of a
periodic payment,\141\ and would constitute the new amount due. Comment
31 (Delinquency)-4 applies to permissible acceleration permitted based
on any breach of the underlying mortgage loan obligation. Depending on
the contract, this could include, for example, the borrower's failure
to pay the monthly periodic payment amount on the payment due date as
well as the borrower's failure to comply with other components of the
contract, such as requirements to pay property taxes, maintain
insurance, or pay late fees. If the borrower reinstates the loan or
otherwise cures the arrearage following acceleration, the borrower
would no longer be delinquent under the definition set forth in Sec.
1024.31.
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\141\ 78 FR 10902, 10954 (Feb. 14, 2013).
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Certain industry commenters requested an exemption from the 120-day
foreclosure referral waiting period under Sec. 1024.41(f)(1)(i) where
there is a breach of the underlying mortgage agreement other than the
borrower's monthly periodic payment obligation. Section 1024.41(f)(1)
prohibits a servicer from making the first notice or filing required
under applicable law for any judicial or non-judicial foreclosure
process unless one of three circumstances occurs: The mortgage loan
obligation is more than 120 days delinquent, the foreclosure is based
on a borrower's violation of a due-on-sale clause, or the servicer is
joining the foreclosure of a superior or subordinate lienholder.\142\
The Bureau is not providing exemptions from the
[[Page 72195]]
requirements of Sec. 1024.41(f)(1) for breaches of the contract other
than the borrower's monthly periodic payment obligation. In the
Amendments to the 2013 Mortgage Rules, the Bureau declined to exempt
servicers from the borrower protections set forth in Sec. 1024.41 for
delinquent borrowers simply because these borrowers may have breached
other components of the underlying mortgage, such as requirements to
pay property taxes, maintain insurance, or pay late fees.\143\ The
Bureau expressed concern that additional exemptions would create
uncertainty and could potentially be construed in a manner to permit
evasion of the requirements of Sec. 1024.41(f). Additionally, the
Bureau explained that an exemption from the pre-foreclosure review
period is not appropriate merely because foreclosure is based upon an
obligation other than the borrower's monthly payment.\144\ In many
instances, these borrowers are experiencing financial distress and may
benefit from time to seek loss mitigation.\145\
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\142\ The Bureau is amending Sec. 1024.41(f)(1)(iii) to include
a servicer's joining of a superior or subordinate lienholder. See
section-by-section analysis of Sec. 1024.41(f)(1)(iii).
\143\ Amendments to the 2013 Mortgage Rules, 78 FR 60382, 60406
(Oct. 1, 2013).
\144\ Id.
\145\ Id.
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For similar reasons, the Bureau again declines to adopt a specific
exemption from Sec. 1024.41(f)(1) for situations where a borrower may
be committing ``waste'' in violation of an underlying mortgage
agreement. The Bureau explained in the Amendments to the 2013 Mortgage
Rules that it was concerned that such an exemption could be used to
circumvent the 120-day prohibition for borrowers who are also
delinquent.\146\ The Bureau also noted that what constitutes waste is a
very fact-specific determination.\147\ The Bureau recognizes that, as
some commenters suggested, Sec. 1024.41(f)(1) may disadvantage
servicers in situations where the property deteriorates during the 120-
day foreclosure referral waiting period. However, the Bureau continues
to believe that borrowers may be harmed by the risks associated with a
broader set of exemptions from the requirements of Sec. 1024.41(f)(1).
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\146\ Id.
\147\ Id.
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Additionally, the Bureau declines to adopt an exception to Sec.
1024.41(f)(1) for rolling delinquencies. The Bureau does not want to
encourage servicers to proceed to foreclosure in situations, where, as
explained above, a borrower may have only missed one or two payments.
Additionally, the Bureau believes that servicers may have alternative
means for addressing situations where a borrower is delinquent but does
not become more than 120 days delinquent, including acceleration of the
loan where permitted under the contract and applicable law, as
discussed in comment 31 (Delinquency)-4.
Successor in Interest
The Bureau proposed to add a definition of successor in interest to
Sec. 1024.31 that would be broader than the category of successors in
interest contemplated by current Sec. 1024.38(b)(1)(vi) and would
cover all categories of successors in interest who acquired an
ownership interest in the property securing a mortgage loan in a
transfer protected by the Garn-St Germain Act. The proposed definition
stated that a successor in interest is a person to whom an ownership
interest in a property securing a mortgage loan is transferred from a
prior borrower, provided that the transfer falls under an exemption
specified in section 341(d) of the Garn-St Germain Act. The Bureau is
finalizing the definition of successor in interest with several
adjustments to address concerns raised by commenters.
As explained in part V.A., some industry commenters objected to the
use of the Garn-St Germain Act framework, and many industry commenters
urged the Bureau to narrow the scope of the definition of successor in
interest substantially--for example, to limit the scope to just
situations involving death or death or divorce. Others urged the Bureau
to exclude anyone who has not assumed the mortgage loan obligation from
the definition of successor in interest. Some suggested excluding
certain types of transactions, such as reverse mortgages.
Consumer advocacy group commenters generally supported use of the
Garn-St Germain Act framework and urged the Bureau to broaden the
definition to include various categories that are not covered by the
Garn-St Germain Act but that are similar to the Garn-St Germain Act
categories. They suggested, for example, that the definition should
include unmarried partners, relatives other than a spouse or child of
the borrower who obtain an interest in the home through a quitclaim
deed, unrelated transferees, and co-homeowners who did not sign the
original loan.
Some commenters raised questions about whether the Bureau intended
to incorporate the occupancy requirements of the Garn-St Germain Act
implementing regulations administered by the OCC in 12 CFR part 191. An
industry commenter suggested that the Bureau should omit reference to
the Garn-St Germain Act and instead enumerate the categories of
transfer of ownership that would qualify for regulatory protection, in
order to avoid unintended consequences.
A large number of commenters of various types expressed concern
about the use of the term prior borrower. These commenters noted that
the borrower who transfers an interest may still be liable on the loan
obligation (absent a release) and may still be a borrower for purposes
of Regulation X.
For the reasons explained in part V.A. and in this discussion, the
Bureau is finalizing the definition of successor in interest in Sec.
1024.31 using the Garn-St Germain Act framework but with both
substantive and technical changes. The Bureau continues to believe that
it is appropriate to use the categories of transfers of ownership
interest protected under section 341(d) of the Garn-St Germain Act in
defining successors in interest for purposes of subpart C of Regulation
X. Congress recognized that it would be inappropriate to allow lenders
to exercise a due-on-sale clause with respect to these transferees, and
the Bureau has concluded that it would also be inappropriate to allow
these categories of transferees to lose their ownership interests
because they were unable to avail themselves of the protections of the
Mortgage Servicing Rules with respect to a mortgage loan on their
property. As explained in part V.A., the Bureau has considered
commenters' suggestions about substantially broadening or narrowing the
Garn-St Germain Act categories but has concluded that the Garn-St
Germain Act categories remain the best framework to use in defining
successor in interest in the final rule.
Because a transferor borrower may still be a borrower after the
transfer, the final rule substitutes ``borrower'' where ``prior
borrower'' appeared in the proposed definition of successor in
interest. For clarity and ease of reference, the final rule does not
include a cross-reference to the Garn-St Germain Act but instead lists
the specific categories of transfers that could render a transferee a
successor in interest. The categories are modeled on categories
protected by section 341(d) of the Garn-St Germain Act. To ensure that
the scope of the final rule does not change without further rulemaking
by the Bureau, the Bureau has omitted the Garn-St Germain Act category
that protects from due-on-sale enforcement any other transfer or
disposition described in the Garn-St Germain Act implementing
regulations.\148\
[[Page 72196]]
Additionally, in restating the categories in the final rule, the Bureau
has not incorporated certain scope limitations imposed by the Garn-St
Germain Act or its implementing regulations, such as the exclusion for
reverse mortgages and certain occupancy requirements in 12 CFR
191.5(b). As explained in part V.A., these adjustments promote clarity
and consistency with other aspects of Regulation X and with the final
definition of successor in interest in Regulation Z. The final rule
thus provides that the term successor in interest means a person to
whom an ownership interest in a property securing a mortgage loan
subject to subpart C is transferred from a borrower, provided that the
transfer is:
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\148\ 12 U.S.C. 1701j-3(d)(9). The Bureau has also omitted
several categories in section 341(d) of the Garn-St Germain Act that
do not result in a transfer of ownership interest and that are
therefore irrelevant for successor in interest status. See 12 U.S.C.
1701j-3(d)(1), (2), (4); see also 79 FR 74176, 74181 n.28 (Dec. 15,
2014) (noting that the proposal would not apply to the situations
described in these categories).
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A transfer by devise, descent, or operation of law on the
death of a joint tenant or tenant by the entirety;
A transfer to a relative resulting from the death of a
borrower;
A transfer where the spouse or children of the borrower
become an owner of the property;
A transfer resulting from a decree of a dissolution of
marriage, legal separation agreement, or from an incidental property
settlement agreement, by which the spouse of the borrower becomes an
owner of the property; or
A transfer into an inter vivos trust in which the borrower
is and remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property.
The final rule adds new comment 31 (Successor in interest)-1 to the
Sec. 1024.31 definition of successor in interest to clarify how the
definition applies when property is held in a joint tenancy or a
tenancy by the entirety. A trade association questioned whether the
proposal would protect a non-borrower owner who holds property in a
tenancy by the entirety when the borrower owner dies if there is not a
transfer under state law. This commenter stated that, if property is
held in a tenancy by the entirety, it is not clear that there is a
property transfer when one owner dies because State law may provide
that the survivor continues to own an undivided interest in the entire
property and that the late spouse's property interest simply
terminates.
The Bureau believes it is important to extend protections to a
tenant by the entirety upon the death of a borrower spouse and to a
joint tenant upon the death of a borrower joint tenant. The Bureau is
adding comment 31 (Successor in interest)-1 to the definition of
successor in interest in Sec. 1024.31 to clarify that, if a borrower
who has an ownership interest as a joint tenant or tenant by the
entirety in a property securing a mortgage loan subject to Regulation
X's subpart C dies, a surviving joint tenant or tenant by the entirety
with a right of survivorship in the property is a successor in interest
as defined in Sec. 1024.31.
The final rule also adds new comment 31 (Successor in interest)-2
to the definition of successor in interest, which clarifies how the
definition applies to inter vivos trusts. The comment explains that, in
the event of a transfer into an inter vivos trust in which the borrower
is and remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property, the beneficiaries of the inter
vivos trust rather than the inter vivos trust itself are considered to
be the successors in interest for purposes of Sec. 1024.31. This
clarification ensures that a trust is not a successor in interest under
these circumstances. It is also consistent with comment 3(a)-10 to
Regulation Z, which explains that credit extended for consumer purposes
to certain trusts is considered to be credit extended to a natural
person rather than credit extended to an organization.
Section 1024.32 General Disclosure Requirements
32(c) Successors in Interest
Several commenters raised concerns as to how disclosures required
under various mortgage servicing rules in Regulation X apply to
successors in interest. To address these concerns, the final rule
includes new Sec. 1024.32(c) relating to general disclosure
requirements for successors in interest. Section 1024.32(c)(1) through
(3) relates to an optional notice and acknowledgment form that
servicers may provide upon confirmation to confirmed successors in
interest who have not assumed the mortgage loan obligation and are not
otherwise liable on the mortgage loan obligation. Section 1024.32(c)(4)
generally relieves a servicer of the obligation to provide disclosures
to a confirmed successor in interest and to engage in live contacts
with a confirmed successor as required by Sec. Sec. 1024.17, 1024.33,
1024.34, 1024.37, and 1024.39 if the servicer is complying with those
requirements with respect to another borrower on the account.
32(c)(1) Optional Notice With Acknowledgment Form
Some commenters expressed concern about the requirement to send
mortgage servicing notices to confirmed successors in interest who are
not liable on the loan obligation under State law, suggesting that such
contact could be viewed as confusing or harassing or could result in
liability under the FDCPA. The Bureau believes that the notices and
other communications required by the Mortgage Servicing Rules in
Regulation X provide critical information that successors in interest
will generally want to receive. However, the Bureau also recognizes
that the language typically used in many of the required notices could
suggest that the recipient is liable on the loan obligation. As
explained in part V.A., the Bureau is therefore providing servicers
with various options they can use to help ensure that confirmed
successors in interest who are not liable on the mortgage loan
obligation are not confused or deceived about their status. For the
reasons set forth in part V.A. and in this discussion, Sec. 1024.32(c)
provides one such option, authorizing servicers, upon confirming such a
successor in interest, to provide a written notice that explains the
confirmed successor in interest's status together with a separate
acknowledgment form for the confirmed successor in interest to return.
Section 1024.32(c)(1) provides that the written notice must clearly
and conspicuously explain:
The servicer has confirmed the successor in interest's
identity and ownership interest in the property;
Unless the successor in interest assumes the mortgage loan
obligation under State law, the successor in interest is not liable for
the mortgage debt and cannot be required to use the successor in
interest's assets to pay the mortgage debt, except that the lender has
a security interest in the property and a right to foreclose on the
property, when permitted by law and authorized under the mortgage loan
contract;
The successor in interest may be entitled to receive
certain notices and communications about the mortgage loan if the
servicer is not providing them to another confirmed successor in
interest or borrower on the account;
In order to receive such notices and communications, the
successor in interest must execute and provide to the servicer an
acknowledgment form that:
[cir] Requests receipt of such notices and communications if the
servicer is not providing them to another
[[Page 72197]]
confirmed successor in interest or borrower on the account; and
[cir] Indicates that the successor in interest understands that
such notices do not make the successor in interest liable for the
mortgage debt and that the successor in interest is only liable for the
mortgage debt if the successor in interest assumes the mortgage loan
obligation under State law; and
[cir] Informs the successor in interest that there is no time limit
to return the acknowledgment but that the servicer will not begin
sending such notices and communications to the confirmed successor in
interest until the acknowledgment is returned; and
Whether or not the successor in interest executes the
acknowledgment form, the successor in interest is entitled to submit
notices of error under Sec. 1024.35, requests for information under
Sec. 1024.36, and requests for a payoff statement under Sec. 1026.36
with respect to the mortgage loan account, with a brief explanation of
those rights and how to exercise them, including appropriate address
information. Section 1024.32(c)(1) also provides that the
acknowledgment form may not require acknowledgment of any items other
than those identified in Sec. 1024.32(c)(1)(iv).
Comment 32(c)(1)-1 explains that a servicer may identify in the
acknowledgment form examples of the types of notices and communications
that the successor in interest may be entitled to receive, such as
periodic statements and mortgage servicing transfer notices. The
comment clarifies that any examples provided should be the types of
notices or communications that would be available to a confirmed
successor in interest if the confirmed successor in interest executed
the acknowledgment and returned it to the servicer.
As explained in the section-by-section analysis of Sec.
1024.32(c)(2), a servicer that provides a written notice and
acknowledgment form meeting these requirements need not send any
further disclosures under the Mortgage Servicing Rules in Regulation X
to the confirmed successor in interest until the confirmed successor in
interest either assumes the mortgage loan obligation under State law or
executes an acknowledgment and provides it to the servicer. As
discussed in part V.A., the Bureau believes that, together with Sec.
1024.32(c)(2), Sec. 1024.32(c)(1) provides servicers a cost-effective
means that they can use to help ensure that confirmed successors in
interest understand their status.
32(c)(2) Effect of Failure To Execute Acknowledgment
New Sec. 1024.32(c)(2) addresses the consequences if a servicer
provides a written notice and acknowledgment form in compliance with
Sec. 1024.32(c)(1) to a confirmed successor in interest who is not
liable on the mortgage loan obligation. In that event, Sec.
1024.32(c)(2) provides that the servicer is not required to provide to
the confirmed successor in interest any written disclosure required by
Sec. 1024.17, Sec. 1024.33, Sec. 1024.34, Sec. 1024.37, or Sec.
1024.39 or to comply with the live contact requirements in Sec.
1024.39(a) with respect to the confirmed successor in interest until
the confirmed successor in interest either assumes the mortgage loan
obligation under State law or executes an acknowledgment and provides
it to the servicer.\149\ The Bureau believes it is appropriate for
Sec. 1024.32(c)(2) to excuse servicers from the requirement to send
notices required by the Mortgage Servicing Rules in Regulation X if the
servicers have not received an acknowledgment back from a confirmed
successor in interest, because doing so relieves servicers of the costs
associated with sending notices to confirmed successors in interest who
are not liable on the mortgage loan obligation and do not want notices.
However, if a confirmed successor in interest assumes a mortgage loan
obligation under State law, the information in the initial notice and
acknowledgment form is no longer applicable, and Sec. 1024.32(c)(2)
accordingly does not suspend the servicer's obligation to provide
notices required by the Mortgage Servicing Rules in Regulation X.
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\149\ Similar provisions in Sec. Sec. 1026.20(f), 1026.39(f),
and 1026.41(g) address the disclosures required by Regulation Z.
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Comment 32(c)(2)-1 explains that a confirmed successor in interest
may provide an executed acknowledgment that complies with Sec.
1024.32(c)(1)(iv) to the servicer at any time after confirmation. This
ensures that confirmed successors in interest who have received an
initial written notice and acknowledgment form pursuant to Sec.
1024.32(c)(1) do not lose the opportunity to receive Regulation X
mortgage servicing disclosures due to lapse of time.
Comment 32(c)(2)-2 explains the effect of a successor in interest's
revocation of an acknowledgment. If a confirmed successor in interest
who is not liable on the mortgage loan obligation executes and then
later revokes an acknowledgment pursuant to Sec. 1024.32(c)(1)(iv),
the servicer is not required to provide to the confirmed successor in
interest any written disclosure required by Sec. 1024.17, Sec.
1024.33, Sec. 1024.34, Sec. 1024.37, or Sec. 1024.39 or to comply
with the live contact requirements in Sec. 1024.39(a) with respect to
the confirmed successor in interest from the date the revocation is
received until the confirmed successor in interest either assumes the
mortgage loan obligation under State law or executes a new
acknowledgment that complies with Sec. 1024.32(c)(1)(iv) and provides
it to the servicer.
32(c)(3) Additional Copies of Acknowledgment
As comment 32(c)(2)-1 explains, confirmed successors in interest
may return an executed acknowledgment that complies with Sec.
1024.32(c)(1)(iv) to the servicer at any time after confirmation. Once
a confirmed successor in interest has returned an executed
acknowledgment form, the servicer must provide to the confirmed
successor in interest any written disclosures required by Sec. Sec.
1024.17, 1024.33, 1024.34, 1024.37, and 1024.39 (as well as any
required by Regulation Z) and comply with the live contact requirements
in Sec. 1024.39(a) unless and until the confirmed successor in
interest revokes the acknowledgment. The Bureau wants to ensure that
confirmed successors in interest who have received an initial written
notice and acknowledgment form pursuant to Sec. 1024.32(c)(1) are able
to avail themselves of these protections at any time, even if they are
unable to locate the original acknowledgment form they received.
Accordingly, Sec. 1024.32(c)(3) specifies that, if a servicer provides
a confirmed successor in interest with a written notice and
acknowledgment form in accordance with Sec. 1024.32(c)(1), the
servicer must make additional copies of the written notice and
acknowledgment form available to the confirmed successor in interest
upon written or oral request.
32(c)(4) Multiple Notices Unnecessary
The Bureau is adding new Sec. 1024.32(c)(4) to the final rule to
make it clear that servicers generally do not need to provide a
duplicate copy of a notice required by the Mortgage Servicing Rules in
Regulation X to a confirmed successor in interest if the servicer is
providing the same notice to another borrower. A number of commenters
asked the Bureau to clarify whether servicers must send multiple copies
of notices required by the Mortgage Servicing Rules in Regulation X
after a successor in interest is confirmed. One industry commenter
explained that most servicing platforms
[[Page 72198]]
only allow for automated delivery of correspondence to one address. It
indicated that a requirement to send items to multiple addresses or
through differing communication channels would create significant
operational and systems challenges with concomitant costs. Another
industry commenter suggested that the Bureau could adopt commentary to
the Mortgage Servicing Rules in Regulation X that is similar to
proposed Regulation Z comment 41(a)-5.ii, which indicated that
servicers do not need to send duplicative periodic statements to
confirmed successors in interest.
The Bureau agrees that it would be unnecessarily burdensome to
require servicers to provide the notices or communications required by
the Mortgage Servicing Rules in Regulation X to a confirmed successor
in interest if the same notice is already being provided to another
borrower on the account. Section 1024.32(c)(4) accordingly clarifies
that, except as required by Sec. 1024.36, a servicer is not required
to provide to a confirmed successor in interest any written disclosure
required by Sec. 1024.17, Sec. 1024.33, Sec. 1024.34, Sec. 1024.37,
or Sec. 1024.39(b) if the servicer is providing the same specific
disclosure to another borrower on the account. Section 1024.32(c)(4)
also provides that a servicer is not required to comply with the live
contact requirements set forth in Sec. 1024.39(a) with respect to a
confirmed successor in interest if the servicer is complying with those
requirements with respect to another borrower on the account.\150\
Section 1024.32(c)(4) thus reduces the burden imposed on servicers by
Regulation X's successor in interest provisions.
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\150\ For example, if a servicer confirms multiple successors in
interest and complies with the live contact requirements in Sec.
1024.39(a) with respect to one confirmed successor in interest, the
servicer is not required to comply with the live contact
requirements with respect to any of the other confirmed successors
in interest.
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Section 1024.32(c)(4) does not, however, limit the ability of any
confirmed successor in interest to request copies of notices and other
information through an information request under Sec. 1024.36. Thus,
confirmed successors in interest who are not receiving the required
servicing communications because the servicer is providing them to
another borrower on the account can request additional information as
needed through the information request process.
Comment 32(c)(4)-1 explains that a servicer may rely on Sec.
1024.32(c)(4) if the servicer provides a specific written disclosure
required by Sec. 1024.17, Sec. 1024.33, Sec. 1024.34, Sec. 1024.37,
or Sec. 1024.39(b) to another borrower. The comment notes, for
example, that a servicer is not required to provide a force-placed
insurance notice required under Sec. 1024.37 to a confirmed successor
in interest if the servicer is providing the same force-placed
insurance notice to a transferor borrower or to another confirmed
successor in interest.
Legal Authority
The Bureau relies on section 19(a) of RESPA, 12 U.S.C. 2617(a), to
implement new Sec. 1024.32(c). For the reasons explained above, the
Bureau believes that these amendments are necessary to provide a cost-
effective process by which servicers can provide confirmed successors
in interest the information required by this final rule.
Section 1024.35 Error Resolution Procedures
35(e) Response to Notice of Error
35(e)(5) Omissions in Responding to Requests for Documentation
Section 1024.35 sets forth error resolution requirements that
servicers must follow to respond to errors asserted by borrowers. When
a servicer determines that no error occurred, Sec. 1024.35(e)(4)
generally requires the servicer to provide in response to the
borrower's request, at no charge, copies of documents and information
relied upon by the servicer in making that determination. As explained
in part V.A., the Bureau proposed to apply Sec. 1024.35 as well as the
information request requirements of Sec. 1024.36 to confirmed
successors in interest. The Bureau requested comment on whether any
information that could be provided to successors in interest under
Sec. Sec. 1024.35 and 1024.36 presents privacy concerns and whether
servicers should be permitted to withhold any information from
successors in interest out of such privacy concerns. In light of the
concerns expressed in the comments received, as discussed in part V.A.
and in this discussion, the Bureau is adding new Sec. 1024.35(e)(5) to
allow servicers to limit the information that confirmed successors in
interest may obtain under Sec. 1024.35(e)(4) about other borrowers and
to limit the information that borrowers may obtain under Sec.
1024.35(e)(4) about potential and confirmed successors in interest who
are not the requesting party.
As noted in part V.A., some industry commenters recommended that
disclosures under Sec. Sec. 1024.35 and 1024.36 be limited due to
privacy concerns. An industry commenter suggested that these privacy
concerns apply not only to the disclosure of the existing borrower's
personal, private information to the confirmed successor in interest,
but also to the disclosure of the confirmed successor in interest's
personal, private information to the existing borrower. A consumer
advocacy group commented that the original borrower's private financial
information is not relevant to the successor in interest and that no
successor in interest should have a need for information about the
original borrower's location or contact information.
The Bureau continues to believe that it is important for confirmed
successors in interest to be able to obtain information about the
terms, status, and payment history of the mortgage loan. However, the
Bureau recognizes that providing additional financial information about
other borrowers or contact or location information for them could raise
privacy concerns and is not likely to assist the confirmed successor in
interest in maintaining the property. The Bureau believes that this is
especially true with respect to a borrower's Social Security number.
Based on similar potential privacy concerns, the Bureau also believes
that it is appropriate to allow servicers to withhold certain
information provided by potential and confirmed successors in interest
from borrowers on the account who are not the person to whom the
information pertains.
To address these potential privacy concerns, Sec. 1024.35(e)(5)
provides that, in responding to a request for documentation under Sec.
1024.35(e)(4), a servicer may omit location and contact information and
personal financial information (other than information about the terms,
status, and payment history of the mortgage loan) if: (1) The
information pertains to a potential or confirmed successor in interest
who is not the requester; or (2) the requester is a confirmed successor
in interest and the information pertains to any borrower who is not the
requester. This provision allows servicers to limit the information
that confirmed successors in interest can obtain about other borrowers
(including other confirmed successors in interest) and to protect
certain sensitive information about potential and confirmed successors
in interest from disclosure to borrowers who are not the person to whom
the information pertains.\151\ The Bureau
[[Page 72199]]
believes the restrictions in Sec. 1024.35(e)(5) appropriately balance
potential privacy concerns with the need to make mortgage information
available to confirmed successors in interest and other borrowers.
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\151\ The final rule does not, however, make any changes with
respect to the types of information that joint borrowers who are not
confirmed successors in interest can obtain about each other.
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Section 1024.36 Requests for Information
36(a) Information Request
Section 1463(a) of the Dodd-Frank Act amended RESPA to add section
6(k)(1)(D), which states that a servicer shall not fail to provide
information regarding the owner or assignee of a mortgage loan within
ten business days of a borrower's request. Currently, when a borrower
submits a request for information under Sec. 1024.36(a) asking for the
owner or assignee of a mortgage loan held by a trust in connection with
a securitization transaction and administered by an appointed trustee,
comment 36(a)-2 provides that the servicer complies with Sec.
1024.36(d) by identifying both the name of the trust and the name,
address, and appropriate contact information for the trustee. The
comment provides that, among other examples, if a mortgage loan is
owned by Mortgage Loan Trust, Series ABC-1, for which XYZ Trust Company
is the trustee, the servicer complies with Sec. 1024.36(d) by
responding to a request for information regarding the owner or assignee
of the mortgage loan by identifying the owner as Mortgage Loan Trust,
Series ABC-1, and providing the name, address, and appropriate contact
information for XYZ Trust Company as the trustee. Proposed amendments
to comment 36(a)-2 would have changed how a servicer must respond to
such requests when Fannie Mae or Freddie Mac is the trustee, investor,
or guarantor. The Bureau is adopting comment 36(a)-2 with changes.
In advance of the proposal, the Bureau received information from
industry that providing borrowers with detailed information about the
trust when Fannie Mae or Freddie Mac is the trustee, investor, or
guarantor could be unnecessarily burdensome on servicers. According to
industry, servicers' systems do not typically track the name of the
trust for each such loan, so a servicer must ask the trustee for this
information each time it receives an information request asking for the
loan's owner or assignee. Moreover, because the loss mitigation
provisions for loans sold to Fannie Mae or Freddie Mac are determined
by Fannie Mae or Freddie Mac and not by the trust, the trust-
identifying information may be of less value to borrowers when Fannie
Mae or Freddie Mac is the trustee, investor, or guarantor. Industry
requested that the Bureau reconsider the requirement for a servicer to
provide specific trust-identifying information for loans governed by
Fannie Mae's or Freddie Mac's servicing guidelines.
In the proposal, the Bureau stated its belief that, with respect to
a loan for which Fannie Mae or Freddie Mac is the trustee, investor, or
guarantor, servicers may not need to identify both the trustee and the
trust in response to all requests for information seeking ownership
information. If a borrower knows that Fannie Mae or Freddie Mac is the
trustee, investor, or guarantor, the borrower could look to the Fannie
Mae or Freddie Mac servicing guide and related bulletins to learn what
loss mitigation options are available, what foreclosure processes the
servicer must follow, how the servicer is compensated, and a wide
variety of other information applicable to the loan, without
distinction based on the particular trust. Borrowers can also access
the appropriate Web site to learn more information once they know which
entity's guidelines apply; both Fannie Mae and Freddie Mac maintain Web
sites containing a considerable amount of information relating to
standards affecting borrowers' mortgage loans. Fannie Mae and Freddie
Mac also maintain dedicated telephone lines for borrower inquiries.
Thus, requiring a servicer to identify Fannie Mae or Freddie Mac as the
owner or assignee of the loan (without also identifying the name of the
trust) could give borrowers access to the critical information about
loss mitigation options and other investor requirements.
At the same time, the Bureau sought to preserve a borrower's right
to obtain the identity of the trust by submitting a request for
information under Sec. 1024.36(a). Prior to the proposal, consumer
advocacy groups informed the Bureau that borrowers need trust-
identifying information in order to raise certain claims or defenses
during litigation, as well as to exercise the extended right of
rescission under Sec. 1026.23(a)(3) when applicable. Further, the
Bureau understood that, for loans held in a trust for which Fannie Mae
or Freddie Mac is not the trustee, investor, or guarantor, a borrower
would need the trust-identifying information to determine what loss
mitigation options are available.
Accordingly, the Bureau proposed to revise comment 36(a)-2 to
provide that, for loans for which Fannie Mae or Freddie Mac is the
trustee, investor, or guarantor, a servicer could comply with Sec.
1024.36(d) by responding to requests for information asking only for
the owner or assignee of the loan by providing only the name and
contact information for Fannie Mae or Freddie Mac, as applicable,
without also providing the name of the trust. However, proposed comment
36(a)-2 would have also provided that, if a request for information
expressly requested the name or number of the trust or pool, the
servicer would comply with Sec. 1024.36(d) by providing the name of
the trust and the name, address, and appropriate contact information
for the trustee, regardless of whether or not Fannie Mae or Freddie Mac
is the trustee, investor, or guarantor.
The Bureau believed that proposed comment 36(a)-2 would preserve a
borrower's access to information while reducing burden on servicers by
no longer requiring them to obtain trust-identifying information for
loans for which Fannie Mae or Freddie Mac is the trustee, investor, or
guarantor. Further, the Bureau believed that, by requiring servicers to
provide specific trust-identifying information upon a request expressly
seeking such information, proposed comment 36(a)-2 would ensure that
borrowers who do need specific trust-identifying information could
obtain it. The proposed amendments also restructured comment 36(a)-2
for clarity. The proposed changes would not have affected a servicer's
existing obligations with respect to loans not held in a trust for
which an appointed trustee receives payments on behalf of the trust, or
with respect to any loan held in a trust for which neither Fannie Mae
nor Freddie Mac is the trustee, investor, or guarantor.
Proposed comment 36(a)-2.i would have also clarified that a
servicer would not be the owner or assignee for purposes of Sec.
1024.36(d) if the servicer holds title to the loan, or title is
assigned to the servicer, solely for the administrative convenience of
the servicer in servicing the mortgage loan obligation. This change was
intended to bring the Sec. 1024.36(d) commentary clearly in line with
the Regulation Z provisions in Sec. 1026.39 related to transfer of
ownership notices. As to loans held in a trust for which Fannie Mae or
Freddie Mac is not the investor, guarantor, or trustee, proposed
comments 36(a)-2.ii.A and 36(a)-2.ii.B would have preserved the
obligation in existing comment 36(a)-2.ii that servicers comply with
Sec. 1024.36(d) by identifying both the trust and the trustee of such
loans to the borrower, regardless of how the borrower phrased the
request for ownership information.
Similarly, the proposed amendments would not have changed a
servicer's
[[Page 72200]]
requirements for responding to requests for ownership information for
loans for which the Government National Mortgage Association (Ginnie
Mae) is the guarantor. As noted in both current comment 36(a)-2 and
proposed comment 36(a)-2.ii.B, Ginnie Mae is not the owner or assignee
of the loan solely as a result of its role as a guarantor. In addition,
servicing requirements for those loans are governed by the Federal
agency insuring the loan--such as the Federal Housing Association, the
Department of Veterans Affairs, the Rural Housing Services, or the
Office of Public and Indian Housing--not by Ginnie Mae itself.
Industry commenters generally expressed strong support for the
Bureau's proposal to permit servicers to respond to nonspecific
requests for information about the owner or assignee of the loan by
providing only the name and contact information for Fannie Mae and
Freddie Mac, as applicable. These commenters stated that permitting
servicers to provide this more limited information for loans where
Fannie Mae or Freddie Mac was the investor, guarantor, or trustee would
reduce the burden on servicers without adversely affecting a borrower's
ability to obtain information on the owner or assignee of the mortgage
loan. Certain industry commenters requested limits on the proposed
requirement for a servicer to provide the name and number of the trust
or pool even when borrowers expressly request such information. One
commenter stated that providing this specific information would be
burdensome and not relevant to the transaction and requested that the
final rule include a list of legitimate reasons or conditions that a
borrower must certify exist before a servicer would be required to
provide this trust-identifying information.
Freddie Mac expressed general support for proposed comment 36(a)-2
but said that the language ``investor, guarantor, or trustee'' could
refer to loans that were not covered by Freddie Mac's servicing guide.
The commenter explained that Freddie Mac's servicing guide applies when
Freddie Mac is the trustee of a trust that owns a mortgage loan,
because servicers of loans held by such trusts are required to service
those loans in accordance with the servicing guide. However, the
commenter stated that where Freddie Mac is acting as an investor or
guarantor, rather than a trustee, the servicer is not necessarily
required to comply with all of the requirements of the servicing guide
with respect to that loan. The commenter recommended that the Bureau
remove the reference to ``investor'' or ``guarantor'' in proposed
comment 36(a)-2.
Consumer advocacy groups urged the Bureau not to adopt the proposed
revisions to comment 36(a)-2. These commenters stated that there is a
distinction between guarantors and owners of a loan, and that the
Fannie Mae servicing guide does not fully apply to all loans that
Fannie Mae guarantees. These commenters stated that borrowers may not
be able to obtain all relevant information regarding loss mitigation
options in Fannie Mae's servicing guide.
The Bureau conducted further outreach with FHFA, Freddie Mac, and
Fannie Mae. According to these stakeholders, where Fannie Mae or
Freddie Mac is the owner of the loan or the trustee of the
securitization trust in which the loan is held, the loan is subject to
the servicing requirements of Fannie Mae's or Freddie Mac's servicing
guide. Fannie Mae or Freddie Mac are the owner or trustee for the
overwhelming majority of loans in which they have an interest. Both
Fannie Mae and Freddie Mac, however, are investors in other loans,
often through a securitization trust, for which they are not the
trustee, and, in these cases, the requirements of the servicing guides
may not necessarily apply. Where loans are held in such securitization
trusts, the Bureau understands that servicers would be able to identify
the name of the trust that holds the loan.
The Bureau is finalizing comment 36(a)-2 with changes. Comment
36(a)-2.i explains that, when a loan is not held in a trust for which
an appointed trustee receives payments on behalf of the trust, a
servicer complies with Sec. 1024.36(d) by responding to a request for
information regarding the owner or assignee of a mortgage loan by
identifying the person on whose behalf the servicer receives payments
from the borrower. The comment further explains that a servicer is not
the owner or assignee for purposes of Sec. 1024.36(d) if the servicer
holds title to the loan, or title is assigned to the servicer, solely
for the administrative convenience of the servicer in servicing the
mortgage loan obligation. Comment 36(a)-2.i also explains that Ginnie
Mae is not the owner or assignee for purposes of such requests for
information solely as a result of its role as the guarantor of the
security in which the loan serves as the collateral.
Comment 36(a)-2.ii explains that, when the loan is held in a trust
for which an appointed trustee receives payments on behalf of the
trust, a servicer complies with Sec. 1024.36(d) by responding to a
borrower's request for information regarding the owner, assignee, or
trust of the mortgage loan with the information, as applicable, as set
forth in comment 36(a)-2.ii.A through C.
The Bureau is finalizing comment 36(a)-2.ii.A with changes. Comment
36(a)-2.ii.A explains that, for any request for information where
Fannie Mae or Freddie Mac is not the owner of the loan or the trustee
of the securitization trust in which the loan is held, the servicer
complies with Sec. 1024.36(d) by responding to a borrower's request
for information by providing information on: The name of the trust and
the name, address, and appropriate contact information for the trustee.
It provides an illustrative example. Comment 36(a)-2.ii.A makes clear
that, where Fannie Mae or Freddie Mac is not the owner or trustee of
the securitization trust in which the loan is held, a servicer must
respond to even a nonspecific request for the identity of the owner or
assignee by providing information about the trust and contact
information for the trustee.
The Bureau is also finalizing comment 36(a)-2.ii.B with changes.
The Bureau proposed comment 36(a)-2.ii.B to provide a limited exception
where a borrower makes a nonspecific request for information regarding
the owner or assignee of a loan for which Fannie Mae or Freddie Mac is
the investor, guarantor, or trustee. As explained in the proposal, the
Bureau understood that such loans would be subject to servicing
requirements set forth in Fannie Mae's or Freddie Mac's respective
servicing guide. However, the Bureau now understands that this
reasoning may not apply to loans for which Fannie Mae or Freddie Mac is
the investor or guarantor of the loan, but not the trustee or owner of
the loan.
Accordingly, the Bureau is finalizing comment 36(a)-2.ii.B to
explain that, if the request for information did not expressly request
the name or number of the trust or pool and Fannie Mae or Freddie Mac
is the owner of the loan or the trustee of the securitization trust in
which the loan is held, the servicer complies with Sec. 1024.36(d) by
responding to a borrower's request for information by providing the
name and contact information for Fannie Mae or Freddie Mac, as
applicable, without also providing the name of the trust. The Bureau's
intent, by referring to the ``owner or the trustee of the
securitization trust in which the loan is held'' in comment 36(a)-
2.ii.B, is to permit a servicer to respond to a nonspecific request for
information by providing only the name and contact
[[Page 72201]]
information for Fannie Mae or Freddie Mac, as applicable, for only
those loans that are subject to Fannie Mae's or Freddie Mac's servicing
guide but not for other loans.
The Bureau is adding comment 36(a)-2.ii.C to explain that if the
request for information did expressly request the name or number of the
trust or pool and Fannie Mae or Freddie Mac is the owner of the loan or
the trustee of the securitization trust in which the loan is held, the
servicer complies with Sec. 1024.36(d) by responding to a borrower's
request for information by providing the name of the trust and the
name, address, and appropriate contact information for the trustee, as
in comment 36(a)-2.ii.A above.
The Bureau is not adopting additional requirements for borrowers
making specific information requests, as some commenters suggested.
Requiring borrowers to provide additional detail regarding their
requests would not alleviate any burden on servicers associated with
providing required trust-identifying information but would impose a
burden on borrowers in obtaining information.
36(d) Response to Information Request
36(d)(3) Omissions in Responding to Requests
Section 1024.36 sets forth servicers' obligations in responding to
a request for information from a borrower. As explained in part V.A.,
the Bureau proposed to apply Sec. 1024.36 as well as the notice of
error requirements of Sec. 1024.35 to confirmed successors in
interest. The Bureau requested comment on whether any information that
could be provided to successors in interest under Sec. Sec. 1024.35
and 1024.36 presents privacy concerns and whether servicers should be
permitted to withhold any information from successors in interest out
of such privacy concerns. In light of the concerns expressed in the
comments received, as discussed in part V.A. and in this discussion,
the Bureau is adding new Sec. 1024.36(d)(3) to allow servicers to
limit the information that confirmed successors in interest may obtain
under Sec. 1024.36 about other borrowers and to limit the information
that borrowers may obtain under Sec. 1024.36 about potential and
confirmed successors in interest who are not the requesting party.
As noted in part V.A., some industry commenters recommended that
disclosures under Sec. Sec. 1024.35 and 1024.36 be limited due to
privacy concerns. An industry commenter suggested that these privacy
concerns apply not only to the disclosure of the existing borrower's
personal, private information to the confirmed successor in interest,
but also to the disclosure of the confirmed successor in interest's
personal, private information to the existing borrower. A consumer
advocacy group commented that the original borrower's private financial
information is not relevant to the successor homeowner and that no
successor in interest should have a need for information about the
original borrower's location or contact information.
The Bureau continues to believe that it is important for confirmed
successors in interest to be able to obtain information about the
terms, status, and payment history of the mortgage loan. However, the
Bureau recognizes that providing additional financial information about
other borrowers or contact or location information for them could raise
privacy concerns and is not likely to assist the confirmed successor in
interest in maintaining the property. The Bureau believes that this is
especially true with respect to a borrower's Social Security number.
Based on similar potential privacy concerns, the Bureau also believes
that it is appropriate to allow servicers to withhold certain
information provided by potential and confirmed successors in interest
from borrowers on the account who are not the person to whom the
information pertains.
To address these potential privacy concerns, Sec. 1024.36(d)(3)
provides that, in responding to a request for information, a servicer
may omit location and contact information and personal financial
information (other than information about the terms, status, and
payment history of the mortgage loan) if: (1) The information pertains
to a potential or confirmed successor in interest who is not the
requester; or (2) the requester is a confirmed successor in interest
and the information pertains to any borrower who is not the requester.
This provision allows servicers to limit the information that confirmed
successors in interest can obtain about other borrowers (including
other confirmed successors in interest) and to protect certain
sensitive information about potential and confirmed successors in
interest from disclosure to borrowers who are not the person to whom
the information pertains.\152\ The Bureau believes the restrictions in
Sec. 1024.36(d)(3) appropriately balance potential privacy concerns
with the need to make mortgage information available to confirmed
successors in interest and other borrowers.
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\152\ The final rule does not, however, make any changes with
respect to the types of information that joint borrowers who are not
confirmed successors in interest can obtain about each other.
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36(i) Successors in Interest
The Bureau proposed a new request for information requirement
regarding the confirmation of a successor in interest's identity and
ownership interest in the property. Proposed Sec. 1024.36(i) would
have required a servicer to respond to a written request that indicates
that the person may be a successor in interest and that includes the
name of the prior borrower and information that enables the servicer to
identify that borrower's mortgage loan account. Under the proposal, a
servicer would have to respond to such a request by providing the
person with information regarding the documents the servicer requires
to confirm the person's identity and ownership interest in the
property. With respect to the written request, the proposal would have
required the servicer to treat the person as a borrower for the
purposes of the procedural requirements of Sec. 1024.36(c) through
(g). The proposal also would have provided that, if a servicer has
established an address that a borrower must use to request information
pursuant to Sec. 1024.36(b), a servicer must comply with the
requirements of Sec. 1024.36(i) only for requests received at the
established address. Servicers would have been required to comply with
proposed Sec. 1024.36(i) before confirming the successor in interest's
identity and ownership interest in the property. For the reasons set
forth in part V.A. and in this discussion, the Bureau is finalizing
Sec. 1024.36(i) with adjustments to clarify the parties' obligations
during the confirmation process.
Commenters expressed divergent views regarding proposed Sec.
1024.36(i). Consumer advocacy groups suggested that the Bureau should
not limit the provision to written requests. They suggested that
successors in interest are unlikely to know about the request for
information procedure due to their lack of prior contact with the
servicer. They also suggested that a successor in interest should not
need to use specific wording to trigger a response under Sec.
1024.36(i). A consumer advocacy group suggested that a servicer should
have to respond if the information provided is sufficient to put the
servicer on notice that the person is a potential successor in
interest.
A number of consumer advocacy groups also objected to the
requirement in the proposal that a potential successor in interest use
a specific address if a servicer has established one.
[[Page 72202]]
One such group indicated that expecting a successor in interest, who
often is handling many complicated personal, legal, and financial
affairs in a time of grieving, to ascertain and use the servicer's
established contact address would be unreasonable and overly
burdensome. This group also suggested that the Bureau could require
servicers, upon hearing of the death of a borrower, to send a letter to
the home containing information about how successors in interest can
confirm their status and explaining the servicer's obligations under
Sec. 1024.36(i). Another consumer advocacy group suggested that, if a
servicer receives a request for information at a non-designated
location, it should respond by notifying the potential successor in
interest of the correct address for submission of requests for
information.
This commenter indicated that successors in interest need prompt
information identifying specific documents and that vague references to
``probate documents'' or ``legal documents,'' without further
elaboration, are not sufficient. It noted that delays cause significant
problems because loans may become delinquent to the point that loss
mitigation options that would have been available earlier are no longer
viable. It suggested that, for purposes of servicers responding to
requests for information under Sec. 1024.36(i), the final rule should
define promptly as within 15 days for clarity.
Consumer advocacy groups also urged the Bureau not to require
resubmission of requests that seek information other than the
description of documents required for confirmation, suggesting that
requiring successors in interest to resubmit such requests would cause
unnecessary delay and could be confusing. These commenters suggested
that servicers should be required to respond to requests for
information on other issues related to the servicing of the mortgage
once they have received proof of successor in interest status, with
time running from the date the successor in interest provides necessary
documentation showing successor in interest status. A consumer advocacy
group stated that this would save time and streamline the process,
where time is often of the essence.\153\ Another consumer advocacy
group urged the Bureau to clarify how Sec. 1024.36(f)(1)(i)'s rule on
duplicative information relates to Sec. 1024.36(i). This group
suggested that Sec. 1024.36(f)(1)(i)'s rule should only apply if
duplicative information was requested by the same person.
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\153\ Consumer advocacy groups also suggested that the Bureau
should make the request for information for potential successors in
interest privately enforceable. As explained in part V.A., supra,
the Bureau declines to do so.
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Industry commenters raised a variety of different concerns related
to the requirements in Sec. 1024.36(i), with some suggesting that the
Bureau should not finalize the provision at all and others suggesting
changes. Some industry commenters supported the proposal's requirement
that requests must be in writing to trigger the requirements of Sec.
1024.36(i). For example, a trade association stated that allowing oral
requests would create a risk of fraud.
A number of industry commenters also indicated that the Bureau
should clarify what it means by ``indicates that a person may be a
successor in interest'' or should substitute narrower language. For
example, one trade association suggested Sec. 1024.36(i) should only
apply if the requester specifically asks for information on how to
confirm the requestor's status as a successor in interest, although the
commenter did not think that the final rule should require use of the
term successor in interest.\154\ Another industry commenter suggested
that a servicer should be required to provide information regarding the
documents the servicer requires to confirm a person's identity and
ownership interest in the property in response to a request that
affirmatively states that there has been a transfer of the property, a
divorce, legal separation, or death of a borrower, or that the writer
has become the owner of the property. This commenter also stated that a
servicer should not be required to respond to a request from a non-
borrower that does not include any statement that indicates the non-
borrower may have an interest in the property.
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\154\ Another trade association suggested that the final rule
should limit servicers' obligations to written communications that
specifically request information about confirming the person's
status as a successor in interest or indicate the nature of the
transfer of ownership interest. Yet another trade association
suggested that the final rule should limit servicers' obligations to
written communications that specifically identify the writer as one
claiming to be a successor in interest to property rights and the
manner in which and under what authority the claim is made.
---------------------------------------------------------------------------
Industry commenters also requested that, where a servicer has
established an address, the final rule should limit servicers'
obligation to requests received at that address. They suggested that it
would be burdensome for servicers to respond to inquiries from
potential successors in interest received at an address other than the
established address because it would require servicers to monitor every
location where a request for information could be sent. An industry
commenter noted that requiring use of the established address would
align treatment of requests for information under Sec. 1024.36(i) with
how other requests for information are treated under Sec. 1024.36.
Other industry commenters suggested that it would facilitate servicers'
tracking of requests and that servicers would not be able to respond
quickly unless they receive requests through an established address.
A number of industry commenters responded to the Bureau's request
for comment regarding what requirements should apply if a potential
successor in interest submits a request for information other than a
description of the documents required for confirmation. Industry
commenters generally urged the Bureau not to require a response unless
the successor in interest resubmits the request upon confirmation, and
some suggested that the final rule should require servicers to inform
potential successors in interest that they would need to resubmit such
requests upon confirmation. An industry commenter suggested that it
might confuse successors in interest to get a response to an outdated
request. Another suggested that resubmission would be much more
efficient, in part because any number of variables could have changed
the information that the successor in interest is seeking during the
elapsed time between initial submission and confirmation. Various
industry commenters noted that it would be a significant burden and
might require costly systems changes to preserve requests until
confirmation. An industry commenter suggested that there is nothing
analogous in the servicing requirements that requires a servicer to
keep consumer information requests prior to the establishment of a
relationship. By contrast, one trade association suggested that the
final rule should require servicers to provide confirmed successors in
interest information requested prior to confirmation and that the
timelines servicers must meet to provide such information should run
from time of confirmation.
Industry commenters expressed concerns relating to the timeframes
specified in Sec. 1024.36(i) and indicated that the process described
in the proposal was too rigid. Some trade associations suggested that
there should be no deadline imposed. They noted that, with only the
loan identified, the servicer may not know, for example, who the
claimant is, the nature of the claim, the basis of the claim, whether
the claim will be contested, whether the claimant is a minor, or where
the
[[Page 72203]]
borrower lived when the claim arose.\155\ These commenters suggested
that several rounds of communication are required in all or almost all
instances because servicers need to start with basic questions and then
move to more detailed questions. These commenters also suggested that
servicers might deny claims unnecessarily if the final rule imposes a
deadline that does not provide enough time. They also provided a sample
model form for the first iteration of servicer requests for information
from claimants. They indicated that servicers do not currently maintain
the list of documents required by proposed Sec. 1024.36(i) and
suggested that a complete list of all documents a servicer might need
would overwhelm potential successors in interest. One of these
commenters also stated that servicers need to be able to verify a
claimant's agent.\156\
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\155\ Another industry commenter made a similar point, noting
that a letter from a potential successor may not provide sufficient
information to allow the servicer to identify what documents are
required and could, for example, simply state that a borrower died
or that a divorce is being executed.
\156\ An industry commenter also suggested that proposed Sec.
1024.36(i) would require servicers to violate privacy law
requirements by implicitly confirming that a customer has a mortgage
loan serviced by the servicer. Disclosing information to potential
successors in interest as required under the final rule will not
cause a servicer to violate the GLBA or Regulation P because the
GLBA and Regulation P permit financial institutions to disclose
information to comply with a Federal law or regulation. 15 U.S.C.
6802(e)(8); 12 CFR 1016.15(a)(7)(i).
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An industry commenter also expressed concern that proposed comment
36(i)-1 might be inconsistent with the proposed regulation. It noted
that the proposed commentary stated that servicers do not have to
provide any additional information that may be requested by the
potential successor in interest, while proposed Sec. 1024.36(i) stated
that, with respect to the written request, a servicer shall treat the
person as a borrower for the purposes of the requirements of Sec.
1024.36(c) through (g).
The Bureau is finalizing the requirements of proposed Sec.
1024.36(i) in Sec. 1024.36(i)(1) and (4), with adjustments in response
to the comments received and technical changes for clarity.\157\ Like
proposed Sec. 1024.36(i), Sec. 1024.36(i)(4) provides that, if a
servicer has established an address that a borrower must use to request
information pursuant to Sec. 1024.36(b), a servicer must comply with
the requirements of Sec. 1024.36(i)(1) only for requests received at
the established address.
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\157\ For example, the Bureau has added language in Sec.
1024.36(i)(1) that specifically requires servicers to provide in
their written response contact information for further assistance,
to ensure that it is clear that this requirement of Sec.
1024.36(d)(1) applies to requests under Sec. 1024.36(i). The Bureau
has also substituted ``a written description of'' for ``information
regarding.'' This clarifies that the response must be written and
aligns Sec. 1024.36(i) with similar language used in Sec.
1024.38(b)(1)(vi)(B), which refers to a ``description'' of the
documents the servicer reasonably requires to confirm the potential
successor in interest's identity and ownership interest in the
property.
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In light of industry comments indicating that more than one round
of communication may be required in some instances, the Bureau has also
added language in Sec. 1024.36(i)(2) addressing circumstances where
servicers are not able to respond fully based on the information
provided in a request under Sec. 1024.36(i)(1). As with other requests
under Sec. 1024.36, the Bureau anticipates that servicers may contact
the requestor informally to clarify the request and obtain additional
relevant information that may be needed to respond to the request.
Through such contacts, servicers may be able to obtain any missing
information that they need to respond fully within the time limits.
However, if a request under Sec. 1024.36(i)(1) does not provide
sufficient information to enable the servicer to identify the documents
the servicer reasonably requires to confirm the person's identity and
ownership interest in the property, Sec. 1024.36(i)(2) allows the
servicer to provide a response that includes examples of documents
typically accepted to establish identity and ownership interest in a
property; indicates that the person may obtain a more individualized
description of required documents by providing additional information;
specifies what additional information is required to enable the
servicer to identify the required documents; and provides contact
information, including a telephone number, for further assistance. A
servicer's response under Sec. 1024.36(i)(2) must otherwise comply
with the requirements of Sec. 1024.36(i)(1). Notwithstanding the
duplicative request rule of Sec. 1024.36(f)(1)(i), if a potential
successor in interest subsequently provides the required information
specified by the servicer pursuant to Sec. 1024.36(i)(2) either orally
or in writing, the servicer must treat the new information, together
with the original request, as a new, non-duplicative request under
Sec. 1024.36(i)(1), received as of the date the required information
was received, and must respond accordingly. These changes should help
ensure that servicers can comply with their obligations under Sec.
1024.36(i) in responding to requests that provide very limited
information about a potential successor in interest's circumstances.
The Bureau has also incorporated the substance of proposed comment
36(i)-1 into Sec. 1024.36(i)(3), which provides that, in responding to
a request under Sec. 1024.36(i)(1) prior to confirmation, the servicer
is not required to provide any information other than the information
specified in Sec. 1024.36(i)(1) and (2). Section 1024.36(i)(3) also
provides that, in responding to a written request under Sec.
1024.36(i)(1) that requests other information, the servicer must
indicate that the potential successor in interest may resubmit any
request for information once confirmed as a successor in interest. The
Bureau believes that addressing these issues in this manner in Sec.
1024.36(i)(3) rather than in the commentary obviates the concern
expressed by an industry commenter that the commentary might be
inconsistent with the regulation.
As indicated in part V.A., Sec. 1024.36(i) addresses problems
faced by successors in interest in confirming their identity and
ownership interest in the property securing the mortgage loan and may
help them avoid unnecessary foreclosure on the property. Section
1024.36(i) is complemented by Sec. 1024.38(b)(1)(vi), which requires
servicers to maintain certain policies and procedures relating to
potential successors in interest. Section 1024.38(b)(1)(vi)(B) requires
servicers to have policies and procedures to determine promptly what
documents are reasonable to require from successors in interest in
particular circumstances, so that the servicer is prepared to provide
promptly a description of those documents, while Sec. 1024.36(i) gives
potential successors in interest a mechanism to obtain this information
from servicers. The separate requirement in Sec. 1024.36(i) is
appropriate, in addition to the policies and procedures requirement in
Sec. 1024.38(b)(1)(vi), because information regarding the documents
the servicer requires to confirm a successor in interest's status may
be of importance to each individual potential successor in interest.
As the Bureau explained in the proposal, Sec. 1024.36(i) applies
to a broad range of written communications from potential successors in
interest. A potential successor in interest does not need to request
specifically that the servicer provide information regarding the
documents the servicer requires to confirm the person's identity and
ownership interest in the property. As with other requests for
information, the successor in interest also does not need to indicate
specifically that the request is a written request under Sec. 1024.36
or to make the request in any particular
[[Page 72204]]
form. Accordingly, servicers are required to provide the information in
response to any written communication indicating that the person may be
a successor in interest that is accompanied by the name of the
transferor borrower and information that enables the servicer to
identify that borrower's mortgage loan account and that is received at
the address established by the servicer under Sec. 1024.36(b) if the
servicer has established one.
This broad coverage is appropriate because some successors in
interest may not be aware that they need to confirm their identity and
ownership interest in the property. As consumer advocacy groups noted,
successors in interest may not know the exact words to use in framing
their requests. Requiring servicers to respond only to a written
communication that actually requests a description of the documents
required for confirmation would deprive many successors in interest of
the information they need to protect their ownership interest and could
subject them to unnecessary foreclosures.
Section 1024.36(i) applies with respect to the servicer's receipt
of written communication from any potential successor in interest.\158\
Even though a servicer may be unaware at the time of initial contact
with a potential successor in interest whether the potential successor
in interest is in fact a successor in interest as defined in this final
rule, in these situations the servicer should still communicate with
the potential successor in interest about confirmation and should not
wait until it has reason to believe that the definition of successor in
interest is met.
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\158\ Pursuant to the Bureau's Same-Sex Married Couple Policy,
see supra note 39, a same-sex spouse would be evaluated for
confirmation as a successor in interest under Sec.
1024.38(b)(1)(vi) as would any other potential successor in
interest. As with any potential successor in interest, confirmation
as a successor in interest would depend on whether the person meets
the definition of successor in interest in Sec. 1024.31.
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Many requests under Sec. 1024.36(i) may indicate the nature of the
transfer of the ownership interest from the transferor borrower to the
successor in interest. In those cases, servicers will respond with
information that is relevant to that potential successor in interest's
specific situation. If the potential successor in interest does not
indicate the nature of the transfer of the ownership interest to the
potential successor in interest, the final rule allows the servicers to
provide a response that includes examples of documents typically
accepted to establish identity and ownership interest in a property,
indicates that the requestor may obtain a more individualized
description of required documents by providing additional information,
specifies what additional information is required to enable the
servicer to identify the required documents, and provides contact
information for further assistance. As with other situations where
servicers are responding to customer inquiries, the Bureau believes
that servicers will in many instances contact the potential successor
in interest for clarifying information before providing the formal
notice required under Sec. 1024.36(i).
Section 1024.36(c) through (g) establishes various requirements
governing servicers' responses to requests for information under Sec.
1024.36, such as acknowledgment requirements and time limits. Except as
otherwise provided in the final rule, the Bureau believes it is
appropriate for servicers to handle requests for information under
Sec. 1024.36(i) in the same way that they handle other requests for
information under Sec. 1024.36 and therefore has decided to apply the
requirements of Sec. 1024.36(c) through (g) to requests under Sec.
1024.36(i). For example, the final rule requires servicers to respond
to a request under Sec. 1024.36(i) in writing, as they would for any
other request for information. As a result, the information servicers
provide will be memorialized, which should help to avoid uncertainty.
The Bureau also concludes that it is appropriate to limit
servicers' obligation to respond under Sec. 1024.36(i) to those
requests received at an established address if a servicer has
established one under Sec. 1024.36(b), as Sec. 1024.36 does for other
requests for information. As many industry commenters noted, servicers
would have difficulty responding promptly and efficiently to requests
for information from potential successors in interest at locations
other than the established address. Because servicers that have
established an address are not ordinarily required to respond to
requests for information received at other locations, servicers would
need to train staff and set up systems at these locations to comply
with Sec. 1024.36(i). Further, the Bureau anticipates that most
successors in interest will be able to send information requests to the
established address. Successors in interest may in some circumstances
have access to written communications provided to the transferor
borrower that identify the established address. Additionally, under
Sec. 1024.36(b), a servicer that establishes an address for receipt of
information requests must post the established address on any Web site
maintained by the servicer if the Web site lists any contact address
for the servicer. Furthermore, as explained in the section-by-section
analysis of Sec. 1024.38(b)(1)(vi), servicers subject to Sec.
1024.38(b)(1)(vi) must have policies and procedures reasonably designed
to ensure that they are able to respond promptly with information that
includes the appropriate address for a Sec. 1024.36(i) request upon
receiving notice of the existence of a potential successor in interest,
even if the notice is oral or received at an address that is not the
address a servicer has established for requests under Sec. 1024.36.
Because Sec. 1024.36(c) through (g) applies to requests under
Sec. 1024.36(i), Sec. 1024.36(f)(1)(i)'s rule on duplicative
information applies to requests under Sec. 1024.36(i). Section
1024.36(i) does not require a servicer to respond to a request if the
information requested is substantially the same as information
previously requested by the borrower for which the servicer has
previously complied with its obligation to respond. The fact that
information was previously requested by a different borrower would not
excuse a servicer from compliance under Sec. 1024.36(f)(1)(i) because,
in that situation, the information would not have been requested ``by
the borrower'' for purposes of Sec. 1024.36(f)(1)(i).\159\ Except as
provided in Sec. 1024.36(i)(2), a servicer need not respond to
repeated requests under Sec. 1024.36(i) for substantially the same
information from the same potential successor in interest, if the
servicer has previously complied with its obligation to respond to that
potential successor in interest.\160\
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\159\ A trade association commenter suggested that the Bureau
should indicate that, if a borrower receives information in response
to a request for information and a confirmed successor later
requests the same information, the second request should be deemed
duplicative unless the first requester (or the first requester's
estate) has been released from the loan obligation before the
servicer receives the second request. The Bureau does not believe
this interpretation would be consistent with the language of Sec.
1024.36 for the reasons stated above. This commenter also asserted
that, if a borrower asserts an error and a confirmed successor later
asserts the same error, the second assertion should be deemed
duplicative. The fact that an error asserted by a confirmed
successor in interest is substantially the same as an error
previously asserted by a transferor borrower would not excuse a
servicer from compliance with the notice of error requirements in
Sec. 1024.35 because, in that situation, the error would not have
been previously ``asserted by the borrower'' for purposes of Sec.
1024.35(i).
\160\ For the reasons explained in part V.A., the application of
the scope provision in Regulation X's subpart C (Sec. 1024.30(b))
to successors in interest means that Sec. 1024.36(i), but not Sec.
1024.38(b)(1)(vi), applies to small servicers, with respect to
reverse mortgage transactions, and with respect to mortgage loans
for which the servicer is a qualified lender. Accordingly, small
servicers, for example, are required to respond to requests for
information under Sec. 1024.36(i) by providing a written
description of the documents the servicer requires to confirm the
person's identity and ownership interest in the property, even
though small servicers are not required to maintain policies and
procedures to decide promptly what documents the servicer reasonably
requires to confirm the successor in interest's identity and
ownership interest in the property.
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[[Page 72205]]
Proposed comment 36(i)-1 would have provided that, for the purposes
of requests under Sec. 1024.36(i), a servicer would only have been
required to provide information regarding the documents the servicer
requires to confirm the person's identity and ownership interest in the
property, not any other information that may also be requested by the
person. As explained above, the Bureau has decided to address this
issue in regulation text. As finalized, Sec. 1024.36(i)(3) indicates
that, prior to confirmation, the servicer is not required to provide
any information the person may request, other than the information
specified in Sec. 1024.36(i)(1) and (2). The Bureau is not finalizing
proposed comment 36(i)-1 because it would be redundant of Sec.
1024.36(i)(3).
As noted above, industry commenters requested that the Bureau
clarify what types of communications might indicate that a person may
be a successor in interest for purposes of Sec. 1024.36(i). As
finalized, comment 36(i)-1 provides examples of written requests that
indicate that a person may be a successor in interest, including a
written statement from a person other than a borrower indicating that
there has been a transfer of ownership or of an ownership interest in
the property to the person or that a borrower has been divorced,
legally separated, or died; or a written loss mitigation application
received from a person other than a borrower. Providing this non-
exhaustive list of examples in the commentary will assist servicers in
understanding the types of contacts that constitute requests for
information under Sec. 1024.36(i).
The Bureau is also adding comment 36(i)-2, which addresses the time
limits for servicers to respond to a request for information under
Sec. 1024.36(i). The comment notes that a servicer must respond to a
request under Sec. 1024.36(i) not later than the time limits set forth
in Sec. 1024.36(d)(2). It explains that servicers subject to Sec.
1024.38(b)(1)(vi)(B) must also maintain policies and procedures
reasonably designed to ensure that, upon receiving notice of the
existence of a potential successor in interest, the servicer can
promptly determine the documents the servicer reasonably requires to
confirm that person's identity and ownership interest in the property
and promptly provide to the potential successor in interest a
description of those documents and how the person may submit a written
request under Sec. 1024.36(i) (including the appropriate address). The
comment also explains that, depending on the facts and circumstances of
the request, responding promptly may require a servicer to respond more
quickly than the time limits established in Sec. 1024.36(d)(2).
The Bureau considered, as an alternative, imposing a rigid, shorter
time period, such as 15 days, that would apply to all requests under
Sec. 1024.36(i), as some consumer advocacy groups had suggested. The
Bureau believes that such a rigid deadline might be difficult to meet
for more complex requests and has therefore chosen to impose the same
time limits established for other requests for information in Sec.
1024.36, with the expectation that the policies and procedures
established pursuant to Sec. 1024.38(b)(1)(vi)(B) will provide for
faster responses in appropriate cases when the facts and circumstances
make that feasible, in order to avoid the harms that can result from
confirmation delays, including unnecessary foreclosures. In light of
those harms, the Bureau also declines to allow servicers more time to
respond to requests for information from potential successors in
interest than servicers have to respond to other requests for
information or to set no time limit, as some industry commenters
suggested.
The Bureau is also adding comment 36(i)-3, which addresses agents
of potential successors in interest. Once a servicer confirms a
successor in interest, the confirmed successor in interest can take
various steps through an agent because the confirmed successor in
interest is treated as a borrower or consumer for purposes of a number
of provisions in Regulations X and Z that permit borrowers or consumers
to operate through agents.\161\ The proposal, however, did not address
agents of potential successors in interest. Existing comment 36(a)-1
addresses agents for purposes of information requests under Sec.
1024.36 but does not apply to information requests that potential
successors in interest submit under Sec. 1024.36(i).
---------------------------------------------------------------------------
\161\ See, e.g., Regulation X comments 31 (Loss mitigation
application)-1, 35(a)-1, 36(a)-1.
---------------------------------------------------------------------------
The Bureau believes that potential successors in interest should be
able to submit requests pursuant to Sec. 1024.36(i) through an agent
and is adding comment 36(i)-3 to that end. Comment 36(i)-3 clarifies
that an information request pursuant to Sec. 1024.36(i) is submitted
by a potential successor in interest if it is submitted by an agent of
the potential successor in interest. As a trade association noted in
its comment, servicers must be able to verify the agents of potential
successors in interest. Comment 36(i)-3 therefore states that servicers
may undertake reasonable procedures to determine if a person that
claims to be an agent of a potential successor in interest has
authority from the potential successor in interest to act on the
potential successor in interest's behalf, for example, by requiring
that a person that claims to be the agent provide documentation from
the potential successor in interest stating that the purported agent is
acting on the potential successor in interest's behalf. The comment
explains that, upon receipt of such documentation, the servicer shall
treat the request for information as having been submitted by the
potential successor in interest.
The Bureau anticipates that it will be easy for servicers to
implement the process described in comment 36(i)-3 because it is
modeled on that of comment 36(a)-1, which applies to other types of
requests for information under Sec. 1024.36. The Bureau believes
comment 36(i)-3 is necessary and helpful because potential successors
in interest who are experiencing difficulty in the confirmation process
or in understanding the mortgage obligations that encumber their
property may turn, for example, to housing counselors or other
knowledgeable persons to assist them in addressing such issues.\162\
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\162\ For example, the Bureau believes that the clarification in
comment 36(i)-3 may be helpful in cases where successors in interest
are minors. A trade association commenter indicated that servicers
should not be required to enter into contracts with claimants who
are minors, but the final rule does not impose any such requirement.
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Section 1024.37 Force-Placed Insurance
37(c) Requirements Before Charging Borrower for Force-Placed Insurance
37(c)(2) Content of Notice
37(c)(2)(v)
Under Sec. 1024.37(b), a servicer may not charge a borrower for
force-placed insurance ``unless the servicer has a reasonable basis to
believe that the borrower has failed to comply with the mortgage loan's
contract requirement to maintain hazard insurance.'' Section
1024.37(c)(1) requires a servicer to provide to a borrower an initial
notice and a reminder notice before assessing a fee or charge related
to force-placed insurance. Sections 1024.37(c)(2) and 1024.37(d)(2)
specify the notices' content. Current Sec. 1024.37(c)(2)(v) requires
the initial notice to include a statement that, among other things,
``the
[[Page 72206]]
borrower's hazard insurance is expiring or has expired, as applicable,
and that the servicer does not have evidence that the borrower has
hazard insurance coverage past the expiration date. . . .'' Section
1024.37(d)(2)(i)(C) requires the reminder notice to include the same
statement if, after providing the initial notice, a servicer does not
receive any evidence of hazard insurance. These provisions do not
specify what a notice must state if a borrower has insufficient
coverage, such as when the borrower's insurance provides coverage in a
dollar amount less than that required by the mortgage loan contract.
The Bureau proposed to amend Sec. 1024.37(c)(2)(v) to address
situations in which a borrower has insufficient, rather than expiring
or expired, hazard insurance. The Bureau is finalizing Sec.
1024.37(c)(2)(v) as proposed.
In advance of the proposal, the Bureau was concerned that the
statements required by Sec. 1024.37(c)(2)(v) and (d)(2)(i)(C) may not
afford servicers flexibility to address circumstances in which a
borrower has insufficient coverage. When a borrower has hazard
insurance that is insufficient under the mortgage loan contract's
requirements, a statement that coverage has expired or is expiring may
not be applicable. Similarly, the notices must state that the servicer
does not have evidence that the borrower has hazard insurance past the
coverage date, but Sec. 1024.37 does not permit the notices to instead
state that the servicer lacks evidence that the borrower's hazard
insurance provides sufficient coverage. Moreover, Sec. 1024.37(c)(4)
and (d)(4) prohibit a servicer from including in the force-placed
insurance notices any information other than that required by Sec.
1024.37(c)(2) or (d)(2). A servicer cannot explain on the notice itself
that the borrower's hazard insurance is insufficient rather than
expired or expiring. Although a servicer could include such an
explanation on a separate piece of paper in the same transmittal as the
force-placed insurance notice,\163\ the Bureau believed that servicers
and borrowers could benefit if servicers were able to state on the
notice itself that the servicer lacks evidence of sufficient coverage.
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\163\ See 12 CFR 1024.37(c)(2) and (d)(2).
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Accordingly, the Bureau proposed to amend Sec. 1024.37(c)(2)(v) to
provide that the force-placed insurance notices must include a
statement that the borrower's hazard insurance is expiring, has
expired, or provides insufficient coverage, as applicable, and that the
servicer does not have evidence that the borrower has hazard insurance
coverage past the expiration date or evidence that the borrower has
hazard insurance that provides sufficient coverage, as applicable. The
Bureau believed that this amendment might enable servicers to provide
borrowers with notices that are more accurately tailored for their
precise circumstances and potentially avoid confusing a borrower whose
coverage is not expiring but is insufficient under the mortgage loan
contract. The Bureau solicited comment on whether other modifications
to the required content of the force-placed insurance notices are
necessary or appropriate to address circumstances in which a servicer
force-places insurance for reasons other than expired or expiring
coverage.
The Bureau received a number of comments from industry and consumer
advocacy groups on its proposal to revise the notices under Sec.
1024.37 to include a statement regarding insufficient coverage. The
vast majority of commenters expressed support for the proposed
revisions and agreed that a statement regarding insufficient coverage
on the notices required by Sec. 1024.37 would provide greater clarity
to borrowers. One industry commenter recommended that the notices also
include a statement to address a situation where the borrower purchases
insurance through a company that the lender or servicer does not allow.
The Bureau is finalizing Sec. 1024.37(c)(2)(v) as proposed.
Section 1024.37(c)(2)(v) provides that the force-placed insurance
notices must include a statement that the borrower's hazard insurance
is expiring, has expired, or provides insufficient coverage, as
applicable, and that the servicer does not have evidence that the
borrower has hazard insurance coverage past the expiration date or
evidence that the borrower has hazard insurance that provides
sufficient coverage, as applicable. The Bureau declines to further
modify the notices to specifically address a circumstance raised by one
commenter in which a servicer force-places insurance because the
borrower purchases insurance through a company that the lender or
servicer does not allow. Where a borrower's hazard insurance does not
satisfy the requirements of the mortgage loan contract, a servicer may
explain on the force-placed insurance notices that the borrower's
hazard insurance provides insufficient coverage. Any additional detail
regarding the borrower's specific circumstances may be included with
the force-placed insurance notice, on a separate piece of paper, as
permitted under Sec. 1024.37(c)(4).
37(c)(4) Additional Information
Section 1024.37(c) currently requires servicers to provide a
borrower a notice at least 45 days before assessing a fee or charge
related to force-placed insurance. Section 1024.37(c)(4) prohibits a
servicer from including in the notice any information other than that
required by Sec. 1024.37(c)(2), though a servicer may provide a
borrower with additional information on separate pieces of paper in the
same transmittal. In the 2013 RESPA Servicing Final Rule, the Bureau
explained that providing required information along with additional
information in the same notice could obscure the most important
information or lead to information overload. The Bureau instead
permitted servicers to provide additional information on separate
pieces of paper in the same transmittal.\164\
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\164\ 78 FR 10695, 10770 (Feb. 14, 2013).
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However, in advance of the proposal, the Bureau received questions
regarding whether servicers may include a borrower's mortgage loan
account number in the notices required by Sec. 1024.37, including the
initial notice required by Sec. 1024.37(c)(1)(i). As indicated in the
proposal, the Bureau believed it could be appropriate to give servicers
the flexibility to include a borrower's mortgage loan account number in
the notices required by Sec. 1024.37. An account number is a customary
disclosure on communications between a servicer and a borrower. The
Bureau also believed that including the borrower's mortgage loan
account number could help facilitate communications between a borrower
and a servicer regarding a notice provided under Sec. 1024.37.
Therefore, the Bureau proposed to amend Sec. 1024.37(c)(4) to grant
servicers flexibility to include a borrower's mortgage loan account
number in the notices required by Sec. 1024.37.
The Bureau received numerous comments on the proposal to permit the
inclusion of the mortgage loan account number in the notices required
by Sec. 1024.37. The Bureau received several comments from industry
and consumer advocacy groups expressing support for the proposal to
allow servicers to include the mortgage loan account number in the
written notice required by Sec. 1024.37(c)(1)(i). One industry
commenter representing credit unions stated that including the mortgage
loan account number in the written notices would help borrowers
identify the loan for which the written notice applies and would
facilitate communication between the borrower and the credit
[[Page 72207]]
union. Another industry commenter stated that permitting servicers to
include the mortgage loan account number in the notices required by
Sec. 1024.37(c)(1)(i) and (ii), and (e)(1)(i) would improve clarity
and continuity in the communications between borrowers and servicers. A
consumer advocacy group requested that the inclusion of the mortgage
loan account number in the written notices be made mandatory to avoid
confusion that may occur when servicers manage two or more accounts
that pertain to the same borrower. One industry commenter recommended
that such inclusion remain discretionary.
Several commenters urged the Bureau to allow other additional
information to be included in the notices required by Sec. 1024.37.
One industry commenter requested that Sec. 1024.37(c)(4) permit
servicers to include information that would improve borrower
understanding of the notices, while another recommended that the rule
permit additional information so long as it was related to the general
content of the notice. One consumer advocacy group stated that the
notices under Sec. 1024.37 would provide borrowers greater clarity if
they included information on the dollar amount of coverage the servicer
claims is needed and the fair market value of the home that the
servicer used to determine the amount of coverage needed. The commenter
stated that this information would help borrowers understand why the
servicer was delivering a notice resulting from insufficient insurance
coverage. Several industry commenters requested that Sec.
1024.37(c)(4) also permit the notices to include information on force-
placed insurance required by State law. These commenters stated that
delivering the notices required by Sec. 1024.37(c) and State law
separately increases costs to servicers and may result in borrower
confusion.
The Bureau is adopting Sec. 1024.37(c)(4) as proposed. Section
1024.37(c)(4) provides that, except for the mortgage loan account
number, a servicer may not include any information other than the
information required by Sec. 1024.37(c)(2) in the written notice
required by Sec. 1024.37(c)(1)(i). It further explains that a servicer
may provide such additional information to a borrower on separate
pieces of paper in the same transmittal. The Bureau declines to make
the inclusion of the mortgage loan account number in the notices
required by Sec. 1024.37 mandatory, as one commenter recommended.
Servicers should have flexibility to determine when the inclusion of
the mortgage loan account number in the notices would be helpful to
facilitating communication and borrower understanding.
The Bureau is not permitting additional types of information to be
included in the notices required by Sec. 1024.37, as some commenters
recommended. In contrast to the mortgage loan account number, the
Bureau believes that including information such as the dollar amount of
coverage the servicer claims is needed or information on force-placed
insurance required by State law, as suggested by some commenters, could
obscure the required notices or create information overload in the
required notices that could result in borrower uncertainty. Although
such information may be helpful to borrowers, the Bureau believes it is
more appropriately included on separate pieces of paper in the same
transmittal under Sec. 1024.37(c)(4).
37(d) Reminder Notice
37(d)(2) Content of the Reminder Notice
37(d)(2)(ii) Servicer Lacking Evidence of Continuous Coverage
The Bureau proposed to amend Sec. 1024.37(d)(2)(ii), which
specifies the information a force-placed insurance reminder notice must
contain if a servicer does not have evidence that the borrower has had
hazard insurance in place continuously. Currently, this provision does
not address the scenario in which a servicer receives evidence that the
borrower has had hazard insurance in place continuously, but the
servicer lacks evidence that the continued hazard insurance is
sufficient under the mortgage loan contract. While a servicer could
include on a separate piece of paper a statement clarifying that it is
purchasing insurance due to insufficient coverage, the Bureau believed
it may be preferable for the notice itself to be clear in this regard.
In order to align the requirements of Sec. 1024.37(d)(2)(ii) with
the proposed changes to Sec. 1024.37(c)(2)(v), the Bureau proposed to
amend Sec. 1024.37(d)(2)(ii) to clarify that the provision applies
when a servicer has received hazard insurance information after
providing the initial notice but has not received evidence
demonstrating that the borrower has had sufficient hazard insurance
coverage in place continuously. The Bureau solicited comment on whether
other modifications to the required contents of the force-placed
insurance notices are necessary or appropriate to address circumstances
in which a servicer force-places insurance for reasons other than
expired or expiring coverage.
The majority of commenters discussing the proposed revisions to
Sec. 1024.37 expressed support for the Bureau's proposal to address
situations in which a borrower has insufficient, rather than expiring
or expired, hazard insurance. A discussion of these comments is
included in the section-by-section analysis of Sec. 1024.37(c)(2).
The Bureau is finalizing Sec. 1024.37(d)(2)(ii) as proposed. Final
Sec. 1024.37(d)(2)(ii) explains that this provision applies when a
servicer has received hazard insurance information after delivering to
a borrower or placing in the mail the notice required by Sec.
1024.37(c)(1)(i), but has not received, from the borrower or otherwise,
evidence demonstrating that the borrower has had sufficient hazard
insurance coverage in place continuously. The requirements of final
Sec. 1024.37(d)(2)(ii) align with the requirements of final Sec.
1024.37(c)(2)(v), discussed in the section-by section analysis of Sec.
1024.37(c)(2)(v).
37(d)(2)(ii)(B)
The Bureau proposed to correct the statement in Sec.
1024.37(d)(2)(ii)(B) that the notice must set forth the information
required by Sec. 1024.37(c)(2)(ii) through (iv), (x), (xi), and
(d)(2)(i)(B) and (D). Section 1024.37(d)(2)(ii)(B) should state that
the notice must also set forth information required by Sec.
1024.37(c)(2)(ix). The Bureau did not receive comments on this proposed
correction and is finalizing Sec. 1024.37(d)(2)(ii)(B) as proposed.
37(d)(3) Format
Section 1024.37(d)(3) sets forth certain formatting requirements
for the reminder notice required by Sec. 1024.41(c)(1)(ii). The
reminder notice contains some of the same information as the initial
notice provided under Sec. 1024.37(c)(1)(i). The proposal would have
made a technical correction to Sec. 1024.37(d)(3) to state that the
formatting instructions in Sec. 1024.37(c)(3), which apply to
information set forth in the initial notice, also apply to the
information set forth in the reminder notice provided pursuant to Sec.
1024.37(d). The purpose of this change was to clarify that, when the
same information appears in both the initial and the reminder notice,
that information must be formatted the same in both notices. The Bureau
did not receive comments in response to the proposed technical
correction to Sec. 1024.37(d)(3) and is finalizing as proposed.
[[Page 72208]]
37(d)(4) Additional Information
The Bureau proposed two amendments with respect to Sec.
1024.37(d)(4). First, the Bureau proposed to amend Sec. 1024.37(d)(4)
to give servicers the flexibility to include a borrower's mortgage loan
account number in the notice required by Sec. 1024.37(c)(1)(ii). For
the reasons discussed in the section-by-section analysis of Sec.
1024.37(c)(4), the Bureau believed that giving servicers flexibility to
include the account number might benefit servicers and borrowers
without obscuring other information on the notice or leading to
information overload. The Bureau sought comment on this proposal to
grant servicers flexibility to include a borrower's mortgage loan
account number in the notices required by Sec. 1024.37 and whether
there are other types of information that servicers should be allowed
to include that would not obscure the required disclosures or create
information overload. The Bureau also proposed technical corrections to
renumber comment 37(d)(4)-1 as comment 37(d)(5)-1 and to correct an
erroneous reference in that comment to Sec. 1024.37(d)(4), which
instead should be a reference to Sec. 1024.37(d)(5).
The Bureau received numerous comments in response to its proposal
to permit servicers to include a borrower's mortgage loan account
number in the notices required by Sec. 1024.37. The Bureau has
included a discussion of these comments in the section-by-section
analysis of Sec. 1024.37(c)(4).
The Bureau is finalizing Sec. 1024.37(d)(4) as proposed, and is
renumbering comment 37(d)(4)-1 as comment 37(d)(5)-1 with certain
changes for clarity. Section 1024.37(d)(4) explains that, except for
the borrower's mortgage loan account number, a servicer may not include
any information other than information required by Sec.
1024.37(d)(2)(i) or (ii), as applicable, in the written notice required
by Sec. 1024.37(c)(1)(ii). It further explains that a servicer may
provide such additional information to a borrower on separate pieces of
paper in the same transmittal. Final Sec. 1024.37(d)(4) is consistent
with final Sec. 1024.37(c)(4), which allows servicers to include the
borrower's mortgage loan account number in the written notice required
by Sec. 1024.37(c)(1)(i).
37(d)(5) Updating Notice With Borrower Information
For the reasons discussed above, the Bureau is renumbering comment
37(d)(4)-1 as comment 37(d)(5)-1 and is finalizing comment 37(d)(5)-1
substantially as proposed. Comment 37(d)(5)-1 explains that, if the
written notice required by Sec. 1024.37(c)(1)(ii) was put into
production a reasonable time prior to the servicer delivering or
placing the notice in the mail, the servicer is not required to update
the notice with new insurance information received. It clarifies that,
for purposes of Sec. 1024.37(d)(5), a reasonable time is no more than
five days (excluding legal holidays, Saturdays, and Sundays). The final
rule revises current comment 37(d)(5)-1 to remove superfluous language
regarding a servicer preparing a written notice in advance of
delivering or placing the notice in the mail and that the information
received is about the borrower, and to make clear that five days is the
maximum period of time that would be considered a reasonable time for
purposes of Sec. 1024.37(d)(5).
37(e) Renewing or Replacing Force-placed Insurance
37(e)(4) Additional Information
The Bureau proposed two amendments with respect to Sec.
1024.37(e)(4). First, the Bureau proposed to amend Sec. 1024.37(e)(4)
to give servicers the flexibility to include a borrower's mortgage loan
account number in the notice required by Sec. 1024.37(e)(1)(i). For
the reasons discussed in the section-by-section analysis of Sec.
1024.37(c)(4), the Bureau explained that giving servicers flexibility
to include the account number may benefit servicers and borrowers
without obscuring other information on the notice or leading to
information overload. Second, the Bureau proposed a technical
correction to remove the unnecessary words ``[a]s applicable'' from
Sec. 1024.37(e)(4).
Numerous commenters discussed the Bureau's proposal to permit the
inclusion of the mortgage loan account number in the notices required
by Sec. 1024.37. The Bureau has included a discussion of these
comments in the section-by-section analysis of Sec. 1024.37(c)(4).
The Bureau is finalizing Sec. 1024.37(e)(4) substantially as
proposed, with a technical correction. Section 1024.37(e)(4) provides
that, except for the borrower's mortgage loan account number, a
servicer may not include any information other than information
required by Sec. 1024.37(e)(2) in the written notice required by Sec.
1024.37(e)(1). It further explains that a servicer may provide such
additional information to a borrower on separate pieces of paper in the
same transmittal. The Bureau is making a technical correction in this
final rule to add a missing ``the'' to the second sentence of Sec.
1024.37(e)(4).
Legal Authority
These amendments and clarifications to Sec. 1024.37 implement
sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.
Section 1024.38 General Servicing Policies, Procedures, and
Requirements
38(b) Objectives
38(b)(1)(vi) Successors in Interest
Current Sec. 1024.38(b)(1)(vi) provides that servicers shall
maintain policies and procedures that are reasonably designed to
achieve the objective of, upon notification of the death of a borrower,
promptly identifying and facilitating communication with the successor
in interest of the deceased borrower with respect to the property
securing the deceased borrower's mortgage loan. The Bureau proposed
several modifications to this requirement.
Proposed Sec. 1024.38(b)(1)(vi) would have expanded the current
policies and procedures requirement regarding identifying and
communicating with successors in interest. Proposed Sec.
1024.38(b)(1)(vi)(A) would have required servicers to maintain policies
and procedures that are reasonably designed to ensure that the servicer
can promptly identify and facilitate communication with any potential
successors in interest upon notification either of the death of a
borrower or of any transfer of the property securing a mortgage loan.
Proposed Sec. 1024.38(b)(1)(vi)(B) would have required servicers to
maintain policies and procedures that are reasonably designed to ensure
that the servicer can, upon identification of a potential successor in
interest--including through any request made by a potential successor
in interest under Sec. 1024.36(i) or any loss mitigation application
received from a potential successor in interest--provide promptly to
the potential successor in interest a description of the documents the
servicer reasonably requires to confirm that person's identity and
ownership interest in the property and how the person may submit a
written request under Sec. 1024.36(i) (including the appropriate
address). Proposed Sec. 1024.38(b)(1)(vi)(C) would have required
servicers to maintain policies and procedures that are reasonably
designed to ensure that the servicer can, upon the receipt of such
documents (i.e., those the servicer reasonably requires to confirm that
person's identity and ownership interest in the
[[Page 72209]]
property), promptly notify the person, as applicable, that the servicer
has confirmed the person's status, has determined that additional
documents are required (and what those documents are), or has
determined that the person is not a successor in interest. Proposed
commentary to Sec. 1024.38(b)(1)(vi) would have clarified these
requirements, including providing examples illustrating documents a
servicer may require under certain circumstances. For the reasons
stated in part V.A. and this discussion, the Bureau has decided to
finalize proposed Sec. 1024.38(b)(1)(vi) and related commentary with a
number of changes.
In their comments, consumer advocacy groups generally supported the
substance of the proposed changes to Sec. 1024.38(b)(1)(vi), noting
that they would bring greater clarity to the process and specificity
regarding servicers' obligations. A number of these groups urged the
Bureau to move all of the requirements of Sec. 1024.38(b)(1)(vi) to a
privately enforceable section of Regulation X and to require small
servicers to comply with them. Some commenters also suggested that the
final rule should create an appeal process or notice of error
procedure, with a private right of action, that successors in interest
could use to challenge unfavorable determinations relating to successor
status. Consumer advocacy groups also encouraged the Bureau to
establish specific time limits for the confirmation process.
Consumer advocacy groups emphasized the need for servicers to
identify promptly the specific documents required for confirmation. The
office of a State Attorney General commented that, in its experience,
servicers do not consider the successor in interest's circumstances or
State-specific requirements and instead impose the same requirements on
all potential successors in interest, forcing them to expend time and
resources needlessly to establish their ownership interest in the
property. This commenter supported requiring servicers to implement
State-specific policies relating to necessary proof to establish an
ownership interest under proposed Sec. 1024.38(b)(1)(vi)(B). It stated
that the required documents should take into account the relevant
jurisdiction, the successor in interest's specific situation, and the
documents already in the servicer's possession.
A number of industry commenters urged the Bureau to provide greater
clarity regarding servicers' obligations in confirming successors in
interest. These commenters requested clear and reasonable requirements
for identifying and communicating with successors in interest. Some of
these industry commenters urged the Bureau to lay out a process for
identifying and communicating with potential successors and to provide
a safe harbor in the final rule for servicers that comply with that
process.
Various industry commenters expressed concern that the proposal
might require them to provide legal advice to potential successors in
interest. A trade association suggested that it would be a monumental
task to create and maintain over time policies and procedures
appropriate for each jurisdiction to address the varying situations
that might arise. Another industry commenter urged the Bureau to
indicate that the burden of determining the appropriate
jurisdictionally valid documents lies with the successor in interest.
It recommended that the final rule limit a servicer's obligation to a
potential successor in interest to providing general examples of
documents typically accepted to establish identity and ownership
interest in the property, similar to the examples provided in proposed
comment 38(b)(1)(vi)-2.
Industry commenters also stated that servicers should not be put in
the position of having to adjudicate the validity of a potential
successor's ownership interest, particularly when there are competing
claims from other parties. These commenters indicated that they did not
want to get drawn into contentious divorce disputes or other civil
litigation.
Two trade associations stated that the Bureau should permit
servicers to adjust their practices to the actual and potential risks
of illegal activity or erroneous information. They referred to
requirements under the Bank Secrecy Act to verify the identity of
persons who seek to open accounts and stated that servicers need to be
able to decline to recognize a claimant as a borrower, where
appropriate.
A number of industry commenters expressed concern about the
requirement in proposed Sec. 1024.38(b)(1)(vi)(A) to identify
potential successors in interest. An industry commenter suggested that
a requirement to identify any potential successors in interest could
open servicers up to civil liability where the servicer has not
identified all potential successors in interest. Other industry
commenters expressed concern that proposed Sec. 1024.38(b)(1)(vi)(A)
might require servicers to seek out potential successors in interest.
Some industry commenters suggested that the Bureau should not extend
the scope of the obligation in Sec. 1024.38(b)(1)(vi) beyond the scope
of the definition of successor in interest in proposed Sec. 1024.31.
At least one industry commenter found the interplay between proposed
Sec. 1024.38(b)(1)(vi) and proposed Sec. 1024.36(i) confusing.
Commenters expressed widely divergent views on whether Sec.
1024.38(b)(1)(vi) should require servicers to respond to potential
successors in interest in writing. Consumer advocacy groups and the
office of a State Attorney General recommended requiring a written
response, given the continuing problems they have seen successors in
interest encounter in establishing their status. The office of a State
Attorney General stated that requiring a written response would prevent
miscommunications and provide clear documentation in the event of a
transfer of servicing. This commenter noted that it has worked with
homeowners who have had to reestablish their successor in interest
status after a transfer of servicing rights. It also indicated that a
homeowner who has written confirmation from a previous servicer is less
likely to have to repeat the successor identification process with the
new servicer. Consumer advocacy groups suggested that a written
response might be helpful if a potential successor in interest is
seeking assistance from an advocate. These groups indicated that, if a
potential successor in interest is not confirmed, the servicer should
include in its written response an explanation of reasons for the
determination as well as an explanation of how to submit a written
notice of error.
In contrast, industry commenters indicated that the Bureau should
not require a written response. Some industry commenters suggested that
servicers should have the flexibility to decide whether confirmation of
the successor in interest should be in writing, oral, or both. One
industry commenter noted that, if there is a danger of foreclosure, for
example, a servicer could communicate a confirmation determination
verbally to avoid mailing delays.
Commenters also expressed divergent views on whether the final rule
should define the term promptly for purposes of Sec. 1024.38(b)(1)(vi)
and, if so, how. Several consumer advocacy groups suggested that
promptly for purposes of Sec. 1024.38(b)(1)(vi) should mean within
five business days. Another consumer advocacy group suggested that, for
purposes of notifying successors in interest of confirmation, promptly
should be defined as within 30 days. This commenter noted that delays
in
[[Page 72210]]
confirmation determinations can cause or increase delinquencies and
harm prospects for loss mitigation. A consumer advocacy group suggested
that the Bureau should consider the loss mitigation timetable that
requires notices for an incomplete application, a complete application,
and a deadline for review as a reference in defining promptly for
purposes of Sec. 1024.38(b)(1)(vi).
An industry commenter urged the Bureau not to define promptly,
noting that what should be considered promptly may vary depending on
the scenario. It suggested that servicers should have a reasonable
amount of time, not less than 30 days, to make confirmation decisions.
Another industry commenter suggested 60 days, while a trade association
suggested that the final rule should provide a reasonable time of up to
90 calendar days, unless a dispute is being litigated. Another industry
commenter suggested that 10 business days from determination of
confirmation would suffice.\165\
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\165\ As discussed below, both consumer advocacy groups and
industry commenters criticized the requirement in proposed comment
38(b)(1)(vi)-3 that, in general, a servicer's policies and
procedures would have to be reasonably designed to ensure that the
servicer confirms a successor in interest's status and notifies the
person of the servicer's confirmation at least 30 days before the
next applicable milestone provided in comment 41(b)(2)(ii)-2.
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The Bureau agrees with the various commenters that emphasized the
need for greater specificity regarding the policies and procedures that
servicers need to implement with regard to successors in interest. In
light of the comments received, the Bureau has made adjustments to the
proposed regulation text and commentary and has added additional
commentary in the final rule. As finalized, Sec. 1024.38(b)(1)(vi)(A)
requires servicers to maintain policies and procedures reasonably
designed to ensure that, upon receiving notice of the death of a
borrower or of any transfer of the property securing a mortgage loan,
the servicer can promptly facilitate communication with any potential
or confirmed successors in interest regarding the property. Section
1024.38(b)(1)(vi)(B) requires servicers to maintain policies and
procedures reasonably designed to ensure that, upon receiving notice of
the existence of a potential successor in interest, the servicer can
promptly determine the documents it reasonably requires to confirm that
person's identity and ownership interest in the property and promptly
provide to the potential successor in interest a description of those
documents and how the person may submit a written request under Sec.
1024.36(i) (including the appropriate address). Section
1024.38(b)(1)(vi)(C) requires servicers to maintain policies and
procedures reasonably designed to ensure that, upon the receipt of such
documents, the servicer can promptly make a confirmation determination
and promptly notify the person, as applicable, that the servicer has
confirmed the person's status, has determined that additional documents
are required (and what those documents are), or has determined that the
person is not a successor in interest.
In light of the other requirements that it is finalizing in Sec.
1024.38(b)(1)(vi), the Bureau has concluded that there is no need to
finalize the aspect of proposed Sec. 1024.38(b)(1)(vi)(A) that would
have required a servicer to have policies and procedures in place
reasonably designed to identify promptly any potential successors in
interest upon notification of the death of a borrower or of any
transfer of the property securing a mortgage loan. In lieu of
finalizing the proposed requirement to identify potential successors in
interest that raised concerns for many industry commenters, the Bureau
has provided illustrative examples in new comment 38(b)(1)(vi)-1 of how
a servicer may be notified of the existence of a potential successor in
interest. The Bureau believes that these revisions clarify servicers'
responsibilities under Sec. 1024.38(b)(1)(vi) without undermining the
protections provided for potential successors in interest.
The Bureau recognizes, as it did at the proposal stage, that the
policies and procedures requirement must apply to a broader category of
persons than the definition of successor in interest under the final
rule. As many consumer advocacy groups and other commenters noted, a
potential successor in interest may come to the attention of the
servicer in a variety of ways. The policies and procedures requirements
in Sec. 1024.38(b)(1)(vi) are triggered as soon as a servicer receives
notice of the existence of a potential successor in interest, even if
the servicer does not know at the time of initial contact whether a
potential successor in interest in fact meets the Regulation X
definition of successor in interest. A servicer may not wait until it
has reason to believe that the transfer falls within the scope of the
definition to engage in the communications required by Sec.
1024.38(b)(1)(vi). Thus, for example, a servicer's policies and
procedures should require the servicer to facilitate communication
regarding the proof required to establish successor in interest status
with any person who indicates that a borrower has died, even if the
servicer is not certain whether the person is in fact a successor in
interest.
The final rule, like the proposal, does not require servicers to
provide legal advice to successors in interest. As explained in part
V.A., the final rule does, however, require a servicer to have policies
and procedures in place that are reasonably designed to ensure that the
servicer can promptly describe to the successor in interest the
documents that the servicer will accept to confirm the potential
successor in interest's identity and ownership interest in the
property. The types of determinations necessary for a confirmation
decision are ones that servicers routinely make for a variety of
purposes--for example, in identifying who to serve in a foreclosure
action and who should receive other notices required by State law.
As some industry commenters indicated, there may be circumstances
where it is not possible for a servicer to make a confirmation
determination based on the information submitted, due to competing
successorship claims or other reasons. In light of concerns raised by
commenters, the Bureau has added commentary to Sec. 1024.38(b)(1)(vi)
addressing circumstances where additional documentation is required for
confirmation, as discussed below.\166\
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\166\ The Bureau has also made adjustments to Sec. 1024.36(i).
If a written request under Sec. 1024.36(i) does not provide
sufficient information to enable the servicer to identify the
documents the servicer reasonably requires for confirmation, Sec.
1024.36(i)(2) allows the servicer to provide a response that
includes examples of documents typically accepted to establish
identity and ownership interest in a property, indicates that the
person may obtain a more individualized description of required
documents by providing additional information, specifies what
additional information is required, and provides contact information
for further assistance.
---------------------------------------------------------------------------
Although a number of consumer advocacy group commenters urged the
Bureau to require servicers to provide written confirmation decisions,
the final rule follows the proposal in leaving the means of
communication to servicers' discretion. Servicers will likely find it
beneficial to communicate their decisions in writing in many cases to
prevent ambiguity and memorialize decisions. However, as industry
commenters noted, there may be circumstances where oral notification is
advantageous due to time constraints, and the Bureau has concluded that
the best approach is to allow the servicer to choose the appropriate
mode of communication based on the particular facts and circumstances
of each case.
The Bureau has decided not to adopt a definition of promptly for
purposes of
[[Page 72211]]
Sec. 1024.38(b)(1)(vi) because whether an action is prompt under Sec.
1024.38(b)(1)(vi) will depend on the facts and circumstances of the
request. In many instances, providing information promptly may require
a servicer to respond more quickly than the time limits established in
Sec. 1024.36(d)(2) for responding to a request for information under
Sec. 1024.36(i). For example, if a non-borrowing spouse informs the
servicer of the borrowing spouse's mortgage that the borrowing spouse
has died and that the borrowing spouse and non-borrowing spouse owned
the property jointly as tenants by the entirety, the Bureau expects
that a servicer would respond to the non-borrowing spouse with a
description of the documents required for confirmation within a
significantly shorter period of time than 30 days.
The Bureau has made specific adjustments in the final rule to
ensure that it is clear that servicers must act promptly both in
determining the documents the servicer reasonably requires and in
providing to the potential successor in interest a description of those
documents and how the person may submit a written request under Sec.
1024.36(i). Similarly, the Bureau has made adjustments to ensure that
it is clear that both the servicer's confirmation determination and the
notification to the potential successor in interest of that
determination are to be done promptly. The Bureau recognizes that
delays in the confirmation process can have significant deleterious
consequences for successors in interest, including unnecessary
foreclosures. The Bureau will monitor carefully how servicers implement
the policies and procedures requirement to provide information
promptly.
Although some industry commenters expressed concern regarding the
possibility of fraud, identity theft, or similar malfeasance, the
Bureau does not anticipate that the final rule will result in any
significant increase in these problems. Revised Sec. 1024.38(b)(1)(vi)
lays out a process for confirmation of a potential successor in
interest's identity and ownership interest. Neither Sec.
1024.38(b)(1)(vi) nor Sec. 1024.36 requires a servicer to provide any
account-specific information to a potential successor in interest prior
to confirmation, other than a description of the documents required for
confirmation. Further, nothing in the final rule prevents compliance
with the GLBA information security requirements or, if applicable, the
Bank Secrecy Act. As discussed below, the Bureau has added a new
comment clarifying that, prior to confirmation, servicers may request
documents that the servicer reasonably believes are necessary to
prevent fraud or other criminal activity.\167\
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\167\ Regulation X comment 38(b)(1)(vi)-2.
---------------------------------------------------------------------------
For the reasons stated in part V.A., the final rule does not create
a private right of action for potential successors in interest relating
to confirmation determinations, nor does it provide a safe harbor from
UDAAP claims relating to confirmation determinations. A trade
association urged the Bureau more generally to protect servicers from
RESPA liability as to non-obligor successors in the final rule.
However, as explained in part V.A., confirmed successors in interest
are borrowers for purposes of Regulation X subpart C and Sec. 1024.17
and, as such, should enjoy the same protections as other borrowers,
including, where applicable, a right of action under 12 U.S.C. 2605.
The final rule includes a new comment 38(b)(1)(vi)-1, which
explains that a servicer may be notified of the existence of a
potential successor in interest in a variety of ways. Comment
38(b)(1)(vi)-1 provides a non-exclusive list of examples of ways in
which a servicer could be notified of the existence of a potential
successor in interest, including that a person could indicate that
there has been a transfer of ownership or of an ownership interest in
the property or that a borrower has been divorced, legally separated,
or died, or a person other than a borrower could submit a loss
mitigation application. The comment also explains that a servicer must
maintain policies and procedures reasonably designed to ensure that the
servicer can retain this information and promptly facilitate
communication with potential successors in interest when a servicer is
notified of their existence. The comment clarifies that a servicer is
not required to conduct a search for potential successors in interest
if the servicer has not received actual notice of their existence. This
comment addresses questions that commenters raised regarding servicers'
responsibilities in identifying and communicating with potential
successors in interest.
Proposed comment 38(b)(1)(vi)-1 stated that the documents a
servicer requires to confirm a potential successor in interest's
identity and ownership interest in the property must be reasonable in
light of the laws of the relevant jurisdiction, the successor in
interest's specific situation, and the documents already in the
servicer's possession. The proposed comment would have provided that
the required documents may, where appropriate, include, for example, a
death certificate, an executed will, or a court order.
The Bureau is finalizing this comment, renumbered as comment
38(b)(1)(vi)-2, with additional language to address concerns raised by
commenters relating to the possibility of fraud or criminal activity.
As finalized, comment 38(b)(1)(vi)-2 indicates that the documents a
servicer requires to confirm that person's identity and ownership
interest in the property may also include documents that the servicer
reasonably believes are necessary to prevent fraud or other criminal
activity (for example, if a servicer has reason to believe that
documents presented are forged).
Proposed comment 38(b)(1)(vi)-2 included examples illustrating
documents that a servicer may require to confirm a potential successor
in interest's identity and ownership interest in the property and that
generally would be reasonable, subject to the relevant law governing
each situation, in four common situations involving potential
successors in interests. The Bureau is finalizing this proposed comment
with a number of clarifying changes and renumbering it as comment
38(b)(1)(vi)-3.
Some industry commenters urged the Bureau not to finalize these
examples and expressed concern that they might limit the information
that servicers could request from potential successors in interest.
Some trade associations stated that the type of documents required to
prove a transfer of ownership depends on State law and urged the Bureau
not to finalize a regulation that could interfere or conflict with
State law. These trade associations also suggested that servicers might
need to request additional documents not described in the examples
listed to protect against the possibility that the claimant is engaging
in fraud, that a third party may claim an ownership interest in the
property through adverse possession or an undisclosed transfer, that
tenants by the entirety may have divorced, or that there has been a
probate proceeding not required by applicable law.
Other commenters indicated that they found the examples identified
in the proposed comment helpful. Several consumer advocacy groups
stated in their comments that servicers continue to request
documentation to prove the successor in interest's identity and
ownership interest in the property that is unreasonable in the
successor in interest's particular situation. For instance, a large
number of elder
[[Page 72212]]
advocates, including legal services attorneys and housing counselors,
reported to one consumer advocacy group that they had been asked for
probate documents despite having provided the servicer with a right of
survivorship deed.
In light of the challenges that successors in interest continue to
face, as described in part V.A., the Bureau believes that it is
necessary to provide guidance on the documents a servicer would
generally reasonably require to confirm a potential successor in
interest's identity and ownership interest in the property. However, in
light of the concerns expressed regarding the proposed examples, the
Bureau has made adjustments to the comment to emphasize that the
relevant law governing each situation may vary from State to State,
that the examples are illustrative only, and that the examples
illustrate documents that it would generally be reasonable for a
servicer to require to confirm a potential successor in interest's
identity and ownership interest in the property under the specific
circumstances described.
The Bureau appreciates commenters' concerns that there may be
factual scenarios that appear similar to one of the examples listed in
comment 38(b)(1)(vi)-3 where a servicer needs to request documents that
are not identified in the example due to particular circumstances not
discussed in the example. As comment 38(b)(1)(vi)-3 indicates, the
examples are intended to provide general guidance, and a servicer may
reasonably require additional or different documents when warranted by
the circumstances. Any such requests must be tailored to and
appropriate for the potential successor in interest's particular
circumstances.
A number of industry commenters and consumer advocacy groups
highlighted various ways in which the applicable law described in the
examples is not consistent with the law of one or more particular
States.\168\ The Bureau believes that these comments reflect a
misunderstanding of the purpose of the examples and how the term
applicable law was used in proposed comment 38(b)(1)(vi)-2. Each of the
examples in the comment discusses the law of a hypothetical
jurisdiction. In using the term applicable law, the Bureau did not mean
to suggest that any particular State law principle described applies
universally. To clarify this point, the final commentary replaces
``applicable law'' with ``the applicable law of the relevant
jurisdiction'' in each example provided.
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\168\ For example, responding to one example in proposed comment
38(b)(1)(vi)-2 that mentioned an affidavit of heirship, a trade
association commenter noted that California does not use an
affidavit of heirship.
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The situations identified in comment 38(b)(1)(vi)-3 are:
1. Tenancy by the entirety or joint tenancy. Assume that a servicer
knows that the potential successor in interest and the transferor
borrower owned the property as tenants by the entirety or joint tenants
and that the transferor borrower has died. Assume further that, upon
the death of the transferor borrower, the applicable law of the
relevant jurisdiction does not require a probate proceeding to
establish that the potential successor in interest has sole interest in
the property but requires only that there be a prior recorded deed
listing both the potential successor in interest and the transferor
borrower as tenants by the entirety (e.g., married grantees) or joint
tenants. Comment 38(b)(1)(vi)-3 indicates that, under these
circumstances, it would be reasonable for the servicer to require the
potential successor in interest to provide documentation of the
recorded instrument, if the servicer does not already have it, and the
death certificate of the transferor borrower. The comment also explains
that it generally would not be reasonable for the servicer to require
documentation of a probate proceeding because, in this situation, a
probate proceeding is not required under the applicable law of the
relevant jurisdiction.
2. Affidavits of heirship. Assume that a potential successor in
interest indicates that an ownership interest in the property
transferred to the potential successor in interest upon the death of
the transferor borrower through intestate succession and offers an
affidavit of heirship as confirmation. Assume further that, upon the
death of the transferor borrower, the applicable law of the relevant
jurisdiction does not require a probate proceeding to establish that
the potential successor in interest has an interest in the property but
requires only an appropriate affidavit of heirship. Comment
38(b)(1)(vi)-3 indicates that, under these circumstances, it would be
reasonable for the servicer to require the potential successor in
interest to provide the affidavit of heirship and the death certificate
of the transferor borrower. The comment also explains that it generally
would not be reasonable for the servicer to require documentation of a
probate proceeding because a probate proceeding is not required under
the applicable law of the relevant jurisdiction to recognize the
transfer of title.
3. Divorce or legal separation. Assume that a potential successor
in interest indicates that an ownership interest in the property
transferred to the potential successor in interest from a spouse who is
a borrower as a result of a property agreement incident to a divorce
proceeding. Assume further that the applicable law of the relevant
jurisdiction does not require a deed conveying the interest in the
property but accepts a final divorce decree and accompanying separation
agreement executed by both spouses to evidence transfer of title.
Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it
would be reasonable for the servicer to require the potential successor
in interest to provide documentation of the final divorce decree and an
executed separation agreement. The comment indicates that, generally,
it would not be reasonable for the servicer to require a deed because
the applicable law of the relevant jurisdiction does not require a
deed.
4. Living spouses or parents. Assume that a potential successor in
interest indicates that an ownership interest in the property
transferred to the potential successor in interest from a living spouse
or parent who is a borrower by quitclaim deed or act of donation.
Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it
would be reasonable for the servicer to require the potential successor
in interest to provide the quitclaim deed or act of donation. The
comment explains that it generally would not be reasonable, however,
for the servicer to require additional documents.
Comment 38(b)(1)(vi)-3 provides specific guidance about what are
reasonable documents to require from a potential successor in interest
to confirm the person's status as a successor in interest in very
common and straightforward situations. In those situations, the Bureau
expects that servicers generally will not need potential successors in
interest to produce any additional documents beyond those specified in
comment 38(b)(1)(vi)-3. This comment does not cover all possible
situations involving successors in interest, however, and additional
documents may be required in certain less straightforward situations or
due to facts or legal requirements that are not addressed in the
examples. The Bureau will continue to monitor implementation of these
policies and procedures requirements to see if there are further
clarifications in this area that would be helpful.
[[Page 72213]]
The final rule also includes new comment 38(b)(1)(vi)-4, which
explains that, if a servicer reasonably determines that it cannot make
a determination of the potential successor in interest's status based
on the documentation provided, it must specify what additional
documentation is required. The comment notes, for example, that, if
there is pending litigation involving the potential successor in
interest and other claimants regarding who has title to the property at
issue, a servicer may specify that documentation of a court
determination or other resolution of the litigation is required.
Servicers should not generally, however, request documentation of a
court determination or other resolution of litigation absent knowledge
of such litigation.
Proposed comment 38(b)(1)(vi)-3 explained proposed Sec.
1024.38(b)(1)(vi)(C)'s requirement that servicers maintain policies and
procedures reasonably designed to ensure that the servicer can, upon
the receipt of the documents that the servicer reasonably requires,
promptly notify the person, as applicable, that the servicer has
confirmed the person's status, has determined that additional documents
are required (and what those documents are), or has determined that the
person is not a successor in interest. The proposed comment would have
provided that, upon the receipt of the documents, the servicer's
confirmation and notification must be sufficiently prompt so as not to
interfere with the successor in interest's ability to apply for loss
mitigation options according to the procedures provided in Sec.
1024.41. The proposed comment also would have provided that, in
general, a servicer's policies and procedures must be reasonably
designed to ensure that confirmation of a successor in interest's
status occurs at least 30 days before the next applicable milestone
provided in proposed comment 41(b)(2)(ii)-2.\169\ The Bureau proposed
comment 38(b)(1)(vi)-3 because it recognized that successors in
interest may have difficulty pursuing loss mitigation options to avoid
foreclosure when the servicer does not promptly confirm the successor
in interest's identity and ownership interest in the property.
Miscommunication and delay in the process of confirming successors in
interest's identity and ownership interest in the property can prevent
successors in interest from successfully applying for loss mitigation.
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\169\ Proposed comment 41(b)(2)(ii)-2 would have provided the
following milestones: (1) The date by which any document or
information submitted by a borrower will be considered stale or
invalid pursuant to any requirements applicable to any loss
mitigation option available to the borrower; (b) The date that is
the 120th day of the borrower's delinquency; (3) The date that is 90
days before a foreclosure sale; (4) The date that is 38 days before
a foreclosure sale.
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Various commenters objected to the linkage of confirmation in
proposed comment 38(b)(1)(vi)-3 with the milestones in proposed comment
41(b)(2)(ii)-2. Some of these commenters noted that tying promptness to
the next milestone could either result in an unreasonably long period
or an unreasonably short one and predicted that it would lead to errors
and confusion.
The final rule addresses these issues in comment 38(b)(1)(vi)-5,
which clarifies servicers' obligations under Sec. 1024.38(b)(1)(vi)(C)
to maintain policies and procedures that are reasonably designed to
ensure that the servicer can promptly notify the potential successor in
interest that the servicer has confirmed the potential successor in
interest's status. In light of the concerns raised by commenters,
comment 38(b)(1)(vi)-5 omits any reference to the milestones. Instead,
comment 38(b)(1)(vi)-5 clarifies that notification is not prompt for
purposes of the requirement in Sec. 1024.38(b)(1)(vi)(C) if it
unreasonably interferes with a successor in interest's ability to apply
for loss mitigation options according to the procedures provided in
Sec. 1024.41.
Legal Authority
The Bureau is issuing these amendments to Sec. 1024.38 pursuant to
its authority under section 19(a) of RESPA. As explained above, the
servicing policies, procedures, and requirements set forth in these
amendments are necessary to achieve the purposes of RESPA, including to
avoid unwarranted or unnecessary costs and fees, to ensure that
servicers are responsive to consumer requests and complaints, to ensure
that servicers provide accurate and relevant information about the
mortgage loan accounts that they service, and to facilitate the review
of borrowers for foreclosure avoidance options. The Bureau believes
that, without sound policies and procedures and without achieving
certain standard requirements, servicers will not be able to achieve
those purposes.
The Bureau is also issuing these amendments to Sec. 1024.38
pursuant to its authority under section 1022(b) of the Dodd-Frank Act
to prescribe regulations necessary or appropriate to carry out the
purposes and objectives of Federal consumer financial laws.
Specifically, these amendments to Sec. 1024.38 are necessary and
appropriate to carry out the purposes under section 1021(a) of the
Dodd-Frank Act of ensuring that markets for consumer financial products
and services operate transparently and efficiently to facilitate access
and innovation. The Bureau additionally is relying on its authority
under section 1032(a) of the Dodd-Frank Act, which authorizes the
Bureau to prescribe rules to ensure that the features of any consumer
financial product or service, both initially and over the term of the
product or service, are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
38(b)(2) Properly Evaluating Loss Mitigation Applications
38(b)(2)(vi)
Proposed Sec. 1024.38(b)(2)(vi) provided that a servicer must
maintain policies and procedures reasonably designed to ensure that the
servicer can promptly identify and obtain documents or information not
in the borrower's control that the servicer requires to determine which
loss mitigation options, if any, to offer the borrower in accordance
with the requirements of proposed Sec. 1024.41(c)(4), discussed
below.\170\ The Bureau received no comments on proposed Sec.
1024.38(b)(2)(vi) and is adopting the provision as proposed, for the
reasons discussed below.
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\170\ As discussed in the section-by-section analysis of Sec.
1024.41(c)(4) below, the Bureau is adopting Sec. 1024.41(c)(4) with
several changes from the proposal.
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Under current Sec. 1024.41(c)(1), if a servicer receives a
complete loss mitigation application more than 37 days before a
foreclosure sale, the servicer shall, within 30 days of receipt,
evaluate the borrower for all loss mitigation options available to the
borrower and provide the notice required under Sec. 1024.41(c)(1)(ii).
Section 1024.41(b)(1) defines a complete loss mitigation application to
include information that the servicer requires from the borrower in
evaluating applications for the loss mitigation options available to
the borrower. Thus, a loss mitigation application can be complete even
if a servicer requires additional information that is not in the
control of the borrower.\171\
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\171\ See comment 41(b)(1)-5.
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Through outreach efforts in advance of the proposal, the Bureau
learned that servicers cannot always obtain necessary third-party
information in time to evaluate a borrower's complete loss mitigation
application within 30
[[Page 72214]]
days of receipt, as required by Sec. 1024.41(c)(1). Servicers and
Federal agencies informed the Bureau that this can occur either because
a servicer delays requesting the information, or because a third party
delays providing it. Current Sec. 1024.41 does not specifically
address this circumstance--when a servicer is unable to obtain
information not in the borrower's control by a date that will enable
the servicer to make a determination as to which loss mitigation
options, if any, to offer the borrower within 30 days of receiving a
complete application as required by Sec. 1024.41(c)(1).
As explained in the section-by-section analysis of new Sec.
1024.41(c)(4), the Bureau is addressing these issues by adding
requirements with respect to the servicer's obligation to pursue
necessary information not in the borrower's control and the servicer's
responsibilities if unable to obtain such information within 30 days of
receiving a complete loss mitigation application. Servicers often need
to access information from parties other than the borrower at different
points during a loss mitigation application process, and Sec.
1024.41(c)(4) (among other things) ensures that they pursue that
information timely. Servicers' efficiency in obtaining such information
will benefit borrowers by facilitating compliance with Sec.
1024.41(c)(1)'s requirement to evaluate complete loss mitigation
applications within 30 days.
The policies and procedures requirements in Sec. 1024.38(b)(2)(vi)
will facilitate compliance with the requirements for gathering
information not in the borrower's control under Sec. 1024.41(c)(4).
Maintaining such policies and procedures will ensure that servicers
have appropriate mechanisms in place to identify and obtain such
information efficiently. Section 1024.38(b)(2)(vi) also contributes to
the goals of Sec. 1024.38(b)(2) more generally. Section 1024.38(b)(2)
requires servicers to maintain policies and procedures regarding
various aspects of evaluation of loss mitigation applications,
including (among others) document collection and proper evaluation. The
Bureau believes that these and other requirements of Sec.
1024.38(b)(2) facilitate servicer compliance with Sec. 1024.41 and
lead to loss mitigation processes that better protect consumers.\172\
Requiring servicers to maintain policies and procedures regarding the
identification and collection of information not in the borrower's
control under Sec. 1024.38(b)(2)(vi) similarly protects borrowers by
facilitating compliance with Sec. 1024.41(c)(4) and the evaluation
timelines provided under Sec. 1024.41(c)(1).
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\172\ 77 FR 57199, 57248 (Sept. 17, 2012).
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38(b)(3) Facilitating Oversight of, and Compliance by, Service
Providers
38(b)(3)(iii)
The Bureau proposed and is adopting a new comment to Sec.
1024.38(b)(3)(iii) to clarify the requirements for policies and
procedures regarding servicers' communications with service provider
personnel, including foreclosure counsel, as they relate to the
prohibition in Sec. 1024.41(g). As discussed in the section-by-section
analysis of Sec. 1024.41(g) below, the Bureau received no comments
that raised concerns about the proposed comment.
Section 1024.39 Early Intervention Requirements for Certain Borrowers
39(a) Live Contact
The Bureau proposed several clarifications, revisions, and
amendments to Sec. 1024.39(a) and its commentary. The proposed changes
were intended to clarify that a servicer's early intervention live
contact obligations recur in each billing cycle while a borrower is
delinquent, and to provide additional examples illustrating how the
live contact requirements apply in certain circumstances, such as when
a borrower is unresponsive or is in the process of applying for loss
mitigation pursuant to Sec. 1024.41. The Bureau is finalizing Sec.
1024.39(a) substantially as proposed, with a change to clarify its
applicability. The Bureau is finalizing comments 39(a)-1, -2, and -3
substantially as proposed, with certain revisions for clarity. The
Bureau is finalizing comments 39(a)-4 and -5 with minor revisions for
clarity.
Repeated Attempts to Establish Live Contact
Section 1024.39(a) currently requires a servicer to establish or
make good faith efforts to establish live contact with a delinquent
borrower not later than the 36th day of the borrower's delinquency.
Current comment 39(a)-1 states that a borrower's delinquency begins
``on the day a payment sufficient to cover principal, interest, and, if
applicable, escrow for a given billing cycle is due and unpaid . . .
.'' \173\ The Bureau has always understood these provisions to require
servicers to make repeated attempts to contact a borrower who remains
delinquent for more than one billing cycle. The Bureau proposed to
revise Sec. 1024.39(a) to codify this interpretation and expressly
require servicers to establish or make good faith efforts to establish
live contact with a delinquent borrower no later than the 36th day
after each payment due date for the duration of the borrower's
delinquency.
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\173\ Current Comment 39(a)-1.
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As stated in the 2012 RESPA Servicing Proposal, the Bureau intended
the live contact provisions to create an ongoing obligation for a
servicer to attempt to communicate with a delinquent borrower. In its
discussion of the decision to limit a servicer's obligation to provide
written notice under Sec. 1024.39(b)(1) to once every 180 days, the
Bureau noted that it was not including a similar limitation in Sec.
1024.39(a) because it expected a servicer to contact a borrower during
each period of delinquency.\174\ In the 2013 RESPA Servicing Final
Rule, the Bureau confirmed that it expected servicers to attempt to
make live contact on a recurring basis and stated that servicers must
establish live contact or make good faith efforts to do so, ``even with
borrowers who are regularly delinquent, by the 36th day of a borrower's
delinquency.'' \175\ In the October 2013 Servicing Bulletin, the Bureau
again clarified that servicers have an obligation to make good faith
efforts to contact a borrower within 36 days of when a borrower first
becomes delinquent ``and for each of any subsequent billing periods for
which the borrower's obligation is due and unpaid.'' \176\ The Bureau
still believes that borrowers who remain delinquent for more than one
billing cycle benefit from receiving repeated live contact and that
relieving a servicer of its obligations to establish live contact after
the initial delinquent billing cycle would undermine the intent of
Sec. 1024.39(a).
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\174\ 77 FR 57199, 57256 (Sept. 17, 2012).
\175\ 78 FR 10696, 10795 (Feb. 14, 2013).
\176\ October 2013 Servicing Bulletin at 5.
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To provide additional guidance, the Bureau proposed to revise and
re-order comment 39(a)-1 and its subsections. First, the Bureau
proposed to remove the language in current comment 39(a)-1.i. As
discussed in the section-by-section analysis of Sec. 1024.31, the
Bureau proposed a new definition of delinquency applicable to all of
subpart C, which would make the language in current comment 39(a)-1.i
superfluous. Second, the Bureau proposed to revise current comment
39(a)-1 and 39(a)-1.i and add comment 39(a)-1.i.A and 39(a)-1.i.B with
examples to illustrate how a servicer may comply with the recurring
live contact obligation when a borrower is delinquent for one or more
billing cycles. The Bureau also proposed to revise comment 39(a)-2 to
codify
[[Page 72215]]
guidance from the October 2013 Servicing Bulletin, which clarified that
servicers are permitted to combine their live contact attempts with
their attempts to contact borrowers for other purposes, including, for
example, by providing a borrower with information about available loss
mitigation options when contacting the borrower for purposes of
collection.\177\
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\177\ Id.
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Finally, the Bureau proposed to add comment 39(a)-3 to clarify
that, while the Bureau expects servicers to continue to attempt to make
live contact with borrowers who are regularly delinquent, a borrower's
failure to respond to such attempts, as well as the length of the
borrower's delinquency, are relevant circumstances to consider when
evaluating a servicer's good faith. To this end, the Bureau proposed to
add an example it first provided in the October 2013 Servicing
Bulletin. The example would have provided that, in the case of a
borrower with six or more consecutive delinquencies, good faith efforts
to establish live contact might include adding a sentence in the
borrower's periodic statement or another communication encouraging the
borrower to contact the servicer. The Bureau proposed to re-designate
current comments 39(a)-3 and 39(a)-4 as, respectively, comments 39(a)-4
and 39(a)-5 to accommodate the addition of proposed comment 39(a)-3.
The Bureau received several comments from industry and consumer
advocacy group commenters expressing general support for the proposed
revisions to Sec. 1024.39(a). Two industry commenters stated that the
proposed revisions would clarify the current requirements for early
intervention and generally reflect common practices among credit
unions.
A few industry commenters stated that the proposal would impose
burdensome requirements on servicers because it would require them to
comply with the live contact requirements under Sec. 1024.39(a) every
36 days. These commenters expressed concern that the proposal could
require such live contact efforts to continue even after a loan has
been referred to foreclosure, and they noted that the foreclosure
process can continue for years in judicial foreclosure States. One
commenter expressed concern that the proposed revisions would not
define what constitutes good faith efforts to establish live contact.
Another industry commenter said that the proposal could require
servicers to make live contact with borrowers in bankruptcy, which
would be inconsistent with the goals of bankruptcy protection and could
cause borrower confusion. This commenter also suggested that the live
contact requirements could cause confusion for borrowers who are
receiving State-mandated pre-foreclosure notices or the first notice or
filing for foreclosure. This commenter urged the Bureau to restrict the
live contact requirements of proposed Sec. 1024.39(a) to the first 120
days of the borrower's delinquency.
The Bureau is finalizing Sec. 1024.39(a) substantially as
proposed, with a change to clarify its applicability. The Bureau is
finalizing comments 39(a)-1,-2, and -3 substantially as proposed, with
certain revisions for clarity. The Bureau is finalizing comments 39(a)-
4 and -5 with minor revisions for clarity.
Section 1024.39(a) explains that, except as otherwise provided in
Sec. 1024.39, a servicer shall establish or make good faith efforts to
establish live contact with a delinquent borrower no later than the
36th day of a borrower's delinquency and again no later than 36 days
after each payment due date so long as the borrower remains delinquent.
It further provides that, promptly after establishing live contact with
a borrower, the servicer shall inform the borrower about the
availability of loss mitigation options, if appropriate.
Some commenters expressed specific concern over the burden
associated with the live contact requirements in situations where a
loan has been referred to foreclosure, noting that the foreclosure
process may take several years. As discussed in more detail below,
comment 39(a)-3 accounts for the burden associated with Sec.
1024.39(a) where there is a prolonged delinquency. It clarifies that
the length of a borrower's delinquency may be a factor to consider in
the determination of what constitutes good faith efforts to establish
live contact.
The Bureau declines to adopt additional exemptions to the live
contact requirements based on the length of a borrower's delinquency,
as requested by one commenter. Additional exemptions could harm
borrowers by limiting their communications with servicers and their
awareness of possible alternatives to foreclosure. The Bureau continues
to believe that borrowers at all stages of delinquency benefit from
live contact.
The Bureau notes that one commenter expressed concern over the live
contact requirements in proposed Sec. 1024.39(a) when a borrower is in
bankruptcy. Section 1024.39 includes an exemption from the live contact
requirements for borrowers in bankruptcy in Sec. 1024.39(c). To
clarify the applicability of the live contact requirements in Sec.
1024.39(a) in light of the bankruptcy exemption in Sec. 1024.39(c) and
a similar one in Sec. 1024.39(d) when a borrower has invoked certain
rights under the FDCPA, the Bureau is finalizing Sec. 1024.39(a) to
explain that the live contact requirements of Sec. 1024.39(a) apply,
except as otherwise provided in Sec. 1024.39.
The Bureau is finalizing comment 39(a)-1 substantially as proposed,
with certain non-substantive revisions for clarity. Comment 39(a)-1
explains that Sec. 1024.39 requires a servicer to establish or attempt
to establish live contact no later than the 36th day of a borrower's
delinquency. Comment 39(a)-1.i.A illustrates this provision through an
example. Comment 39(a)-1.i.B explains that the servicer may time its
attempts to establish live contact such that a single attempt will meet
the requirements of Sec. 1024.39(a) for two missed payments and
provides an illustrative example.
The Bureau is finalizing comment 39(a)-2 substantially as proposed,
with certain changes for clarity. Comment 39(a)-2 explains that live
contact provides servicers an opportunity to discuss the circumstances
of a borrower's delinquency. Live contact with a borrower includes
speaking on the telephone or conducting an in-person meeting with the
borrower but not leaving a recorded phone message. Comment 39(a)-2
states that a servicer may rely on live contact established at the
borrower's initiative to satisfy the live contact requirement in Sec.
1024.39(a). Finally, it provides that servicers may also combine
contacts made pursuant to Sec. 1024.39(a) with contacts made with
borrowers for other reasons, for instance, by telling borrowers on
collection calls that loss mitigation options may be available.
The Bureau is finalizing comment 39(a)-3 with changes. Comment
39(a)-3 explains that good faith efforts to establish live contact
consist of reasonable steps, under the circumstances, to reach a
borrower and may include telephoning the borrower on more than one
occasion or sending written or electronic communication encouraging the
borrower to establish live contact with the servicer. The length of a
borrower's delinquency, as well as a borrower's failure to respond to a
servicer's repeated attempts at communication pursuant to Sec.
1024.39(a), are relevant circumstances to consider. For example,
whereas ``good faith efforts'' to establish live contact with regard to
a borrower with two consecutive missed payments might require a
telephone call, ``good faith
[[Page 72216]]
efforts'' to establish live contact with regard to an unresponsive
borrower with six or more consecutive missed payments might require no
more than including a sentence requesting that the borrower contact the
servicer with regard to the delinquencies in the periodic statement or
in an electronic communication. The comment explains that comment
39(a)-6 discusses the relationship between live contact and the loss
mitigation procedures set forth in Sec. 1024.41.
Final comment 39(a)-3 omits language from the proposal regarding
the good faith efforts that might be sufficient where there is little
or no hope of home retention, such as may occur in the later stages of
foreclosure. The Bureau now believes it more appropriate to calibrate
good faith efforts to the duration of the delinquency rather than a
subjective judgment on the possibility of home retention, regardless of
the stage of foreclosure.
The Bureau is declining to adopt a specific definition of what
constitutes good faith efforts in comment 39(a)-3, as requested by one
commenter. What constitutes good faith efforts is based on
circumstances specific to the borrower and the borrower's mortgage loan
obligation. The comment provides examples demonstrating the fact-
specific nature of this determination.
The Bureau is finalizing comment 39(a)-4 as proposed. The final
rule renumbers current comment 39(a)-3 as 39(a)-4, with no further
changes. The final rule renumbers current comment 39(a)-4 as 39(a)-5,
with a technical correction to add an omitted ``to.''
Relationship Between Live Contact and Loss Mitigation Procedures
The Bureau also proposed to add comment 39(a)-6 to illustrate how a
servicer could meet its early intervention live contact requirements
when it is working with a borrower pursuant to the loss mitigation
procedures set forth in Sec. 1024.41. Proposed comment 39(a)-6 would
have codified guidance the Bureau provided in its October 2013
Servicing Bulletin, explaining that, under current comment 39(a)-2,
good faith efforts to establish live contact consist of ``reasonable
steps under the circumstances to reach a borrower . . . . '' The Bureau
provided several examples of reasonable steps, including the example of
a servicer that has established and is maintaining live contact with a
borrower ``with regard to the borrower's completion of a loss
mitigation application and the servicer's evaluation of that borrower
for loss mitigation options.'' \178\
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\178\ October 2013 Servicing Bulletin at 5.
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Proposed comment 39(a)-6 therefore would have clarified that a
servicer that has established and is maintaining ongoing contact with
regard to a borrower's completion of a loss mitigation application, or
in connection with the servicer's evaluation of the borrower's complete
loss mitigation application, would comply with the requirements of
Sec. 1024.39(a). In addition, the proposed comment would have
clarified that a servicer that has evaluated and denied a borrower for
all available loss mitigation options has complied with the
requirements of Sec. 1024.39(a). The Bureau explained that, once a
servicer has complied with the requirements of Sec. 1024.41 with
respect to a specific borrower, and has determined that the borrower
does not qualify for any available loss mitigation options, continued
live contact between a borrower and a servicer no longer serves the
purpose of Sec. 1024.39(a). Indeed, at that point, continued attempts
by the servicer to establish live contact may frustrate or even harass
a borrower who was recently denied for loss mitigation.
The Bureau explained, however, that a borrower who cures a prior
delinquency but subsequently becomes delinquent again would benefit
from the servicer resuming compliance with the live contact
requirement. Therefore, proposed comment 39(a)-6 also would have
clarified that a servicer is again subject to the requirements of Sec.
1024.39(a) with respect to a borrower who becomes delinquent after
curing a prior delinquency.
Several consumer advocacy group commenters expressed support for
proposed comment 39(a)-6. The commenters stated that live contact is
unnecessary when a borrower is in contact with a servicer with regard
to a loss mitigation application and expressed agreement with the
Bureau's explanation that a servicer's repeated attempts to establish
live contact may frustrate or even harass a borrower who was recently
denied for loss mitigation. These commenters supported requiring a
servicer to renew live contact for a borrower who experiences a
delinquency subsequent to curing a prior delinquency.
The Bureau is finalizing comment 39(a)-6 with certain changes to
improve clarity and consistency with other provisions in Regulation X.
Comment 39(a)-6 explains that if the servicer has established and is
maintaining ongoing contact with the borrower under the loss mitigation
procedures under Sec. 1024.41, including during the borrower's
completion of a loss mitigation application or the servicer's
evaluation of the borrower's complete loss mitigation application, or
if the servicer has sent the borrower a notice pursuant to Sec.
1024.41(c)(1)(ii) that the borrower is not eligible for any loss
mitigation options, the servicer complies with Sec. 1024.39(a) and
need not otherwise establish or make good faith efforts to establish
live contact. It further provides that a servicer must resume
compliance with the requirements of Sec. 1024.39(a) for a borrower who
becomes delinquent again after curing a prior delinquency.
The Bureau is changing the last sentence of proposed comment 39(a)-
6 to improve clarity in the final rule and align language in Regulation
X. Unlike the proposal, which referred to a borrower's ``prior
default,'' the final comment refers to a borrower's prior delinquency,
as newly defined in Sec. 1024.31.
39(b) Written Notice
39(b)(1) Notice Required
The Bureau proposed certain revisions to Sec. 1024.39(b)(1) and
its commentary to clarify the frequency with which a servicer must
provide the written early intervention notice and to ensure consistency
with the proposed revisions to the live contact requirements in Sec.
1024.39(a). Under the proposed revision, a servicer would have had to
send a written notice to a delinquent borrower no later than the 45th
day of the borrower's delinquency, but a servicer would not have had to
send such a notice more than once in any 180-day period. If the
borrower remains delinquent or becomes 45 days delinquent again after
the 180-day period expires, the proposed revision would have required
the servicer to provide the written notice again. The Bureau is
adopting Sec. 1024.39(b)(1) with revisions. The Bureau is finalizing
comment 39(b)(1)-2 with certain changes for clarity, making a technical
correction to comment 39(b)(1)-3, and finalizing comment 39(b)(1)-6 but
renumbering it as comment 39(b)(1)-5 and making certain changes for
clarity.
Current comment 39(b)(1)-1 references the definition of delinquency
in current comment 39(a)-1.i. As explained in the section-by-section
analysis of Sec. 1024.39(a), the definition of delinquency included in
current comment 39(a)-1.i and referenced in comment 39(b)(1)-1 states
that a borrower's delinquency begins on the day a payment sufficient to
cover principal, interest, and, if applicable, escrow for a given
billing cycle is due and unpaid. As with Sec. 1024.39(a), the
[[Page 72217]]
inclusion of the phrase ``for a given billing cycle'' in the definition
of delinquency for purposes of Sec. 1024.39(b)(1) creates a recurring
obligation on the part of servicers to provide a delinquent borrower
with a written notice. In contrast with the recurring obligation to
make live contact under Sec. 1024.39(a), however, servicers only have
to comply with the requirement to send a written notice once in a 180-
day period.\179\ This is because, as the Bureau explained in the 2012
RESPA Servicing Proposal, the Bureau did not believe ``that borrowers
who are consistently delinquent would benefit from receiving the same
written notice every month.'' \180\
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\179\ 12 CFR 1024.39(b)(1).
\180\ 77 FR 57199, 57257 (Sept. 17, 2012).
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As discussed in the section-by-section analysis of Sec. 1024.31,
the Bureau's proposed definition of delinquency in Sec. 1024.31 did
not use the phrase ``for a given billing cycle.'' The Bureau proposed
revisions to Sec. 1024.39(b)(1) and comment 39(b)(1)-2 to preserve the
recurring nature of the written notice requirement, as well as the
limitation that a servicer has to send a written notice only once
during any 180-day period. Under the proposed revision, a servicer
would have been required to send a written notice to a delinquent
borrower no later than the 45th day of the borrower's delinquency but
no more than once in any 180-day period. If the borrower either
remained delinquent or became delinquent again at some point after the
180-day period expires, the proposed revision would have required the
servicer to provide the borrower with another written notice 45 days
from the date of the borrower's most recent missed payment.
In addition, the Bureau proposed to clarify through a revision to
comment 39(b)(1)-2 that a servicer would again be required to send
written notice to a borrower who remains delinquent more than 180 days
after the servicer sent the first notice. The Bureau proposed to revise
the example in comment 39(b)(1)-2 to illustrate this concept. The
proposal also made a minor technical change to comment 39(b)(1)-2 to
correct an erroneous reference to Sec. 1024.39(a), which should
instead be a reference to Sec. 1024.39(b).
Finally, the Bureau proposed to add comment 39(b)(1)-6 to clarify
the obligation of a transferee servicer to provide the written notice
required by Sec. 1024.39(b). Proposed comment 39(b)(1)-6 stated that a
transferee servicer is not required to provide a second written notice
to a borrower who already received a written notice from the transferor
servicer on or before the borrower's 45th day of delinquency. The
comment would have further clarified, however, that a servicer would be
required to comply with Sec. 1024.39(b) regardless of whether the
transferor servicer sent the borrower a written notice in the preceding
180-day period. In other words, if the transferor servicer provided a
first written notice after an initial missed payment and, following the
transfer, the borrower remains or becomes 45 days delinquent again, the
transferee servicer would have to provide a written notice again no
later than 45 days after the payment due date, regardless of whether or
not 180 days had passed since the date the transferor servicer provided
the first written notice to the borrower.
The Bureau proposed this clarification because it believed that the
rationale that justified applying the 180-day limitation to mortgage
loans serviced by a single servicer may not apply in the case of a loan
whose servicing rights are transferred to another servicer. In the case
of a transferred loan, the Bureau believed that a transferee servicer
may provide additional and different information to a delinquent
borrower and that a borrower would benefit from receiving this
information sooner rather than later following a transfer. Accordingly,
the Bureau believed it was appropriate to clarify that the 180-day
limitation in Sec. 1024.39(b)(1) would not apply where the prior
notice triggering the 180-day waiting period was provided by the
transferor servicer prior to transfer.
Several commenters expressed general support for the written notice
requirements set forth in proposed Sec. 1024.41(b)(1). As with
proposed Sec. 1024.39(a), several industry commenters stated that
these requirements would provide further clarity and reflected common
practice in the industry. One industry commenter and several consumer
advocacy group commenters recommended that the 180-day limitation
should not apply when borrowers cure a delinquency following receipt of
the written notice but become delinquent again during the 180-day
period that follows. These commenters stated that requiring the written
notice within 45 days of each delinquency would improve borrower access
to timely information.
Several industry commenters suggested that that the written notice
may be confusing, or provide limited benefit, when it is provided to
seriously delinquent borrowers or borrowers engaged in loss mitigation.
One industry commenter provided an example, stating that the proposal
could result in a written notice being provided on day 225 of a
borrower's delinquency, at which point a borrower may already be in
foreclosure or completing a short sale or deed-in-lieu of foreclosure.
This commenter recommended that a servicer only be required to provide
a subsequent written notice if the borrower had been current for at
least 180 days following the provision of the previous written notice.
Another industry commenter requested an exemption from Sec.
1024.39(b)(1) in situations where the scheduled foreclosure sale is
within 37 days of the date a servicer would be required to provide the
written notice or where no loss mitigation options are available to the
borrower. This commenter stated that in such situations, provision of
the written notice could cause borrower confusion. One industry
commenter said that it would be unnecessary, and potentially confusing,
for borrowers performing on a trial loan modification to be provided
the written notice required by Sec. 1024.39(b)(1).
Several consumer advocacy groups expressed support for proposed
comment 39(b)(1)-6. They stated that borrowers would benefit if the
180-day limitation in Sec. 1024.39(b)(1) did not apply where the prior
written notice was provided by the transferor servicer. One of these
commenters recommended that transferee servicers must provide the
written notice within 15 days of the transfer date, stating that this
would improve the borrower's ability to obtain certain foreclosure
protections.
The Bureau is adopting Sec. 1024.39(b)(1) with revisions. The
Bureau is finalizing comment 39(b)(1)-2 with certain changes for
clarity, making a technical correction to comment 39(b)(1)-3, and
finalizing comment 39(b)(1)-6 but renumbering it as comment 39(b)(1)-5
and making certain changes for clarity.
As finalized, Sec. 1024.39(b)(1) explains that, except as
otherwise provided in Sec. 1024.39, a servicer shall provide to a
delinquent borrower a written notice with the information set forth in
Sec. 1024.39(b)(2) no later than the 45th day of the borrower's
delinquency and again no later than 45 days after each payment due date
so long as the borrower remains delinquent. Final Sec. 1024.39(b)(1)
further explains that a servicer is not required to provide the written
notice, however, more than once during any 180-day period. It provides
that if a borrower is 45 days or more delinquent at the end of any 180-
day period after the servicer has provided the written notice, a
servicer must provide the written notice again no later than 180 days
after the provision of the
[[Page 72218]]
prior written notice. Finally, it provides that, if a borrower is less
than 45 days delinquent at the end of any 180-day period after the
servicer has provided the written notice, a servicer must provide the
written notice again no later than 45 days after the payment due date
for which the borrower remains delinquent.
The Bureau is finalizing Sec. 1024.39(b)(1) to add more clarity
regarding when the written notice must be provided. The Bureau has
always understood that servicers are required to provide the written
notice with the information set forth in Sec. 1024.39(b)(2) once every
180 days to borrowers who consistently carry a short-term
delinquency.\181\ When a borrower is 45 days or more delinquent at the
end of any 180-day period after the servicer has provided the written
notice, the servicer must provide the written notice not later than 180
days after providing the prior written notice. A servicer need not
provide the written notice more than once during that 180-day period,
regardless of whether the borrower remains delinquent throughout the
180-day period or the borrower cures the delinquency but becomes 45
days delinquent again during the 180-day period. When a borrower is
less than 45 days delinquent at the end of any 180-day period after the
servicer has provided the written notice, but later becomes 45 days
delinquent, the servicer must provide the written notice no later than
45 days after the payment due date for which the borrower remains
delinquent.
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\181\ 78 FR 10695, 10800 (Feb. 14, 2013).
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The Bureau declines to revise the 180-day limitation in Sec.
1024.39(b)(1), as requested by some commenters. The Bureau continues to
believe that the requirement to provide the written notice once every
180 days, as well as the live contact requirements set forth in Sec.
1024.39(a), adequately address situations where a borrower experiences
multiple delinquencies.
The Bureau also declines to exempt servicers from the written
notice requirements where Sec. 1024.39(b)(1) may require the servicer
to provide the written notice close in time to a scheduled foreclosure
sale or where the borrower may be performing on a temporary loss
mitigation program. The Bureau notes that current comment 39(b)(2)-1
clarifies that servicers may include information on the written notice
relevant to the circumstances specific to the borrower. Comment
39(b)(2)-1 explains that Sec. 1024.39(b)(2) sets forth minimum content
requirements for the written notice and that a servicer may provide
additional information in the written notice that would be helpful or
which may be required by applicable law or the owner or assignee of the
mortgage loan. Accordingly, a servicer may include in the written
notice additional, relevant information that would benefit borrowers
even in the later stages of foreclosure or when performing on a
temporary loss mitigation program.
The Bureau is making certain changes to proposed comment 39(b)(1)-2
to clarify the requirements for providing a written notice during and
after any 180-day period. As finalized, comment 39(b)(1)-2 provides
that a servicer need not provide the written notice under Sec.
1024.39(b) more than once during a 180-day period beginning on the date
on which the written notice is provided. A servicer must provide the
written notice under Sec. 1024.39(b) at least once every 180 days to a
borrower who is 45 days or more delinquent. Comment 39(b)(1)-2 provides
an illustrative example.
The Bureau is revising final comment 39(b)(1)-3, which currently
cross references comment 39(a)-4, to reflect the renumbering of the
comments. Final comment 39(b)(1)-3 provides that comment 39(a)-5
explains how a servicer may satisfy the requirements under Sec.
1024.39 with a person authorized by the borrower to communicate with
the servicer on the borrower's behalf.
The Bureau is adopting proposed comment 39(b)(1)-6 but renumbering
it as comment 39(b)(1)-5 and making certain changes for clarity and to
correct a typographical error. Final comment 39(b)(1)-5 provides that a
transferee servicer is required to comply with the requirements of
Sec. 1024.39(b) regardless of whether the transferor servicer provided
a written notice to the borrower in the preceding 180-day period.
Comment 39(b)(1)-5 further explains, however, that a transferee
servicer is not required to provide a written notice under Sec.
1024.39(b) if the transferor servicer provided the written notice under
Sec. 1024.39(b) within 45 days of the transfer date. It provides an
example to illustrate this provision.
The Bureau declines to require, as suggested by one commenter, that
transferee servicers provide the written notice within 15 days of the
transfer date. Comment 39(b)(1)-5 is consistent with the timing of the
notice required under Sec. 1024.39(b)(1) for a borrower with a new
delinquency, and clarifies an additional requirement on transferee
servicers beyond that imposed on servicers in the absence of a
transfer. The Bureau is clarifying in final comment 39(b)(1)-5 that the
180-day limitation in Sec. 1024.39(b)(1) does not apply where the
prior written notice triggering the 180-day waiting period was provided
by the transferor servicer prior to transfer.
Successors in Interest
Proposed Sec. 1024.30(d) would have provided that a confirmed
successor in interest must be considered a borrower for the purposes of
the Mortgage Servicing Rules in Regulation X, including the early
intervention requirements of Sec. 1024.39. Proposed comment 39(b)(1)-5
would have provided that, where a servicer has already provided a
written early intervention notice to a prior borrower under Sec.
1024.39(b) before confirming a successor in interest's status, the
servicer would not be required also to provide that notice to the
unconfirmed successor in interest, but the servicer would be required
to provide the confirmed successor in interest with any additional
written early intervention notices required after confirming the
successor in interest's status.
Several consumer advocacy group commenters suggested that the
Bureau eliminate proposed comment 39(b)(1)-5. They urged the Bureau to
indicate instead that the 180-day limitation does not apply to a
successor in interest where the prior notice triggering the 180-day
waiting period was provided to the transferor borrower.
Confirmation of a successor in interest does not restart the 180-
day period specified by Sec. 1024.39(b)(1) if the prior notice
triggering the 180-day waiting period was provided to a transferor
borrower. Section 1024.39(b)(1) provides that a servicer is not
required to provide a written notice with the information set forth in
Sec. 1024.39(b)(2) more than once during any 180-day period. The
Bureau believes that it would be unnecessarily burdensome to require
servicers to provide to a confirmed successor in interest an additional
copy of a written early intervention notice that servicer has already
provided to a transferor borrower. The Bureau also believes that, in
many cases, confirmed successors in interest may have received the
original notice that the servicer mailed to the transferor borrower.
Further, confirmed successors in interest may obtain information from
servicers using a request for information, to which servicers must
respond.
The Bureau is not finalizing proposed comment 39(b)(1)-5. The
Bureau is addressing in new Sec. 1024.32(c)(4) the questions about
whether servicers must provide confirmed successors in interest with
duplicative copies of notices
[[Page 72219]]
required by the Mortgage Servicing Rules in Regulation X, including
Sec. 1024.39(b).
39(b)(2) Content of the Written Notice
The Bureau proposed to clarify when a servicer must include the
disclosures under Sec. 1024.39(b)(2)(iii) and (iv) in the written
early intervention notice. Section 1024.39(b)(2)(iii) and (iv) state
that, ``if applicable,'' the written notice must include a statement
providing a brief description of examples of loss mitigation options
that may be available and either application instructions or a
statement informing the borrower how to obtain more information about
loss mitigation options from the servicer. The Bureau proposed to add a
comment to clarify when such disclosures are ``applicable'' and when a
servicer is therefore required to include them in the written early
intervention notice. Proposed comment 39(b)(2)-4 would have provided
that, if loss mitigation options are available, a servicer must include
in the written notice the disclosures set forth in Sec.
1024.39(b)(2)(iii) and (iv). Further, the proposed comment would have
provided that loss mitigation options are available if the owner or
assignee of a borrower's mortgage loan offers an alternative to
foreclosure that is made available through the servicer. Additionally,
the proposed comment would have provided that the availability of loss
mitigation options does not depend upon a particular borrower's
eligibility for those options but only on whether the owner or assignee
of a borrower's mortgage loan generally offers loss mitigation options
through the servicer. Proposed comment 39(b)(2)-4 was generally
intended to assist servicers in determining when they are exempt from
providing the written notice under proposed Sec. 1024.39(d)(1)(ii) or
(d)(2)(ii) for, respectively, borrowers in bankruptcy or borrowers who
have invoked cease communication protections under FDCPA section
805(c).
One industry commenter requested the Bureau further clarify when
loss mitigation options are available. One consumer advocacy group
raised concerns with proposed comment 39(b)(2)-4 not expressly stating
that it is applicable to the exemption under proposed Sec.
1024.39(d)(2)(ii) for borrowers who have invoked cease communication
protections under FDCPA section 805(c).
The Bureau is not finalizing proposed comment 39(b)(2)-4. Although
proposed comment 39(b)(2)-4 would have explained when the disclosures
required by Sec. 1024.39(b)(2)(iii) and (iv) are ``applicable,'' the
comment was intended to clarify whether a servicer would be exempt from
providing the written notice under proposed Sec. 1024.39(d)(1)(ii) for
borrowers in bankruptcy or under proposed Sec. 1024.39(d)(2)(ii) for
borrowers who have invoked their cease communication protections
pursuant to FDCPA section 805(c). The Bureau is finalizing revised
explanations in comments 39(c)(1)-2 and 39(d)-1, to place the comments
with the respective partial exemptions for borrowers in bankruptcy or
borrowers who have invoked their cease communication rights, as
detailed below in the section-by-section analyses of Sec. 1024.39(c)
and (d).
39(c) Conflicts With Other Law
Current Sec. 1024.39(c) provides that nothing in Sec. 1024.39
requires a servicer to communicate with a borrower in a manner
otherwise prohibited by applicable law. Although the Bureau did not
propose to address this paragraph in the proposal, for the reasons
discussed below, the Bureau is removing current Sec. 1024.39(c) from
the final rule and renumbering the rest of Sec. 1024.39 accordingly.
The Bureau adopted current Sec. 1024.39(c) as part of the 2013
RESPA Servicing Rule in response to industry commenters' concerns
raised in response to the 2012 RESPA Servicing Proposal related to
potential conflicts between the early intervention requirements and
existing law, including State law, the Bankruptcy Code, and the
FDCPA.\182\ Following issuance of the 2013 RESPA Servicing Rule, the
Bureau determined that it was appropriate to address more specifically
the interplay between the early intervention requirements and the
Bankruptcy Code as well as the FDCPA. The Bureau therefore issued the
IFR in October 2013 to implement current Sec. 1024.39(d)(1) and (2),
which exempt servicers from complying with the early intervention
requirements when the borrower is in bankruptcy or has invoked the
FDCPA's cease communications protections, respectively.\183\ In
providing these exemptions, the Bureau did not modify Sec. 1024.39(c).
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\182\ 78 FR 10695, 10806-07 (Feb. 14, 2013).
\183\ 78 FR 62993 (Oct. 23, 2013).
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In response to proposed Sec. 1024.39(d)(2) to require that
servicers provide a modified written early intervention notice to
borrowers who have invoked their FDCPA cease communication protections,
several industry commenters noted the interplay of state debt
collection laws, which they stated may prohibit servicers from
providing the written early intervention notice to borrowers who have
invoked their cease communication rights even if it would be
permissible under Federal law. One commenter explained that at least
two States, Florida and West Virginia, prohibit debt collection
communication directly with borrowers who are represented by attorneys,
even when the borrower has not elected to cease communication. As a
result, some industry commenters requested a safe harbor from State law
liability for sending the modified written early intervention notice
that the Bureau proposed to require notwithstanding a borrower's
invocation of the cease communication right. One industry commenter
requested the Bureau provide an explicit safe harbor from the FDCPA
that permits servicers to comply with all applicable State and local
laws without risk of FDCPA liability.
After the close of the comment period, the Bureau conducted
additional outreach to both servicers and consumer advocacy groups to
further understand the scope of any such conflict between State debt
collection laws and the proposal's requirement that servicers provide a
modified written early intervention notice to borrowers who have
provided a cease communication notification pursuant to FDCPA section
805(c).\184\ The Bureau sought information related to whether the early
intervention requirements under Sec. 1024.39 conflict with State early
intervention requirements, State cease communication laws, or State
foreclosure laws.
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\184\ See Bureau of Consumer Fin. Prot., CFPB Bulletin 11-3,
CFPB Policy on Ex Parte Presentations in Rulemaking Proceedings
(Aug. 16, 2011), available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
Materials pertaining to these presentations are filed in the record
and are publicly available at http://www.regulations.gov. Summaries
of the Bureau's outreach are filed in the record and are publicly
available at http://www.regulations.gov.
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Servicers generally reported not experiencing conflicts with State
laws while meeting their early intervention requirements under Sec.
1024.39. One servicer noted that West Virginia's debt collection laws
require communication with counsel if a borrower is represented.
Consumer advocacy groups also generally indicated that they are not
encountering conflicts between State laws and the early intervention
requirements under Sec. 1024.39.
The Bureau concludes that removing current Sec. 1024.39(c)
regarding conflicts
[[Page 72220]]
with other law is appropriate. Neither commenters nor the Bureau's
additional outreach indicated any specific conflict between State laws
and the early intervention requirements under proposed Sec.
1024.39(d)(2)(iii) as set forth in the proposal or as adopted in this
final rule under new Sec. 1024.39(d)(3). Industry commenters expressed
concerns generally related to potential conflicts with State debt
collection laws but did not point to any specific State laws posing an
actual conflict with the Bureau's proposal. With respect to State laws
that require that a servicer communicate with the borrower's
representative instead of directly with a represented borrower, the
Bureau reminds servicers that providing early intervention
communications to a person authorized by the borrower to communicate
with the servicer on the borrower's behalf is permitted under Sec.
1024.39.\185\
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\185\ See current comment 39(a)-4 (renumbered in this final rule
as comment 39(a)-5) and current comment 39(b)(1)-3.
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The Bureau removes current Sec. 1024.39(c) to provide servicers
with clarity about their early intervention obligations. To the extent
there may be any actual conflict between a State law and a servicer's
requirements under Sec. 1024.39, a servicer is required to comply with
its obligations under Sec. 1024.39. Additionally, as discussed in the
section-by-section analyses of revised Sec. 1024.39(c) and (d), the
Bureau resolves the questions posed by the intersection of the early
intervention requirements under Sec. 1024.39 with the Bankruptcy Code
and the FDCPA.
The Bureau reminds servicers of Sec. 1024.5(c)(1), which states,
in relevant part, that RESPA and Regulation X do not annul, alter,
affect, or exempt any person subject to their provisions from complying
with the laws of any State with respect to settlement practices, except
to the extent that a State law is inconsistent with RESPA and
Regulation X.\186\ Comment 5(c)(1)-1 explains that State laws that are
inconsistent with the requirements of RESPA or Regulation X may be
preempted, while State laws that give greater protection to consumers
are not inconsistent with and are not preempted by RESPA or Regulation
X. The Bureau believes that early intervention provides critically
important benefits to borrowers and therefore, to the extent that a
State law would prevent early intervention as required under Sec.
1024.39, that State law is preempted. The Bureau knows of no such
conflicts and notes that certain State law requirements, for example
requiring communication through counsel where a borrower is
represented, do not conflict with the requirement to provide early
intervention. Where Regulation X affords a method of complying with
both the State law and with the requirements of Sec. 1024.39,
servicers should avail themselves of that opportunity. Generally, State
laws that give greater protection to consumers are not inconsistent
with Sec. 1024.39 and would not be preempted.
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\186\ Section 1024.5 implements RESPA section 18 (12 U.S.C.
2616). Section 1024.5(c)(2) and (3) provide additional information
on how any person may request the Bureau to determine if
inconsistencies with State law exist.
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39(c) Borrowers in Bankruptcy
Under current Sec. 1024.39(d)(1), a servicer is exempt from the
requirements of Sec. 1024.39 for a mortgage loan while the borrower is
a debtor in bankruptcy under title 11 of the United States Code. The
Bureau proposed to revise current Sec. 1024.39(d)(1) to narrow the
scope of the bankruptcy exemption from the early intervention
requirements. The proposed revisions would have preserved the current
exemption from the live contact requirements of Sec. 1024.39(a) as it
relates to a borrower in bankruptcy but would have required live
contact for a borrower who is jointly liable on the mortgage loan with
someone who is a debtor in a chapter 7 or chapter 11 bankruptcy
case.\187\ The proposal also would have partially removed the exemption
from the written notice requirements of Sec. 1024.39(b) for a borrower
in bankruptcy and would have required a servicer to provide the written
notice unless no loss mitigation options are available, the borrower's
confirmed plan of reorganization provides for surrendering the property
or avoidance of the lien securing the mortgage loan, the borrower files
a Statement of Intention in the bankruptcy case identifying an intent
to surrender the mortgage loan, or a court enters an order avoiding the
lien securing the mortgage loan or lifting the Bankruptcy Code's
automatic stay with respect to the property securing the mortgage loan.
Additionally, the proposal would have required a servicer to resume
compliance with the requirements of Sec. 1024.39 with respect to a
borrower who has not discharged the mortgage debt under certain
conditions.
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\187\ ``Consumer homeowners typically seek relief under either
Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 requires
the debtor to surrender all nonexempt property for distribution to
creditors. In return, the debtor's debts are discharged, with some
exceptions. Chapter 13 permits debtors with regular income to keep
their property and to repay creditors in whole or in part by making
monthly payments to a Chapter 13 trustee, who then distributes the
payments to creditors.'' Alan M. White & Carolina Reid, Saving
Homes, Bankruptcies and Loan Modifications in the Foreclosure
Crisis, 65 Fla. L. Rev. 1713, 1717 (Dec. 2013) (citing Adam J.
Levitin, Resolving the Foreclosure Crisis: Modification of Mortgages
in Bankruptcy, 2009 Wis. L. Rev. 565, 579, 643 (2009)). Some
consumer homeowners seek relief under chapter 11 of the Bankruptcy
Code, usually because their debt levels exceed chapter 13's
limitations, and family farmers and fishermen may file under chapter
12. See 11 U.S.C. 109(d)-(f) (defining who may be a debtor under
chapter 11, chapter 12, and chapter 13). The discussion of early
intervention focuses primarily on homeowners in chapter 7 or chapter
13 cases because relatively few consumer homeowners seek relief
under chapter 11 or chapter 12 of the Bankruptcy Code. See
Administrative Office of the U.S. Courts, U.S. Bankruptcy Courts--
Business and Nonbusiness Cases Commenced, by Chapter of the
Bankruptcy Code, During the 12-Month Period Ending December 31,
2013, available at http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf (indicating
that in 2013, there were only 1,320 nonbusiness chapter 11 filings
and 495 chapter 12 filings nationwide).
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For the reasons discussed below, the Bureau is finalizing proposed
Sec. 1024.39(d)(1), but renumbering it as new Sec. 1024.39(c)(1), and
making certain adjustments to implement the partial exemption on a loan
level and for debtors in any chapter of bankruptcy to address concerns
raised by commenters. The Bureau is adopting modifications regarding
the frequency of the written notice required under new Sec.
1024.39(c)(1). The Bureau is also exempting a servicer from providing
the written early intervention notice with regard to a mortgage loan
for which any borrower on the mortgage loan invokes the FDCPA's cease
communications protections while any borrower on the mortgage loan is a
debtor in bankruptcy. The Bureau is finalizing proposed comment
39(d)(1)-1 in new Sec. 1024.39(c)(2) as proposed, with modifications
to require a servicer to resume compliance with the early intervention
requirements under certain conditions and subject to certain
exemptions.
39(c)(1) Partial Exemption
Based upon its review of the comments received in response to the
October 2013 IFR and its study of the intersection of the early
intervention requirements and bankruptcy law, as stated in the
proposal, the Bureau believed it would be appropriate to reinstate the
early intervention requirements with respect to borrowers in bankruptcy
under certain circumstances. The Bureau proposed to do so in this final
rule because, as noted in the IFR, the Bureau believed that it would be
preferable to use notice and comment rulemaking, rather than simply
finalizing the IFR with
[[Page 72221]]
modifications, to reinstate the early intervention requirements with
respect to such borrowers.\188\ The Bureau believed that this approach
would allow stakeholders a more robust opportunity to consider and
comment on the Bureau's specific proposal. The Bureau addressed in the
proposal comments it received on this issue in response to the IFR,
including those received after the IFR's official comment period
ended.\189\ As discussed further below, in light of those comments as
well as the comments received in response to the proposal, the Bureau
is finalizing the live contact exemption as proposed, with
modifications to implement the exemption at the loan level and for
debtors in any chapter of bankruptcy. The Bureau is also finalizing the
proposed written notice partial exemption as proposed, with similar and
additional modifications. The live contact and written notice
exemptions are discussed in turn below.
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\188\ 78 FR 62993, 62998 (Oct. 23, 2013).
\189\ See 79 FR 74176, 74203-05 (Dec. 15, 2014).
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Live Contact
The Bureau proposed to maintain the exemption from the live contact
requirements with respect to a borrower who is in bankruptcy, has
discharged personal liability for the mortgage loan, or shares
liability on a mortgage loan with a person who is a debtor in a chapter
12 or chapter 13 bankruptcy case. As the Bureau explained in the
proposal, when a debtor files for protection under chapter 12 or
chapter 13, the Bankruptcy Code implements a co-debtor stay, which
prohibits creditors from engaging in collection efforts against certain
of the debtor's joint obligors, such as a joint obligor on the debtor's
mortgage loan, even though the joint obligor has not filed for
bankruptcy.\190\ Because contacting a borrower covered by the co-debtor
stay raises some of the same concerns as contacting a borrower covered
by the automatic stay, the Bureau explained in the proposal that it may
be appropriate to exempt servicers from compliance with Sec.
1024.39(a) with respect to non-bankrupt borrowers who are jointly
liable on a mortgage loan with a debtor in a chapter 12 or chapter 13
bankruptcy case. However, the proposed exemption would have excluded
borrowers who are jointly liable on a mortgage loan with a debtor in a
chapter 7 or chapter 11 case because the Bankruptcy Code does not
prevent collection attempts against such joint obligors, and servicers
do not violate the automatic stay by contacting them.\191\ This was a
departure from current Sec. 1024.39(d)(1), in which the Bureau crafted
a broad exemption from Sec. 1024.39, making the exemption applicable
to any joint obligor of a debtor in bankruptcy, regardless of whether
the joint obligor was in bankruptcy or protected against collection
attempts by the co-debtor stay under 11 U.S.C. 1201(a) or 1301(a). The
Bureau is finalizing this exemption from live contact as proposed, with
modifications to apply the exemption on a loan level and for debtors in
any chapter of bankruptcy.
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\190\ 11 U.S.C. 1201(a) and 1301(a) (both stating that
``[e]xcept as provided in subsections (b) and (c) of this section,
after the order for relief under this chapter, a creditor may not
act, or commence or continue any civil action, to collect all or any
part of a consumer debt of the debtor from any individual that is
liable on such debt with the debtor, or that secured such debt,
unless--(1) such individual became liable on or secured such debt in
the ordinary course of such individual's business; or (2) the case
is closed, dismissed, or converted to a case under chapter 7 or 11
of this title.'').
\191\ In re Chugach Forest Products, Inc., 23 F.3d 241, 246 (9th
Cir. 1994) (``As a general rule, `[t]he automatic stay of section
362(a) protects only the debtor, property of the debtor or property
of the estate. It does not protect non-debtor parties or their
property. Thus, section 362(a) does not stay actions against
guarantors, sureties, corporate affiliates, or other non-debtor
parties liable on the debts of the debtor.' '') (quoting Advanced
Ribbons & Office Prods. v. U.S. Interstate Distrib. (In re Advanced
Ribbons & Office Prods.), 125 B.R. 259, 263 (B.A.P. 9th Cir. 1991)).
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Comments on Live Contact, Including Borrower-Specific and Chapter-
Specific Exemption
The Bureau received comments from servicers, credit unions,
consumer advocacy groups, trade associations, and the U.S. Trustee
Program. Similar to comments received in response to the October 2013
IFR, commenters generally agreed that servicers should be exempt from
the early intervention live contact requirements as to a borrower in
bankruptcy or a borrower who has discharged personal liability for a
mortgage loan. Industry commenters generally raised concerns with the
proposed requirement that servicers provide live contact to non-debtor
co-borrowers when a borrower files for chapter 7 or 11 bankruptcy,
while supporting the loan-level exemption for borrowers who file under
chapter 13. Numerous industry commenters strongly opposed a borrower-
specific exemption in favor of a loan-level exemption, citing three
major concerns. First, industry expressed concerns related to
circumstances in which co-borrowers live together and only one files
for bankruptcy. Servicers explained that they fear violating the
automatic stay if the servicer's phone calls are answered by the debtor
borrower instead of the non-debtor co-borrower. Second, servicers cited
the burden of keeping track of which chapter of bankruptcy each
borrower is in rather than just applying a single bankruptcy flag to
the account. One commenter noted that bankruptcy cases commonly switch
from one chapter to another, which under the proposal would affect
whether the servicer would be required to comply with the early
intervention requirements. Third, industry commenters explained that
servicers' systems currently track mortgage loans at the loan level.
Servicers explained that they would be required to undergo burdensome
systems upgrades to change how they track mortgage loans to distinguish
communications as between borrowers on the same loan. One industry
commenter also stated that it would be misleading and potentially
violate the automatic stay for a servicer to make live contact with the
non-debtor co-borrower to discuss loss mitigation options because the
property could not be disposed of without bankruptcy court permission.
Therefore, the commenter stated, the risks to the servicer are high
while offering no benefits to the non-debtor co-borrowers.
Consumer advocacy groups generally supported the proposal's
approach to live contact for non-debtor co-borrowers and expressed
their position that, under certain circumstances, live contact with a
borrower in bankruptcy can be appropriate and would not violate the
Bankruptcy Code's automatic stay. Consumer advocacy groups requested
that the Bureau include commentary to the rule that would explain the
Bureau does not take a position on whether early intervention efforts
might violate the automatic stay or discharge injunction and that
clarifies that the exemption from live contact with respect to
borrowers in bankruptcy is permissive.
After the close of the comment period, the Bureau conducted
additional outreach with servicers to gain insight into their mortgage
processing systems and capabilities to implement proposed changes to
the servicing of loans in bankruptcy. Servicers continued to express
the same three broad concerns with the proposal's approach as outlined
above.
Final Rule
The Bureau is finalizing the live contact exemption as proposed,
with modifications to implement the exemption at the loan level and for
debtors in any chapter of bankruptcy. The Bureau is adopting an
exemption from the live contact early intervention requirements for
borrowers in
[[Page 72222]]
bankruptcy and renumbering it as new Sec. 1024.39(c)(1)(i) instead of
as proposed in Sec. 1024.39(d)(1)(i). New Sec. 1024.39(c)(1)(i)
provides that, while any borrower on a mortgage loan is a debtor in
bankruptcy under title 11 of the United States Code, a servicer, with
regard to that mortgage loan, is exempt from the live contact early
intervention requirements of Sec. 1024.39(a). The Bureau has also
modified the final commentary to align with and provide additional
guidance on this provision.
Borrower-specific and chapter-specific exemption rationale. The
Bureau considered commenters' concerns related to the difficulty of
administering the proposal's borrower-specific approach. Although the
proposal attempted to strike an appropriate balance by limiting the
partial exemptions from Sec. 1024.39 to only those borrowers protected
by the Bankruptcy Code's automatic stay and discharge provisions, the
Bureau is persuaded by the practical considerations industry commenters
cited in favor of adopting a loan-level exemption. In particular, the
Bureau recognizes the challenges presented by providing live or written
early intervention to a non-debtor co-borrower who lives with the
debtor borrower and the possibility of disputes about whether a
servicer has violated the automatic stay if those communications
inadvertently reach the wrong borrower. The Bureau also believes that
applying the partial exemption from Sec. 1024.39 with regard to a
mortgage loan while any borrower on that loan is a debtor under any
bankruptcy chapter generally simplifies the exemption, reduces servicer
burden, and facilitates servicer compliance.
Therefore, the Bureau adopts a loan-level exemption from the live
contact early intervention requirements rather than a borrower-specific
exemption as proposed. The final rule does not draw distinctions
between the chapter of bankruptcy under which the borrower filed for
purposes of the partial exemption. Instead, new Sec. 1024.39(c)(1)
applies the exemption with regard to a mortgage loan while any borrower
on that loan is a debtor in bankruptcy under title 11 of the United
States Code generally. Additionally, because this final rule does not
adopt the borrower-specific approach in the proposal, the Bureau
declines to adopt proposed comment 39(d)(1)(i)-1 related to live
contact and proposed comment 39(d)(1)(ii)-1 related to a borrower's
plan of reorganization under chapters 11, 12, and 13 of the Bankruptcy
Code. Instead, the Bureau adopts comment 39(c)(1)-1 which explains that
Sec. 1024.39(c)(1) applies once a petition is filed under title 11 of
the United States Code, commencing a case in which the borrower is a
debtor in bankruptcy.
Live contact exemption rationale. In addition to the issues
identified in the comments, two other factors inform the Bureau's
decision to maintain the exemption from the live contact early
intervention requirements. First, as the Bureau explained in the
proposal, live contact may be perceived as more intrusive and of less
value to a borrower in bankruptcy. As discussed in the section-by-
section analysis of Sec. 1024.39(a), the live contact requirements are
ongoing and generally require a servicer to make continued efforts to
establish live contact with a borrower so long as a borrower remains
delinquent. In addition, compliance with Sec. 1024.39(a) is not
limited to, and does not in every case require, a discussion of
available loss mitigation options. Section 1024.39(a) requires a
servicer to inform a borrower of loss mitigation options ``if
appropriate.'' More broadly, live contact provides servicers an
opportunity to discuss the circumstances of a borrower's
delinquency,\192\ and, based on this discussion, a servicer may
determine not to inform a borrower of loss mitigation options. Current
comment 39(a)-3.i.B provides an example of when a servicer makes a
reasonable determination not to provide information about the
availability of loss mitigation options to a borrower. In that example,
the borrower has missed a January 1 payment and notified the servicer
that full late payment will be transmitted to the servicer by February
15.\193\ As the comment demonstrates, live contact could serve as a
reminder to a borrower who inadvertently missed a payment, or it could
give the servicer an opportunity to discuss when the borrower would
cure a temporary delinquency; it would not necessarily involve a
discussion of loss mitigation options. Borrowers who seek protection
under the Bankruptcy Code, however, may do so in part to obtain a
reprieve from unwelcome creditor communications about outstanding
payment obligations during which the borrower can reorganize financial
obligations comprehensively rather than interacting with individual
creditors. For such borrowers, a servicer's repeated attempts to
establish live contact, which may not lead to a discussion of available
loss mitigation options between the parties, may be of diminished value
to the borrower.
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\192\ Comment 39(a)-2.
\193\ This final rule renumbers this as comment 39(a) 4.i.B.
---------------------------------------------------------------------------
Second, while some courts have determined that a creditor may
properly contact a borrower in bankruptcy, including by telephone, to
inform the borrower about loss mitigation options or to negotiate the
terms of a loss mitigation agreement,\194\ other courts have found that
a creditor violated the automatic stay by making live contact with a
borrower to discuss loss mitigation.\195\ As the Bureau noted in the
proposal, these violations appear to involve extreme facts, such as
creditors making dozens of phone calls, some of which threatened legal
action, to borrowers who had requested that the creditor stop
contacting them and either had already decided to surrender the
property or were not interested in the offered loss mitigation
options.\196\
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\194\ See, e.g., In re Brown, 481 B.R. 351, 360 (Bankr. W.D. Pa.
2012) (holding that creditor did not violate the automatic stay by
making telephone calls to a borrower regarding foreclosure
alternatives); In re Silva, No. 09-02504, 2010 WL 605578, at *1
(Bankr. D. Haw. Feb. 19, 2010) (``Nothing in the Bankruptcy Code
prevents or prohibits a chapter 7 or chapter 13 debtor or its
secured creditors from entering into communications or negotiations
about the possibility of a loan modification.''); In re Medina, No.
6:12-bk-00066-ABB, 2012 WL 2090419, at *1 (Bankr. M.D. Fla. June 8,
2012) (``The automatic stay and the discharge provisions of the
Bankruptcy Code do not prevent the parties from negotiating and
entering into a loan modification post-petition.'').
\195\ See, e.g., In re Culpepper, 481 B.R. 650, 659-60 (Bankr.
D. Or. 2012) (stating that a creditor's reasonable contacts with a
debtor regarding foreclosure alternatives may be permissible, but
nonetheless finding a stay violation because the creditor made more
than 100 phones calls to a borrower who had requested the creditor
stop contacting her and the creditor discussed only loss mitigation
options (i) for which the borrower was ineligible, (ii) in which the
borrower was not interested, and (iii) which would have revived at
least a portion of the borrower's discharged mortgage debt); In re
Whitmarsh, 383 B.R. 735, 737 (Bankr. D. Neb. 2008) (stating that
``[a] phone call or two to follow up a letter regarding loss
mitigation efforts is understandable,'' but finding that the
creditor violated the automatic stay by making at least 22 phone
calls, some of which threatened legal action, to borrowers who had
already decided to surrender the property and had requested in
writing on several occasions that the creditor make contact only
with the borrowers' attorney).
\196\ Culpepper, 481 B.R. at 659-60; Whitmarsh, 383 B.R. at 737.
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The Bureau does not believe that compliance with the live contact
requirement under Sec. 1024.39(a) would generally violate the stay.
The Bureau is concerned, however, that, given the interactive and
potentially unscripted nature of live contact, as well as the fact that
live contact does not necessarily require a discussion of loss
mitigation options, borrowers or courts may view a servicer's attempts
to establish live contact as a communication prohibited by the
Bankruptcy Code's automatic
[[Page 72223]]
stay under certain circumstances. Accordingly, the Bureau concludes
that it is appropriate to exempt servicers from engaging in live
contact with borrowers in bankruptcy.
Consumer advocacy groups requested that the Bureau include
commentary to explain that it does not take a position on whether early
intervention efforts might violate the Bankruptcy Code and to clarify
that the exemption from live contact with respect to borrowers in
bankruptcy is permissive. The Bureau concludes that its statements in
the IFR and in this final rule are sufficient and it declines to
include the commentary requested by consumer advocacy groups. As the
Bureau previously explained in the IFR and in the proposal, the Bureau
does not take a position as to whether early intervention efforts might
violate the Bankruptcy Code's automatic stay or discharge injunction.
The partial exemption set forth in the final rule is indeed permissive,
not prohibitive, and the Bureau once again encourages servicers that
have been communicating with borrowers in bankruptcy about loss
mitigation options to continue doing so. The Bureau believes that
borrowers in bankruptcy may benefit from receiving tailored loss
mitigation information that is appropriate to their circumstances.
Written Notice
The Bureau proposed to revise the exemption in current Sec.
1024.39(d)(1) from the written early intervention notice requirements
with respect to a delinquent borrower who is in bankruptcy or has
discharged personal liability for the mortgage loan. The proposal would
have limited the exemption to instances where there are no loss
mitigation options available or where the borrower is surrendering the
property or avoiding the lien securing the mortgage loan. Proposed
Sec. 1024.39(d)(1)(ii)(B) through (D) would have exempted a servicer
from the written early intervention notice requirement in several
situations where the borrower in bankruptcy surrenders the property
securing the mortgage loan or avoids (i.e., renders unenforceable) the
lien securing the mortgage loan. First, proposed Sec.
1024.39(d)(1)(ii)(B) would have provided that a servicer is exempt if
the borrower's confirmed plan of reorganization provides for the
borrower to surrender the property, provides for the avoidance of the
lien securing the mortgage loan, or otherwise does not provide for, as
applicable, the payment of pre-bankruptcy arrearages or the maintenance
of payments due under the mortgage loan. Second, proposed Sec.
1024.39(d)(1)(ii)(C) would have provided that a servicer is exempt if
the borrower files a statement of intention with the bankruptcy court
that identifies an intent to surrender the property securing the
mortgage loan. Third, proposed Sec. 1024.39(d)(1)(ii)(D) would have
provided that a servicer is exempt if the bankruptcy court enters an
order providing for the avoidance of the servicer's lien or lifting the
automatic stay with respect to the property securing the mortgage loan.
The Bureau is finalizing this exemption as proposed, with
modifications to simplify triggering the exemption based on the
availability of loss mitigation options and to apply uniformly the
exemption on a loan level and for debtors in any chapter of bankruptcy.
The Bureau is adopting modifications regarding the frequency of this
modified written notice. The Bureau is also adding a new provision that
exempts a servicer from providing the written early intervention notice
with regard to a mortgage loan for which any borrower on the mortgage
loan invokes the FDCPA's cease communications protections while any
borrower on the mortgage loan is a debtor in bankruptcy.
Comments on Written Notice
The Bureau requested comment on the proposed partial exemption from
the written early intervention notice, including the scope of the
exemption, the criteria for qualifying for the exemption, and how
communications could be tailored to meet the particular needs of
borrowers in bankruptcy. Most industry commenters objected to the
proposed requirement to provide the written early intervention notice,
with certain exceptions, to a delinquent borrower who is in bankruptcy
or has discharged personal liability for the mortgage loan. As
explained above with respect to live contact, industry commenters
raised concerns with the borrower-specific exemption and instead
favored a blanket, loan-level exemption. Servicers commented that,
while written communications may be more easily tailored to individual
borrowers, servicers cannot avoid situations where an early
intervention letter or email reaches the wrong borrower (such as where
one spouse routinely opens all the mail). In addition, servicers
reported that they maintain a single address for providing written
notices related to the mortgage loan and, while some servicers may be
able to provide duplicate copies of notices to a second borrower at
another address, they generally cannot automate a process for providing
only some written notices to one borrower while providing other or
modified notices to another borrower at a different address. Industry
commenters also explained that servicers do not always know when co-
borrowers live apart or, if so, the alternative mailing addresses and
that, therefore, servicers would bear the burden of researching this
information.
After the close of the comment period, the Bureau conducted
additional outreach to servicers to gain insight into their mortgage
processing systems and capabilities to implement proposed changes to
the servicing of loans in bankruptcy. Servicers reiterated the system
difficulties associated with tracking additional mailing addresses as
well as the manual burden that would be required to provide
communications to a co-borrower at a different address.
Several industry commenters objected to the proposed exemption's
complexity, citing the multiple different events during the bankruptcy
case that can trigger the exemption, before assessing each factor for
each co-borrower. Servicers commented that they would incur significant
burden to determine correctly when the exemption applies. One servicer
commented that it would be very difficult to apply the exemption
correctly and consistently. Industry commenters also stated that the
compliance burden is unwarranted for the few borrowers they believe
would be helped by early intervention. Industry commenters said that
many borrowers in bankruptcy likely would have already received
multiple early intervention notices prior to the bankruptcy and
exhausted all of their loss mitigation options, making additional
notices of little value. Several industry commenters asserted more
generally that the written early intervention notice offers minimal
value to a borrower in bankruptcy and should therefore not be provided.
Several industry commenters noted the particular problems posed for
borrowers in chapter 13. Delinquent borrowers may repay their
arrearages over three to five years in chapter 13. Commenters explained
that assessing the delinquency can be difficult because a missed
payment may be due to a delay in the bankruptcy trustee forwarding
funds to the servicer or the result of a dispute about how much the
servicer is owed. Commenters also stated that providing the written
notice at least once in every 180-day period as proposed could confuse
a borrower who is making all payments due under the chapter 13
bankruptcy plan but contractually delinquent on the mortgage loan.
[[Page 72224]]
Additionally, numerous industry commenters stated that sending the
notice could violate the automatic stay given the lack of a safe harbor
and expressed concern about the prospect of litigation. One commenter
noted that HUD's 2008 mortgagee letter required servicers to provide
loss mitigation information to borrowers in bankruptcy only if the
borrower had counsel who could receive the notice. Two other commenters
explained that bankruptcy courts in Florida, for example, have adopted
mortgage modification mediation procedures and prohibit written
communication about the mediation outside the bankruptcy court portal.
Some commenters contended that the Bureau was inappropriately
attempting to interpret the Bankruptcy Code.\197\
---------------------------------------------------------------------------
\197\ As in the IFR, in this final rule, the Bureau is not
taking a position as to whether early intervention efforts might
violate the Bankruptcy Code's automatic stay or discharge
injunction.
---------------------------------------------------------------------------
The Bureau received comments from consumer advocacy groups, two
industry members, and the U.S. Trustee Program generally supporting the
proposal's requirement to provide the written notice, with certain
exceptions, to a delinquent borrower who is in bankruptcy or has
discharged personal liability for the mortgage loan. Consumer advocacy
groups generally favored the proposed borrower-specific exemptions from
the written notice requirements. Several consumer advocacy groups
supported the proposal on the basis that members of a particularly at-
risk population who have difficulty meeting their financial obligations
would receive loss mitigation information; one consumer advocacy group
stated that the availability of loss mitigation options should not
determine whether a borrower in bankruptcy is provided the written
early intervention notice. Another consumer advocacy group stated that
the proposal is consistent with FHA loss mitigation guidance and HAMP
rules. A different consumer advocacy group supported the proposal but
noted that, when completing bankruptcy court filings in several
jurisdictions, debtors often must check a box identifying an intent to
surrender their homes even when they actually plan to keep the
property; as a result, these borrowers would not receive early
intervention under the proposal. One trade association said it viewed
the proposal's written notice requirements for borrowers in bankruptcy
as reasonable when compared against permissible bankruptcy and loss
mitigation options. The U.S. Trustee Program agreed with the proposal's
approach, noting that debtors in bankruptcy have difficulty meeting
their financial obligations and that therefore these debtors may often
benefit substantially from opportunities for loss mitigation.
Comments on Timing of Written Notice
The Bureau requested comment on whether the timing of the written
early intervention notice should be different for a borrower in
bankruptcy, such as whether a servicer should be required to provide
the written notice to a borrower in bankruptcy within 45 days after the
bankruptcy case commences, rather than by the 45th day of the
borrower's delinquency. One industry commenter suggested requiring the
notice within 45 days after the petition date at the point in time when
the borrower is determining whether to keep the home. Another industry
commenter suggested that, if the Bureau required a written early
intervention notice for borrowers in bankruptcy, the Bureau should
require just one written early intervention notice in bankruptcy for
the life of the loan.
The Bureau conducted additional outreach on the timing of the
written notice after the close of the comment period. One servicer
stated that it currently provides loss mitigation information to the
borrower, counsel, and bankruptcy trustee within one week of the
bankruptcy filing, regardless of the period of the borrower's
delinquency (if any), and considers this to be a best practice. This
servicer explained that, even if the mortgage is current, it assumes a
borrower who has filed for bankruptcy is experiencing some financial
difficulty and wants to inform the borrower that help is available.
Another servicer stated that it likely would be easier to provide a
single written early intervention notice immediately following
notification of a new bankruptcy. One consumer advocacy group advised
that servicers subject to HUD's requirement to provide loss mitigation
information appear to provide that information at different times, such
that borrowers sometimes receive it months after filing for bankruptcy.
Comments on Overlap Between Borrowers in Bankruptcy and FDCPA
The Bureau proposed comment 39(d)(2)(iii)-2 to address the
situation of a borrower in bankruptcy who has invoked cease
communication rights under FDCPA section 805(c). The Bureau requested
comment on whether it should require a servicer to provide the written
early intervention notice to a borrower's representative, instead of
the borrower, to the extent the FDCPA applies to a servicer's
communications with a borrower in bankruptcy and the borrower has
provided a notification pursuant to FDCPA section 805(c). The Bureau
sought comment on whether there may be a conflict between the language
of proposed model clause MS-4(D) and applicable bankruptcy laws when a
borrower has exercised cease communication rights under the FDCPA and
is also a borrower in bankruptcy and on the scope of any such conflict.
Industry commenters said that most borrowers file for bankruptcy as
a last resort, after all loss mitigation options have been exhausted.
Consequently, they said, providing another written notice will do
little for the borrower and possibly subject the servicer to liability
under the Bankruptcy Code. Industry commenters stated that tracking
whether the borrower has a representative, along with tracking FDCPA
and bankruptcy case status, would increase servicer burden and the
likelihood of mistakes. Industry commenters also noted that the model
language in proposed Model Clause MS-4(D) could be inaccurate because
the automatic stay is a legal impediment to foreclosure.\198\
---------------------------------------------------------------------------
\198\ For a more general discussion of model clause MS-4(D), see
the section-by-section analysis of Appendix MS-4 to Part 1024--
Mortgage Servicing.
---------------------------------------------------------------------------
Consumer advocacy groups, including a group of consumer bankruptcy
attorneys, supported the Bureau's proposal to require a written early
intervention notice when a borrower has both invoked the FDCPA's cease
communication protections and is a debtor in bankruptcy. However, they
opposed an exemption when the borrower is not represented. They
explained that unrepresented borrowers have the same need for loss
mitigation information as represented borrowers. They also stated that
the written notice would not violate the Bankruptcy Code's automatic
stay when sent directly to the borrower. Consumer advocacy groups
expressed general concern that servicers will often erroneously
conclude that borrowers are not represented.
The U.S. Trustee Program commented that the modified written
notice, including the proposed model language, may be seen by some
bankruptcy judges or borrowers as violating the Bankruptcy Code's
automatic stay even when sent to the borrower's representative. The
commenter suggested that the Bureau consider modifying the proposed
language in Model Clause MS-D(4) or exempting
[[Page 72225]]
servicers from the requirement to provide a written early intervention
notice unless the borrower requests it when the borrower has invoked
the FDCPA's cease communication protections and is also a debtor in
bankruptcy.\199\
---------------------------------------------------------------------------
\199\ This final rule modifies the language in Model Clause MS-
D(4), as explained in the section-by-section analysis of Appendix
MS-4 to Part 1024--Mortgage Servicing.
---------------------------------------------------------------------------
Final Rule
In light of the comments received and for the reasons set forth
below, the Bureau is adopting a partial exemption from the written
early intervention notice for borrowers in bankruptcy and renumbering
it as new Sec. 1024.39(c)(1)(ii) and (iii) instead of as proposed in
Sec. 1024.39(d)(1)(ii), with modifications to implement the partial
exemption on a loan level and for debtors in any chapter of bankruptcy
and with modifications to the frequency of the written notice. As
finalized, new Sec. 1024.39(c)(1)(ii) provides that, while any
borrower on a mortgage loan is a debtor in bankruptcy under title 11 of
the United States Code, a servicer, with regard to that mortgage loan,
is exempt from the written early intervention notice requirements if no
loss mitigation option is available or if any borrower on the mortgage
loan has provided a cease communication notification pursuant to FDCPA
section 805(c) with respect to that mortgage loan as referenced in
Sec. 1024.39(d). As explained above in the discussion of the live
contact exemption, the Bureau also adopts a loan-level exemption from
the written early intervention notice requirements rather than a
borrower-specific exemption as proposed. The final rule does not draw
distinctions between the chapter of bankruptcy under which the borrower
filed for purposes of the partial exemption. Instead, new Sec.
1024.39(c)(1) applies the exemption with regard to a mortgage loan
while any borrower on that loan is a debtor in bankruptcy under title
11 of the United States Code generally.
New Sec. 1024.39(c)(1)(iii) provides that if the conditions of
Sec. 1024.39(c)(1)(ii) are not met, a servicer, with regard to that
mortgage loan, must comply with the written early intervention notice
requirements, as modified by Sec. 1024.39(c)(1)(iii). Therefore, if
any loss mitigation option is available and no borrower on the mortgage
loan has invoked FDCPA section 805(c)'s cease communication
protections, a servicer is required to provide the modified written
early intervention notice as described in Sec. 1024.39(c)(1)(iii).
Section 1024.39(c)(1)(iii) also provides that, if a borrower is
delinquent when the borrower becomes a debtor in bankruptcy, a servicer
must provide the written notice not later than the 45th day after the
borrower files a bankruptcy petition under title 11 of the United
States Code. If the borrower is not delinquent when the borrower files
a bankruptcy petition, but subsequently becomes delinquent while in
bankruptcy, the servicer must provide the written notice not later than
the 45th day of the borrower's delinquency. A servicer must comply with
these timing requirements regardless of whether the servicer provided
the written notice in the preceding 180-day period. Section
1024.39(c)(1)(iii) further provides that the written notice may not
contain a request for payment and that a servicer is not required to
provide the written notice more than once during a single bankruptcy
case. The final commentary has also been modified.
Written notice rationale. As the Bureau explained in the proposal,
a primary value of the written early intervention notice to a
delinquent borrower in bankruptcy is to inform the borrower of
potential loss mitigation options to avoid foreclosure. The Bureau
considered comments that it should require the written early
intervention notice for all borrowers in bankruptcy, regardless of
whether any loss mitigation option is available. However, a notice that
does not contain information related to loss mitigation options serves
primarily as a payment reminder, which is of significantly diminished
value to a borrower in bankruptcy and precisely the type of
communication to a borrower in bankruptcy that the automatic stay is
intended to prevent. Therefore, the Bureau concludes that it is not
appropriate to require servicers to provide the written early
intervention notice to borrowers in bankruptcy if no loss mitigation
option is available. The final rule retains the exemption from Sec.
1024.39(b) if no loss mitigation option is available or if any borrower
on the mortgage loan has invoked the FDCPA's cease communication
protections while requiring the provision of a modified form of the
written early intervention notice to borrowers in bankruptcy if those
conditions are not met.
To assist servicers in determining whether any loss mitigation
option is available and thus whether the servicer is required to
provide the modified written early intervention notice under new Sec.
1024.39(c)(1)(iii), the Bureau is adopting new comment 39(c)(1)(ii)-1.
New comment 39(c)(1)(ii)-1 states that in part, Sec. 1024.39(c)(1)(ii)
exempts a servicer from the requirements of Sec. 1024.39(b) if no loss
mitigation option is available. The comment then explains that a loss
mitigation option is available if the owner or assignee of a mortgage
loan offers an alternative to foreclosure that is made available
through the servicer and for which a borrower may apply, even if the
borrower ultimately does not qualify for such option. As explained in
the section-by-section analysis of Sec. 1024.39(b)(2), the Bureau is
not adopting proposed comment 39(b)(2)-4, which would have explained
when a loss mitigation option is available for purposes of Sec.
1024.39(b) generally, but is instead adopting new comment 39(c)(1)(ii)-
1 to explain when a loss mitigation option is available for purposes of
Sec. 1024.39(c).
The Bureau believes that delinquent borrowers in bankruptcy would
benefit from receiving the written notice required under Sec.
1024.39(b) if any loss mitigation option is available. The Bureau
believes that the content of the notice, including the statement
providing a brief description of loss mitigation options that may be
available from the servicer and the application instructions or a
statement informing the borrower how to obtain more information about
loss mitigation options from the servicer, are of particular value to a
delinquent borrower in bankruptcy. Borrowers who have filed for
bankruptcy should not be denied an opportunity to obtain information
about available loss mitigation options, as this information may be
uniquely critical for borrowers in bankruptcy making decisions about
how best to reduce, eliminate, or reorganize their debts. The Bureau
understands that borrowers sometimes initially determine to surrender
their property only to reconsider that decision upon receiving loss
mitigation information.
Although industry commenters generally opposed providing a written
early intervention notice to borrowers in bankruptcy, the Bureau
concludes that requiring the notice, as modified in new Sec.
1024.39(c)(1)(iii), strikes the appropriate balance for several
reasons. First, the Bureau does not agree with those industry
commenters who claimed that the written notice would be of little value
to borrowers in bankruptcy. While it may be the case that some
borrowers exhaust their loss mitigation options before bankruptcy, many
borrowers file for bankruptcy precisely to avoid losing their home, and
for those borrowers, continuing to receive information about available
loss mitigation options is vital. Comments from consumer advocacy
groups, including consumer bankruptcy
[[Page 72226]]
attorneys, and the U.S. Trustee Program all emphasized the importance
of providing loss mitigation information to borrowers in bankruptcy,
noting that they are, by definition, experiencing financial hardships.
The Bureau believes that delinquent borrowers in bankruptcy would
benefit from information about available loss mitigation options.
HUD, Treasury, and many local bankruptcy courts have similarly
recognized that borrowers in bankruptcy have a need for loss mitigation
assistance. In 2008, HUD issued guidance requiring servicers of FHA
mortgage loans to provide loss mitigation information to bankrupt
borrowers represented by counsel, while also recommending that
servicers provide that information to pro se borrowers.\200\ Although
Treasury does not require servicers to solicit borrowers in bankruptcy
actively for loss mitigation, it has made clear that such borrowers are
eligible for HAMP.\201\ Numerous bankruptcy courts, including in
Florida, Nevada, New Jersey, New York, and Wisconsin, have adopted
mortgage modification programs or procedures.
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\200\ ``[T]he Department understands that . . . waiting until a
bankruptcy is discharged or dismissed before offering loss
mitigation may be injurious to the interests of the borrower, the
mortgagee and the FHA insurance funds.'' U.S. Dep't of Housing and
Urban Dev., Mortgagee Letter 2008-32, Use of FHA Loss Mitigation
During Bankruptcy (Oct. 17, 2008) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/lmmltrs.
\201\ ``Borrowers in active Chapter 7 or Chapter 13 bankruptcy
cases are eligible for [the Home Affordable Modification Program
(HAMP)] at the servicer's discretion in accordance with investor
guidelines, but servicers are not required to solicit these
borrowers proactively for HAMP. Notwithstanding the foregoing, such
borrowers must be considered for HAMP if the borrower, borrower's
counsel or bankruptcy trustee submits a request to the servicer.
However, if the borrower is also unemployed, the servicer must
evaluate the borrower for [the Home Affordable Unemployment
Program], subject to any required bankruptcy court approvals, before
evaluating the borrower for HAMP.'' Making Home Affordable, Making
Home Affordable Program Handbook for Servicers of Non-GSE Mortgages,
Version 5.0 at 71 (Jan. 6, 2016), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_5.pdf.
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Second, the Bureau believes that this final rule appropriately
addresses industry commenters' concerns that determining when the
exemption applies could be particularly difficult or burdensome. The
Bureau understands that servicers often review borrowers' initial court
filings as part of their efforts in monitoring borrowers' bankruptcy
cases, and the information servicers would have needed to determine
whether or not an exemption applied, such as whether or not the
borrower is represented and the chapter of bankruptcy under which
relief is sought, is usually contained in those filings. Nonetheless,
as explained above, the Bureau is finalizing new Sec.
1024.39(c)(1)(iii) to take a uniform approach for borrowers in any
chapter of bankruptcy under title 11 of the United States Code, thus
obviating any need for servicers to distinguish the chapter of
bankruptcy filed by the borrower. Moreover, as finalized, Sec.
1024.39(c)(1)(iii) requires that a servicer provide the notice only
once during a single bankruptcy case, further alleviating servicer
burden. Additionally, new comment 39(c)-2 provides that Sec.
1024.39(c) does not require a servicer to communicate with a borrower
in a manner that would be inconsistent with applicable bankruptcy law
or a court order in a bankruptcy case, and that, if necessary to comply
with such law or court order, a servicer may adapt the requirements of
Sec. 1024.39 as appropriate.
Third, while industry commenters expressed concerns that providing
the written early intervention notice to borrowers in bankruptcy would
violate the automatic stay, courts have found no violation under
similar circumstances. Of the handful of cases cited by industry
commenters finding stay or discharge injunction violations for any
reason related to a mortgage loan, all involved extreme facts and only
one involved loss mitigation communications. In that case, the servicer
had sent several ARM notices, two HAMP packets, and a letter offering
workout options, but also engaged in collection attempts, such as
making multiple phone calls requesting payment, after the borrower had
long since surrendered the home and stopped making payments.\202\ In
finding a violation of the discharge injunction, the court noted that
the totality of the servicer's collection efforts included at least 15
separate collection attempts and that the debtor had in fact vacated
the home before filing for bankruptcy and moved to another
address.\203\ The final rule, in contrast, requires a single written
notice containing information about available loss mitigation options,
which may not include a request for payment. The Bureau is not aware of
any reported decision in which a court sanctioned a servicer for
providing a written notice about loss mitigation information with the
content and frequency as adopted in this final rule. In fact, some
industry commenters, consumer advocacy groups, bankruptcy attorneys,
the U.S. Trustee Program, and two bankruptcy judges \204\ all agreed
that providing the written early intervention notice likely would not
violate the automatic stay.
---------------------------------------------------------------------------
\202\ See In re Bibolotti, No. 4:11-CV-472, 2013 WL 2147949
(E.D. Tex. May 15, 2013). The other cases industry commenters cited
did not involve loss mitigation notices or conduct that the proposal
or final rule would require. See In re Shinabeck, No. 08-41942, 2014
WL 5325781 (Bankr. E.D. Tex. Oct. 20, 2014) (collection attempts
continued even after borrower filed lawsuit alleging violations of
the discharge injunction); In re Draper, 237 B.R. 502, 505-06
(Bankr. M.D. Fla. 1999) (debtor had asked not to receive periodic
statements, which were inaccurate in any event); In re Connor, 366
B.R. 133, 136, 138 (Bankr. D. Haw. 2007) (debtor was surrendering
his home and did not need periodic statements).
\203\ Bibolotti, 2013 WL 2147949, at *1.
\204\ As the Bureau explained, prior to the proposal, the Bureau
conducted outreach to two bankruptcy judges who commented that a
written notice compliant with Sec. 1024.39(b) and containing a
bankruptcy disclaimer would raise fewer concerns about the automatic
stay than live contact because the notice does not contain any
payment demand and because the nature of the notice is an invitation
to apply for debt relief. 79 FR 74176, 74205 (Dec. 15, 2014).
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Additionally, the Bureau understands that, even after a borrower
files for bankruptcy, a servicer is not categorically barred from
communicating with the borrower.\205\ Courts have found that, under
appropriate circumstances, servicers may provide periodic statements,
notices of change in payments, and other communications without
violating the automatic stay.\206\ As noted above, several courts have
determined that a servicer may properly contact a borrower to inform
the borrower about loss mitigation options or to negotiate the terms of
a loss mitigation agreement.
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\205\ See, e.g., In re Zotow, 432 B.R. 252, 258 (B.A.P. 9th Cir.
2010) (``[T]he automatic stay does not prevent all communications
between a creditor and the debtor.'') (citations omitted); In re
Duke, 79 F.3d 43, 45 (7th Cir. 1996) (holding that creditor does not
violate automatic stay by sending a ``nonthreatening and non-
coercive'' offer to reaffirm a pre-petition debt and stating that
``the respite provided by Sec. 362 `is . . . from the threat of
immediate action by creditors, such as a foreclosure or a lawsuit'
'') (quoting In re Brown, 851 F.2d 81, 86 (3d Cir. 1988)).
\206\ See section-by-section analysis of 12 CFR 1026.41, infra;
see also Zotow, 432 B.R. at 260 (notice of payment change due to
escrow deficiency); Duke, 79 F.3d at 45 (offer to reaffirm debt); In
re Schatz, 452 B.R. 544 (Bankr. M.D. Pa. 2011) (periodic
statements); In re Singh, 457 B.R. 790 (Bankr. E.D. Cal. 2011)
(notice of payment change); see also Morgan Guaranty Trust Co. of
N.Y. v. Am. Sav. & Loan Ass'n, 804 F.2d 1487, 1491 (9th Cir. 1986)
(``[M]ere requests for payment are not barred absent coercion or
harassment by the creditor. . . .'').
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The Bureau also does not believe that servicers' concerns about
communicating with a borrower represented by counsel warrant a blanket
exemption from providing the written early intervention notice to
borrowers in bankruptcy. To the extent that a servicer is concerned
about
[[Page 72227]]
communicating with a borrower represented by counsel, it may
communicate with the borrower's authorized representative instead.\207\
New comment 39(c)-1 provides that, if the borrower is represented by a
person authorized by the borrower to communicate with the servicer on
the borrower's behalf, the servicer may provide the written notice
required by Sec. 1024.39(b), as modified by Sec. 1024.39(c)(1)(iii),
to the borrower's representative. The comment explains that, in
general, bankruptcy counsel is the borrower's representative and that a
servicer's procedures for determining whether counsel is the borrower's
representative are generally considered reasonable if they are limited
to, for example, confirming that the attorney's name is listed on the
borrower's bankruptcy petition or other court filing.\208\
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\207\ As HUD has also recognized, communicating with a
borrower's bankruptcy counsel about available loss mitigation does
not raise concerns about violating the automatic stay. HUD Mortgagee
Letter 2008-32 (``As a result of these discussions [with bankruptcy
experts], the Department understands that contact with debtor's
counsel or a bankruptcy trustee does not constitute a violation of
the automatic stay and that waiting until a bankruptcy is discharged
or dismissed before offering loss mitigation may be injurious to the
interests of the borrower, the mortgagee and the FHA insurance
funds.''); see also Henry v. Assocs. Home Equity Servs., Inc. (In re
Henry), 266 B.R. 457 (Bankr. C.D. Cal. 2001) (``If a debtor is
represented by counsel, any creditor may communicate with counsel
for the debtor without violating the automatic stay. Counsel has no
need to be shielded from a client's creditors. It is part of the job
of counsel for a debtor to deal with the client's creditors.'');
United States v. Nelson, 969 F.2d 626, 628 (8th Cir. 1992) (holding
that creditor did not violate the stay by sending a letter to
debtor's counsel); Cash Am. Pawn, L.P. v. Murphy, 209 B.R. 419, 424
(E.D. Tex. 1997) (similar); In re Murray, 89 B.R. 533, 536 (Bankr.
E.D. Pa. 1988) (similar); cf. Duke, 79 F.3d at 45 (holding that
creditor did not violate stay by copying debtor on letter it sent to
debtor's counsel).
\208\ See current comments 39(b)(1)-3 and 39(a)-4 (renumbered in
this final rule as comment 39(a)-5).
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As evidenced by the numerous jurisdictions that provide special
bankruptcy court rules for loss mitigation,\209\ the Bureau continues
to believe that bankruptcy courts often encourage loss mitigation
efforts and that bankruptcy courts are unlikely to sanction a servicer
for sending notices required by Regulation X unless the servicer
engaged in other, more aggressive collection attempts. To address
further commenters' concerns about the automatic stay, the Bureau is
finalizing Sec. 1024.39(c)(1)(iii) to specify that the written notice
may not contain a request for payment and require that a servicer
provide the notice only once during a single bankruptcy case. As
explained more fully in the section-by-section analysis of Sec.
1024.39(d), the prohibition on making a payment request ensures that
the written early intervention notice is purely informational and does
not serve as a pretext for collection attempts. The Bureau is also
revising existing comment 39(d)(1)-3 and renumbering it as comment
39(c)(1)(iii)-1 to provide that, when two or more borrowers are joint
obligors with primary liability on a mortgage loan subject to Sec.
1024.39, if any of the borrowers is a debtor in bankruptcy, a servicer
may provide the written notice required by Sec. 1024.39(b), as
modified by Sec. 1024.39(c)(1)(iii), to any borrower who is primarily
liable on the obligation. This comment should clarify servicers'
obligations when there are multiple borrowers on a mortgage loan and
only one of them is in bankruptcy.
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\209\ See, e.g., Bankr. S.D.N.Y., Loss Mitigation Program
Procedures, available at http://www.nysb.uscourts.gov/pgh/lossmitigation/LossMitigationProcedures.pdf; Bankr. E.D.N.Y., In re
Adoption of Modified Loss Mitigation Program Procedures, Gen. Order
582 (Sept. 9, 2011), available at http://www.nyeb.uscourts.gov/sites/nyeb/files/ord_582.pdf; Bankr. D.R.I., Eighth Amended Loss
Mitigation Program and Procedures, available at http://www.rib.uscourts.gov/sites/default/files/programs_and_services/loss_mitigation/Appendix%20VII%20Loss%20Mitigation.pdf; Bankr. D.
Vt., L.B.R. 4001-7, Mortgage Mediation and Loss Mitigation Program,
available at http://www.vtb.uscourts.gov/sites/vtb/files/general-ordes/SO%2015-02%20-%20MM%20-%202.2.15%20FINAL%20with%20attachments.pdf; Bankr. D.N.J., Loss
Mitigation Program and Procedures, available at http://www.njb.uscourts.gov/sites/default/files/forms/Loss_Mitigation_Program_and_Procedures.pdf; Bankr. M.D. Fla., In re
Administrative Order Prescribing Procedures for Mortgage
Modification Mediation, Admin. Order FLM 2015-1, available at http://pacer.flmb.uscourts.gov/administrativeorders/DataFileOrder.asp?FileID=43.
---------------------------------------------------------------------------
The Bureau also proposed comment 39(d)(1)(ii)-2 to clarify
servicers' obligations when the FDCPA applies to a servicer's
communications with a borrower who is a debtor in bankruptcy if that
borrower has also invoked the cease communication protections of FDCPA
section 805(c). The Bureau revises and renumbers proposed comment
39(d)(1)(ii)-2 as new comment 39(c)(1)(ii)-2, which illustrates
application of the exemption in Sec. 1024.39(c)(1)(ii). Final comment
39(c)(1)(ii)-2.i provides that, to the extent the FDCPA applies to a
servicer's communications with a borrower in bankruptcy and any
borrower on the mortgage loan has provided a notification pursuant to
FDCPA section 805(c) notifying the servicer that the borrower refuses
to pay a debt or that the borrower wishes the servicer to cease further
communications (a cease communications notice), with regard to that
mortgage loan, Sec. 1024.39(c)(1)(ii) exempts a servicer from
providing the written notice required by Sec. 1024.39(b). New comment
39(c)(1)(ii)-2.ii provides an illustrative example of the application
of this exemption.
Timing of written notice rationale. New Sec. 1024.39(c)(1)(iii)(A)
requires that a servicer provide the written notice not later than the
45th day after a delinquent borrower files a bankruptcy petition under
title 11 of the United States Code. The Bureau believes that requiring
servicers to provide a single notice for delinquent borrowers who file
for bankruptcy without having to review the borrower's bankruptcy
filings or the bankruptcy court's orders reduces servicer burdens
compared to the proposed approach. The Bureau believes that delinquent
borrowers will benefit by having the notice provided shortly after the
bankruptcy filing when they are making decisions about whether to
retain the property, even if they received a version of the early
intervention notice prior to the bankruptcy filing. The final rule's
approach is consistent with HUD's 2008 FHA guidance, which requires
servicers to provide loss mitigation information ``upon receipt'' of a
borrower's filing.\210\
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\210\ U.S. Dep't of Housing and Urban Dev., Mortgagee Letter
2008-32, Use of FHA Loss Mitigation During Bankruptcy (Oct. 17,
2008) (HUD Mortgagee Letter 2008-32), available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/lmmltrs.
---------------------------------------------------------------------------
Overlap between borrowers in bankruptcy and FDCPA rationale. New
Sec. 1024.39(c)(1)(ii) provides that a servicer is exempt from the
written early intervention notice requirements if Sec. 1024.39(d) also
applies with respect to that borrower's loan, meaning that a servicer
subject to the FDCPA is exempt from providing the written early
intervention notice with regard to a mortgage loan for which any
borrower on the mortgage loan invokes the FDCPA's cease communications
protections while any borrower on the mortgage loan is a debtor in
bankruptcy. The Bureau agrees with commenters that there is tension
between, on the one hand, the Bankruptcy Code's automatic stay, which
prevents the servicer from pursuing foreclosure, and, on the other
hand, a statement that the servicer may or intends to invoke its
specified remedy of foreclosure, as required to be included under Sec.
1024.39(d)(3)(i) in the notice to a borrower who has invoked the
FDCPA's cease communication protections.\211\
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\211\ See section-by-section analysis of Sec. 1024.39(d)(3) for
further discussion of the requirement that the written early
intervention notice include a statement that the servicer may or
intends to invoke its specified remedy of foreclosure.
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[[Page 72228]]
The Bureau believes that any potential borrower harm resulting from
this exemption is mitigated because Sec. 1024.39(d)(3) requires that,
if any loss mitigation option is available, servicers must provide the
written early intervention notice to delinquent borrowers outside of
bankruptcy, even if those borrowers have invoked their cease
communication rights. If any loss mitigation option is available, a
servicer is exempt from providing the written early intervention notice
only with respect to a mortgage loan for which any borrower on the loan
has invoked the FDCPA cease communication right and while any borrower
on that mortgage loan is a debtor in bankruptcy. Consequently, many
borrowers among that subset of delinquent borrowers who have invoked
their cease communication rights while any borrower on the mortgage
loan is a debtor in bankruptcy will nonetheless receive an early
intervention notice, either because they received such a notice before
exercising their cease communication rights or because they received
the modified written early intervention notice required to be provided
to all borrowers outside of bankruptcy if any loss mitigation option is
available. As commenters noted, many borrowers will be more than 45
days delinquent upon filing for bankruptcy and so will have received a
written early intervention notice before entering bankruptcy, if any
loss mitigation option is available.
39(c)(2) Resuming Compliance
The Bureau also proposed to revise current comment 39(d)(1)-2 and
redesignate it as comment 39(d)(1)-1 (and remove existing comment
39(d)(1)-1). The proposed comment would have provided that, with
respect to any borrower who has not discharged the mortgage debt, a
servicer must resume compliance with Sec. 1024.39(a) and (b), as
applicable, as of the first delinquency that follows the earliest of
the following outcomes in the bankruptcy case: (1) The case is
dismissed, (2) the case is closed, (3) the borrower reaffirms the
mortgage loan under 11 U.S.C. 524, or (4) the borrower receives a
discharge under 11 U.S.C. 727, 1141, 1228, or 1328. Proposed comment
39(d)(1)-1 also clarified that the requirement to resume compliance
with Sec. 1024.39 would not require a servicer to communicate with a
borrower in a manner that would be inconsistent with applicable
bankruptcy law or a court order in a bankruptcy case. The proposed
revisions would have provided that, to the extent necessary to comply
with such law or court order, a servicer may adapt the requirements of
Sec. 1024.39 as appropriate.
In addition, proposed comment 39(d)(1)-1 would have provided that
compliance with Sec. 1024.39(a) is not required with respect to any
borrower who has discharged the mortgage debt under applicable
provisions of the Bankruptcy Code but continues to make mortgage
payments to avoid foreclosure of the lien and retain the home. As to
borrowers who use such a ride-through option, the proposal would have
imposed the same requirements on a servicer both during and after the
bankruptcy case: The servicer would be exempt from the live contact
requirements of Sec. 1024.39(a), but the servicer would have to
continue to comply with the written notice requirements of Sec.
1024.39(b) unless one of the conditions in proposed Sec.
1024.39(d)(1)(ii) was satisfied. If the borrower's bankruptcy case was
revived, for example, through the court's reinstating a previously
dismissed case or reopening the case, the servicer would be exempt
again from the requirements of proposed Sec. 1024.39(a). As discussed
further below, the Bureau is adopting clarifications to proposed
comment 39(d)(1)-1 and codifying it in new Sec. 1024.39(c)(2) and its
related commentary to explain when a servicer is required to resume
compliance with the early intervention requirements.
Comments on Resuming Compliance
Commenters expressed varied opinions about whether a servicer
should be required to resume compliance with Sec. 1024.39 if a
borrower discharged the mortgage loan. One industry commenter explained
that a bankruptcy case can remain open following the borrower's
discharge, that the property securing the servicer's lien may remain
property of the bankruptcy estate, and that the automatic stay could
continue to apply to the property. The commenter recommended that a
servicer not be required to resume compliance until the bankruptcy case
is complete. Conversely, consumer advocacy groups stated that servicers
should be required to resume compliance with the early intervention
requirements for borrowers in chapter 7 bankruptcy who use the ride-
through option referenced above. These consumer advocacy groups
suggested that, for simplicity of administration, if the servicer is
required to send the borrower periodic statements after a bankruptcy
discharge, then the servicer should also be required to attempt live
contact and provide a written early intervention notice to the borrower
if the loan becomes delinquent.
In response to the Bureau's specific request for comment as to
whether servicers have had difficulties receiving notices regarding the
dismissal or closing of a bankruptcy case or of the debtor's discharge,
one servicer stated that it encounters such problems. Another industry
commenter stated that servicers incur expenses in monitoring bankruptcy
cases for a case closing or for discharge of the mortgage loan. Both
commenters suggested that the obligation to resume compliance be
contingent on the servicer receiving notice from the bankruptcy court
or the borrower.
Specifically regarding ride-through borrowers, the U.S. Trustee
Program commented that the criteria for resuming compliance with early
intervention should be clarified to recognize borrowers who have
received a discharge of personal liability but whose homes are still
subject to valid liens. The U.S. Trustee Program stated that the Bureau
should make clear that servicers must comply with the written early
intervention notice requirements if the servicer retains a valid
security interest in the property--even if the debtor has obtained a
discharge of personal liability.
The Bureau conducted additional outreach with servicers about how
they monitor bankruptcy cases after the close of the comment period.
Several servicers stated that they learn of new bankruptcy filings
through electronic subscription monitoring services. One credit union
explained that it learns of new bankruptcy filings either through
mailings from the bankruptcy court or directly from the credit union
member. In either case, servicers stated that they generally receive
timely notice of new bankruptcy filings, in some cases within as little
as one day of the filing. A number of servicers also explained that
they track the status of bankruptcy cases electronically.
Final Rule
The Bureau is adopting clarifications to proposed comment 39(d)(1)-
1 and codifying it in new Sec. 1024.39(c)(2) and its related
commentary. Specifically, part of proposed comment 39(d)(1)-1.i is
finalized as new Sec. 1024.39(c)(2)(i) with modifications and provides
that, subject to certain exceptions in new Sec. 1024.39(c)(2)(ii), a
servicer that was exempt pursuant to Sec. 1024.39(c)(1) must resume
compliance with the early intervention requirements after the next
payment due date that follows the
[[Page 72229]]
earliest of the following events: The bankruptcy case is dismissed; the
bankruptcy case is closed; and the borrower reaffirms personal
liability for the mortgage loan. New Sec. 1024.39(c)(2)(ii) finalizes
part of proposed comment 39(d)(1)-1.ii with modifications and provides
that, with respect to a mortgage loan for which the borrower has
discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or
1328, a servicer is not required to resume compliance with the live
contact early intervention requirements and must resume compliance with
the written early intervention notice requirements if the borrower has
made any partial or periodic payment on the mortgage loan after
commencement of the borrower's bankruptcy case.
The Bureau considered whether the servicer's obligation to resume
early intervention should be contingent on a servicer receiving notice
that the bankruptcy case is dismissed or closed or that the borrower
has reaffirmed personal liability for the mortgage loan. However, as
the Bureau's outreach confirmed, servicers typically track the status
of borrowers' bankruptcy cases already to ensure compliance with other
Federal and State laws. Servicers generally have procedures in place to
monitor outcomes in bankruptcy cases and already bear any costs
associated with monitoring bankruptcy case outcomes. Additionally, a
servicer that participates in the bankruptcy case, such as by filing a
proof of claim or seeking relief from the automatic stay to pursue
foreclosure, should receive automatic electronic notification of all
case activity. Therefore, the Bureau concludes that any additional
compliance burdens associated with new Sec. 1024.39(c)(2) will be
minimal and that servicers have access to timely information about the
bankruptcy case.
The Bureau adopts part of proposed comment 39(d)(1)-1.ii in new
comment 39(c)(2)-1, which explains that, if the borrower's bankruptcy
case is revived, for example, if the court reinstates a previously
dismissed case or reopens the case, Sec. 1024.39(c)(1) once again
applies. However, Sec. 1024.39(c)(1)(iii)(C) provides that a servicer
is not required to provide the written notice more than once during a
single bankruptcy case. New comment 39(c)(2)-1 provides an illustrative
example applying this provision.
The final rule does not include the proposed language requiring
servicers to resume compliance with the early intervention provisions
when the borrower receives a discharge of the mortgage loan. The Bureau
believes it would be more appropriate to require servicers to resume
compliance once the bankruptcy case is complete. The Bureau understands
that the time between a borrower's discharge of personal liability for
the mortgage loan and the closing of a bankruptcy case is typically
brief and that, therefore, not requiring early intervention during this
period generally should not have significant adverse consequences for
borrowers. Additionally, the property securing the mortgage loan may
remain property of the bankruptcy estate after the borrower discharges
personal liability for the loan, and the Bureau believes it would be
more appropriate for a servicer to resume providing early intervention
after the bankruptcy case is complete with respect to both the borrower
and the property.
The Bureau continues to believe that borrowers who exercise the
ride-through option, like other borrowers who retain their homes, would
benefit from early intervention. The Bureau is concerned, however, that
in certain situations the borrower or bankruptcy court could view live
contact as violating the discharge injunction. Therefore, with respect
to a mortgage loan for which a borrower discharges personal liability,
a servicer is not required to resume compliance with the live contact
requirements of Sec. 1024.39(a). The Bureau believes that, for the
reasons discussed above, providing a written early intervention notice
after the bankruptcy case to a borrower who has discharged personal
liability for the mortgage loan is unlikely to raise similar concerns
about the discharge injunction.\212\ Accordingly, the final rule
provides that, with respect to a borrower who has discharged personal
liability for a mortgage loan, the servicer must resume compliance with
Sec. 1024.39(b) after the bankruptcy case concludes if the borrower
has made any partial or periodic payment on the mortgage loan after
commencement of the borrower's bankruptcy case. Consistent with
comments the Bureau received from the U.S. Trustee Program regarding
the ride-through option, the Bureau believes that a borrower's partial
or periodic payment after commencement of the bankruptcy case indicates
the borrower's desire to retain the property and therefore that the
written early intervention notice may continue to be helpful under
those circumstances. Even if a servicer were to return a borrower's
partial payment or hold it in suspense, the servicer would still be
required to resume compliance with Sec. 1024.39(b) after the
bankruptcy case concludes pursuant to Sec. 1024.39(c)(2)(ii)(B)
because the borrower made the payment.
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\212\ In addition to the reasons discussed above, the Bureau
notes that the written early intervention notice may fall within the
exception to the discharge injunction set forth in section 524(j) of
the Bankruptcy Code. See 11 U.S.C. 524(j) (``[A discharge
injunction] does not operate as an injunction against an act by a
creditor that is the holder of a secured claim, if--(1) such
creditor retains a security interest in real property that is the
principal residence of the debtor; (2) such act is in the ordinary
course of business between the creditor and the debtor; and (3) such
act is limited to seeking or obtaining periodic payments associated
with a valid security interest in lieu of pursuit of in rem relief
to enforce the lien.'').
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Legal Authority
The Bureau is exercising its authority under sections 6(j)(3) and
19(a) of RESPA to exempt servicers from the early intervention live
contact requirements in Sec. 1024.39(a) for a mortgage loan while any
borrower on a mortgage loan is a debtor in bankruptcy under any chapter
in title 11 of the United States Code. The Bureau exercises its
authority under sections 6(j)(3) and 19(a) of RESPA to exempt a
servicer from the written early intervention notice requirements in
Sec. 1024.39(b) if any borrower on the mortgage loan is a debtor in
bankruptcy and no loss mitigation option is available or if Sec.
1024.39(d) also applies with respect to that borrower's loan. The
Bureau also exercises its authority under sections 6(j)(3) and 19(a) of
RESPA to exempt a servicer from resuming compliance with Sec.
1024.39(a) with respect to a mortgage loan for which the borrower has
discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or
1328, and to require a servicer to resume compliance with Sec.
1024.39(b) if the borrower has made any partial or periodic payment on
the mortgage loan after commencement of the borrower's bankruptcy case.
For the reasons discussed above, the Bureau does not believe that the
consumer protection purposes of RESPA are furthered by requiring
servicers to comply with Sec. 1024.39(a) or (b) under those
bankruptcy-related circumstances.
The Bureau is exercising its authority under sections 6(k)(1)(E),
6(j)(3), and 19(a) of RESPA to require that a servicer provide the
written early intervention notice as set forth in Sec.
1024.39(c)(1)(iii) not later than the 45th day after the borrower files
a bankruptcy petition under title 11 of the United States Code or not
later than the 45th day of the borrower's delinquency, as applicable.
The Bureau also exercises its authority under sections 6(k)(1)(E),
6(j)(3), and 19(a) of RESPA to require that a servicer resume
compliance with Sec. 1024.39(a) and (b) after the next payment due
date that follows the earliest of the following
[[Page 72230]]
events: The bankruptcy case is dismissed; the bankruptcy case is
closed; or the borrower reaffirms personal liability for the mortgage
loan. The Bureau believes that the early intervention rules under Sec.
1024.39 provide necessary consumer protections and that servicers are
capable of providing such protections without negative consequences for
borrowers, including borrowers in bankruptcy. The Bureau finds,
consistent with RESPA section 6(k)(1)(E), that Sec. 1024.39(c)(1)(iii)
and (c)(2) is appropriate to achieve the consumer protection purposes
of RESPA, including to help borrowers avoid unwarranted or unnecessary
costs and fees and to facilitate review of borrowers for foreclosure
avoidance options. For the same reasons, Sec. 1024.39(c)(1)(iii) and
(c)(2) is authorized under section 6(j)(3) of RESPA as necessary to
carry out section 6 of RESPA and under section 19(a) of RESPA as
necessary to achieve the purposes of RESPA, including borrowers'
avoidance of unwarranted or unnecessary costs and fees and the
facilitation of review of borrowers for foreclosure avoidance options.
For the reasons discussed above, the Bureau concludes that the consumer
protection purposes of RESPA are furthered by requiring servicers to
provide the written early intervention notice as set forth in Sec.
1024.39(c)(1)(iii) and to resume compliance with Sec. 1024.39(a) and
(b) for borrowers in bankruptcy under the circumstances set forth in
Sec. 1024.39(c)(2).
39(d) Fair Debt Collection Practices Act--Partial Exemption
The Bureau proposed to revise the scope of the existing exemption
from the early intervention requirements for servicers subject to the
FDCPA with respect to a borrower who has sent a notification pursuant
to FDCPA section 805(c), as set forth in current Sec.
1024.39(d)(2).\213\ The proposal would have maintained the current
exemption from the live contact requirements of Sec. 1024.39(a) while
partially removing the exemption from the written early intervention
notice requirements of Sec. 1024.39(b). The latter exemption would
have been only partially removed in that it would remain in place for
certain cases but would have added a requirement that a servicer
provide a modified written notice if loss mitigation options are
available. To the extent proposed Sec. 1024.39(d)(2)(iii) would have
required a servicer to provide a modified written notice, the proposal
contemplated a safe harbor for the servicer from liability under the
FDCPA. FDCPA section 805 provides limitations on communications with
borrowers, including the cease communication provision under which a
borrower may notify a debt collector that the borrower refuses to pay a
debt or that the borrower wishes the debt collector to cease further
communication with the consumer.
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\213\ This section-by-section analysis discusses final Sec.
1024.39(d) generally in terms of a borrower's cease communication
notification and its effect on a servicer's obligations under the
early intervention requirements, but the provision applies equally
to a borrower's notice to the servicer that the borrower refuses to
pay a debt. See FDCPA section 805(c) (``If a consumer notifies a
debt collector in writing that the consumer refuses to pay a debt or
that the consumer wishes the debt collector to cease further
communication with the consumer, the debt collector shall not
communicate further with the consumer with respect to such debt . .
. .'').
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For the reasons discussed below, the Bureau is adopting proposed
Sec. 1024.39(d)(2) generally as proposed, renumbered as Sec.
1024.39(d), with technical corrections and modifications to adopt it on
a loan level. The Bureau is adopting these modifications to ease
servicer burden and to facilitate servicer compliance, in a manner and
for several reasons that parallel those explained in the section-by-
section analysis of Sec. 1024.39(c). The Bureau is also adding a new
provision that exempts a servicer that is a debt collector from
providing the written early intervention notice with regard to a
mortgage loan for which any borrower invokes the FDCPA's cease
communication protections while any borrower on the mortgage loan is a
debtor in bankruptcy.
Consistent with the discussion in this section-by-section analysis,
the Bureau is issuing concurrently with this final rule an interpretive
rule interpreting the FDCPA cease communication requirement in relation
to the mortgage servicing rules. This interpretation constitutes an
advisory opinion under FDCPA section 813(e) (15 U.S.C. 1692k(e)).\214\
For the reasons discussed below, the Bureau is providing a safe harbor
from liability under the FDCPA for the written notice that servicers
that are debt collectors are required to provide under Sec.
1024.39(d)(3), notwithstanding a borrower's invocation of the cease
communication right. Additionally, the Bureau is providing a safe
harbor from liability under the FDCPA for certain communications by a
servicer to a borrower notwithstanding a borrower's invocation of the
cease communication right.
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\214\ See Bureau of Consumer Fin. Prot., Official Bureau
Interpretations: Safe Harbors from Liability under the Fair Debt
Collection Practices Act for Certain Actions Taken in Compliance
with Mortgage Servicing Rules under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z) (Aug. 4, 2016), available at http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/safe-harbors-liability-under-fair-debt-collection-practices-act-certain-actions-taken-compliance-mortgage-servicing-rules-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z.
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Comments on Partially Removing Exemption Generally
The Bureau received comments on the proposed partial exemption from
servicers, consumer advocacy groups, trade associations, credit unions,
and the U.S. Trustee Program. Some industry commenters expressed
concern with the Bureau's proposed approach, stating that it would be
inconsistent to require that a servicer provide early intervention
after receiving a borrower's cease communication notice. Two industry
commenters stated that the better approach would be for the FDCPA not
to apply to mortgage loans at all and for early intervention
requirements to apply equally to all mortgage borrowers. Another
industry commenter explained that, to ease operational burdens, the
exemption should apply to any loans that a servicer chooses to treat as
subject to the FDCPA and for which the borrower has provided a cease
communication notification.
Consumer advocacy groups generally supported the proposal,
commenting that borrowers need and are interested in loss mitigation
information notwithstanding invocation of their cease communication
rights. Consumer advocacy groups explained that borrowers should not be
forced to make a choice between exercising their rights under the FDCPA
and receiving information about potential loss mitigation options.
Comments on Live Contact
Industry commenters generally supported the exemption from live
contact for a borrower who has provided a cease communication
notification. Consumer advocacy groups stated that the Bureau should
clarify that the exemption does not apply if the borrower has initiated
contact with the servicer and has sought assistance with a delinquency
or requested information about potential loss mitigation options.
Comments on Written Notice
Industry commenters generally objected to the burden of providing a
modified written early intervention notice on a modified schedule to a
narrow subset of borrowers. They noted their difficulty in determining
when the FDCPA applies to a mortgage loan and thus the difficulty they
would have in
[[Page 72231]]
determining when to send the modified notice.
Consumer advocacy groups generally supported a requirement that
borrowers who invoke cease communication protections receive a written
notice. However, consumer advocacy groups commented that the
availability of loss mitigation options should not be the condition
that determines whether a borrower receives the written notice. They
stated that a servicer may make a mistake in its determination as to
whether a borrower who has provided a servicer a cease communication
notification would be eligible for some loss mitigation options.
Therefore, consumer advocacy groups supported requiring that servicers
provide a written notice to all borrowers who have invoked cease
communication rights, regardless of whether loss mitigation options are
available.
Comments on Frequency of Written Notice
With respect to the frequency of the written early intervention
notice, two industry group commenters indicated that, despite the
option under the current rule to provide the early intervention notice
no more than once in a 180-day period, servicers find it easier to
provide the notice more frequently, sometimes monthly. The commenters
suggested that the rule should allow servicers to provide a written
notice monthly or once in connection with two missed payments during a
calendar year to tie the notice requirement to a late payment rather
than to the time between notices. The same commenters also said that a
servicer should be permitted to provide a written notice upon the
borrower's request.
On the other hand, consumer advocacy groups suggested that, in
limited circumstances, the Bureau should permit a servicer to provide a
written early intervention notice more than once during a 180-day
period. They stated that a servicer should be required to provide a
written notice more than once during any 180-day period if there has
been a cure of a default and subsequent re-default by the borrower
within the 180-day period.
Comments on Safe Harbor and Advisory Opinion
Industry commenters stated that the Bureau's overall proposed safe
harbor approach failed to take into account the fluid nature of
discussions between servicers and borrowers in the loss mitigation
context. These commenters stated that assessing a borrower's
eligibility for loss mitigation may require asking the borrower to pay
a reinstatement amount or otherwise make an immediate payment. One
industry commenter stated that loss mitigation is itself a form of debt
collection and that servicing personnel are trained to explore options
for collection. This commenter suggested that, with respect to any
specific borrower-initiated communication, the cease communication
notice should be deemed temporarily or permanently withdrawn.
Accordingly, industry commenters suggested the Bureau modify the safe
harbor to cover more discussions of loss mitigation options.
Although consumer advocacy groups generally supported the proposal
to require that a servicer provide a written early intervention notice
to a borrower who has provided the servicer a cease communication
notification, they opposed the proposed safe harbor from liability
under the FDCPA. They stated that the proposal appeared to provide
servicers with blanket FDCPA protection any time they provide a written
notice required by proposed Sec. 1024.39(d)(2)(iii), under all
circumstances, regardless of what is contained in the notice. Consumer
advocacy groups also expressed concern with the proposal's discussion
of borrower-initiated communications in a separate advisory opinion
interpreting the FDCPA cease communication requirement. Rather than
issue a separate advisory opinion interpreting the FDCPA cease
communication requirement, consumer advocacy groups requested that the
Bureau issue guidance in Regulation X itself, either as an amendment to
proposed Sec. 1024.39(d)(2)(i) or in a comment. These consumer
advocacy groups also opposed the Bureau's plan to provide servicers
with a safe harbor from liability under the FDCPA for an act done or
omitted in good faith in conformity with the advisory opinion.
Final Rule
For the reasons set forth below and in light of the comments
received, the Bureau is adopting a partial exemption from the early
intervention requirements for borrowers who have invoked their FDCPA
cease communication protections as proposed in Sec. 1024.39(d)(2),
renumbered as Sec. 1024.39(d), with technical corrections and
modifications to adopt it on a loan level instead of a borrower-
specific level. The Bureau is also adding a new provision that exempts
a servicer that is a debt collector from providing the written early
intervention notice with regard to a mortgage loan for which any
borrower invokes the FDCPA's cease communication protections while any
borrower on the mortgage loan is a debtor in bankruptcy.
As finalized, Sec. 1024.39(d) provides that, with regard to a
mortgage loan for which any borrower has provided a notification
pursuant to FDCPA section 805(c), a servicer subject to the FDCPA with
respect to that borrower's loan: (1) Is exempt from the live contact
requirements of Sec. 1024.39(a); (2) is exempt from the written notice
requirements of Sec. 1024.39(b) if no loss mitigation option is
available or while any borrower on that mortgage loan is a debtor in
bankruptcy under title 11 of the United States Code as referenced in
Sec. 1024.39(c); and (3) if those conditions are not met (meaning that
any loss mitigation option is available and no borrower on the mortgage
loan is a debtor in bankruptcy), must comply with the written notice
requirements of Sec. 1024.39(b), as modified by new Sec.
1024.39(d)(3). Section 1024.39(d)(3) modifies the requirements of Sec.
1024.39(b) under these circumstances to provide that, in addition to
the information required pursuant to Sec. 1024.39(b)(2), the written
notice must include a statement that the servicer may or intends to
invoke its specified remedy of foreclosure. Model clause MS-4(D) in
appendix MS-4 may be used to comply with this requirement.\215\ Revised
Sec. 1024.39(d)(3) also finalizes two other aspects of the proposed
rule: (1) The written notice may not contain a request for payment, and
(2) a servicer is prohibited from providing the written notice more
than once during any 180-day period.
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\215\ To assist servicers that are debt collectors in complying
with the requirements of new Sec. 1024.39(d)(3), the Bureau is
adopting model clause MS-4(D), contained in appendix MS-4 to part
1024. A more detailed discussion of the model clause is contained in
the section-by-section analysis of appendix MS.
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While many mortgage servicers are not subject to the FDCPA,
mortgage servicers that acquired a mortgage loan at the time that it
was in default are subject to the FDCPA with respect to that mortgage
loan. The FDCPA generally grants consumers the right to bar debt
collectors from communicating with them regarding a debt by sending a
written cease communication notification pursuant to FDCPA section
805(c). Section 805(c) of the FDCPA provides that if a consumer refuses
in writing to pay a debt or requests that a debt collector cease
communicating with the consumer about the debt, the debt collector must
discontinue communicating with the consumer, subject to enumerated
exceptions. However, even after a borrower sends a
[[Page 72232]]
servicer a cease communication notification, a servicer that is a debt
collector is not categorically barred under the FDCPA from all
communication with the borrower. FDCPA section 805(c) contains specific
exceptions that allow further communications with the borrower with
respect to a debt. As relevant here, the prohibition does not apply
where a debt collector communicates with a consumer who has invoked the
cease communication right to notify the consumer that the debt
collector or creditor may invoke specified remedies which are
ordinarily invoked by such debt collector or creditor \216\ or, where
applicable, to notify the consumer that the debt collector or creditor
intends to invoke a specified remedy.\217\
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\216\ FDCPA section 805(c)(2).
\217\ FDCPA section 805(c)(3).
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The Bureau provisionally adopted the exemption in current Sec.
1024.39(d)(2) in the IFR and indicated that the Bureau expected to
explore the potential utility and application of such requirements in
comparison to the FDCPA protections in the future.\218\ The Bureau now
partially removes the exemption to require that a servicer that is a
debt collector provide a modified written early intervention notice if
any loss mitigation option is available and no borrower on the mortgage
loan is a debtor in bankruptcy. The Bureau is issuing simultaneously
with this final rule an interpretive rule that constitutes an advisory
opinion under FDCPA section 813(e) interpreting the section 805(c)(2)
and (3) exceptions to the cease communication right. No liability
arises under the FDCPA for an act done or omitted in good faith in
conformity with an advisory opinion of the Bureau while that advisory
opinion is in effect.\219\ After careful consideration, the Bureau
concludes that, because failure to provide the written early
intervention notice required by Sec. 1024.39(d)(3) is closely linked
to a servicer's ability to invoke its specified remedy of foreclosure,
the notice falls within the exceptions in FDCPA sections 805(c)(2) and
(3).
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\218\ 78 FR 62993, 62998-99 (Oct. 23, 2013). As in the IFR, the
Bureau is not making a determination as to the legal status of the
requirements under Sec. 1026.20(c) following receipt of proper
cease communication requests at this time. Therefore, the Bureau
continues to encourage servicers to provide ARM payment adjustment
notices to the extent that the FDCPA permits. See 78 FR 62993, 62999
(Oct. 23, 2013).
\219\ FDCPA section 813(e).
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39(d)(1)
The Bureau is adopting proposed Sec. 1024.39(d)(2)(i) generally as
proposed, renumbered as Sec. 1024.39(d)(1), with modifications to
adopt the exemption on a loan level. Accordingly, new Sec.
1024.39(d)(1) maintains the current exemption from the live contact
requirements of Sec. 1024.39(a) for a servicer subject to the FDCPA
with respect to a borrower's mortgage loan for which any borrower has
provided a cease communication notification under FDCPA section 805(c).
For reasons similar to those explained in the section-by-section
analysis of Sec. 1024.39(c), the Bureau is adopting this partial
exemption on a loan level to ease servicer burden and facilitate
servicer compliance.
As the Bureau explained in the proposal, the Bureau understands
that the nature of live contact and the information conveyed may be
highly variable. The information conveyed, the manner for conveying
that information, and whether any loss mitigation information is
conveyed depends on the borrower's circumstances, the servicer's
perception of those circumstances, and the servicer's exercise of
reasonable discretion.\220\ The servicer may contact the borrower in
person, by telephone, or not at all, if the servicer's good faith
efforts to reach the borrower fail.\221\ By their nature, discussions
or conversations resulting from live contact are not and cannot be
closely prescribed.\222\ Such variability is inconsistent with the
narrow exceptions in FDCPA section 805(c)(2) and (3), which permit a
debt collector to communicate further with a borrower for extremely
limited purposes after a borrower has provided a servicer a cease
communication notification. Because the information conveyed and the
manner for conveying such information may be highly variable in the
context of live contact, the Bureau concludes that requiring a servicer
that is a debt collector to comply with the live contact requirements
with regard to a mortgage loan for which a borrower has provided a
notification pursuant to FDCPA section 805(c) is inappropriate and may
put a servicer subject to the FDCPA with respect to that borrower's
loan at risk of violating the FDCPA. The Bureau adopts no general rule
about whether oral versus written communications are more likely to
violate the FDCPA but notes only that the live contact requirements of
Sec. 1024.39(a) are less susceptible to standard, uniform delivery in
compliance with the cease communication exceptions in FDCPA section
805(c)(2) and (3) than are the modified written early intervention
notice requirements required under this final rule.
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\220\ See current comment 39(a)-3.i, which this final rule
renumbers as comment 39(a)-4.i.
\221\ See current comment 39(a)-2 (``Good faith efforts to
establish live contact consist of reasonable steps under the
circumstances to reach a borrower and may include telephoning the
borrower on more than one occasion or sending written or electronic
communication encouraging the borrower to establish live contact
with the servicer.''). This final rule moves this language into
comment 39(a)-3.
\222\ See 78 FR 10695, 10793 (Feb. 14, 2013).
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The Bureau also concludes that live contact may be of less value to
a delinquent borrower who has properly invoked the FDCPA's cease
communication protections. Compliance with the live contact
requirements in Sec. 1024.39(a) is not limited to, and does not in
every case require, a discussion of available loss mitigation options.
Section 1024.39(a) requires that a servicer inform the borrower about
the availability of loss mitigation options, ``if appropriate.'' More
broadly, comment 39(a)-2 states that live contact provides servicers an
opportunity to discuss the circumstances of a borrower's delinquency,
and, based on this discussion, a servicer may determine not to inform a
borrower of loss mitigation options. As current comment 39(a)-3.i
explains, servicers have discretion to determine whether informing a
borrower about the availability of loss mitigation options is
appropriate under the circumstances. A servicer may determine that
promptly informing the borrower about the availability of loss
mitigation options is not appropriate under certain circumstances.
Current comment 39(a)-3.i.B provides an example of a servicer's
reasonable determination not to provide information about the
availability of loss mitigation options to a borrower who has missed a
January 1 payment and notified the servicer that full late payment will
be transmitted to the servicer by February 15.\223\ The purpose of such
a conversation could be to remind a borrower who perhaps inadvertently
missed a payment of a past due amount, or to give the servicer an
opportunity to discuss when the borrower may cure a temporary
delinquency, but the conversation need not involve a discussion of loss
mitigation options.
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\223\ This final rule renumbers current comment 39(a)-3.iB as
comment 39(a)-4.i.B.
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The early intervention live contact requirement is a recurring
obligation that generally requires servicers to make continued efforts
to establish live contact with a borrower so long as a borrower remains
delinquent.\224\ A
[[Page 72233]]
borrower who has provided a servicer a cease communication notification
may perceive a servicer's early intervention live contact under Sec.
1024.39(a) as an intrusive and unwanted communication. The Bureau
concludes that repeated attempts to establish live contact, which may
not lead to a discussion of available loss mitigation options, with a
borrower who has instructed a servicer that is a debt collector to stop
communicating with the borrower about the debt pursuant to the FDCPA
may be unwanted and in contravention of the purposes of the FDCPA's
cease communication protections. Therefore, the Bureau is finalizing
proposed Sec. 1024.39(d)(2)(i) in new Sec. 1024.39(d)(1) to maintain
the current exemption from the live contact requirements of Sec.
1024.39(a) for a servicer subject to the FDCPA with respect to a
borrower's mortgage loan for which any borrower has provided a cease
communication notification under FDCPA section 805(c) with regard to
that mortgage loan.
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\224\ See Bureau of Consumer Fin. Prot., CFPB Bulletin 2013-12,
Implementation Guidance for Certain Mortgage Servicing Rules (Oct.
15, 2013), available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf; section-by-section
analysis of Sec. 1024.39(a), supra.
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39(d)(2)
The Bureau is adopting proposed Sec. 1024.39(d)(2)(ii), renumbered
as Sec. 1024.39(d)(2), to exempt a servicer from the written notice
requirements of Sec. 1024.39(b) with regard to a mortgage loan for
which any borrower has provided a notification pursuant to FDCPA
section 805(c) if no loss mitigation option is available, or while any
borrower on that mortgage loan is a debtor in bankruptcy under title 11
of the United States Code as referenced in Sec. 1024.39(c). In the
limited circumstances where no loss mitigation option is available, the
Bureau believes that the written notice may be of significantly less
value to a borrower and is not as closely tied to the servicer's right
to invoke foreclosure due to the limited impact of the dual tracking
restrictions in the absence of loss mitigation options. The Bureau
considered comments that it should require the written early
intervention notice for all borrowers who have exercised cease
communication rights under the FDCPA, regardless of whether any loss
mitigation option is available. However, the Bureau concludes that it
is not appropriate to require servicers that are debt collectors to
provide the written early intervention notice to borrowers who have
exercised their FDCPA cease communication rights if no loss mitigation
option is available. In light of these considerations, if no loss
mitigation option is available, the Bureau retains the exemption from
the requirements of Sec. 1024.39(b) for a servicer subject to the
FDCPA with respect to a mortgage loan for which any borrower has
provided a cease communication notification with regard to that
mortgage loan. The Bureau adopts this exemption on a loan level to ease
servicer burden and further facilitate servicer compliance as explained
in the section-by-section analysis of Sec. 1024.39(c).
Overlap Between Borrowers in Bankruptcy and FDCPA Rationale
Additionally, revised Sec. 1024.39(d)(2) exempts a servicer from
the written notice requirements of Sec. 1024.39(b) with regard to a
mortgage loan for which any borrower has provided a notification
pursuant to FDCPA section 805(c) while any borrower on the mortgage
loan is a debtor in bankruptcy under title 11 of the United States Code
as referenced in Sec. 1024.39(c). Based on the comments received and
for the reasons set forth in the section-by-section analysis of Sec.
1024.39(c), the Bureau declines to finalize proposed comment
39(d)(2)(iii)-2, which would have explained that a servicer subject to
the FDCPA with respect to a borrower who invokes the FDCPA's cease
communication protections and is also a debtor in bankruptcy would only
be required to provide the modified written early intervention notice
if the borrower is represented by a person authorized to communicate
with the servicer on the borrower's behalf. Comment 39(d)(2)-1 explains
that to the extent the FDCPA applies to a servicer's communications
with a borrower and the borrower has provided a notification pursuant
to FDCPA section 805(c) notifying the servicer that the borrower
refuses to pay a debt or that the borrower wishes the servicer to cease
further communications, with regard to that mortgage loan, Sec.
1024.39(d)(2) exempts a servicer from providing the written notice
required by Sec. 1024.39(b) while any borrower on the mortgage loan is
also a debtor in bankruptcy under title 11 of the United States Code.
Comment 39(d)(2)-1 also cites the illustrative example in comment
39(c)(1)(ii)-1.ii for further guidance.
39(d)(3)
New Sec. 1024.39(d)(3) provides that with regard to a mortgage
loan for which any borrower has provided a notification pursuant to
FDCPA section 805(c), a servicer subject to the FDCPA with respect to
that borrower's loan must comply with the requirements of Sec.
1024.39(b), as modified by new Sec. 1024.39(d)(3), if the conditions
of Sec. 1024.39(d)(2) are not met. Therefore, if any loss mitigation
option is available and no borrower on the mortgage loan is a debtor in
bankruptcy, a servicer that is a debt collector is required to provide
the modified written early intervention notice described in Sec.
1024.39(d)(3). Section 1024.39(d)(3) modifies the requirements of Sec.
1024.39(b) under these circumstances to provide that, in addition to
the information required pursuant to Sec. 1024.39(b)(2), the written
notice must include a statement that the servicer may or intends to
invoke its specified remedy of foreclosure. Model clause MS-4(D) in
appendix MS-4 to this part may be used to comply with this
requirement.\225\ Revised Sec. 1024.39(d)(3) also finalizes two other
aspects from the proposed rule: (1) The written notice may not contain
a request for payment, and (2) a servicer is prohibited from providing
the written notice more than once during any 180-day period.
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\225\ To assist servicers that are debt collectors in complying
with the requirements of new Sec. 1024.39(d)(3), the Bureau is
adopting model clause MS-4(D), contained in appendix MS-4 to part
1024. A more detailed discussion of the model clause is contained in
the section-by-section analysis of appendix MS.
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The Bureau concludes that, because failure to provide the written
early intervention notice required by Sec. 1024.39(d)(3) is closely
linked to a servicer's ability to invoke its specified remedy of
foreclosure, the notice falls within the exceptions to FDCPA section
805(c)(2) and (3). A servicer is legally required to provide a
delinquent borrower with the written notice not later than the 45th day
of the borrower's delinquency under current Sec. 1024.39(b). As a
general matter, this written notice must be provided well before the
servicer may initiate foreclosure: In most cases, the servicer is
legally required to wait until a borrower's mortgage loan obligation is
more than 120 days delinquent, after the written notice has been sent,
to make the first notice or filing to initiate the foreclosure
process.\226\ As the Bureau explained in the 2013 RESPA Servicing Final
Rule, the purpose of the written notice is to provide more information
to a borrower who has not cured by the 45th day of delinquency.
Additionally, the written notice generally provides more information
than likely would have been provided through live contact and provides
the borrower with information that may be reviewed and discussed
[[Page 72234]]
with a housing counselor or other advisor.\227\
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\226\ See Sec. 1024.41(f)(1)(i); but see Sec.
1024.41(f)(1)(ii) and (iii) (``The foreclosure is based on a
borrower's violation of a due-on-sale clause; or The servicer is
joining the foreclosure action of a subordinate lienholder.'').
\227\ See 78 FR 10695, 10796-97 (Feb. 14, 2013).
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The Bureau understands that, in most cases, there may be some loss
mitigation option available. Therefore, in most cases, a borrower who
exercised the cease communication right will receive the written early
intervention notice and will have an opportunity to respond to the
written notice by applying for loss mitigation, should the borrower so
choose. Where a borrower responds to the written notice by applying for
loss mitigation, the dual tracking restrictions of the 2013 RESPA
Servicing Final Rule apply, further limiting the servicer's ability to
invoke the remedy of foreclosure. Pursuant to Sec. 1024.41(f)(2) and
(g), respectively, a servicer may not make the first notice or filing
for foreclosure if a borrower submits a complete loss mitigation
application before foreclosure referral and cannot move for foreclosure
judgment or order of sale or conduct a foreclosure sale if a borrower
submits a complete loss mitigation application more than 37 days before
a foreclosure sale.
The failure to provide a borrower with the written early
intervention notice may impede a servicer's ability to invoke
foreclosure, particularly if any loss mitigation option is available.
For example, because failure to provide a borrower with the written
early intervention notice may result in borrowers submitting requests
for loss mitigation at a later point in time and presumably closer to
the foreclosure sale, failure to provide the written early intervention
notice may delay or otherwise interfere with the servicer's exercise of
its specified remedy of foreclosure (for example, when the servicer is
required to forego making a motion for judgment of sale or conducting
the sale after receiving the borrower's complete loss mitigation
application). In addition, the Bureau understands that some States
require documentation of a servicer's efforts to modify the loan or
require a servicer to provide the borrower with information
substantially similar to the written early intervention notice prior to
initiating foreclosure or conducting a foreclosure sale (e.g.,
California, Illinois). Therefore, when any loss mitigation option is
available, the Bureau concludes that the written early intervention
notice falls within the exceptions to FDCPA section 805(c)(2) and (3)
because failure to provide the notice required by Sec. 1024.39(d)(3)
is closely linked to a servicer's ability to invoke its specified
remedy of foreclosure. As discussed below, the Bureau is concurrently
issuing an interpretive rule that explains that this interpretation is
limited to the specific situation where a servicer that is a debt
collector is required by Sec. 1024.39(d)(3) to provide a modified
written early intervention notice to a borrower who has invoked the
cease communication right under FDCPA section 805(c). It is a narrow
safe harbor, based only upon the interplay between these two specific
Federal consumer protections--the early intervention requirements of
Sec. 1024.39 of Regulation X and the cease communication provision and
statutory exceptions of section 805(c) of the FDCPA. All other
provisions of the FDCPA, including the prohibitions contained in FDCPA
sections 805 through 808, are unaffected by this interpretation and a
servicer remains liable to the extent that anything in the notice
violates any other provision of the FDCPA.\228\
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\228\ For example, servicers that are debt collectors must not:
Engage in conduct the natural consequence of which is to harass,
oppress, or abuse any person in connection with the collection of a
debt; use any false, deceptive, or misleading representation or
means in connection with the collection of a debt; or use unfair or
unconscionable means to collect or attempt to collect any debt.
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If any loss mitigation option is available, as will generally be
the case, the written early intervention notice may also be of
significant value to borrowers, in addition to being closely linked to
a servicer's ability to invoke its specified remedy of foreclosure. The
Bureau has stated that the early intervention notice requirements were
designed primarily to encourage delinquent borrowers to work with their
servicers to identify options for avoiding foreclosure.\229\
Specifically, the content of the written early intervention notice,
including the statement providing a brief description of examples of
loss mitigation options that may be available from the servicer and the
application instructions or a statement informing the borrower how to
obtain more information about loss mitigation options from the
servicer, may be of particular value and relevance to a delinquent
borrower facing debt collection in informing the borrower of
potentially available loss mitigation options.
---------------------------------------------------------------------------
\229\ Id. at 10787.
---------------------------------------------------------------------------
Given its broad experience with consumers in debt, facing
foreclosure, or dealing with other financial difficulties, the Bureau
is issuing an interpretive rule that constitutes an advisory opinion
under FDCPA section 813(e) explaining that, because failure to provide
the written early intervention notice required by Sec. 1024.39(d)(3)
is closely linked to a servicer's ability to invoke its specified
remedy of foreclosure, the Bureau concludes that the notice falls
within the exceptions to FDCPA section 805(c)(2) and (3). The Bureau
concludes that, in the limited circumstances where a servicer is
subject to the FDCPA with respect to a borrower's mortgage loan and the
borrower has invoked the cease communication right pursuant to FDCPA
section 805(c) with regard to that mortgage loan, and where the
servicer complies with the requirements of the modified written early
intervention notice under Sec. 1024.39(d)(3) of Regulation X, the
modified written early intervention notice required under Sec.
1024.39(d)(3) is within the statutory exceptions of FDCPA section
805(c)(2) and (3) and thus does not violate section 805(c) with respect
to the mortgage loan.
The Bureau has also learned that consumer advocates, in some cases,
may be advising borrowers to refrain from providing servicers cease
communication notifications pursuant to FDCPA section 805(c) in order
to preserve access to information about loss mitigation and to continue
to receive early intervention communications from servicers. Borrowers
should not have to choose between exercising their cease communication
rights to be free from debt collection communications and obtaining
information about potential loss mitigation options that could allow
them to resolve the underlying delinquency.
The Bureau believes that servicers should be able to determine when
the FDCPA applies to a mortgage loan. Regardless of the requirement in
new Sec. 1024.39(d)(3), servicers that are debt collectors must make
this determination in order to comply with the FDCPA, including, for
example, to provide the borrower a validation notice.\230\
Additionally, the Bureau's servicer outreach confirmed that servicers
are able to designate whether accounts in their systems are subject to
the FDCPA. Identifying mortgage loans to which the FDCPA applies
imposes no burdens beyond those required by existing law.
---------------------------------------------------------------------------
\230\ See FDCPA section 809(a).
---------------------------------------------------------------------------
Servicers that are debt collectors may use model clause MS-4(D) in
appendix MS-4 for the required statement that a servicer may or intends
to invoke its specified remedy of foreclosure. As discussed in the
section-by-section analysis of appendix MS-4 and in the FDCPA
interpretive rule accompanying this final rule, use of this model
clause or another statement in compliance with Sec. 1024.39(d)(3)(i),
on a written notice as required by and in compliance with the
[[Page 72235]]
other requirements of Sec. 1024.39(d)(3), provides a safe harbor from
FDCPA liability under section 805(c) for providing the required
statement.\231\ The Bureau believes that any operational burdens
associated with including this statement on the written notice will be
minimal.
---------------------------------------------------------------------------
\231\ See comment appendix MS to part 1024-2 (describing
permissible changes to the model forms and clauses in appendix MS to
part 1024).
---------------------------------------------------------------------------
The Bureau intends this interpretation for a servicer subject to
the FDCPA with respect to a borrower who has invoked the FDCPA's cease
communication protections to be limited to the precise parameters of
the legal and factual situation described by the Bureau. Accordingly,
the Bureau intends this interpretation to be narrow and based only upon
the interplay between two specific Federal consumer protections--the
early intervention requirements of Sec. 1024.39 of Regulation X and
the cease communication provision and statutory exceptions of section
805(c) of the FDCPA. The Bureau concludes that, in the limited
circumstance where a mortgage servicer is subject to the FDCPA with
respect to a borrower's mortgage loan, and the borrower has provided
the servicer a cease communication notification with regard to that
mortgage loan, the written early intervention notice falls within the
exceptions to FDCPA section 805(c)(2) and (3) because failure to
provide the notice required by Sec. 1024.39(d)(3) is closely linked to
a servicer's ability to invoke its specified remedy of foreclosure.
The Bureau reminds servicers that they may only rely on the
exemptions in new Sec. 1024.39(d)(1) and (2) if both the servicer is
subject to the FDCPA with respect to a borrower, meaning that the
servicer of a defaulted mortgage loan is also acting as a debt
collector under section 803(6) of the FDCPA (i.e., the servicer
acquired the mortgage at the time that it was in default), and the
borrower has properly provided the servicer a timely, written cease
communication notification under section 805(c) of the FDCPA.
Therefore, even if a servicer receives a written cease communication
notification from a borrower, if the servicer is not also acting as a
debt collector for purposes of the FDCPA with respect to that
borrower's mortgage loan, the servicer must continue to comply with all
of the early intervention requirements under Sec. 1024.39 for that
loan.
The Bureau has narrowly tailored this final rule and the
accompanying interpretation to reduce the risk that servicers will
circumvent a borrower's cease communication rights. Additionally, this
final rule relates only to the modified written early intervention
notice, while maintaining the exemption for early intervention live
contact and the exemption for the written notice if no loss mitigation
option is available. If no loss mitigation option is available or while
any borrower on a mortgage loan is a debtor in bankruptcy if any
borrower has invoked the cease communication right with respect to that
loan, this final rule leaves the current exemption in place.
Furthermore, this final rule requires that the modified written early
intervention notice include a statement that the servicer may or
intends to invoke its specified remedy of foreclosure, provides the
written notice may not contain a request for payment, and prohibits a
servicer from providing the written notice more than once during any
180-day period.
The Bureau considered comments that the Bureau should permit a
servicer to provide the written notice more than once during any 180-
day period for a borrower that cures and subsequently redefaults or
that a servicer should be permitted to provide the written notice as
often as monthly. However, the Bureau is concerned that a frequent,
repeated notice may undermine a borrower's cease communication right.
Limiting the final rule in this manner reduces the risk that the
modified written early intervention notice will be used to undermine a
borrower's cease communication right under FDCPA section 805(c). In
response to one commenter's suggestion that servicers should be
permitted to provide the written notice upon a borrower's request even
if that were to result in providing more than one notice in any 180-day
period, the Bureau notes that under the final rule, a servicer is not
prohibited from providing the written notice at the borrower's request
and must do so under Sec. 1024.36 if the borrower properly submits a
request for information regarding the notice.
The Bureau also considered a commenter's request that the Bureau
issue guidance in Regulation X itself interpreting the FDCPA cease
communication requirement rather than issue a separate advisory
opinion. In addition to issuing the interpretive rule, the Bureau is
also providing guidance in Regulation X comment 39(d)-2. The same
commenter opposed the Bureau's proposed advisory opinion that would
have provided a safe harbor from liability under the FDCPA for an act
done or omitted in good faith in conformity with that advisory opinion.
The Bureau notes, as further discussed above, that the safe harbor is
limited to the precise factual and legal situation described and that
the safe harbor is only granted to the extent the communication is
required by and in compliance with Sec. 1024.39(d)(3). Moreover, the
safe harbor is limited to the cease communication provision in FDCPA
section 805(c) and does not extend to other sections of the FDCPA. The
Bureau determines that the safe harbor is necessary to facilitate
servicer compliance with this provision and ensure that borrowers
receive information about potentially available loss mitigation
options.
Final Sec. 1024.39(d)(3) requires that servicers that are debt
collectors provide a modified form of the written early intervention
notice to borrowers who have exercised their cease communication
rights. To assist servicers in determining whether any loss mitigation
option is available, the Bureau is adopting new comment 39(d)-1. New
comment 39(d)-1 explains that Sec. 1024.39(d)(2) exempts a servicer
that is a debt collector from providing the written notice required by
Sec. 1024.39(b) if no loss mitigation option is available. New comment
39(d)-1 further provides that a loss mitigation option is available if
the owner or assignee of a mortgage loan offers an alternative to
foreclosure that is made available through the servicer and for which a
borrower may apply, even if the borrower ultimately does not qualify
for such option. As explained in the section-by-section analysis of
Sec. 1024.39(b)(2), the Bureau is adopting new comment 39(d)-1 instead
of proposed comment 39(b)(2)-4.
The Bureau is finalizing proposed comment 39(d)(2)(iii)-1 in new
comment 39(d)-2 with additional clarifications related to borrower-
initiated communications as well as the restrictions contained in FDCPA
sections 805 through 808. Revised comment 39(d)-2 offers servicers
additional guidance on compliance with the modified written early
intervention notice required by new Sec. 1024.39(d)(3). As finalized,
the comment explains that, to the extent the FDCPA applies to a
servicer's communications with a borrower, a servicer does not violate
FDCPA section 805(c) by providing the written notice required by Sec.
1024.39(b) as modified by Sec. 1024.39(d)(3) after a borrower has
provided a notification pursuant to FDCPA section 805(c) with respect
to that borrower's loan. New comment 39(d)-2 also provides that a
servicer does not violate FDCPA section 805(c) by providing loss
mitigation information or assistance in response to a borrower-
initiated communication after the borrower has invoked the cease
[[Page 72236]]
communication right under FDCPA section 805(c). Finally, new comment
39(d)-2 notes that a servicer subject to the FDCPA must continue to
comply with all other applicable provisions of the FDCPA, including
other restrictions on communications and prohibitions on harassment or
abuse, false or misleading representations, and unfair practices as
contained in FDCPA sections 805 through 808 (15 U.S.C. 1692c through
1692f).
Borrower-initiated communications for purposes of loss mitigation
after invocation of cease communication rights. The Bureau is also
issuing concurrently with this final rule an interpretive rule that
constitutes an advisory opinion under FDCPA section 813(e) interpreting
the cease communication provision of section 805(c) of the FDCPA in
relation to the early intervention requirements of Sec. 1024.39 of
Regulation X. No liability arises under the FDCPA for an act done or
omitted in good faith in conformity with an advisory opinion of the
Bureau while that advisory opinion is in effect.\232\
---------------------------------------------------------------------------
\232\ FDCPA section 813(e).
---------------------------------------------------------------------------
Section 805(c) of the FDCPA empowers borrowers to direct debt
collectors to cease contacting them with respect to a debt and thereby
frees borrowers from the burden of being subject to unwanted
communications regarding collection of a debt. Even after a borrower
has invoked the cease communication right under section 805(c) of the
FDCPA, the borrower may contact the servicer to discuss or apply for
loss mitigation. For instance, as noted above, Sec. 1024.39(d)(3)
requires servicers that are debt collectors to provide a written early
intervention notice to borrowers who have invoked the FDCPA's cease
communication right if any loss mitigation option is available and no
borrower on the mortgage loan is a debtor in bankruptcy under title 11
of the United States Code. The written notice must include a statement
encouraging borrowers to contact the servicer.\233\ The Bureau believes
that, when borrowers respond to such a notice by contacting the
servicer to discuss available loss mitigation options or otherwise
initiate communication with the servicer concerning loss mitigation,
such a borrower-initiated communication should not be understood as
within the category of communication that borrowers generally preclude
by invoking the cease communication right under FDCPA section 805(c).
The Bureau therefore concludes that a borrower's invocation of the
FDCPA's cease communication right does not prevent a servicer that is a
debt collector from responding to borrower-initiated communications
concerning loss mitigation.
---------------------------------------------------------------------------
\233\ See 12 CFR 1024.39(b)(2)(i).
---------------------------------------------------------------------------
Borrower-initiated communications are by their nature wanted
communications. Moreover, borrower-initiated communications about loss
mitigation options do not give rise to the burden of unwanted
communications that FDCPA section 805(c) protects against and may
provide valuable information to borrowers. Rather they are sought out
by borrowers for this narrow purpose. Under the Bureau's
interpretation, a borrower's cease communication notification pursuant
to FDCPA section 805(c) should ordinarily be understood to exclude
borrower-initiated communications with a servicer that is a debt
collector concerning loss mitigation because the borrower has
specifically requested the communication at issue to discuss available
loss mitigation options. Accordingly, when a servicer that is a debt
collector responds to a borrower-initiated communication concerning
loss mitigation after the borrower's invocation of FDCPA section
805(c)'s cease communication protection, the servicer does not violate
FDCPA section 805(c) with respect to such communications as long as the
servicer's response is limited to a discussion of any potentially
available loss mitigation option. For example, a servicer may discuss
with a borrower any available loss mitigation option that the owner or
assignee of the borrower's mortgage loan offers, instructions on how
the borrower can apply for loss mitigation, what documents and
information the borrower would need to provide to complete a loss
mitigation application, and the potential terms or details of a loan
modification program, including the monthly payment and duration of the
program. These borrower-initiated communications, although variable,
are unlikely to be perceived as within the scope of the cease
communication request given the borrower's initiation of communications
concerning loss mitigation information.
However, the Bureau's interpretation does not protect a servicer
that is a debt collector from using such borrower-initiated
communications concerning loss mitigation as a pretext for debt
collection in circumvention of a borrower's invoked cease communication
right under FDCPA section 805(c). Seeking to collect a debt under the
guise of a loss mitigation conversation is not exempt from liability
under FDCPA section 805(c) under the Bureau's interpretation. Thus, in
subsequently communicating with a borrower concerning loss mitigation,
a servicer that is a debt collector is strictly prohibited from making
a request for payment or a suggestion of payment that is not
immediately related to any specific loss mitigation option. Some
examples of impermissible communications include initiating
conversations with the borrower related to repayment of the debt that
are not for the purpose of loss mitigation, demanding that the borrower
make a payment, requesting that the borrower bring the account current
or make a partial payment on the account, or attempting to collect the
outstanding balance or arrearage, unless such communications are
immediately related to a specific loss mitigation option.\234\ The
Bureau reiterates that servicers that are debt collectors may not
misuse borrower-initiated communications concerning loss mitigation as
an opportunity or pretext to direct or steer borrowers to a discussion
of repayment or collection of the debt in circumvention of a borrower's
cease communication protection. Additionally, a servicer that is a debt
collector may not begin or resume contacting the borrower in
contravention of the cease communication notification, unless the
borrower consents to limit a prior cease communication request. As
discussed above, all other provisions of the FDCPA, including
restrictions on communications and prohibitions on harassment or abuse,
false or misleading representations, and unfair practices as contained
in sections 805 through 808 of the FDCPA, remain intact.
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\234\ See 53 FR 50097, 50103 (Dec. 13, 1988) (Section 805(c)-2
of the Federal Trade Commission's (FTC) Official Staff Commentary on
FDCPA section 805(c)) (``A debt collector's response to a `cease
communication' notice from a consumer may not include a demand for
payment, but is limited to the three statutory exceptions [under
FDCPA section 805(c)(1) through (3)].'').
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The Bureau considered concerns expressed by commenters related to
the fluid nature of loss mitigation discussions with borrowers. The
Bureau notes that this interpretation provides a safe harbor from FDCPA
section 805(c) for servicers that are debt collectors communicating
with the borrower in connection with a borrower's initiation of
communications concerning loss mitigation. Preceding a borrower's loss
mitigation application and during the evaluation process, a servicer
that is a debt collector may respond to borrower inquiries about
potentially available loss mitigation options and provide information
regarding any available option. Similarly, if that borrower
[[Page 72237]]
submits a loss mitigation application, the servicer's reasonable
diligence obligations under Sec. 1024.41(b)(1) require the servicer to
request additional information from the borrower, including by
contacting the borrower, and these communications by the servicer to
complete a loss mitigation application do not fall within the cease
communication prohibition. The servicer may also seek information that
will be necessary to evaluate that borrower for loss mitigation, though
the servicer may not seek a payment unrelated to the purpose of loss
mitigation. Additionally, once the borrower's loss mitigation
application is complete, a servicer's communications with a borrower in
accordance with the procedures in Sec. 1024.41 are not subject to
liability under FDCPA section 805(c) because they arise from the
borrower's application for loss mitigation. These communications
include, for example, notifying the borrower of the servicer's
determination of which loss mitigation options, if any, it will offer
to the borrower, notifying the borrower of a denial for any trial or
permanent loan modification option available, and notifying the
borrower of whether the servicer will offer the borrower a loss
mitigation option based upon an appeal.
The Bureau considered one commenter's suggestion that, with respect
to any specific borrower-initiated communication, the borrower's cease
communication request should be considered temporarily or permanently
withdrawn during this period. The Bureau declines to adopt this
approach. Instead, as the Bureau explained in the proposal, the Bureau
believes that a borrower's cease communication notification pursuant to
the FDCPA should ordinarily be understood to exclude borrower-initiated
communications with a servicer for the purposes of loss mitigation,
because the borrower has specifically requested the communication at
issue. As the Bureau explained in the October 2013 Servicing Bulletin,
even if the borrower provides a cease communication notification during
the loss mitigation application and evaluation process under Sec.
1024.41, the borrower usually should be understood to have excluded the
loss mitigation application and evaluation process under Sec. 1024.41
from the general request to cease communication, and therefore a
servicer that is a debt collector should continue to comply with the
procedures under Sec. 1024.41. Thus, only if the borrower provides a
communication to the servicer specifically withdrawing the request for
loss mitigation does the cease communication prohibition apply to
communicating about the specific loss mitigation action.\235\
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\235\ See Implementation Guidance for Certain Mortgage Servicing
Rules, CFPB Bulletin 2013-12 (Oct. 15, 2013), available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
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Commenters requested clarity regarding a servicer's request that a
borrower make a payment as a requirement or condition of a loss
mitigation program and whether those requests would be covered under
the safe harbor from FDCPA liability. One commenter explained that a
servicer may request that a borrower make a payment as part of a loss
mitigation program, including, for example, a reinstatement amount
towards a repayment, forbearance, or trial modification plan. The
Bureau understands that a servicer's discussions of an available loss
mitigation option with a borrower may often require the servicer to
assess a borrower's eligibility for a specific program and determine
whether the borrower can afford to make a payment. The Bureau
emphasizes, however, that the cease communication prohibition continues
to apply to a servicer's communications with a borrower about payment
of the mortgage loan that are outside the scope of loss mitigation
conversations. The Bureau recognizes that in order for a borrower to
engage in meaningful loss mitigation discussions with a servicer, the
servicer may discuss repayment options, the borrower's ability to make
a payment, and how much the borrower can afford to pay as part of a
loss mitigation option for which the servicer is considering the
borrower. Furthermore, the Bureau understands that any offer for a loan
modification or repayment plan is likely to include a specific payment
amount the borrower must pay under the terms of the loss mitigation
agreement. Such communications, as long as for the purpose of loss
mitigation, are permissible because they should not be understood as
within the scope of the cease communication request.
Legal Authority
The Bureau is exercising its authority under sections 6(j)(3) and
19(a) of RESPA to exempt from the early intervention live contact
requirements in Sec. 1024.39(a) a servicer that is subject to the
FDCPA with respect to a mortgage loan for which any borrower has
exercised the FDCPA's cease communication right with regard to that
mortgage loan. For the reasons discussed above, the Bureau concludes
that the consumer protection purposes of RESPA would not be furthered
by requiring compliance with Sec. 1024.39(a) at a time when a borrower
has specifically requested that the servicer stop communicating with
the borrower about the debt. Accordingly, the Bureau implements new
Sec. 1024.39(d)(1) pursuant to its authority under sections 6(j)(3)
and 19(a) of RESPA.
The Bureau is also exercising its authority under sections 6(j)(3)
and 19(a) of RESPA to exempt from the written early intervention notice
requirements in Sec. 1024.39(b) a servicer that is subject to the
FDCPA with respect to a mortgage loan for which any borrower has
exercised the FDCPA's cease communication right with regard to that
mortgage loan if no loss mitigation option is available or while any
borrower on the mortgage loan is a debtor in bankruptcy. For the
reasons discussed above, the Bureau concludes that the consumer
protection purposes of RESPA would not be furthered by requiring
compliance with Sec. 1024.39(b) at a time when a borrower has
specifically requested that the servicer stop communicating with the
borrower about the debt and no loss mitigation option is available, or
while any borrower on the mortgage loan is a debtor in bankruptcy.
Accordingly, the Bureau implements new Sec. 1024.39(d)(2) pursuant to
its authority under sections 6(j)(3) and 19(a) of RESPA.
The Bureau is exercising its authority under section 6(k)(1)(E) of
RESPA to add new Sec. 1024.39(d)(3). The Bureau has authority to
implement requirements for servicers to provide information about
borrower options pursuant to section 6(k)(1)(E) of RESPA. In order for
borrowers to have a meaningful opportunity to avoid foreclosure, they
must timely receive information about loss mitigation options and the
foreclosure process, housing counselors and State housing finance
authorities, and disclosures encouraging servicers to work with
borrowers to identify any appropriate loss mitigation options.\236\
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\236\ See 77 FR 57199, 57260 (Sept. 17, 2012).
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The Bureau also exercises its authority to prescribe rules with
respect to the collection of debts by debt collectors pursuant to
section 814(d) of the FDCPA, 15 U.S.C. 1692l(d). Pursuant to this
authority, the Bureau is clarifying a borrower's cease communication
protections under the FDCPA. Section 805(c) of the FDCPA sets forth
both the cease communication requirement and its exceptions. Under
section 805(c)(2) and (3) of the FDCPA, a borrower's cease
communication request does not prohibit a debt
[[Page 72238]]
collector from communicating with the borrower to notify the consumer
that the debt collector or creditor may invoke specified remedies which
are ordinarily invoked by such debt collector or creditor or, where
applicable, to notify the consumer that the debt collector or creditor
intends to invoke a specified remedy. For the reasons given above, the
Bureau is interpreting section 805(c)(2) and (3) of the FDCPA to
require a servicer to provide the written early intervention notice if
any loss mitigation option is available and no borrower on the mortgage
loan is a debtor in bankruptcy. The Bureau concludes that because the
written early intervention notice will generally be closely linked to
the invocation of foreclosure, such a notice informs a borrower that
the servicer may invoke or intends to invoke the specified remedy of
foreclosure and thus falls within the scope of the exceptions under
section 805(c)(2) and (3) of the FDCPA. Accordingly, the Bureau
implements new Sec. 1024.39(d)(3) pursuant to its authority under
section 6(k)(1)(E) of RESPA and section 814(d) of the FDCPA.
Section 1024.40 Continuity of Contact
40(a) In General
As explained in the section-by-section analysis of Sec. 1024.31,
the Bureau is adopting a single definition of delinquency that will
apply to all provisions in subpart C of Regulation X. The proposal
explained that the Bureau was removing the definitions of delinquency
from the commentary to Sec. Sec. 1024.39(a) and (b) and 1024.40(a).
The Bureau omitted from its proposal any specific amendments to current
comment 40(a)-3. The Bureau is revising comment 40(a)-3 to replace the
current definition of delinquency in comment 40(a)-3 with a cross-
reference to Sec. 1024.31.
Section 1024.41 Loss Mitigation Procedures
41(b) Receipt of a Loss Mitigation Application
Successors in Interest
Proposed comment 41(b)-1.i stated that, if a servicer receives a
loss mitigation application, including a complete loss mitigation
application, from a potential successor in interest before confirming
that person's identity and ownership interest in the property, the
servicer may, but need not, review and evaluate the loss mitigation
application in accordance with the procedures set forth in Sec.
1024.41. The proposed comment also would have provided that, if a
servicer complies with the requirements of Sec. 1024.41 for a complete
loss mitigation application submitted by a potential successor in
interest before confirming that person's identity and ownership
interest in the property, Sec. 1024.41(i)'s limitation on duplicative
requests applies to that person, provided that confirmation of the
successor in interest's status would not affect the servicer's
evaluation of the application. The Bureau is finalizing comment 41(b)-
1.i as proposed with non-substantive changes for clarity.
A number of consumer advocacy groups suggested that the Bureau
should eliminate the option to review loss mitigation applications
prior to confirmation. These groups noted that loan modification rules
imposed by the Making Home Affordable Program, the Federal Housing
Administration, Fannie Mae, and Freddie Mac require a showing of proof
of ownership of the home for a simultaneous modification and
assumption.\237\ A trade association also stated that the vast majority
of servicers do not have loss mitigation options available for
successors in interest. The Bureau notes that the loss mitigation
requirements referenced by these commenters may change over time.
Further, even if the review process set forth in comment 41(b)-1.i is
not used often, the comment confirms that Regulation X does not
prohibit servicers from considering successors in interest for loss
mitigation prior to confirmation when appropriate. In some
circumstances, consideration of potential successors in interest for
loss mitigation options prior to confirmation may expedite full formal
evaluation of those successors in interest upon confirmation. Comment
41(b)-1.i clarifies that Regulation X allows servicers to review and
evaluate loss mitigation applications from potential successors in
interest prior to confirmation in accordance with the procedures set
forth in Sec. 1024.41, even though servicers are not required to do
so.
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\237\ These commenters also advocated that the servicer's 30-day
timeframe to review the complete application should start to run
from the date the successor in interest provides the necessary proof
of successor status, rather than from the date a servicer confirms
this status. As comment 41(b)-1.ii explains, the final rule instead
requires servicers, for purposes of Sec. 1024.41, to treat loss
mitigation applications from potential successors in interest that
the servicer elects not to review and evaluate prior to confirmation
as if the application had been received on the date that the
servicer confirmed the successor in interest's status. This ensures
that servicers have adequate time to review the loss mitigation
application once they have confirmed the applicant's status as a
successor in interest.
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Comment 41(b)-1.i also explains how an evaluation of a potential
successor in interest's loss mitigation application is treated for
purposes of the duplicative request limitation in Sec. 1024.41(i). If
a servicer complies with the requirements of Sec. 1024.41 for a
complete loss mitigation application submitted by a potential successor
in interest before confirming that person's identity and ownership
interest in the property, Sec. 1024.41(i)'s limitation on duplicative
requests applies to that person, provided the servicer's evaluation of
loss mitigation options available to the person would not have resulted
in a different determination due to the person's confirmation as a
successor in interest if it had been conducted after the servicer
confirmed the person's status as a successor in interest. This
provision is an exception to the general rule that servicers may only
invoke Sec. 1024.41(i)'s limitation on duplicative requests with
respect to borrowers who have had a complete loss mitigation
application reviewed by that servicer in compliance with the
requirements of Sec. 1024.41. Ordinarily, as a potential successor in
interest is not yet treated as a borrower for all purposes of Sec.
1024.41, the potential successor in interest's loss mitigation
application would not count as a duplicative request. If the servicer's
evaluation of loss mitigation options available to the person would
have resulted in a different determination due to the person's
confirmation as a successor in interest if it had been conducted after
the servicer confirmed the person's status as a successor in interest,
however, Sec. 1024.41(i)'s limitation on duplicative requests does not
apply to that application, and the servicer would consequently have to
comply with Sec. 1024.41's procedures for any subsequent loss
mitigation application submitted by the potential successor in interest
upon confirmation.
A number of consumer advocacy groups asked the Bureau to clarify
that a previous loss mitigation application submitted by the transferor
borrower rather than the successor in interest should not make a
successor in interest's request duplicative for purposes of Sec.
1024.41(i). Under the final rule, each confirmed successor in interest
is a borrower for purposes of Sec. 1024.41(i) and is not the same
borrower as the transferor borrower. Except as specified in comment
41(b)-1, the duplicative request limitation applies to confirmed
successors in interest in the same way that it applies to other
borrowers under Sec. 1024.41(i), as amended by this final rule.
Proposed comment 41(b)-1.ii stated that, if a servicer receives a
loss mitigation application from a potential successor in interest and
elects not to review and evaluate it before confirming
[[Page 72239]]
that person's status, upon such confirmation the servicer must review
and evaluate the loss mitigation application in accordance with the
procedures set forth in Sec. 1024.41. The proposed comment indicated
that, for purposes of Sec. 1024.41, the servicer must treat the loss
mitigation application as if it had been received on the date that the
servicer confirmed the successor in interest's status. For the reasons
that follow, the Bureau is finalizing comment 41(b)-1.ii with this
commentary as proposed and additional commentary to clarify the
operation of the loss mitigation procedures with respect to successors
in interest.
Several industry commenters requested clarification regarding
whether the principal residence requirement applicable to Sec. 1024.41
applies to confirmed successors in interest. In proposing the rule, the
Bureau indicated that the exemptions and scope limitations in the
Mortgage Servicing Rules in Regulation X, including the principal
residence requirement in Sec. 1024.30(c), would also apply to the
servicing of a mortgage loan with respect to a confirmed successor in
interest. As finalized, comment 41(b)-1.ii explains that the procedures
set forth in Sec. 1024.41 apply only if the property is the confirmed
successor in interest's principal residence and Sec. 1024.41 is
otherwise applicable.
As finalized, comment 41(b)-1.ii also indicates that the servicer
must preserve the loss mitigation application and all documents
submitted in connection with the application. Although some industry
commenters expressed concern about the burden of having to preserve
loss mitigation applications during the confirmation process, the
Bureau concludes that it would be much more burdensome to require
successors in interest to resubmit an entire loss mitigation
application upon confirmation. As the Bureau indicated in the proposal,
successors in interest may be unduly burdened if required to resubmit
identical documents simply because the servicer has confirmed the
successor in interest's status. The Bureau continues to believe that
requiring servicers to preserve loss mitigation applications received
from potential successors in interest is preferable, so that servicers
can review and evaluate those loss mitigation applications
expeditiously upon confirming the successor in interest's status.
Comment 41(b)-1.ii clarifies that servicers must preserve any loss
mitigation application received from a potential successor in interest
in order to facilitate the servicer's timely review and evaluation of
the application upon confirmation of the successor in interest's status
in accordance with the procedures of Sec. 1024.41 and to ensure that
the confirmed successor in interest does not have to resubmit the same
loss mitigation application. For purposes of Sec. 1024.41, the
servicer must treat the loss mitigation application as if it had been
received on the date that the servicer confirmed the successor in
interest's status.
Another industry commenter asked the Bureau to confirm that
servicers can request updated documents if they receive loss mitigation
documents prior to confirming a successor in interest and those
documents are expired or near expiration on the date of confirmation.
As finalized, comment 41(b)-1.ii explains that, if the loss mitigation
application is incomplete at the time of confirmation because documents
submitted by the successor in interest became stale or invalid after
they were submitted and confirmation is 45 days or more before a
foreclosure sale, the servicer must identify the stale or invalid
documents that need to be updated in a notice pursuant to Sec.
1024.41(b)(2). This comment clarifies servicers' obligations with
respect to loss mitigation applications received during the
confirmation process that the servicer elects not to review or evaluate
until confirmation.
41(b)(1) Complete Loss Mitigation Application
The Bureau proposed to revise two comments under Sec.
1024.41(b)(1). First, the Bureau proposed to revise comment 41(b)(1)-1
to clarify that, in the course of gathering documents and information
from a borrower to complete a loss mitigation application, a servicer
may stop collecting documents and information pertaining to a
particular loss mitigation option after receiving information
confirming that the borrower is ineligible for that option. Second, the
Bureau proposed to revise comment 41(b)(1)-4.iii, which relates to a
servicer's obligation to exercise reasonable diligence in obtaining
documents and information to complete a loss mitigation application
when a servicer offers a borrower a short-term loss mitigation option
based on an evaluation of an incomplete loss mitigation application.
For the reasons set forth below, the Bureau is adopting both
comment 41(b)(1)-1 and comment 41(b)(1)-4.iii with revisions to the
proposal. The Bureau is also adopting minor revisions to the
introductory text to comment 41(b)(1)-4 for clarity. This section-by-
section analysis discusses comment 41(b)(1)-1. Comment 41(b)(1)-4,
including the revisions to comment 41(b)(1)-4.iii, is addressed in the
section-by-section analysis of Sec. 1024.41(c)(2)(iii) within the
discussion of reasonable diligence in the context of short-term loss
mitigation options offered based upon an evaluation of an incomplete
loss mitigation application.
Existing Sec. 1024.41(b)(1) requires a servicer to exercise
reasonable diligence in obtaining documents and information to complete
a loss mitigation application. The provision defines a complete
application as an application for which a servicer has received all the
information the servicer requires from a borrower in evaluating
applications for the loss mitigation options available to the borrower.
Current comment 41(b)(1)-1 explains that a servicer has the flexibility
to establish the type and amount of information that it will require
from borrowers applying for loss mitigation options. The Bureau
explained in the 2013 RESPA Servicing Final Rule that servicers have
the flexibility to determine application requirements consistent with
the variety of borrower circumstances or owner or assignee requirements
that servicers must evaluate and to ensure that individual borrowers
are not obligated to provide information or documents that are
unnecessary and inappropriate for a loss mitigation evaluation.\238\ In
exercising reasonable diligence to obtain a complete application under
Sec. 1024.41(b)(1), therefore, a servicer may determine that an
application is complete even when the borrower has not submitted
certain information, so long as that information is irrelevant with
respect to that particular borrower.
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\238\ See 78 FR 10695, 10824 (Feb. 14, 2013).
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In advance of the proposal, the Bureau learned from servicers and
consumer advocacy groups that some servicers have been attempting to
collect a large number of documents from borrowers, including many
documents that may be required for some borrowers but are irrelevant to
determining whether a particular borrower is eligible for any loss
mitigation option. The Bureau explained in the proposal that the good
faith exercise of reasonable diligence under Sec. 1024.41(b)(1) does
not require the collection of unnecessary documents. Collection of
documents or information after the servicer has confirmed that such
documents cannot affect the outcome of an evaluation unnecessarily
burdens both the servicer and the borrower and hinders efforts to
complete the loss mitigation application.
[[Page 72240]]
Therefore, the Bureau proposed to amend comment 41(b)(1)-1. As
proposed, the comment would have clarified that (1) a servicer may stop
collecting a borrower's application materials for a particular loss
mitigation option upon receiving information confirming that the
borrower is ineligible for that option, (2) the servicer must continue
its efforts to obtain documents and information that pertain to all
other available options, and (3) a servicer may not stop collecting
documents for a particular loss mitigation option based solely on the
borrower's stated preference for a different option.
The Bureau received comments from industry stakeholders and
consumer advocacy groups on the proposed amendments. Additionally, the
Bureau conducted outreach with several servicers to learn more about
how the proposed revisions would affect borrowers and servicers.
No commenters opposed the first two elements of the proposal--that
a servicer may stop collecting application materials for a loss
mitigation option upon learning that the borrower is ineligible for
that option, and that the servicer must continue to pursue materials
relating to all other available options. Several industry commenters
and consumer advocacy groups opined that those elements would reduce
unnecessary burden by clarifying that servicers do not need to collect
application materials relating to loss mitigation options for which a
borrower is ineligible. A trade association stated that the proposal
would work in conjunction with the new written notice of complete
application, under proposed Sec. 1024.41(c)(3), to encourage best
efforts from servicers in obtaining application materials from
borrowers to complete an application.
Commenters' views on the third element of the proposal, that a
servicer may not stop collecting application materials for a particular
loss mitigation option based solely on the borrower's stated preference
for a different option, were more diverse. Industry commenters
generally objected to the third element of the proposal. For example, a
servicer and a trade association stated that the proposal could
conflict with FHA's loss mitigation waterfall, which the commenters
stated requires a borrower to express interest in certain loss
mitigation options to be eligible. The commenters suggested that
requiring servicers to collect application materials relating to all
available loss mitigation options would be burdensome, would cause
borrowers to disengage, or would complicate the working relationship
between borrowers and servicers. One servicer stated during outreach
that doing so when a borrower already has a purchase contract could
jeopardize the sale. Several servicers the Bureau spoke with during
outreach reported that some of their borrowers have a purchase contract
at the outset of the loss mitigation application process, although one
servicer stated that its borrowers rarely do.
Industry commenters also stated that this third element of the
proposal appeared to conflict with statements by the Bureau in a
webinar in 2013. In that webinar, the Bureau explained that the
mortgage servicing rules permit investors to set their own loss
mitigation eligibility criteria, such that a servicer may deny a
borrower for a loan modification if the investor provides that a
borrower must be interested in remaining in the home to be eligible for
a modification and the borrower has indicated that there is no such
interest.
Some commenters made specific recommendations for amending the
rule. For example, some industry trade associations recommended that
servicers should be permitted to stop collecting application materials
for a loan modification if the borrower indicates a need to sell the
property, saying that such a borrower essentially has rejected a loan
modification. A government-sponsored enterprise recommended allowing
servicers greater flexibility when borrowers express a preference for a
short sale and said the rule should allow borrowers to move toward a
short sale while concurrently working to complete an application for
retention options. The commenter suggested that, because the short sale
process is lengthy, additional delay that stems from the requirement to
complete an application may harm such borrowers.
Servicers informed the Bureau that relatively few borrowers request
a short sale at the outset of a loss mitigation application. One
servicer stated that borrowers who request short sales are typically
significantly delinquent. Servicers said that most borrowers who do
make such a request are approved for a short sale. However, the
percentage of borrowers seeking a short sale who ultimately sell the
property through a short sale varied greatly from servicer to
servicer--estimates ranged from approximately 28% to approximately 85%.
During outreach, the Bureau asked several servicers about
borrowers' ability to access other loss mitigation options if they
pursue a short sale from the outset. Most of those servicers indicated
that they discuss other loss mitigation options with borrowers who
request a short sale at the outset of the application process. One
suggested that it does not describe in detail all available options if
the borrower states the intent not to retain the home. Most of the
servicers stated that they process the application according to the
borrower's preference, that they continue to work with these borrowers
to pursue other loss mitigation solutions when a short sale is
unsuccessful, and that, when borrowers change their minds during the
loss mitigation application process, the servicer will process their
applications accordingly. No servicers said that they did not work with
borrowers when a short sale falls through or when borrowers change
their minds. One servicer stated that, the longer a delinquency lasts,
the less likely borrowers generally are able to obtain loss mitigation.
The Bureau also asked servicers about the documentation
requirements for different loss mitigation options. Most servicers
stated that they generally collect application materials sufficient to
evaluate the borrower for both retention options and non-retention
options, but servicers varied in how diligently they pursue documents
supporting home retention options when the borrower requests a short
sale. Among the reasons servicers gave for collecting documents for
retention and non-retention options were investor requirements and a
concern that borrowers may not understand their options. Some servicers
explained that their collection of documents for home retention options
when a borrower has requested a short sale may be more pro forma. One
servicer indicated that, when a borrower requests a short sale, the
servicer's collection of documents for home retention options is
limited to providing the borrower with a list of all such documents;
the servicer does not continue to make active attempts to collect
documents to support a review for retention options if the borrower
wants a short sale. Another servicer stated that it collects a complete
application package when the borrower requests loss mitigation but, if
the borrower provides a short sale contract, the servicer evaluates
only for a short sale. One servicer stated that it does not collect
application materials for home retention options at all if the borrower
is uninterested in those options.
Consumer advocacy groups strongly supported the third element of
the proposal, stating that reviewing a borrower for all available loss
mitigation options would limit steering, address uneven access to
information between
[[Page 72241]]
borrowers and servicers, and provide borrowers with better access to
home retention options.
The Bureau is revising comment 41(b)(1)-1 to clarify the
prohibition against a servicer ceasing efforts to collect documents and
information based upon a borrower's stated preference. The comment
retains the key elements of the proposal but is restructured and edited
for clarity. As revised, comment 41(b)(1)-1 provides that 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. The comment provides
that, in the course of gathering documents and information from a
borrower to complete a loss mitigation application, a servicer may stop
collecting documents and information for a particular loss mitigation
option after receiving information confirming that, pursuant to any
requirements established by the owner or assignee of the borrower's
mortgage loan, the borrower is ineligible for that option. The comment
clarifies that a servicer may not stop collecting documents and
information for any loss mitigation option based solely upon the
borrower's stated preference but may stop collecting documents and
information for any loss mitigation option based on the borrower's
stated preference in conjunction with other information, as prescribed
by any requirements established by the owner or assignee. The comment
then states that a servicer must continue to exercise reasonable
diligence to obtain documents and information from the borrower that
the servicer requires to evaluate the borrower as to all other loss
mitigation options available to the borrower.
Comment 41(b)(1)-1 provides two examples for further clarity. The
first example, slightly revised from the proposal, assumes that a
particular loss mitigation option is only available for borrowers whose
mortgage loans were originated before a specific date. The example
explains that, once a servicer receives documents or information
confirming that a mortgage loan was originated after that date, the
servicer may stop collecting documents or information from the borrower
that the servicer would use to evaluate the borrower for that loss
mitigation option, but the servicer must continue its efforts to obtain
documents and information from the borrower that the servicer requires
to evaluate the borrower for all other available loss mitigation
options.
The new second example in comment 41(b)(1)-1 clarifies how a
borrower's stated preference might affect a loss mitigation
application. The example assumes that applicable requirements
established by the owner or assignee of the mortgage loan provide that
a borrower is ineligible for home retention loss mitigation options if
the borrower states a preference for a short sale and provides evidence
of another applicable hardship, such as military Permanent Change of
Station orders or an employment transfer more than 50 miles away. The
example then explains that, if the borrower indicates a preference for
a short sale or, more generally, not to retain the property, the
servicer may not stop collecting documents and information from the
borrower pertaining to available home retention options solely because
the borrower has indicated such preference, but the servicer may stop
collecting such documents and information once the servicer receives
information confirming that the borrower has an applicable hardship
under requirements established by the owner or assignee, such as
military Permanent Change of Station orders or employment transfer. The
example in comment 41(b)(1)-1.ii is intended to clarify how borrower
preference can affect the way in which the servicer might exercise
reasonable diligence in obtaining documents and information to complete
a loss mitigation application as required under Sec. 10241.41(b)(1).
The Bureau believes that guidelines established by owners or assignees
of mortgage loans similarly generally do not allow borrower preference
alone to drive the servicer's conduct but generally require both the
borrower's expressed preference and the borrower's submission of
additional information. The Bureau notes that the comment merely offers
an example and does not create a new standard for compliance.
As revised, comment 41(b)(1)-1 does not alter a servicer's overall
obligation to collect application materials it requires to evaluate a
borrower for all available loss mitigation options before conducting
the evaluation. It is, however, intended to clarify that a servicer has
flexibility to determine which documents and information it needs to
evaluate a borrower for each option. Servicers must exercise reasonable
diligence to obtain a complete application, which includes all the
information that the servicer requires from the borrower in evaluating
the application for all options available to the borrower. The
documents and information that satisfy this requirement for a given
option may change depending on the information a servicer receives
during the application process. If a servicer receives documents and
information that render a borrower ineligible for a given option
regardless of any additional information, the servicer is not required
to continue collecting application materials for that option. For
example, if a servicer receives information confirming that a borrower
is ineligible for a loan modification, the servicer may no longer need
to collect detailed information about the borrower's income if it does
not require income information to evaluate the application for any
other available loss mitigation option, such as a short sale. Within
the confines of the rule, servicers may organize the collection of
application materials accordingly, in a way that minimizes unnecessary
burden.
Notwithstanding the above, the borrower's stated preference,
without more, may not be the basis on which a servicer stops collecting
application materials. In exercising reasonable diligence to obtain a
complete application, a servicer may not stop collecting application
materials relating to a home retention option, for example, solely
because a borrower states a preference for a short sale or states a
more general preference not to retain the property. Revised comment
41(b)(1)-1 is intended to clarify that servicers have sufficient
flexibility under Sec. 1024.41 to stop collecting documents or
information after confirming that such application materials cannot
affect the outcome of an evaluation, but that this determination cannot
be based on a borrower's stated preference alone.
In finalizing these revisions, the Bureau sought to balance the
ability of a borrower to indicate a preference for or against a loss
mitigation option early in the process, thus allowing servicers the
opportunity to collect application materials more efficiently during
the application process, with the overarching goals of the 2013
Mortgage Servicing Final Rules to prevent unnecessary foreclosures.
The Bureau recognizes that, under final comment 41(b)(1)-1, some
borrowers may be required to submit some additional documentation
relating to loss mitigation options that they have indicated they do
not want before the servicer can evaluate the application for the
borrowers' preferred option under the rule. Nonetheless, the Bureau
believes that the additional documentation that some borrowers may need
to submit as a result of the rule, which the Bureau understands from
outreach to be minimal in many instances, is justified. While the
Bureau realizes that this approach may present
[[Page 72242]]
some additional burden to both borrowers and servicers, the Bureau
believes, for the reasons below, that it will produce the most
efficient and optimal outcomes for borrowers and servicers alike in the
long run.
Borrowers applying for loss mitigation are often operating under
substantial financial distress and with limited information, and they
may not be situated to make an optimal choice at the outset of the
application process. Permitting servicers to stop collecting documents
on the basis of a borrower's preference alone might allow servicers to
influence inappropriately the borrower's preference during
communications with the borrower toward the option that most benefits
the servicer, even if it is not optimal for the borrower. Moreover, the
Bureau notes that, even in situations in which borrowers are making
fully informed, independent choices as to which options they prefer,
borrowers sometimes do not ultimately obtain that option.
For example, the Bureau understands that the short sale process
frequently takes months to complete. Over this time, a borrower's
preferences may change, whether because the borrower comes to a better
understanding of other available loss mitigation options or otherwise
decides against seeking a short sale. Moreover, an attempted short sale
may ultimately be unsuccessful, for a variety of reasons. As noted
above, servicers report widely varying rates of successful short sales,
in some cases less than one in three. If a borrower ultimately is not
successful in securing a short sale, the delinquency will have
increased in the meantime, possibly making any alternate loss
mitigation option more difficult to achieve. If the servicer has also
stopped collecting documents or information to support an evaluation of
other loss mitigation options, the borrower could be left with a
greater delinquency and greater need for evaluation for all available
loss mitigation options but without the protections of Sec. 1024.41.
As noted above, some commenters asserted that proposed comment
41(b)(1)-1 was in conflict with statements the Bureau made during a
webinar in 2013. In the webinar, the Bureau explained that the mortgage
servicing rules permit investors to set their own loss mitigation
eligibility criteria, such that a servicer may deny a borrower for a
loan modification if the investor criteria provide that a borrower must
be interested in remaining in the home to be eligible for a
modification and the borrower has indicated that there is no such
interest. The Bureau believes that any perceived conflict between final
comment 41(b)(1)-1's provision that servicers may not stop collecting
documents based solely on the borrower's preference and the webinar's
indication that investor criteria may include the borrower's
preference, is theoretical. The Bureau is not aware of owner or
assignee guidelines that render borrowers ineligible for a loss
mitigation option solely because of the borrower's stated preference.
Although some such guidelines may use a borrower's preference in
addition to some other factor as an eligibility criterion, borrower
preference alone generally does not appear to be the basis for
determining that a borrower is ineligible.
41(b)(2) Review of Loss Mitigation Application Submission
41(b)(2)(i) Requirements
Proposed comment 41(b)(2)(i)-1 would have clarified the timelines
on which a servicer must review and acknowledge a borrower's loss
mitigation application when no foreclosure sale has been scheduled as
of the date the loss mitigation application is received. For the
reasons discussed below, the Bureau is adopting comment 41(b)(2)(i)-1
with minor revisions to improve clarity.
Under Sec. 1024.41(b)(2)(i), if a servicer receives a loss
mitigation application 45 days or more before a foreclosure sale, the
servicer must: (1) Promptly review the application to determine if it
is complete; and (2) within five days (excluding legal public holidays,
Saturdays, and Sundays) of receiving the application, notify the
borrower in writing that the application was received, state whether it
is complete or incomplete, and if the application is incomplete, state
the additional documents and information needed to complete the
application.
Section 1024.41(b)(2)(i) does not expressly address whether this
requirement applies when an application is received before a
foreclosure sale is scheduled.\239\ As the Bureau explained in the
proposal, the Bureau believes that, in that scenario, the application
was still received ``45 days or more before a foreclosure sale,'' and
the requirements of Sec. 1024.41(b)(2)(i) still apply. To codify this
interpretation, the Bureau proposed to add new comment 41(b)(2)(i)-1 to
clarify that, for purposes of Sec. 1024.41(b)(2)(i), if a foreclosure
sale has not been scheduled as of the date an application is received,
the application shall be treated as if it were received at least 45
days before a foreclosure sale. The proposal would have clarified that
servicers must comply with all of the requirements of Sec.
1024.41(b)(2)(i) even when no foreclosure sale has been scheduled as of
the date a servicer receives a borrower's loss mitigation application.
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\239\ In the September 2013 Mortgage Final Rule, the Bureau
adopted new Sec. 1024.41(b)(3) and related commentary to address
borrowers' rights where no foreclosure sale has been scheduled as of
the date a complete loss mitigation application is received. The
final rule clarified that, if a foreclosure sale has not yet been
scheduled as of the date a complete loss mitigation application is
received, the application shall be treated as if it were received at
least 90 days before a foreclosure sale. See 78 FR 60381, 60397
(Oct. 1, 2013).
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The Bureau received several comments supporting proposed comment
41(b)(2)(i)-1. For example, a national trade association commented that
the proposal adds clarity for both servicers and borrowers. A consumer
advocacy group was similarly supportive.
The Bureau is adopting comment 41(b)(2)(i)-1 substantially as
proposed, with minor, non-substantive revisions for clarity. As the
Bureau explained in the proposal, the comment is intended to provide
certainty to servicers and borrowers.
41(b)(2)(ii) Time Period Disclosure
Section 1024.41(b)(2)(ii) requires a servicer to include on the
loss mitigation application acknowledgment notice required under Sec.
1024.41(b)(2)(i)(B) a reasonable date by which the borrower should
submit additional documents and information necessary to make the loan
application complete. Current comment 41(b)(2)(ii)-1 clarifies how
servicers should set that date, taking into consideration specific
milestones that correspond to specific protections under Sec. 1024.41.
Proposed comments 41(b)(2)(ii)-1 through -3 would have further
clarified that servicers have significant flexibility in selecting the
reasonable date. Generally stated, the proposal would have clarified
that servicers may select any date that it determines both maximizes
borrower rights under Sec. 1024.41 and allows the borrower a
reasonable period of time to obtain and submit the documents and
information. Although the proposed comments would have provided that a
servicer should not select a reasonable date that is later than the
nearest of the four milestones associated with the specified
protections of Sec. 1024.41, they also would have clarified that a
servicer may select a reasonable date that is earlier than the nearest
remaining milestone. For the reasons discussed below, the
[[Page 72243]]
Bureau is adopting comments 41(b)(2)(ii)-1 through -3 with substantial
revisions. As revised, the comments provide more specific guidance
about how a servicer selects a reasonable date in compliance with Sec.
1024.41(b)(2)(ii).
The Bureau sought comment on three aspects of the proposal: Whether
the proposal would provide servicers with sufficient guidance under
Sec. 1024.41(b)(2)(ii) in setting a reasonable date for the return of
documents and information that maximizes borrower protections; whether
to address those situations where the nearest remaining milestone will
not occur for several months based on the date of a scheduled
foreclosure sale and the documents the borrower has already submitted
at the time the servicer selects the reasonable date under Sec.
1024.41(b)(2)(ii); and whether to adopt a less flexible standard that
would leave servicers with little or no discretion in setting a
reasonable date under Sec. 1024.41(b)(2)(ii) and, if so, what would
constitute an appropriate standard under such an approach.
Several commenters supported the proposal. A credit union stated
that the proposal would provide clear and transparent procedures
beneficial to credit unions and borrowers. An industry trade
association stated that the flexibility that the proposal would afford
servicers in selecting a reasonable date would benefit both servicers
and borrowers, particularly because each borrower's application is
unique.
Some industry commenters supported an even more flexible approach.
One servicer said that a reasonable date that is later than the nearest
milestone could provide borrowers with even greater protections.
Another cautioned that setting a return date as little as eight days
away could create borrower confusion and panic and argued that
servicers should have complete flexibility to select the date. This
commenter also requested that the Bureau create a safe harbor for
compliance with Sec. 1024.41(b)(2)(i)(B), through the use of a model
form with language describing the milestones.
In contrast, other industry commenters and some consumer advocacy
groups recommended limiting servicer discretion in selecting a
reasonable date. These industry commenters stated that a flexible
approach would be difficult to apply and would open servicers to
various risks, such as litigation, monetary penalties, or reputational
harm. Industry commenters also expressed concern that borrowers are
less likely to be responsive if they have too much time to submit
documents and that a longer time to completion can increase the
delinquency, thereby decreasing the likelihood of successful loss
mitigation. Industry commenters expressed varying opinions about the
right length of time to afford borrowers, ranging from 14 days to 45
days. One servicer recommended that the final rule allow servicers
limited discretion to select a reasonable date between 30 and 45 days
away. Another servicer recommended a two-tiered approach, with
borrowers permitted 30 days to submit documents and then an additional
30 days to complete the application as long as the borrower has
submitted some of the outstanding documents that the servicer requested
by the end of the first 30-day period.
Consumer advocacy groups that recommended limiting servicer
discretion suggested different approaches. One consumer advocacy group
recommended selecting a reasonable date that is between seven and 30
days away. Other consumer advocacy groups recommended requiring the
reasonable date to be no more than 30 days away if the nearest
milestone is 45 days or more in the future. These commenters suggested
that these timeframes would, for example, reduce processing times,
borrower discouragement, and documents going stale and that borrowers
would rarely, if ever, need more than 30 days to provide the requested
information.
Several industry commenters expressed concern with tracking the
milestones and maximizing borrower rights in the selection of a
reasonable date. Industry commenters cited litigation risk and the
operational difficulties in tracking when documents go stale, among
other matters. One industry commenter stated that servicers must
manually track when documents will go stale to comply with the first
milestone in the list, the date by which any document or information
that a borrower submitted will be considered stale or invalid pursuant
to any requirements applicable to any available loss mitigation option.
The Bureau is adopting comments 41(b)(2)(ii)-1 through -3 with
substantial revisions to the proposal. The final rule provides
servicers with more specific guidance on how to select a reasonable
date than the proposal would have provided. As explained in more detail
below, the commentary explains that 30 days from the date the servicer
provides the notice under Sec. 1024.41(b)(2)(i)(B) is generally a
reasonable date. If a milestone will occur within 30 days, however, the
commentary specifies that the reasonable date must be no later than the
earliest of the milestones, subject to a minimum of seven days, so that
borrowers can return application materials. The Bureau believes that
these clearer guidelines should aid compliance and improve borrower
protections.
Comment 41(b)(2)(ii)-1 provides that, in general and subject to the
restrictions described in comments 41(b)(2)(ii)-2 and -3, a servicer
complies with the requirement to include a reasonable date in the
written notice required under Sec. 1024.41(b)(2)(i)(B) by including a
date that is 30 days after the date the servicer provides the written
notice. Comment 41(b)(2)(ii)-2 states that, for purposes of Sec.
1024.41(b)(2)(ii), subject to the restriction described in comment
41(b)(2)(ii)-3, the reasonable date must be no later than the earliest
of four milestone dates. The dates are the same as the milestones in
the proposal and in existing comment 41(b)(2)(ii)-1: (1) The date by
which any document or information submitted by a borrower will be
considered stale or invalid pursuant to any requirements applicable to
any loss mitigation option available to the borrower; (2) the date that
is the 120th day of the borrower's delinquency; (3) the date that is 90
days before a foreclosure sale; and (4) the date that is 38 days before
a foreclosure sale. Comment 41(b)(2)(ii)-3 clarifies that a reasonable
date for purposes of Sec. 1024.41(b)(2)(ii) must never be less than
seven days from the date on which the servicer provides the written
notice pursuant to Sec. 1024.41(b)(2)(i)(B).
As explained above, the proposal would have expressly stated that a
servicer may select any date that it determines both maximizes borrower
rights under Sec. 1024.41 (in consideration of the milestones) and
allows the borrower a reasonable period of time to obtain and submit
the applicable documents and information. The final rule commentary, in
contrast, states that a date that is 30 days after the date the
servicer provides the written notice is generally compliant. The
reasonable date must be no later than the nearest remaining milestone
even if it will occur earlier than 30 days, subject to a minimum of
seven days after the servicer provides the borrower with the notice.
This increased specificity should afford borrowers sufficient time to
obtain and submit application materials while reducing lengthy
timelines for returning documents, which can lead to borrower
disengagement, increased delinquency, or a diminished likelihood that
the borrower will obtain a loss mitigation option. The Bureau believes
that borrowers will rarely need more
[[Page 72244]]
than 30 days to obtain and submit application materials. Further, as
revised, the commentary to Sec. 1024.41(b)(2)(ii) still preserves
borrower protections under Sec. 1024.41 by expressly prohibiting
servicers from selecting a reasonable date that is later than the four
milestone dates after which various protections end under the rule,
subject to the seven-day minimum. In general, as each milestone passes
before an application is complete, borrowers enjoy fewer protections
under Sec. 1024.41. A reasonable date too close to the next milestone
would place consumers at risk of losing those protections. The Bureau
believes this provision should increase borrowers' opportunity to
complete their applications before any future milestones have passed.
The Bureau also notes that servicers already must track the upcoming
milestones to comply with Sec. 1024.41.
The Bureau declines to adopt a more flexible standard than
proposed, as some commenters suggested. As the Bureau explained in the
proposal, and as both industry and consumer advocacy group commenters
noted, servicers could select a date that is too far in the future
under a more flexible standard. A date that is too far in the future
would not be reasonable, and borrowers might be discouraged from
promptly providing the requested documents and information.
Based on the comments received, the Bureau believes that the
revisions may reduce industry burden, litigation risk, and the
possibility of reputational harm associated with determining on a case-
by-case basis what constitutes a reasonable date. Also, the Bureau
understands that some servicers already provide a 30-day period for
borrowers to obtain and submit documents and information necessary to
complete a loss mitigation application, so the burden of amending
business practices to comply with the final rule should be limited for
these servicers. Although servicers may have to incur some costs to
program their systems to ensure that the date selected complies with
the revised comment, the Bureau believes the final rule will
substantially benefit borrowers.
The Bureau is not adopting one commenter's suggestion to require a
servicer to describe the milestones on the written notice under Sec.
1024.41(b)(2)(i)(B). The Bureau believes this information would
introduce significant burden for servicers. The Bureau also believes
the additional information would not provide borrowers any significant
benefit and could risk distracting borrowers from focusing on the
critical information.
Finally, the Bureau reiterates that, pursuant to Sec.
1024.41(b)(2)(ii), the reasonable date is not a hard deadline for the
borrower to return the documents to the servicer.\240\ As the Bureau
explained in the 2013 RESPA Servicing Final Rule, servicers may still
accept documents after the reasonable date, and the borrower may still
be able to submit a complete loss mitigation application, even if the
borrower does not submit the requested information by the reasonable
date.\241\
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\240\ See 78 FR 10695, 10826 (Feb. 14, 2013).
\241\ 78 FR 10695, 10826 (Feb. 14, 2013).
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41(c) Evaluation of Loss Mitigation Applications
41(c)(1) Complete Loss Mitigation Application
The Bureau proposed and is adopting a minor technical revision to
Sec. 1024.41(c)(1) to facilitate the addition of Sec. 1024.41(c)(4),
discussed below. The Bureau also sought comment as to whether the
applicable timelines set forth in Sec. 1024.41 allow borrowers
sufficient time to accept or reject a loss mitigation offer if they
complete a loss mitigation application near the foreclosure sale date.
The Bureau did not make any specific proposal to address those
concerns. The Bureau is not adopting any further revisions to Sec.
1024.41(c)(1) to address those concerns at this time.
In response to the Bureau's request for comment, several commenters
expressed concerns about the timing requirements in Sec. 1024.41. A
trade association suggested that a borrower may have little time to
respond to a loss mitigation offer if the borrower submitted a complete
loss mitigation application 38 days before a foreclosure sale and the
servicer responds 30 days later notifying the borrower of which options
the servicer will offer. A consumer advocacy group expressed concern
that the amount of time the rule allows a borrower to respond to a loss
mitigation offer or to exercise appeal rights is shortened by the
amount of time it takes the borrower to receive the determination
letter. Other consumer advocacy groups stated that the timing and
method of communicating offers and appeals present problems for
borrowers, including sometimes facing shorter response and appeal
timeframes than intended, in part because of the delay in receiving a
decision by standard (not first class) mail or because servicers
sometimes backdate documents.
Commenters recommended different approaches for addressing their
concerns about the timing requirements discussed above. A consumer
advocacy group said that the Bureau should require servicers to mail
notices promptly and should carve out additional time in the loss
mitigation timeline for a servicer to mail the notices to the borrower.
A trade association recommended that the Bureau consider allowing the
borrower less time to decide whether to accept a loss mitigation offer
or increasing the number of days before a foreclosure sale a servicer
must receive a complete loss mitigation application and still be
required to evaluate the application. A servicer requested a separate,
10-day timeframe to mail the determination letter, arguing that the
additional time would permit servicers to obtain third-party
information and ensure that the borrower receives the most accurate
determination possible. The commenter also stated that a 10-day delay
in mailing the determination letter would not harm the borrower because
the servicer already contacts the borrower at the end of the existing
30-day evaluation period to inform the borrower of its determination.
Consumer advocacy groups recommended that the Bureau address timing
problems by prohibiting servicers from backdating documents and
regulating further the manner in which notices are delivered. For
example, these commenters suggested requiring servicers to provide
notices via first class mail; adding three days to certain timing
deadlines if a notice is not sent by first class mail; providing that
the time a borrower has to respond to a loss mitigation offer begins
only when the borrower receives the decision notice; setting forth
specific mailing requirements and deadlines; specifying how servicers
must construe timing requirements under applicable deadlines; or
requiring that notices display the same date as the date the notice is
placed in the mail, even if a vendor sends the notice.
Consumer advocacy groups also advocated requiring servicers to
postpone a foreclosure sale when they offer a borrower a loss
mitigation option after receiving the complete loss mitigation
application on or near the 38th day before the sale. They said that
servicers can simply conduct the sale later if the borrower rejects the
offer and that the slight inconvenience that this would cause does not
justify denying the borrower's application simply because the offer and
acceptance might be communicated by mail. Some industry commenters
suggested that the
[[Page 72245]]
rule's current structure may not pose timing problems in some cases.
One state trade association stated that the 30-day evaluation timeline
does not cause problems for its members because evaluations typically
take less than 30 days. A servicer generally endorsed the timing and
method of communicating loss mitigation offers and appeals and stated
that servicers will take measures to provide borrowers with foreclosure
protections when they receive a complete loss mitigation application
more than 37 days before a scheduled foreclosure sale. However, one
servicer stated that, although servicers take measures to provide
foreclosure protections upon receiving a complete loss mitigation
application more than 37 days before a foreclosure sale, the servicer
cannot guarantee that the sale will be postponed.
The Bureau is not taking action on these issues at this time. The
comments received suggest that, when servicers comply with the existing
timing requirements, borrowers are protected from the most serious
harms and that servicers are, in the main, able to comply with those
timing requirements. The Bureau notes that, under Sec.
1024.38(b)(1)(i), a servicer must maintain policies and procedures that
are reasonably designed to ensure that the servicer can provide
accurate and timely disclosures to a borrower as required by Regulation
X's mortgage servicing rules, including Sec. 1024.41, or other
applicable law. Particularly when a scheduled foreclosure sale places
pressure on a loss mitigation application timeline, the Bureau
encourages servicers to provide borrowers with notices in the most
efficient and effective manner possible to maximize the likelihood that
the borrower can obtain loss mitigation and avoid foreclosure and
unnecessary fees. Servicers must ensure that their policies and
procedures are reasonably designed to provide accurate and timely
disclosures to borrowers in all circumstances, even when a foreclosure
sale has been scheduled. The Bureau will continue monitoring the market
for these and related issues.
The Bureau is making a technical correction that redesignates a
comment to Sec. 1024.41(d) as new comment 41(c)(1)-4. The 2013
Mortgage Servicing Final Rules added a comment to Sec. 1024.41(d) that
provides that 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, 12 CFR part 1002, or a
notice required pursuant to the Fair Credit Reporting Act, with the
notice required pursuant to Sec. 1024.41(d), unless otherwise
prohibited by applicable law.\242\ Because Sec. 1024.41(d) requires
that certain disclosures be made in a notice sent pursuant to Sec.
1024.41(c)(1), the Bureau sought to redesignate this comment as comment
41(c)(1)-4 in the September 2013 Mortgage Final Rule but inadvertently
redesignated it instead as comment 41(d)-(c)(1)(4).\243\ The Bureau is
now removing comment 41(d)-(c)(1)(4) and replacing it with new comment
41(c)(1)-4. New comment 41(c)(1)-4 is identical to the comment that it
replaces, except that the Bureau is making a technical, clarifying
change that substitutes ``notice required under Sec. 1024.41(c)(1)''
for ``notice required under Sec. 1024.41(d).''
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\242\ 78 FR 10696, 10897 (Feb. 14, 2013).
\243\ 78 FR 60381, 60438 (Oct. 1, 2013).
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41(c)(2) Incomplete Loss Mitigation Application Evaluation
41(c)(2)(iii) Payment Forbearance
Proposed Sec. 1024.41(c)(2)(iii) would have allowed servicers to
offer borrowers short-term repayment plans, as described in the
proposal, based upon an evaluation of an incomplete loss mitigation
application. This would have been an exception to the general rule
under Sec. 1024.41(c)(2), which generally prohibits a servicer from
evading the requirement to evaluate a complete loss mitigation
application by offering a loss mitigation option based upon an
evaluation of any information provided by a borrower in connection with
an incomplete application. Section 1024.41(c)(2)(iii) currently allows
such an exception for short-term forbearance programs but does not
specifically address short-term repayment plans. The proposal also
would have set forth certain protections for borrowers with either or
both of these short-term loss mitigation options, including limitations
on dual tracking and a requirement that the servicer clearly specify
the payment terms and duration of the program or plan in writing and
provide that information to the borrower before the program or plan
begins. Finally, the proposal would have described in commentary to
Sec. 1024.41(b)(1) a servicer's obligation to collect a borrower's
application materials in the context of a short-term program or plan
offered pursuant to Sec. 1024.41(c)(2)(iii).
The Bureau received numerous comments on the proposal. Many
consumer advocacy group and industry commenters expressed support for
the proposal generally but expressed concern with specific elements of
the proposal, as discussed below. Comments on most aspects of the
proposal are summarized here, but comments relating to the proposed
description of a servicer's reasonable diligence obligations under
comment 41(b)(1)-4 are addressed below in this section-by-section
analysis, under the heading Reasonable Diligence.
Consumer advocacy groups generally stated that the final rule
should extend borrowers protections in addition to those existing for
short-term forbearance plans. They recommended (1) tolling, during a
borrower's short-term repayment plan, the 120-day pre-foreclosure
period under Sec. 1024.41(f)(1)(i) during which servicers must not
make the first notice or filing required by applicable law for any
judicial or non-judicial foreclosure process; (2) prohibiting servicers
from scheduling a foreclosure sale while the borrower is performing
pursuant to a short-term repayment plan offered under Sec.
1024.41(c)(2)(iii); and (3) requiring servicers to provide borrowers
information necessary to understand that more affordable loss
mitigation options may be available if the borrower completes the
application.
Many comments addressed the proposed requirement that servicers
clearly specify the payment terms and duration of the program or plan
in writing and provide that information to the borrower before the
program or plan begins. Consumer advocacy groups stated that providing
this information in writing would be important because the agreements
sometimes suggest that they are an initial step to a loan modification
and borrowers sometimes believe erroneously that the short-term
forbearance program or short-term repayment plan is a loan
modification. The commenters said that, as a result, borrowers
sometimes believe either that they need not apply for loss mitigation
or that defaulting on the short-term option would render them
ineligible for a loan modification. Consumer advocacy groups therefore
recommended requiring servicers additionally to state in writing that
the offer is being made based on a limited application and that,
regardless of the outcome of the short-term program or plan, the
borrower may seek a full loss mitigation review in the future.
Some industry commenters, including servicers and national trade
associations, expressed concerns about the proposed requirement to
clearly specify the terms and duration of the program or plan in
writing before the program or plan begins. They recommended allowing
the program or plan to begin before servicers must
[[Page 72246]]
provide written information about the program or plan, as is common
industry practice. Commenters stated that requiring servicers to
provide written information before the program or plan begins could
create ambiguity as to when a program or plan begins and delay the
start of the program or plan. One servicer noted that some borrowers
can make their first plan payment over the phone upon accepting the
offer and that prohibiting a servicer from accepting such payment
before providing the written information could lead to additional costs
to the borrower. One servicer requested that the Bureau address how
servicers would clearly specify the payment terms and duration when
there may be a change in payment during the short-term repayment plan.
The servicer stated that this could occur, for example, when the
interest rate may change during the plan or when there may be an
increase to the borrower's escrow payment during the plan.
The proposal also would have required that the short-term repayment
plans permitted under Sec. 1024.41(c)(2)(iii) must bring the loan
current. One trade association expressly supported the proposal to
require that such a plan cure the delinquency.
Many commenters discussed the proposed limitations on the maximum
arrearage and maximum repayment period for such short-term repayment
plans. Several industry commenters and consumer advocacy groups
supported the proposed limitations from both a borrower protection and
an operational vantage point. A credit union stated that the proposed
limitations on arrearage and repayment period would not create
operational difficulties for its affiliate lenders. A trade association
stated that the most effective short-term repayment plans last between
three and six months. During outreach, some servicers similarly stated
that their repayment plans typically last no more than six months,
depending on the borrower's circumstance or investor requirements. A
servicer supported the six-month maximum repayment period for short-
term repayment plans and noted that servicers can offer longer
repayment plans, lasting up to 12 months, based on a complete
application. Other industry commenters opposed the proposed
limitations. Some industry commenters suggested that borrowers should
have unlimited time to repay an arrearage under a short-term repayment
plan and noted that borrowers may need more than six months to pay off
the arrearage. Several industry commenters recommended allowing a
repayment period of up to 12 months, suggesting that repayment plans of
12 months would be consistent with guidelines established by owners or
assignees. A servicer suggested the Bureau leave it to investors to
define repayment plan limitations, given that this involves an
assessment of the risk of ultimate repayment. A government-sponsored
enterprise stated that the Bureau should not limit the size of the
arrearage or the repayment period, as long as the servicer discloses to
the borrower that the plan would eliminate the delinquency upon
completion and that the borrower may submit a complete application and
as long as the servicer resumes efforts to obtain a complete
application if the borrower defaults on the short-term repayment plan.
Several industry commenters suggested aligning the maximum repayment
durations for short-term repayment plans and short-term payment
forbearance programs, noting that short-term payment forbearance
programs currently may be offered regardless of the amount of time a
servicer allows the borrower to make up the missing payments.\244\ One
servicer requested clarification that, in accordance with informal
guidance the Bureau issued in 2013, a servicer may offer a short-term
repayment plan and a short-term payment forbearance program
simultaneously, as long as the combined arrangement does not
incorporate more than six months of payments past due.
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\244\ See comment 41(c)(2)(iii)-1.
---------------------------------------------------------------------------
Servicers the Bureau spoke with during outreach reported varying
cure rates for borrowers in their repayment plans. None of these
servicers estimated a cure rate significantly higher than 50%. Two
servicers stated that a significant proportion of their borrowers who
do not complete a repayment plan fail within the first month or two.
Servicers participating in the Bureau's outreach indicated that they
encourage borrowers who fail to complete a repayment plan to apply for
other loss mitigation options.
Industry commenters expressed other miscellaneous concerns about
the proposal. For example, a trade association stated that a short-term
repayment plan offered under Sec. 1024.41(c)(2)(iii) might be
considered a troubled-debt restructuring and could therefore result in
increased burden and expense. A trade association cautioned against the
Bureau expanding the proposal to require a servicer to provide a short-
term solution if the borrower fails to complete a loss mitigation
application.
The Bureau is adopting Sec. 1024.41(c)(2)(iii) generally as
proposed to permit explicitly servicers to offer short-term repayment
plans based upon an evaluation of an incomplete loss mitigation
application. The final rule includes revisions, however, as to the
contents and timing of the written information that servicers must
provide to borrowers. The final rule requires servicers to provide more
information than the proposal and specifies that a servicer must
provide a written notice promptly after offering the program or plan.
The Bureau is also adopting commentary that describes what constitutes
a short-term payment forbearance program and a short-term repayment
plan for purposes of Sec. 1024.41(c)(2)(iii), clarifies the
application of Sec. 1024.41 to such programs or plans, and clarifies
various aspects of the written notice requirement. The Bureau is also
adopting revisions to comment 41(b)(1)-4.iii, which clarifies a
servicer's obligation under Sec. 1024.41(b)(1) to exercise reasonable
diligence when a servicer offers a borrower a short-term payment
forbearance program or a short-term repayment plan based on an
evaluation of an incomplete loss mitigation application. Among other
things, these revisions to comment 41(b)(1)-4.iii clarify that a
servicer must immediately resume exercising reasonable diligence to
obtain a complete application if a borrower defaults on a short-term
repayment plan.
The Bureau continues to believe that allowing servicers to offer
short-term repayment plans based on an evaluation of an incomplete loss
mitigation application can substantially benefit borrowers and
servicers. It offers a relatively efficient way for borrowers to
address temporary hardships without exhausting those protections under
Sec. 1024.41 determined as of the date a complete loss mitigation
application is received. The same rationale underpins the existing
exception for short-term forbearance programs under Sec.
1024.41(c)(2)(iii). Although nothing in Sec. 1024.41 requires a
servicer to offer such forbearance programs or repayment plans based
upon an incomplete application, Sec. 1024.41(c)(2)(iii) permits
servicers to offer temporary assistance to qualifying borrowers who may
need only to address short-term financial difficulty.
However, the Bureau also notes that, without appropriate
safeguards, permitting a servicer to offer loss mitigation based upon
an evaluation of an incomplete application could have adverse
consequences for a borrower. If
[[Page 72247]]
a servicer inappropriately diverts a borrower into a loss mitigation
program based upon an incomplete application, it could exacerbate the
borrower's delinquency and put the borrower at risk of losing the
opportunity to complete the application and receive the full
protections of Sec. 1024.41. A borrower who is offered a short-term
payment forbearance program or short-term repayment plan may be
experiencing a hardship for which other, longer-term loss mitigation
solutions might be more appropriate for a particular borrower's
circumstance.
As revised and adopted in final form, Sec. 1024.41(c)(2)(iii)
contains three key elements. First, it provides that, notwithstanding
the rule's general prohibition against offering a loss mitigation
option based upon an evaluation of an incomplete application, a
servicer may offer a short-term payment forbearance program or a short-
term repayment plan to a borrower based upon an evaluation of an
incomplete loss mitigation application. Second, it provides that,
promptly after offering a payment forbearance program or a repayment
plan under Sec. 1024.41(c)(2)(iii), unless the borrower has rejected
the offer, the servicer must provide the borrower a written notice
stating the specific payment terms and duration of the program or plan,
that the servicer offered the program or plan based on an evaluation of
an incomplete application, that other loss mitigation options may be
available, and that the borrower has the option to submit a complete
loss mitigation application to receive an evaluation for all loss
mitigation options available to the borrower regardless of whether the
borrower accepts the offered program or plan.\245\ Third, it prohibits
a servicer from making the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process, or
moving for foreclosure judgment or order of sale or conducting a
foreclosure sale, if a borrower is performing pursuant to the terms of
a payment forbearance program or repayment plan offered pursuant to
Sec. 1024.41(c)(2)(iii). The final rule also specifies that a servicer
may offer a short-term payment forbearance program in conjunction with
a short-term repayment plan pursuant to Sec. 1024.41(c)(2)(iii).
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\245\ In the 2013 RESPA-TILA Servicing Amendments, the Bureau
declined to require servicers to include similar disclosures in the
written notification required under Sec. 1024.41(b)(2)(i)(B),
stating that servicers should have flexibility to provide the
disclosures at the appropriate time. 78 FR 60381, 60400 (Sept. 12,
2013). The Bureau believes that it is appropriate for borrowers to
receive these disclosures in the written notice provided at the time
a borrower receives an offer for a short-term forbearance program or
short-term repayment plan under Sec. 1024.41(c)(2)(iii).
---------------------------------------------------------------------------
The final rule retains the proposed disclosures relating to the
payment terms and duration of the program or plan, which the Bureau
believes should reduce misunderstandings between servicers and
borrowers, including those that may result in borrowers making
incorrect payments. Comment 41(c)(2)(iii)-5, discussed below, clarifies
these requirements.
The final rule also requires several additional disclosures that
were not proposed. Many of these disclosures are specified in current
comment 41(b)(1)-4.iii as part of a servicer's obligation to exercise
reasonable diligence. The Bureau is removing those specific disclosures
from final comment 41(b)(1)-4.iii, as they would be duplicative of the
new written notice requirements in final Sec. 1024.41(c)(2)(iii).
Final Sec. 1024.41(c)(2)(iii) also introduces a new disclosure, that
other loss mitigation options may be available.
After considering the comments, the Bureau believes that allowing a
short-term payment forbearance program or short-term repayment plan to
begin immediately following an oral offer is appropriate. The Bureau
understands that some servicers already allow a short-term payment
forbearance program or repayment plan to begin upon offer. Allowing
commencement of the program or plan immediately upon an oral offer may
benefit some borrowers by reducing the accrual of late fees, negative
credit reporting, and the accumulation of further delinquency. Entering
the short-term repayment plan also triggers the protections of Sec.
1024.41(c)(2)(iii), which forbids the servicer from making the first
notice or filing required under applicable law for any judicial or non-
judicial foreclosure process, moving for foreclosure judgment or order
of sale, or conducting a foreclosure sale.
The Bureau continues to believe, however, that borrowers will
benefit from receiving a written notice describing the program or plan.
The final rule therefore requires servicers to provide a written notice
promptly after offering a payment forbearance program or a repayment
plan under Sec. 1024.41(c)(2)(iii), unless the borrower has rejected
the offer. The Bureau continues to believe that receiving the written
notice promptly will assist borrowers in understanding the terms and
consequences of the program or plan and will allow borrowers to address
any discrepancies more quickly. The Bureau notes that Sec.
1024.41(c)(2)(iii) does not require servicers to provide the written
notice if the borrower has rejected the offer. A notice after the
borrower has rejected the offer would provide little benefit to the
borrower and could introduce unnecessary burden for the servicer.
The Bureau is not adopting some commenters' suggestions to toll the
loss mitigation timelines under Sec. 1024.41 or to prohibit servicers
from scheduling a foreclosure sale while a borrower is performing under
a short-term repayment plan offered under Sec. 1024.41(c)(2)(iii). The
Bureau believes that the protections extended under Sec.
1024.41(c)(2)(iii) and (b)(1) are sufficient. As detailed below, a
short-term repayment plan for purposes of Sec. 1024.41(c)(2)(iii) must
have terms under which a borrower would be able to repay all past due
payments over a specified period of time to cure the delinquency; and
while a borrower is performing under such a plan, servicers may not
make the first notice or filing required by applicable law for any
judicial or non-judicial foreclosure process, move for foreclosure
judgment or order of sale, or conduct a foreclosure sale. Further, if
the borrower fails to comply with the plan, servicers must immediately
resume exercising reasonable diligence to obtain a complete
application, as described in revised comment 41(b)(1)-4.iii. The Bureau
will continue to monitor the marketplace regarding the sufficiency of
these protections. The Bureau also is not addressing, as one commenter
suggested, whether short-term repayment plans offered under Sec.
1024.41(c)(2)(iii) might be considered troubled-debt restructurings.
The Bureau is adopting comments 41(c)(2)(iii)-1 through -4
substantially as proposed, with non-substantive revisions to improve
clarity. Comment 41(c)(2)(iii)-1 clarifies what constitutes a short-
term payment forbearance program for purposes of Sec.
1024.41(c)(2)(iii). Comments 41(c)(2)(iii)-2 and -3 clarify that
various protections under Sec. 1024.41 apply notwithstanding a
servicer's offer of a short-term payment forbearance program or short-
term repayment plan under Sec. 1024.41(c)(2)(iii). Comment
41(c)(2)(iii)-2 explains that, although Sec. 1024.41(c)(2)(iii) allows
a servicer to offer a borrower a short-term payment forbearance program
or a short-term repayment plan based on an evaluation of an incomplete
loss mitigation application, the servicer must still comply with the
other requirements of Sec. 1024.41 with respect to the incomplete loss
mitigation application. The comment includes several examples of the
protections. Comment 41(c)(2)(iii)-3
[[Page 72248]]
clarifies that the servicer must still comply with all applicable
requirements in Sec. 1024.41 if the borrower completes a loss
mitigation application.
As finalized, comment 41(c)(2)(iii)-4 clarifies that repayment
plans for purposes of Sec. 1024.41(c)(4)(iii) have terms under which a
borrower would repay all past due payments over a specified period of
time to bring the mortgage loan account current. Repayment plans that
are not intended to cure the delinquency risk merely prolonging the
delinquency with consequent borrower harm, including negative credit
reporting and a diminished ability to qualify for other loss mitigation
options. Comment 41(c)(2)(iii)-4 explains that a short-term repayment
plan for purposes of Sec. 1024.41(c)(2)(iii) is one that allows for
the repayment of no more than three months of past due payments and
allows a borrower to repay the arrearage over a period lasting no more
than six months.
The Bureau also believes that these specific limitations, to three
months of past due payments and a repayment period of six months,
reduce the risk of borrower harm. Allowing more than three months of
past due payments or longer repayment periods could result in a higher
default rate, and borrowers' prospects for loss mitigation may be
diminished by a default on a short-term repayment plan. As noted above,
servicers that the Bureau spoke with during outreach informed the
Bureau that their borrowers in repayment plans frequently do not result
in a cure; none of these servicers reported cure rates higher than
approximately 50%.
Moreover, borrowers in short-term repayment plans under Sec.
1024.41(c)(2)(iii) are at risk of losing various protections under
Sec. 1024.41. In general, the longer a delinquency exists without the
borrower completing an application, the fewer borrower protections
Sec. 1024.41 is likely to provide if the borrower later completes the
application. For example, certain protections apply only if the
borrower completes a loss mitigation application more than a certain
number of days before a scheduled foreclosure sale. As a result, a
borrower could exit an unsuccessful short-term repayment plan to face a
scheduled foreclosure sale with no right under Sec. 1024.41 to have a
complete loss mitigation application evaluated or to have the denial of
loan modification options subject to appeal.
Given these potentially serious consequences for borrowers who are
in short-term repayment plans based on an evaluation of an incomplete
loss mitigation application, the Bureau believes that the limitations
in the final rule, as explained by comment 41(c)(2)(iii)-4, are
necessary. The final rule affords servicers sufficient flexibility to
address borrowers' temporary hardships, while also ensuring that
borrowers facing more substantial hardship will not lose time and
protections under Sec. 1024.41 by agreeing to a repayment plan that
they may have little chance of completing.
The Bureau notes that nothing in Sec. 1024.41 prevents a servicer
from offering a repayment plan that exceeds the durational limitations
set forth in comment 41(c)(2)(iii)-4. Rather, the rule simply prohibits
a servicer from doing so without obtaining a complete loss mitigation
application and evaluating the borrower for all available options. As
discussed below, the Bureau is also revising comment 41(b)(1)-4.iii,
which clarifies a servicer's obligation under Sec. 1024.41(b)(1) to
act with reasonable diligence in obtaining documents and information to
complete a loss mitigation application when the servicer offers the
borrower a short-term payment forbearance program or short-term
repayment plan under Sec. 1024.41(c)(2)(iii).
The Bureau is also adopting new comment 41(c)(2)(iii)-5 to clarify
the written notice requirement for short-term loss mitigation options
under Sec. 1024.41(c)(2)(iii). Comment 41(c)(2)(iii)-5.i notes that
Sec. 1024.41(c)(2)(iii) requires a servicer to provide the borrower a
written notice stating, among other things, the specific payment terms
and duration of a short-term payment forbearance program or a short-
term repayment plan offered based on an evaluation of an incomplete
application. The comment explains that, generally, a servicer complies
with these requirements if the written notice states the amount of each
payment due during the program or plan, the date by which the borrower
must make each payment, and whether the mortgage loan will be current
at the end of the program or plan if the borrower complies with the
program or plan. The Bureau believes that these guidelines clarify a
servicer's obligations under Sec. 1024.41(c)(2)(iii) and may help
borrowers better understand short-term programs or plans offered based
upon incomplete applications.
One commenter noted that servicers will not always know precisely
how a borrower's payments will change during a short-term payment
forbearance program or short-term repayment plan. New comment
41(c)(2)(iii)-5.ii clarifies how a servicer may comply with the
requirement in this circumstance. The comment describes how a servicer
complies when, at the time a servicer provides the written notice, the
servicer lacks information necessary to determine the amount of a
specific payment due during the program or plan (for example, because
the borrower's interest rate will change to an unknown rate based on an
index or because an escrow account computation year as defined in Sec.
1024.17(b) will end and the borrower's escrow payment may change). The
comment states that, in such circumstances the servicer complies with
the requirement to disclose the specific payment terms and duration of
a short-term payment forbearance program or short-term repayment plan
if the disclosures are based on the best information reasonably
available to the servicer at the time the notice is provided and the
written notice identifies which payment amounts may change, states that
such payment amounts are estimates, and states the general reason that
such payment amounts might change. The comment provides an illustrative
example.
The Bureau is also adopting new comment 41(c)(2)(iii)-6 to clarify
the requirement that a servicer must provide the written notice
promptly after offering a short-term payment forbearance program or
short-term repayment plan. The comment explains that, generally, a
servicer acts promptly to provide the written notice if the servicer
provides it no later than five days (excluding legal public holidays,
Saturdays, and Sundays) after offering the borrower a short-term
payment forbearance program or short-term repayment plan. The comment
also clarifies that a servicer may provide the written notice at the
same time the servicer offers the borrower the program or plan.
Finally, the comment states that a written offer that contains all the
required elements of the written notice also satisfies Sec.
1024.41(c)(2)(iii).
Reasonable Diligence
The Bureau is also revising the introductory text to comment
41(b)(1)-4 and the substance of comment 41(b)(1)-4iii to clarify a
servicer's obligation under Sec. 1024.41(b)(1) to act with reasonable
diligence in obtaining documents and information to complete a loss
mitigation application when the servicer offers the borrower a short-
term payment forbearance program or short-term repayment plan under
Sec. 1024.41(c)(2)(iii). Current comment 41(b)(1)-4 describes the
reasonable diligence obligation generally. The comment states that a
servicer must request information necessary to make a loss mitigation
application complete
[[Page 72249]]
promptly after receiving the loss mitigation application. Comments
41(b)(1)-4.i through -4.iii clarify reasonable diligence for purposes
of Sec. 1024.41(b)(1) in specific circumstances. Comment 41(b)(1)-
4.iii clarifies the standard when a servicer offers a short-term
payment forbearance programs under Sec. 1024.41(c)(2)(iii). Proposed
revisions would have extended the comment to include short-term
repayment plans.
The Bureau received many comments discussing the proposed
amendments to a servicer's reasonable diligence obligations with
respect to short-term loss mitigation options offered under Sec.
1024.41(c)(2)(iii). Some consumer advocacy groups said that the Bureau
should strengthen the applicable reasonable diligence standard a
servicer must employ to obtain a complete application from the
borrower. Under the proposal, servicers generally would have been
allowed to suspend such efforts until near the end of the program or
plan. The commenters recommended a rule that more clearly states that a
servicer's reasonable diligence obligations resume if a borrower
defaults on a short-term repayment plan and requires servicers to
provide the borrower with a written notice stating that the borrower
may submit a complete application and be considered for all loss
mitigation options. These consumer advocacy groups stated that these
protections are critical because a borrower might default on a
repayment plan months before the plan will terminate under the terms of
the agreement. They also suggested that additional protections are
essential because the consequences of default for these borrowers could
be severe.
Some industry commenters suggested, conversely, that the Bureau
limit the applicable reasonable diligence requirements. For example, a
trade association said that a full loss mitigation review under Sec.
1024.41 is not necessary for all borrowers and that requiring servicers
nonetheless to continue reasonable diligence and other applicable
communication requirements under Sec. 1024.41 assumes that borrowers
are uninformed, would frustrate some borrowers, and would lead to
negative perceptions of customer service. One servicer recommended
suspending reasonable diligence requirements for borrowers in short-
term repayment plans while continuing to require reasonable diligence
for borrowers in short-term forbearance programs. This servicer
suggested that reasonable diligence should be suspended for short-term
repayment plans because, unlike short-term forbearance programs, short-
term repayment plans are expected to bring the loans current. Another
servicer advocated against requiring servicers to provide borrowers who
receive a short-term repayment plan with information about remaining
items needed to complete the application, reasoning that the plans are
designed to cure delinquencies and borrowers would receive necessary
information if they default on the plan.
As finalized, comment 41(b)(1)-4 contains minor revisions to the
introductory text to improve clarity. Revised comment 41(b)(1)-4.iii
contains several elements, which provide non-exhaustive descriptions of
a servicer's reasonable diligence obligations during different phases
of a short-term loss mitigation option offered under Sec.
1024.41(c)(2)(iii).
First, comment 41(b)(1)-4.iii explains that a servicer exercises
reasonable diligence by providing the borrower the written notice
pursuant to Sec. 1024.41(c)(2)(iii). The Bureau is not adopting
proposed language that would have directed the servicer to inform the
borrower, as part of its reasonable diligence obligations, that the
offer of a payment forbearance program or repayment plan was based on
an evaluation of an incomplete application, as the final rule
incorporates that information as an express requirement in the written
notice setting forth the terms and duration of the program or plan
under Sec. 1024.41(c)(2)(iii).
Second, as revised, comment 41(b)(1)-4.iii provides that, if the
borrower remains in compliance with the short-term payment forbearance
program or short-term repayment plan, and the borrower does not request
further assistance, the servicer may suspend reasonable diligence
efforts until near the end of the payment forbearance program or
repayment plan. However, if the borrower fails to comply with the
program or plan or requests further assistance, the servicer must
immediately resume reasonable diligence efforts. Suspending reasonable
diligence efforts to complete an application during a performing short-
term payment forbearance program or short-term repayment plan may avoid
borrower frustration and unnecessary burden, but servicers must resume
those efforts immediately in the specified circumstances because of the
substantial consequences borrowers may face in the absence of a
complete application. Many of Sec. 1024.41's protections do not apply
until a borrower completes an application, and borrowers are generally
at risk of losing additional protections under Sec. 1024.41 the longer
a delinquency lasts while an application remains incomplete. Borrowers
who default on short-term loss mitigation option under Sec.
1024.41(c)(2)(iii) may be particularly at risk. While Sec.
1024.41(c)(2)(iii) prohibits servicers from making the first notice or
filing required by applicable law for any judicial or non-judicial
foreclosure process, moving for foreclosure judgment or order of sale,
or conducting a foreclosure sale, those protections may no longer apply
once a borrower is not performing under a short-term loss mitigation
option. Borrowers do not receive the similar protections available
under Sec. 1024.41(f)(2) or (g) until they complete an application
and, by the time of default on the short-term loss mitigation option,
they may have lost the possibility of obtaining those protections if
they completed the application within 37 days of a scheduled
foreclosure sale. The Bureau therefore believes it is vital that
servicers not delay in resuming efforts to assist the borrower in
completing an application, upon either the borrower's request or the
borrower's failure of compliance with the short-term loss mitigation
option.
Third, as revised, comment 41(b)(1)-4.iii makes more explicit that,
near the end of a short-term payment forbearance program offered based
on an evaluation of an incomplete loss mitigation application pursuant
to Sec. 1024.41(c)(2)(iii), and prior to the end of the forbearance
period, if the borrower remains delinquent, a servicer must contact the
borrower to determine if the borrower wishes to complete the loss
mitigation application and proceed with a full loss mitigation
evaluation. This aspect of the comment applies only to a short-term
payment forbearance program and not to a short-term repayment plan as
proposed because short-term repayment plans must be designed to cure
the delinquency under comment 41(c)(2)(iii)-4. Consequently, as some
commenters noted, as long as a borrower is performing under such a plan
and does not request further assistance, requiring a servicer to engage
in efforts to collect a complete loss mitigation application could
create unnecessary burden and frustrate the borrower.
41(c)(2)(iv) Facially Complete Application
Current Sec. 1024.41(c)(2)(iv) provides that, among other things,
if a borrower submits all the missing documents and information as
stated in the notice required pursuant to Sec. 1026.41(b)(2)(i)(B), or
no additional information is requested in such notice, an application
shall be considered
[[Page 72250]]
facially complete. If a servicer later discovers additional information
or corrections to a previously submitted document are required to
complete the application, certain protections under Sec. 1024.41 that
apply as of the date on which a servicer receives a complete
application continue to run from the date the application became
facially complete and continue until the borrower is given a reasonable
opportunity to complete the application. If the borrower completes the
application during this period, the servicer must treat the application
as complete as of the date it was facially complete, for purposes of
certain provisions under Sec. 1024.41 and as of the date the
application was actually complete for the purposes Sec. 1024.41(c).
The Bureau proposed three revisions to Sec. 1024.41(c)(2)(iv).
First, the Bureau proposed a minor technical change to correct the
erroneous reference to Sec. 1026.41(b)(2)(i)(B), which should refer to
Sec. 1024.41(b)(2)(i)(B). Second, the Bureau proposed to provide that
an application becomes facially complete when, in addition to the
conditions described above, a servicer is required, under proposed
Sec. 1024.41(c)(3)(i), to send the borrower a notice of complete
application. Section 1024.41(c)(3) requires servicers to provide a
written notice informing the borrower, among other things, when the
loss mitigation application becomes complete. However, the Bureau
recognizes that, in certain circumstances, servicers might require
additional documents or information from a borrower after sending a
notice of complete application under Sec. 1024.41(c)(3)(i). To clarify
the status of an application in this circumstance, the Bureau proposed
to extend expressly the facially complete application status described
in Sec. 1024.41(c)(2)(iv) to an application when the servicer is
required to provide the notice of complete application under proposed
Sec. 1024.41(c)(3).
Third, the Bureau proposed to provide that, if a servicer requests
the required additional information or corrections to a previously
submitted document, and the borrower timely submits those materials to
complete the application as described in 1024.41(c)(2)(iv), the
application shall be considered complete as of the date it first became
facially complete for purposes of specified provisions in Sec.
1024.41, and as of the date the application was actually complete for
the purposes Sec. 1024.41(c). In proposing this revision, the Bureau
recognized that an application may become complete more than once
during a single cycle.
The Bureau received several comments on the proposed amendments.
Consumer advocacy groups supported maintaining the initial date of
completion as the date on which dual tracking protections under Sec.
1024.41 begin to apply, saying that doing so should limit incentives
for servicers to promote delay and seek additional fees from borrowers.
They also expressed concern about ongoing servicer delays in the loss
mitigation application and evaluation processes. One trade association
commented that the proposal could harm servicers by providing borrowers
with additional time to submit application materials without affording
servicers a similar extension. The group suggested that the Bureau
lengthen the amount of time a servicer has to evaluate a complete loss
mitigation application.
The Bureau is finalizing Sec. 1024.41(c)(2)(iv) substantially as
proposed, with minor revisions. Under the revisions to Sec.
1024.41(c)(2)(iv), a loss mitigation application is facially complete
once the servicer receives the complete application, regardless of when
the servicer determines that the application is complete. As a result,
the protections under Sec. 1024.41 that begin when an application
becomes facially complete are in effect when a borrower submits all the
missing documents and information as stated in the notice required
under Sec. 1024.41(b)(2)(i)(B), when no additional information is
requested in such notice, or once the servicer is required to provide
the borrower a written notice of complete application pursuant to Sec.
1024.41(c)(3)(i).
Revised Sec. 1024.41(c)(2)(iv) also requires that, if a servicer
later discovers that additional information or corrections to a
previously submitted document are required to complete the application,
the servicer must promptly request the missing information or corrected
documents and treat the application as complete for purposes of Sec.
1024.41(f)(2) and (g) until the borrower is given a reasonable
opportunity to complete the application. Further, if the borrower
timely submits those materials to complete the application, the
servicer must treat the application as complete as of the date it first
became facially complete for the purposes of Sec. 1024.41(d), (e),
(f)(2), (g), and (h), and as of the date the application was actually
complete for the purposes of Sec. 1024.41(c). Finally, a servicer that
complies with Sec. 1024.41(c)(2)(iv) will be deemed in the final rule
to have fulfilled its obligation to provide an accurate notice under
Sec. 1024.41(b)(2)(i)(B).
Various protections under Sec. 1024.41 depend on the timing of a
complete application. For example, evaluation requirements, certain
dual tracking protections, and appeal rights apply only if the servicer
received a complete application a certain number of days before a
foreclosure sale. Tying the date of completion to the date an
application first became facially complete for purposes of specified
provisions in Sec. 1024.41 ensures that borrowers do not lose the
protections associated with those provisions because a servicer has
requested additional information. The protections apply as though the
application was complete as of the original date it became facially
complete.
As the Bureau explained in the proposal, the amendments to Sec.
1024.41(c)(2)(iv) are intended to provide both borrowers and servicers
with certainty about whether and when various protections apply under
Sec. 1024.41 when a servicer requires additional information for an
application that the borrower previously completed. Also, continuing
borrower protections under Sec. 1024.41 encourages servicers to
process loss mitigation applications efficiently.
To the extent that Sec. 1024.41(c)(2)(iv) allows borrowers
additional time to complete an application without providing
corresponding extensions for servicers, as one commenter suggested, the
Bureau believes that this is appropriate. The Bureau believes that
borrowers have strong incentives not to delay the provision of
application materials and expects servicers to be actively engaged with
borrowers in all stages of the loss mitigation application process. If
a borrower is actively engaged in the loss mitigation application
process and has completed an application, the servicer should not be
permitted to make the first notice or filing required by applicable law
for any judicial or non-judicial foreclosure process or to move for
foreclosure judgment or order of sale or conduct a foreclosure sale, as
applicable, until the servicer evaluates the borrower for loss
mitigation. The Bureau continues to believe that the loss mitigation
rules afford servicers sufficient time to evaluate a complete
application and does not believe that an extension is justified.
Nothing in Sec. 1024.41(c)(2)(iv) alters the servicer's ability to
request additional information or corrections to a previously submitted
document that are required to complete the application. The Bureau
recognizes that there are circumstances where servicers may need to
request additional
[[Page 72251]]
information or corrections to a previously submitted document when
required to evaluate the borrower pursuant to Sec. 1024.41(c)(1) and
owner or assignee requirements. When they do so unnecessarily, however,
it can prolong application timelines, increase costs for borrowers, and
leave borrowers unsure of their application status. Repeated requests
for additional documents and information by servicers could impede
borrower protections under the rules. The Bureau will continue to
monitor the market in this area.
41(c)(3) Notice of Complete Application
The Bureau proposed to require a servicer to provide a written
notice of complete loss mitigation application under new Sec.
1024.41(c)(3). The Bureau is adopting Sec. 1024.41(c)(3) largely as
proposed but with several revisions to the contents and timing of the
written notice.
In advance of the proposal, the Bureau learned from consumer
advocacy groups that, during the loss mitigation application process,
borrowers are frequently uncertain about whether an application was
complete. Current Sec. 1024.41 requires a servicer to notify a
borrower that an application is complete only if the application is
complete when the servicer provides the notice acknowledging receipt of
an application under Sec. 1024.41(b)(2)(i)(B). The Bureau learned from
pre-proposal outreach efforts that applications are rarely complete at
that stage. Many borrowers who completed an application might not
receive any notice specifying that the application was complete.
Because the foreclosure protections under Sec. 1024.41(f)(2) and (g)
\246\ are triggered based on when the borrower submits a complete loss
mitigation application, clarity as to when the application is complete
is vital.
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\246\ Subject to certain limitations, Sec. 1024.41(f)(2)
prohibits a servicer from making the first notice or filing required
by applicable law for any judicial or non-judicial foreclosure
process if a borrower submits a complete application during the pre-
foreclosure review period set forth in Sec. 1024.41(f)(1) or before
the servicer has made the first notice or filing, and Sec.
1024.41(g) prohibits a servicer from moving for foreclosure judgment
or order of sale, or conducting a foreclosure sale, if the borrower
completes a loss mitigation application after the servicer has made
the first notice or filing but more than 37 days before a
foreclosure sale. In general, neither provision applies if the
servicer has denied the application and no appeal is available; the
borrower rejects all loss mitigation options offered by the
servicer; or the borrower fails to perform under an agreement on a
loss mitigation option.
---------------------------------------------------------------------------
Proposed Sec. 1024.41(c)(3)(i) would have required a servicer to
provide a borrower a written notice, including specific information,
promptly upon receiving the borrower's complete application. As
proposed, the notice would have informed the borrower of: The
application's completion; the date the servicer received the complete
application; whether a foreclosure sale was scheduled as of the date
the servicer received the complete application and, if so, the date of
that scheduled sale; and the date the borrower's foreclosure
protections began under Sec. 1024.41(f)(2) and (g), as applicable,
with a concise description of those protections. The notice also would
have included a statement that the servicer expects to complete its
evaluation within 30 days of the date it received the complete
application and a statement that, although the application is complete,
the borrower may need to submit additional information at a later date
if the servicer determines that it is necessary. Finally, the notice
would have informed the borrower, if applicable, of the borrower's
rights to appeal the servicer's determination to deny the borrower for
any trial or permanent loan modification under Sec. 1024.41(h).
Proposed Sec. 1024.41(c)(3)(ii) stated that a servicer need not
provide the notice of complete application in three circumstances: If
the servicer has already notified the borrower under Sec.
1024.41(b)(2)(i)(B) that the application is complete and the servicer
has not subsequently requested additional information or a corrected
version of a previously submitted document from the borrower to
complete the application, the application was not complete or facially
complete more than 37 days before a foreclosure sale, or the servicer
has already provided a notice approving or denying the application
under Sec. 1024.41(c)(1)(ii). These exceptions were intended to avoid
unnecessary burden on servicers and prevent borrower confusion due to
the receipt of conflicting or redundant information.
The Bureau also proposed commentary to explain certain aspects of
the notice requirement under proposed Sec. 1024.41(c)(3). Proposed
comment 41(c)(3)(i)-1 would have explained that, generally, a servicer
complies with the requirement to provide a borrower with written notice
promptly by providing the notice within five days of receiving a
complete application. However, the Bureau recognized that servicers
might sometimes require more than five days to determine whether a loss
mitigation application is complete. In the proposal, the Bureau
explained its belief that the general five day standard would provide
servicers with sufficient flexibility to make an accurate determination
but prevent undue delay. Proposed comment 41(c)(3)(i)-2 would have
provided that the date the borrower's protections began under Sec.
1024.41(f)(2) and (g) must be the date on which the application became
either complete or facially complete, as applicable.
Proposed comment 41(c)(3)(i)-3 would have explained that Sec.
1024.41(c)(3)(i) requires a servicer to send a notification, subject to
the exceptions under Sec. 1024.41(c)(3)(ii), every time a loss
mitigation application becomes complete. The proposed comment further
would have clarified that, if after providing a notice under Sec.
1024.41(c)(3)(i) a servicer requests additional information or
corrections to a previously submitted document required to complete the
application in accordance with Sec. 1024.41(c)(2)(iv), the servicer
might have to provide an additional notice under Sec. 1024.41(c)(3)(i)
if the borrower submits the additional information or corrected
documents to complete the application. The Bureau explained in the
proposal that requiring a servicer to send an additional notice under
these circumstances would help ensure that a borrower has accurate and
current information about the status of the loan and when to expect a
servicer to complete the evaluation.
The Bureau explained in the proposal that requiring servicers to
provide borrowers with the information in the notice of complete
application under proposed Sec. 1024.41(c)(3)(i) would ensure that
borrowers are informed of the next steps in the evaluation process. The
Bureau explained its belief that receiving notice of when to expect an
offer or denial would permit the borrower to make better-informed
decisions. Additionally, the Bureau stated that requiring the notice of
complete application to indicate the date that the servicer received a
complete application would help both servicers and borrowers in
determining which protections apply under Sec. 1024.41. The Bureau
also indicated that the proposed disclosure that the servicer may need
additional or updated information from the borrower after determining
that the application was complete would reduce borrower confusion when
and if the servicer requests such additional information.
The Bureau sought comment on whether the notice of complete
application required under proposed Sec. 1024.41(c)(3) should include
additional or different disclosures than those listed above. The Bureau
also sought comment on whether it should finalize a stricter timing
requirement for
[[Page 72252]]
providing the notice than proposed under Sec. 1024.41(c)(3)(i) and, if
so, what the specific number of days should be.
Numerous commenters, including servicers, trade associations, and
consumer advocacy groups, expressed general support for the proposal to
require servicers to provide a notice of complete application to
borrowers. A trade association stated that requiring servicers to
provide a notice of complete application would operate in conjunction
with proposed comment 41(b)(1)-1, which, in part, would have clarified
that servicers can generally stop collecting application materials for
a given loss mitigation option upon learning that the consumer is
ineligible for that option, to alleviate unnecessary burden on
borrowers while concurrently requiring servicers to engage in best
efforts to collect loss mitigation application materials from
borrowers. One servicer commented that the notice of complete
application as proposed would provide borrowers with more clarity about
the loss mitigation process. A number of consumer advocacy groups urged
the Bureau to base the onset of foreclosure protections on the
submission of an initial application but stated that, if the Bureau
retains the current approach to Sec. 1024.41, it should require
servicers to provide a notice of complete application to borrowers, to
address borrower uncertainty and unjustified denials. One trade
association stated that a notice of complete application would alert
borrowers to critical protections and deadlines under State and Federal
rules. Several commenters expressed general support for the notice but
took issue with other elements of the proposal; those comments are
addressed in the discussion of the relevant elements below.
Some commenters addressed cost-benefit considerations of requiring
servicers to provide a notice of complete application. Several said
that requiring the notice would not create significant additional
burden for servicers, for example, because some jurisdictions already
require servicers to send such notices. However, other commenters
stated that the benefit to borrowers of receiving a notice of complete
application would not justify the additional cost, burden, or risk for
servicers. Some industry commenters suggested that the notice would not
significantly benefit borrowers because they have other means to secure
relevant information, they will have been in contact with servicers, or
they might find the notice confusing due to the various other notices
they receive relating to the delinquency and their rights. Industry
commenters also stated that the new notice requirement would increase
servicer cost or burden, as well as the risk of servicer liability. One
trade association suggested that the additional cost of the notice
requirement would make credit more expensive.
Some commenters addressed the proposed requirement to provide the
written notice promptly, generally within five days of receiving the
complete application. Consumer advocacy groups argued that the timing
requirement should be short and inflexible because a flexible standard
invites delay. Consumer advocacy groups also stated that a five-day
standard would encourage servicers to evaluate complete applications
earlier. They stated that it would not burden servicers or result in
undue delay because the standard would align with the standard in Sec.
1024.41(b)(2)(i)(B). One consumer advocacy group noted that, because
servicers may need additional time in some cases, the Bureau should
finalize a maximum time limit to reduce confusion and delay.
Numerous industry commenters requested that servicers have more
than five days to provide the notice. Some said that a five-day
standard would not leave servicers with sufficient time to review the
application and determine whether it is complete, with one industry
trade association saying that the standard would suffice only if the
disclosures were generic and requesting 10 or 15 days to provide the
notice. One servicer said that the notice should not state whether the
application is complete but that servicers should be required to send a
notice each time a borrower submits application materials to
acknowledge receipt and specify which items remain outstanding.
Commenters also addressed the content of the written notice.
Consumer advocacy groups stated that requiring the notice to contain
the disclosures proposed under Sec. 1024.41(c)(3)(i)(A) through (F)
would create a bright-line, written record of when dual tracking
protections begin and when other requirements under Sec. 1024.41
apply. Several industry commenters recommended that the notice contain
only standard disclosures that servicers do not need to adjust for each
individual borrower, to reduce compliance burdens. For example, several
servicers said that the notice should focus on informing the borrower
of the application status, as borrowers can obtain the other
information elsewhere. One of these servicers stated that the notice
should include the following generic disclosures: That the application
is complete; that the servicer expects to complete its evaluation
within 30 days; that additional information may later be required;
that, if additional information is required, the servicer will complete
its evaluation within 30 days of receiving that additional information;
and that the servicer will take measures to provide foreclosure
protections.
A trade association expressed concern that the proposed contents of
the written notice could potentially mislead some borrowers and result
in FDCPA litigation. The association stated that: (1) State laws
sometimes offer protections that the written notice under proposed
Sec. 1024.41(c)(3)(i) would not disclose, so the written notice could
suggest that borrowers have fewer protections than they actually have;
(2) the proposed disclosures might mislead borrowers into believing
that a servicer cannot execute a foreclosure sale even after denying
the application, particularly when a servicer is statutorily required
to send a separate notice of sale; (3) borrowers could be misled by a
notice containing both foreclosure-related disclosures and a statement
that the application is complete; and (4) the Bureau could alleviate
these concerns by drafting specific language for the notice under Sec.
1024.41(c)(3)(i) and by introducing a safe harbor for the notices under
the FDCPA.
Several commenters took issue with proposed Sec.
1024.41(c)(3)(i)(C) in particular, which would have required servicers
to disclose the date of a scheduled foreclosure sale as of when the
servicer received the complete application. A servicer argued that
disclosing the sale date is unnecessary because the borrower receives
notification of the sale date when the sale is scheduled and postponed.
Several trade associations suggested that the sale date disclosure
might create difficulties when servicers are not in control of the sale
date, such as when the servicer has filed a motion in court to postpone
the sale but the court has yet to respond, when the sheriff responsible
for delivering the notice of sale schedules the sale shortly after the
servicer issues the notice under Sec. 1024.41(c)(3), or when the
sheriff has already scheduled the sale but delays informing the
servicer. In these circumstances, the notice under Sec.
1024.41(c)(3)(i) could be misleading or incorrect. A trade association
further opposed disclosing a scheduled foreclosure sale date on the
notice because State law may control how the delivery of sale date
information must be displayed, although the association was unaware of
specific conflicts with
[[Page 72253]]
State law. The trade association also stated that, more generally,
determining the foreclosure sale date at a particular point in time is
often not straight-forward, and it expressed concern that an incorrect
statement of sale date could invalidate the sale and lead to attorney
and trustee liability. Consumer advocacy groups suggested that a final
rule adopting the notice requirement should require a statement whether
a scheduled foreclosure sale has been canceled or postponed.
Other commenters raised miscellaneous other issues relating to
specific proposed disclosures. A trade association recommended that the
Bureau clarify how servicers must describe the borrower's foreclosure
protections under proposed Sec. 1024.41(c)(3)(i)(D), saying it would
be difficult for servicers to determine which protections apply at a
given moment and how to describe those protections, particularly given
the various protections that State law may provide. Several commenters
expressed concerns about the disclosure proposed under Sec.
1024.41(c)(3)(i)(G) relating to a borrower's appeal rights. One
servicer said that the proposed disclosure would be particularly
confusing to borrowers. Another servicer stated that information about
a borrower's appeal rights is more appropriate in a loss mitigation
determination letter provided under Sec. 1024.41(c)(1)(ii) than at the
time the servicer receives the complete application.
One consumer advocacy group supported proposed comment 41(c)(3)(i)-
3, which would have clarified that servicers must provide a notice of
complete application to borrowers each time an application becomes
complete. The commenter stated that this requirement would avoid
borrower uncertainty that occurs when a servicer fails to inform the
borrower when the application is complete. Several industry commenters
supported the requirement of a notice of complete application while
opposing the proposal to require the servicer to send additional
notices every time the borrower's application becomes complete. A
servicer said that additional notices after the first notice would be
unnecessary because a borrower's foreclosure protections under Sec.
1024.41 begin when the application becomes facially complete and last
through any appeal. A credit union suggested that receiving additional
notices would confuse borrowers and result in unnecessary inquiries.
Commenters made other recommendations relating to the proposed
notice of complete application. Consumer advocacy groups and a trade
association recommended requiring servicers to provide the notice of
complete application to the servicer's foreclosure counsel where
applicable to prevent improper foreclosure filings. A trade association
requested that the Bureau issue a model form for the notice. One
consumer advocacy group argued that servicers should provide a list of
borrower rights and protections under Regulation X. Consumer advocacy
groups recommended that the Bureau require servicers to document the
need for additional information after the application becomes complete
or facially complete to curb dilatory tactics.
The Bureau is adopting Sec. 1024.41(c)(3) and related commentary
with several revisions to the content and timing of the written notice.
First, the Bureau is revising the disclosures that a written notice
must contain pursuant to Sec. 1024.41(c)(3)(i). As revised, Sec.
1024.41(c)(3)(i) requires that the written notice set forth the
following information: (1) That the loss mitigation application is
complete; (2) the date the servicer received the complete application;
(3) that the servicer expects to complete its evaluation within 30 days
of the date it received the complete application; (4) that the borrower
is entitled to certain foreclosure protections because the servicer has
received the complete application and, if the servicer has not made the
first notice or filing required by applicable law for any judicial or
non-judicial foreclosure process, that the servicer cannot make the
first notice or filing required to commence or initiate the foreclosure
process under applicable law before evaluating the borrower's complete
application, or, if the servicer has made such first notice or filing,
that the servicer has begun the foreclosure process, and that the
servicer cannot conduct a foreclosure sale before evaluating the
borrower's complete application; (5) that the servicer may need
additional information at a later date to evaluate the application, in
which case the servicer will request that information from the borrower
and give the borrower a reasonable opportunity to submit it, the
evaluation process may take longer, and the foreclosure protections
could end if the servicer does not receive the information as
requested; and (6) that the borrower may be entitled to additional
protections under State or Federal law. Although these disclosures do
not contain exclusively generic disclosures as some commenters
requested, the Bureau has minimized the degree to which servicers will
need to tailor the disclosures to individual borrowers or make complex
determinations about a borrower's protections or application status.
The first three of these disclosures were included in the proposal,
although the Bureau has made several non-substantive revisions to
improve clarity. The remaining disclosures have been substantially
revised or are new. First, for example, the disclosures relating to a
borrower's foreclosure protections now consist of one of two
standardized disclosures, depending on the foreclosure status. The
proposal would have required servicers to state the date on which the
borrower's protections began under Sec. 1024.41(f)(2) and (g) and to
describe those protections concisely. As one commenter noted, servicers
may have had difficulty determining which protections apply at a given
moment and how to describe those protections, particularly given the
various protections that State law may provide. As revised (and as
clarified in comment 41(c)(3)(i)-2, discussed further below), the
disclosures provide borrowers with sufficient information about the
status of the foreclosure and their foreclosure protections under
Regulation X but eliminate much of the burden and risk that the
proposal may have introduced. The Bureau believes that receiving these
disclosures will help borrowers understand their rights. Although the
revised disclosures do not restate verbatim the protections of Sec.
1024.41(f)(2) and (g), the Bureau believes that they alert borrowers to
the main contours of the foreclosure protections. While commenters
expressed concern that disclosing these dual tracking protections would
lead borrowers to believe that a servicer cannot execute a foreclosure
sale even after denying the application, the Bureau believes that this
is unlikely. The notice must expressly state that the servicer cannot
take the applicable actions with respect to foreclosure before
evaluating the application. The Bureau believes the notice will
effectively communicate to the borrower that the dual tracking
protections may end.
The Bureau is also revising the proposed disclosure relating to a
servicer's potential need for additional information notwithstanding
the complete application. Under Sec. 1024.41(c)(3)(i)(E) as adopted,
the written notice must disclose that the servicer may need additional
information at a later date to evaluate the application, in which case
the servicer will request that information from the borrower and give
the borrower a reasonable opportunity to submit it,
[[Page 72254]]
the evaluation process may take longer, and the foreclosure protections
could end if the servicer does not receive the information as
requested. Servicers sometimes request additional application materials
from borrowers after an application becomes complete, and pursuant to
Sec. 1024.41(c)(2)(iv) a borrower might lose protections under Sec.
1024.41 if the borrower fails to respond timely to such requests.
Borrowers should be alerted to the possibility that servicers may
require them to submit additional documents even after notifying them
that an application is complete and that they will need to respond in a
timely way to those requests for additional documents.
The Bureau also has decided, in response to concerns raised by
commenters, to require an additional disclosure in Sec.
1024.41(c)(3)(i)(F), stating that the borrower may be entitled to
additional protections under State or Federal law. Disclosing only the
foreclosure protections described above could suggest that borrowers
have fewer protections than they in fact have under all applicable
laws. This could discourage borrowers from researching or enforcing
those other protections. Thus, the Bureau is adopting the new
disclosure under Sec. 1024.41(c)(3)(i)(F) to ensure that borrowers are
aware that protections set forth on the written notice may not be an
exhaustive enumeration of their legal rights and protections.
The Bureau has decided not to adopt two other proposed disclosures.
The first of these is whether a foreclosure sale was scheduled as of
the date the servicer received the complete application and, if so, the
date of that scheduled sale. The second is the proposed disclosure
that, if applicable, the borrower will have the opportunity to appeal
the servicer's determination to deny the borrower for any trial or
permanent loan modification pursuant to Sec. 1024.41(h).
The Bureau is not requiring the first of these disclosures because,
although the disclosure may have benefited some borrowers and enhanced
servicers' ability to track borrowers' protections under Sec. 1024.41,
the Bureau believes that the operational complexities, costs of
compliance, and resulting potential legal risks do not justify its
inclusion. The Bureau understands that third parties sometimes schedule
the foreclosure sale date, and that the date is sometimes subject to
change. In these circumstances, servicers may have difficulty timely
determining and disclosing the date accurately. The Bureau believes
that borrowers generally receive the sale date disclosure on other
notices and are often able to confirm the sale date through third
parties or public records. The Bureau also expects that servicers, in
the course of their loss mitigation communications with borrowers,
ordinarily communicate the foreclosure sale date to borrowers. The
Bureau may revisit requiring disclosure of the foreclosure sale date at
a later time if the Bureau learns that borrowers in fact have
difficulty ascertaining the scheduled foreclosure sale date. As the
Bureau is not requiring servicers to disclose the date of a scheduled
foreclosure sale, it also is not requiring servicers to disclose
whether the sale date has been canceled or postponed, as consumer
advocacy groups recommended. Again, the Bureau expects that this is
information that servicers do ordinarily communicate to borrowers, and
the Bureau will continue to monitor this area for consumer harm.
The second disclosure the Bureau is not requiring, as noted above,
is the proposed language relating to a borrower's appeal rights. The
Bureau has concluded that disclosing whether a borrower will have
appeal rights under Sec. 1024.41(h) on a notice of complete
application would be premature. Borrowers will have just completed the
application at this stage, and they may not have the opportunity to
exercise their appeal rights for more than a month in some instances;
they also in some cases never have any need to exercise their appeal
rights and thus will not need the information at all. Borrowers still
will learn of their appeal rights when the information is more salient:
If and when an evaluation leads to a denial of a loan modification
option and the servicer provides the written notice of determination
pursuant to Sec. 1024.41(c)(1)(ii).
The Bureau is also revising the amount of time a servicer has after
receiving a complete application to provide a written notice to provide
servicers with greater clarity and (in most cases) slightly more time
for compliance. Proposed Sec. 1024.41(c)(3)(i) would have required
servicers to provide the notice promptly upon receiving a complete loss
mitigation application, and proposed comment 41(c)(3)(i)-1 would have
clarified that providing the notice within five calendar days would
generally satisfy the requirement. Some commenters said that servicers
should have more than five calendar days to provide the notice under
Sec. 1024.41(c)(3)(i) because it would be difficult to comply with the
proposed requirements within that timeframe. As adopted in final form,
the section requires servicers to provide the notice within five days,
excluding legal public holidays, Saturdays, and Sundays. To ensure that
servicers do not delay, this bright-line standard is more prescriptive
than the proposal, but it should allow servicers in most cases slightly
longer to comply with the requirement than the proposal would have
allowed. In conjunction with limiting the complexity of the disclosures
as described above, the Bureau believes that this new standard of five
days (excluding legal public holidays, Saturdays, and Sundays) should
afford servicers sufficient time to review a borrower's application for
completion and produce an accurate written notice of complete
application. Additionally, the Bureau notes that this timeframe aligns
with the timeframe afforded to servicers to provide written
notification of a borrower's application status under Sec.
1024.41(b)(2)(i)(B).
At the same time, the Bureau does not believe that it would be
appropriate to extend the time frame further. Some borrowers may need
evidence that their loss mitigation application is complete to
forestall a foreclosure action that would violate Sec. 1024.41(g). As
consumer advocacy groups noted in comments to the proposal, a more
flexible standard could result in delay and the consequent reduction of
borrower protections. Therefore, the Bureau declines to adopt the
longer timelines for providing the notice that some commenters
suggested.
The Bureau is adopting Sec. 1024.41(c)(3)(ii) substantially as
proposed, with minor revisions to improve clarity. Section
1024.41(c)(3)(ii) provides that a servicer is not required to provide a
notice pursuant to Sec. 1024.41(c)(3)(i) under three circumstances:
(1) The servicer has already provided the borrower a notice under Sec.
1024.41(b)(2)(i)(B) informing the borrower that the application is
complete and the servicer has not subsequently requested additional
information or a corrected version of a previously submitted document
from the borrower pursuant to Sec. 1024.41(c)(2)(iv); (2) the
application was not complete or facially complete more than 37 days
before a foreclosure sale; or (3) the servicer has already provided the
borrower a notice regarding the application under Sec.
1024.41(c)(1)(ii). As the Bureau explained in the proposal, these
exceptions are intended to avoid unnecessary burden on servicers and
prevent borrower confusion due to the receipt of conflicting or
redundant information. The Bureau received no comments on this aspect
of the proposal.
[[Page 72255]]
Proposed comment 41(c)(3)(i)-1 is no longer necessary, as it would
have clarified the requirement that servicers must provide the notice
under Sec. 1024.41(c)(3)(i) promptly. As explained above, Sec.
1024.41(c)(3)(i), as adopted, requires the servicer to provide the
notice within five days (excluding Saturdays, Sundays, and legal
holidays) after receiving a complete loss mitigation application. Thus,
the Bureau is adopting entirely different content in new comment
41(c)(3)(i)-1. New comment 41(c)(3)(i)-1 clarifies that a servicer
complies with Sec. 1024.41(c)(3)(i)(B) (which requires the servicer to
disclose on the written notice of complete application the date the
servicer received the complete loss mitigation application) by
disclosing the most recent date the servicer received the complete loss
mitigation application. The comment provides an example illustrating
this principle. The comment also includes a cross-reference to comment
41(c)(3)(i)-3, which discusses a servicer's obligation to provide
additional notices.
The Bureau is adopting new comment 41(c)(3)(i)-1 to ensure that
servicers understand that the section requires them to disclose the
most recent date an application became complete, not the date the
application initially became complete or facially complete. Consumer
advocacy groups and servicers have informed the Bureau that servicers
frequently require borrowers to submit additional information or
corrected versions of previously submitted documents several times
during the application process, both before and after an application
becomes complete. Requiring the disclosure of the most recent date of
completion will ensure that borrowers receive current information about
the status of an application.
The Bureau is also significantly revising comment 41(c)(3)(i)-2.
Proposed comment 41(c)(3)(i)-2 would have clarified proposed
disclosures relating to the date on which a borrower's protections
began under Sec. 1024.42(f) and (g). As described above, the Bureau is
not adopting those disclosures and is therefore replacing the substance
of proposed comment 41(c)(3)(i)-2 in its entirety. New comment
41(c)(3)(i)-2 instead clarifies that the two disclosures in Sec.
1024.41(c)(3)(i)(D)(1) and (2) sets forth different requirements
depending on whether the servicer has made the first notice or filing
under applicable law for any judicial or non-judicial foreclosure
process, as described in Sec. 1024.41(f). The comment also includes a
cross-reference to comment 41(f)-1 for a description of whether a
document is considered the first notice or filing under applicable law.
The Bureau is adopting comment 41(c)(3)(i)-3 substantially as
proposed, with minor revisions to improve clarity. It explains that,
except as provided in Sec. 1024.41(c)(3)(ii), Sec. 1024.41(c)(3)(i)
requires a servicer to provide a written notice every time a loss
mitigation application becomes complete. The comment provides an
example illustrating this requirement. The comment also includes a
cross-reference to comment 41(c)(3)(i)-1, which clarifies that a
servicer complies with Sec. 1024.41(c)(3)(i)(B) (which requires the
servicer to disclose on the written notice of complete application the
date the servicer received the complete loss mitigation application) by
disclosing the most recent date the servicer received the complete loss
mitigation application.
Although commenters disagreed as to the merits of providing
additional notices of complete application after the servicer receives
additional information or corrected documents, the Bureau continues to
believe that such notices are warranted to ensure that borrowers
receive information regarding the current status of their applications
and when their dual tracking protections begin. Particularly given that
the notices will suggest to borrowers that failure to respond to
follow-up requests could cause the consumer to lose certain foreclosure
protections, the Bureau believes that it is important for borrowers to
receive further updates about application status. In addition, because
some servicers already provide a written notice of complete application
to borrowers, they should incur only limited increases in their costs
of compliance. The Bureau has also minimized the degree to which
servicers will need to tailor the disclosures to individual borrowers
or make complex determinations about a borrower's protections or
application status.
The Bureau is not adopting a requirement that servicers provide a
notice of complete application to servicers' foreclosure counsel. Some
commenters recommended this requirement as a means to reduce improper
foreclosure filings that harm all parties. As discussed in the section-
by-section analyses of Sec. 1024.41(g), servicers must provide prompt
instruction to foreclosure counsel upon receipt of a complete loss
mitigation application. Similarly, as discussed in the section-by-
section analysis of Sec. 1024.38(b)(3)(iii), servicers must have
policies and procedures reasonably designed to ensure that servicer
personnel promptly inform foreclosure counsel that the servicer has
received a complete application, among other things. The Bureau notes
that the rule does not prohibit a servicer from voluntarily providing
the notice of complete application required under Sec. 1024.41(c)(3)
to foreclosure counsel. Doing so may be part of an effective procedure
for informing foreclosure counsel about a borrower's loss mitigation
application status as part of servicers' efforts to comply with Sec.
1024.41(g). The Bureau believes, however, that it is appropriate to
permit servicers discretion in determining alternative means for
compliance with Sec. Sec. 1024.38(b)(3)(iii) and 1024.41(g) and
therefore is not requiring servicers to provide the notice of complete
application to foreclosure counsel. Whatever method a servicer chooses
to instruct foreclosure counsel how to comply with Sec. 1024.41(g),
the servicer remains responsible for ensuring compliance with Sec.
1024.41(g).
The Bureau is also not providing a safe harbor under the FDCPA for
the written notice. The Bureau believes that the specific required
disclosures in the notice, particularly as they have been further
tailored in the final rule, should not prompt the filing of baseless
FDCPA cases.
41(c)(4) Information Not in the Borrower's Control
The Bureau proposed to amend Sec. 1024.41(c)(1) and to add Sec.
1024.41(c)(4) to address a servicer's obligations with respect to
information not in the borrower's control that the servicer requires to
determine which loss mitigation options, if any, it will offer a
borrower. Among other things, the proposal would have introduced
standards governing a servicer's attempts to collect information not in
the borrower's control, prohibited a servicer from denying the
application because it lacks such information, and required servicers
to provide a written notice if a delay in receiving third-party
information precludes the servicer from making the determination within
30 days of receiving the complete application. Certain aspects of the
proposal would have addressed third-party information, that is,
information from a party other than the borrower or servicer, while
other aspects would have addressed information not in the borrower's
control, which could include third-party information or information
within the servicer's control. For the reasons set forth below, the
Bureau is adopting Sec. 1024.41(c)(1) as proposed and is adopting
Sec. 1024.41(c)(4) largely as proposed but with revisions to the
[[Page 72256]]
denial prohibition and the written notice requirement.
Under existing Sec. 1024.41(c)(1), a servicer generally must
evaluate a borrower's timely complete loss mitigation application
within 30 days of receipt. A complete loss mitigation application
includes all the information the servicer requires from a borrower in
evaluating applications for the loss mitigation options available to
the borrower.\247\ Thus, a loss mitigation application is considered
complete under the current rule notwithstanding whether a servicer
requires additional information that is within the control of the
servicer or a third-party and not in the control of the borrower, such
as investor approval, property tax information, or homeowner
association payoff information.\248\ While the rule is clear that
servicers generally must exercise reasonable diligence in obtaining
documents and information from a borrower to complete the
application,\249\ the rule currently does not address a servicer's
obligations with respect to obtaining required information from other
parties, including the servicer itself or third-parties.
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\247\ 12 CFR 1024.41(b)(1).
\248\ See comment 41(b)(1)-5.
\249\ See 1024.41(b)(1) and comment 41(b)(1)-4.
---------------------------------------------------------------------------
Delay in obtaining non-borrower information that the servicer
requires to determine which loss mitigation options, if any, it will
offer a borrower could result in increased fees and negative credit
reporting for borrowers and could increase a borrower's delinquency,
thereby decreasing the likelihood of successful loss mitigation. It
also could disrupt servicers' payments to investors. Servicers can
obtain information within their own control at will, but the Bureau
learned during pre-proposal outreach that they do not always timely
receive third-party information, sometimes because the servicer did not
request the information promptly, and sometimes because the party with
the information delays in providing it. The Bureau understands that
servicers sometimes do not receive necessary third-party information
for 15 or 30 days after the initial 30-day evaluation period.
Servicers informed the Bureau before the proposal that they were
unsure how to remain in compliance with Sec. 1024.41 when lacking
necessary third-party information at the end of the 30-day evaluation
period. According to servicers, they have adopted different approaches.
In pre-proposal outreach, the Bureau learned that some wait until the
third-party provides the information before making any decision on the
application, even if it results in a delay beyond the 30 days provided
for in Sec. 1024.41(c)(1). One servicer told the Bureau it sends
denial notices to borrowers in these circumstances but also informs
borrowers that it will reevaluate the application upon receipt of the
third-party information. The Bureau explained in the proposal that,
although neither of these solutions appears to preclude a borrower from
receiving loss mitigation, neither provides borrowers with clear
information about the status of the application, and the latter
practice may erode borrower protections under Sec. 1024.41. The Bureau
expressed concern in the proposal that the absence of clear information
about the status of the loss mitigation application may cause borrowers
to abandon their pursuit of loss mitigation, or to be uncertain about
their loss mitigation options and how they may pursue their rights
under Sec. 1024.41.
To address these concerns, the Bureau proposed amendments to Sec.
1024.41 that would have required servicers to exercise reasonable
diligence to gather necessary information not in the borrower's control
and would have introduced requirements for when third-party delay
prevents a servicer from completing the loss mitigation evaluation
within 30 days of receiving a complete application. First, the Bureau
proposed to amend Sec. 1024.41(c)(1) to provide an exception to the
general requirement that a servicer must evaluate a complete loss
mitigation application received more than 37 days before a foreclosure
sale within 30 days of receiving it from the borrower. Second, under
proposed Sec. 1024.41(c)(4)(i), if a servicer required documents or
information not in the borrower's control, a servicer would have had to
exercise reasonable diligence in obtaining such documents or
information. Third, proposed Sec. 1024.41(c)(4)(ii)(A) would have
prohibited a servicer from denying a borrower's complete application
solely because the servicer had not received documents or information
not in the borrower's control. And proposed Sec. 1024.41(c)(ii)(B)
would have required that, if 30 days after a complete loss mitigation
application is received a servicer is unable to determine which loss
mitigation options, if any, it will offer the borrower because it lacks
documents or information from a party other than the borrower or the
servicer, the servicer must promptly provide the borrower a written
notice stating: (1) That the servicer has not received documents or
information not in the borrower's control that the servicer requires to
determine which loss mitigation options, if any, the servicer will
offer on behalf of the owner or assignee of the mortgage; (2) the
specific documents or information that the servicer lacks; (3) the date
on which the servicer first requested that documentation or information
during the current loss mitigation application process; and (4) that
the servicer will complete its evaluation of the borrower for all
available loss mitigation options promptly upon receiving the
documentation or information.
Finally, proposed Sec. 1024.41(c)(4)(ii)(C) would have required
that, if a servicer is unable to determine which loss mitigation
options, if any, to offer a borrower within 30 days of receiving a
complete application due to lack of documents or information from a
party other than the borrower or the servicer, upon receiving such
documents or information, the servicer must promptly provide the
borrower a written notice stating the servicer's determination in
accordance with Sec. 1024.41(c)(1)(ii). Proposed comment
41(c)(4)(ii)(C)-1 would have clarified that, in this circumstance, the
servicer should not provide the borrower a written notice stating the
servicer's determination until the servicer receives the documentation
or information.
The Bureau also proposed comments 41(c)(4)(i)-1 and -2 to explain a
servicer's obligations under proposed Sec. 1024.41(c)(4)(i)'s
reasonable diligence standard with respect to gathering information not
in the borrower's control. The proposed comments would have described a
servicer's reasonable diligence obligations upon receipt of a complete
loss mitigation application and provided for a heightened standard
where a servicer has not received third-party information within 30
days of a complete application.
The Bureau sought comment on proposed Sec. 1024.41(c)(4) to
understand better the cause of delay in servicers receiving non-
borrower information necessary to determine which loss mitigation
options, if any, to offer a borrower. This information could include
information within the servicer's control or third-party information.
The Bureau sought comment on how servicers and third-parties contribute
to the delay, as well as which categories of non-borrower information
most frequently result in delay. Finally, the Bureau sought comment on
whether to limit the amount of time that a servicer must exercise
reasonable diligence in
[[Page 72257]]
attempting to obtain information not in the borrower's control.
The Bureau received comments on various elements of proposed Sec.
1024.41(c)(4) and engaged in additional outreach. Among other things,
as described in greater detail below, commenters addressed the nature
of the delay in obtaining necessary third-party information, the
proposed requirement that servicers exercise reasonable diligence in
obtaining information not in the borrower's control, the proposed
prohibition on denying an application solely due to missing non-
borrower information, and the proposal to require a written notice if
the servicer cannot make a determination on the application within 30
days.
Several servicers reported that they request information from third
parties at different stages of the application process, depending on
the type of information. For example, some servicers stated that they
wait to receive a complete application from the borrower before
requesting certain information from a third party, such as valuation
information, a title report, or investor approval. Some servicers
reported that they request necessary third-party information shortly
after receiving a borrower's application or complete application. One
servicer stated that it may request some third-party information, such
as title information or a credit report, upon receipt of a borrower's
initial application, but that it typically waits to request other
information, such as valuation information or real estate tax
information, until it receives a complete application.
Several servicers stated that significant delay in obtaining
necessary third-party information generally is rare. Several servicers
stated that they sometimes find it difficult to obtain timely
information from the local taxing authority in certain jurisdictions,
timely approval from the mortgage insurance company or investor on the
loan, or timely appraisal or valuation information. One servicer
expressed difficulty in obtaining information about State loss
mitigation programs, tax return information from the IRS, or approval
from bankruptcy courts or trustees. Another servicer stated that it has
had difficulty obtaining information from local taxing authorities but
was still able to proceed in the review process by using estimates
based on information from its escrow department. Some servicers noted
that, although third parties sometimes delay the provision of necessary
information, they always ultimately provide it.
Several commenters discussed the proposed requirement that
servicers must exercise reasonable diligence in obtaining documents or
information not in the borrower's control that the servicer requires to
determine which loss mitigation options, if any, it will offer to the
borrower. Consumer advocacy groups supported this element of the
proposal, stating that it, in conjunction with the written notice
requirement under proposed Sec. 1024.41(c)(4)(i), would enhance
transparency and accountability. However, a trade association stated
that the requirement that a servicer must seek missing third-party
information as quickly as possible after the first 30 days lacked
clarity.
Some commenters addressed the prohibition in proposed Sec.
1024.41(c)(4)(ii)(A) on denying a complete loss mitigation application
solely because the servicer has not received documents or information
not in the borrower's control. Several industry and consumer advocacy
groups supported the prohibition. One servicer said that a denial at
this stage would disadvantage otherwise engaged borrowers and could
lead to ongoing requests for loss mitigation from borrowers that
already should have received a loss mitigation determination. A
consumer advocacy group stated that borrowers could misunderstand the
denial as a denial on the merits of the application, which they said
could lead to avoidable foreclosures. Another servicer recommended that
the Bureau not limit the amount of time a servicer must exercise
reasonable diligence in attempting to obtain third-party information.
Several industry commenters expressed concern that the denial
prohibition would conflict with ECOA, which requires creditors to send
notification of action taken within 30 days of receiving a completed
application. Some of those commenters recommended that the Bureau
either clarify that complying with the denial prohibition under
proposed Sec. 1024.41(c)(4) does not violate ECOA or allow servicers
to deny the complete loss mitigation application due to a lack of
third-party information, provided that they later make an offer, if
appropriate, upon receipt of the third-party information. Another
commenter requested that the Bureau clarify what constitutes a
reasonable time for servicers to wait for third-party information.
Consumer advocacy groups and one servicer expressed support for the
written notice under Sec. 1024.41(c)(4)(ii)(B). The servicer argued
that the notice would provide greater clarity for borrowers in loss
mitigation. Some consumer advocacy groups maintained that the proposed
written notice requirement would prompt the servicer to seek third-
party information more quickly and keep a written record of its efforts
to obtain the third-party information, help borrowers understand the
application process, and perhaps help expedite the return of the third-
party information where appropriate.
Several servicers stated, however, that the proposed written notice
requirement would be costly. One servicer stated that one-time costs
related to implementing the new notice requirement would be around
$2,000 for its third-party vendor, in addition to internal costs for
legal services, business process, and technology, and that the
necessary implementation would take approximately 60 to 90 days. This
commenter also asserted that the proposed content requirements of the
written notice would be unlikely to be of much use to borrowers. Other
servicers suggested that the benefits of the notice would not outweigh
the costs because, for example, borrowers would have other means to
secure relevant information. Servicers also expressed other concerns,
including that the written notice would confuse or overwhelm a borrower
or negatively affect credit availability generally by increasing the
cost of servicing. One servicer opposed the notice on the grounds that
it would increase the number of inquiries borrowers submit.
Several commenters opposed specific disclosure elements of the
proposed notice. One servicer stated that disclosing the specific
documents or information that the servicer lacks, as proposed under
Sec. 1024.41(c)(4)(ii)(B)(2), may prompt borrowers to contact the
third-party to obtain the information. A servicer recommended not
requiring disclosure of the name of the third party because such
disclosure would sometimes not expedite the process and could cause
consternation among all stakeholders. Two industry commenters opposed
requiring disclosure of the date on which the servicer first requested
the missing third-party information, as proposed under Sec.
1024.41(c)(4)(ii)(B)(3). One stated that the disclosure would be of
little use to borrowers and would increase burden, and the other
maintained that it would introduce operational complexities because
servicers' systems do not capture that information.
A consumer advocacy group recommended that the notice state
[[Page 72258]]
whether a scheduled foreclosure sale will be postponed. Several
industry commenters said that the notice should contain only generic
disclosures, such as the following: That the servicer has received the
information it requires from the borrower and is prepared to evaluate
the application, that the servicer needs additional information from a
third-party, that the servicer has requested such additional
information, and that the borrower can contact the servicer for more
information. One trade association said that a generic disclosure would
prevent unnecessary costs and stated that servicers' systems do not
necessarily capture the date a servicer requests the information from
the third party. Another trade association stated that a notice
containing more specific disclosures would not be of much use to
borrowers and would expose servicers to the risk of making mistakes,
some of which could cause borrowers undue anxiety.
Two industry commenters opposed the proposed requirement in comment
41(c)(4)(ii)-1 that, notwithstanding delay in receiving information
from any third party, servicers must complete all possible steps in the
evaluation process within 30 days of receiving a complete application,
including by taking all steps mandated by mortgage insurance companies,
guarantors, owners, and assignees. A servicer stated that the proposed
comment appeared to require servicers to make conditional approvals or
piecemeal determinations, which it said would be impractical. A
government-sponsored enterprise said that it is not clear what steps a
servicer would have to take before receiving the missing third-party
information, especially given that such information is often necessary
to evaluate the application.
Various industry commenters expressed more general concerns about
proposed Sec. 1024.41(c)(4). A credit union opposed what it referred
to as the expansion of consumer rights relating to third-party
information. A trade association expressed concern that, in the future,
the Bureau will attempt to regulate when a bank may make a
determination on a loss mitigation application absent third-party
information, instead of allowing banks to determine whether such third-
party information is necessary. One commenter requested clarification
of what constitutes documents or information not in the borrower's
control.
Several commenters made specific recommendations about how to
accommodate a delay in receiving necessary third-party information. One
consumer advocacy group recommended that the Bureau require servicers
to postpone a foreclosure sale when a complete application is received
more than 37 days before the sale but where necessary third-party
information remains outstanding. One servicer requested 10 additional
days to provide borrowers with the determination letter pursuant to
Sec. 1024.41(c)(1)(ii), saying this additional period would permit the
servicer to obtain third-party information and would not harm the
borrower because, once the underwriting process is complete, a
representative of that servicer already calls to update the borrower as
to the determination and appeal rights.
The Bureau is adopting Sec. 1024.41(c)(1) as proposed and is
adopting Sec. 1024.41(c)(4) and associated commentary with the
revisions described below. As revised, the final rule provides guidance
for servicers and protections for borrowers when a servicer lacks
required non-borrower information under certain circumstances. As
revised, Sec. 1024.41(c)(4)(i) sets forth a servicer's reasonable
diligence requirements with respect to information not in the
borrower's control, that is, third-party information or information
within the servicer's control. It provides that, if a servicer requires
documents or information not in the borrower's control to determine
which loss mitigation options, if any, it will offer to the borrower,
the servicer must exercise reasonable diligence in obtaining such
documents or information.
Revised comments 41(c)(4)(i)-1 and -2 clarify the reasonable
diligence requirements at different stages of the application process.
The Bureau is finalizing comment 41(c)(4)(i)-1 largely as proposed,
with minor revisions to improve clarity and accuracy. The comment
reiterates the reasonable diligence requirements set forth in Sec.
1024.41(c)(4)(i) and provides that, at a minimum and without
limitation, a servicer must request such documents or information from
the appropriate party promptly upon determining that the servicer
requires the documents or information to determine which loss
mitigation options, if any, the servicer will offer the borrower and,
to the extent practicable, by a date that will enable the servicer to
complete the evaluation within 30 days of receiving the complete loss
mitigation application, as set forth in Sec. 1024.41(c)(1). The Bureau
notes that some servicers already take steps to do this by, for
example, requesting certain information not in the borrower's control
as soon as the borrower submits the initial application and requesting
other such information within a week of the borrower's submission of
all information and documents within the borrower's control.
The Bureau is making more substantive revisions to comment
41(c)(4)(i)-2, which clarifies the reasonable diligence standard when
the servicer lacks required third-party information 30 days after
receiving a complete application. The Bureau continues to believe that
it is appropriate to require servicers to intensify efforts to obtain
outstanding third-party information at this stage but believes that the
proposed standard, requiring servicers to attempt to obtain documents
or information from the appropriate person as quickly as possible, may
not have provided servicers sufficient guidance. Thus, revised comment
41(c)(4)(i)-2 provides that, if a servicer has not received the
required documents or information from a party other than the borrower
or the servicer within 30 days of receiving a complete loss mitigation
application, the servicer acts with reasonable diligence pursuant to
Sec. 1024.41(c)(4)(i) by heightening efforts to obtain the documents
or information promptly, to minimize delay in making a determination of
which loss mitigation options, if any, it will offer to the borrower.
Such heightened efforts include, for example, promptly verifying that
it has contacted the appropriate party and determining whether it
should obtain the required documents or information from a different
party. The Bureau believes that this standard is clearer for servicers
than the proposed standard would have been and prompts servicers to
complete the application process as close as possible to the 30-day
evaluation period set forth in Sec. 1024.41(c)(1).
The Bureau also notes that comment 41(c)(4)(i)-1 applies with
respect to any type of non-borrower information, including third-party
information or information within the servicer's control, whereas
comment 41(c)(4)(i)-2 applies only when the servicer lacks third-party
information. The reason for this distinction is that comment
41(c)(4)(i)-2 applies only after 30 days have passed since the servicer
received the complete application, and Sec. 1024.41(c)(4)(ii)
(described below) contemplates servicers exceeding the 30-day mark only
when the servicer lacks information from a third-party, not the
servicer. Servicers should not exceed the 30-day timeline for lack of
accessing information within their own control.
[[Page 72259]]
As noted above, the Bureau is limiting the prohibition on denying
an application due to a servicer lacking required third-party
information. Like the proposal, Sec. 1024.41(c)(4)(ii)(A)(1) provides
that a servicer must not deny a complete loss mitigation application
solely because the servicer lacks required documents or information not
in the borrower's control. However, unlike the proposal, the Bureau is
adopting an exception to this prohibition under Sec.
1024.41(c)(4)(ii)(A)(2). Section 1024.41(c)(4)(ii)(A)(2) provides that,
if a servicer has exercised reasonable diligence to obtain required
documents or information from a party other than the borrower or the
servicer, but the servicer has been unable to obtain such documents or
information for a significant period of time following the 30-day
period identified in Sec. 1024.41(c)(1), and the servicer, in
accordance with applicable requirements established by the owner or
assignee of the borrower's mortgage loan, is unable to determine which
loss mitigation options, if any, it will offer the borrower without
such documents or information, the servicer may deny the application
and provide the borrower with a written notice in accordance with Sec.
1024.41(c)(1)(ii). The provision also states that, when providing the
written notice, the servicer must provide the borrower with a copy of
the written notice required by Sec. 1024.41(c)(4)(ii)(B). As described
below, that notice includes disclosures about the cause of the delay.
The Bureau stresses that the reasonable diligence standard that a
servicer must satisfy before denying an application under Sec.
1024.41(c)(4)(ii)(A)(2) is the heightened standard in comment
41(c)(4)(ii)-2, described above. Borrowers should not lose the
opportunity for loss mitigation at this stage due to missing third-
party information unless a servicer is absolutely unable to obtain the
information. Due to the significant harm of denial, the Bureau expects
servicers to redouble efforts to obtain such information.
Nonetheless, the Bureau is adopting this exception because, in the
highly unlikely event that a servicer is unable to obtain third-party
information, it would be harmful to borrowers, servicers, and investors
if the servicer was never able to deny the complete loss mitigation
application. In this circumstance, borrowers would remain in uncertain
status while waiting on a decision for an indefinite amount of time,
and Sec. 1024.41(g) may prohibit a servicer from ever foreclosing on
the loan, even if the borrower did not resume making payments.
The Bureau expects that this exception will apply in exceedingly
rare circumstances. Based on its outreach to servicers and government-
sponsored enterprises, the Bureau is unaware of any instance in which a
servicer has been unable to obtain information from a third-party that
it requires to make a determination as to which loss mitigation
options, if any, to offer the borrower after receiving a complete loss
mitigation application from the borrower. As several commenters noted,
and as the Bureau explained in the proposal, it would be unjust and
significantly harmful to deny an engaged borrower who has completed a
loss mitigation application solely because of a third party's delay.
The Bureau continues to believe that, whenever possible, the borrower
should not lose the opportunity for loss mitigation solely because of
such delay. Among other harms, a borrower in this circumstance might
lose the opportunity to obtain loss mitigation and thereby avoid
foreclosure; and such a borrower may not have another opportunity to
apply for loss mitigation with the protections of Sec. 1024.41,
pursuant to Sec. 1024.41(i). Further, as one commenter pointed out,
some borrowers may attempt to re-apply for loss mitigation following a
denial due to the servicer lacking required third-party information,
which could produce additional, unnecessary burden for borrowers and
servicers.
The Bureau believes that two aspects of the denial prohibition
exception provided in Sec. 1024.41(c)(4)(ii)(A)(2) should mitigate the
risks to borrowers associated with allowing servicers to deny an
application due solely to the servicer lacking required third-party
information. First, the exception applies only if, in accordance with
requirements established by the owner or assignee of the mortgage loan,
a servicer cannot evaluate the borrower without the information. For
example, there may be instances in which investors may be willing to
waive requirements for specific third-party information that servicers
must otherwise obtain, in which case servicers should promptly pursue
such waivers and evaluate the borrower upon receipt. Second, when
sending a denial letter, the servicer must also send a copy of the
written notice under Sec. 1024.41(c)(4)(ii)(B), which describes
generally the missing information and the servicer's efforts to obtain
it. Receiving this information may enable borrowers to better protect
their rights, including when filing an appeal after a denial, if
appropriate. Also, upon receiving the notice of the missing
information, some borrowers may be able to help acquire the
information. The Bureau will monitor the industry to ensure that
servicers do not inappropriately exploit this exception to the denial
prohibition.
The Bureau declines to provide more specific guidance, as one
commenter requested, as to how long a servicer must exercise reasonable
diligence to attempt to obtain required third-party information before
the servicer may deny the application. Reasonable diligence depends on
the facts and circumstances of a particular loss mitigation
application, and the Bureau is concerned that any specific deadline
could negatively affect a servicer's efforts to obtain outstanding
third-party information. The Bureau understands that, although Sec.
1024.41(c)(4)(ii)(A)(2) will rarely apply, the response time of third
parties will vary depending on the type of information or the identity
of the third party, among other factors. However, the Bureau reiterates
that servicers must intensify reasonable diligence efforts when lacking
required third-party information after 30 days have passed, pursuant to
comment 41(c)(4)(ii)-2, described above.
The Bureau notes that the denial prohibition does not prevent a
servicer from complying with Regulation B Sec. 1002.9(a)(1)(i), as
some commenters suggested. Although servicers may be required to
provide Regulation B Sec. 1002.9(a)(1) notices relating to a
borrower's loss mitigation application in certain circumstances, the
denial prohibition under final Sec. 1024.41(c)(4)(ii)(A) will not
prevent a servicer from complying with the requirement in Regulation B
Sec. 1002.9(a)(1)(i) to provide such notices within 30 days after
receiving a completed application because compliance with Regulation B
and Regulation X requirements may operate on different timelines. Under
Regulation B Sec. 1002.2(f), a completed application means an
application in connection with which a creditor has received all the
information that the creditor regularly obtains and considers in
evaluating applications for the amount and type of credit requested.
Regulation B's definition of application permits flexibility in
determining what type and amount of information are required from
applicants for different types of credit, and the information
requirements for a completed application for different types of credit,
including information
[[Page 72260]]
from third parties.\250\ Although a loss mitigation application may be
considered complete under Sec. 1024.41(b)(1) notwithstanding whether a
servicer requires additional information that is not in control of the
borrower, such an application may not yet be a completed application
under Regulation B Sec. 1002.2(f) if the creditor regularly obtains
and considers information from third parties for that type of credit
requested, and therefore a creditor would not yet be required to comply
with Regulation B Sec. 1002.9(a)(1)(i) for such an application.\251\
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\250\ See 12 CFR 1002.2(f), comments 2(f)-1, -2, and -6.
\251\ See 12 CFR 1024.41(b)(1), comment 41(b)(1)-5; 12 CFR
1002.9(a)(1)(i), comment 9(a)(1)-1.
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The Bureau is also adopting Sec. 1024.41(c)(4)(ii)(B) with certain
revisions. In addition to adopting revisions to improve clarity, the
Bureau is amending the contents of the written notice that a servicer
must provide a borrower if a servicer is unable to make a determination
within the 30-day evaluation period under Sec. 1024.41(c)(1) because
the servicer lacks required documents or information from a party other
than the borrower or the servicer. Under Sec. 1024.41(c)(4)(ii)(B),
the written notice must inform the borrower that the servicer has not
received documents or information not in the borrower's control that
the servicer requires to determine which loss mitigation options, if
any, it will offer to the borrower on behalf of the owner or assignee
of the mortgage; of the specific documents or information that the
servicer lacks; that the servicer has requested such documents or
information; and that the servicer will complete its evaluation of the
borrower for all available loss mitigation options promptly upon
receiving the documents or information. These disclosures inform
borrowers of their application status.
Section 1024.41(c)(4)(ii)(B) retains the proposed requirement that
the written notice disclose the specific documents or information that
the servicer lacks and therefore does not contain entirely generic
disclosures as recommended by some commenters. The Bureau believes
providing this information in the notice may increase borrower
understanding of the notice. The Bureau also believes that requiring
this disclosure may limit the need for borrowers to make additional
requests for information of the servicer prompted by uncertainty or
lack of information about the status of an application. By providing
borrowers timely, accurate information about the status of their
applications, the notice could result in fewer inquiries to the
servicer as to the status of a borrower's loss mitigation application.
Finalizing an entirely generic notice would have inappropriately placed
the onus on the borrower to obtain the relevant information from the
servicer. Borrowers are unlikely to know what third-party information a
servicer requires unless the servicer affirmatively tells them.
The Bureau acknowledges commenters' concerns about borrowers
contacting third parties. The Bureau believes that, if borrowers can
easily contact a third-party, such as a homeowner's association or
their local taxing authority, they may be able to make their own
attempts to obtain the missing information and could help expedite the
process. The Bureau further notes that Sec. 1024.41(c)(4)(ii)(B) does
not require servicers to disclose the specific third-party from which
they lack information, but only the specific information they lack.
This should insulate many third-parties that may not be prepared for
borrower communications, such as title companies or investors, from
receiving them. Although some borrowers may contact their servicers to
determine the specific identity of the third-party, on balance, these
requests should not result in a significantly greater number of
requests for information, as one commenter suggested, given that the
Bureau expects that the provision of the written notice should reduce
borrowers' overall need to make such requests.
The final rule does not require that the written notice disclose
the date on which the servicer first requested the documentation or
information during the current loss mitigation application, as proposed
Sec. 1024.41(c)(4)(ii)(B)(3) would have required. The Bureau believes
that such a disclosure may have promoted compliance by making it easier
for servicers and borrowers to determine whether the servicer exercised
reasonable diligence in obtaining third-party information as Sec.
1024.41(c)(4)(i) requires. However, upon consideration of the comments
received, the Bureau is eliminating the proposed requirement because it
may offer limited value for borrowers while imposing burden on
servicers.
The Bureau declines to adopt other disclosures for the written
notice as some commenters recommended. For example, the Bureau is not
adopting a consumer advocacy group's recommendation that the notice
state whether a foreclosure sale date will be postponed. Servicers may
include such a disclosure, but the Bureau declines to mandate it. The
Bureau believes that requiring this disclosure would add significant
operational complexity for servicers with limited benefit to borrowers.
The Bureau believes that borrowers who are concerned about the timing
of the foreclosure sale may contact their servicers to obtain the
information and notes that affected borrowers will already have certain
foreclosure protections and are likely to have received notification of
those protections. Among other protections, if Sec. 1024.41(g) applies
with respect to the complete application, a servicer is prohibited from
moving for foreclosure judgment or order of sale, or conducting a
foreclosure sale, unless certain conditions apply.\252\ In addition, if
a servicer must provide the notice of complete application to the
borrower pursuant to Sec. 1024.41(c)(3)(i), that notice will already
have informed the borrower generally about these foreclosure
protections. Although servicers are not required to inform borrowers in
the notice under Sec. 1024.41(c)(4)(ii)(B) whether they will postpone
a foreclosure sale, this lack of disclosure should not significantly
affect borrowers' ability to protect their interests.
---------------------------------------------------------------------------
\252\ Specifically, the servicer is prohibited from moving for
foreclosure judgment or order of sale or conducting a foreclosure
sale unless: (1) The servicer has sent the borrower a notice
pursuant to Sec. 1024.41(c)(1)(ii) that the borrower is not
eligible for any loss mitigation option and the appeal process under
Sec. 1024.41(h) is not applicable, the borrower has not requested
an appeal within 14 days, or the servicer has denied the borrower's
appeal; (2) the borrower rejects all loss mitigation options offered
by the servicer; or (3) the borrower fails to perform under an
agreement on a loss mitigation option.
---------------------------------------------------------------------------
The Bureau is also not adopting commenters' recommendation that the
Bureau include a disclosure prompting the borrower to contact the
servicer for more information. Commenters recommended this disclosure
as part of a written notice that would contain only generic
disclosures. Servicers may include such a disclosure, but the Bureau
declines to mandate it. The Bureau believes that borrowers generally
already know how to contact their servicers and notes that many
servicers include contact information on all correspondence.
As revised, Sec. 1024.41(c)(4)(ii)(B) requires servicers to
provide the written notice (when required under the rule) within the
30-day determination period identified in Sec. 1024.41(c)(1) or
promptly thereafter. This timing requirement differs from the proposal,
which would have required servicers to provide the written notice
promptly if, 30 days after a complete application is received, the
[[Page 72261]]
servicer is unable to make a determination on the application because
the servicer lacks documents or information from a third party.
Requiring servicers to provide the written notice within this 30-day
period or promptly thereafter should more timely apprise borrowers of
their application status.
Although servicers will incur costs to provide a notice to
borrowers under Sec. 1024.41(c)(4)(ii)(B), the Bureau is requiring it
because it will provide substantial benefit to affected borrowers, as
described above. To the extent that any additional cost may negatively
affect the cost or availability of credit, as one commenter suggested,
the Bureau believes that such impact will be negligible, in part
because servicers have reported that inability to evaluate a loss
mitigation application because of the lack of third party data is
extremely uncommon. The incremental cost of providing the notice should
be small.
The Bureau is not adopting one commenter's recommendation to allow
servicers 10 additional days to obtain required third-party information
and to provide the written notice of which loss mitigation options, if
any, to offer to a borrower as required under Sec. 1024.41(c)(1)(ii).
As the Bureau explained when adopting Sec. 1024.41(c)(1), a 30-day
evaluation timeline is an industry standard.\253\ In most cases,
servicers should be able to complete the evaluation within this
timeframe. Adding 10 days could lead to unnecessary delay, which could
increase costs for the borrower during the application process.
Further, even if the Bureau were to add 10 days, the extension still
may not suffice. As described above, the Bureau understands that
servicers sometimes do not receive necessary third-party information
for 15 or 30 days after the initial 30-day evaluation period.
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\253\ 78 FR 10695, 10826.
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The Bureau is revising Sec. 1024.41(c)(4)(ii)(C) to specify that,
if a servicer must provide a notice required by Sec.
1024.41(c)(4)(ii)(B), the servicer must not provide the borrower a
written notice stating the servicer's determination pursuant to Sec.
1024.41(c)(1)(ii) until the servicer receives the required documents or
information referenced in Sec. 1024.41(c)(4)(ii)(B)(2), except as
provided under Sec. 1024.41(c)(4)(ii)(A)(2). As described above, Sec.
1024.41(c)(4)(ii)(A)(2) allows a servicer to deny an application for
lack of third-party information in certain circumstances.
Section 1024.41(c)(4)(ii)(C) further provides that, upon receiving
such third-party documents or information, the servicer must promptly
provide the borrower with the written determination notice required
under Sec. 1024.41(c)(1)(ii). The provision is intended to ensure that
servicers do not delay providing the determination notice. The Bureau
also understands that servicers generally already provide the
determination notice promptly upon receiving the third-party
information that the servicers required. The Bureau proposed this
provision as comment 41(c)(4)(ii)(C)-1 but is incorporating it into the
regulatory text of Sec. 1024.41(c)(4)(ii)(C) and eliminating the
comment.
The Bureau is adopting comment 41(c)(4)(ii)-1 with certain
revisions to improve clarity. That comment provides that,
notwithstanding delay in receiving required documents or information
from any party other than the borrower or the servicer, Sec.
1024.41(c)(1)(i) requires a servicer to complete all possible steps in
the process of evaluating a complete loss mitigation application within
30 days of receiving the complete loss mitigation application. The
comment further provides that such steps may include requirements
imposed on the servicer by third parties, such as mortgage insurance
companies, guarantors, owners, and assignees. The comment also provides
an example explaining that, if a servicer can determine a borrower's
eligibility for all available loss mitigation options based on an
evaluation of the borrower's complete loss mitigation application
subject only to approval from the mortgage insurance company, Sec.
1024.41(c)(1)(i) requires the servicer to do so within 30 days of
receiving the complete loss mitigation application notwithstanding the
need to obtain such approval before offering the borrower any loss
mitigation options.
In other words, a servicer should not rely on the fact that it
lacks third-party information as a reason to delay its evaluation. The
Bureau believes that a servicer should be prepared to make a
determination on a complete loss mitigation application upon receipt of
the missing third-party information and make its determination as
possible to the 30-day evaluation period set forth in Sec.
1024.41(c)(1). As the Bureau explained in the proposal, any unnecessary
delay of the evaluation process because of delayed third-party
information increases the risk of harm to borrowers. For example, such
delay increases the risk that a borrower's documents would go stale,
possibly deferring the evaluation further while the hardship worsens,
thereby reducing the likelihood that the servicer will offer the
borrower a loss mitigation option. It also increases the likelihood
that a borrower will incur additional fees or negative credit reporting
or become disengaged from the loss mitigation process. To the extent
that this comment results in servicers determining internally that a
borrower is conditionally approved for loss mitigation pending receipt
of the third-party information, or results in servicers making
piecemeal determinations, as one commenter suggested, the Bureau
believes that this is could result in improved outcomes for borrowers
and is appropriate.
In response to one commenter's concern that comment 41(c)(4)(ii)-1
will not provide sufficient clarity as to the steps that a servicer
must take before receiving the third-party information, the Bureau
notes that the rule sets forth no standard list of steps that a
servicer must take to evaluate any application. Servicers must take
whatever steps they can in the evaluation process without having the
missing third-party information. This is a fact-specific determination
dependent on, among other things, investor requirements and what
information the servicer is lacking. For example, when a servicer is
waiting to receive investor approval, the Bureau expects the servicer
to complete its evaluation subject only to investor approval.
The Bureau is also adopting new comment 41(c)(4)(ii)-2, which
provides that Sec. 1024.41(c)(4)(ii)(A)(2) permits a servicer to deny
a complete loss mitigation application (in accordance with applicable
investor requirements) if, after exercising reasonable diligence to
obtain the required documents or information from a party other than
the borrower or the servicer, the servicer has been unable to obtain
such documents or information for a significant period of time and the
servicer cannot complete its determination without the required
documents or information. The comment further clarifies that Sec.
1024.41(c)(4)(ii)(A)(2) does not require a servicer to deny a complete
loss mitigation application and permits a servicer to offer a borrower
a loss mitigation option, even if the servicer does not obtain the
requested documents or information. This comment clarifies that Sec.
1024.41(c)(4)(ii)(A)(2) addresses only whether a servicer is permitted
to deny a complete loss mitigation application due to a lack of
necessary third-party information and that the rule does not speak to
when a servicer is permitted to
[[Page 72262]]
make an offer after receiving a complete loss mitigation application.
The Bureau declines to define further what constitutes documents or
information not in the borrower's control, as one commenter requested.
A servicer must already determine what documents and information it
requires from a borrower to complete a loss mitigation application.
Whether documents and information are outside of the borrower's control
will depend on the facts and circumstances of each case.
41(f) Prohibition on Foreclosure Referral
41(f)(1) Pre-Foreclosure Review Period
Section 1024.41(f)(1) generally prohibits a servicer from making
the first notice or filing required by applicable law to begin the
foreclosure process unless a borrower's mortgage loan obligation is
more than 120 days delinquent, but it includes an exception in Sec.
1024.41(f)(1)(iii) allowing a servicer to make the first notice or
filing when the servicer is joining the foreclosure action of a
subordinate lienholder. The Bureau proposed to revise Sec.
1024.41(f)(1)(iii) to provide a parallel exception when a servicer is
joining the foreclosure action of a superior lienholder. The Bureau is
adopting Sec. 1024.41(f)(1)(iii) as proposed.
In the September 2013 Mortgage Final Rule, the Bureau explained
that, if a borrower is current on a mortgage secured by a senior lien
but is being foreclosed on by a subordinate lienholder, it would be
appropriate for the servicer of the mortgage secured by the superior
lien to join the foreclosure action, even though the borrower may not
be delinquent on the mortgage secured by the superior lien, because the
first notice or filing would not be based upon a borrower's delinquency
in this circumstance.\254\
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\254\ See 78 FR 60381, 60406 (Oct. 1, 2013).
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The Bureau did not then consider the situation in which the
servicer is joining the foreclosure action of a superior lienholder.
After the issuance of the September 2013 Mortgage Final Rule, servicers
asked the Bureau why the same rule does not apply to a foreclosure
initiated by both a junior and a senior lienholder. In the proposal,
the Bureau stated its belief that the same rationale justifies
expanding the current exemption to circumstances in which the servicer
is joining the foreclosure action of a superior lienholder. The Bureau
explained that it would be appropriate for the servicer of the mortgage
secured by the subordinate lien to join the foreclosure action, even
though the borrower may not be delinquent on the mortgage secured by
the subordinate lien, because the first notice or filing would not be
based upon a borrower's delinquency with respect to the serviced loan.
Further, the Bureau explained that expanding the exemption seems to
present only minimal borrower protection concerns because the borrower
would already be facing a foreclosure action on the property.
The proposed rule aimed to help servicers by making clear that the
servicer of a subordinate lien may participate in the existing
foreclosure action on a superior lien. The servicer's participation in
the foreclosure action of a superior lienholder may allow the servicer
to represent its interests in the existing foreclosure action more
fully under some circumstances. Additionally, it may sometimes be
necessary, when the same servicer is responsible for both the superior
and subordinate liens, for the servicer to initiate foreclosure on the
subordinate lien as part of the foreclosure action on the superior
lien, to clear title to the property for the subsequent owner.\255\
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\255\ If the servicer in this circumstance does not initiate
foreclosure on the subordinate lien, the servicer may be deemed not
to have joined the subordinate lienholder in the foreclosure action,
causing the subordinate lien to remain on the property after
foreclosure. See, e.g., Deutsche Bank Natl. Trust Co. v. Mark Dill
Plumbing Co., 903 N.E.2d 166, 169 (Ind. Ct. App. 2009), aff'd on
rehearing, 908 N.E.2d 1273 (Ind. Ct. App. 2009) (``Foreclosure by a
senior mortgagee does not affect the rights of a junior lienholder
who was not made a party to the foreclosure action.''); Portland
Mort. Co. v. Creditors Protective Ass'n, 262 P.2d 918, 922 (Or.
1953) (``The omitted junior lienholder is in the same position as if
no foreclosure had ever taken place, and he has the same rights, no
more and no less, which he had before the foreclosure suit was
commenced.'').
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The Bureau received numerous comments on proposed Sec.
1024.41(f)(1)(iii). Commenters included servicers, trade associations,
and credit unions. All commenters supported the proposal.
The Bureau is adopting Sec. 1024.41(f)(1)(iii) as proposed to
allow a servicer to make the first notice or filing before the loan
obligation is 120 days delinquent when the servicer is joining the
foreclosure action of a superior lienholder.
41(g) Prohibition on Foreclosure Sale
Under Sec. 1024.41(g), if a borrower submits a complete loss
mitigation application after a servicer has made the first notice or
filing, but more than 37 days before a foreclosure sale, the servicer
is prohibited from moving for foreclosure judgment or order of sale, or
conducting a foreclosure sale, unless the borrower's loss mitigation
application is properly denied, withdrawn, or the borrower fails to
perform on a loss mitigation agreement.\256\ Servicers and consumer
advocacy groups had both expressed a desire for clarification of the
prohibition on the conduct of a sale and whether a servicer was ever
excused from the prohibition while a loss mitigation application was
pending. To clarify the prohibition on the conduct of a foreclosure
sale, the Bureau proposed to revise existing comments 41(g)-1 and -3
and add new comment 41(g)-5, as well as commentary to clarify the
requirements for policies and procedures regarding communications with
service provider personnel, including foreclosure counsel, under Sec.
1024.38(b)(3)(iii) as they relate to the prohibition under Sec.
1024.41(g).
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\256\ Specifically, the servicer is prohibited from moving for
foreclosure judgment or order of sale or conducting a foreclosure
sale unless: (1) The servicer has sent the borrower a notice
pursuant to Sec. 1024.41(c)(1)(ii) that the borrower is not
eligible for any loss mitigation option and the appeal process under
Sec. 1024.41(h) is not applicable, the borrower has not requested
an appeal within 14 days, or the servicer has denied the borrower's
appeal; (2) the borrower rejects all loss mitigation options offered
by the servicer; or (3) the borrower fails to perform under an
agreement on a loss mitigation option.
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For the reasons discussed below, the Bureau has substantially
revised the proposed provisions. The Bureau believes that its final
language is consonant with both the original rule and the proposal in
affirming the absolute nature of the prohibition on conduct of a
foreclosure sale. The Bureau is (1) not adopting the proposed revision
to existing comment 41(g)-1 that would have required dismissal in
certain circumstances, but instead is leaving the comment in its
existing form; (2) adopting a revised comment 41(g)-3 clarifying
servicers' responsibilities when acting through foreclosure counsel,
with modifications to the proposal; (3) adopting new comment 41(g)-5
clarifying the prohibition on conduct of a foreclosure sale, with
modifications to the proposal; and (4) adopting new comment
38(b)(3)(iii)-1 regarding communications with service providers,
including foreclosure counsel, during the pendency of a foreclosure,
with minor changes to the proposal. The Bureau is clarifying that the
prohibition on conduct of a sale during the pendency of a loss
mitigation application is absolute and that the servicer is not excused
from compliance because it acts through a service provider, including
foreclosure counsel. The Bureau recognizes that, to avoid the illegal
conduct of a sale, servicers may
[[Page 72263]]
need to dismiss foreclosure proceedings in some circumstances. As
discussed below, the Bureau believes that dismissals to avoid conduct
of an illegal foreclosure sale are rare. The Bureau believes that these
clarifications will substantially assist servicers and their service
providers in compliance with the rule.
Background
As noted above, Sec. 1024.41(g)'s prohibition applies to two
distinct types of actions in the foreclosure process: Moving for
judgment or an order of sale and conducting a foreclosure sale. A
servicer's obligations under Sec. 1024.41(g) will vary depending on
whether the foreclosure is non-judicial (requires no court action) or
judicial (requires court action or order). If the applicable
foreclosure procedure is non-judicial and does not require any court
proceeding or order, then Sec. 1024.41(g)'s prohibition on moving for
judgment or order of sale is inapposite. Thus, in a non-judicial
proceeding, when there is no court action, where Sec. 1024.41(g)
applies, it addresses only the conduct of a sale and not a non-existent
court proceeding. However, where the foreclosure process requires court
action or a court order and Sec. 1024.41(g) is applicable, a servicer
must comply with both the prohibition against moving for judgment or
order of sale and the prohibition against conducting a foreclosure
sale.
Existing comment 41(g)-1 addresses the servicer's obligation, where
the foreclosure process requires such court action, with respect to the
moving for judgment or order of sale and prior to the actual conduct of
the sale. Existing comment 41(g)-1 explains that the prohibition on a
servicer moving for judgment or order of sale includes making a
dispositive motion for foreclosure judgment, such as a motion for
default judgment, judgment on the pleadings, or summary judgment, which
may directly result in a judgment of foreclosure or order of sale. The
comment further explains that a servicer that has made a dispositive
motion before receiving a complete loss mitigation application has not
moved for a foreclosure judgment or order of sale in violation of the
rule if the servicer takes reasonable steps to avoid a ruling on such
motion or issuance of such order prior to completing the procedures
required by Sec. 1024.41, notwithstanding whether any such step
successfully avoids a ruling on a dispositive motion or issuance of an
order of sale. Existing comment 41(g)-2 provides that Sec. 1024.41(g)
does not prevent a servicer from proceeding with any steps in the
foreclosure process, so long as any such steps do not cause or directly
result in the issuance of a foreclosure judgment or order of sale, or
the conduct of a foreclosure sale, in violation of Sec. 1024.41(g).
Existing comment 41(g)-3 explains that a servicer is responsible for
promptly instructing foreclosure counsel retained by the servicer not
to proceed with filing for foreclosure judgment or order of sale, or to
conduct a foreclosure sale, in violation of Sec. 1024.41(g), when a
servicer has received a complete loss mitigation application. Such
instructions may include instructing counsel to move for continuance
with respect to the deadline for filing a dispositive motion.
As the Bureau noted in the proposal, since the Mortgage Servicing
Rules went into effect, borrowers have not always received the benefits
of the protections intended by Sec. 1024.41(g), specifically, that
borrowers who timely submit a complete loss mitigation application
would not lose their homes at a foreclosure sale while evaluation of
that application was pending with the servicer. These instances of
foreclosure proceedings continuing in spite of Sec. 1024.41(g)'s
prohibitions may occur for several reasons, including impeded
communications between servicers and their counsel, confusion about the
reasonable steps framework, and difficulties managing judicial
expectations.
The Bureau has received reports that counsel retained by servicers
to conduct the foreclosure proceeding sometimes have lacked current and
accurate information about whether borrowers' loss mitigation
applications are complete. Foreclosure counsel in some situations may
not be taking adequate steps to avoid a judgment or order of sale and
may fail to seek the delay or continuance of a sale when necessary to
provide adequate time for the servicer to evaluate the loss mitigation
application. The Bureau has also received reports that, in some cases,
foreclosure counsel may not represent accurately to the court the
status of the loss mitigation application. Some reports indicated that
even when servicers, through their foreclosure counsel, took some steps
to avoid a judgment or sale, they may not have been impressing
sufficiently upon the courts the significance of Sec. 1024.41(g)'s
prohibition on sale. Consequently, some borrowers lost their homes at
foreclosure sales despite their timely submission of complete loss
mitigation applications to the servicer.
The Bureau also has received a substantial number of inquiries
concerning what steps a servicer must take to comply with Sec.
1024.41(g) where a court orders a foreclosure sale date that does not
afford sufficient time for the servicer to complete the evaluation
process required by Sec. 1024.41. Some inquirers suggested that the
``reasonable steps'' framework in comment 41(g)-1, applicable only to
pre-sale activities in a judicial proceeding, such as a motion for
judgment or order of sale, might apply to the conduct of the sale, in
spite of the absolute prohibition on conduct of a sale contained in
Sec. 1024.41(g).
The Bureau had learned that some courts have ruled on a pending
dispositive motion and set a date for the foreclosure sale despite the
servicer's attempts through counsel to delay the ruling or order as
required under Sec. 1024.41(g). In many cases, the initially scheduled
foreclosure sale date set by the court may not have provided the
servicer adequate time to complete the loss mitigation evaluation and
appeals process. Servicers indicated that, in some instances, courts
have required that the foreclosure continue to a sale even when the
servicer needs additional time to complete the loss mitigation process.
Media accounts as well as reports from consumer advocacy groups
suggested that some courts might have been refusing to continue cases
when presented with a motion to do so, although the Bureau was not able
to confirm the extent of that practice or distinguish between its
prevalence when the servicer, as distinct from the borrower, was the
moving party.\257\
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\257\ See, e.g., Alison Fitzgerald, Homeowners steamrolled as
Florida courts clear foreclosure backlog, The Ctr. for Pub.
Integrity, Sept. 10, 2014, available at http://www.publicintegrity.org/2014/09/10/15463/homeowners-steamrolled-florida-courts-clear-foreclosure-backlog.
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Based upon the reports and information received, the Bureau was
concerned that the absence of express commentary requiring a servicer
to take affirmative steps to delay the sale may have encouraged some
servicers to fail to instruct foreclosure counsel appropriately and,
further, might have led courts to discount servicer obligations under
the rule, depriving borrowers of the important consumer protections
against dual tracking that are provided under Sec. 1024.41.
Accordingly, the Bureau proposed several revisions to commentary to
address servicers' obligations in instructing foreclosure counsel, the
general nature of the reasonable steps obligation, and the absolute
prohibition on conducting a foreclosure sale pending review of a
complete loss mitigation application, even if a motion for judgment or
order of sale was excused as a violation of the rule
[[Page 72264]]
because of the servicer's reasonable steps to prevent entry of such a
motion.
Proposed Rule
The Bureau proposed to revise two existing comments and add two
comments to clarify the operation of Sec. 1024.41(g). As proposed,
revised comment 41(g)-1 generally retained the existing comment with
regard to the nature of servicers' duty to avoid moving for judgment or
order of sale. Revised comment 41(g)-1 would have added new language
clarifying that, if, upon receipt of a complete loss mitigation
application, a servicer or its foreclosure counsel failed to take
reasonable steps to avoid a ruling on a pending motion for judgment or
the issuance of an order of sale, the servicer would have to dismiss
the foreclosure proceeding if necessary to avoid the sale. Proposed new
comment 41(g)-5 would have clarified that Sec. 1024.41(g) prohibits a
servicer from conducting a foreclosure sale, even if a person other
than the servicer administers or conducts the foreclosure sale
proceedings, and that servicers must take reasonable steps to delay the
sale until one of the conditions under Sec. 1024.41(g)(1) through (3)
is met.
The Bureau also proposed to revise existing comment 41(g)-3 to
clarify servicers' obligations under Sec. 1024.41(g) when acting
through foreclosure counsel. And the Bureau proposed related comment
38(b)(3)(iii)-1 to clarify that policies and procedures required under
Sec. 1024.38(b)(3)(iii) to facilitate sharing of information with
service provider personnel responsible for handling foreclosure
proceedings must be reasonably designed to ensure that servicer
personnel promptly inform service provider personnel handling
foreclosure proceedings that the servicer has received a complete loss
mitigation application.
Thus, under the proposal, where a servicer failed to take
reasonable steps to avoid a ruling on a dispositive motion to avoid
issuance of a judgment or an order of sale, or to delay the foreclosure
sale, or where the servicer's foreclosure counsel fails to take such
steps, the Sec. 1024.41(g) commentary specified that the servicer
would have to dismiss the foreclosure proceeding if necessary to avoid
completing the foreclosure during the pendency of the loss mitigation
evaluation.
In the proposal, the Bureau stated its belief that the proposed
revisions to the commentary would aid servicers in complying with Sec.
1024.41(g)'s prohibition and assist courts in applying the prohibition
in foreclosure proceedings. The Bureau also stated its belief that
clarifying that a servicer must take affirmative reasonable steps, not
only to delay issuance of a judgment or order, but also to delay the
sale, would ensure that borrowers are protected from foreclosure during
pending evaluations of complete loss mitigation applications. Further,
the Bureau stated its belief that it would be appropriate to require a
servicer to dismiss a foreclosure if necessary to permit completion of
the loss mitigation evaluation procedures where the servicer or its
foreclosure counsel has failed to take such reasonable steps. The
Bureau explained its belief that clarifying that dismissal is required
if a servicer has failed to take reasonable steps, on its own or
through foreclosure counsel, to avoid a ruling or to delay a
foreclosure sale during a pending loss mitigation evaluation would
create incentives for servicers to develop more effective procedures to
carry out the requirements of Sec. 1024.41(g). The Bureau estimated
that dismissal should rarely be necessary, given that servicers have it
within their power to take all such reasonable steps to avoid a ruling
on a dispositive motion, issuance of a judgment or an order of sale, or
the conduct of a foreclosure sale.
Under existing comment 41(g)-1, a servicer that fails to take
reasonable steps to avoid a ruling on a motion pending at the time the
servicer receives a complete loss mitigation application violates Sec.
1024.41(g)'s prohibition against moving for judgment or order of sale.
In proposing to revise comment 41(g)-1, the Bureau explained that,
where a servicer fails to take reasonable steps to avoid a ruling on or
issuance resulting from a dispositive motion, as postulated in current
comment 41(g)-1, the servicer must still comply with the prohibition
against conducting a sale. The Bureau explained that a servicer's
failure to comply with one element of Sec. 1024.41(g), the prohibition
against proceeding on a dispositive motion, does not justify disregard
of the prohibition against conducting a sale and that the completion of
a foreclosure sale during the evaluation of a borrower's complete loss
mitigation application is precisely the harm that the Bureau crafted
Sec. 1024.41(g) to avoid. Consequently, to emphasize that a servicer
must take reasonable steps to avoid a ruling or issuance of an order
for sale when there is a pending loss mitigation evaluation, proposed
comment 41(g)-1 would have provided explicitly that failure to take
such steps at the pre-sale stage requires dismissal if necessary to
avoid the foreclosure sale.
Proposed comment 41(g)-5 would have clarified that a servicer must
seek to delay a foreclosure sale, even if a third party, such as a
sheriff, trustee, or other public official, administers or conducts the
sale proceedings, as is the case under foreclosure procedure in many
States. The Bureau stated that any interpretation of Sec. 1024.41(g)'s
prohibition against conducting a foreclosure sale that relieves
servicers of the responsibility to act to prevent a foreclosure simply
because the foreclosure procedure does not require the servicer itself
to conduct or administer the sale is inconsistent with the purpose of
Sec. 1024.41(g). The Bureau explained that servicers already have an
obligation to prevent a foreclosure sale under Sec. 1024.41(g)'s
prohibition against the conduct of a foreclosure sale. The Bureau
proposed comment 41(g)-5 to clarify a servicer's obligations under the
prohibition and indicated that it was not proposing a new requirement
or interpretation.
The Bureau noted in proposing these clarifications that, in some
jurisdictions, it may be difficult for a servicer to delay a
foreclosure sale after entry of foreclosure judgment or issuance of an
order of sale and that courts may be reluctant to delay foreclosure
proceedings when lengthy foreclosure backlogs create added pressure to
expedite dockets. The Bureau stated its belief that, even in these
situations, reasonable steps to delay the sale are available to
servicers and to courts administering foreclosure proceedings. Proposed
comment 41(g)-5 would have provided a non-exclusive explanation of what
such reasonable steps might include: Requesting that a court or the
official conducting the sale re-schedule or delay the sale or remove
the sale from the docket, or place the foreclosure proceeding in any
administrative status that stays the sale. The Bureau sought comment on
what reasonable steps may be available to servicers to delay the
conduct of a foreclosure sale under different foreclosure procedures.
Proposed comment 41(g)-3 would have explained that Sec.
1024.41(g)'s prohibitions on moving for judgment or order of sale or
conducting a sale may require a servicer to take steps through
foreclosure counsel and that a servicer is not relieved of its
obligations under Sec. 1024.41(g) because the foreclosure counsel's
actions or inaction cause a violation. The proposal noted that proposed
revisions to comment 41(g)-3 were consistent with the Bureau's
understanding of servicers' responsibilities under the Mortgage
Servicing Rules whenever service providers are involved, including the
[[Page 72265]]
policies and procedures requirements under Sec. 1024.38(b)(3).
Proposed comment 41(g)-3 further would have explained that, if a
servicer has received a complete loss mitigation application, the
servicer must promptly instruct counsel not to make a dispositive
motion for foreclosure judgment or order of sale; to take reasonable
steps, where such a dispositive motion is pending, to avoid a ruling on
the motion or issuance of an order of sale; and to take reasonable
steps to delay the conduct of a foreclosure sale until the servicer
satisfies one of the conditions in Sec. 1024.41(g)(1) through (3).
Proposed comment 41(g)-3 would have provided the following examples of
instructions that Sec. 1024.41(g) might require: Instructing counsel
to move for a continuance with respect to the deadline for filing a
dispositive motion or to move for or request that the foreclosure sale
be stayed, otherwise delayed, or removed from the docket, or that the
foreclosure proceeding be placed in any administrative status that
stays the sale. In the proposal, the Bureau noted that the list was not
meant to be exhaustive and sought comment on whether there are other
helpful illustrative examples.
The Bureau stated its belief in the proposal that the proposed
revisions to comment 41(g)-3 would provide servicers, their foreclosure
counsel, and courts with greater clarity with respect to the operation
of Sec. 1024.41(g)'s prohibition. The Bureau noted, as it had in
earlier guidance regarding service providers, that the fact that an
entity enters into a business relationship with a service provider does
not absolve the entity of responsibility for complying with Federal
consumer financial law to avoid consumer harm.\258\ The Bureau stated
in the proposal that codifying this principle in comment 41(g)-3 would
ensure that servicers understand their obligations with respect to
instructing foreclosure counsel promptly to take steps required by
Sec. 1024.41(g). The Bureau acknowledged that, when a servicer
receives a loss mitigation application shortly before a court hearing
or while a dispositive motion is pending, timely communication with
foreclosure counsel may require expedited procedures but that timely
communication in such situations would present neither a novel nor an
insurmountable challenge.
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\258\ Bureau of Consumer Fin. Prot., CFPB Bulletin 2012-03,
Service Providers (Apr. 13, 2012), available at http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf.
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The Bureau also proposed a related comment 38(b)(3)(iii)-1, which
would have explained that a servicer's policies and procedures must be
reasonably designed to ensure that servicer personnel promptly instruct
foreclosure counsel to take any step required by Sec. 1024.41(g)
sufficiently timely to avoid violating the prohibition against moving
for judgment or order of sale or conducting a foreclosure sale. The
Bureau explained that proposed comment 38(b)(3)(iii)-1 was designed to
help ensure that foreclosure counsel are timely informed of the status
of loss mitigation applications and can more effectively seek delay
from a court of the issuance of an order or a foreclosure sale. Having
policies and procedures to instruct foreclosure counsel timely to take
the actions required by Sec. 1024.41(g) would help servicers
efficiently handle communication with a servicer's foreclosure counsel
and ensure that counsel accurately represent the status of loss
mitigation applications and the obligations of servicers under Sec.
1024.41(g) to courts handling foreclosure proceedings.\259\
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\259\ The Bureau notes that Sec. 1024.38(b)(1)(v) already
requires servicers to maintain policies and procedures reasonably
designed to ensure that the servicer can submit documents or filings
required for a foreclosure process, including documents or filings
required by a court of competent jurisdiction, that reflect accurate
and current information and that comply with applicable law.
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In the proposal, the Bureau noted that, although the proposed
commentary clarifications would not alter existing requirements under
Sec. 1024.41(g), the Bureau had considered the potential burdens for
servicers in dismissing a foreclosure proceeding, in particular in
jurisdictions where significant foreclosure backlogs exist or when a
subsequent foreclosure brought by a servicer may encounter procedural
challenges or defenses. Nonetheless, the Bureau stated its belief that
dismissal would be appropriate in the limited circumstances
contemplated by the proposal where a servicer fails to take reasonable
steps to avoid a ruling or issuance of an order or to delay the sale to
protect borrowers from the dual tracking harms that Sec. 1024.41(g)
aims to prevent. The Bureau noted that dismissal would be required only
when necessary to avoid a violation of Sec. 1024.41(g), i.e., conduct
of the foreclosure sale while a loss mitigation evaluation is pending,
or to mitigate the harm to the borrower arising from the servicer's
prior violation of Sec. 1024.41(g) in failing to take reasonable steps
to delay a foreclosure sale. Thus, only those servicers that fail to
act to delay issuance of the order or judgment would incur any costs
related to dismissal. The Bureau stated its belief that expressly
clarifying that dismissal may be required would encourage servicers to
take reasonable steps to avoid foreclosure sales. The Bureau sought
comment on whether the clarification was adequate or whether additional
clarification was necessary to protect borrowers from foreclosure.
The Bureau requested comment on whether all of the proposed
commentary clarifications were appropriate and whether the proposed
commentary provided sufficient clarity to prevent foreclosures during a
pending loss mitigation evaluation. In addition, the Bureau requested
comment on whether there were any specific reasonable steps to comply
with Sec. 1024.41(g) that servicers should take, beyond re-scheduling
or delaying the sale, removing the sale from the docket, or placing the
foreclosure proceeding in any administrative status that stays the
sale, where a court has ruled on a dispositive motion. The Bureau also
requested comment on whether there were situations in which a servicer
should dismiss a foreclosure proceeding to stop a sale even where the
servicer has taken the reasonable steps outlined in Sec. 1024.41(g).
Finally, the Bureau requested comment on whether the incorporation
into the regulation text of any elements of the proposed commentary
would aid servicers in complying with Sec. 1024.41(g). The Bureau
stated that the proposed commentary would provide help in interpreting
and complying with Sec. 1024.41(g). However, the Bureau also
recognized that incorporation in the regulation text itself could aid
servicers, borrowers, and courts in applying the prohibition.
Comments
The Bureau received comments on the proposed revisions and
additions to the commentary from several industry commenters and
consumer advocacy groups. Commenters generally agreed that the conduct
of a foreclosure sale during a loss mitigation evaluation causes
significant consumer harm and should be avoided. However, commenters
expressed a number of concerns about the Bureau's proposed
clarifications.
Several commenters discussed the nature and extent of the
reasonable steps required to avoid having to dismiss foreclosure
proceedings under proposed comments 41(g)-1 and -5, which would have
required dismissal, if necessary to avoid the sale, when a servicer
fails to take reasonable steps to avoid issuance of a judgment or an
order of sale, or fails to take reasonable steps to delay the
foreclosure sale. Many
[[Page 72266]]
commenters suggested that the inference taken from the proposed
commentary changes was that a servicer that took reasonable steps would
never be obligated to dismiss a foreclosure proceeding, even if the
sale was conducted before any condition in Sec. 1024.41(g)(1) through
(3) was met. Several industry commenters requested that the Bureau
expressly clarify that, if a servicer takes reasonable steps, dismissal
would not be required. One industry commenter requested that the
commentary further clarify that servicers would not be required to take
all reasonable steps, but only some reasonable steps. This commenter
expressed concern that absent such clarification, servicers would seek
unnecessary dismissals of foreclosure proceedings because they believed
they could not otherwise comply with Sec. 1024.41(g).
Some commenters discussed the difficulties of determining what
constitutes reasonable steps in light of the varied procedures that
apply in different jurisdictions. One industry commenter recommended
that the commentary make clear that any examples of reasonable steps
were only illustrative and not an exhaustive list. A consumer advocacy
group expressed concern that the proposal would permit a sale where
servicers make only token efforts to meet the reasonable steps standard
and would effectively nullify the protections under Sec. 1024.41(g).
Commenters did not provide any additional examples of reasonable steps
to avoid or delay a sale that the Bureau might include in the
commentary.
Several, but not all, commenters addressing this issue indicated
that servicers are able to obtain delays of foreclosure proceedings and
comply with Sec. 1024.41(g). A consumer advocacy group noted that
courts routinely enforce other types of delays or stays in foreclosure
proceedings, such as those required by the Bankruptcy Code or the
Servicemembers Civil Relief Act. This commenter suggested that it was
appropriate to place upon servicers the burden of educating courts
about the requirements of Sec. 1024.41(g) rather than borrowers, who
often appear pro se in foreclosure proceedings. One industry commenter
suggested that, following judgment or issuance of an order in a
foreclosure proceeding, servicers have the ability to comply with Sec.
1024.41(g) by either not scheduling the foreclosure sale or cancelling
an already scheduled sale. Another trade association recommended that
servicers be required to provide to foreclosure counsel a copy of the
written notice of complete application that proposed Sec.
1024.41(c)(3) would have required servicers to provide to borrowers
after receipt of a complete application. Some industry commenters
suggested that courts may not be willing to grant motions filed by
foreclosure counsel and that servicers should not be held accountable
when courts refuse to honor requests to delay issuance of an order or
judgment. The consumer advocacy group that noted the ease with which
courts grant other types of stays in foreclosure proceedings expressed
concern that the proposal appeared to condone State court refusals to
enforce Federal law and suggested the Bureau adopt a policy of
intervening in State court proceedings to ensure that Sec. 1024.41(g)
was properly enforced.
A number of industry commenters discussed the potential burden to
servicers, investors, and borrowers that might result from any
dismissal requirement. Generally, these commenters noted that dismissal
may result in lengthy delays (especially in States with significant
backlogs), costs, and potential procedural challenges to subsequent
actions. In particular, commenters suggested that statutes of
limitation might bar a subsequent action or that dismissal may affect
the enforceability of the mortgage lien or note. Another industry
commenter suggested that the Bureau should provide an exception to the
dismissal requirement that permits the servicer, in those jurisdictions
that provide for post-sale confirmation proceedings, to take steps to
invoke Sec. 1024.41(g)'s protections on behalf of the borrower.
Some industry commenters expressed concern that borrowers may face
financial and emotional costs when foreclosures are dismissed and then
re-filed if the borrower's loss mitigation application is ultimately
denied. Some of these industry commenters also suggested that a
dismissal requirement might create an incentive for borrowers to delay
engagement in the loss mitigation process. One industry commenter
suggested the Bureau adopt a one-year time limit for borrowers to
submit a complete loss mitigation application under Sec. 1024.41 to
prevent such strategic attempts to delay foreclosure.
Consumer advocacy group commenters supported mandating dismissal
broadly, suggesting it would aid enforcement of Sec. 1024.41(g)'s
prohibitions and protect borrowers from the further harms that result
from conduct of a sale during the pendency of a loss mitigation
evaluation.
Commenters did not raise any specific objections to the proposed
revisions to comment 41(g)-3 or to proposed comment 38(b)(3)(iii)-1.
One consumer advocacy group commenter supported the revisions to
comment 41(g)-3, suggesting that it would clarify a servicer's
responsibility for the actions of foreclosure counsel.
Final Rule
The Bureau is not adopting the proposed revisions to comment 41(g)-
1 and is adopting a revised new comment 41(g)-5. The Bureau has decided
to adopt the proposed commentary regarding instructions to foreclosure
counsel largely as proposed in both comment 41(g)-3 and 38(b)(3)(iii)-1
concerning related policies and procedures. As discussed below, the
Bureau believes that its approach in the final rule is in accord with
the original final rule and the Bureau's proposal in restating the
absolute prohibition on conduct of a sale.
In light of the comments received, the Bureau believes that the
proposed revisions to comment 41(g)-1 would not further the purposes of
Sec. 1024.41(g). Proposed comment 41(g)-1 would have explained that,
where a servicer or counsel retained by the servicer fails to take
reasonable steps to avoid a ruling on or issuance of an order with
respect to a dispositive motion pending at the time a complete loss
mitigation application was received, the servicer must dismiss the
foreclosure proceeding if necessary to avoid the sale. The Bureau
believes that the uncertainty expressed by commenters concerning the
extent and nature of reasonable steps and the circumstances that would
require dismissal of foreclosure proceedings illustrates that the
proposed revisions to comment 41(g)-1 might have harmed borrowers by
appearing to allow for deviation from the absolute nature of Sec.
1024.41(g)'s prohibition of the conduct of a foreclosure sale.
The Bureau is concerned with the inference commenters took from the
proposed revision of comment 41(g)-1 and proposed comment 41(g)-5 that,
where a servicer takes reasonable steps, but the sale goes forward in
spite of these steps, a servicer is relieved of any responsibility for
the conduct of the sale. Proposed comments 41(g)-1 and 41(g)-5 would
have expressly addressed only situations where servicers fail to take
reasonable steps. The purpose of both proposed comments was to
emphasize that servicers must take reasonable steps to avoid conduct of
the foreclosure sale absent one of the conditions under Sec.
1024.41(g)(1) through (3) being met. By proposing to clarify that, when
servicers fail to take reasonable steps to avoid a ruling on a
[[Page 72267]]
pending dispositive motion or to delay a foreclosure sale, servicers
would be required to dismiss if necessary to avoid the sale, the Bureau
did not intend to permit the conduct of the sale when the servicer has
not met one of the conditions under Sec. 1024.41(g)(1) through (3).
That interpretation would have been inconsistent with the text of Sec.
1024.41(g), which imposes an absolute prohibition on the conduct of a
sale. For similar reasons, the Bureau also declines to read an
exception into Sec. 1024.41(g)'s prohibition against the conduct of
the sale based upon any post-sale confirmation process that may apply
in certain jurisdictions.\260\
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\260\ In addition to being inconsistent with Sec. 1024.41(g)'s
text and purpose, the Bureau believes it would impose significant
costs and risks on borrowers. Even where post-sale confirmation or
other procedure might be available to cancel or reverse a sale,
permitting sales to be conducted may impose significant costs on
borrowers. At least one commenter suggested that borrowers
themselves would have to move for the court to overturn sales. In
addition, where a sale is to a third-party, there may be no recourse
for the borrower.
---------------------------------------------------------------------------
For these reasons, the Bureau is not adopting the proposed
revisions to comment 41(g)-1. Similarly, comment 41(g)-5, as adopted,
also does not discuss any dismissal requirement with respect to
servicers that fail to take reasonable steps to delay a foreclosure
sale. The Bureau is concerned that an express dismissal requirement,
even if only when dismissal is necessary to avoid a sale, would be
unworkable in the absence of an exhaustive list of reasonable steps
that a servicer could take to prevent the sale short of dismissal. As
commenters generally explained, what constitutes a reasonable step in a
particular proceeding would depend on the specific facts,
circumstances, and procedures of the jurisdiction. The dismissal
requirement as proposed thus would have been based on an ultimately
subjective test that varied based not only on the particular
circumstances of the foreclosure proceeding but also the rules of an
individual court. The Bureau is also concerned, as some commenters
indicated, that some servicers may have believed in certain
circumstances that whatever steps they may take may not have met the
reasonable steps standard if finalized as proposed and that these
servicers may thus have elected to dismiss the foreclosure proceeding
unnecessarily to avoid a subsequent violation. The Bureau is equally
concerned that without providing an exhaustive list of reasonable
steps, and specifying that servicers would have to take all of those
steps to comply with Sec. 1024.41(g), the proposed commentary might
have been interpreted to permit evasion of the rule and excuse a
servicer from dismissal in order to prevent a sale. In either case, the
Bureau is concerned that the proposed reasonable steps requirement may
have led to litigation that would not further the purpose of the rule
itself and may have eventually eroded borrower protections or led to
uneven application of the rule across and within jurisdictions.
At the same time, the Bureau is also declining to adopt, as some
commenters suggested, any interpretation that Sec. 1024.41(g) does not
require dismissal to avoid a sale if the servicer takes any or all
other reasonable steps to delay a ruling on a pending dispositive
motion, issuance of an order, or conduct of the sale. The Bureau
believes such an interpretation would be inconsistent with the text and
purpose of Sec. 1024.41(g). As the Bureau explained in the proposal,
protecting borrowers from foreclosure during the loss mitigation
evaluation process is the central and fundamental protection under
Sec. 1024.41(g). The Bureau did not propose to alter the regulation
text but to interpret and clarify it in commentary. While the Bureau
believes, as discussed below, that servicers have many options
available to them for avoiding a sale short of dismissal, dismissal may
in some instances be necessary to avoid violation of Sec. 1024.41(g),
particularly if the servicer has, in fact, failed to take reasonable
steps to avoid the sale in a timely way. Moreover, even if the Bureau
were to adopt a standard that dismissal is not required where a
servicer has taken reasonable steps, the rule would still lack clarity
regarding what steps are reasonable. This uncertainty would leave
servicers subject to litigation over the reasonable steps standard, and
borrowers subject to different outcomes and harm, based upon different
interpretations of what is reasonable.
The Bureau believes that the purposes of Sec. 1024.41(g) will be
better served by a clear, unequivocal interpretation than a vague, but
still prescriptive, and fact-specific standard that in some cases might
ultimately result in the very outcome that Sec. 1024.41(g) prohibits.
As adopted, final comment 41(g)-5 provides a clear interpretation of
what Sec. 1024.41(g) requires: The servicer may not permit the conduct
of the sale unless one of the conditions under Sec. 1024.41(g)(1)
through (3) is met.
The Bureau believes that the means to prevent foreclosure sales
should be readily available to servicers. In jurisdictions where there
is no court action required, the Bureau understands that servicers
exercise significant, if not entire, control over the conduct of the
sale. Where courts are involved, procedures are generally available to
delay proceedings and, in many jurisdictions, to delay the conduct of
the sale specifically. As the plaintiff in the proceeding, a servicer
generally has a determinative voice as to the timing and nature of any
court-ordered remedies, including a foreclosure sale. Servicers may be
able to minimize any difficulties obtaining necessary delays through
timely communication with counsel and, through counsel, with the court,
as to the status of the loss mitigation application and the servicer's
obligations under Sec. 1024.41. And, as consumer advocacy groups
noted, such delays are not novel in court proceedings. For example,
delays or stays are available in other contexts, such as when a
borrower is protected by bankruptcy law.
While the reasonable steps language in the proposed revision to
comment 41(g)-1 and in proposed comment 41(g)-5 would have provided
some guidance to servicers about how to comply with Sec. 1024.41(g),
the Bureau believes that the reasonable steps language would not have
adequately protected servicers from post hoc evaluations of whether the
specific steps taken by the servicer or its foreclosure counsel were
reasonable. The Bureau believes comment 41(g)-5, as adopted, will
provide greater clarity and aid servicers through courts to prevent the
foreclosure sale.
In addition, the Bureau believes that, because proposed comment
41(g)-5 would have addressed the prohibition against conducting the
sale, retaining any reasonable steps language in that comment would
have been subject to much more litigation than the existing dispositive
motion reasonable steps language in comment 41(g)-1. Unlike existing
comment 41(g)-1, which addresses an earlier stage in the foreclosure
proceeding that is less detrimental to a borrower's ownership of the
home, comment 41(g)-5 addresses the foreclosure sale, which often
operates as the final step in the foreclosure process and may be
difficult to overturn under State laws that do not provide that a
violation of Regulation X is a basis for such a reversal.\261\ As a
result, the Bureau believes that borrowers may be more likely to
challenge a foreclosure sale as a violation of Sec. 1024.41(g) than an
entry of judgment.
---------------------------------------------------------------------------
\261\ The Bureau also notes that, though some commenters
suggested a post-sale remedy to alleviate servicer concerns,
purchase at the sale by a third-party purchaser may make the sale
irrevocable under State law.
---------------------------------------------------------------------------
[[Page 72268]]
The Bureau recognizes that there may be limited situations where
servicers, despite their attempts to prevent foreclosure sales, may
need to dismiss a foreclosure proceeding to avoid a violation of Sec.
1024.41(g) and then may re-file if the borrower ultimately does not
qualify for, or perform on, a loss mitigation option. The Bureau also
recognizes that this approach imposes costs on servicers and borrowers.
As the Bureau noted in preamble to the proposal, these costs could be
significant in an individual case but are unlikely to be significant
overall. The Bureau believes, as supported by many commenters, that
servicers are usually able to stop the foreclosure sale by using any of
several other means short of dismissal. The Bureau also believes the
benefit to borrowers of providing an unequivocal explanation of Sec.
1024.41(g) that reduces the risk of untimely foreclosure sales during
pending loss mitigation evaluations outweighs the risks or costs to
servicers of these atypical situations. The Bureau believes that
clarifying that any conduct of the sale violates Sec. 1024.41(g),
making the ramifications of failure to prevent a sale from occurring
clear to all stakeholders, including State courts, will make these
scenarios less likely to occur.
The Bureau is also adopting revisions to proposed comment 41(g)-3,
with changes to address issues raised by comments received. As adopted,
comment 41(g)-3 explains that the prohibitions against moving for
judgment or order of sale or conducting a sale may require a servicer
to act through foreclosure counsel retained by the servicer in a
foreclosure proceeding. The comment explains that, if a servicer has
received a complete loss mitigation application, the servicer promptly
must instruct counsel not to make a dispositive motion for foreclosure
judgment or order of sale; where such a dispositive motion is pending,
to avoid a ruling on the motion or issuance of an order of sale; and,
where a sale is scheduled, to prevent conduct of a foreclosure sale,
unless one of the conditions in Sec. 1024.41(g)(1) through (3) is met.
The comment further provides that a servicer is not relieved of its
obligations because foreclosure counsel's action or inaction caused a
violation.
The Bureau believes it is appropriate to clarify that a servicer's
responsibilities under Sec. 1024.41(g) are not relieved upon
foreclosure counsel's action or inaction. The additional language that
the proposal would have added to comment 41(g)-3 addressing reasonable
steps is no longer necessary in light of the changes to comment 41(g)-
5.
The Bureau is adopting related comment 38(b)(3)(iii)-1 as proposed,
with minor revisions. The Bureau believes that comment 38(b)(3)(iii)-1
will help to ensure that servicers effectively communicate with
foreclosure counsel. The Bureau received no comments that raised
concerns about new comment 38(b)(3)(iii)-1.
One industry commenter suggested that the Bureau require servicers
to send foreclosure counsel a copy of the notice, which proposed Sec.
1024.41(c)(3) would have required the servicer to send to borrowers
after the servicer receives a complete application. As discussed in the
section-by-section analysis of Sec. 1024.41(c)(3), the Bureau is
adopting a rule that requires servicers to provide borrowers with a
notice of complete application but is not requiring servicers to send a
copy of the notice to foreclosure counsel. As revised, comment 41(g)-3
requires servicers to provide prompt instruction to foreclosure counsel
upon the receipt of a complete loss mitigation application. Comment
38(b)(3)(iii)-1 explains that the policies and procedures of the
servicer must be reasonably designed to ensure that servicer personnel
promptly inform foreclosure counsel that the servicer has received a
complete loss mitigation application and promptly instruct counsel to
take any step required by Sec. 1024.41(g) sufficiently timely to avoid
violating the prohibition against moving for judgment or order of sale,
or conducting a foreclosure sale. The Bureau believes that these
comments clarify the obligation of servicers under Sec. 1024.41(g) to
ensure that foreclosure counsel is informed and has the necessary
information to take appropriate steps in foreclosure proceedings to
comply with Sec. 1024.41(g). As noted in the section-by-section
discussion of Sec. 1024.41(c)(3), the Bureau is not requiring
servicers to provide to foreclosure counsel the notice of complete
application required by Sec. 1024.41(c)(3). While providing a copy of
the notice may be part of an effective procedure for informing
foreclosure counsel about a borrower's loss mitigation application
status, the notice's required contents are designed to inform borrowers
about the status of their loss mitigation applications and, by
themselves, may not provide sufficient instruction to foreclosure
counsel for compliance purposes. Whatever method a servicer chooses to
communicate with foreclosure counsel, the servicer remains responsible
for ensuring compliance with Sec. 1024.41(g). The Bureau believes that
it is appropriate to permit servicers discretion in determining
alternative means for compliance with Sec. Sec. 1024.38(b)(3)(iii) and
1024.41(g).
41(i) Duplicative Requests
Currently, Sec. 1024.41(i) requires a servicer to comply with the
requirements of Sec. 1024.41 for only a single complete loss
mitigation application for a borrower's mortgage loan account. Section
1024.38(b)(2)(v) requires a servicer to maintain policies and
procedures designed to ensure that the servicer can properly evaluate a
borrower for all loss mitigation options ``for which the borrower may
be eligible pursuant to any requirements established by the owner or
assignee of the borrower's mortgage loan. . . .'' In effect, therefore,
unless investor guidelines require them to do so, servicers are not
required to comply with the loss mitigation provisions in Sec. 1024.41
if they previously complied with those requirements with respect to the
same borrower's prior complete loss mitigation application.
The Bureau proposed to revise Sec. 1024.41(i) to provide that
servicers are required to comply with the requirements of Sec. 1024.41
unless (1) the servicer has previously complied with Sec. 1024.41 for
a borrower's complete loss mitigation application and (2) the borrower
has been delinquent at all times since the borrower submitted that
complete application. Thus, as revised, the provision would require
servicers to follow the requirements of Sec. 1024.41 again when a
borrower has previously enjoyed those protections with respect to a
complete loss mitigation application but since then has become current
and subsequently become delinquent on the loan once again. The Bureau
believed that requiring servicers to comply with Sec. 1024.41 again in
these circumstances would serve an important consumer protection
purpose by extending the protections of Sec. 1024.41 and promoting the
use of uniform loss mitigation procedures for all borrowers. At the
same time, the Bureau's proposed revision to Sec. 1024.41(i) would
have limited the scope of servicers' obligations to comply with Sec.
1024.41 for a borrower's subsequent loss mitigation application and
preserved servicer and borrower incentives to dedicate appropriate
resources to an initial loss mitigation application. The Bureau is
finalizing Sec. 1024.41(i) substantially as proposed, with certain
non-substantive changes for clarity.
When the Bureau first proposed Sec. 1024.41 in the 2012 RESPA
Servicing Proposal, it sought comment on whether
[[Page 72269]]
a borrower should be entitled to a renewed evaluation for a loss
mitigation option if an appropriate time period had passed since the
initial evaluation or if there had been a material change in the
borrower's financial circumstances. Industry commenters at that time
generally supported the Bureau's proposal to limit a servicer's
obligation to comply with Sec. 1024.41 to once over the life of a
borrower's loan. Consumer advocacy groups, however, said that the
Bureau should require servicers to review a subsequent loss mitigation
submission when a borrower has demonstrated a material change in the
borrower's financial circumstances.\262\
---------------------------------------------------------------------------
\262\ See 78 FR 10695, 10836 (Feb. 14, 2013).
---------------------------------------------------------------------------
In the 2013 RESPA Servicing Final Rule, the Bureau agreed that
there are circumstances in which it is appropriate to reevaluate
borrowers in light of a material change in financial
circumstances.\263\ The Bureau also acknowledged that many owners or
assignees of mortgage loans already require servicers to consider
material changes in a borrower's financial circumstances.\264\ However,
the Bureau noted that ``significant challenges exist to determine
whether a material change in financial circumstances has occurred[,]''
and that, in contrast to investor guidelines, Sec. 1024.41 gives
borrowers a private right of action to enforce its procedures.\265\ In
addition, the Bureau believed that limiting the loss mitigation
procedures of Sec. 1024.41 to a single complete loss mitigation
application would provide borrowers with appropriate incentives to
submit all relevant information up front and allow servicers to
dedicate resources to those applications most likely to qualify for
loss mitigation options.\266\ Accordingly, in the 2013 RESPA Servicing
Final Rule, the Bureau required servicers to comply with the loss
mitigation procedures in Sec. 1024.41 only once over the life of a
mortgage loan for any borrower.
---------------------------------------------------------------------------
\263\ Id.
\264\ Id.
\265\ Id.
\266\ Id.
---------------------------------------------------------------------------
Since the publication of the 2013 RESPA Servicing Final Rule, the
Bureau has received numerous requests to revise this provision and
require servicers to reevaluate borrowers who have experienced a change
in financial circumstances and might therefore benefit from subsequent
review of a new loss mitigation application under the requirements of
Sec. 1024.41. Industry monitoring efforts, outreach to stakeholders,
and reports from consumer advocacy groups suggested that current Sec.
1024.41(i) might unfairly disadvantage a borrower who experiences
multiple hardships over the life of a loan.
In advance of the proposal, the Bureau understood that a borrower
might greatly benefit from the protections of Sec. 1024.41 for loss
mitigation applications submitted in connection with subsequent
hardships. Moreover, the Bureau believed that requiring servicers to
reevaluate borrowers in certain circumstances under the requirements of
Sec. 1024.41, in and of itself, would not place a significant
additional burden on servicers because many servicers already do so.
However, the Bureau continued to have concerns with requiring
reevaluations under Sec. 1024.41 when there has been a ``material
change in financial circumstances,'' because of the challenges of
prescribing with sufficient clarity what may constitute such a
``material change.''
Based on this analysis, the Bureau proposed to revise the current
rule to require servicers to reevaluate borrowers under Sec. 1024.41
in certain circumstances. However, as the Bureau explained in the 2013
RESPA Servicing Final Rule, the Bureau believed that a servicer's
obligation to reevaluate borrowers under Sec. 1024.41 should be
limited in scope. Accordingly, proposed Sec. 1024.41(i) would have
provided that servicers would be required to comply with Sec. 1024.41
unless the servicer had previously complied with Sec. 1024.41 for a
borrower's complete loss mitigation application and the borrower had
been delinquent at all times since the borrower submitted that complete
application. In other words, a servicer would have been required to
comply with Sec. 1024.41, even if it had previously complied with
Sec. 1024.41 for a borrower's complete loss mitigation application,
for a borrower who had been current on payments at any time between the
borrower's prior complete loss mitigation application and a subsequent
loss mitigation application. This revision was intended to preserve
borrower and servicer incentives to reach a timely, efficient, and
effective resolution to a borrower's hardship the first time a borrower
applies for loss mitigation.
In addition, the Bureau believed that proposed Sec. 1024.41(i)
would base a servicer's obligation to reevaluate a borrower under Sec.
1024.41 on an objective, bright-line test. One of the Bureau's concerns
about the suggestions to require reevaluations under Sec. 1024.41 when
there has been a ``material change in financial circumstances'' was
that the standard would be dependent upon a servicer's subjective
determination. The Bureau believed that the challenges in implementing
and enforcing such a standard would outweigh any intended benefit to
borrowers. However, the Bureau believed that an easy-to-administer
standard such as the one in proposed Sec. 1024.41(i) could promote
servicer compliance. The Bureau also believed that proposed Sec.
1024.41(i) may encourage consistent implementation of the mortgage
servicing rules by discouraging servicers from applying different loss
mitigation procedures outside of the framework of Sec. 1024.41 if a
borrower has been previously evaluated under Sec. 1024.41.
For purposes of this proposal, the Bureau assumed that a permanent
modification of a borrower's mortgage loan obligation effectively cures
the borrower's pre-modification delinquency. The Bureau further assumed
that a borrower who is performing under a permanent modification would
not meet the definition of delinquency that the Bureau proposed to add
to Sec. 1024.31. The Bureau sought comment on whether there are types
of permanent loan modifications or other circumstances for which these
assumptions would be inaccurate.
The Bureau also proposed to revise the current Sec. 1024.41(i)
commentary, which addresses servicers' obligations following the
transfer of servicing rights, to accommodate proposed Sec. 1024.41(k).
Specifically, the Bureau proposed to preserve the portion of comment
41(i)-1 that obligates a transferee servicer to comply with Sec.
1024.41 regardless of whether a transferor servicer previously
evaluated a borrower's complete loss mitigation application. As
discussed in the section-by-section analysis of Sec. 1024.41(k), the
Bureau proposed to move the balance of comment 41(i)-1, as revised, as
well as comment 41(i)-2, as revised, into proposed Sec. 1024.41(k) and
proposed new commentary.
The Bureau sought comment on the proposed revision to Sec.
1024.41(i) generally. The Bureau specifically sought comment on whether
the borrower's right to a reevaluation should be contingent upon
whether the borrower was current for a minimum period of time since the
borrower's last-submitted complete loss mitigation application.
The Bureau received a number of comments from industry and consumer
advocacy group commenters in response to proposed Sec. 1024.41(i).
Several industry commenters stated that there was no need to require
servicers to comply with the loss mitigation provisions in Sec.
1024.41 for a borrower's
[[Page 72270]]
subsequent loss mitigation application. They expressed the view that,
if a borrower is eligible for loss mitigation, and the investor is
willing to offer loss mitigation, the servicer will make loss
mitigation options available to the borrower pursuant to its own
policies. One industry commenter recommended that borrowers be required
to demonstrate changed circumstances before a servicer would be
required to comply with Sec. 1024.41 for a borrower's subsequent loss
mitigation application.
The majority of industry commenters that discussed Sec. 1024.41(i)
recommended that a borrower's right to a reevaluation under Sec.
1024.41 should be contingent on the borrower being current for a
minimum time period following the borrower's last submitted complete
loss mitigation application. These commenters recommended periods that
ranged from six months to five years. Many of these commenters said
that requiring a borrower to be current for a minimum time period would
discourage borrowers from abusing foreclosure protections and limit the
burden and costs associated with the requirements set forth in the
proposal. Several of these industry commenters also suggested that the
rule should limit the number of times that a servicer must evaluate a
borrower for loss mitigation options pursuant to Sec. 1024.41 over the
life of the loan. They stated that such a limit would provide clear
expectations for borrowers and servicers. One industry commenter stated
that the proposal would impose costs in the form of substantial
technology changes, staffing adjustments, new training, and vendor
expenses.
Numerous consumer advocacy groups supported the proposal's
requirement that servicers be required to comply with the loss
mitigation requirements set forth in Sec. 1024.41 for a borrower's
loss mitigation application unless the borrower had been delinquent at
all times since submitting the prior complete loss mitigation
application. Several consumer advocacy groups stated that the proposal
provided a reasonable limitation on the applicability of Sec.
1024.41(i). The majority of consumer advocacy groups recommended
additional circumstances under which servicers should be required to
comply with Sec. 1024.41 for a borrower's subsequent loss mitigation
application. For example, many consumer advocacy groups recommended
that servicers be required to comply with Sec. 1024.41 with respect to
a borrower's subsequent loss mitigation application when the borrower
had experienced a change in financial circumstances, or when more than
a year had passed since the borrower's submission of the prior complete
loss mitigation application, even if the borrower had not brought the
loan current in the interim. Many of these commenters also recommended
that the Bureau require any voluntary evaluation of a loss mitigation
application to be completed in accordance with Sec. 1024.41. One
consumer advocacy group stated that the proposal failed to account for
borrowers in temporary loss mitigation programs, and several commenters
requested that the Bureau specify when a borrower is no longer
delinquent for purposes of Sec. 1024.41(i).
As noted in the section-by-section analysis of Sec. 1024.31, one
industry commenter expressed concern with the proposal's treatment of a
borrower as delinquent until such time as the outstanding payment is
made. The commenter stated that a borrower performing on a permanent
loan modification may not have made all outstanding payments and
therefore would be considered delinquent under the proposal, contrary
to the Bureau's assumption that a borrower who is performing on a
permanent loan modification would not meet the Bureau's proposed
definition of delinquency.
The Bureau is adopting Sec. 1024.41(i) substantially as proposed,
with non-substantive changes for clarity. The Bureau is adopting
comments 41(i)-1 and -2 with revisions. The Bureau understands that
current Sec. 1024.41(i) might unfairly disadvantage a borrower who
experiences multiple hardships over the life of a loan. Final Sec.
1024.41(i) serves an important consumer protection purpose by extending
the protections of Sec. 1024.41 to loss mitigation applications
submitted in connection with subsequent hardships and promoting the use
of uniform loss mitigation procedures for all borrowers in such
circumstances. At the same time, final Sec. 1024.41(i) limits the
scope of servicers' obligations to comply with Sec. 1024.41 for a
borrower's subsequent loss mitigation application and preserves
servicer and borrower incentives to dedicate appropriate resources to
an initial loss mitigation application.
As finalized, Sec. 1024.41(i) explains that a servicer must comply
with the requirements of Sec. 1024.41 for a borrower's loss mitigation
application, unless the servicer has previously complied with the
requirements of Sec. 1024.41 for a complete loss mitigation
application submitted by the borrower and the borrower has been
delinquent at all times since submitting the prior complete
application. In other words, a servicer is required to comply with
Sec. 1024.41, even if it had previously complied with Sec. 1024.41
for a borrower's complete loss mitigation application, for a borrower
who has been current on payments at any time between the borrower's
prior complete loss mitigation application and a subsequent loss
mitigation application.
The Bureau is finalizing Sec. 1024.41(i) substantially as proposed
to provide an objective, bright-line standard. In doing so, the Bureau
weighed many of the same factors that it considered when finalizing the
2013 RESPA Servicing Final Rule. The Bureau sought to balance access to
the consumer protections afforded by Sec. 1024.41 with a recognition
of the potential burden an unlimited requirement to comply with Sec.
1024.41's requirements for any subsequent loss mitigation application
could have on servicers. In particular, the Bureau continues to have
concerns with requiring reevaluations under Sec. 1024.41 when there
has been a ``material change in financial circumstances,'' given the
difficulty of defining an objective standard for a ``material change in
financial circumstances.''
Thus, final Sec. 1024.41(i) ensures that, where a borrower
receives a loss mitigation option, complies with its terms, and later
experiences a new hardship, the borrower will benefit from having the
protections of the Sec. 1024.41 loss mitigation procedures for a
subsequent loss mitigation application, as well as the private right to
enforce them. However, Sec. 1024.41(i) limits servicers' obligations
under Sec. 1024.41 with respect to a borrower's subsequent loss
mitigation application if the borrower has not been current on the loan
at any time since submitting the prior application. Section 1024.41(i)
preserves borrower and servicer incentives to reach a timely,
efficient, and effective resolution to a borrower's hardship.
Additionally, to the extent servicers already reevaluate borrowers who
submit subsequent loss mitigation applications pursuant to the
procedures set forth in Sec. 1024.41, as suggested by some commenters,
final Sec. 1024.41(i) should not impose a significant additional
burden on servicers.
The Bureau has decided not to adopt a requirement that a borrower
must have remained current for a specified period of time before the
servicer is again required to comply with Sec. 1024.41. Any such
requirement would limit the important consumer protections of Sec.
1024.41 with respect to certain borrowers submitting subsequent loss
[[Page 72271]]
mitigation applications. Moreover, in the absence of a clear consensus
among commenters as to how long a borrower should remain current, or
consistent objective criteria for determining an appropriate period of
time, the Bureau believes it is appropriate to require servicers to
comply with the procedures under Sec. 1024.41 once a borrower has come
current, regardless of how long the borrower remains current.
The Bureau believes that any increase in the burden on servicers
associated with final Sec. 1024.41(i) should be limited. Current Sec.
1024.41 requires that servicers evaluate a borrower for the loss
mitigation options available to the borrower, but it does not require
servicers or investors to offer any particular loss mitigation
options.\267\ The Bureau understands that many investor guidelines
already include some form of a minimum time current requirement for
some loss mitigation options. Final Sec. 1024.41(i) does not preclude
investors from continuing to apply such requirements, although it does
require that the servicer comply with Sec. 1024.41 in evaluating the
borrower for any loss mitigation options that may be available.\268\
Further, because servicers are not required to comply with Sec.
1024.41 when a borrower has been delinquent at all times since
submitting the previous application, the Bureau believes the risk that
borrowers would repeatedly apply for loss mitigation only to delay
foreclosure, as was suggested by some commenters, is de minimis.
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\267\ See Sec. 1024.41(b)(1), (c)(1)(i), (c)(2)(i).
\268\ For example, Fannie Mae servicing guidelines provide that
a ``mortgage loan that was previously modified and that becomes 60
or more days delinquent within the first 12 months of the effective
date of the mortgage loan modification is ineligible for a mortgage
loan modification.'' Fannie Mae 2012 Servicing Guide at 706-17.
---------------------------------------------------------------------------
The Bureau is declining to require that servicers comply with Sec.
1024.41(i) for subsequent applications from borrowers who have been
delinquent at all times since their last application. The Bureau notes
that several commenters requested that servicers be required to comply
with Sec. 1024.41 when a borrower submits a subsequent loss mitigation
application after a certain time period had passed or when conducting
voluntary reviews of a loss mitigation application not otherwise
subject to Sec. 1024.41. Such additional conditions would require
servicers to comply with Sec. 1024.41 even in situations where the
borrower has been delinquent at all times since submitting the prior
application and could reduce servicers' willingness to undertake
voluntary loss mitigation efforts. The Bureau believes final Sec.
1024.41(i) strikes an appropriate balance between providing additional
consumer protections and limiting the scope of servicers' obligations
to comply with Sec. 1024.41 for subsequent loss mitigation
applications. Section 1024.41(i) preserves borrower and servicer
incentives to reach a timely, efficient, and effective resolution to a
borrower's hardship, thereby limiting the costs for both borrowers and
servicers.
The Bureau also declines to adopt a requirement that servicers
comply with Sec. 1024.41 based on a borrower's demonstrated change in
financial circumstances, as some commenters recommended. The Bureau
explained in the proposal and in the 2013 RESPA Servicing Final Rule
that determining whether a material change in financial circumstances
has occurred could pose significant implementation and enforcement
challenges that that would outweigh any intended benefit to
borrowers.\269\ The Bureau believes that a broader change in financial
circumstances standard could also pose such challenges. This standard
would be dependent upon a servicer's subjective determination of what
constitutes a change in financial circumstances. It could also increase
litigation risk for servicers, given that borrowers may pursue a
private right of action to enforce the procedures set forth in Sec.
1024.41. However, as the Bureau has previously explained, and as noted
by industry commenters, where a borrower has experienced a positive
change in circumstances investors do in some instances require
servicers to evaluate the borrower for loss mitigation options.\270\
Nothing in this final rule is meant to discourage or detract from those
requirements.
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\269\ 78 FR 10695, 10836 (Feb. 14, 2013); 79 FR 74175, 74227
(Dec. 15, 2014).
\270\ See id.
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As noted above, one commenter said the proposal did not clearly
explain how proposed Sec. 1024.41(i) would apply to a borrower
performing on a temporary loss mitigation program while others
requested further clarity on the determination of delinquency for
purposes of Sec. 1024.41(i). As discussed in the section-by-section
analysis of Sec. 1024.31, the revised definition of delinquency in
Sec. 1024.31 applies to all of subpart C of Regulation X and thus
applies for purposes of determining the applicability Sec. 1024.41(i).
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 for the duration of the temporary loss mitigation
program. Accordingly, a borrower performing under a temporary loss
mitigation program may be delinquent for purposes of Sec. 1024.41(i).
This is distinct from a borrower performing under a permanent loss
mitigation agreement, which does modify the existing loan contract.
When a borrower is making payments required by the terms of a permanent
loss mitigation agreement and therefore performing under the modified
contract, the borrower would not meet the definition of delinquency in
Sec. 1024.31 and thus would not be delinquent for purposes of Sec.
1024.41(i). The Bureau notes that the timing of a borrower's conversion
to a permanent modification from a trial modification is often a
question of State contract law and investor requirements, apart from
the requirements of Regulations X and Z. State contract law and
investor requirements may therefore be dispositive as to whether a
borrower is performing under a permanent or temporary loss mitigation
agreement for purposes of Sec. 1024.41(i). The Bureau further notes
that nothing in Sec. 1024.41(i) prevents a servicer from considering a
borrower for loss mitigation after a default on a temporary loan
modification. The Bureau understands that many servicers currently do
so, and some investors may require such reconsideration.
The Bureau proposed to revise the current Sec. 1024.41(i)
commentary, which addresses servicers' obligations following the
transfer of servicing rights, in light of proposed Sec. 1024.41(k)
addressing the same issue. As discussed in the section-by-section
analysis of Sec. 1024.41(k), the Bureau proposed to move the balance
of comment 41(i)-1, as revised, as well as comment 41(i)-2, as revised,
into proposed Sec. 1024.41(k) and proposed new commentary thereto. The
Bureau proposed to preserve the portion of comment 41(i)-1 that
obligates a transferee servicer to comply with Sec. 1024.41 regardless
of whether a transferor servicer previously evaluated a borrower's
complete loss mitigation application.
The Bureau is renumbering comment 41(i)-1 as 41(i)-2 and making
certain changes, as discussed in more detail below, and is adopting
comment 41(i)-1 with revisions. Final comment 41(i)-1 explains that,
under Sec. 1024.41(i), a servicer must comply with Sec. 1024.41 with
respect to a loss mitigation application unless the servicer has
previously done so for a complete loss mitigation application submitted
by the borrower and the borrower has been delinquent at all times since
submitting the prior complete application. Thus,
[[Page 72272]]
for example, if the borrower has previously submitted a complete loss
mitigation application and the servicer complied fully with Sec.
1024.41 for that application, but the borrower then ceased to be
delinquent and later became delinquent again, the servicer again must
comply with Sec. 1024.41 for any subsequent loss mitigation
application submitted by the borrower. When a servicer is required to
comply with the requirements of Sec. 1024.41 for such a subsequent
loss mitigation application, the servicer must comply with all
applicable requirements of Sec. 1024.41. It further explains that, for
example, the servicer's provision of the notice of determination of
which loss mitigation options, if any, it will offer to the borrower
under Sec. 1024.41(c)(1)(ii) regarding the borrower's prior complete
loss mitigation application does not affect the servicer's obligations
to provide a new notice of complete application under Sec.
1024.41(c)(3)(i) regarding the borrower's subsequent complete loss
mitigation application. The Bureau is finalizing this comment to
clarify that, where Sec. 1024.41(i) applies, a servicer must comply
with the requirements of Sec. 1024.41 anew for a subsequent
application submitted by a borrower irrespective of the servicer's
compliance with Sec. 1024.41 for the borrower's prior complete
application. Under Sec. 1024.41(i), a servicer's previous compliance
with Sec. 1024.41 regarding a prior complete application submitted by
the borrower does not relieve the servicer of any obligations or
otherwise affect its requirement to comply with Sec. 1024.41 regarding
a subsequent application submitted by the borrower.
As finalized, comment 41(i)-2 explains that Sec. 1024.41(i)
provides that a servicer need not comply with Sec. 1024.41 for a
subsequent loss mitigation application from a borrower where certain
conditions are met. It clarifies that a transferee servicer and a
transferor servicer are not the same servicer. Accordingly, a
transferee servicer is required to comply with the applicable
requirements of Sec. 1024.41 upon receipt of a loss mitigation
application from a borrower whose servicing the transferee servicer has
obtained through a servicing transfer, even if the borrower previously
received an evaluation of a complete loss mitigation application from
the transferor servicer. As finalized, comment 41(i)-2 clarifies that a
borrower has the right to an evaluation under Sec. 1024.41 with regard
to a complete loss mitigation application received by the transferee
servicer after a servicing transfer, even if the borrower would not
have had this right in the absence of the transfer.
41(k) Servicing Transfers
The Bureau proposed to add new Sec. 1024.41(k) to clarify a
transferee servicer's obligations and a borrower's protections under
Sec. 1024.41 where a loss mitigation application is pending at the
time of a servicing transfer. Proposed Sec. 1024.41(k) would have
provided that, subject to certain exceptions, a transferee servicer
must comply with Sec. 1024.41's requirements within the same
timeframes that were applicable to the transferor servicer, based on
the date the transferor servicer received the borrower's application or
the date the borrower made the appeal. Specifically, the exceptions
would have allowed transferee servicers additional time to comply with,
for example, the otherwise applicable requirements: (1) To review
promptly a loss mitigation application and provide an acknowledgment
notice within five days of the transferor servicer's receipt of the
loss mitigation application; (2) to evaluate the borrower for loss
mitigation options and provide a notice of its determination within 30
days of the transferor servicer's receipt of a complete loss mitigation
application; and (3) to evaluate the borrower's appeal and provide a
notice of its determination within 30 days of the borrower making an
appeal to the transferor servicer. As discussed in more detail in the
section-by-section analyses of Sec. 1024.41(k)(1) through (5), the
Bureau is finalizing the proposed provisions addressing transfers with
several revisions. As revised, the timeframes for transferee servicer
compliance under the final rule generally are based on the transfer
date, rather than on the date the transferor servicer received a loss
mitigation application or the borrower made an appeal to the transferor
servicer.
Currently, Sec. 1024.41 addresses transfers through the
commentary. Comment 41(i)-1 provides that, among other things,
documents and information transferred to a transferee servicer may
constitute a loss mitigation application to the transferee servicer and
may cause the transferee servicer to be required to comply with Sec.
1024.41 with respect to a borrower's mortgage loan account. Comment
41(i)-2 states that a transferee servicer must obtain documents and
information a borrower submitted in connection with a loss mitigation
application and that a transferee servicer should continue the
evaluation of a complete loss mitigation application to the extent
practicable. Finally, comment 41(i)-2 also states that, for purposes of
specific subsections in Sec. 1024.41, if a loss mitigation application
is complete as to a transferee servicer, the transferee servicer is
considered to have received the documents and information constituting
the complete application as of the date the transferor servicer
received the documents and information. Comment 41(i)-2 is designed to
ensure that a servicing transfer does not deprive a borrower of
protections to which a borrower was entitled from the transferor
servicer.\271\
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\271\ 78 FR 10695, 10837 (Feb. 14, 2013). See also 79 FR 63295,
63298 (Oct. 23, 2014).
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Existing Sec. 1024.41 and comments 41(i)-1 and -2 generally
require a transferee servicer to stand in the shoes of the transferor
servicer with respect to a loss mitigation application pending at
transfer. Consequently, a transferee servicer that receives a loss
mitigation application as a result of a transfer should comply with
Sec. 1024.41 within the timeframes that were applicable to the
transferor servicer, and, as comment 41(i)-2 states, a borrower's
protections are based upon when the transferor servicer received
documents and information constituting a complete application.
Nonetheless, comment 41(i)-2 implies that there are times when a
transferee servicer may not be able to continue the evaluation of a
complete application by stating that the transferee should continue the
review to the extent practicable.
In advance of the proposal, the Bureau had received questions about
a transferee servicer's responsibilities in the event that continuing
the evaluation of a complete loss mitigation application is not
practicable. The Bureau had also received questions about the
timeframes in which a transferee servicer must act and whether a
transferee servicer must provide notices to a borrower if the
transferor servicer already provided the same notices. The Bureau
believed that servicers and borrowers would benefit from greater
clarity regarding a transferee servicer's obligations and a borrower's
protections under Sec. 1024.41, including with respect to certain
situations not currently addressed in Sec. 1024.41 and comments 41(i)-
1 and -2, particularly how transferee servicers should handle a pending
appeal of a denial of a loan modification option, a pending offer of a
loss mitigation option, and pending applications that are facially
complete or become complete as of the transfer date.
Additionally, through outreach and industry monitoring efforts, the
Bureau had learned from servicers that
[[Page 72273]]
complying with certain of Sec. 1024.41's requirements could be
especially difficult in the transfer context. Servicers reported that
the necessary coordination between the transferee and transferor
servicer to ensure timely compliance was particularly challenging for
the comparatively short timeframes required by, for example, the
acknowledgment notice under Sec. 1024.41(b)(2)(i)(B). The Bureau has
always believed that there is a risk of borrower harm in the context of
servicing transfers. However, the Bureau also recognizes that there are
many reasons for transfers, that excluding loans in active loss
mitigation from transfers is logistically challenging and could impede
transfers, and that transfers may sometimes result in improved borrower
outcomes. The Bureau proposed limited exceptions to the general
timeframe requirements of Sec. 1024.41 for transferee servicers to
balance the competing considerations of the facilitation of transfers
and the prevention of borrower harm from a transfer.
The Bureau proposed Sec. 1024.41(k) to clarify the requirements
applicable to loss mitigation applications pending at the time of a
servicing transfer. Proposed Sec. 1024.41(k) would have provided that,
subject to certain exceptions, a transferee servicer must comply with
Sec. 1024.41's requirements within the same timeframes that were
applicable to the transferor servicer. The proposed exceptions would
have included up to a five-day extension of time for a transferee
servicer to provide the written notice required by Sec.
1024.41(b)(2)(i)(B) and a provision ensuring that a transferee servicer
that acquires servicing through an involuntary transfer has 30 days
from the date the transferor received the complete application or 15
days after the transfer date, whichever is later, to evaluate a
borrower's pending complete loss mitigation application. The proposal
also would have provided that, if a borrower's appeal under Sec.
1024.41(h) is pending as of the transfer date, a transferee servicer
must evaluate the appeal pursuant to Sec. 1024.41(h) if it is able to
determine whether it should offer the borrower the loan modification
options subject to the appeal; a transferee servicer that is unable to
evaluate an appeal would be required to treat the appeal as a complete
loss mitigation application and evaluate the borrower for all loss
mitigation options available to the borrower from the transferee
servicer.
Proposed comment 41(k)-1 would have provided that a loss mitigation
application is considered pending if it was subject to Sec. 1024.41
and had not been fully resolved before the transfer date. The comment
also would have clarified that a pending application is considered a
pending complete application if, as of the transfer date, the
application was complete under the transferor servicer's criteria.
Proposed comment 41(k)-1 sought to avoid ambiguity about whether a loss
mitigation application that was fully resolved by a transferor servicer
required new compliance with Sec. 1024.41 by the transferee servicer.
Section 1024.38(b)(4) sets forth the Bureau's expectations of a
transferor servicer: The Bureau expects transferor servicers to have
policies and procedures designed to ensure the timely transfer of
relevant information and to facilitate the transferee servicer's
compliance with Sec. 1024.41, among other matters. Section
1024.38(b)(4) requires a transferor servicer to have policies and
procedures reasonably designed to ensure that it can timely transfer
all information and documents in its possession or control related to a
transferred mortgage loan to a transferee servicer in a form and manner
that ensures the accuracy of the information and documents transferred.
Section 1024.38(b)(4) further specifies that a transferor servicer's
policies and procedures must be reasonably designed to ensure that the
documents and information are transferred in a form and manner that
``enables a transferee servicer to comply with . . . applicable law.''
The Bureau explained that the transferor servicer shares responsibility
for enabling a transferee servicer to comply with Sec. 1024.41(k)'s
requirements and ensuring that borrowers will not be adversely affected
by a servicing transfer. The Bureau did not propose to impose any
specific requirements in Sec. 1024.41(k) with respect to transferor
servicers and instead continued to rely on Sec. 1024.38(b)(4) to
ensure that transferor servicers assist transferee servicers in timely
compliance with Sec. 1024.41. The Bureau expects that policies and
procedures that are designed to ensure the timely and accurate transfer
of documents and information in accord with Sec. 1024.38(b)(4) will
result in such timely and accurate transfer of documents and
information in the vast majority of cases.
The Bureau did not receive comments in response to proposed comment
41(k)-1 and is finalizing it as proposed. Comment 41(k)-1 provides
that, for purposes of Sec. 1024.41(k), a loss mitigation application
is pending if it was subject to Sec. 1024.41 and had not been fully
resolved before the transfer date. It explains that, for example, a
loss mitigation application would not be considered pending if a
transferor servicer had denied a borrower for all options and the
borrower's time for making an appeal, if any, had expired prior to the
transfer date, such that the transferor servicer had no continuing
obligations under Sec. 1024.41 with respect to the application. It
further explains that a pending application is considered a pending
complete application if it was complete as of the transfer date under
the transferor servicer's criteria for evaluating loss mitigation
applications.
41(k)(1) In General
Proposed Sec. 1024.41(k)(1)(i) largely incorporated and clarified
existing comments 41(i)-1 and -2. It would have required a transferee
servicer that acquires the servicing of a mortgage loan for which a
loss mitigation application is pending as of the transfer date to
comply with Sec. 1024.41's requirements for that application. Proposed
Sec. 1024.41(k)(1)(i) would have further required that, subject to the
exceptions set forth in Sec. 1024.41(k)(2) through (4), a transferee
servicer must comply with Sec. 1024.41's requirements within the
timeframes that were applicable to the transferor servicer. Finally,
proposed Sec. 1024.41(k)(1)(i) would have required that any
protections under Sec. 1024.41(e) through (h), such as prohibitions on
commencing foreclosure or conducting a foreclosure sale, that applied
to a borrower before a transfer continue to apply notwithstanding the
transfer. The Bureau is adopting Sec. 1024.41(k)(1)(i) substantially
as proposed.
The purpose of proposed Sec. 1024.41(k)(1)(i) was to ensure that a
transfer does not adversely affect a borrower who is pursuing loss
mitigation options. A borrower generally has no control over whether
and when a mortgage loan is transferred to another servicer. As the
Bureau has previously observed, there is heightened risk inherent in
transferring mortgage loans that are in the process of loss
mitigation.\272\ In the proposal, the Bureau expressed its belief that
holding a transferee servicer to the same standards and timelines as a
transferor servicer helps mitigate the risk of consumer harm.
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\272\ See 79 FR 63295, 63296 (Oct. 23, 2014).
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Proposed comment 41(k)(1)(i)-1.i incorporated a portion of existing
comment 41(i)-2. It would have clarified that the regulation requires a
transferee servicer to obtain from the transferor servicer documents
and information a borrower submitted to a transferor servicer in
connection with a
[[Page 72274]]
loss mitigation application, consistent with policies and procedures
adopted pursuant to Sec. 1024.38. The proposed comment also would have
provided that a transferee servicer must comply with the applicable
requirements of Sec. 1024.41 with respect to a loss mitigation
application received as a result of transfer, even if the transferor
servicer was not required to comply with Sec. 1024.41 (because, for
example, the transferor servicer was a small servicer or the
application was a duplicative request under Sec. 1024.41(i) for the
transferor servicer).
Proposed comment 41(k)(1)(i)-1.ii would have clarified that a
transferee servicer must, in accordance with Sec. 1024.41(b), exercise
reasonable diligence to complete a loss mitigation application received
as a result of a transfer. The proposed comment further explained that,
in the transfer context, reasonable diligence includes ensuring that a
borrower is informed of any changes to the application process, such as
a change in the address to which the borrower should submit documents
and information to complete the application, as well as ensuring that
the borrower is informed about which documents and information are
necessary to complete the application. Proposed comment 41(k)(1)(i)-1
was intended to avoid any ambiguity about whether and in what manner a
transferee servicer is required to comply with Sec. 1024.41 with
respect to loss mitigation applications received as a result of a
transfer.
Proposed comment 41(k)(1)(i)-2 mirrored the last sentence of
current comment 41(i)-2. It would have clarified that, for purposes of
Sec. 1024.41(e) (borrower response), (f) and (g) (foreclosure
protections), and (h) (appeal process), a transferee servicer must
consider documents and information that constitute a complete
application to have been received as of the date the transferor
servicer received the documents and information. Proposed comment
41(k)(1)-2 would have further clarified that an application that was
facially complete with respect to a transferor servicer remains
facially complete under Sec. 1024.41(c)(2)(iv) with respect to the
transferee servicer as of the date it was facially complete with
respect to the transferor servicer. It also would have clarified that,
if an application was complete with respect to the transferor servicer
but was not complete with respect to the transferee servicer, the
transferee servicer must treat the application as facially complete as
of the date the application was complete with respect to the transferor
servicer. The purpose of this comment was to ensure that a transfer
does not affect the protections to which a borrower is entitled under
Sec. 1024.41.
Finally, proposed comment 41(k)(1)(i)-3 would have clarified that a
transferee servicer is not required to provide any notice required by
Sec. 1024.41 with respect to a particular loss mitigation application
if the transferor servicer provided the notice to a borrower before the
transfer. This comment was intended to address questions about whether
a transferee servicer must resend a notice already provided by the
transferor servicer as to a particular application.
Proposed Sec. 1024.41(k)(1)(ii) provided that, for purposes of
Sec. 1024.41(k), the transfer date is the date on which the transfer
of servicing responsibilities from the transferor servicer to the
transferee servicer occurs. Proposed comment 41(k)(1)(ii)-1 would have
provided that the transfer date corresponds to the date the transferee
servicer will begin accepting payments relating to the mortgage loan,
which already must be disclosed on the notice of transfer of loan
servicing pursuant to Sec. 1024.33(b)(4)(iv).\273\ Proposed comment
41(k)(1)(ii)-1 further clarified that the transfer date is not
necessarily the sale date for the transaction. The Bureau explained
that the proposed definition was consistent with the definition Fannie
Mae employs in its servicing guide \274\ and reflected the industry's
common understanding of the term.
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\273\ Section 1024.33(b)(4)(iv) requires the notice of transfer
to include ``The date on which the transferor servicer will cease to
accept payments relating to the loan and the date on which the
transferee servicer will begin to accept such payments. These dates
shall either be the same or consecutive days.''
\274\ See Fannie Mae, Servicing Guide Announcement SVC-2014-06,
at 1 (May 9, 2014), available at https://www.fanniemae.com/content/announcement/svc1406.pdf.
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The Bureau solicited comment on the treatment of loss mitigation
applications pending at transfer and whether it was appropriate to
require a transferee servicer to comply with Sec. 1024.41 within the
timeframes that were applicable to the transferor servicer.
Additionally, the Bureau solicited comment on whether, following a
transfer, a transferee servicer should be required to provide a
borrower a written notice of what documents and information the
transferee servicer needs to complete the application, regardless of
whether the transferor servicer has provided such a notice.
The Bureau received several comments on the general requirement
that the transferee servicer must comply with Sec. 1024.41 within the
timeframes that were applicable to the transferor servicer, based on
the date the transferor servicer received the loss mitigation
application. One industry commenter recommended that transferee
servicers be permitted to restart the Sec. 1024.41 timeframes for
compliance following transfer, so long as the extension of time did not
adversely affect the rights of borrowers. Another industry commenter
expressed agreement that transfers should not affect a borrower's loss
mitigation application or efforts to avoid foreclosure. However, it
stated that it would be difficult for transferee servicers to comply
with proposed Sec. 1024.41(k)(1)(i) when a loan is transferred with a
pending loss mitigation application. This commenter suggested that
transferee servicers should not be required to comply with the Sec.
1024.41 timeframes that were applicable to the transferor servicer
because the transferee servicer's access to the loan level information
necessary to evaluate pending loss mitigation applications is delayed
while data is uploaded and loan files are imaged. One industry
commenter expressed concern that requiring transferee servicers to
adhere to the same Sec. 1024.41 timeframes as transferor servicers
would require transferee servicers to obtain detailed information on
the loans being transferred prior to the transfer date, which may raise
privacy concerns.
Most consumer advocacy group commenters expressed support for the
proposal to require transferee servicers to adhere generally to the
same timeframes that were applicable to transferor servicers. Several
of these commenters explained that, currently, transferee servicers
often require applicants to re-submit previously submitted documents,
in effect starting anew with a loss mitigation application upon
transfer. Numerous consumer advocacy groups also recommended that the
Bureau require transferor servicers to provide transferee servicers
with all documents and information that had previously been provided by
a borrower to support a loss mitigation application, as well as
detailed lists of loans with pending loss mitigation applications.
These commenters explained that the absence of a private right of
action in current Sec. 1024.38(b)(4) renders it ineffective for
consumers in addressing the problems associated with transfers where a
borrower is pursuing loss mitigation. Several of these commenters also
suggested that transferee servicers should be required to send
borrowers written notice on the status of their loss mitigation
application, regardless of whether the transferor had provided other
notices pursuant to Sec. 1024.41.
[[Page 72275]]
The Bureau is finalizing Sec. 1024.41(k)(1)(i) and comments
41(k)(1)(i)-1.i, -1.ii, -2, and -3 with revisions. The Bureau is adding
new comment 41(k)(1)(i)-1.iii. The Bureau is adopting Sec.
1024.41(k)(1)(ii) and comment 41(k)(1)(ii)-1 with revisions.
Final Sec. 1024.41(k)(1)(i) explains that, except as provided in
Sec. 1024.41(k)(2) through (4), if a transferee servicer acquires the
servicing of a mortgage loan for which a loss mitigation application is
pending as of the transfer date, the transferee servicer must comply
with the requirements of Sec. 1024.41 for that loss mitigation
application within the timeframes that were applicable to the
transferor servicer based on the date the transferor servicer received
the loss mitigation application. Section 1024.41(k)(1)(i) further
provides that all rights and protections under Sec. 1024.41(c) through
(h) to which a borrower was entitled before a transfer continue to
apply notwithstanding the transfer. The Bureau's proposal addressed
Sec. 1024.41(e) through (h) but it did not specifically address Sec.
1024.41(c) and (d) because a servicer must comply with Sec.
1024.41(c), and as applicable, Sec. 1024.41(d), to satisfy its
requirements under Sec. 1024.41(g). For additional clarity, the Bureau
is specifying in the final rule that the rights and protections
applicable to borrowers under Sec. 1024.41(k)(1)(i) include those in
Sec. 1024.41(c) and (d).
Section 1024.41(k)(1)(i) is consistent with the Bureau's current
interpretation of comments 41(i)-1 and -2 as generally requiring the
transferee servicer to ``stand in the shoes'' of the transferor
servicer. Accordingly, Sec. 1024.41(k)(1)(i) protects borrowers who
are pursuing loss mitigation options from being adversely affected when
there is a servicing transfer. Borrowers will benefit from a general
rule that, subject to certain exceptions, a transferee servicer must
comply with the requirements of Sec. 1024.41 within the same
timeframes that were applicable to the transferor servicer.
The Bureau declines to extend the general timeframe for transferee
servicers set forth in Sec. 1024.41(k)(1)(i) in response to commenter
concerns over the ability of transferee servicers to comply with Sec.
1024.41 within the timeframes applicable to transferor servicers. The
Bureau recognizes that, under certain circumstances, it may be
difficult for transferee servicers to comply with timeframes that would
have been applicable to transferor servicers. Servicers should prepare
for and mitigate these challenges by implementing comprehensive
policies and procedures to facilitate the transfer of information. To
give servicers additional time where necessary, the Bureau proposed
specific exceptions in Sec. 1024.41(k)(2) through (4) to the general
loss mitigation timeframes for transferee servicers established in
Sec. 1024.41(k)(1)(i). As described in greater detail in the section-
by-section analyses of Sec. 1024.41(k)(2) through (4), the Bureau is
finalizing Sec. 1024.41(k)(2) through (4) with timeframes generally
based on the transfer date, rather than on the date the transferor
received a loss mitigation application or the borrower made an appeal.
The Bureau notes that the timeframe extensions in Sec. 1024.41(k)(2)
through (4) provided to transferee servicers apply only with respect to
loans that are being transferred during the loss mitigation
application, evaluation, and appeal process. Transferee servicers
remain subject to all generally applicable requirements and timeframes
of Sec. 1024.41 with respect to loss mitigation applications received
directly by the transferee servicer, outside of the transfer process.
Because the exceptions to Sec. 1024.41(k)(1)(i) provide servicers
flexibility in situations where compliance with Sec. 1024.41 in the
timeframes applicable to the transferor servicer may be especially
difficult, the Bureau is not revising the general framework set forth
in Sec. 1024.41(k)(1)(i), which requires a transferee servicer to
comply with Sec. 1024.41 for most purposes as if it were the same
entity as the transferor servicer. The Bureau continues to believe that
it is incumbent on both the transferor servicer and transferee servicer
to ensure a smooth transition for borrowers and prevent borrower harm
during servicing transfers.
The Bureau is finalizing several revisions to comment 41(k)(1)(i)-
1.i. Final comment 41(k)(1)(i)-1.i explains that, in connection with a
transfer, a transferor servicer must timely transfer, and a transferee
servicer must obtain from the transferor servicer, documents and
information submitted by a borrower in connection with a loss
mitigation application, consistent with policies and procedures adopted
pursuant to Sec. 1024.38(b)(4).
Comment 41(k)(1)(i)-1.i further provides that a transferee servicer
must comply with the applicable requirements of Sec. 1024.41 with
respect to a loss mitigation application received as a result of a
transfer, even if the transferor servicer was not required to comply
with Sec. 1024.41 with respect to that application (for example,
because Sec. 1024.41(i) precluded applicability of Sec. 1024.41 with
respect to the transferor servicer). Comment 41(k)(1)(i)-1.i explains
that, if an application was not subject to Sec. 1024.41 prior to a
transfer, then for purposes of Sec. 1024.41(b) and (c), a transferee
servicer is considered to have received the loss mitigation application
on the transfer date. Finally, it states that any such application
shall be subject to the timeframes for compliance set forth in Sec.
1024.41(k).
The Bureau is finalizing comment 41(k)(1)(i)-1.i to describe more
clearly the specific obligations of transferor servicers in connection
with a transfer of loan servicing. The proposal did not address
specific requirements for transferor servicers under Sec. 1024.41(k).
However, the Bureau believes that reiterating the specific obligation
inherent in Sec. 1024.38(b)(4) for transferor servicers under new
comment 41(k)(1)(i)-1.i will address certain consumer protection
concerns raised by commenters. Several consumer advocacy group
commenters observed that, notwithstanding Sec. 1024.38(b)(4),
transferee servicers often require applicants to re-submit previously
submitted documents, in effect starting over with a loss mitigation
application upon transfer. The Bureau believes that requiring borrowers
to re-submit previously submitted documents and otherwise restart the
loss mitigation application process is generally inconsistent with the
intended effect of Sec. 1024.38(b)(4). Transferor servicers share
responsibility under the regulation for ensuring that borrowers are not
adversely affected by a servicing transfer. Comment 41(k)(1)(i)-1.i now
specifies that transferor servicers must timely transfer documents and
information submitted by a borrower in connection with a loss
mitigation application, consistent with policies and procedures adopted
pursuant to Sec. 1024.38(b)(4).
Final comment 41(k)(1)(i)-1.i also provides further clarity on the
obligations and timeframes applicable to a transferee servicer that
receives a loss mitigation application as a result of a transfer when
the transferor servicer was not required to comply with Sec. 1024.41
with respect to that application. Transferee servicers have an
obligation to review the documents and information that the transferor
servicer provides to the transferee servicer to assess whether those
documents and information constitute a loss mitigation application. If
so, the transferee servicer must comply with Sec. 1024.41, even if the
transferor servicer was not required to do so for that application.
The Bureau believes that there are limited circumstances under
which a transferor servicer would not have been
[[Page 72276]]
required to comply with Sec. 1024.41 for a particular application, for
example, an application submitted to the transferor servicer but
subject to the limiting provision against duplicative applications in
Sec. 1024.41(i). The comment clarifies that a transferee servicer must
comply with Sec. 1024.41 for such an application, which includes the
requirement to engage in reasonable diligence to complete the
application pursuant to comment 41(k)(1)(i)-1.ii. The Bureau
acknowledges that this requirement means that a transferee servicer may
be required to review documents and information that the borrower
submitted to the transferor servicer well before the transfer date.
Nonetheless, the Bureau believes that it is beneficial to borrowers if
the transferee servicer treats the documents submitted to the
transferor servicer as an application subject to Sec. 1024.41. Doing
so affords borrowers the protections of Sec. 1024.41 sooner, which
preserves important borrower protections. Additionally, as the investor
and the loss mitigation options offered by that investor may change
concurrently with the servicing transfer, borrowers could benefit by
having those different loss mitigation options made available to them
at an earlier date. Moreover, a transferee servicer's review of the
documents and information submitted to a transferor servicer by a
borrower obviates the need for the borrower to start over in the loss
mitigation application process upon transfer, as many commenters allege
continues to happen. The Bureau recognizes that, in some instances, the
transferee servicer may still discover, upon reviewing the information
and documents constituting the application, as part of its review and
notice required under Sec. 1024.41(b)(2)(i), that the application
includes stale or invalid documents pursuant to any requirements
applicable to any loss mitigation option available to the borrower. The
Bureau acknowledges that, in those circumstances, the servicer would
appropriately request that the borrower update the documents and
information.
Final comment 41(k)(1)(i)-1.i explains that, if an application was
not subject to Sec. 1024.41 prior to a transfer, then for purposes of
Sec. 1024.41(b) and (c), a transferee servicer is considered to have
received the loss mitigation application on the transfer date. The
Bureau is adding a new sentence in the comment explaining that any such
application is subject to the timeframes for compliance set forth in
Sec. 1024.41(k). This change clarifies that, for example, if a
transferee servicer is required to comply with Sec. 1024.41 but the
transferor servicer was not, the transferee servicer must provide the
acknowledgment notice required by Sec. 1024.41(b)(2)(i)(B) within the
timeframe set forth in Sec. 1024.41(k)(2)(i), rather than within the
timeframe required by Sec. 1024.41(b)(2)(i)(B). This treatment allows
a transferee servicer the necessary time to comply with Sec. 1024.41
under the slightly-extended timeframes provided for transferee
servicers in Sec. 1024.41(k).
The Bureau declines to adopt a further revision to comment
41(k)(1)(i)-1.i, as requested by some commenters, to require
specifically that transferor servicers provide transferee servicers a
list of loans that will be transferred that have pending loss
mitigation applications. Final comment 41(k)(1)(i)-1.i provides clear
guidance that transferor servicers must timely transfer documents and
information submitted by a borrower in connection with a loss
mitigation application consistent with policies and procedures adopted
pursuant to Sec. 1024.38(b)(4). The Bureau recognizes that the
provision of a list of loans with pending loss mitigation applications
by the transferor servicer to the transferee servicer could help the
transferee servicer comply with its obligations and mitigate the risk a
servicing transfer poses to borrowers with pending loss mitigation
applications. Although transferor servicers may wish to provide such a
list under policies and procedures adopted pursuant Sec.
1024.38(b)(4), the Bureau is not specifying such a requirement in this
rule. The Bureau wishes to allow transferor and transferee servicers
the flexibility to develop and implement the specific practices that
best support compliance for their specific organizations and
circumstances.\275\
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\275\ See 79 FR 63295, 63299 (Oct. 23, 2014).
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The Bureau is making certain non-substantive revisions to comment
41(k)(1)(i)-1.ii to clarify transferee servicers' responsibilities when
an application is facially complete. The Bureau is finalizing comment
41(k)(1)(i)-1.ii to explain that a transferee servicer must, in
accordance with Sec. 1024.41(b)(1), exercise reasonable diligence to
complete a loss mitigation application, including a facially complete
application, received as a result of a transfer. Comment 41(k)(1)(i)-
1.ii further provides that, in the transfer context, reasonable
diligence includes ensuring that a borrower is informed of any changes
to the application process, such as a change in the address to which
the borrower should submit documents and information to complete the
application, as well as ensuring that the borrower is informed about
which documents and information are necessary to complete the
application. The proposal did not expressly include an obligation to
exercise reasonable diligence to complete facially complete
applications. The final rule clarifies that the obligation pertains to
both incomplete and facially complete applications.
The Bureau is adopting new comment 41(k)(1)(i)-1.iii. This comment
explains that a borrower may provide documents and information
necessary to complete an application to a transferor servicer after the
transfer date. It further provides that, consistent with policies and
procedures maintained pursuant to Sec. 1024.38(b)(4), the transferor
servicer must timely transfer, and the transferee servicer must obtain,
such documents and information. The Bureau is finalizing similar
language regarding borrower appeals and borrower acceptances or
rejections of pending loss mitigation offers in comments 41(k)(4)-1 and
41(k)(5)-1, respectively. The Bureau believes new comment 41(k)(1)(i)-
1.iii clarifies the Bureau's expectation that a transfer should not
adversely affect a borrower who is pursuing loss mitigation options,
even if a borrower provides documents and information to the transferor
servicer after the transfer date. This comment parallels other language
in Sec. 1024.41(k).
The Bureau is finalizing comment 41(k)(1)(i)-2 with certain
revisions. Comment 41(k)(1)(i)-2 explains that, for purposes of Sec.
1024.41(c) through (h), a transferee servicer must consider documents
and information that constitute a complete loss mitigation application
for the transferee servicer to have been received as of the date such
documents and information were received by the transferor servicer,
even if such documents and information were received by the transferor
servicer after the transfer date, and includes a cross-reference to
comment 41(k)(1)(i)-1.iii. It explains that an application that was
facially complete under Sec. 1024.41(c)(2)(iv) with respect to the
transferor servicer remains facially complete under Sec.
1024.41(c)(2)(iv) with respect to the transferee servicer as of the
date it was facially complete with respect to the transferor servicer.
Comment 41(k)(1)(i)-2 further explains that, if an application was
complete with respect to the transferor servicer, but is not complete
with respect to the transferee servicer, the transferee servicer must
treat the application as facially complete under Sec.
1024.41(c)(2)(iv) as of the date the
[[Page 72277]]
application was complete with respect to the transferor servicer.
Final comment 41(k)(1)(i)-2 clarifies the applicability of the
rights and protections in Sec. 1024.41(c) through (h) where a borrower
submits documents and information that constitute a complete
application for the transferee servicer to the transferor servicer
after the transfer date. The Bureau seeks to ensure that a borrower who
submits a complete application to the transferor servicer after the
transfer date does not lose rights or protections to which the borrower
would have been entitled had the borrower submitted the complete
application to the transferee servicer. Comment 41(k)(1)(i)-2 also
includes a cross-reference to new comment 41(k)(1)(i)-1.iii, which
clarifies that a borrower may provide documents and information
necessary to complete the application to the transferor servicer after
the transfer date and the transferor and transferee servicer
obligations regarding the transfer of such documents and information.
The final rule clarifies that the rights in Sec. 1024.41(c) and (d)
apply in such situations to parallel the changes finalized in Sec.
1024.41(k)(1)(i). The final rule also includes citations to Sec.
1024.41(c)(2)(iv) where there is a discussion of a facially complete
application. These changes to final comment 41(k)(1)(i)-2 clarify that
the facially complete applications discussed in comment 41(k)(1)(i)-2
are those applications that meet the criteria of Sec.
1024.41(c)(2)(iv).
Final comment 41(k)(1)(i)-3 provides that a transferee servicer is
not required to provide notices under Sec. 1024.41 with respect to a
particular loss mitigation application that the transferor servicer
provided prior to the transfer. For example, if the transferor servicer
provided the notice required by Sec. 1024.41(b)(2)(i)(B) prior to the
transfer, the transferee servicer is not required to provide the notice
again for that application. The Bureau is declining to require
transferee servicers to provide borrowers a duplicative notice, or to
provide a new notice under Sec. 1024.41 explaining the additional
documents and information necessary to complete the application, as
suggested by several consumer advocacy groups. A transferee servicer's
obligations under Sec. 1024.41 generally, and Sec. 1024.41(k)
specifically, should ensure that borrowers are kept updated as to the
status of their loss mitigation application. For example, under comment
41(k)(1)(i)-1.ii, transferee servicers must exercise reasonable
diligence to complete a loss mitigation application, which includes
keeping borrowers informed of any changes to the application process or
any documents and information needed to complete the application.
Additionally, Sec. 1024.41(b)(2)(i)(B) already requires servicers that
receive an incomplete application more than 45 days before a scheduled
foreclosure sale to provide a notice of the additional documents and
information needed to complete the application. Finally, as explained
in the section-by-section analysis of Sec. 1024.41(c)(3), servicers
will be required to provide borrowers a written notice within five days
(excluding legal holidays, Saturdays, and Sundays) of receipt of a
complete loss mitigation application.
The Bureau is finalizing revisions to Sec. 1024.41(k)(1)(ii),
which defines transfer date for the purposes of Sec. 1024.41(k), to
incorporate language from proposed comment 41(k)(1)(ii)-1 directly in
the regulation text. As finalized, Sec. 1024.41(k)(1)(ii) defines
transfer date as the date on which the transferee servicer will begin
accepting payments relating to the mortgage loan, as disclosed on the
notice of transfer of loan servicing pursuant to Sec.
1024.33(b)(4)(iv).
The Bureau did not receive any comments on its proposed definition
of transfer date in Sec. 1024.41(k)(1)(ii). The Bureau believes that
linking the definition of transfer date in Sec. 1024.41(k)(1)(ii)
directly to a date the servicer has already disclosed to the borrower
on the notice of the transfer of loan servicing pursuant to Sec.
1024.33(b)(4)(iv) will improve the ability of servicers and borrowers
to track this date and monitor compliance with Sec. 1024.41 generally
and specifically the timeframes established in Sec. 1024.41(k)(2)
through (4).
The Bureau is finalizing revisions to comment 41(k)(1)(ii)-1 to
reflect the revised definition of transfer date set forth in Sec.
1024.41(k)(1)(ii). Comment 41(k)(1)(ii)-1 explains that the transfer
date is the date on which the transferee servicer will begin accepting
payments relating to the mortgage loan, as disclosed on the notice of
transfer of loan servicing pursuant to Sec. 1024.33(b)(4)(iv). It
further explains that the transfer date is the same date as that on
which the transfer of the servicing responsibilities from the
transferor servicer to the transferee servicer occurs. As the Bureau
explained in the proposal, the proposed definition of transfer date is
consistent with the definition Fannie Mae employs in its servicing
guide and reflects the industry's common understanding of the term.
Additionally, the Bureau is further clarifying in comment
41(k)(1)(ii)-1 that the transfer date is not necessarily the same date
as either the effective date of the transfer of servicing as disclosed
on the notice of transfer of loan servicing pursuant to Sec.
1024.33(b)(4)(i) or the sale date identified in a servicing transfer
agreement. The Bureau believes it is appropriate to clarify the
distinction between the transfer date and the effective date of the
transfer of servicing, as the date the transferee servicer begins
accepting payments may be earlier than the effective date of transfer.
RESPA section 6(i)(1) defines ``effective date of transfer'' as the
date on which the mortgage payment of a borrower is first due to the
transferee servicer of a mortgage loan pursuant to the assignment,
sale, or transfer of the servicing of the mortgage loan. Accordingly,
if the transfer date is June 10, but the borrower's payment is first
due to the transferee servicer on July 1, the effective date of
transfer would be July 1. However, the Bureau understands that
transferee servicers may begin accepting payments on June 10. For
purposes of Sec. 1024.41(k)(1)(ii), therefore, June 10 is the transfer
date.
41(k)(2) Acknowledgment Notices
Proposed Sec. 1024.41(k)(2) would have provided that, if a
transferee servicer acquires the servicing of a mortgage loan for which
the period to provide the notice required by Sec. 1024.41(b)(2)(i)(B)
has not expired as of the transfer date, the transferee servicer must
provide the notice within 10 days (excluding legal public holidays,
Saturdays, or Sundays) after the date the transferor servicer received
the application. As discussed below, the Bureau is adopting proposed
Sec. 1024.41(k)(2) with several substantial revisions.
Section 1024.41(b)(2)(i)(B) states that, if a servicer receives a
loss mitigation application 45 days or more before a foreclosure sale,
a servicer must notify the borrower in writing within five days
(excluding legal public holidays, Saturdays, or Sundays) that the
servicer acknowledges receipt of the application and the servicer has
determined that the application is complete or incomplete. If the
application is incomplete, the notice must, among other things,
identify the documents or information necessary to complete the
application.
The Bureau was concerned about a transferee servicer's ability to
comply with Sec. 1024.41(b)(2)(i)(B) in the scenario where a
transferor servicer receives a loss mitigation application and, before
the time period in which to provide the notice required by Sec.
1024.41(b)(2)(i)(B) expires, transfers the mortgage loan to the
transferee servicer without providing the notice. In that situation, a
[[Page 72278]]
transferee servicer would be required to provide the notice within five
days (excluding legal public holidays, Saturdays, or Sundays) of when
the transferor servicer received the application. Depending on the
timing of the transfer, a transferee servicer might have as little as
one day after the transfer date to provide this notice.
Information the Bureau gathered through its outreach and industry
monitoring efforts in advance of the proposal confirmed that a
transferee servicer often has difficulty providing the notice required
by Sec. 1024.41(b)(2)(i)(B) within five days after the transferor
servicer received a loss mitigation application. The Bureau understood
that a transferee servicer typically requires several days to load a
mortgage loan file and related information onto its systems and to
access this information. Consequently, a transferee servicer may be
unable to integrate this information and accurately review a loss
mitigation application within the five-day time period specified in
Sec. 1024.41(b)(2)(i)(B), particularly for applications received
several days before transfer. As a result, in this situation a
transferee servicer acting diligently and in good faith may still be
unable to comply timely with the requirements of Sec.
1024.41(b)(2)(i)(B).
The Bureau proposed to allow transferee servicers up to an
additional five days to comply with Sec. 1024.41(b)(2)(i)(B) with
respect to applications pending as of the transfer date. Specifically,
proposed Sec. 1024.41(k)(2) would have required a transferee servicer
to provide the notice required by Sec. 1024.41(b)(2)(i)(B) within 10
days (excluding legal public holidays, Saturdays, or Sundays) after the
date the transferor servicer received a borrower's application.
The Bureau believed that establishing a specific deadline for the
transferee servicer to provide the notice required by Sec.
1024.41(b)(2)(i)(B) might encourage transferor and transferee servicers
to work together to streamline the transfer of documents. In
particular, a specific deadline would underscore the importance of
Sec. 1024.38(b)(4)(i), which requires a transferor servicer to have
policies and procedures reasonably designed to ensure that it can
timely transfer all information and documents in its possession or
control relating to a transferred mortgage loan to a transferee
servicer in a form and manner that ensures the accuracy of the
information and documents transferred. Thus, the Bureau expected that
the proposed timeframe would lead transferor servicers to identify and
transfer all loss mitigation applications, timely and accurately, to
transferee servicers. Further, the Bureau believed a firm compliance
deadline could avoid unnecessary delays in the loss mitigation
application process, while at the same time affording transferee
servicers additional time to respond properly to a borrower's
application.
The Bureau also believed that this proposed extension would
facilitate transferee servicers' compliance with Sec.
1024.41(b)(2)(i)(B) while not materially affecting most borrowers. The
existence and the extent of a borrower's protections under Sec.
1024.41(e) through (h) are determined as of the date on which a
servicer receives a borrower's complete application; extending the time
for a transferee servicer to comply with Sec. 1024.41(b)(2)(i)(B)
could delay, but in most cases would not prevent, a borrower from
obtaining those protections. Moreover, the proposed extension was for a
relatively brief period of time, and the Bureau did not believe that a
short delay in providing the Sec. 1024.41(b)(2)(i)(B) notice would
significantly lengthen the loss mitigation application, evaluation, and
appeal process. Finally, the Bureau believed that allowing a transferee
servicer some additional time to review a borrower's initial loss
mitigation application might result in more accurate determinations and
statements in the notice required under Sec. 1024.41(b)(2)(i)(B)
regarding the documents and information needed to complete an
application, which would ultimately benefit borrowers.
Nonetheless, the Bureau recognized in the proposal that a delay in
providing the Sec. 1024.41(b)(2)(i)(B) notice could affect a borrower
in certain circumstances, particularly when a servicer receives an
incomplete loss mitigation application shortly before the dates tied to
certain foreclosure protections, 90 and 38 days before a foreclosure
sale. In that instance, a borrower has an interest in completing the
application as soon as possible to preserve the maximum protections
available under Sec. 1024.41(e) through (h). Allowing a transferee
servicer additional time to provide a borrower with a written
notification of the documents and information required to complete an
application could shorten the amount of time borrowers have to obtain
and submit the documents and information necessary to complete an
application, potentially reducing the ability of borrowers to complete
the application in time to obtain certain foreclosure protections under
Sec. 1024.41 that are triggered by the receipt of a complete
application by a specified date.
The Bureau requested comment on whether borrowers currently have
difficulty in obtaining and submitting required documents and
information to complete an application that the servicer received
shortly before the 90th or 38th day before a foreclosure sale and
whether the extension in proposed Sec. 1024.41(k)(2) would exacerbate
such difficulties. The Bureau further requested comment on whether it
is reasonable to require a transferee servicer to provide the written
notice required by Sec. 1024.41(b)(2)(i)(B) within 10 days (excluding
legal public holidays, Saturdays, or Sundays) from the date a
transferor servicer received a loss mitigation application or whether a
shorter or longer period is more appropriate. Finally, if a longer
period would be appropriate, the Bureau requested comment on whether a
transferee servicer that avails itself of the proposed extension should
be required to give a borrower additional time to complete an
application, such that a borrower would have additional time past the
90th or 38th day before a foreclosure sale to submit a complete
application and obtain the applicable protections under Sec.
1024.41(e) through (h).
The Bureau received several comments on proposed Sec.
1024.41(k)(2). Industry commenters asserted that the proposed five-day
extension would not provide enough time for servicers to provide the
notice required by Sec. 1024.41(b)(2)(i)(B) and recommended longer
timeframes. One industry commenter specifically stated that the lag
time between the transfer date and the date on which the transferee
servicer has access to the loan level information necessary to provide
the Sec. 1024.41(b)(2)(i)(B) notice would make compliance with
proposed Sec. 1024.41(k)(2) difficult. Industry commenters recommended
that transferee servicers be provided an extension of 10 or 25 days.
Other industry commenters recommended that transferee servicers be
permitted to comply with Sec. 1024.41(k)(2) within 15 business days
from the transfer date or 30 days from the transfer date.
Consumer advocacy group commenters expressed concern with the
potential effect on borrowers resulting from the proposal's five-day
extension. These commenters stated that the notice required by Sec.
1024.41(b)(2)(i)(B) is critical for borrowers seeking to submit
complete applications and meet the deadlines for certain foreclosure
protections. They cautioned that the extension of the timeframe for
transferee servicers to provide this notice could result in borrowers
completing
[[Page 72279]]
applications past the 90th or 38th day before a scheduled foreclosure
sale, and thereby losing certain foreclosure protections under Sec.
1024.41(e) through (h) and the right to an evaluation under Sec.
1024.41(c). These commenters recommended limiting any extension of the
timeframe for transferee servicers in Sec. 1024.41(k)(2) to five days,
as proposed.
Some consumer advocacy groups suggested that, in light of the
proposed extension for transferee servicers in Sec. 1024.41(k)(2), the
Bureau should provide borrowers additional time to complete an
application when Sec. 1024.41(k)(2) applies. These commenters
recommended that, when Sec. 1024.41(k)(2) applies, all of the time
periods under Sec. 1024.41(c) and Sec. 1024.41(e) through (h) should
be extended by 10 days. One industry commenter recommended that
transferee servicers should be required to continue a pending
foreclosure sale if necessary to maintain the loss mitigation deadlines
and borrower protections under Sec. 1024.41, assuming an extension to
the timeframe proposed in Sec. 1024.41(k)(2).
Finally, some consumer advocacy groups expressed concern that the
proposal addressed only situations where the time period to provide the
Sec. 1024.41(b)(2)(i)(B) notice had not expired as of the transfer
date. These commenters recommended that the rule also require
transferee servicers to send the notice required by Sec.
1024.41(b)(2)(i)(B) if the transferor servicer was required to send
this notice prior to the transfer date but failed to do so.
For the reasons explained below, the Bureau is adopting Sec.
1024.41(k)(2) with several substantial changes to the proposal. Final
Sec. 1024.41(k)(2)(i) explains that, if a transferee servicer acquires
the servicing of a mortgage loan for which the period to provide the
notice required by Sec. 1024.41(b)(2)(i)(B) has not expired as of the
transfer date and the transferor servicer has not provided such notice,
the transferee servicer must provide the notice within 10 days
(excluding legal public holidays, Saturdays, and Sundays) of the
transfer date. As discussed in more detail below, in an effort to
reduce the borrower harms created by the extension in the timeframe
applicable to transferee servicers, the Bureau is adding new Sec.
1024.41(k)(2)(ii) and new comments 41(k)(2)(ii)-1 through -3 to adjust
the timeframes for certain borrower rights and foreclosure protections
where Sec. 1024.41(k)(2)(i) applies.
The Bureau understands that, when a loan is transferred, it
generally takes several days to board documents onto the transferee
servicer's systems. During this transition period, the transferee
servicer cannot access the loan level data and documents necessary to
send the acknowledgment notice or to evaluate applications and appeals.
Transferee servicers are also unable to assess transferor servicers'
compliance during this period of time when the documents are being
boarded onto transferee servicer's systems. Transferor servicers may
have difficulty sending the acknowledgment notice or completing a loss
mitigation evaluation when an application is received shortly before
transfer. As a result, transferee servicers may experience difficulty
ensuring compliance with timeframes applicable to the transferor
servicer based on the date the transferor servicer received the loss
mitigation application, even with the five-day extension in proposed
Sec. 1024.41(k)(2). The Bureau believes that finalizing a timeframe
for compliance in Sec. 1024.41(k)(2)(i) that is based on the transfer
date, rather than on the date the transferor servicer received the
application, better accounts for the transition period inherent to
transfers.
The final rule, by taking into account the transition period
inherent to transfers, effectively allows transferee servicers subject
to Sec. 1024.41(k)(2)(i) approximately the same time to comply as
servicers subject to the general five day timeframe in Sec.
1024.41(b)(2)(i)(B). Although servicers are generally only permitted
five days to provide the notice required by Sec. 1024.41(b)(2)(i)(B),
transferee servicers must also account for the several-day transition
period that occurs when there is a transfer of servicing rights. In
starting the timeframe for compliance at the transfer date, and
providing only an additional five days to comply, the Bureau means to
ensure that transferee servicers are able to comply with the
requirements of Sec. 1024.41(b)(2)(i)(B) within the approximate
timeframes generally applicable to servicers absent the complicating
factors of a transfer.
The Bureau expects that the final rule will have a limited effect
on most borrowers. The time extension permitted for transferee
servicers is modest and should limit the number of borrowers who have
difficulty obtaining the foreclosure protections because of a
transferee servicer's delay. More importantly, because the existence
and the extent of a borrower's rights and protections under Sec.
1024.41(c) through (h) are determined as of the date on which a
servicer receives a borrower's complete application, extending the time
for a transferee servicer to comply with Sec. 1024.41(b)(2)(i)(B)
could delay, but in most cases should not prevent, a borrower from
obtaining those rights and protections. Moreover, the Bureau believes
that tying compliance under Sec. 1024.41(k)(2)(i) to the transfer date
will make it easier for borrowers and servicers alike to track the
transferee servicer's compliance, as the transfer date is disclosed on
the notice of transfer of loan servicing pursuant to Sec.
1024.33(b)(4)(iv).
As discussed in the section-by-section analysis of Sec.
1024.41(k)(1), comment 41(k)(1)(i)-3 clarifies that a transferee
servicer is not required to provide notices under Sec. 1024.41 with
respect to a particular loss mitigation application that the transferor
servicer provided prior to the transfer. Thus, the transferee servicer
is not required to provide the notice required under Sec.
1024.41(b)(2)(i)(B) if the transferor servicer has provided it. The
Bureau does not believe that a duplicative notice requirement in this
context would provide a significant additional benefit to borrowers
because, as comment 41(k)(1)(i)-1.ii clarifies, a transferee servicer
must exercise reasonable diligence to complete a loss mitigation
application following the transfer, which includes ensuring that a
borrower is informed of any changes to the application process and
which documents and information are necessary to complete the
application. Adopting this requirement would also impose an additional
burden on transferee servicers. Thus, final Sec. 1024.41(k)(2)(i)
explains that the requirements of Sec. 1024.41(k)(2)(i) apply if a
transferee servicer acquires the servicing of a mortgage loan for which
the period to provide the notice required by Sec. 1024.41(b)(2)(i)(B)
has not expired as of the transfer date and the transferor servicer has
not provided such notice.
Similarly, the Bureau is declining to adopt a requirement that the
transferee servicer provide the notice required by Sec.
1024.41(b)(2)(i)(B), if the time period for providing that notice had
expired as of the transfer date, even if the transferor servicer has
not provided it. Pursuant to final comment 41(k)(1)(i)-1.ii, transferee
servicers must exercise reasonable diligence to complete any incomplete
applications, including those for which a transferor servicer has
failed to provide the notice required by Sec. 1024.41(b)(2)(i)(B).
Similarly, as provided in Sec. 1024.41(k)(3), a transferee servicer
would be expected to evaluate any complete applications received by the
transferor servicer, even if the transferor servicer had not provided
the notice required by Sec. 1024.41(b)(2)(i)(B).
[[Page 72280]]
The Bureau is adding new Sec. 1024.41(k)(2)(ii) to mitigate
potential borrower harm caused by the extended timeframe for transferee
servicers finalized in Sec. 1024.41(k)(2)(i). Although the Bureau
believes that Sec. 1024.41(k)(2)(i) should have a limited effect on
most borrowers, it recognizes that any delay in the receipt of the
notice required by Sec. 1024.41(b)(2)(i)(B) may affect the ability of
some borrowers to complete an application before certain deadlines
under Sec. 1024.41. For example, where a transferor servicer receives
a borrower's application shortly before the borrower's loan becomes
more than 120 days delinquent or shortly before day 90 or day 38 before
a foreclosure sale, the delayed provision of the notice required by
Sec. 1024.41(b)(2)(i)(B) may make it more difficult for a borrower to
obtain and submit required documents and information to complete an
application prior to those milestones, which could dictate whether,
among other things, a servicer is required to evaluate a borrower's
application within 30 days, a borrower obtains appeal rights, or
certain foreclosure protections apply. Additionally, the Bureau
recognizes that borrowers generally benefit by obtaining the
foreclosure protections of Sec. 1024.41 at an earlier date. The Bureau
is adding new Sec. 1024.41(k)(2)(ii) because it believes the extended
timeframe for transferee servicers under Sec. 1024.41(k)(2)(i) should
not limit a borrower's opportunity to obtain certain critical rights
and foreclosure protections.
The Bureau is finalizing Sec. 1024.41(k)(2)(ii)(A) to provide that
a transferee servicer that must provide the notice required by Sec.
1024.41(b)(2)(i)(B) under Sec. 1024.41(k)(2) shall not make the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process until a date that is after the reasonable
date disclosed to the borrower pursuant to Sec. 1024.41(b)(2)(ii),
notwithstanding Sec. 1024.41(f)(1). Section 1024.41(k)(2)(ii)(A)
further explains that, for purposes of Sec. 1024.41(f)(2), a borrower
who submits a complete loss mitigation application on or before the
reasonable date disclosed to the borrower pursuant to Sec.
1024.41(b)(2)(ii) shall be treated as having done so during the pre-
foreclosure review period set forth in Sec. 1024.41(f)(1). Section
1024.41(k)(2)(ii)(A) addresses the potential situation where a borrower
might have less time to complete an application during the 120-day pre-
foreclosure review period because of the extended timeline for
transferee servicers to provide the notice required by Sec.
1024.41(b)(2)(i)(B).
Generally, under Sec. 1024.41(f)(1)(i) and (f)(2), a servicer is
permitted to make the first notice or filing required by applicable law
for any judicial or non-judicial foreclosure process if a borrower's
mortgage loan obligation is more than 120 days delinquent and the
borrower has not submitted a complete application during this pre-
foreclosure review period. Thus, absent Sec. 1024.41(k)(2)(ii)(A), and
assuming the borrower did not submit a complete application during the
120-day pre-foreclosure review period, the servicer could otherwise
feasibly file for foreclosure on the day when the borrower becomes 121
days delinquent. Under Sec. 1024.41(k)(2)(ii)(A), however, the
transferee servicer may not make the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process
until a date that is after the reasonable date disclosed to the
borrower pursuant to Sec. 1024.41(b)(2)(ii). If the borrower submits a
complete loss mitigation application on or before the reasonable date
disclosed to the borrower pursuant to Sec. 1024.41(b)(2)(ii), then for
purposes of Sec. 1024.41(f)(2), the borrower shall be treated as
having done so during the pre-foreclosure review period set forth in
Sec. 1024.41(f)(1). Accordingly, Sec. 1024.41(k)(2)(ii)(A) prevents a
borrower from losing part of the 120-day pre-foreclosure review period
to complete an application because of the extended timeline for
transferee servicers to provide the Sec. 1024.41(b)(2)(i)(B) notice
that is set forth in Sec. 1024.41(k)(2)(i). The Bureau is adopting new
comment 41(k)(2)(ii)-1.i to provide an illustrative example.
As discussed in more detail in the section-by-section analysis of
Sec. 1024.41(b)(2)(ii), a reasonable date is at least seven days from
the date the servicer provides the Sec. 1024.41(b)(2)(i)(B) notice and
generally 30 days after the date the servicer provides the Sec.
1024.41(b)(2)(i)(B) notice. Additionally, the reasonable date must be
no later than the earliest remaining milestone,\276\ subject to the
minimum seven day requirement. So, for example, if the date that is the
120th day of the borrower's delinquency is the earliest remaining
milestone, and that date is 15 days from the date the notice required
by Sec. 1024.41(b)(2)(i)(B) is provided, the reasonable date must be
at least seven days from the date the Sec. 1024.41(b)(2)(i)(B) notice
is provided and not later than the date that is the 120th day of the
borrower's delinquency. Accordingly, new Sec. 1024.41(k)(2)(ii)
requires transferee servicers to provide borrowers additional time to
complete an application and obtain certain rights and protections only
in situations where a milestone either occurs before the notice under
Sec. 1024.41(b)(2)(i)(B) is provided or less than seven days from when
the notice is provided. The Bureau is adding new comment 41(k)(2)(ii)-3
to clarify the determination of the correct reasonable date where no
milestones remain.
---------------------------------------------------------------------------
\276\ As revised, comment 41(b)(2)(ii)-1 sets forth the
following four milestones for servicers setting the reasonable date:
(i) The date by which any document or information submitted by a
borrower will be considered stale or invalid pursuant to any
requirements applicable to any loss mitigation option available to
the borrower; (ii) the date that is the 120th day of the borrower's
delinquency; (iii) the date that is 90 days before a foreclosure
sale; or (iv) the date that is 38 days before a foreclosure sale.
---------------------------------------------------------------------------
The Bureau is adding new Sec. 1024.41(k)(2)(ii)(B) to address
situations where borrowers who are provided the notice required under
Sec. 1024.41(b)(2)(i)(B) by transferee servicers pursuant to Sec.
1024.41(k)(2)(i) submit a complete loss mitigation application 37 days
or less before a scheduled foreclosure sale. Specifically, Sec.
1024.41(k)(2)(ii)(B) provides that a transferee servicer that must
provide the notice required by Sec. 1024.41(b)(2)(i)(B) under Sec.
1024.41(k)(2) shall comply with Sec. 1024.41(c), (d), and (g) if the
borrower submits a complete loss mitigation application to the
transferee or transferor servicer 37 or fewer days before the
foreclosure sale but on or before the reasonable date disclosed to the
borrower pursuant to Sec. 1024.41(b)(2)(ii). Section 1024.41(c)
establishes requirements for a servicer's evaluation of a complete loss
mitigation application received more than 37 days before a foreclosure
sale, and Sec. 1024.41(d) includes certain requirements, as
applicable, for the notice a servicer must provide pursuant to Sec.
1024.41(c). Section 1024.41(g) limits a servicer's ability to proceed
with a foreclosure sale until certain conditions are met where a
borrower submits a complete loss mitigation application more than 37
days before a foreclosure sale.
Thus, Sec. 1024.41(k)(2)(ii)(B) addresses situations where the
extended timeline provided to transferee servicers to provide the Sec.
1024.41(b)(2)(i)(B) notice under Sec. 1024.41(k)(2)(i) could limit a
borrower's opportunity to complete an application and obtain the rights
and protections afforded under Sec. 1024.41(c), (d), and (g). It
requires transferee servicers to comply with these provisions if the
borrower submits a
[[Page 72281]]
complete application on or before the reasonable date, notwithstanding
that this date is 37 days or less before a scheduled foreclosure sale.
New comment 41(k)(2)(ii)-1.ii provides an illustrative example of this
provision. As explained in new comment 41(k)(2)(ii)-2, discussed in
more detail below, where a borrower submits a complete application more
than 37 days before a scheduled foreclosure sale, a transferee servicer
must comply with the otherwise applicable requirements of Sec.
1024.41. The Bureau believes that Sec. 1024.41(k)(2)(ii)(B) reduces
potential harm from the extended timeline for transferee servicers in
Sec. 1024.41(k)(2)(i) and in particular affords a borrower a
reasonable opportunity to complete an application and obtain the rights
and protections of Sec. 1024.41(c), (d), and (g).
The Bureau recognizes that Sec. 1024.41(k)(2)(ii)(B) requires
transferee servicers to provide certain borrowers rights and
protections in situations where compliance with Sec. 1024.41(c), (d),
and (g) would not otherwise be required. Depending on the
circumstances, Sec. 1024.41(k)(2)(ii)(B) may provide certain borrowers
more time to complete an application and obtain the rights and
protections under Sec. 1024.41(c), (d), and (g) than if the borrower's
loan had not been transferred. Under Sec. 1024.41(k)(2)(ii)(B)
transferee servicers will, for example, be required to comply with
Sec. 1024.41(g) by delaying a foreclosure sale within a shorter period
of time prior to a scheduled foreclosure sale than they would generally
be required to do. However, the Bureau expects that such instances will
be rare, as Sec. 1024.41(k)(2)(ii)(B) applies only where a transferee
servicer provides the notice required by Sec. 1024.41(b)(2)(i)(B) to a
borrower pursuant to Sec. 1024.41(k)(2)(i) and the borrower submits a
complete application 37 days or less before a foreclosure sale but on
or before the reasonable date disclosed under Sec. 1024.41(b)(2)(ii).
The Bureau believes that this approach appropriately balances
mitigating consumer harm and imposing burden on transferee servicers.
Requiring compliance with existing Sec. 1024.41(c), (d), and (g),
rather than establishing a separate standard for evaluating
applications and providing dual tracking protections, as the Bureau
considered, eases any compliance burden on transferee servicers
associated with Sec. 1024.41(k)(2)(ii)(B). Transferee servicers can
further minimize any delay and associated burden by working proactively
with transferor servicers to expedite the provision of the notice
required under Sec. 1024.41(b)(2)(i)(B). Because the rule currently
requires that the notice under Sec. 1024.41(b)(2)(i)(B) be provided
within five days of the receipt of the loss mitigation application,
without regard to transfer, the Bureau believes that some servicers may
have already developed standardized data protocols to identify affected
loan files and expedite delivery of the required notice. Accordingly,
the Bureau believes Sec. 1024.41(k)(2)(ii) strikes an appropriate
balance to limit borrower harm associated with the extended timeline in
Sec. 1024.41(k)(2)(i) while limiting the compliance burden on
transferee servicers.
As part of striking this balance, the Bureau has decided not to
preserve a borrower's opportunity to obtain appeal rights under Sec.
1024.41(h) if the 90-day milestone passes before the transferor or
transferee servicer receives the borrower's complete loss mitigation
application. Appeal rights afford borrowers an important safeguard
against servicer error in the evaluation of complete loss mitigation
applications. However, for the likely few number of borrowers who may
be affected by the extended timeframe in Sec. 1024.41(k)(2)(i), the
Bureau has prioritized preventing transferee servicers from taking
critical foreclosure actions to the detriment of those borrowers
immediately following transfer, while limiting the effect of Sec.
1024.41(k)(2)(ii) on the otherwise applicable timeframes set forth in
the loss mitigation rules and potentially complicating compliance. The
Bureau notes that, even absent appeal rights under Sec. 1024.41(h),
borrowers may still submit a notice of error under Sec. 1024.35
relating to the loss mitigation or foreclosure process and to the
servicing of the loan, and servicers must comply with the applicable
provisions of Sec. 1024.35 regarding such notices of error.
The Bureau is adding new comment 41(k)(2)(ii)-2 to address the
applicability of other loss mitigation provisions in light of new Sec.
1024.41(k)(2)(ii). Comment 41(k)(2)(ii)-2 explains that Sec.
1024.41(k)(2)(ii)(A) prohibits a servicer from making the first notice
or filing required by applicable law for any judicial or non-judicial
foreclosure process until a date that is after the reasonable date
disclosed to the borrower pursuant to Sec. 1024.41(b)(2)(ii),
notwithstanding Sec. 1024.41(f)(1). It further explains that Sec.
1024.41(k)(2)(ii)(B) requires a servicer to comply with Sec.
1024.41(c), (d), and (g) if a borrower submits a complete loss
mitigation application on or before the reasonable date disclosed in
the notice required by Sec. 1024.41(b)(2)(i)(B), even if the servicer
would otherwise not be required to comply with Sec. 1024.41(c), (d),
and (g) because the application is submitted 37 days or fewer before a
foreclosure sale. Comment 41(k)(2)(ii)-2 explains that Sec.
1024.41(k)(2)(ii) provides additional protections for borrowers but
does not remove any protections, and clarifies that servicers remain
subject to the requirements of Sec. 1024.41 as applicable and so, for
example, must comply with Sec. 1024.41(h) if the servicer receives a
complete loss mitigation 90 days or more before a foreclosure sale. It
further explains that similarly, a servicer is prohibited from making
the first notice or filing before the borrower's mortgage loan
obligation is more than 120 days delinquent, even if that is after the
reasonable date disclosed to the borrower pursuant to Sec.
1024.41(b)(2)(ii). Section 1024.41(k)(2)(ii) provides certain borrowers
an opportunity to obtain rights and protections under Sec. 1024.41(c),
(d), and (g) if they submit a complete loss mitigation application 37
or fewer days before a foreclosure sale but on or before the reasonable
date disclosed on the notice required by Sec. 1024.41(b)(2)(i)(B).
Comment 41(k)(2)(ii)-2 clarifies that Sec. 1024.41(k)(2)(ii)(B) does
not detract from or otherwise affect any other requirements under Sec.
1024.41.
The Bureau is also finalizing new comment 41(k)(2)(ii)-3 to address
the determination of the reasonable date when no milestones remain. As
explained in more detail in the section-by-section analysis of Sec.
1024.41(b)(2)(ii), Sec. 1024.41(b)(2)(ii) commentary explains that the
reasonable date generally must be no later than the earliest milestone,
that 30 days is generally reasonable, and that the reasonable date must
never be less than seven days after the Sec. 1024.41(b)(2)(i)(B)
notice is provided to the borrower. As noted above, this generally
means that when the nearest remaining milestone is between seven days
and 30 days away from the date the notice required by Sec.
1024.41(b)(2)(i)(B) is provided, the reasonable date must be no later
than the date of that milestone. However, where a transferee servicer
provides a borrower the notice required by Sec. 1024.41(b)(2)(i)(B) 37
or fewer days before a foreclosure sale, no milestones remain. Comment
41(k)(2)(ii)-3 explains that, generally, a servicer does not provide
the notice required under Sec. 1024.41(b)(2)(i)(B) after the date that
is 38 days before a foreclosure sale, so at least one milestone
specified in comment 41(b)(ii)-1 always remains
[[Page 72282]]
applicable. When Sec. 1024.41(k)(2)(i) applies, however, the
transferee servicer may sometimes provide the notice after the date
that is 38 days before a foreclosure sale. When this occurs, the
transferee servicer must determine the reasonable date when none of the
four specified milestones remain. Comment 41(k)(2)(ii)-3 explains that
the other requirements of Sec. 1024.41(b)(2)(ii) continue to apply and
clarifies that, in this circumstance, a reasonable date may occur less
than 30 days, but not less than seven days, after the date the
transferee servicer provides the written notice pursuant to Sec.
1024.41(b)(2)(i)(B). Section 1024.41(k)(2)(ii) establishes additional
borrower rights and protections determined in relation to the
reasonable date disclosed pursuant to Sec. 1024.41(b)(2)(ii). Thus,
comment 41(k)(2)(ii)-3 clarifies that Sec. 1024.41(k)(2)(ii) does not
affect the transferee servicer's obligation to determine the reasonable
date in accordance with the Sec. 1024.41(b)(2)(ii) commentary.
41(k)(3) Complete Loss Mitigation Applications Pending at Transfer
Proposed Sec. 1024.41(k)(3)(i) would have provided that, with two
exceptions, a transferee servicer that acquires the servicing of a
mortgage loan for which a complete loss mitigation application is
pending as of the transfer date must comply with the applicable
requirements of Sec. 1024.41(c)(1) and (4) within 30 days of the date
the transferor servicer received the complete application. Thus, unless
an exception applies, a transfer would not affect the time in which a
borrower should receive a notice of which loss mitigation options, if
any, a servicer will offer to the borrower. The Bureau explained that
this proposed requirement may be necessary to ensure that a transfer
does not adversely affect a borrower's right to a prompt evaluation of
a complete loss mitigation application. The Bureau is finalizing
proposed Sec. 1024.41(k)(3) with substantial revisions. Final Sec.
1024.41(k)(3) establishes a timeframe for transferee servicer
compliance that is 30 days from the transfer date and does not include
the proposed exceptions.
Proposed comment 41(k)(3)(i)-1 would have clarified a transferee
servicer's obligations regarding an application that was complete with
respect to the transferor servicer but for which the transferee
servicer needed additional documentation or corrections to a previously
submitted document to evaluate the borrower for all loss mitigation
options based upon the transferee servicer's criteria. Specifically,
the proposed comment would have clarified that, in this scenario and
consistent with proposed Sec. 1024.41(c)(2)(iv), the application is
facially complete as of the date it was first facially complete or
complete, as applicable, with respect to the transferor servicer, and
the borrower is entitled to all of the protections under Sec.
1024.41(c)(2)(iv). Additionally, once the transferee servicer receives
the information or corrections necessary to complete the application,
Sec. 1024.41(c)(3) requires the transferee servicer to provide a
notice of complete application. Finally, the proposed comment would
have clarified that an application that was complete with respect to
the transferor servicer remains complete even if the transferee
servicer requests that a borrower resubmit the same information in the
transferee servicer's specified format or make clerical corrections to
the application. The comment would have further explained that a
borrower's failure to resubmit such information or make such clerical
corrections does not extend the time in which the transferee servicer
must complete the evaluation of the borrower's complete application.
Proposed comment 41(k)(3)(i)-2 addressed the reverse situation in
which a borrower's loss mitigation application was incomplete based
upon the transferor servicer's criteria prior to transfer but the
transferee servicer determines that the application is complete based
upon its own criteria. In that case, the proposed comment would have
clarified that the application is considered a pending loss mitigation
application complete as of the transfer date for purposes of Sec.
1024.41(k)(3), but complete as of the date the transferor servicer
received the documents and information constituting the complete
application for purposes of Sec. 1024.41(e) through (h). This comment
was intended to avoid uncertainty about the timeframe in which the
transferee servicer must evaluate a complete application and the date
on which the borrower obtained protections under Sec. 1024.41.
Proposed Sec. 1024.41(k)(3)(ii)(A) set forth the first proposed
exception to the requirement to comply with Sec. 1024.41(c)(1) and (4)
within 30 days of the date the transferor servicer received the
complete application. This proposed exception addressed involuntary
transfers of servicing. The Bureau understood that a servicer that
acquires servicing as a result of an involuntary transfer is less
likely to be able to plan properly for a transfer. Additionally,
involuntary transferee servicers may be more likely to receive loans
from a failing or bankrupt servicer, which in turn may be more likely
to have failed to maintain adequate records regarding borrowers'
mortgage loans. Therefore, proposed Sec. 1024.41(k)(3)(ii)(A) would
have allowed a servicer that acquires servicing as a result of an
involuntary transfer to comply with the applicable requirements of
Sec. 1024.41(c)(1) and (4) within 30 days of the date the transferor
servicer received a complete loss mitigation application, or within 15
days of the transfer date, whichever is later. Proposed Sec.
1024.41(k)(3)(ii)(B) would have provided that a transfer is involuntary
when an unaffiliated investor or a court or regulator with jurisdiction
requires, with less than 30 days advance notice, the transferor
servicer to transfer servicing to another servicer and the transferor
servicer is in breach of, or default under, its servicing agreement for
loss mitigation related-servicing performance deficiencies or is in
receivership or bankruptcy.
The second proposed exception, in proposed Sec.
1024.41(k)(3)(iii), concerned instances where a transferee servicer's
completion of the evaluation within the timeframes set forth in
proposed Sec. 1024.41(k)(3)(i) or (ii)(A), as applicable, was
impracticable under the circumstances. The Bureau understood that, due
to the unique circumstances and complications that may arise in
connection with a transfer, there may be times when, despite the
transferee servicer's good faith efforts, it may be impracticable to
comply with the timing requirements of Sec. 1024.41(k)(3)(i) or
(ii)(A). In that situation, proposed Sec. 1024.41(k)(3)(iii) would
have required a transferee servicer to comply with the applicable
requirements of Sec. 1024.41(c)(1) and (4) within a reasonably prompt
time after expiration of the applicable time period in Sec.
1024.41(k)(3)(i) or (ii)(A). The Bureau expected that, in most
circumstances, it would be practicable for a transferee servicer to
evaluate a complete application within the prescribed timeframes and
that an extension would not be necessary or appropriate. The Bureau
also proposed comment 41(k)(3)(iii)-1, which would have clarified that,
for purposes of Sec. 1024.41(k)(3)(iii), a servicer that complies with
the applicable requirements of Sec. 1024.41(c)(1) and (4) within five
days after the expiration of the applicable timeframe in proposed Sec.
1024.41(k)(3)(i) or (ii)(A) would generally be considered to have acted
within a ``reasonably prompt time.''
The Bureau sought comment on the treatment of complete applications
pending at transfer. In particular, the Bureau sought comment on
whether it is ever necessary or appropriate to give
[[Page 72283]]
transferee servicers an extension of time to evaluate complete
applications. If an extension were necessary or appropriate, the Bureau
sought comment on which factors and circumstances, including but not
limited to involuntary transfers, might require an extension, the
appropriate length of any extension, and the burden transferee
servicers should have to meet to demonstrate a need for the extension.
The Bureau also sought comment on what obstacles transferee servicers
currently face in obtaining and evaluating pending loss mitigation
applications and the problems faced by borrowers who have applications
pending at the time of a servicing transfer, as well as whether an
extension of time to comply with Sec. 1024.41 following a transfer
would ameliorate or exacerbate those problems.
The Bureau received a number of comments in response to proposed
Sec. 1024.41(k)(3). Many industry commenters recommended that proposed
Sec. 1024.41(k)(3)(i) be revised to provide transferee servicers an
extension of time to evaluate a pending complete application, with
several recommending that transferee servicers be permitted 30 days
from the transfer date to comply with Sec. 1024.41(c)(1) and (4).
Several other industry commenters requested an extension of the
timeframe in Sec. 1024.41(k)(3)(i) but did not recommend a specific
timeframe. A few industry commenters stated that the transition period
inherent to transfers would make compliance with proposed Sec.
1024.41(k)(3)(i) difficult. One industry commenter stated that the
timeframe in the proposal was not feasible, even with the potential for
a five-day extension under proposed Sec. 1024.41(k)(3)(iii). This
commenter further stated that proposed Sec. 1024.41(k)(3) would either
effectively stop the transfer of servicing for most loans with pending
loss mitigation applications or greatly increase the number of errors
made by transferee servicers in evaluating these applications. Another
industry commenter explained that proposed Sec. 1024.41(k)(3) would
place a significant administrative and cost burden on transferee
servicers.
Several industry commenters that recommended an extension of the
timeframe in proposed Sec. 1024.41(k)(3)(i) discussed the potential
impact such an extension could have on borrowers. One industry
commenter asserted that providing transferee servicers adequate time to
evaluate an application would benefit borrowers, and noted that
borrower foreclosure protections would continue to apply during the
evaluation period. One commenter expressed the view that an extension
to Sec. 1024.41(k)(3)(i) would not adversely affect borrower
foreclosure protections because generally a pending foreclosure
proceeding is paused until the transferee servicer has evaluated the
complete application. Another industry commenter suggested that the
Bureau should extend the timeframe in proposed Sec. 1024.41(k)(3)(i)
and could require that servicers postpone pending foreclosure sales to
maintain the current Sec. 1024.41 loss mitigation timelines.
Several industry commenters expressed concern over transferee
servicers' ability to comply with the 30-day timeframe applicable to
the transferor servicer in proposed Sec. 1024.41(k)(3)(i) where most
of the 30-day period had passed prior to transfer. These commenters
recommended that the Bureau revise the proposal to provide a transferee
servicer an extension of time to comply with Sec. 1024.41(c)(1) and
(4) where most of the 30-day timeframe had passed prior to transfer.
Industry commenters generally supported the exception for
involuntary transfers in proposed Sec. 1024.41(k)(3)(ii). However,
several of these commenters stated that an extension should be provided
for all transferee servicers, not just those evaluating applications
following an involuntary transfer. One industry commenter stated that
requiring transferee servicers to comply within the same timeframes
applicable to transferor servicers would be difficult for both
voluntary and involuntary transfers.
The consumer advocacy groups that commented on the exception in
proposed Sec. 1024.41(k)(3)(iii), where compliance was not
practicable, expressed concern that this proposed exception was not
sufficiently definite and could create a compliance gap. These
commenters recommended that the Bureau incorporate language from the
proposal's preamble into comment 41(k)(3)(iii)-1, indicating that this
exception would only be applicable in unusual circumstances and that
generally it would be practicable for transferee servicers to evaluate
an application within the otherwise applicable timeframes. These
consumer advocacy groups also stated that Sec. 1024.41(k)(3)(iii)
should incorporate language from the proposed commentary into the
regulation text and require compliance within five days of the
expiration of the otherwise applicable timeframes. Finally, these
commenters recommended that comment 41(k)(3)(iii)-1 provide examples of
when it would be impracticable for transferee servicers to comply
within the otherwise applicable timeframes.
Several consumer advocacy groups recommended revisions to the
proposed Sec. 1024.41(k)(3) commentary. They stated that comment
41(k)(3)(i)-1 should be revised to prohibit transferees from requesting
that borrowers resubmit information in the transferee servicer's
required format or make clerical corrections to an application. One
consumer advocacy group recommended that proposed comment 41(k)(3)(i)-1
should require transferee servicers to treat applications considered
complete by the transferor servicer as complete, rather than facially
complete. This commenter suggested that, if the transferee servicer
requires more information to evaluate the application, the 30-day
evaluation period under Sec. 1024.41(c)(1) should be extended and
there should be a required pause in foreclosure activities under Sec.
1024.41(f) and (g). This commenter also recommended that a transferee
servicer treat the borrower as if a complete loss mitigation
application was pending at transfer and should not determine it has
received the full loan file following transfer until the transferor
servicer has certified that it has provided the transferee servicer the
entire loan file, including any loss mitigation applications or loss
mitigation options offered, or 60 days have passed following the
transfer date and neither the transferor servicer or borrower has
indicated the existence of a pending loss mitigation application or
plan. It stated that this requirement would ensure that foreclosure
sales are not conducted while the transferee servicer is unaware of any
pending loss mitigation applications or agreements between the borrower
and the transferor servicer. Consumer advocacy groups also recommended
that comment 41(k)(3)(i)-2 be revised to provide borrowers the right to
an evaluation under Sec. 1024.41(c)(1) based on the date the
transferor servicer received the application, even if the application
was first complete upon transfer to the transferee servicer.
For the reasons explained below, the Bureau is finalizing changes
to Sec. 1024.41(k)(3). Final Sec. 1024.41(k)(3) establishes a
timeframe for transferee servicer compliance that is 30 days from the
transfer date, whether the transfer is voluntary or involuntary. Based
on the timeframe finalized in Sec. 1024.41(k)(3), the Bureau believes
the exceptions proposed in Sec. 1024.41(k)(3)(ii) and Sec.
1024.41(k)(3)(iii) are no longer necessary. The Bureau is therefore
renumbering proposed Sec. 1024.41(k)(3)(i) as Sec. 1024.41(k)(3), and
is not adopting
[[Page 72284]]
proposed Sec. 1024.41(k)(3)(ii) or Sec. 1024.41(k)(3)(iii). The
Bureau is renumbering comments 41(k)(3)(i)-1 and -2 as comments
41(k)(3)-1 and -2, and is making minor changes to those comments. The
Bureau is not adopting proposed comment 41(k)(3)(iii)-1.
The Bureau has concluded that proposed Sec. 1024.41(k)(3)(i) could
have posed compliance difficulties for transferee servicers. The Bureau
notes that extending the evaluation date for transferee servicers does
not reduce borrower rights and protections in Sec. 1024.41(c) through
(h). The existence and extent of those rights and protections are
determined as of the date a complete application is received (in this
case, by the transferor servicer, prior to the transfer date). The
rights and protections, once determined as of the date the transferor
servicer received the complete application, continue during the
evaluation period and are not diminished by any delay in the conduct of
the evaluation by the transferee servicer. However, the Bureau
recognizes that both borrowers and servicers are generally best served
by an efficient and timely evaluation of loss mitigation options and
that borrowers, in particular, face increased delinquency and credit
reporting harms when an evaluation is delayed. Nonetheless, balancing
the difficulties faced by transferee servicers in completing the
evaluation of a transferred loss mitigation application and the harm
delayed evaluations occasion borrowers, the Bureau is finalizing Sec.
1024.41(k)(3) to provide that, if a transferee servicer acquires the
servicing of a mortgage loan for which a complete loss mitigation
application is pending as of the transfer date, the transferee servicer
must comply with the applicable requirements of Sec. 1024.41(c)(1) and
(4) within 30 days of the transfer date.
Similar to final Sec. 1024.41(k)(2)(i) with regard to transferee
servicers' provision of Sec. 1024.41(b)(2)(i)(B) notices, final Sec.
1024.41(k)(3) provides a bright-line standard for the applicable
timeframe for transferee servicers to comply with Sec. 1024.41(c)(1)
and (4) regarding the evaluation of complete applications and
applicable notice requirements. The Bureau believes that determining
compliance with Sec. 1024.41(k)(3) based on the transfer date, rather
than based on the date the transferor servicer received the
application, as proposed, should make it easier for borrowers and
servicers alike to track compliance. As discussed in the section-by-
section analysis of Sec. 1024.41(k)(2), the transfer date is disclosed
on the notice of transfer of loan servicing provided to borrowers
pursuant to Sec. 1024.33(b)(4)(iv).
In light of the expansion in timelines beyond the proposed rule,
the Bureau believes that all transferee servicers should be able to
comply with Sec. 1024.41(k)(3) without reliance on the proposed
exceptions for involuntary transfers or situations where compliance
with the otherwise applicable timeframes would be impracticable.
Accordingly, the Bureau is not finalizing the proposed exceptions in
Sec. 1024.41(k)(3)(ii) and (iii) and clarifications in proposed
comment 41(k)(3)(iii)-1 and is removing references to these exceptions
in Sec. 1024.41(k)(3).
The Bureau recognizes that the transition period associated with
transfers, a several-day period following transfer in which the
transferee servicer may not have access to the loan-level information,
may effectively shorten the actual time that transferee servicers will
have following transfer to comply with the applicable requirements of
Sec. 1024.41(c)(1) and (4). Although this transition period may result
in a transferee servicer having fewer days to comply with Sec.
1024.41(c)(1) and (4) than would a servicer in the absence of a
transfer, final Sec. 1024.41(k)(3) balances transferee servicer
interests in having sufficient time to comply against borrower
interests in a prompt evaluation of a loss mitigation application. As
explained above, even with a several-day transition period, Sec.
1024.41(k)(3) should generally provide transferee servicers more time
to evaluate a borrower's application than the proposal would have
provided by triggering the evaluation timeframe based on the transfer
date, rather than the date the transferor received the application.
Moreover, several industry commenters recommended the adoption of a 30-
day timeframe for compliance, measured from the transfer date.
The Bureau also recognizes that this delay necessarily imposes
costs on borrowers, even if their rights and foreclosure protections
under Sec. 1024.41 are not curtailed. In general, the longer the
borrower must wait for an evaluation, the more the borrower's
outstanding delinquency increases. As discussed in the section-by-
section analysis of Sec. 1024.41(b)(2)(ii), industry commenters have
stated that an increase in the delinquency can decrease the likelihood
of successful loss mitigation. Borrowers may face other harms due to an
extended evaluation period as well, such as continued adverse credit
reporting. While the Bureau is persuaded by industry commenters that
transferee servicers should have 30 days from the transfer date to
evaluate a complete application, any further extension for transferee
servicers could result in borrower harm and is not necessary to enable
transferee servicer compliance.
As discussed in the section-by-section analysis of Sec.
1024.41(k)(1), the Bureau is finalizing commentary to limit the impact
on borrowers of any additional delays resulting from final Sec.
1024.41(k)(3). Final comment 41(k)(1)(i)-2 provides that, for purposes
of the borrower rights and protections under Sec. 1024.41(c) through
(h), a transferee servicer must consider documents and information that
constitute a complete loss mitigation application for the transferee
servicer to have been received as of the date such documents and
information were received by the transferor servicer, even if such
documents and information were received by the transferor servicer
after the transfer date. The borrower rights and protections under
Sec. 1024.41(c) through (h) begin as of the date the transferor
servicer receives a complete application, and extending the timeframe
for transferee servicer evaluations will not affect the timing of these
protections. As noted above, the Bureau recognizes that Sec.
1024.41(k)(3) could extend the amount of time that a borrower must wait
for an evaluation, that the amount of the borrower's obligation that is
past due may increase during this extended timeframe, and that the
borrower may suffer harm as a result. Nevertheless, the Bureau believes
this approach provides an appropriate balance to limit borrower harm
while facilitating transferee servicer compliance. The Bureau also
believes providing transferee servicers appropriate time to comply with
Sec. 1024.41(c)(1) and (4) may improve transferee servicers' ability
to evaluate applications fairly and efficiently, which would ultimately
benefit borrowers.
The Bureau is renumbering proposed comments 41(k)(3)(i)-1 and -2 as
41(k)(3)-1 and -2 and is finalizing these comments with revisions.
Comment 41(k)(3)-1 explains that, if a transferee servicer acquires the
servicing of a mortgage loan for which a complete loss mitigation
application is pending as of the transfer date and the transferee
servicer determines that additional information or a correction to a
previously submitted document is required based upon its criteria for
evaluating loss mitigation applications, the application is considered
facially complete under Sec. 1024.41(c)(2)(iv) as of the date it was
first facially complete or complete, as applicable, with respect to
[[Page 72285]]
the transferor servicer. It further provides that once the transferee
servicer receives the information or corrections necessary to complete
the application, Sec. 1024.41(c)(3) requires the transferee servicer
to provide a notice of complete application.
The Bureau is finalizing comment 41(k)(3)-1 without the proposed
language pertaining to a transferee servicer's request that a borrower
resubmit the same information in the transferee servicer's specified
format or make clerical corrections to the application and without the
proposed language pertaining to the borrower's failure to do so. While
the Bureau recognizes that servicers may occasionally ask for such
resubmission of the same previously submitted information in certain
circumstances, the Bureau does not believe that such requests should be
the norm. Such requests could be burdensome to borrowers or possibly
mislead them. For example, the Bureau is concerned that such requests
may lead borrowers to believe erroneously that their application is
incomplete as to the transferee servicer.
While the Bureau is concerned that a transferee servicer's requests
that the borrower resubmit the same information in the transferee
servicer's specified format or make clerical corrections to the
application may be burdensome or misleading to borrowers, the Bureau is
not prohibiting transferees from requesting that borrowers do so, as
suggested by some consumer advocacy groups. Although the Bureau
generally discourages such requests, the Bureau believes that, in the
limited circumstances where, for example, a transferee servicer
determines that a clerical correction to a previously submitted
document is required based on its criteria for evaluating loss
mitigation applications, or that resubmission in the transferee
servicer's specified format would speed the evaluation based on the
servicer's systems capabilities, servicers should be able to request
such clerical corrections or resubmissions. The Bureau will continue to
monitor whether these requests raise consumer protection concerns.
Comment 41(k)(3)-1 does not change the general requirements
regarding facially complete applications under Sec. 1024.41(c)(2)(iv),
including the standard for when an application is considered complete
or facially complete. For example, if a transferee servicer acquires
the servicing of a mortgage loan for which a complete loss mitigation
application is pending as of the transfer date, and the transferee
servicer requests that the borrower resubmit the same information in
the transferee servicer's specified format, such a request would not
render the application facially complete, as opposed to complete,
because it is not a request for additional information or corrections
to a previously submitted document (reformatting does not constitute a
correction). Thus, a request for previously submitted information in
the transferee servicer's specified format does not justify an
extension of the 30-day timeframe in Sec. 1024.41(k)(3) for a
transferee servicer's evaluation of a borrower's complete application.
A transferee servicer that does not receive the same previously
submitted information in its specified format still must comply timely
with Sec. 1024.41(k)(3).
The Bureau is not revising the treatment of applications as
facially complete where a transferee servicer determines additional
information or a correction to a previously submitted document is
required, as suggested by one consumer advocate commenter. Comment
41(k)(3)-1 provides that an application is considered facially complete
under Sec. 1024.41(c)(2)(iv) as of the date it was first facially
complete or complete, as applicable, to the transferor servicer. An
application that is facially complete under Sec. 1024.41(c)(2)(iv) is
treated as complete for the purposes of Sec. 1024.41(f)(2) and (g)
until the borrower is given a reasonable opportunity to complete the
application. Accordingly, the current foreclosure protections provided
to borrowers when an application is considered facially complete
address concerns about a transferee servicer taking an action otherwise
prohibited by Sec. 1024.41(f)(2) or (g) in such situations.
The Bureau also declines to adopt one commenter's suggestion to
require the transferor servicer to certify that it has provided the
transferee servicer the entire loan file, or to require that 60 days
pass following the transfer date, before the transferee servicer may
conclude that the entire loan file has been transferred. Section
1024.38(b)(4)(i) requires a transferor servicer to maintain policies
and procedures reasonably designed to ensure the timely transfer of all
information and documents in its possession or control relating to the
transferred mortgage loan in a form and manner that ensures the
accuracy of the documents and information transferred. Comment
38(b)(4)(i)-2 further clarifies that this policies and procedures
requirement imposes an affirmative obligation on the transferor
servicer with respect to the transfer of any information reflecting the
current status of discussions with a borrower regarding loss mitigation
options and any agreements entered into with a borrower on a loss
mitigation option.\277\ Additionally, as discussed above, comment
41(k)(1)(i)-1.i explains that a transferor servicer must timely
transfer, and a transferee servicer must obtain from the transferor
servicer, documents and information submitted by a borrower in
connection with a loss mitigation application, consistent with policies
and procedures adopted pursuant to Sec. 1024.38(b)(4). This comment
clarifies the obligation of transferor servicers to transfer timely,
and transferee servicers to obtain, documents and information submitted
by a borrower in connection with a loss mitigation application.
Accordingly, the Bureau believes that additional requirements
pertaining to a transferee servicer's determination that it has a
complete loan file are not necessary to ensure borrowers are afforded
the rights and protections to which they are entitled under Sec.
1024.41.
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\277\ See 79 FR 63295, 63295-96 (Oct. 23, 2014) (discussing
policies and procedures that may contribute to meeting the
requirements of Sec. 1024.38(b)(4)).
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The Bureau is adopting proposed comment 41(k)(3)(i)-2, renumbered
as comment 41(k)(3)-2, with certain changes for clarity. Under comment
41(k)(3)-2, if the borrower's loss mitigation application was
incomplete based on the transferor servicer's criteria prior to
transfer but is complete based upon the transferee servicer's criteria,
the application is considered a pending loss mitigation application
complete as of the transfer date for purposes of Sec. 1024.41(k)(3),
and the transferee servicer must comply with the applicable
requirements of Sec. 1024.41(c)(1) and (4) within 30 days of the
transfer date. The comment further provides that, for purposes of Sec.
1024.41(c) through (h), the application is complete as of the date the
transferor servicer received the documents and information constituting
the complete application, and includes a cross-reference to comment
41(k)(1)(i)-2. In such circumstances, Sec. 1024.41(c)(3) requires the
transferee servicer to provide a notice of complete application that
discloses the date the transferor servicer received the documents and
information constituting the complete application.
The Bureau did not specifically address in proposed comment
41(k)(3)(i)-2 the requirements of Sec. 1024.41(c) and (d), the
compliance timeframe under Sec. 1024.41(k)(3), or the
[[Page 72286]]
date disclosed on the notice of complete application required under
Sec. 1024.41(c)(3). As discussed in the section-by-section analysis of
Sec. 1024.41(k)(1), the proposal did not specifically address Sec.
1024.41(c) and (d) because a servicer must comply with Sec.
1024.41(c), and as applicable, Sec. 1024.41(d), to satisfy its
requirements under Sec. 1024.41(g). For additional clarity, the Bureau
is finalizing comment 41(k)(3)-2 to specify the applicability of Sec.
1024.41(c) and (d) under Sec. 1024.41(k)(3). The Bureau is also
clarifying in final comment 41(k)(3)-2 that the date disclosed on the
notice of complete application under Sec. 1024.41(c)(3) is distinct
from the date on which the 30-day evaluation timeframe under Sec.
1024.41(k)(3) begins.
The Bureau notes that some consumer advocacy groups requested that
borrowers be provided the right to an evaluation under Sec.
1024.41(c)(1) based on the date the transferor servicer received the
application, even if the application was first complete upon transfer
to the transferee servicer. Final Sec. 1024.41(k)(3) establishes a 30-
day evaluation timeframe from the transfer date for all complete
applications, including those first complete upon transfer to the
transferee servicer. Additionally, comment 41(k)(3)-2 provides that,
where an application is first complete upon transfer, the application
is complete as of the date the transferor servicer received the
documents and information constituting the complete application for
purposes of Sec. 1024.41(c) through (h). Thus, the transferee servicer
must comply with Sec. 1024.41(c) through (h) regarding the complete
application. The transferee servicer must treat those rights and
protections as attaching as of the date the transferor servicer
received the documents and information constituting the complete
application, even if the application was incomplete based on the
transferor servicer's criteria. The transferor servicer's actions
regarding a loss mitigation application that was incomplete based on
the transferor servicer's criteria but complete based on the transferee
servicer's criteria do not affect the transferee servicer's obligations
under Sec. 1024.41(c) through (h). For example, if the transferor
servicer moved for foreclosure judgment or order of sale prior to the
transfer date, but the documents and information constituting a
complete application to the transferee servicer were received by the
transferor servicer more than 37 days before the foreclosure sale, the
transferee servicer is required to comply with Sec. 1024.41(g)
regarding that complete application. As discussed in the section-by-
section analysis of Sec. 1026.41(g), comment 41(g)-5 provides that,
where a foreclosure sale is scheduled and none of the conditions under
Sec. 1024.41(g)(1) through (3) are applicable, conduct of the sale
violates Sec. 1024.41(g).
Finally, the Bureau is not adopting proposed comment 41(k)(3)(iii)-
1, which would have clarified the proposed exception in Sec.
1024.41(k)(3)(iii). As the Bureau is not adopting the proposed
exceptions in Sec. 1024.41(k)(3)(iii), proposed comment 41(k)(3)(iii)-
1 is not necessary.
41(k)(4) Applications Subject to Appeal Process
Proposed Sec. 1024.41(k)(4) would have provided that, if a
borrower timely appeals a transferor servicer's denial of a loan
modification option under Sec. 1024.41(h), a transferee servicer must
evaluate the appeal if it is able to determine whether it should offer
the borrower the loan modification options subject to the appeal. A
transferee servicer that is unable to evaluate an appeal would have
been required to treat the borrower's appeal as a pending complete loss
mitigation application and comply with the requirements of Sec.
1024.41 for such an application. Proposed Sec. 1024.41(k)(4) would
have applied if a borrower made an appeal before the transfer date and
the appeal remained pending as of the transfer date or if the period
for making an appeal under Sec. 1024.41(h) had not expired as of the
transfer date and a borrower subsequently made a timely appeal. The
Bureau is finalizing proposed Sec. 1024.41(k)(4)(i) with revisions.
Final Sec. 1024.41(k)(4)(i) provides that, if a transferee servicer is
required under Sec. 1024.41(k)(4) to make a determination on an
appeal, the transferee servicer must complete its determination and
provide the notice required by Sec. 1024.41(h)(4) within 30 days of
the transfer date or 30 days of the date the borrower made the appeal,
whichever is later.
The Bureau believed that a transfer should not deprive a borrower
of the right to appeal a servicer's denial of a loan modification
option. The terms of loan modification programs are complex, and the
Bureau believed that, as with any complex process, servicers may make
mistakes in evaluating borrowers' complete applications. In addition,
investors or guarantors may transfer servicing to a new servicer
precisely because they believe the new servicer is better able to
evaluate borrowers for loss mitigation options. In that case, both a
borrower and an investor or guarantor might benefit from the new
servicer attempting to determine whether the transferor servicer
mistakenly denied the borrower for a loan modification option.
Therefore, proposed Sec. 1024.41(k)(4) would have provided that,
if a transferee servicer acquires the servicing of a mortgage loan for
which, as of the transfer date, a borrower's appeal under Sec.
1024.41(h) is pending, or a borrower's time period to appeal under
Sec. 1024.41(h) has not expired and the borrower subsequently makes a
timely appeal, the transferee servicer must evaluate the appeal if it
is able to determine whether it should offer the borrower the loan
modification options subject to the appeal. Proposed Sec.
1024.41(k)(4)(i) would have further provided that, if a servicer is
able to evaluate an appeal but it is not practicable under the
circumstances to complete the determination within 30 days of when the
borrower made the appeal, the transferee servicer must complete the
evaluation of the borrower's appeal and provide the notice required by
Sec. 1024.41(h)(4) within a reasonably prompt time. Proposed comment
41(k)(4)-2 would have clarified that, in general, a reasonably prompt
time would be within an additional five days after the expiration of
the original 30-day evaluation window. For the reasons discussed above,
the Bureau explained that in some circumstances a transferee servicer
may need to exceed the 30-day evaluation window to complete the
evaluation of the appeal.
The Bureau also recognized, however, that a transferee servicer may
not always be able to determine whether a transferor servicer
incorrectly denied the borrower for a loan modification option. For
example, the transferee servicer may not have sufficient information
about the evaluation criteria used by the transferor servicer, in
particular when the transferor servicer denied a borrower for a loan
modification option that the transferee servicer does not offer, or
when the transferee servicer receives the mortgage loan file through an
involuntary transfer and the transferor servicer failed to maintain
proper records such that the transferee servicer does not have
sufficient information to evaluate the appeal. The Bureau expected that
such circumstances would be rare, that transferee servicers would
generally be able to evaluate borrowers' appeals, and that borrowers
would not be disadvantaged as a result of transfers. In those limited
circumstances, however, proposed Sec. 1024.41(k)(4)(ii) would have
required the transferee servicer to treat
[[Page 72287]]
the appeal as a pending complete loss mitigation application and
evaluate the borrower for all options available to the borrower from
the transferee servicer. For purposes of Sec. 1024.41(c) or (k)(3), as
applicable, such a pending complete loss mitigation application would
have been considered complete as of the date the appeal was received.
For purposes of Sec. 1024.41(e) through (h), such a pending complete
loss mitigation application would have been considered facially
complete as of the date the application was facially complete with
respect to the transferor servicer.
The Bureau explained in the proposal its belief that, in cases
where the transferee servicer cannot evaluate the appeal, requiring the
transferee servicer to reevaluate the borrower for all loss mitigation
options that may be available to the borrower preserves the benefits of
the appeal process for borrowers. Furthermore, the Bureau believed that
the proposed requirement would not impose substantial burdens on
transferee servicers because a transferee servicer is already required
to comply with the requirements of Sec. 1024.41, regardless of whether
the borrower received an evaluation of a complete loss mitigation
application from the transferor servicer, as explained by comment
41(i)-2.
Proposed comment 41(k)(4)-1 noted that a transferee servicer may be
unable to evaluate an appeal when, for example, the transferor servicer
denied a borrower for a loan modification option that the transferee
servicer does not offer or when the transferee servicer receives the
mortgage loan file through an involuntary transfer and the transferor
servicer failed to maintain proper records such that the transferee
servicer lacks sufficient information to evaluate the appeal. The
proposed comment would have clarified that, if a transferee servicer is
required to treat the appeal as a pending complete application, the
transferee servicer must permit the borrower to accept or reject any
loss mitigation options offered by the transferor servicer, in addition
to the loss mitigation options, if any, that the transferee servicer
determined to offer the borrower based on its own evaluation of the
borrower's complete loss mitigation application.
The Bureau requested comment on the treatment of appeals pending at
transfer, including whether transferee servicers may need additional
time to evaluate pending appeals, the extent to which transferee
servicers are able to evaluate appeals of a transferor servicer's
denial of a loan modification option, and whether a pending appeal
should ever or always be treated as a new loss mitigation application
such that a transferee servicer must evaluate the borrower for all
available loss mitigation options. Additionally, the Bureau was
concerned about the appropriate recourse when, if ever, a transferee
servicer was unable to evaluate a borrower's appeal. The Bureau
believed that treating the appeal as a pending complete application
would provide benefits to borrowers, but the Bureau requested comment
on whether such treatment would be in the borrower's best interests
where, for example, the borrower's application documents may have gone
stale, and whether such treatment is inconsistent with applicable
investor requirements.
The Bureau received several comments in response to proposed Sec.
1024.41(k)(4). Industry commenters generally requested an extension to
the proposed timeframe for transferee servicers to determine appeals.
Some industry commenters stated that the transition period inherent to
transfers could make compliance with proposed Sec. 1024.41(k)(4)
difficult. As with proposed Sec. 1024.41(k)(3)(i), certain industry
commenters also expressed concern about situations where the transfer
date occurs near the end of the 30-day determination period applicable
to the transferor servicer. One industry commenter recommended that the
Bureau revise proposed Sec. 1024.41(k)(4) to provide transferee
servicers 30 days from the transfer date to comply. This commenter
stated that borrowers would continue to have foreclosure protections
while the servicer was making its determination on an appeal.
Several industry commenters also discussed proposed Sec.
1024.41(k)(4) in relation to borrower foreclosure timelines and
protections. One industry commenter suggested that the timeframe for
transferee servicer compliance in proposed Sec. 1024.41(k)(4) should
be extended and that transferee servicers could be required to postpone
any pending foreclosure sales to maintain the structure of the current
loss mitigation timelines. Another industry commenter expressed concern
with the current borrower timelines for submitting an appeal and
accepting a loss mitigation offer because of the potential for borrower
confusion where there is a servicing transfer. This commenter suggested
that borrowers be provided 30 days from the transfer date to make an
appeal. This commenter further stated that, if the transferee servicer
is able to determine an appeal, but not within 30 days of the date the
borrower made the appeal to the transferor servicer, the transferor
servicer should make sure that the borrower receives foreclosure
protections during this extended timeframe.
The Bureau solicited comment as to whether a pending appeal should
ever or always be treated as a pending loss mitigation application. One
industry commenter stated that, if the transferee servicer can
determine the appeal, it should be treated as an appeal to avoid any
further delay. One industry commenter stated, however, that because
each servicer may have different loss mitigation review criteria, it
would be difficult for a transferee servicer to evaluate an appeal
based on the transferor servicer's criteria. This commenter suggested
that the appeal be treated as a complete loss mitigation application.
One consumer advocacy group stated that, because of the time it takes
for transferee servicers to obtain loan documents from the transferor
servicer, it could be difficult for a transferee servicer to evaluate
an appeal timely. The commenter suggested that, if the transferee
servicer is unable to evaluate an appeal timely, the appeal should be
treated as a complete loss mitigation application. Another consumer
advocacy group expressed support for the Bureau's proposal to permit
transferee servicers to treat a borrower's pending appeal as a complete
loss mitigation application when they are unable to evaluate an appeal.
The Bureau is finalizing proposed Sec. 1024.41(k)(4) with
revisions. Final Sec. 1024.41(k)(4)(i) provides that, if a transferee
servicer is required under Sec. 1024.41(k)(4) to make a determination
on an appeal, the transferee servicer must complete the determination
and provide the notice required by Sec. 1024.41(h)(4) within 30 days
of the transfer date or 30 days of the date the borrower made the
appeal, whichever is later. Based on this finalized timeframe, the
Bureau believes the exception for situations where compliance would
have been impracticable in proposed Sec. 1024.41(k)(4)(i) is no longer
necessary. The Bureau is therefore not adopting this proposed
exception. The Bureau is adding new comment 41(k)(4)-1 to explain that
a borrower may submit an appeal of a transferor servicer's
determination pursuant to Sec. 1024.41(h) to the transferor servicer
after the transfer date and to clarify transferor and transferee
servicer obligations in such situations. The Bureau is renumbering
proposed comment 41(k)(4)-1 as 41(k)(4)-2 and making certain revisions
for clarity. The Bureau is not adopting proposed comment 41(k)(4)-2.
[[Page 72288]]
To improve consistency between Sec. 1024.41(h)(4) and (k)(4), the
final rule uses the term ``determination,'' rather than ``evaluation,''
when discussing appeals. Section 1024.41(h)(4) sets forth the
requirements for a servicer's determination of an appeal, while Sec.
1024.41(c)(1) sets forth the requirements for a servicer's evaluation
of a complete loss mitigation application. The final rule implements
this change and includes conforming changes throughout Sec.
1024.41(k)(4).
The Bureau is finalizing Sec. 1024.41(k)(4) with certain changes
to improve clarity. Section 1024.41(k)(4) provides that, if a
transferee servicer acquires the servicing of a mortgage loan for which
an appeal of a transferor servicer's determination pursuant to Sec.
1024.41(h) has not been resolved by the transferor servicer as of the
transfer date or is timely filed after the transfer date, the
transferee servicer must make a determination on the appeal if it is
able to do so or, if it is unable to do so, must treat the appeal as a
pending complete loss mitigation application. Section 1024.41(k)(4)
does not prohibit the transferee servicer from evaluating the borrower
for any loss mitigation options it offers in addition to determining
the appeal, when it is able to determine the appeal. The Bureau
believes that if the transferee servicer offers additional loss
mitigation options to those offered by the transferor servicer and
subject to the appeal, the transferee servicer could, in addition to
determining the appeal, also evaluate for any loss mitigation options
it offers. Proposed Sec. 1024.41(k)(4) would have required a
transferee servicer to evaluate the appeal if it were able to determine
whether to offer the borrower the loan modification options subject to
the appeal. Proposed Sec. 1024.41(k)(4)(ii) would have required a
transferee servicer that is unable to evaluate an appeal to treat the
appeal as a pending complete loss mitigation application and comply
with the requirements of Sec. 1024.41 for such application. The final
rule explains both of these requirements in Sec. 1024.41(k)(4), rather
than explaining them separately in Sec. 1024.41(k)(4) and (k)(4)(ii),
as proposed.
The Bureau believes that proposed Sec. 1024.41(k)(4)(i) may have
posed compliance difficulties for transferee servicers by requiring a
determination on an appeal within 30 days of the date the borrower made
the appeal. The Bureau is finalizing changes to Sec. 1024.41(k)(4)(i)
to explain that, if a transferee servicer is required under Sec.
1024.41(k)(4) to make a determination on an appeal, the transferee
servicer must complete the determination and provide the notice
required by Sec. 1024.41(h)(4) within 30 days of the transfer date or
30 days of the date the borrower made the appeal, whichever is later.
The Bureau notes that, as discussed in the section-by-section
analysis of Sec. 1024.41(k)(3), the existence and the extent of a
borrower's rights and protections under Sec. 1024.41(c) through (h)
are established based on the date the transferor servicer receives a
complete application. Extending the time for a transferee servicer to
make a determination on an appeal will not affect the date these
protections begin. Further, neither the transferor nor the transferee
servicer may take an action prohibited by Sec. 1024.41(f)(2) or (g)
until it has made a determination on the borrower's appeal. However,
the Bureau recognizes that a borrower's delinquency continues during
the time when a transferee servicer is determining an appeal, and that
the changes in final Sec. 1024.41(k)(4)(i) may extend the duration of
the borrower's delinquency by an additional 30 days. In general, the
longer the borrower must wait for a determination, the more the
borrower's outstanding delinquency increases. Nonetheless, the Bureau
believes that final Sec. 1024.41(k)(4)(i) strikes an appropriate
balance to limit borrower harm caused by delayed determinations while
accounting for difficulties faced by transferee servicers in
determining appeals of a transferor servicer's determination of a loss
mitigation application and facilitating transferee servicer compliance.
As with final Sec. 1024.41(k)(2)(i) and (k)(3), Sec.
1024.41(k)(4)(i) establishes a bright-line standard for transferee
servicer compliance with the requirement to determine and provide
notice on an appeal pursuant to Sec. 1024.41(h). The Bureau believes
borrowers and servicers can track compliance based on the transfer
date, as this date is disclosed on the notice of transfer of loan
servicing provided to borrowers pursuant to Sec. 1024.33(b)(4)(iv).
Final Sec. 1024.41(k)(4)(i) generally provides transferee
servicers a greater amount of time to comply than under the proposal.
Proposed Sec. 1024.41(k)(4)(i) would have generally required
transferee servicers to provide the notice required by Sec.
1024.41(h)(4) within 30 days of the date the borrower made the appeal.
The final rule establishes a longer timeframe for compliance, in most
cases, by providing transferee servicers up to 30 days from the
transfer date to comply with Sec. 1024.41(h)(4). Further, in
situations where the transferee servicer must treat an appeal as a
pending complete loss mitigation application, a 30-day timeframe from
the transfer date is consistent with the timeframe set forth in final
Sec. 1024.41(k)(3) for the evaluation of complete loss mitigation
applications.
In light of the expansion in timelines beyond the proposed rule,
the Bureau believes that all transferee servicers should be able to
comply with Sec. 1024.41(k)(4)(i) without reliance on the proposed
exception for situations where compliance would be impracticable.
Accordingly, final Sec. 1024.41(k)(4)(i) does not include the proposed
exception where compliance within 30 days of when the borrower made the
appeal would have been impracticable.
The Bureau recognizes that, when transferee servicers acquire the
servicing of a mortgage loan for which a borrower's appeal is pending
as of the transfer date, the transition period associated with
transfers of several days following transfer in which the transferee
servicer may not have access to the loan-level information may
effectively shorten the actual time that transferee servicers will have
following transfer to determine the appeal and provide the notice
required by Sec. 1024.41(h)(4). Although this transition period may
result in a transferee servicer having fewer days to comply with Sec.
1024.41(h)(4) than would a servicer in the absence of a transfer, final
Sec. 1024.41(k)(4)(i) balances transferee servicer interests in having
sufficient time to comply with borrower interests in a quick
determination on an appeal. As explained above, even with this
transition period, Sec. 1024.41(k)(4)(i) should generally provide
transferee servicers more time to determine a borrower's appeal than
the proposal would have provided by permitting compliance within 30
days of the transfer date or 30 days of the date the borrower made the
appeal, whichever is later. Moreover, one industry commenter
recommended the adoption of a 30-day timeframe for compliance, measured
from the transfer date. Accordingly, even accounting for the transition
period inherent to transfers, the Bureau believes that final Sec.
1024.41(k)(4)(i) provides transferee servicers appropriate time to
complete a determination and provide the notice required by Sec.
1024.41(h)(4) with respect to a borrower's appeal.
Final Sec. 1024.41(k)(4)(i) also permits transferee servicers to
comply within 30 days of the date the borrower made the appeal, as
proposed. As noted above, the Bureau believes that providing transferee
servicers 30 days from the
[[Page 72289]]
transfer date to comply will generally establish a longer timeframe for
compliance than would have been provided under the proposal. However,
the Bureau is cognizant that, in the context of appeals, unique
circumstances may arise where it would be beneficial for transferee
servicers and borrowers to base the timeframe for transferee servicer
compliance on the date the borrower made the appeal. Specifically, some
borrowers might make an appeal to the transferor servicer after the
transfer date but before the borrower's time to appeal pursuant to
Sec. 1024.41(h)(2) has expired. In such situations, a transferee
servicer would have more time to make a proper determination on the
appeal if the timeframe for compliance were based on the date the
borrower made the appeal, rather than on the transfer date, without
compromising reasonable borrower expectations. Accordingly, the Bureau
is finalizing Sec. 1024.41(k)(4)(i) to provide greater flexibility and
ensure transferee servicers have sufficient time to determine appeals
even where a borrower timely makes an appeal to the transferor servicer
after the transfer date. Moreover, the Bureau believes that the bright-
line standard in Sec. 1024.41(k)(4)(i) will facilitate compliance.
The Bureau is finalizing Sec. 1024.41(k)(4)(ii) to provide that a
transferee servicer that is required to treat a borrower's appeal as a
pending complete loss mitigation application under Sec. 1024.41(k)(4)
must comply with the requirements of Sec. 1024.41 for such
application, including evaluating the borrower for all loss mitigation
options available to the borrower from the transferee servicer. Section
1024.41(k)(4)(ii) further explains that, for purposes of Sec.
1024.41(c) or (k)(3), as applicable, such a pending complete loss
mitigation application shall be considered complete as of the date the
appeal was received by the transferor servicer or the transferee
servicer, whichever occurs first. Finally, Sec. 1024.41(k)(4)(ii)
provides that, for purposes of Sec. 1024.41(e) through (h), the
transferee servicer must treat such a pending complete loss mitigation
application as facially complete under Sec. 1024.41(c)(2)(iv) as of
the date it was first facially complete or complete, as applicable,
with respect to the transferor servicer.
Final Sec. 1024.41(k)(4)(ii) includes several changes from the
proposal. Section 1024.41(k)(4)(ii) explains that a transferee servicer
that is required to treat a borrower's appeal as a pending complete
loss mitigation application under Sec. 1024.41(k)(4) must comply with
the requirements of Sec. 1024.41 for such application, including
evaluating the borrower for all loss mitigation options available to
the borrower from the transferee servicer. Final Sec.
1024.41(k)(4)(ii) reflects the changes finalized in Sec. 1024.41(k)(4)
and links the appeals covered by Sec. 1024.41(k)(4)(ii) to the
category of appeals treated as complete loss mitigation applications in
Sec. 1024.41(k)(4).
Additionally, final Sec. 1024.41(k)(4)(ii) explains that, for
purposes of Sec. 1024.41(c) or (k)(3), as applicable, such a pending
complete loss mitigation application shall be considered complete as of
the date the appeal was received by the transferor servicer or the
transferee servicer, whichever occurs first. The proposal would have
explained that the application shall be considered complete as of the
date the appeal was received, but without specific reference to the
date it was first received either by the transferor or transferee
servicer. As explained above, the Bureau recognizes that there may be
situations where a borrower timely submits an appeal to a transferor
servicer after the transfer date. Under these circumstances, the date
the appeal was received by the transferor servicer would be different
from the date the appeal was received by the transferee servicer.
Accordingly, the Bureau is including additional clarifying language in
in final Sec. 1024.41(k)(4)(ii) to account for this situation.
Finally, the Bureau is finalizing Sec. 1024.41(k)(4)(ii) to
explain that, for purposes of Sec. 1024.41(e) through (h), the
transferee servicer must treat such a pending complete loss mitigation
application as facially complete under Sec. 1024.41(c)(2)(iv) as of
the date it was first facially complete or complete, as applicable,
with respect to the transferor servicer. The reference to Sec.
1024.41(c)(2)(iv) in the final rule provides further clarity with
regard to the treatment of facially complete loss mitigation
applications. Additionally, the final rule clarifies the transferee
servicer's obligations with respect to applications considered facially
complete or complete, as applicable, with respect to the transferor
servicer. The proposal would have addressed a transferee servicer's
obligations only with respect to applications considered facially
complete by the transferor servicer.
The Bureau declines to revise the circumstances under which a
transferee servicer must treat an appeal as a pending complete loss
mitigation application, as suggested by some commenters. The timeframe
for compliance set forth in final Sec. 1024.41(k)(4)(i), explained
above, addresses commenter concerns over transferee servicers' ability
to comply with the rule. The Bureau continues to believe that, where
the transferee servicer cannot evaluate the appeal, requiring the
transferee servicer to treat the appeal as a pending complete loss
mitigation application and reevaluate the borrower for all loss
mitigation options that may be available to the borrower preserves the
benefits of the appeal process for borrowers, including an opportunity
to receive loss mitigation when the transferor servicer has erred in
its evaluation.
The Bureau is renumbering proposed comment 41(k)(4)-1 as 41(k)(4)-
2, as discussed more below. The Bureau is adopting a new comment
41(k)(4)-1 to clarify transferor and transferee servicer obligations
when a borrower submits an appeal of a transferor servicer's
determination to the transferor servicer after the transfer date.
Comment 41(k)(4)-1 provides that a borrower may submit an appeal of a
transferor servicer's determination pursuant to Sec. 1024.41(h) to the
transferor servicer after the transfer date. It further explains that
consistent with policies and procedures maintained pursuant to Sec.
1024.38(b)(4), the transferor servicer must timely transfer, and the
transferee servicer must obtain, documents and information regarding
such appeals. By explaining the obligations of transferor and
transferee servicers in such situations, comment 41(k)(4)-1 should
better enable transferee servicers to comply with the requirements set
forth in Sec. 1024.41(k)(4)(i). Comment 41(k)(4)-1 parallels new
comment 41(k)(1)(i)-1.iii, which explains that borrowers may provide
documents and information necessary to complete an application to the
transferor servicer after the transfer date and clarifies the
obligations of transferor and transferee servicers when this occurs.
The Bureau declines to provide borrowers additional time beyond the
timeframe in Sec. 1024.41(h)(2) to make an appeal after the transfer
date, as suggested by one commenter. The transfer itself will not
shorten the timeframe for borrowers to submit an appeal. Pursuant to
comment 41(k)(4)-1, borrowers may submit appeals to either the
transferor or transferee servicer without jeopardizing their right to
timely appeals. A borrower who timely submits an appeal to the
transferor servicer following the transfer date will have the right to
a determination under Sec. 1024.41(h)(4), and no further extensions to
borrower timeframes are necessary.
The Bureau is finalizing comment 41(k)(4)-1 substantially as
proposed, but
[[Page 72290]]
renumbered as comment 41(k)(4)-2 and with revisions for clarity.
Comment 41(k)(4)-2 provides guidance on situations where a transferee
servicer is unable to determine an appeal. Comment 41(k)(4)-2 explains
that a transferee servicer may be unable to make a determination on an
appeal when, for example, the transferor servicer denied a borrower for
a loan modification option that the transferee servicer does not offer
or when the transferee servicer receives the mortgage loan through an
involuntary transfer and the transferor servicer failed to maintain
proper records such that the transferee servicer lacks sufficient
information to review the appeal. Comment 41(k)(4)-2 provides that, in
that circumstance, the transferee servicer is required to treat the
appeal as a pending complete application.
Comment 41(k)(4)-2 further provides that the transferee servicer
must permit the borrower to accept or reject any loss mitigation
options offered by the transferor servicer, even if it does not offer
the loss mitigation options offered by the transferor servicer, in
addition to the loss mitigation options, if any, that the transferee
servicer determines to offer the borrower based on its own evaluation
of the borrower's complete loss mitigation application. Comment
41(k)(4)-2 sets forth an example where a transferor servicer denied a
borrower for all loan modification options but offered the borrower a
short sale option, and the borrower's appeal of the loan modification
denial was pending as of the transfer date. Comment 41(k)(4)-2 explains
that, if the transferee servicer is unable to determine the borrower's
appeal, the transferee servicer must evaluate the borrower for all
available loss mitigation options in accordance with Sec. 1024.41(c)
and (k)(3). It further explains that, at the conclusion of such
evaluation, the transferee servicer must permit the borrower to accept
the short sale option offered by the transferor servicer, even if the
transferee servicer does not offer the short sale option, in addition
to any loss mitigation options the transferee servicer determines to
offer the borrower based upon its own evaluation.
As proposed, the comment did not specifically explain a transferee
servicer's obligations when the transferor servicer offers the borrower
a loss mitigation option that the transferee servicer does not offer.
The final comment clarifies that the transferee servicer's obligation
to permit the borrower to accept or reject any loss mitigation options
offered by the transferor servicer applies irrespective of whether the
transferee servicer offers the particular loss mitigation option. The
Bureau understands that the investor generally determines the loss
mitigation options that may be available to a borrower. It further
understands that a transferee servicer may not offer the same loss
mitigation options as the transferor servicer when, for example, a
transfer involves a change in the investor of the loan along with the
transfer of servicing rights. The Bureau believes, however, that the
transferee servicer, under both State contract law and investor
requirements, should be able to execute any loss mitigation option
offered by the transferor servicer, even if the transferee servicer
does not offer the particular option. Comment 41(k)(4)-2 ensures that a
transfer does not deprive a borrower of any loss mitigation options
that were offered by the transferor servicer, and it is consistent with
the treatment of pending loss mitigation offers in Sec. 1024.41(k)(5).
Finally, the Bureau is not adopting proposed comment 41(k)(4)-2.
Because of the changes incorporated in final Sec. 1024.41(k)(4)(i),
proposed comment 41(k)(4)-2 is not necessary.
41(k)(5) Pending Loss Mitigation Offers
Proposed Sec. 1024.41(k)(5) would have provided that a transfer
does not affect the borrower's ability to accept or reject a loss
mitigation option offered under Sec. 1024.41(c) or (h). Specifically,
the proposal would have required that, if a transferor servicer offered
the borrower a loss mitigation option prior to the transfer and the
borrower's time to accept or reject the offer had not expired as of the
transfer date, a transferee servicer must allow the borrower to accept
or reject the offer. The Bureau is adopting Sec. 1024.41(k)(5)
substantially as proposed.
Proposed comment 41(k)(5)-1 would have clarified that some
borrowers will provide their acceptances to the transferor servicer and
that, pursuant to the policies and procedures maintained under Sec.
1024.38(b)(4), a transferee servicer must obtain those acceptances from
the transferor servicer. For example, a borrower may be able to accept
a trial modification agreement by timely making an initial payment of
the modified amount to the transferor servicer instead of to the
transferee servicer. RESPA section 6(d) provides that, during the 60-
day period beginning on the effective date of the transfer of
servicing, a payment received by the transferor servicer (rather than
the transferee servicer) before the due date applicable to such payment
may not be treated as late for purposes of imposing a late fee on the
borrower or for any other purposes.\278\ Similarly, the proposed
comment explained that the transferee servicer must honor an acceptance
that the borrower timely sent to the transferor servicer.
---------------------------------------------------------------------------
\278\ 12 U.S.C. 2605(d)).
---------------------------------------------------------------------------
The Bureau received few comments on proposed Sec. 1024.41(k)(5).
One industry commenter stated that most servicers currently operate
under the principles set forth in proposed Sec. 1024.41(k)(5). Another
industry commenter recommended that the borrower be provided an
additional 14 days from the transfer date to accept any offers that had
not expired. One consumer advocate commenter stated that transferee
servicers should allow borrowers additional time to accept or reject a
loss mitigation offer from the transferor servicer.
The Bureau is adopting Sec. 1024.41(k)(5) and comment 41(k)(5)-1
substantially as proposed. Final Sec. 1024.41(k)(5) provides that a
transfer does not affect a borrower's ability to accept or reject a
loss mitigation option offered under Sec. 1024.41(c) or (h). It
further states that, if a transferee servicer acquires the servicing of
a mortgage loan for which the borrower's time period under Sec.
1024.41(e) or (h) for accepting or rejecting a loss mitigation option
offered by the transferor servicer has not expired as of the transfer
date, the transferee servicer must allow the borrower to accept or
reject the offer during the unexpired balance of the applicable time
period. The Bureau declines to extend borrower timeframes for accepting
or rejecting a loss mitigation option, as suggested by some commenters.
The timeframe for borrowers to accept or reject a loss mitigation
option under Sec. 1024.41(e) or (h), as applicable, is determined as
of the date the servicer provides the notice of the loss mitigation
option. Although a transfer may extend the timeline for transferee
servicers to provide notice of a loss mitigation option offered under
Sec. 1024.41(c) or (h), it does not affect the borrower's timeframe to
accept or reject a loss mitigation offer that is already pending as of
the transfer date. Accordingly, a timeframe extension for borrowers to
accept or reject a loss mitigation option is not necessary. Moreover,
because the Bureau is providing that the borrower's acceptance is
effective whether sent to the transferee or transferor servicer, the
borrower does not need additional time to determine the correct
address, learn of the transfer, or allow time for the forwarding of the
acceptance from the transferor servicer to the transferee servicer.
[[Page 72291]]
The Bureau is finalizing comment 41(k)(5)-1 with certain changes
for clarity and consistency with Sec. 1024.41(k). Comment 41(k)(5)-1
explains that a borrower may provide an acceptance or rejection of a
pending loss mitigation offer to the transferor servicer after the
transfer date. It further explains that, consistent with policies and
procedures maintained pursuant to Sec. 1024.38(b)(4), the transferor
servicer must timely transfer, and the transferee servicer must obtain,
documents and information regarding such acceptances and rejections,
and the transferee servicer must provide the borrower with any timely
accepted loss mitigation option, even if the borrower submitted the
acceptance to the transferor servicer.
Final comment 41(k)(5)-1 differs from the proposal, which would
have addressed only a borrower's acceptance, but not a rejection, of a
pending loss mitigation offer to the transferor servicer after the
transfer date. Final comment 41(k)(5)-1 also omits superfluous language
regarding the transferee servicer's expectation of where a borrower may
provide such acceptance. Additionally, final comment 41(k)(5)-1
specifically explains that transferor servicers must timely transfer
documents and information regarding such acceptances and rejections.
The proposal did not impose specific requirements on transferor
servicers in Sec. 1024.41(k). As explained in the section-by-section
analysis of Sec. 1024.41(k)(1), however, the Bureau is clarifying the
specific requirements of transferor servicers to improve the
seamlessness of transfers and to facilitate transferee servicer
compliance with the final rule. Additionally, final comment 41(k)(5)-1
clarifies that the transferee servicer must provide the borrower with
any timely accepted loss mitigation option, even if the borrower
submitted the acceptance to the transferor servicer. Final comment
41(k)(5)-1 thus makes clear that a borrower's acceptance may be timely,
even if submitted to the transferor servicer.
Appendix MS to Part 1024--Mortgage Servicing
Currently, the model forms that a servicer may use to comply with
the disclosure requirements of Sec. Sec. 1024.33, 1024.37, and 1024.39
are provided in an appendix with the heading ``Appendix MS--Mortgage
Servicing.'' The Bureau did not propose to change this heading but is
revising it in this final rule to ``Appendix MS to Part 1024--Mortgage
Servicing'' to conform to the other appendix headings in Regulation X.
Comment appendix MS to part 1024-2 explains that servicers may make
certain changes to the format or content of the forms and clauses
without losing protection from liability so long as those changes do
not affect the substance, clarity, or meaningful sequence of the forms
and clauses. The comment also provides examples of changes that the
Bureau considers acceptable changes. For the reasons stated in part
V.A. and in this discussion, the Bureau is amending comment appendix MS
to part 1024-2 to allow servicers to make adjustments to these model
forms to reflect the circumstances of confirmed successors in interest
without losing the benefit of the protection from liability that use of
the model forms affords.
The model forms in appendix MS include language that, if sent to a
confirmed successor in interest, could suggest that the successor in
interest is liable on the mortgage loan obligation. For example, the
Notice of Servicing Transfer model form provided in appendix MS-2
refers to ``your mortgage loan'' and states: ``This means that after
this date, a new servicer will be collecting your mortgage loan
payments from you'' and ``Send all payments due on or after [Date] to
[Name of new servicer] at this address: [New servicer address].'' Some
of the model forms for force-placed insurance notices in appendix MS-3
state: ``You must pay us for any period during which the insurance we
buy is in effect but you do not have insurance.'' The model clauses for
the written early intervention notice in appendix MS-4 include:
``Refinance your loan with us or another lender''; ``Modify your loan
terms with us''; ``Payment forbearance temporarily gives you more time
to pay your monthly payment''; and ``As an alternative to foreclosure,
you may be able to sell your home and use the proceeds to pay off your
current loan.''
The final rule amends comment appendix MS to part 1024-2 to
indicate that, except as otherwise specifically required, acceptable
changes to the format or content of the forms and clauses include
modifications to remove language that could suggest liability under the
mortgage loan agreement if such language is not applicable. The revised
comment notes, for example, that, in the case of a confirmed successor
in interest who has not assumed the mortgage loan obligation under
State law and is not otherwise liable on the obligation, the
modifications could include: Use of ``the mortgage loan'' or ``this
mortgage loan'' instead of ``your mortgage loan'' and ``the monthly
payments'' instead of ``your monthly payments''; use of ``Payments due
on or after [Date] may be sent to'' instead of ``Send all payments due
on or after [Date] to'' in notices of servicing transfer; and use of
``We will charge the loan account'' instead of ``You must pay us'' in
notices relating to force-placed insurance. As explained in part V.A.,
the adjustments authorized by these changes represent one of several
options that servicers may use to ensure that their notices and other
communications do not confuse or deceive successors in interest who
have not assumed the mortgage loan obligation and are not otherwise
liable on it regarding whether they are liable on the mortgage loan
obligation.
Appendix MS-3 to Part 1024--Model Force-Placed Insurance Notice Forms
The Bureau proposed three sets of changes to the model forms for
force-placed insurance notices, located at appendix MS-3(A) through
(D). First, the Bureau proposed to amend MS-3(A) and (B) to align the
model forms to the proposed amendments to Sec. 1024.37(c)(2)(v). As
discussed in the section-by-section analysis of Sec. 1024.37(c)(2)(v),
the Bureau proposed to amend that provision to require the force-placed
insurance notice to state, as applicable, that the borrower's hazard
insurance provides insufficient coverage and that the servicer does not
have evidence that the borrower has hazard insurance that provides
sufficient coverage. The Bureau therefore proposed to make a
corresponding change to the language in model forms MS-3(A) and (B) so
that the forms include the statement ``your [hazard] [Insurance Type]
insurance [is expiring] [expired] [provides insufficient coverage], and
we do not have evidence that you have obtained new coverage.''
Second, the Bureau proposed a technical change to align the model
forms with the requirements of Sec. 1024.37(c)(2)(ix)(A) and
(e)(2)(viii)(A). Those provisions require the force-placed insurance
initial, reminder, and renewal notices to include a statement that the
insurance the servicer has purchased or purchases ``may cost
significantly more than hazard insurance purchased by the borrower.''
Current model forms MS-3(A) through (D) omit the word
``significantly.'' The Bureau proposed to amend model forms MS-3(A)
through (D) to add the word significantly, such that each model form
would track the language of Sec. 1024.37(c)(2)(ix)(A) and
(e)(2)(viii)(A).
Third, the Bureau proposed a technical change to MS-3(D) to align
the model form with the requirements of Sec. 1024.37(e)(3), which
requires servicers
[[Page 72292]]
to provide certain information on the form in bold text.
The Bureau received one comment that recommended revisions to Model
Notice MS-3(A) through (C) so that the model forms included bold text
consistent with the requirements under Sec. 1024.37.
The Bureau is finalizing the technical corrections to the model
forms for force-placed insurance notices located at appendix MS-3(A)
through (D) as proposed. Additionally, the Bureau is making certain
technical corrections to model forms MS-3(A) through (C) that were not
proposed. The Bureau recognizes, as stated by one commenter, that the
model forms MS-3(A) through (C) do not align with the requirements in
Sec. 1024.37 that servicers provide certain information on the force-
placed insurance notices in bold text. Accordingly, the Bureau is
revising MS-3(A) through (C) to align the model forms with the
applicable requirements of Sec. 1024.37 that require certain
information on the notices to be set in bold text. The Bureau is also
making a technical correction to the heading for appendix MS.
Legal Authority
The Bureau is exercising its authority under section 6(k)(1)(E) of
RESPA to amend the model forms in appendix MS-3(A) through (D) to part
1024 of Regulation X. The amendments to the model forms for the force-
placed insurance notices align the text of the model forms with the
disclosures required by Sec. 1024.37.
Appendix MS-4 to Part 1024--Model Clauses for the Written Early
Intervention Notice
Proposed model clause MS-4(D) in appendix MS-4 would have
illustrated model language that servicers could use to comply with the
requirement under proposed Sec. 1024.39(d)(2)(iii)(A) that the
modified written early intervention notice include a statement that the
servicer may or intends to invoke its specified remedy of foreclosure.
The Bureau proposed model clause MS-4(D) to assist servicers subject to
the FDCPA with respect to a borrower who has invoked the FDCPA's cease
communication protections in complying with the modified written early
intervention notice under proposed Sec. 1024.39(d)(2)(iii).
The Bureau sought comment on whether proposed model clause MS-4(D)
was appropriate and whether alternate or additional model clauses would
be helpful to borrowers and servicers in this context. Some industry
commenters objected to the proposed model language on the basis that it
may be considered threatening to a borrower and inconsistent with
encouraging borrowers to reach out to the servicer. One servicer
commented that the implied threat of foreclosure would be inaccurate in
many cases because that servicer ultimately pursues foreclosure on just
15 percent of the borrowers who receive a written early intervention
notice.
The Bureau is finalizing model clause MS-4(D) with modifications to
the language to convey more accurately the circumstances under which a
servicer may invoke its specific remedy of foreclosure. As discussed in
the section-by-section analysis of new Sec. 1024.39(d), model clause
MS-4(D) may be used to comply with the requirement that the written
early intervention notice include a statement that the servicer may or
intends to invoke its specified remedy of foreclosure pursuant to
section 805(c)(2) or (3) of the FDCPA. Use of this model clause or
another statement in compliance with Sec. 1024.39(d)(3)(i), located on
a written notice as required by and in compliance with the other
requirements of Sec. 1024.39(d)(3), provides a safe harbor from FDCPA
liability under section 805(c) for providing the required statement. As
finalized, model clause MS-4(D) states, ``This is a legally required
notice. We are sending this notice to you because you are behind on
your mortgage payment. We want to notify you of possible ways to avoid
losing your home. We have a right to invoke foreclosure based on the
terms of your mortgage contact. Please read this letter carefully.''
Legal Authority
The Bureau adopts new model clause MS-4(D) in appendix MS-4 to part
1024 of Regulation X pursuant to its authority under section 6(k)(1)(E)
of RESPA and section 814(d) of the FDCPA. For the reasons discussed in
the section-by-section analysis of new Sec. 1024.39(d) and the
interpretive rule accompanying this final rule, the Bureau believes
that requiring a servicer to provide the modified written early
intervention notice if any loss mitigation option is available and if
no borrower on the mortgage loan is a debtor in bankruptcy is a
reasonable interpretation of the exceptions under section 805(c)(2) and
(3) of the FDCPA, which permit a debt collector to communicate with a
consumer who has invoked the cease communication protections to notify
the consumer that the debt collector or creditor may or intends to
invoke specified remedies which it ordinarily invokes.
C. Regulation Z
Section 1026.2 Definitions and Rules of Construction
2(a)(11)
As noted in part V.A., the Bureau proposed to apply certain
mortgage servicing rules to confirmed successors in interest. Similar
to the definition in proposed Sec. 1024.30(d) with respect to the
Mortgage Servicing Rules in Regulation X,\279\ proposed Sec.
1026.2(a)(11) would have revised the definition of the term consumer to
include a successor in interest once a servicer confirms the successor
in interest's identity and ownership interest in the dwelling for the
purposes of Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41.
For the reasons described in part V.A. and in this discussion, the
Bureau is finalizing this proposed definition with a substantive change
to add the mortgage transfer disclosure requirements of Sec. 1026.39
and technical changes to incorporate the new definition of confirmed
successor in interest. The final rule thus amends the definition of
consumer for purposes of Sec. Sec. 1026.20(c) through (e), 1026.36(c),
1026.39, and 1026.41 to include a confirmed successor in interest. As
in the proposal, confirmed successors in interest covered by Sec.
1026.2(a)(11) will not necessarily have assumed the mortgage loan
obligation (i.e., legal liability for the mortgage debt) under State
law or otherwise be liable on it.\280\
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\279\ See section-by-section analysis of Sec. 1024.30(d),
supra.
\280\ As indicated in part V.A., supra, the Bureau understands
that whether a successor in interest has assumed a mortgage loan
obligation (i.e., legal liability for the mortgage debt) under State
law is a fact-specific question.
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As described in part V.A., successors in interest face many of the
challenges that the Mortgage Servicing Rules in Regulation Z were
designed to prevent. Because a confirmed successor in interest is a
homeowner whose dwelling is subject to foreclosure if the mortgage loan
obligation is not satisfied, the same reasons supporting the Bureau's
adoption of the 2013 TILA Servicing Final Rule support the changes that
the Bureau is making to Sec. 1026.2(a)(11).
The Bureau has considered each of the Mortgage Servicing Rules in
Regulation Z and has concluded that each rule should apply to confirmed
successors in interest. The Bureau generally believes that it would add
unnecessary complexity to the rules to require servicers to apply some
but not all of the Mortgage Servicing Rules in Regulation Z to
confirmed successors in interest. After reviewing the comments, the
Bureau has not identified any
[[Page 72293]]
compelling reasons not to apply a particular rule and therefore
concludes that it is preferable to apply all of the Mortgage Servicing
Rules in Regulation Z to confirmed successors in interest.\281\
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\281\ As explained in part V.A., supra, and in the section-by-
section analyses of Sec. Sec. 1026.20(f), 1026.39(f), and
1026.41(g), infra, the final rule includes additional provisions
governing how the Mortgage Servicing Rules in Regulation Z apply to
confirmed successors in interest.
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The new definition of consumer in Sec. 1026.2(a)(11) entitles
confirmed successors in interest to receive ARM disclosures under Sec.
1026.20(c) and (d) and escrow account cancellation notices under Sec.
1026.20(e).\282\ The disclosures required by Sec. 1026.20(c) through
(e) will provide confirmed successors in interest with important
information to allow the confirmed successor in interest to keep the
mortgage loan current, which in turn will help the confirmed successor
in interest avoid unnecessary foreclosure.
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\282\ Section 1026.20(c) and (d) generally applies with respect
to a closed-end consumer credit transaction secured by the
consumer's principal dwelling in which the annual percentage rate
may increase after consummation, and Sec. 1026.20(e) generally
applies with respect to a closed-end consumer credit transaction
secured by a first lien on real property or a dwelling.
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The Bureau anticipates that Sec. 1026.36(c)'s protections will
help confirmed successors in interest maintain ownership of their
homes.\283\ As noted in the section-by-section analysis of Sec.
1026.36(c)(1)(iii), even in the absence of the final rule, existing
Sec. 1026.36(c) imposes certain obligations on servicers with respect
to payments from successors in interest. However, consumer advocacy
groups reported in their comments, as they had in earlier reports, that
some servicers are refusing to accept payments from successors in
interest, which in turn may lead to delinquency on the mortgage loan
and, eventually, foreclosure. Applying Sec. 1026.36(c)'s prompt
crediting requirements explicitly to confirmed successors in interest
may help alleviate this problem. The Bureau also believes that
providing confirmed successors in interest with access to the loan's
payoff balance will help keep them informed about the mortgage loan
secured by the dwelling and prevent unnecessary foreclosure.\284\
Access to this information could also facilitate refinancing by the
confirmed successor in interest. Because successors in interest, as
owners of a dwelling securing a mortgage loan, may be required to make
payments on the loan to avoid foreclosure, applying the prohibition on
pyramiding of late fees explicitly to confirmed successors in interest
serves TILA's purpose of protecting consumers against inaccurate and
unfair credit billing practices.\285\
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\283\ Section 1026.36(c)(1) and (2) apply in connection with a
closed-end consumer credit transaction secured by a consumer's
principal dwelling, and Sec. 1026.36(c)(3) applies in connection
with a consumer credit transaction secured by a dwelling.
\284\ For the reasons discussed in part V.A., supra, the Bureau
believes that providing confirmed successors in interest with payoff
balances does not present privacy concerns.
\285\ 78 FR 10901, 10914 (Feb. 14, 2013) (quoting 15 U.S.C.
1601(a)).
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The new definition of consumer in Sec. 1026.2(a)(11) also ensures
that confirmed successors in interest can receive ongoing periodic
statements required under Sec. 1026.41.\286\ As the Bureau recognized
in issuing the periodic statement requirement in the 2013 TILA
Servicing Final Rule, the periodic statement serves a variety of
important purposes, including informing consumers of their payment
obligations, providing information about the mortgage loan, creating a
record of transactions that increase or decrease the outstanding
balance, providing information needed to identify and assert errors,
and providing information when consumers are delinquent.\287\ Receiving
periodic statements serves these same purposes for confirmed successors
in interest who, as homeowners of a dwelling securing a mortgage loan,
may be required to make payments on the loan to avoid foreclosure.
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\286\ Section 1026.41 generally applies with respect to a
closed-end consumer credit transaction secured by a dwelling.
\287\ 78 FR 10901, 10959 (Feb. 14, 2013).
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As explained in part V.A., a trade association commenter suggested
that a confirmed successor in interest should be treated as a consumer
for purposes of the mortgage transfer disclosure requirement in Sec.
1026.39. The mortgage transfer disclosure notifies consumers of
valuable information regarding certain transfers of ownership of a
mortgage loan, including the name and contact information for the new
owner of the mortgage loan and an agent or party authorized to resolve
issues concerning the consumer's payments on the loan (if the owner's
information cannot be used for that purpose). Information of this
nature can assist confirmed successors in interest who seek to engage
in loss mitigation, to ensure that payments on the account are properly
applied, or to identify who has a security interest in their property.
For the reasons set forth in part V.A. and below, the final rule
defines consumer in Sec. 1026.2(a)(11) to also include confirmed
successors in interest for purposes of Sec. 1026.39.
As explained in part V.A., some industry commenters expressed
concern that the proposal would require servicers to communicate about
the loan with parties that are not obligated on the loan in ways. An
industry commenter suggested that such communications might be
considered abusive or harassing and might be found to violate FDCPA
section 806, 15 U.S.C. 1692d, if done by a servicer subject to the
FDCPA. The Bureau does not believe that providing this important
information about the property at issue in a notice that is required by
Regulation X will be abusive or harassing absent other conduct making
the overall effect of the communication abusive or harassing, as
explained in part V.A. Additionally, the final rule gives servicers the
option not to send Mortgage Servicing Rule notices to a confirmed
successor in interest who is not liable on the loan obligation until
the confirmed successor in interest requests them through a written
acknowledgment, as long as the servicer sends an initial written notice
and acknowledgment form to the confirmed successor in interest upon
confirmation in compliance with the requirements of Sec. 1024.32(c)(1)
through (3).
A number of industry commenters also expressed concern that
subjecting servicers to the Mortgage Servicing Rules in Regulation Z
might prove costly for servicers. However, as explained in part V.A.,
many of the specific cost concerns that industry commenters raised
relate to requirements that are not part of the final rule. For
example, many industry commenters expressed concern about the potential
burden of having to provide duplicative copies of notices to confirmed
successors in interest if the servicer had already provided the same
notice to another consumer on the account. To address this concern, the
final rule clarifies that servicers generally do not have to send
Regulation Z disclosures to a confirmed successor in interest if the
disclosure is provided to another consumer on the account. Because
servicers already must comply with Sec. Sec. 1026.20(c) through (e),
1026.36, 1026.39, and 1026.41 with respect to the transferor consumer,
the Bureau believes that the additional cost to servicers to apply
these requirements to confirmed successors in interest will be
relatively minimal. The Bureau believes that the additional cost
imposed by extending the Mortgage Servicing Rules in Regulation Z to
confirmed successors in interest will largely be limited to updating
servicer systems initially, adding individual successors in interest to
the system on an ongoing basis, and printing and mailing costs, if any.
As discussed in more detail in part V.A., the Bureau received a
variety of
[[Page 72294]]
comments on whether mortgage servicing protections should apply with
respect to successors in interest even if the servicer has not
confirmed the successor in interest's identity and ownership interest
in the dwelling. Industry commenters generally opposed extending such
protections, asserting that doing so could violate the privacy of the
transferor consumer and any other consumers on the account and could
result in unauthorized persons obtaining access to loan information or
taking action with respect to a loan. Some consumer advocacy groups
encouraged the Bureau to apply certain servicing protections prior to
confirmation. For example, consumer advocacy groups indicated that,
even before a successor in interest is confirmed, a servicer should be
required to credit payments promptly and refrain from improper
pyramiding of late fees pursuant to Sec. 1026.36(c).
For the reasons stated in part V.A. and in this discussion, the
Bureau has decided not to add successors in interest who have not been
confirmed to the Regulation Z definition of consumer in Sec.
1026.2(a)(11).\288\ Because some people representing themselves as
successors in interest may not actually have an ownership interest in
the dwelling, requiring servicers to apply Regulation Z's mortgage
servicing communication and disclosure requirements to successors in
interest before servicers have confirmed the successor in interest's
identity and ownership interest in the dwelling may present privacy and
other concerns, as various commenters noted. For the same reason, the
Bureau also believes it is inappropriate to require servicers to incur
substantial costs before confirming the successor in interest's
identity and ownership interest in the dwelling. However, as discussed
in the section-by-section analysis of Sec. 1026.36(c), Sec.
1026.36(c)(1) and (2) imposes certain obligations relating to payment
crediting and processing that apply even if a payment is received from
a successor in interest prior to confirmation.\289\ Moreover, as
discussed in the section-by-section analysis of Regulation X Sec. Sec.
1024.36(i) and 1024.38(b)(1)(vi), the Bureau is creating a new request
for information procedure and imposing certain policies and procedures
requirements on servicers under Regulation X with respect to potential
successors in interest.
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\288\ However, a successor in interest may be a consumer under
the Regulation Z definition of consumer (both currently and as
amended by the final rule), even if the successor in interest has
not been confirmed, if the successor in interest has assumed the
mortgage loan obligation under State law or is otherwise obligated
on the mortgage loan obligation.
\289\ For example, the Bureau is clarifying in comment
36(c)(1)(iii)-2 that, when a servicer specifies requirements for
payments, those requirements should not make it difficult for most
confirmed and potential successors in interest to make conforming
payments.
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The final rule includes commentary to Sec. 1026.2(a)(11) in
comment 2(a)(11)-4.i, .ii, and .iv, which was not part of the proposal.
It also includes a substantially revised version of proposed comment
2(a)(11)-4 as comment 2(a)(11)-4.iii. New comment 2(a)(11)-4.i
clarifies that confirmation of a successor in interest is different
from assumption of the mortgage loan under State law. It explains that
a servicer may not require a confirmed successor in interest to assume
the mortgage loan obligation to be considered a consumer for purposes
of Sec. Sec. 1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41.
It also explains that, if a successor in interest assumes a mortgage
loan obligation under State law or is otherwise liable on the mortgage
loan obligation, the protections the successor in interest enjoys under
Regulation Z are not limited to Sec. Sec. 1026.20(c) through (e),
1026.36(c), 1026.39, and 1026.41. The Bureau believes that this comment
will help prevent confusion about the consequences of confirmation and
of assumption of the loan obligation under State law.
New comment 2(a)(11)-4.ii explains that communications in
compliance with Regulation Z to a confirmed successor in interest as
defined in Sec. 1026.2(a)(27)(ii) do not violate FDCPA section 805(b)
because the term consumer for purposes of FDCPA section 805 includes
any person who meets the definition in Regulation Z of confirmed
successor in interest. As explained in parts IV.C. and V.A., this is
consistent with an interpretive rule that the Bureau is issuing
concurrently with this final rule.
Comment 2(a)(11)-4.iii addresses the treatment of transferor
consumers, a subject that was addressed in proposed comment 2(a)(11)-4.
Proposed comment 2(a)(11)-4 would have provided that, even after a
servicer confirms a successor in interest's status, the servicer would
still generally be required to comply with the requirements of
Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41 with respect
to the prior consumer. The proposed comment indicated, however, that a
servicer would not be required to comply with the requirements of
Sec. Sec. 1026.20(c) through (e) and 1026.41 if the prior consumer
also either had died or had been released from the obligation on the
mortgage loan and a servicer would not be required to comply with the
requirements of Sec. 1026.36(c) if the prior consumer also had been
released from the obligation on the mortgage loan. The proposed comment
also would have provided that the prior consumer would retain any
rights under Sec. Sec. 1026.20(c) through (e), 1026.36(c), and 1026.41
that accrued prior to the confirmation of the successor in interest to
the extent those rights would otherwise survive the prior consumer's
death or release from the obligation. For the reasons stated in part
V.A. and in this discussion, the Bureau has substantially revised this
comment to make it clear that confirmation of a successor in interest
does not strip the consumer who transferred the ownership interest to
the successor in interest of any protections under Regulation Z. The
revised comment appears as comment 2(a)(11)-4.iii in the final rule.
In the proposal, the Bureau solicited comment on whether a servicer
should not be required to comply with Sec. Sec. 1026.20(c) through
(e), 1026.36(c), and 1026.41 with respect to prior consumers after a
successor in interest is confirmed. The Bureau also solicited comment
on whether other circumstances exist, beyond death and release of the
obligation on the mortgage loan, in which some or all of the
requirements of Sec. Sec. 1026.20(c) through (e), 1026.36(c), and
1026.41 should not apply with respect to the prior consumer after a
successor in interest is confirmed. The Bureau also solicited comment
on whether Sec. 1026.41 should provide that, in the case of consumer
death, the servicer should continue providing periodic statements to
the consumer's estate until a successor in interest's status has been
confirmed.
As explained in part V.A., the Bureau received many comments
objecting to the use of the term prior consumer. A number of commenters
also expressed concern that the Bureau's proposal would not provide
adequate protection to the estates of transferor consumers. Some
consumer advocacy groups suggested that estates and their
representatives should always be able to obtain information regarding
the mortgage loan and have payments applied correctly. A trade
association agreed with two caveats: It indicated that (1) the servicer
needs to verify that a person purporting to act as administrator or
executor is properly acting in that capacity, and (2) if the estate is
released from the loan obligation, Regulation P may limit the estate's
ability to access future loan information. Another trade association
indicated that the executor of an estate
[[Page 72295]]
may ultimately be legally obligated to dispose of property and needs
information in order to fulfill the executor's responsibilities.
The final rule uses the term transferor consumer rather than prior
consumer because a transferor consumer typically remains a consumer for
purposes of Regulation Z after the transfer. As many commenters
indicated, transferor consumers may remain liable on the mortgage loan
obligation and can have significant legal interests at stake even after
a successor in interest is confirmed. The Bureau also recognizes that,
when a consumer dies, the consumer's estate and its representative have
an important role to play and that Regulation Z can provide valuable
information and protections to transferor consumers and their estates
even after confirmation of a successor in interest. The Bureau does not
intend for the final rule to diminish any protections that TILA and
Regulation Z currently provide for living transferor consumers or for
estates and their representatives, and the Bureau has significantly
revised proposed comment 2(a)(11)-4 accordingly. As finalized, comment
2(a)(11)-4.iii provides that, even after a servicer's confirmation of a
successor in interest, the servicer is still required to comply with
all applicable requirements of Sec. Sec. 1026.20(c) through (e),
1026.36(c), 1026.39, and 1026.41 with respect to the consumer who
transferred an ownership interest to the successor in interest.
The Bureau acknowledges that, under the final rule, servicers will
sometimes be required to comply with the Mortgage Servicing Rules in
Regulation Z with respect to more than one person--such as the
transferor consumer or a representative of the transferor consumer's
estate and the confirmed successor in interest, as well as, in some
cases, multiple confirmed successors in interest who each acquire an
ownership interest in a dwelling. Although some commenters expressed
concern about this, the Bureau notes that, under the Mortgage Servicing
Rules, the rules already may apply with respect to more than one
consumer for a particular mortgage loan. It is quite common for more
than one consumer (for example, spouses) to be obligated on the
mortgage note, and the Mortgage Servicing Rules apply with respect to
each consumer in such cases. Accordingly, the Bureau does not believe
that applying the Mortgage Servicing Rules in Regulation Z to confirmed
successors in interest will present novel challenges for servicers in
this regard.
The final rule also includes new comment 2(a)(11)-4.iv, which makes
clear that servicers generally do not need to send Regulation Z notices
to confirmed successors in interest if the notices would be duplicative
of notices sent to another consumer on the account. A number of
commenters asked the Bureau to clarify whether servicers must send
multiple copies of required servicing notices after a successor in
interest is confirmed. One industry commenter explained that most
servicing platforms only allow for automated delivery of correspondence
to one address. It indicated that a requirement to send items to
multiple addresses or through differing communication channels would
create significant operational and systems challenges with concomitant
costs.
For the reasons set forth in part V.A. and in this discussion, the
Bureau agrees that it would be unnecessarily burdensome to require
servicers to send additional copies of notices required by Sec.
1026.20(c), (d), or (e), Sec. 1026.39, or Sec. 1026.41 to confirmed
successors in interest if another consumer is already receiving them.
Proposed comment 41(a)-5.ii addressed this issue with respect to
periodic statements, but, in light of the comments received, the Bureau
believes it is clearest and most efficient to address questions
regarding duplication of notices for confirmed successors in interest
in a uniform, centralized way in comment 2(a)(11)-4.iv for all of the
Mortgage Servicing Rules in Regulation Z. Comment 2(a)(11)-4.iv
clarifies that, except as required by Regulation X 12 CFR 1024.36, in
response to an information request, a servicer is not required to
provide to a confirmed successor in interest any written disclosure
required by Sec. 1026.20(c), (d), or (e), Sec. 1026.39, or Sec.
1026.41 if the servicer is providing the same specific disclosure to
another consumer on the account. Comment 2(a)(11)-4.iv also explains
that, if a servicer confirms more than one successor in interest, the
servicer need not send any disclosure required by Sec. 1026.20(c),
(d), or (e), Sec. 1026.39, or Sec. 1026.41 to more than one of the
confirmed successors in interest.
Requiring only one periodic statement is consistent with current
comment 41(a)-1, which provides that, when two consumers are joint
obligors with primary liability on a closed-end consumer credit
transaction secured by a dwelling, subject to Sec. 1026.41, the
periodic statement may be sent to either one of them. New comment
2(a)(11)-4.iv is also consistent with Sec. 1026.17(d), comment 17(d)-
2, and Sec. 1026.31(e), which generally provide that, if there is more
than one consumer, the disclosures required by Regulation Z subparts C
and E may be made to any consumer who is primarily liable on the
obligation.
2(a)(27)
The Bureau proposed to define successor in interest in Sec.
1026.2(a)(27) to cover all categories of persons who acquired an
ownership interest in a dwelling securing a mortgage loan in a transfer
protected by the Garn-St Germain Act.\290\ The proposed definition
stated that a successor in interest is a person to whom an ownership
interest in a dwelling securing a closed-end consumer transaction is
transferred from a prior consumer, provided that the transfer falls
under an exemption specified in section 341(d) of the Garn-St Germain
Act.\291\ As explained in part V.A., the Bureau is finalizing the
definition of successor in interest in Sec. 1026.2(a)(27)(i) with
several adjustments to address concerns raised by commenters. For
clarity and ease of reference, the final rule also includes a
definition of confirmed successor in interest in Sec.
1026.2(a)(27)(ii).
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\290\ 12 U.S.C. 1701j-3(d).
\291\ Id. As discussed in the section-by-section analysis of
Sec. 1024.31, supra, the Bureau proposed to add a similar
definition to Regulation X.
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2(a)(27)(i)
As explained in part V.A., some industry commenters objected to the
use of categories from the Garn-St Germain Act, and many industry
commenters urged the Bureau not to finalize the proposed successor
provisions or to narrow the scope of the definition of successor in
interest substantially--for example, to limit the scope to situations
involving death or death or divorce. Others urged the Bureau to exclude
anyone who has not assumed the mortgage loan obligation from the
definition of successor in interest. Some suggested excluding certain
types of transactions, such as reverse mortgages.
Some industry commenters raised questions about whether the Bureau
intended to incorporate the occupancy requirements of the Garn-St
Germain Act implementing regulations administered by the OCC.\292\ An
industry commenter suggested that the Bureau should omit reference to
the Garn-St Germain Act and instead enumerate the categories of
transfer of ownership that would qualify for regulatory protection, in
order to avoid unintended consequences.
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\292\ 12 CFR 191.5(b).
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Consumer advocacy group commenters generally supported use of
[[Page 72296]]
the Garn-St Germain Act framework and urged the Bureau to broaden the
definition to include various categories that are not covered by the
Garn-St Germain Act but that are similar to the Garn-St Germain Act
categories. They suggested, for example, that the definition should
include unmarried partners, relatives other than a spouse or child of
the borrower who obtain an interest in the home through a quitclaim
deed, and unrelated transferees, as well as co-homeowners who did not
sign the original loan. A large number of commenters of various types
expressed concern about the use of the term prior consumer because the
consumer who transfers an interest may still be liable on the loan
obligation and a consumer for purposes of Regulation Z.
For the reasons explained in part V.A. and in this discussion, the
Bureau is finalizing the definition of successor in interest for
Regulation Z in Sec. 1026.2(a)(27)(i) using the Garn-St Germain Act
framework but with two changes. First, because the consumer who
transfers an ownership interest to the successor in interest may remain
a consumer after the transfer, the final rule substitutes ``consumer''
for ``prior consumer'' in the definition of successor in interest.
Second, the final rule does not include a cross-reference to the
Garn-St Germain Act but instead lists the specific categories of
transfers that could render a transferee a successor in interest. These
categories are modeled on the categories of transfers of ownership
interest that section 341(d) of the Garn-St Germain Act protects. To
ensure that the scope of the final rule does not change without further
rulemaking by the Bureau, the Bureau has omitted the Garn-St Germain
Act category that includes any other transfer or disposition described
in the statute's implementing regulations.\293\ Additionally, in
restating the categories in the final rule, the Bureau has not
incorporated certain scope limitations imposed by the Garn-St Germain
Act or its implementing regulations, such as the exclusion for reverse
mortgages and certain occupancy requirements in 12 CFR 191.5(b). As
explained in part V.A., these adjustments to the proposal promote
clarity and consistency with other aspects of Regulation Z and with the
final definition of successor in interest in subpart C of Regulation X.
---------------------------------------------------------------------------
\293\ 12 U.S.C. 1701j-3(d)(9). The Bureau has also omitted
several categories in the Garn-St Germain Act that do not result in
a transfer of ownership interest and that are therefore irrelevant
for successor in interest status. See 12 U.S.C. 1701j-3(d)(1), (2),
(4); see also 79 FR 74176, 74181 n.28 (Dec. 15, 2014) (noting that
the proposal would not apply to the situations described in these
categories).
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The final rule adds new comment 2(a)(27)(i)-1 to clarify how the
definition of successor in interest applies when property is held in a
joint tenancy or a tenancy by the entirety. A trade association
questioned whether the proposal would protect a non-borrower owner who
holds property in a tenancy by the entirety when the borrower owner
dies if there is not a transfer under State law. This commenter stated
that, if property is held in a tenancy by the entirety, it is not clear
that there is a property transfer when one owner dies because State law
may provide that the survivor continues to own an undivided interest in
the entire property and that the late spouse's property interest simply
terminates.
The Bureau believes it is important to extend protections to a
tenant by the entirety upon the death of a borrower spouse and to a
joint tenant upon the death of a borrower joint tenant. The Bureau is
adding comment 2(a)(27)(i)-1 in the final rule, to clarify that, if a
borrower who has an ownership interest as a joint tenant or tenant by
the entirety in a dwelling securing a closed-end consumer credit
transaction dies, a surviving joint tenant or tenant by the entirety
with a right of survivorship in the property is a successor in interest
as defined in Sec. 1026.2(a)(27)(i).
The final rule also adds new comment 2(a)(27)(i)-2 to clarify the
application of the definition of successor in interest to inter vivos
trusts. The comment explains that, in the event of a transfer into an
inter vivos trust in which the consumer is and remains a beneficiary
and which does not relate to a transfer of rights of occupancy in the
property, the beneficiaries of the inter vivos trust rather than the
inter vivos trust itself are considered to be the successors in
interest for purposes of Sec. 1026.2(a)(27)(i). This clarification
ensures that a trust is not a successor in interest under these
circumstances. It is also consistent with comment 3(a)-10 to Regulation
Z, which explains that credit extended for consumer purposes to certain
trusts is considered to be credit extended to a natural person rather
than credit extended to an organization.
2(a)(27)(ii)
Section 1026.2(a)(27)(ii) defines confirmed successor in interest
for purposes of Regulation Z as a successor in interest once a servicer
has confirmed the successor in interest's identity and ownership
interest in the dwelling. This new definition was not part of the
proposal but is consistent with how the Bureau used the term confirmed
successor in interest in the proposal and includes language drawn from
the proposed definition of consumer. Including this definition in the
final rule will help to streamline the successor in interest provisions
throughout Regulation Z.
Section 1026.20 Disclosure Requirements Regarding Post-Consummation
Events
20(e) Escrow Account Cancellation Notice for Certain Mortgage
Transactions
20(e)(4) Form of Disclosures
Section 1026.20(e) implements the requirement in TILA section
129D(j)(1)(B) that the creditor or servicer must provide an escrow
account cancellation notice for certain mortgage transactions. Pursuant
to Sec. 1026.2(a)(11), as amended by the final rule, confirmed
successors in interest are consumers for purposes of Sec. 1026.20(e).
Section 1026.20(e)(4) requires that the disclosures provided pursuant
to Sec. 1026.20(e) must have headings, content, order, and format
substantially similar to model form H-29 in appendix H to part 1026.
For the reasons stated in part V.A. and in this discussion, the Bureau
is adding comment 20(e)(4)-3 to make it clear that creditors and
servicers may modify the language in model form H-29 to accommodate
particular consumer circumstances or transactions not addressed by the
form and to tailor the model form H-29 statement of consequences for
failing to pay property costs to the circumstances of the particular
consumer.
Model form H-29 includes some language that may not be well suited
to confirmed successors in interest who have not assumed the mortgage
loan obligation under State law and are not otherwise liable on it. The
model form states, for example, ``you will no longer have an escrow
account,'' which could potentially be confusing for a confirmed
successor in interest who is not liable on the mortgage loan obligation
and therefore may not ever have been the holder of an escrow account.
The model form notice refers to ``your loan'' and also states: ``[i]f
you fail to pay any of your property costs, we may . . . require you to
pay for property insurance that we buy on your behalf, which likely
would cost more and provide fewer benefits than what you could buy on
your own.'' This potential consequence may not apply to a confirmed
successor in interest if the confirmed successor in interest is not a
party to the loan agreement.
[[Page 72297]]
The final rule adds comment 20(e)(4)-3 to indicate that the
requirements of Sec. 1026.20(e)(4) to provide the Sec. 1026.20(e)
disclosures with the headings, content, order, and format substantially
similar to model form H-29 in appendix H to part 1026 do not preclude
creditors and servicers from modifying the disclosures to accommodate
particular consumer circumstances or transactions not addressed by the
form. The requirements also do not preclude creditors and servicers
from tailoring to the circumstances of the particular consumer the
statement of consequences if the consumer fails to pay property costs.
This new comment clarifies that servicers can adjust the language used
in model form H-29 to the specific circumstances of confirmed
successors in interest and others. The new comment is similar to
existing Regulation Z comments 20(c)(3)(i)-1 and 20(d)(3)(i)-1, which
authorize adjustments to accommodate particular consumer circumstances
or transactions not addressed by the forms with respect to the ARM
notices required by Sec. 1026.20(c) and (d). As explained in part
V.A., the adjustments authorized by comments 20(c)(3)(i)-1,
20(d)(3)(i)-1, and 20(e)(4)-3 represent one of several options that
servicers may use to ensure that their notices and other communications
do not confuse or deceive confirmed successors in interest who have not
assumed the mortgage loan obligation under State law and are not
otherwise liable on it as to whether they are liable on the mortgage
loan obligation.
20(f) Successors in Interest
As explained in part V.A. and the section-by-section analysis of
Regulation X Sec. 1024.32, the final rule allows servicers to provide
an initial explanatory written notice and acknowledgment form to
confirmed successors in interest who are not liable on the mortgage
loan obligation. The notice explains that the confirmed successor in
interest is not liable unless and until the confirmed successor in
interest assumes the mortgage loan obligation under State law. The
notice also indicates that the confirmed successor in interest must
return the acknowledgment to receive certain servicing notices under
the Mortgage Servicing Rules. For the reasons stated in part V.A. and
in this discussion, the final rule includes new Sec. 1026.20(f), which
provides that, if, upon confirmation, a servicer provides a confirmed
successor in interest who is not liable on the mortgage loan obligation
with such a written notice and acknowledgment form, the servicer is not
required to provide to the confirmed successor in interest any written
disclosure required by Sec. 1026.20(c), (d), or (e) unless and until
the confirmed successor in interest either assumes the mortgage loan
obligation under State law or has provided the servicer an executed
acknowledgment in accordance with Regulation X Sec. 1024.32(c)(1)(iv)
that the confirmed successor in interest has not revoked.
The final rule does not mandate that servicers send the initial
written notice and acknowledgment form; instead, Regulation X Sec.
1024.32(c)(1) gives servicers the option to do so and, if they choose
to do so, Sec. 1026.20(f) relieves them of the obligation to provide
written disclosures required by Sec. 1026.20(c), (d), or (e) until the
confirmed successor in interest affirmatively indicates a desire to
receive them by returning the acknowledgment or assumes the mortgage
loan obligation under State law. Similar provisions in Sec. Sec.
1024.32(c)(2), 1026.39(f), and 1026.41(g) address the disclosures
required by, respectively, the Mortgage Servicing Rules in Regulation X
and Sec. Sec. 1026.39 and 1026.41. As noted in part V.A., the Bureau
has decided to excuse servicers that have not received an
acknowledgment back from a confirmed successor in interest from the
requirement to send Mortgage Servicing Rule notices because doing so
relieves servicers of the costs associated with sending notices to
confirmed successors in interest who are not liable on the mortgage
loan obligation and do not want notices. However, if a confirmed
successor in interest assumes a mortgage loan obligation under State
law, the information in the initial notice and acknowledgment form is
no longer applicable, and Sec. 1026.20(f) accordingly does not suspend
the servicer's obligation to provide notices required by Sec.
1026.20(c), (d), or (e).
Section 1026.36 Prohibited Acts or Practices and Certain Requirements
for Credit Secured by a Dwelling
36(c) Servicing Practices
36(c)(1) Payment Processing
The Bureau proposed a technical change to Sec. 1026.36(c)(1) for
clarity. Section 1026.36(b) provides that Sec. 1026.36(c)(1) applies
to closed-end consumer credit transactions secured by a consumer's
principal dwelling. However, current Sec. 1026.36(c)(1) refers to
consumer credit transactions secured by a consumer's principal
dwelling, without referring to closed-end transactions. Proposed Sec.
1026.36(c)(1) added language relating to closed-end consumer credit
transactions.
The Bureau also proposed commentary to Sec. 1026.36(c)(1) to
clarify how servicers must treat periodic payments made by consumers
who are performing under either temporary loss mitigation programs or
permanent loan modifications. Proposed comment 36(c)(1)(i)-4 would have
provided that, if the loan contract has not been permanently modified
but the consumer has agreed to a temporary loss mitigation program, a
periodic payment under Sec. 1026.36(c)(1)(i) remains an amount
sufficient to cover principal, interest, and escrow (if applicable) for
a given billing cycle under the loan contract, irrespective of the
payment due under the temporary loss mitigation program. Accordingly,
if a consumer submits a payment under a temporary loss mitigation
program that is less than an amount sufficient to cover principal,
interest, and escrow (if applicable) for a given billing cycle under
the loan contract, the servicer should generally treat the payment as a
partial payment under Sec. 1026.36(c)(1)(i), even though the consumer
may have made the payment due under the temporary loss mitigation
program.
The Bureau proposed this comment in response to several inquiries
regarding payment processing for payments under temporary loss
mitigation programs. In the proposal, the Bureau acknowledged that its
statement in the 2013 TILA Final Servicing Rule, ``if a consumer makes
a payment sufficient to cover the principal, interest, and escrow due
under a trial modification plan, these funds should be applied,'' \294\
may have suggested that, when a temporary loss mitigation program is in
effect, the periodic payment is the payment due under the temporary
loss mitigation program, rather than the amount sufficient to cover
principal, interest, and escrow (if applicable) for a given billing
cycle under the loan contract. In the proposal, the Bureau reiterated
that the periodic payment, even under a temporary loss mitigation
program, remains the amount sufficient to cover principal, interest,
and escrow (if applicable) for a given billing cycle under the loan
contract. A consumer may continue to accumulate a delinquency according
to the loan contract during the duration of a temporary loss mitigation
program. If a consumer fails to comply with the terms of a temporary
loss mitigation program, the servicer will typically revert back to the
terms of the loan contract, with the
[[Page 72298]]
result that the consumer may be facing acceleration or an immediate
demand for payment in full of the accumulated delinquency. Accordingly,
the Bureau believed that it would be appropriate to require servicers
to credit payments in a way that reflects the continuing contractual
obligations between the parties and any accumulating delinquency.
Moreover, the Bureau believed it could be burdensome for servicers to
treat the payment due under a temporary loss mitigation program as the
periodic payment, only to revert to the contractual payment if the
consumer fails to comply with the terms of the temporary loss
mitigation program.
---------------------------------------------------------------------------
\294\ 78 FR 10901, 10954 (Feb. 14, 2013).
---------------------------------------------------------------------------
For loans that have been permanently modified, proposed comment
36(c)(1)(i)-5 would have provided that the periodic payment under Sec.
1026.36(c)(1)(i) is an amount sufficient to cover principal, interest,
and escrow (if applicable) for a given billing cycle under the modified
loan contract. The periodic payment should reflect the contractual
obligation; once the loan contract has been permanently modified, the
terms of the modified loan contract govern the periodic payment
determination and not the terms of the contract pre-modification.
Several consumer advocacy groups commented on proposed comment
36(c)(1)(i)-4. Consumer advocacy group commenters expressed concern
that the proposed comment would cause servicers to believe that
payments made under a temporary loss mitigation program are treated
differently than other partial payments. One consumer advocacy group
stated that a temporary loss mitigation program is a contract that the
consumer has the legal right to enforce. It suggested that treating
payments made under a temporary plan as partial payments under proposed
comment 36(c)(1)(i)-4 conflicts with this principle.
The Bureau is finalizing the technical change to Sec.
1026.36(c)(1) and the revisions to comments 36(c)(1)(i)-4 and -5 as
proposed. Accordingly, final Sec. 1026.36(c)(1) refers directly to a
closed-end consumer credit transaction secured by a consumer's
principal dwelling. Comment 36(c)(1)(i)-4 explains that, if a loan
contract has not been permanently modified but the consumer has agreed
to a temporary loss mitigation program, a periodic payment under Sec.
1026.36(c)(1)(i) is the amount sufficient to cover principal, interest,
and escrow (if applicable) for a given billing cycle under the loan
contract, regardless of the payment due under the temporary loss
mitigation program. Comment 36(c)(1)(i)-5 provides that, if a loan
contract has been permanently modified, a periodic payment under Sec.
1026.36(c)(1)(i) is an amount sufficient to cover principal, interest,
and escrow (if applicable) for a given billing cycle under the modified
loan contract.\295\
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\295\ As described in the section-by-section analysis of Sec.
1026.41(d), the Bureau is also finalizing commentary to Sec.
1026.41(d) clarifying certain periodic statement disclosures
relating to temporary loss mitigation programs and permanent loan
modifications.
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As explained in the proposal, the servicer should generally treat a
payment due under a temporary loss mitigation program as a partial
payment under Sec. 1026.36(c)(1)(i). Although a temporary loss
mitigation program is a contract, as noted by one commenter, and may be
enforceable as such, the temporary loss mitigation program does not
remove the obligations of the existing mortgage loan contract.
Servicers must credit payments in a way that reflects the continuing
contractual obligations between the parties. The Bureau notes that its
commentary here is confined to clarifying how servicers must credit
payments received and ensuring that those payments are credited
according to the terms of the loan contract; the Bureau is not
addressing other legal requirements the servicer may have to the
borrower relating to the temporary loss mitigation program.
36(c)(1)(iii) Non-Conforming Payments
Section 1026.36(c) includes requirements relating to prompt
crediting of payments, pyramiding of late fees, and payoff statements.
In the proposal, the Bureau solicited comment on whether certain parts
of Sec. 1026.36(c) should apply with respect to successors in interest
even if the servicer has not confirmed the successor in interest's
identity and ownership interest in the dwelling. The Bureau received a
variety of comments on this issue, including some that asked the Bureau
to clarify how servicers should handle payments by potential successors
in interest.\296\ For the reasons explained in part V.A. and in this
discussion, the final rule clarifies the operation of Sec. 1026.36(c)
with respect to potential successors in interest by amending comment
36(c)(1)(iii)-2.
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\296\ Some commenters also addressed whether Sec. 1026.36(c)
and other mortgage servicing requirements should apply to confirmed
successors in interest. Those comments are addressed in part V.A.
and the section-by-section analysis of Sec. 1026.2(a)(11).
---------------------------------------------------------------------------
Several consumer advocacy groups stated that a servicer should
always be required to credit payments promptly and to refrain from
improper pyramiding of late fees. These groups noted that it could take
potential successors in interest several months or longer to obtain and
provide documentation of their status as a successor in interest.
Consumer advocacy group commenters also indicated that successors in
interest continue to have difficulties getting their payments credited.
A local government commenter noted the importance of assisting
successors in making payments on a loan if the loan is current at the
time the servicer is notified of the borrower's death.
A number of industry commenters urged the Bureau not to apply
protections or regulations including Sec. 1026.36(c) to unconfirmed
successors in interest. A trade association stated that successors in
interest can and should make payments while successorship claims and
loss mitigation applications are being prepared or pending. It
indicated that servicers accept payments made prior to confirmation if
the servicers have enough confirming information. This commenter
suggested that it would be helpful for the Bureau to clarify the
treatment of a payment that a successor in interest sends before
confirmation and raised a number of questions relating to how the error
resolution procedures of Sec. 1024.35 apply to payments received from
potential and confirmed successor in interest. This commenter indicated
that servicers should have the ability to accept or reject payments
from potential successors in interest and that servicers need to be
able to reject payments in certain circumstances, citing the Patriot
Act.
For the reasons stated in part V.A. and the section-by-section
analysis of Sec. 1026.2(a)(11), the Bureau has decided not to define
unconfirmed successors in interest as consumers for purposes of the
Mortgage Servicing Rules, including Sec. 1026.36(c). However, the
Bureau agrees with commenters that potential successors in interest
should be able to make payments during the confirmation process, in
order to ensure that mortgage loans do not become delinquent or, if
already delinquent, do not become more delinquent while potential
successors in interest await confirmation. Both industry commenters and
consumer advocacy groups emphasized the importance of payments by
potential successors in interest. The Bureau encourages servicers to
continue to work with potential successors in interest to facilitate
payments during the confirmation process in order to help prevent
delinquency. The Bureau also notes that there may be circumstances
where State law provides additional protections for potential
successors in
[[Page 72299]]
interest as to payment acceptance and crediting.
Additionally, the Bureau notes that the mere fact that a payment
comes from someone who is not a consumer does not obviate the
servicer's obligations to handle it properly under Sec. 1026.36(c)(1)
and (2).\297\ In connection with consumer credit transactions secured
by a consumer's principal dwelling, section 129F(a) of TILA generally
requires servicers to credit a payment to the consumer's loan account
as of the date of receipt, with certain limited exceptions.\298\ In
establishing this requirement, Congress did not specify by whom the
payment must be made. Consistent with section 129F(a), Sec.
1026.36(c)(1)(i) provides, with specified exceptions, that, in
connection with such transactions, no servicer shall fail to credit a
periodic payment to the consumer's loan account as of the date of
receipt, without limiting the requirement to payments received from a
consumer. There may be many circumstances in which a third party makes
mortgage payments on behalf of the consumer or as a successor in
interest to the transferor consumer. In those cases, as well as when
the consumer makes the payment directly, the Bureau expects servicers
to follow the payment processing requirements in Sec. 1026.36(c)(1)
and to adhere to the prohibition on pyramiding of late fees in Sec.
1026.36(c)(2), to the extent those provisions are otherwise applicable.
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\297\ For example, comment 36(c)(1)(i)-3 addresses how servicers
should calculate the date of receipt for payments made by third-
party payors such as a financial institution through a preauthorized
payment or telephone bill-payment arrangement.
\298\ 15 U.S.C. 1639f(a).
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Current comment 36(c)(1)(iii)-1 explains that a servicer may
specify reasonable requirements for making payments in writing, such as
requiring that payments be accompanied by the account number or payment
coupon. Current comment 36(c)(1)(iii)-2 also explains that it should
not be difficult for most consumers to make conforming payments.
Pursuant to the final rule, consumers, as used in comment
36(c)(1)(iii)-2, includes confirmed successors in interest. In light of
the importance of keeping loans current, it would not be reasonable for
a servicer to impose payment requirements that prevent a potential
successor in interest from making payments on the account during the
confirmation process. The final rule accordingly amends comment
36(c)(1)(iii)-2 to clarify that it should not be difficult for most
consumers or potential successors in interest to make payments that
conform to a servicer's payment requirements. The Bureau believes that
this clarification serves TILA's purpose of protecting consumers
against inaccurate and unfair credit billing practices by ensuring that
servicers properly process payments received on an account.\299\
---------------------------------------------------------------------------
\299\ 15 U.S.C. 1601(a).
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36(c)(2) No Pyramiding of Late Fees
The Bureau proposed a technical change to Sec. 1026.36(c)(2).
Section 1026.36(b) provides that Sec. 1026.36(c)(2) applies to closed-
end consumer credit transactions secured by a consumer's principal
dwelling. However, current Sec. 1026.36(c)(2) refers to consumer
credit transactions secured by a consumer's principal dwelling without
referring to closed-end transactions. Consistent with Sec. 1026.36(b),
proposed Sec. 1026.36(c)(2) modified the existing language to refer
directly to closed-end consumer credit transactions secured by a
consumer's principal dwelling.
The Bureau did not receive comments addressing the proposed
technical change to Sec. 1024.36(c)(2) and is finalizing as proposed.
Accordingly, final Sec. 1024.36(c)(2) refers directly to a closed-end
consumer credit transaction secured by a consumer's principal dwelling.
Section 1026.39 Mortgage Transfer Disclosures
39(f) Successors in Interest
As explained in part V.A. and the section-by-section analysis of
Regulation X Sec. 1024.32, the final rule allows servicers to provide
an initial explanatory written notice and acknowledgment form to
confirmed successors in interest who are not liable on the mortgage
loan obligation. The notice explains that the confirmed successor in
interest is not liable unless and until the confirmed successor in
interest assumes the mortgage loan obligation under State law. The
notice also indicates that the confirmed successor in interest must
return the acknowledgment to receive certain servicing notices under
the Mortgage Servicing Rules. For the reasons stated in part V.A. and
in this discussion, the final rule includes new Sec. 1026.39(f), which
provides that, if, upon confirmation, a servicer provides a confirmed
successor in interest who is not liable on the mortgage loan obligation
with such a written notice and acknowledgment form, the servicer is not
required to provide to the confirmed successor in interest any written
disclosure required by Sec. 1026.39(b) unless and until the confirmed
successor in interest either assumes the mortgage loan obligation under
State law or has provided the servicer an executed acknowledgment in
accordance with Regulation X Sec. 1024.32(c)(1)(iv) that the confirmed
successor in interest has not revoked.
The final rule does not mandate that servicers send the initial
written notice and acknowledgment form; instead, Regulation X Sec.
1024.32(c)(1) gives servicers the option to do so and, if they choose
to do so, Sec. 1026.39(f) relieves them of the obligation to provide
written disclosures required by Sec. 1026.39(b) until the confirmed
successor in interest affirmatively indicates a desire to receive them
by returning the acknowledgment or assumes the mortgage loan obligation
under State law. Similar provisions in Sec. Sec. 1024.32(c)(2),
1026.20(f), and 1026.41(g) address the disclosures required by,
respectively, the Mortgage Servicing Rules in Regulation X and
Sec. Sec. 1026.20(c), (d), and (e) and 1026.41. As noted in part V.A.,
the Bureau has decided to excuse servicers that have not received an
acknowledgment back from a confirmed successor in interest from the
requirement to send Mortgage Servicing Rule notices because doing so
relieves servicers of the costs associated with sending notices to
confirmed successors in interest who are not liable on the mortgage
loan obligation and do not want notices. However, if a confirmed
successor in interest assumes a mortgage loan obligation under State
law, the information in the initial notice and acknowledgment form is
no longer applicable, and Sec. 1026.39(f) accordingly does not suspend
the servicer's obligation to provide notices required by Sec.
1026.39(b).
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(a) In General
Although the Bureau did not propose to amend comment 41(a)-1, the
Bureau is revising the example provided in comment 41(a)-1 to
substitute ``spouses'' for ``husband and wife,'' in order to align the
language with other examples in Regulation Z.\300\ Thus, as revised,
comment 41(a)-1 explains that, if spouses jointly own a home, a
servicer need not send statements to both spouses; a single statement
may be sent.\301\
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\300\ Pursuant to the Bureau's Same-Sex Married Couple Policy,
see supra note 39, the Bureau interprets ``spouse'' to include
married same-sex spouses.
\301\ Section 1026.41 defines servicers to mean creditors,
assignees, or servicers for the purposes of Sec. 1026.41. The
Bureau, therefore, also uses the term servicer to mean a creditor,
assignee, or servicer in the section-by-section analysis of Sec.
1026.41, except as otherwise noted.
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[[Page 72300]]
Proposed comment 41(a)-5.i reiterated for clarity that a servicer
must provide a confirmed successor in interest with a periodic
statement meeting the requirements of Sec. 1026.41. The Bureau
proposed this comment to ensure that the effect of proposed Sec.
1026.2(a)(11) with respect to providing periodic statements to
confirmed successors in interest would be clear. However, the Bureau
believes that the effect of the final version of Sec. 1026.2(a)(11)
with respect to periodic statements is clear from Sec. 1026.2(a)(11)
and its commentary and Sec. 1026.41(g), and the Bureau therefore has
not included a comment similar to proposed comment 41(a)-5.i in the
final rule. Pursuant to Sec. 1026.2(a)(11), comment 2(a)(11)-4.iv, and
Sec. 1026.41(g), a servicer must provide a confirmed successor in
interest with periodic statements, unless: (1) The servicer is
providing the specific periodic statements to another consumer on the
account, or (2) the confirmed successor in interest is not liable on
the mortgage loan obligation, the servicer has provided a written
notice and acknowledgment form in accordance with Regulation X Sec.
1024.32(c)(1)(iv), and the confirmed successor in interest has not
provided the servicer an executed acknowledgment that has not been
revoked.
Proposed comment 41(a)-5.ii would have provided that, if a servicer
sends a periodic statement meeting the requirements of Sec. 1026.41 to
another consumer, the servicer need not also send a periodic statement
to a successor in interest; a single statement may be sent. The
proposed comment also would have provided that, if a servicer confirms
more than one successor in interest's identity and ownership interest
in the dwelling, the servicer need not send periodic statements to more
than one of the successors in interest. For the reasons stated in part
V.A. and the section-by-section analysis of Sec. 1026.2(a)(11) and in
this discussion, the Bureau has decided not to finalize proposed
comment 41(a)-5.ii and is instead addressing in comment 2(a)(11)-4.iv
whether duplicative periodic statements and other Regulation X
disclosures must be sent to confirmed successors in interest.
The Bureau solicited comment on whether only one successor in
interest should receive a periodic statement or whether instead each
successor in interest should receive a periodic statement. A number of
industry commenters stated that the rule of joint obligors should
apply, such that only one periodic statement is required, and urged the
Bureau not to require multiple periodic statements. Some noted that a
requirement to provide periodic statements to multiple successors in
interest would be extremely burdensome and require significant systems
changes. As explained above, various commenters also suggested that the
Bureau clarify what is expected with regard to other Mortgage Servicing
Rule notices when there are multiple borrowers and suggested that only
one notice should be required. In contrast, a consumer advocacy group
suggested that anyone with an ownership interest should receive a copy
of the periodic statement, provided they have given their contact
information to the servicer.
The Bureau believes that servicers should not be required to send
more than one periodic statement with respect to a mortgage loan. This
is consistent with how periodic statements for multiple obligors are
treated in current comment 41(a)-1, which provides that, when two
consumers are joint obligors with primary liability on a closed-end
consumer credit transaction secured by a dwelling, the periodic
statement may be sent to either one of them. Due to the constraints of
current systems platforms and other factors, the Bureau recognizes that
requiring servicers to send multiple copies of the same periodic
statement would impose additional costs. In light of commenters'
requests for clarification regarding other notices required by the
Mortgage Servicing Rules, the Bureau has decided to address this issue
through a more general comment to Sec. 1026.2(a)(11), as explained in
the section-by-section analysis of that section. The Bureau is
therefore not finalizing proposed comment 41(a)-5.ii.
41(c) Form of the Periodic Statement
Current section 1026.41(c) requires servicers to make periodic
statement disclosures clearly and conspicuously and in a form the
consumer may keep. It provides that proper use of sample forms provided
in appendix H-30 complies with these requirements. For the reasons
stated in part V.A. and in this discussion, the Bureau is adding new
comment 41(c)-5, which explains that servicers may modify the sample
forms for periodic statements provided in appendix H-30 to remove
language that could suggest liability under the mortgage loan agreement
if such language is not applicable.
The sample periodic statement forms in appendix H-30 include
language that could suggest liability under the mortgage loan, such as:
``You are late on your mortgage payments. Failure to bring your loan
current may result in fees and foreclosure--the loss of your home . . .
. You must pay this amount to bring your loan current.'' Including
these statements in notices sent to a confirmed successor in interest
who is not liable on the loan obligation under State law could
potentially result in confusion if the servicer has not otherwise
clarified that the confirmed successor in interest is not in fact
liable on the loan obligation.
Comment 41(c)-5 notes that, for example, in the case of a confirmed
successor in interest who has not assumed the mortgage loan obligation
and is not otherwise liable on it, a servicer may modify the forms to
use ``this mortgage'' or ``the mortgage'' instead of ``your mortgage'';
``The payments on this mortgage are late'' instead of ``You are late on
your mortgage payments''; and ``This is the amount needed to bring the
loan current'' instead of ``You must pay this amount to bring your loan
current.'' As explained in part V.A., the adjustments authorized by
comment 41(c)-5 represent one of several options that servicers may use
to ensure that their notices and other communications do not confuse or
deceive successors in interest who have not assumed the mortgage loan
obligation under State law and are not otherwise liable on it regarding
whether they are liable on the mortgage loan obligation.
41(d) Content and Layout of the Periodic Statement
Section 1026.41(d) specifies the disclosures that must be provided
on the periodic statement and requires that several of those
disclosures be provided in close proximity to one another. The Bureau
proposed to amend current comment 41(d)-1 and add new comments 41(d)-4
and -5 relating to the requirements in Sec. 1024.41(d). The Bureau is
finalizing comments 41(d)-1 and -4 substantially as proposed. The
Bureau is finalizing comment 41(d)-5 as proposed.
The Bureau proposed to amend current comment 41(d)-1, which states
that items in close proximity may not have any intervening text between
them. The close proximity standard is found in other parts of
Regulation Z, including Sec. Sec. 1026.24(b) and 1026.48. The proposed
amendment would have relaxed this requirement for purposes of Sec.
1026.41(d) and instead would have provided that items in close
proximity may not have any unrelated text between them. This proposal
mirrored the standard for open-end credit plans secured by a consumer's
dwelling found
[[Page 72301]]
in Sec. 1026.40(a) and its corresponding comment 40(a)(1)-3, which
explain that while most of the disclosures required by Sec. 1026.40(d)
must be grouped together and segregated from all unrelated information,
a creditor is permitted to include information that explains or expands
upon the required disclosures.
The proposed amendment to comment 41(d)-1 would have provided that
items in close proximity may not have any unrelated text between them
and explained that text is unrelated if it does not explain or expand
upon the required disclosures. Text that explains or expands upon the
required disclosures may include, for example, an additional
explanation of the amount due when: A fee has been charged to the
consumer but will not be collected until payoff (e.g., attorney's
fees); the consumer has agreed to a temporary loss mitigation program
(as discussed further in the section-by-section analysis of Sec.
1026.41(d)(2)); the consumer makes an advance payment; or the servicer
reverses a fee. The Bureau believed that the proposed amendment to
comment 41(d)-1 would provide servicers with additional flexibility to
clarify or explain information on the periodic statement and may enable
servicers to address circumstances not expressly provided for in Sec.
1026.41(d). The Bureau sought comment generally on this proposal to
amend comment 41(d)-1 to relax the prohibition on intervening text to
include only related text that explains or expands upon the required
disclosures.
The Bureau proposed additional Sec. 1026.41(d) commentary
clarifying certain periodic statement disclosure requirements relating
to temporary loss mitigation programs. Proposed comment 41(d)-4 would
have provided that, if the consumer has agreed to a temporary loss
mitigation program, the disclosures required by Sec. 1026.41(d)(2),
(3), and (5) regarding how payments will be and were applied should
nonetheless identify how payments are applied according to the loan
contract, irrespective of the payment due under the temporary loss
mitigation program. The Bureau proposed this commentary in response to
several inquiries regarding how temporary loss mitigation programs
affect certain disclosures on the periodic statement. Currently, the
Bureau's rules and commentary do not address this issue.
As described in the section-by-section analysis of Sec.
1024.36(c)(1), proposed comment 36(c)(1)(i)-4 would have provided that,
if the consumer has agreed to a temporary loss mitigation program, a
periodic payment under Sec. 1026.36(c)(1)(i) remains an amount
sufficient to cover principal, interest, and escrow (if applicable) for
a given billing cycle under the loan contract, irrespective of the
payment due under the temporary loss mitigation program. Accordingly,
the Bureau believed that it was appropriate for the disclosures on the
periodic statement required by Sec. 1026.41(d)(2), (3), and (5) to
identify how payments will be and are applied according to the loan
contract, irrespective of the payment due under the temporary loss
mitigation program, because this is how servicers would actually be
applying the payments under proposed comment 36(c)(1)(i)-4. The Bureau
believed that this treatment would have been appropriate so that the
consumer is kept apprised of how payments are being applied, including
being notified of any delinquency that may be accumulating during a
temporary loss mitigation program.
The Bureau also proposed comment 41(d)-5 to address the disclosures
that servicers must make on the first periodic statement provided to a
consumer after an exemption under Sec. 1026.41(e) terminates. Section
1026.41(d) requires that a periodic statement include three disclosures
concerning account activity that occurred ``since the last statement.''
First, Sec. 1026.41(d)(2)(ii) requires the explanation of amount due
to identify the total sum of any fees or charges imposed since the last
statement. Second, Sec. 1026.41(d)(3)(i) requires the past payment
breakdown to disclose all payments received since the last statement,
including a breakdown showing the amount, if any, that was applied to
principal, interest, escrow, fees and charges, and the amount, if any,
sent to any suspense or unapplied funds account. Finally, Sec.
1026.41(d)(4) requires the transaction activity to include a list of
all transaction activity that occurred since the last statement.
In advance of the proposal, the Bureau had received inquiries
regarding a servicer's disclosure obligations under Sec.
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) for purposes of the first
periodic statement provided after an exemption under Sec. 1026.41(e)
terminates. The Bureau understood that such circumstances might arise
when a servicer provided periodic statements, became exempt from the
requirements for one of the reasons under Sec. 1026.41(e), and the
exemption subsequently terminated, thereby requiring the servicer to
resume providing statements. For example, a servicer may have been
exempt from providing periodic statements for the duration of a
consumer's bankruptcy case, may have provided coupon books but has now
decided to begin providing periodic statements, or may have been exempt
from the periodic statement requirement as a small servicer but no
longer qualifies for that exemption. Alternatively, a mortgage loan
might be transferred from a servicer that provides coupon books or was
an exempt small servicer to a servicer that provides periodic
statements.
Sections 1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) could be
interpreted as requiring the periodic statement to include information
about account activity for the duration of the exemption period--
literally ``since the last statement.'' The Bureau recognized that
there may be benefits to providing a consumer with information
regarding all fees and charges imposed, all payments received and
applied, and all transaction activity that occurred during the
exemption period. A consumer could review this information to determine
if a servicer imposed any erroneous fees, failed to properly credit
payments, or made other mistakes with respect to the consumer's
mortgage loan while the exemption applied. The Sec. 1026.41(d)(2)(ii),
(d)(3)(i), and (d)(4) disclosures, however, generally cover a time
period equivalent to a billing cycle, and the first post-exemption
periodic statement should arguably cover a similar time period. The
proposal would therefore have clarified that the first post-exemption
periodic statement may be limited to disclosing the fees and charges
imposed, payments received and applied, and transaction activity since
the last payment due date that occurred while the exemption was in
effect.
The Bureau believed that consumers and servicers may be better
served if the first post-exemption periodic statement includes account
activity only since the final payment due date that occurred while the
exemption was in effect. The Bureau understood that servicers' systems
are generally not equipped to provide months' or years' worth of
account activity on a single periodic statement. Requiring the
disclosure of all fees and charges imposed, payments received, and
transaction activity during an exemption period, which could have
spanned several months or years, would impose costs on servicers.
Similarly, consumers could be confused or overwhelmed by the receipt of
a periodic statement listing all account activity during a lengthy
exemption period. For example, consumers might believe that listed fees
and charges were presently due, even if the consumer had already paid
them.
[[Page 72302]]
Moreover, including account activity for the duration of the
exemption period would have undermined, in part, the rationale for the
exemptions. For example, Sec. 1026.41(e)(3) recognizes the value of a
coupon book as striking a balance between ensuring consumers receive
important information and providing a low-burden method for servicers
to comply with the periodic statement requirements.\302\ Requiring the
first post-exemption periodic statement to include the disclosures
required under Sec. 1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) for the
duration of the exemption arguably would have upset the balance struck
by the coupon book exemption. Servicers might be forced to maintain the
functional ability to produce periodic statements to account for the
possibility of a change from coupon books to periodic statements or a
loss of the exemption, thus obviating any burden-reduction features of
the exemption.
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\302\ 78 FR 10901, 10973 (Feb. 14, 2013).
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Consumers either receive, or have alternative methods of obtaining,
much of the account information that, under the proposal, would not
have been included in the first post-exemption periodic statement. For
example, consumers who receive coupon books have a right to request the
information set forth in Sec. 1026.41(d)(2)(ii), (d)(3)(i), and
(d)(4). Similarly, for servicers subject to Regulation X's servicing
requirements, a consumer may obtain this information by submitting a
written information request. In addition, even if the first post-
exemption periodic statement does not include the past payment
breakdown since the last pre-exemption periodic statement, Sec.
1026.41(d) requires the statement to identify the total of all payments
received since the beginning of the current calendar year. This year-
to-date information, while not necessarily covering the entire
exemption period, provides consumers with a broad overview of the costs
of their mortgage loan and how their payments are being allocated to
interest or fees as opposed to principal.\303\
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\303\ Id. at 10966.
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Accordingly, the Bureau proposed comment 41(d)-5, which would have
provided that, for purposes of the first periodic statement following
termination of an exemption under Sec. 1026.41(e), the disclosures
required by Sec. 1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be
limited to the period since the final payment due date that occurred
while the exemption was in effect. Proposed comment 41(d)-5 also
provided an illustrative example. The Bureau sought comment on proposed
comment 41(d)-5, including whether to disclose account activity since a
date other than the final payment due date that occurred while the
exemption was in effect.
One industry commenter expressed support for the proposed
clarifications to the periodic statement requirements generally, while
another expressed concern over the costs associated with updating the
periodic statements. A few consumer advocacy groups expressed support
for proposed comment 41(d)-4 and stated that the proposal accurately
reflects the fact that a temporary loss mitigation program does not
change the terms of the loan contract.
For the reasons discussed below, the Bureau is finalizing comments
41(d)-1 through -5 substantially as proposed. Comment 41(d)-1 explains
that Sec. 1026.41(d) requires several disclosures to be provided in
close proximity to one another. It provides that, to meet this
requirement, the items to be provided in close proximity must be
grouped together, and set off from other groupings of items. It further
provides that this may be accomplished in a variety of ways, for
example, by presenting the information in boxes, or by arranging the
items on the document and including spacing between the groupings. It
clarifies that items in close proximity may not have any unrelated text
between them and explains that text is unrelated if it does not explain
or expand upon the required disclosures.
Comment 41(d)-4 explains that, if the consumer has agreed to a
temporary loss mitigation program, the disclosures required by Sec.
1026.41(d)(2), (3), and (5) regarding how payments were and will be
applied must identify how payments are applied according to the loan
contract, regardless of the temporary loss mitigation program. Final
comment 41(d)-4 clarifies the proposed language by explaining that a
servicer must, rather than should, identify how payments are applied
according to the loan contract, regardless of the temporary loss
mitigation program. The Bureau is finalizing this change because it is
mandatory that the disclosures required by Sec. 1026.41(d)(2), (3),
and (5) identify how payments are applied according to the loan
contract. Additionally, the Bureau is finalizing comment 41(d)-4 so
that it discusses only temporary loss mitigation programs, rather than
referring to both temporary loss mitigation programs and loss
mitigation programs.
Comment 41(d)-5 explains that Sec. 1026.41(d)(2)(ii), (d)(3)(i),
and (d)(4) require the disclosure of the total sum of any fees or
charges imposed since the last statement, the total of all payments
received since the last statement, including a breakdown of how
payments were applied, and a list of all transaction activity since the
last statement. It explains that, for purposes of the first periodic
statement provided to the consumer following termination of an
exemption under Sec. 1026.41(e), the disclosures required by Sec.
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be limited to account
activity since the last payment due date that occurred while the
exemption was in effect. It provides an illustrative example.
41(d)(1)
Section 1026.41(d)(1)(iii) provides that the periodic statement
required by Sec. 1026.41(d) must include the amount due, shown more
prominently than other disclosures on the page. The Bureau proposed
Sec. 1026.41(d)(1) commentary to clarify how acceleration, temporary
loss mitigation programs, and permanent loan modification affect
disclosure of the amount due on the periodic statement. Currently, the
Bureau's rules and commentary do not address this issue. The Bureau is
finalizing proposed comment 41(d)(1)-1 regarding acceleration with
revisions. The Bureau is finalizing comment 41(d)(1)-2 regarding
temporary loss mitigation programs as proposed and comment 41(d)(1)-3
regarding permanent loan modifications substantially as proposed.
Proposed comment 41(d)(1)-1 would have provided that, if the
balance of a mortgage loan has been accelerated but the servicer will
accept a lesser amount to reinstate the loan, the amount due disclosed
on the periodic statement under Sec. 1026.41(d)(1) should identify
only the lesser amount that will be accepted to reinstate the loan, not
the entire accelerated balance.
The Bureau is aware that, after accelerating a mortgage loan, a
servicer may accept a lesser amount to reinstate the loan and may
sometimes be required to do so by State law. The Bureau believed that
receiving a periodic statement indicating that the amount due is the
reinstatement amount rather than the full accelerated balance would
make the consumer more likely to pay the reinstatement amount, thereby
possibly preventing foreclosure. The Bureau believed it may confuse
consumers to receive a periodic statement indicating that the amount
due is the full accelerated balanced when, in fact, the consumer is
informed elsewhere that the consumer may pay only the reinstatement
amount. The consumer may be deterred from reading other disclosures or
documents if the
[[Page 72303]]
consumer sees the full accelerated balance as the amount due and
believes payment of that amount is impossible. In that case, the
consumer may not become aware that reinstatement is available, possibly
leading to unnecessary foreclosure.
Proposed comment 41(d)(1)-2 would have provided that, if the
consumer has agreed to a temporary loss mitigation program, the amount
due under Sec. 1026.41(d)(1) may identify either the payment due under
the temporary loss mitigation program or the amount due according to
the loan contract. The Bureau believed that it may be confusing for
consumers who have agreed to a loss mitigation program to receive a
periodic statement identifying the amount due under the loan contract
when that amount is different from the payment due under the temporary
loss mitigation program. Accordingly, the Bureau proposed that
servicers may, but are not required to, identify the payment due under
the temporary loss mitigation program, instead of the amount due
according to the loan contract.
The Bureau did not propose to require that the payment due under
the temporary loss mitigation program must be identified as the amount
due for two primary reasons. First, because a temporary loss mitigation
program does not change the underlying legal obligation, the Bureau
believed it may be inappropriate to require a servicer to modify
periodic statements whenever a consumer agrees to a temporary loss
mitigation program. Second, the Bureau was concerned that imposing
additional requirements on servicers when a consumer agrees to a
temporary loss mitigation program could deter servicers from offering
temporary loss mitigation programs.
The Bureau solicited comment on whether, if the consumer has agreed
to a temporary loss mitigation program, servicers should be required,
rather than permitted, to identify the amount due under Sec.
1026.41(d)(1) as the payment due under the temporary loss mitigation
program, rather than the amount due according to the loan contract.
Proposed comment 41(d)(1)-3 would have provided that, if the loan
contract has been permanently modified, the amount due under Sec.
1026.41(d)(1) should identify only the amount due under the modified
loan contract. The Bureau believed that the periodic payment should
reflect the contractual obligation; once the loan contract has been
permanently modified, the terms of the modified loan contract govern
the periodic payment determination, not the terms of the contract pre-
modification.
The Bureau received a number of comments in response to the
proposed Sec. 1026.41(d)(1) commentary. The majority of industry
commenters expressed concern over the explanation in proposed comment
41(d)(1)-1 that, if the balance of the mortgage loan has been
accelerated but the servicer will accept a lesser amount to reinstate
the loan, the amount due under Sec. 1026.41(d)(1) must identify only
the lesser amount that will be accepted to reinstate the loan. Several
of these commenters stated that disclosing the reinstatement amount on
the periodic statement as proposed would not be feasible, as this value
changes frequently, even daily. They stated that servicers could not be
expected to disclose a reinstatement amount that would remain accurate
until the periodic payment due date disclosed on the periodic
statement. One industry commenter stated that reinstatement amounts are
often manually calculated and that the proposal would necessitate
implementation of expensive, automated systems. This commenter also
said that the proposal was unclear as to whether a servicer would be
required to accept the disclosed reinstatement amount after it is no
longer accurate. Another industry commenter expressed that the
reinstatement amount depends on the expenses incurred by third parties
on behalf of servicers and stated that servicers would have no cause to
stop such third-party activities unless they had received an indication
from the consumer that the consumer sought to reinstate the loan.
A few industry commenters recommended that the Bureau address
concerns over frequent changes to the reinstatement amount by
permitting servicers to disclose a reinstatement amount that is ``good
through'' a specified date. These commenters stated that disclosing the
good through date would clarify that the disclosed reinstatement amount
may only be available for a specified period of time, and that this
specified period of time may not coincide with the consumer's payment
due date.
Some industry commenters urged the Bureau to require only that
servicers provide a general disclosure when a loan is accelerated. One
commenter expressed support for the Bureau's goal of making the
periodic statement seem less daunting for delinquent consumers. It
stated, however, that this goal would be more effectively carried out
if servicers provided a generic clarification on the periodic statement
that, although the fully accelerated balance is the total amount owed
on the loan, the consumer may have the right to request a quote for a
lower reinstatement amount. This commenter recommended that the
periodic statement include contact information for the mortgage
servicer's payoff and reinstatement departments.
Several consumer advocacy groups expressed support for proposed
comment 41(d)(1)-1. These commenters stated that otherwise disclosing
the amount due on the periodic statement as the fully accelerated
amount may cause consumer confusion.
A few industry commenters expressed concern with proposed comment
41(d)(1)-2. These commenters stated that identifying an amount due
other than what is legally required under the loan contract could lead
to consumer confusion. They further expressed that disclosing this
amount would provide little benefit to consumers, as consumers would
already be aware of the terms of the loss mitigation program.
In contrast, several consumer advocacy groups stated that, when a
consumer and servicer have entered into a contract for temporary loss
mitigation, the consumer may be confused if the periodic statement
discloses the contractual amount due. These commenters stated that
consumers may believe the contractual amount is the amount they are
required to pay and may also believe that the servicer has terminated
or will not comply with the terms of the temporary loss mitigation
program. Some consumer advocacy groups expressed that the costs to
servicers associated with changing the amount due on the periodic
statement to reflect the terms of the temporary loss mitigation program
would be minimal. These commenters further stated that any such costs
would not deter servicers from offering temporary loss mitigation
programs to consumers, as many servicers must extend such offers
pursuant to investor requirements. One consumer advocacy group
suggested that servicers identify the amount due under the loan
contract if the loss mitigation program is expected to be 90 days or
less and otherwise identify the amount due under the temporary loss
mitigation plan. It stated that the proposal may lead to consumer
confusion as to the validity of the loss mitigation program.
For the reasons discussed below, the Bureau is finalizing comment
41(d)(1)-1 with changes from the proposal. It is finalizing comment
41(d)(1)-2 as proposed and is finalizing comment 41(d)(1)-3
substantially as proposed.
The Bureau understands that proposed comment 41(d)(1)-1 could have
posed compliance difficulties. As
[[Page 72304]]
noted by commenters, the reinstatement amount may frequently change,
which could make it difficult to disclose a reinstatement amount on the
periodic statement that will remain accurate until the consumer's
payment due date. Accordingly, the Bureau is finalizing comment
41(d)(1)-1 with changes from the proposal.
Final comment 41(d)(1)-1 provides that, if the balance of a
mortgage loan has been accelerated but the servicer will accept a
lesser amount to reinstate the loan, the amount due under Sec.
1026.41(d)(1) must identify only the lesser amount that will be
accepted to reinstate the loan. It further explains that the periodic
statement must be accurate when provided and should indicate, if
applicable, that the amount due is accurate only for a specified period
of time. It provides that, for example, the statement may include
language such as ``as of [date]'' or ``good through [date]'' and
provide an amount due that will reinstate the loan as of that date or
good through that date, respectively.
Comment 41(d)(1)-1 provides a flexible standard for disclosing the
reinstatement amount. Servicers may disclose that the reinstatement
amount is accurate for only a specified time, thus reducing concerns
about consumer confusion when a reinstatement amount changes between
the date the amount is disclosed on the periodic statement and the date
the consumer's payment is due. For example, if the servicer discloses
that the reinstatement amount is ``good through'' a specific date, the
reinstatement amount must be accepted through that date to reinstate
the loan, even if that date is different from the date on which the
consumer's payment is due. Additionally, consumers should benefit by
having information on the statement indicating that the reinstatement
amount is accurate, or will remain accurate, for only a specified time.
A general disclosure, as suggested by some commenters, would be less
effective in helping consumers understand the specific amount that the
consumer can pay to reinstate the loan and possibly avoid unnecessary
foreclosure. The Bureau understands that calculating the reinstatement
amount for purposes of this disclosure may increase costs to servicers,
as suggested by one commenter. However, the Bureau believes that final
comment 41(d)(1)-1 may alleviate some of the costs that the proposal
could have imposed, and that there are benefits to consumers associated
with disclosure of the reinstatement amount. The Bureau also
understands that servicers may already be required to disclose this
information to consumers under State law.
Permitting servicers to disclose an ``as of [date]'' enables
servicers to disclose a reinstatement amount that accurately captures
the amount of fees that have actually been incurred as of the date the
periodic statement is provided. It avoids servicers having to make an
estimate of future fees. If servicers instead disclose a ``good through
[date],'' the reinstatement amount may include an estimate of future
fees that have not yet been incurred at the time the periodic statement
is provided. If any information necessary for an accurate disclosure
under subpart E of Regulation Z is unknown to the servicer, the
servicer must make the disclosure based on the best information
reasonably available at the time the disclosure is provided.\304\ The
disclosure shall state clearly that the disclosure is an estimate and
describe the circumstances under which the disclosure may change.\305\
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\304\ See 12 CFR 1026.17(c)(1) and 1026.31(d)(2).
\305\ Id.
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The Bureau recognizes that, where servicers are estimating future
fees, servicers may overestimate or underestimate the actual amount of
these unincurred fees. The Bureau understands that, under applicable
State and Federal law, consumers would have a right to recover any fees
that are paid based on the disclosed reinstatement amount but that the
servicer does not actually incur during the time between when the
periodic statement is provided and the ``good through'' date.
Alternatively, any bona fide charges from third parties incurred during
the time between when the periodic statement is provided and the ``good
through'' date could still be accepted from the consumer after
reinstatement, where permitted by applicable State law.
Additionally, final comment 41(d)(1)-1 explains that, if the
balance of a mortgage loan has been accelerated but the servicer will
accept a lesser amount to reinstate the loan, the amount due under
Sec. 1026.41(d)(1) must, rather than should, identify only the lesser
amount that will be accepted to reinstate the loan. As the Bureau has
explained, in these situations consumers will benefit from a periodic
statement indicating that the amount due is the reinstatement amount.
Additionally, the changes adopted in the final rule should facilitate
servicers' compliance with comment 41(d)(1)-1.
The Bureau is adopting comment 41(d)(1)-2 as proposed. Comment
41(d)(1)-2 provides that, if the consumer has agreed to a temporary
loss mitigation program, the amount due under Sec. 1026.41(d)(1) may
identify either the payment due under the temporary loss mitigation
program or the amount due according to the loan contract. Industry
commenters generally stated that the disclosed amount due should
reflect the amount due under the loan contract, while most consumer
advocacy groups stated that the disclosed amount due should reflect the
amount required to be paid pursuant to the temporary loss mitigation
program. The Bureau continues to believe, as explained in the proposal,
that it may be confusing for consumers who have agreed to a loss
mitigation program to receive a periodic statement identifying the
amount due under the loan contract when that amount is different from
the payment due under the temporary loss mitigation program. At the
same time, requiring servicers to modify periodic statements whenever a
consumer agrees to a temporary loss mitigation program may be costly
for servicers. Accordingly, where a consumer has agreed to a temporary
loss mitigation program, the Bureau believes that permitting, but not
requiring, servicers to disclose the amount due under the temporary
loss mitigation program appropriately balances consumer and servicer
interests.
The Bureau did not receive any comments on proposed comment
41(d)(1)-3 and is finalizing the comment substantially as proposed.
Comment 41(d)(1)-3 provides that, if the loan contract has been
permanently modified, the amount due under Sec. 1026.41(d)(1) must
identify only the amount due under the modified loan contract. Comment
41(d)(1)-3 clarifies the proposed language by explaining that the
amount due under Sec. 1026.41(d)(1) must, rather than should, identify
only the amount due under the modified loan contract. As the Bureau has
explained, once a loan has been permanently modified, the obligation
under the unmodified loan contract is not relevant to the periodic
statement.
41(d)(2)
Section 1026.41(d)(2)(i) provides that the explanation of amount
due on periodic statements required by Sec. 1026.41 must include the
monthly payment amount, including a breakdown showing how much, if any,
will be applied to principal, interest, and escrow (if applicable) and,
if a mortgage loan has multiple payment options, a breakdown of each of
the payment options along with information on whether the principal
balance will
[[Page 72305]]
increase, decrease, or stay the same for each option listed. The Bureau
proposed Sec. 1026.41(d)(2) commentary to clarify how acceleration and
temporary loss mitigation programs affect disclosure of the explanation
of amount due on the periodic statement. The Bureau's rules and
commentary do not currently address this issue. The Bureau proposed
this Sec. 1026.41(d)(2) commentary in conjunction with proposed Sec.
1026.41(d)(1) commentary, as discussed in the section-by-section
analysis of Sec. 1026.41(d)(1). The Bureau is finalizing the proposed
Sec. 1026.41(d)(2) commentary with revisions.
Proposed comment 41(d)(2)-1 would have provided that, if the
balance of a mortgage loan has been accelerated but the servicer will
accept a lesser amount to reinstate the loan, the explanation of amount
due under Sec. 1026.41(d)(2) should omit the monthly payment amount
that would generally be required under Sec. 1026.41(d)(2)(i) and
should include both the reinstatement amount and the accelerated
amount. The proposed comment would have provided that the statement
must also include an explanation that the reinstatement amount will be
accepted to reinstate the loan. The proposed comment would have
required that this explanation be on the front page of the statement
or, alternatively, be included on a separate page enclosed with the
periodic statement or in a separate letter.
The Bureau proposed comment 41(d)(2)-1 because, given that the
amount due will reflect the reinstatement amount, the Bureau believed
that the periodic statement should elsewhere identify the accelerated
balance, which is the amount that the consumer technically owes under
the loan contract. The Bureau believed that the explanation of amount
due is where this disclosure is most appropriate. The Bureau proposed
that the monthly payment amount be omitted from the explanation of
amount due after acceleration because the Bureau believed that, once a
loan has been accelerated, the monthly payment obligation is not
relevant to the consumer, as the servicer will no longer accept this
amount.
Because identification of both the reinstatement amount and the
accelerated amount in the explanation of amount due may present some
possibility of misleading consumers, the Bureau believed that the
periodic statement should also include an explanation indicating that
the reinstatement amount will be accepted to reinstate the loan.
Consistent with the requirement under Sec. 1026.41(d)(5) that partial
payment information must be on the front page of the periodic statement
or, alternatively, may be included on a separate page enclosed with the
statement or in a separate letter, the Bureau believed it was
appropriate that this explanation should be on the front page of the
periodic statement or, alternatively, may be included on a separate
page enclosed with the statement or in a separate letter.
Several industry commenters expressed concern with proposed comment
41(d)(2)-1. These commenters stated that including both the
reinstatement amount and the accelerated loan balance in the
explanation of amount due could lead to consumer confusion. Many of
these industry commenters asserted that, where a servicer will accept a
lesser amount to reinstate the loan, there is no need to disclose the
accelerated loan balance on the periodic statement. One industry
commenter stated that there is often a significant difference between
the reinstatement amount and the accelerated amount, and that
disclosing the accelerated amount could be overwhelming to consumers.
Several industry commenters requested that servicers not be
required to disclose this amount or be permitted to disclose that this
amount was an estimate. One industry commenter stated that it was
unclear how the accelerated amount should be accurately disclosed on
the periodic statement, and that programing systems to include the
accelerated amount on the periodic statement could be complicated.
Another industry commenter expressed concern that the proposal might
have required servicers to provide a payoff amount in the periodic
statement, and stated that payoff statements are difficult to produce
because the amount required to pay off a loan can change daily. Some
industry commenters requested that the final rule permit servicers to
include language explaining that the payoff amount is distinct from the
accelerated amount and reinstatement amount.
Several consumer advocacy groups stated that, after acceleration,
many servicers have specific requirements as to how the reinstatement
amount must be paid that are distinct from the requirements pertaining
to periodic payments. These commenters expressed that, for example,
servicers may require that the reinstatement amount be submitted in the
form of a certified check to the attorney handling the foreclosure on
behalf of the servicer. These commenters recommended that the rule
require that the periodic statement include an explanation of any
requirements the consumer must follow in paying the reinstatement
amount. Another consumer advocacy group stated that information
regarding the accelerated balance should be clearly located to avoid
confusing the consumer, whether on the periodic statement or in the
same enclosure as the periodic statement.
Proposed comment 41(d)(2)-2 would have provided that, if the
consumer has agreed to a temporary loss mitigation program and the
amount due on the periodic statement identifies the payment due under
the temporary loss mitigation program, the explanation of amount due
under Sec. 1026.41(d)(2) should include both the amount due according
to the loan contract and the payment due under the temporary loss
mitigation program. The proposed comment would have provided that the
statement should also include an explanation that the amount due is
being disclosed as a different amount because of the temporary loss
mitigation program. The proposed comment would have also provided that
this explanation should be on the front page of the statement or,
alternatively, may be included on a separate page enclosed with the
periodic statement or in a separate letter.
The Bureau believed that, when the amount due is disclosed on the
periodic statement as the payment due under the temporary loss
mitigation program, the periodic statement should elsewhere identify
the amount due according to the loan contract, as this amount is
significant information that the consumer should have. For example,
under proposed comment 36(c)(1)(i)-4, the amount due according to the
loan contract would be the amount promptly credited by the servicer.
The Bureau believed that the explanation of amount due under Sec.
1026.41(d)(2) is where this disclosure is most appropriate.
Because identification of both the payment due under the temporary
loss mitigation program and the amount due according to the loan
contract could present some possibility of consumer confusion, the
Bureau believed that the statement should also include an explanation
indicating that the amount due is being disclosed as a different amount
than the amount due under the loan contract because of the temporary
loss mitigation program. Again, consistent with the requirement under
Sec. 1026.41(d)(5) that partial payment information must be on the
front page of the statement or, alternatively, may be included on a
separate page enclosed with the periodic statement or in a separate
letter, the Bureau believed it
[[Page 72306]]
was appropriate that this explanation should be on the front page of
the statement or, alternatively, may be included on a separate page
enclosed with the periodic statement or in a separate letter.
Comments regarding the disclosure of the amount due on the periodic
statement when a consumer is participating in a temporary loss
mitigation program are discussed in the section-by-section analysis of
Sec. 1026.41(d)(1).
The Bureau is finalizing comments 41(d)(2)-1 and -2 with changes
from the proposal. The Bureau understands that proposed comment
41(d)(2)-1 could have caused consumer uncertainty as to the meaning of
the accelerated amount or the reinstatement amount. The Bureau
continues to believe that consumers will benefit if the periodic
statement includes both the reinstatement amount and the accelerated
amount in the explanation of amount due. However, consumers may further
benefit if servicers are permitted to include additional, relevant
information in the explanation of amount due. Accordingly, the Bureau
is finalizing comment 41(d)(2)-1 with changes.
Final comment 41(d)(2)-1 explains that, if the balance of a
mortgage loan has been accelerated but the servicer will accept a
lesser amount to reinstate the loan, the explanation of amount due
under Sec. 1026.41(d)(2) must list both the reinstatement amount that
is disclosed as the amount due and the accelerated amount, but not the
monthly payment amount that would otherwise be required under Sec.
1026.41(d)(2)(i). Comment 41(d)(2)-1 further provides that the periodic
statement must also include an explanation that the reinstatement
amount will be accepted to reinstate the loan through the ``as of
[date]'' or ``good through [date],'' as applicable, along with any
special instructions for submitting the payment. It provides that the
explanation should be on the front page of the statement or,
alternatively, may be included on a separate page enclosed with the
periodic statement. Finally, comment 41(d)(2)-1 provides that the
explanation may include related information, such as a statement that
the amount disclosed is ``not a payoff amount.''
As the Bureau has previously explained, the accelerated amount is
the amount that the consumer technically owes under the loan contract
and is significant information that the consumer should have.
Additionally, the Bureau believes the burden on servicers associated
with providing the accelerated amount should be limited. The Bureau
notes that some industry commenters requested that the final rule
permit servicers to disclose an estimate of the accelerated amount
because of the difficulty associated with disclosing an accurate
accelerated amount. However, as discussed in the section-by-section
analysis of Sec. 1026.41(d)(1), if any information necessary for an
accurate disclosure is unknown to the servicer, the servicer must make
the disclosure based on the best information reasonably available at
the time the disclosure is provided and shall state clearly that the
disclosure is an estimate, consistent with Regulation Z's provisions
for the disclosure of estimates.\306\ The Bureau believes this
provision accounts for situations where a servicer may not have
sufficient information to calculate the accelerated amount accurately.
Final comment 41(d)(2)-1 also clarifies that the reinstatement amount
listed in the explanation of amount due under Sec. 1026.41(d)(2) must
be the reinstatement amount that is disclosed as the amount due.
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\306\ See Sec. Sec. 1026.17(c)(1) and 1026.31(d)(2).
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Additionally, as discussed in the section-by-section-analysis of
Sec. 1026.41(d)(1), the Bureau understands that reinstatement amounts
may change with some frequency. Consistent with final comment 41(d)(1)-
1, the Bureau is finalizing comment 41(d)(2)-1 to explain that the
periodic statement must include language stating that the reinstatement
amount will be accepted to reinstate the loan through the ``as of
[date]'' or ``good through [date],'' as applicable.
The Bureau also understands from comments received that servicers
may place certain conditions on the acceptance of the reinstatement
amount, for example, requiring payment by certified check or to a
specific address. Final comment 41(d)(2)-1 addresses this possibility
by requiring that any special instructions for submitting the payment
be included in the periodic statement. This explanation should prevent
consumers from missing an opportunity to reinstate the loan simply
because they are unaware of the specific form or manner in which the
reinstatement amount must be remitted. Additionally, consumers may
benefit if the explanation of the reinstatement amount is included on
the periodic statement or enclosed with the periodic statement.
Accordingly, final comment 41(d)(2)-1 does not permit this explanation
to be provided in a separate letter.
Final comment 41(d)(2)-1 also provides that the explanation on the
periodic statement regarding the reinstatement amount may also include
related information, such as a statement that the amount disclosed is
``not a payoff amount.'' This provision enables servicers to provide
further clarification and relevant, additional information to consumers
in the explanation of amount due required by Sec. 1026.41(d)(2). For
example, servicers could include information on the periodic statement
regarding the distinction between the payoff amount and the
reinstatement and accelerated amounts. Permitting this additional
information addresses concerns about consumer uncertainty as to the
meaning of the reinstatement or accelerated amounts as compared to the
payoff amount. Additionally, servicers disclosing an estimated
accelerated amount may include in the explanation of amount due
relevant information regarding, for example, circumstances under which
the estimate may change.
The Bureau is finalizing comment 41(d)(2)-2 substantially as
proposed. Comment 41(d)(2)-2 explains that, if the consumer has agreed
to a temporary loss mitigation program and the amount due identifies
the payment due under the temporary loss mitigation program, the
explanation of amount due under Sec. 1026.41(d)(2) must include both
the amount due according to the loan contract and the payment due under
the temporary loss mitigation program. It further explains that the
statement must also include an explanation that the amount due is being
disclosed as a different amount because of the temporary loss
mitigation program. Finally, it states that the explanation should be
on the front page of the statement or, alternatively, may be included
on a separate page enclosed with the periodic statement or in a
separate letter.
Final comment 41(d)(2)-2 clarifies that the explanation of amount
due under Sec. 1026.41(d)(2) must, rather than should, include both
the amount due according to the loan contract and the payment due under
the temporary loss mitigation program. The final rule also explains
that the statement must, rather than should, include an explanation
that the amount due is being disclosed as a different amount because of
the temporary loss mitigation program. Under these circumstances,
requiring servicers to include this information in the explanation of
amount due will benefit consumers. Additionally, as servicers will
already know the amount due under the loan contract and be aware that
the consumer is participating in a temporary loss mitigation program,
requiring this additional information provides an important consumer
protection without imposing a
[[Page 72307]]
significant additional burden on servicers.
41(d)(8)
Section 1026.41(d)(8) requires a servicer to include a so-called
``delinquency box'' containing certain prescribed information in
periodic statements sent to consumers who are more than 45 days
delinquent.\307\ The Bureau proposed certain revisions to Sec.
1026.41(d)(8) to align the requirements of that section with the
proposed definition of delinquency under Regulation X Sec. 1024.31.
The Bureau proposed to revise Sec. 1026.41(d)(8) and add commentary to
mirror the language in proposed Sec. 1024.31 (Delinquency) and its
related comments.
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\307\ 12 CFR 1026.41(d)(8).
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Current Sec. 1026.41(d)(8) requires a servicer to include in each
periodic statement certain information about a consumer's delinquency
when the consumer is more than 45 days delinquent, including the date
on which the consumer became delinquent. However, Regulation Z
currently does not include an explanation of how a servicer must
determine the length of a consumer's delinquency. The Bureau explained
that it may confuse consumers if a servicer calculates the length of
delinquency pursuant to Sec. 1026.41(d)(8)(i) differently from the
length of delinquency for purposes of the servicing requirements in
subpart C of Regulation X. As such, the Bureau proposed Regulation Z
comment 41(d)(8)-1, which mirrored the proposed Regulation X definition
of delinquency in Sec. 1024.31 and accompanying comment 31
(Delinquency)-1. Proposed Regulation Z comment 41(d)(8)-1 would have
clarified that delinquency begins on the date a consumer misses a
payment of principal, interest, and escrow (if applicable),
notwithstanding any grace period the servicer affords the consumer.
In addition, the Bureau proposed to add comment 41(d)(8)-2 to
address how a creditor must disclose the length of a consumer's
delinquency as required by Sec. 1026.41(d)(8) if a servicer applies a
consumer's payment to the oldest outstanding delinquency first. As
discussed in the section-by-section analysis of Sec. 1024.31, the
Bureau proposed a comment to the definition of delinquency to clarify
that, if a servicer applies a borrower's payment to the oldest
outstanding delinquency, the servicer must advance the date of the
borrower's delinquency for purposes of calculating the length of a
borrower's delinquency under the various applicable provisions of
Regulation X's mortgage servicing rules. To ensure that a servicer's
method of calculating the length of the consumer's delinquency for
purposes of Regulation Z Sec. 1026.41(d)(8)(i) was consistent with the
method for doing the same under the proposed definition of delinquency
in Regulation X, the Bureau proposed to include the same commentary in
proposed Regulation Z comment 41(d)(8)-2.
Finally, the Bureau proposed to revise Sec. 1026.41(d)(8)(i) to
harmonize its language with the notion that the date a consumer's
delinquency begins advances if the servicer applies payments to the
oldest outstanding delinquency. Current Sec. 1026.41(d)(8)(i) requires
servicers to include the date on which the consumer became delinquent
on a delinquent consumer's periodic statement. The Bureau believed that
including that date could lead to consumer uncertainty if related
proposed comment 41(d)(8)-2 was adopted. Accordingly, the Bureau
proposed to revise Sec. 1026.41(d)(8)(i) to require servicers to
instead disclose the length of a consumer's delinquency as of the date
of the periodic statement.
A consumer advocacy group expressed support for the proposed
revisions to Sec. 1026.41(d)(8) and stated that consumers will benefit
from the disclosure of the length of the delinquency.
The Bureau is finalizing Sec. 1026.41(d)(8)(i) and comments
41(d)(8)-1 and -2 substantially as proposed. Final Sec.
1026.41(d)(8)(i) explains that servicers must disclose on the periodic
statement the length of the consumer's delinquency. It omits proposed
language regarding ``as of the date of the periodic statement,'' as the
Bureau is incorporating this statement into final comment 41(d)(8)-1.
Final comment 41(d)(8)-1 explains that, for purposes of Sec.
1026.41(d)(8), the length of a consumer's delinquency is measured as of
the date of the periodic statement or the date of the written notice
provided under Sec. 1026.41(e)(3)(iv). A consumer's delinquency begins
on the date an amount sufficient to cover a periodic payment of
principal, interest, and escrow, if applicable, becomes due and unpaid,
even if the consumer is afforded a period after the due date to pay
before the servicer assesses a late fee. It further explains that a
consumer is delinquent if one or more periodic payments of principal,
interest, and escrow, if applicable, are due and unpaid. Final comment
41(d)(8)-1 includes a change from the proposal to address a situation
where a servicer provides the consumer a coupon book under Sec.
1026.41(e)(3) and is exempt from the periodic statement requirements
under Sec. 1026.41(a)(2). Section 1026.41(e)(3)(iv) requires the
servicer to provide the consumer the information listed in Sec.
1026.41(d)(8) in writing for any billing cycle during which the
consumer is more than 45 days delinquent. Proposed Sec.
1026.41(d)(8)(i), which would have referred to the length of the
consumer's delinquency only as of the date of the periodic statement,
did not account for situations where the servicer provides a coupon
book under Sec. 1026.41(e)(3). Accordingly, the Bureau is finalizing
comment 41(d)(8)-1 to also clarify how the length of a consumer's
delinquency is determined when a servicer provides a written notice
under Sec. 1026.41(e)(3)(iv).
Final comment 41(d)(8)-2 provides that, for purposes of Sec.
1026.41(d)(8), if a servicer applies payments to the oldest outstanding
periodic payment, a payment by a delinquent consumer advances the date
the consumer's delinquency began. It provides an illustrative example.
Legal Authority
The amendments to Sec. 1026.41(d) implement section 128(f)(1)(H)
of TILA, which requires inclusion in periodic statements of any
information that the Bureau may prescribe by regulation.
41(e) Exemptions
41(e)(4) Small Servicers
41(e)(4)(iii) Small Servicer Determination
The Bureau proposed to amend certain criteria for determining
whether a servicer qualifies for the small servicer exemption under
Sec. 1026.41(e)(4). For purposes of determining whether a servicer
qualifies as a small servicer, current Sec. 1026.41(e)(4)(iii)
excludes from consideration certain types of mortgage loans, including
mortgage loans voluntarily serviced by the servicer for a creditor or
assignee that is not an affiliate of the servicer and for which the
servicer does not receive any compensation or fees. The proposal would
have removed the requirement from Sec. 1026.41(e)(4)(iii)(A) that the
non-affiliate be a creditor or assignee and would have added a new
provision Sec. 1026.41(e)(4)(iii)(D) to exclude from the small
servicer determination transactions serviced by a servicer for a seller
financer that meet all of the criteria identified in Sec.
1026.36(a)(5).\308\
[[Page 72308]]
For the reasons discussed below, the Bureau is adopting, as proposed,
Sec. 1026.41(e)(4)(iii)(A) and (D).
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\308\ Section 1026.36(a)(5) provides that, to be considered a
seller financer, a person must (1) provide financing for the sale of
only one property in any 12-month period, (2) not have constructed a
residence on the property in the ordinary course of business, and
(3) provide financing that meets certain interest rate criteria and
does not result in negative amortization. See the section-by-section
analysis of Sec. 1026.41(e)(4)(iii)(D) for additional details.
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The Bureau's mortgage servicing rules exempt small servicers from
certain mortgage servicing requirements. Regulation Z exempts small
servicers, defined in Sec. 1026.41(e)(4)(ii), from the requirement to
provide periodic statements for residential mortgage loans.\309\
Regulation X incorporates this same definition by reference to Sec.
1026.41(e)(4) \310\ and thereby exempts small servicers from: (1)
Certain requirements relating to obtaining force-placed insurance;
\311\ (2) the general servicing policies, procedures, and requirements;
\312\ and (3) certain requirements and restrictions relating to
communicating with borrowers about, and evaluation of applications for,
loss mitigation options.\313\
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\309\ See Sec. 1026.41(a), (e)(4). For loans serviced by a
small servicer, a creditor or assignee is also exempt from the
Regulation Z periodic statement requirements. See Sec.
1026.41(e)(4)(i).
\310\ See 12 CFR 1024.17(k)(5); 1024.30(b)(1); 1024.41(j).
\311\ 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed
insurance in certain circumstances).
\312\ 12 CFR 1024.30(b)(1) (exempting small servicers from
Sec. Sec. 1024.38 through 1024.41, except as otherwise provided
under Sec. 1024.41(j), as discussed in note 313, infra). Sections
1024.38 through 1024.40 respectively impose general servicing
policies, procedures, and requirements; early intervention
requirements for delinquent borrowers; and policies and procedures
to maintain continuity of contact with delinquent borrowers.
\313\ See 12 CFR 1024.41 (loss mitigation procedures). Though
exempt from most of the rule, small servicers are subject to the
prohibition of foreclosure referral before the loan obligation is
more than 120 days delinquent and may not make the first notice or
filing for foreclosure if a borrower is performing pursuant to the
terms of an agreement on a loss mitigation option. 12 CFR
1024.41(j).
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Under Sec. 1026.41(e)(4)(ii), a small servicer is a servicer that:
(1) Services, together with any affiliates,\314\ 5,000 or fewer
mortgage loans, for all of which the servicer (or an affiliate) is the
creditor or assignee; (2) is a Housing Finance Agency, as defined in 24
CFR 266.5; or (3) is a nonprofit entity that services 5,000 or fewer
mortgage loans, including any mortgage loans serviced on behalf of
associated nonprofit entities, for all of which the servicer or an
associated nonprofit entity is the creditor. Generally, under Sec.
1026.41(e)(4)(ii)(A), a servicer cannot be a small servicer if it
services any loan for which the servicer or its affiliate is not the
creditor or assignee. As noted above, current Sec. 1026.41(e)(4)(iii)
excludes from the small servicer determination certain mortgage loans
voluntarily serviced by the servicer.
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\314\ Affiliate is defined in Sec. 1026.32(b)(5) as any company
that controls, is controlled by, or is under common control with
another company, as set forth in the Bank Holding Company Act of
1956, 12 U.S.C. 1841 et seq. (BHCA). Under the BHCA, a company has
control over another company if it (i) ``directly or indirectly . .
. owns, controls, or has power to vote 25 per centum or more of any
class of voting securities'' of the other company; (ii) ``controls .
. . the election of a majority of the directors or trustees'' of the
other company; or (iii) ``directly or indirectly exercises a
controlling influence over the management or policies'' of the other
company (based on a determination by the Board). 12 U.S.C.
1841(a)(2).
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In the 2012 RESPA Servicing Proposal, the Bureau proposed the
exclusion from the small servicer determination for voluntarily
serviced mortgage loans \315\ and received one comment from a national
trade association requesting guidance regarding certain depository
services some of its bank members provide for depositors who ``owner-
finance'' the sale of residential real estate. At that time, the Bureau
did not have sufficient information about the described service.\316\
Since that time, the Bureau learned that certain depository
institutions, which may otherwise qualify for the small servicer
exemption, service for their depository customers seller-financed sales
of residential real estate.\317\
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\315\ 78 FR 25638, 25644 (May 2, 2013).
\316\ 78 FR 44685, 44697-98 (July 24, 2013).
\317\ For ease of review, the section-by-section analyses of
Sec. 1026.41(e)(4)(iii), (e)(4)(iii)(A), and (e)(4)(iii)(D) discuss
the concept of seller financing and the practice of seller-financed
sales of residential real estate in general terms, except when
specifying that the analyses refer directly to the term seller
financer as defined under Sec. 1026.36(a)(4) or (5).
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The Bureau understands that certain banks, particularly in small or
remote communities, provide their customers this service when there may
not be an alternative service provider in the state. The Bureau
understands that, under these arrangements, depository institutions
typically receive scheduled periodic payments from the purchaser of the
property pursuant to the terms of the sale and deposit into the account
of the seller (the depository institution's customer) the payments of
principal and interest and such other payments with respect to the
amounts received from the purchaser as may be required pursuant to the
terms of the sale.\318\ The Bureau understands that these arrangements
typically involve small seller financers who are not affiliates of the
servicer, do not regularly extend consumer credit, and would not
qualify as a creditor \319\ or an assignee in their own right. The
Bureau understands that depository institutions typically charge a fee
for servicing these seller-financed transactions. The Bureau further
understands that in some cases, however, depository institutions may
elect to service voluntarily these seller-financed sales of residential
real estate on behalf of their depository customers without receiving
any compensation or fees. In either scenario, under the current rule, a
depository institution that services even a single seller-financed sale
of residential real estate would likely no longer qualify for the small
servicer exemption and would be subject to all of the applicable
mortgage servicing rules for all of the mortgage loans that it
services, including those that would otherwise be exempt as being owned
or originated by the servicer.
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\318\ See 12 U.S.C. 2605(i)(3) (definition of servicing
applicable to TILA, as amended by section 1401 of the Dodd-Frank
Act).
\319\ To be considered a creditor under TILA, a person generally
must extend consumer credit for transactions secured by a dwelling
more than five times in the preceding calendar year. Sec.
1026.2(a)(17)(v). However, the Bureau notes that the threshold is
lower for high-cost mortgages subject to Sec. 1026.32; a person
regularly extends credit if, in any 12-month period, the person
originates more than one credit extension that is subject to Sec.
1026.32, or one or more such credit extensions through a mortgage
broker. Id.
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To address these scenarios, in issuing the proposal, the Bureau
sought comment on whether it would be appropriate to exclude from the
small servicer determination mortgage loans voluntarily serviced by the
servicer for a non-affiliate that is not a creditor or assignee, or
transactions serviced by a servicer for a seller financer that meet all
of the criteria identified in the definition of seller financer under
Sec. 1026.36(a)(5). The Bureau also sought comment on whether to
exclude from the small servicer determination existing mortgage loans
that meet the criteria of proposed Sec. 1026.41(e)(4)(iii)(A) and (D).
The Bureau received several comments supporting the proposed
amendments to Sec. 1026.41(e)(4)(iii)(A) and (D). The commenters
included credit union associations, trade associations, a nationwide
association of State regulators, and a community bank. No commenters
opposed these proposed amendments.
Some commenters recommended that the Bureau adopt additional
revisions, beyond those contemplated in the proposal, to expand the
reach of the small servicer exemption. Several commenters recommended
including additional types of transactions that could be exempt from
the small servicer determination. One trade association suggested that
the small servicer
[[Page 72309]]
exemption apply for all institutions that are community banks, a term
that the rule would define. Several commenters also recommended that
the Bureau raise the small servicer threshold under Sec.
1026.41(e)(4)(ii) from 5,000 loans to 10,000 loans. One trade
association recommended that the Bureau introduce a de minimis standard
for servicing loans not owned or originated by the servicer. The Bureau
declines to adopt these recommended approaches and considers these
comments to be outside of the scope of the proposal, which did not
contemplate altering the 5,000 loan threshold or exempting additional
types of transactions.
One commenter suggested that the servicing rules do not apply to
long-term escrow companies or contract collection companies because
such companies are not considered servicers and their activities should
not be considered mortgage loan servicing. In part, the commenter
predicated this assertion upon the nature of these companies, arguing
that they are not in control of the loan, do not represent the lender
in foreclosure matters, and cannot force-place insurance. The Bureau
notes that the presence or absence of these factors is not
determinative as to whether an entity qualifies as a servicer. TILA
section 103(cc)(7) defines servicer to have the same meaning as in
RESPA section 6(i)(2), which defines a servicer as, subject to certain
exceptions, the person responsible for servicing of a loan (including
the person who makes or holds a loan if such person also services the
loan).\320\ Further, RESPA section 6(i)(3) defines servicing as
receiving any scheduled periodic payments from a borrower pursuant to
the terms of any loan.\321\ Thus, the mortgage servicing rules apply to
any person who receives scheduled periodic payments from a borrower
pursuant to the terms of any loan, even a person not typically
considered to be a servicer.
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\320\ 15 U.S.C. 1602(cc)(7); see 12 U.S.C. 2605(i)(2).
\321\ 12 U.S.C. 2605(i)(3).
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Two commenters recommended that the Bureau exclude from the small
servicer determination existing mortgage loans that meet the criteria
of proposed Sec. 1026.41(e)(4)(iii)(A) and (D), irrespective of when
the servicing relationship began. A national trade association stated
that excluding existing contract collection activities would afford
banks the opportunity to make an informed business decision as to how
they prefer to handle this activity going forward. And a community bank
stated that, without excluding existing seller-financed loans, the new
exemption would lose its value, as it would be impossible to impose new
parameters on existing contracts with seller-financers.
As discussed in the section-by-section analyses of Sec.
1026.41(e)(4)(iii)(A) and (D), the final rule excludes from the small
servicer determination both mortgage loans voluntarily serviced for a
non-affiliate that is not a creditor or assignee and also transactions
serviced for a seller financer that meet all of the criteria identified
in the definition of seller financer under Sec. 1026.36(a)(5). The
Bureau believes that, to the extent servicing cost savings are passed
on to consumers, consumers may benefit from having a depository
institution that otherwise qualifies for the small servicer exemption
service voluntarily mortgage loans for a non-affiliate that is not a
creditor or assignee without losing its small servicer status.
Similarly, consumers benefit from having a depository institution
service transactions for a seller financer that meet all of the
criteria identified in the definition of seller financer under Sec.
1026.36(a)(5) without losing its small servicer status. Financial
institutions may be better equipped than individual seller financers to
service loans. The Bureau believes that consumers may benefit from a
depository institution receiving their scheduled periodic payments and
providing an independent accounting as a third party to the
transaction, even if the servicer is exempt from some servicing
regulations as a small servicer.
Under the final rule, a small servicer will now be able to service
mortgage loans on behalf of certain seller financers, even if they do
not meet TILA's definition of creditor, without jeopardizing the
servicer's exemption. The Bureau will continue to monitor this market
to determine if the small servicer exemption is being manipulated to
evade TILA's requirements or otherwise cause consumer harm.
The Bureau also determines that it is appropriate to exclude from
the small servicer determination all loans that meet the criteria
identified in Sec. 1026.41(e)(4)(iii)(A) and (D), regardless of
whether the small servicer began servicing the loan before the
effective date of this final rule. The Bureau believes that requiring
servicers to review their entire portfolios to determine whether they
already service such loans and, if so, how many would unnecessarily
increase burden on servicers. Therefore, a servicer may continue to
service existing loans that meet these criteria and exclude them from
consideration in determining whether a servicer qualifies for the small
servicer exemption.
41(e)(4)(iii)(A)
The Bureau is adopting the proposed revisions to Sec.
1026.41(e)(4)(iii)(A). In determining whether a servicer qualifies for
the small servicer exemption, Sec. 1026.41(e)(4)(iii)(A) excludes from
consideration mortgage loans voluntarily serviced by the servicer for a
non-affiliate of the servicer and for which the servicer does not
receive any compensation or fees. As revised, Sec.
1026.41(e)(4)(iii)(A) no longer requires that the non-affiliate be a
creditor or assignee.
The Bureau believes that removing the requirement that the non-
affiliate be a creditor or assignee would not unduly expand the
existing exception. The Bureau further believes that the rationale for
the exception applies equally well to those non-affiliates who seller-
finance sales of residential real estate, do not meet the definition of
creditor under Sec. 1026.2(a)(17) because they extend five or fewer
mortgage loans in a year, and may or may not meet the criteria
identified in the definition of seller financer under Sec.
1026.36(a)(5). The Bureau also believes that continuing to limit the
voluntarily serviced exception to mortgage loans voluntarily serviced
by a servicer and for which the servicer does not receive any
compensation or fees reduces the risk that the amendment to Sec.
1026.41(e)(4)(iii)(A) will be used to circumvent the servicing rules.
Because the small servicer cannot receive any fees or compensation for
servicing these loans, the Bureau believes that the overall volume of
such servicing, and consequent risk of harm to consumers, is likely to
remain small, but the Bureau will continue to monitor this market to
determine if the small servicer exemption is being manipulated to evade
TILA's requirements or otherwise cause consumer harm.
Legal Authority
The Bureau is amending the voluntarily serviced exception under
current Sec. 1026.41(e)(4)(iii)(A) and exempting mortgage loans
voluntarily serviced by a servicer for a non-affiliate of the servicer
and for which the servicer does not receive any compensation or fees
from the periodic statement requirement under section 128(f) of TILA
pursuant to its authority under section 105(a) and (f) of TILA and
section 1405(b) of the Dodd-Frank Act.
For the reasons discussed above, the Bureau believes that the
amendment is appropriate under section 105(a) of TILA to facilitate
servicer compliance.
[[Page 72310]]
The Bureau believes that the amendments to the voluntarily serviced
exception to no longer require that the non-affiliate be a creditor or
assignee facilitate compliance with TILA by allowing depository
institutions to voluntarily service seller-financed sales of
residential real estate, without losing status as a small servicer, in
order to service loans cost-effectively and in compliance with
applicable regulatory requirements. In addition, consistent with
section 1405(b) of the Dodd-Frank Act, the Bureau believes that
exempting from the requirements of section 128(f) of TILA those
transactions voluntarily serviced by a servicer for a non-affiliate,
without requiring the non-affiliate to be a creditor or assignee, is in
the interest of consumers and in the public interest.
41(e)(4)(iii)(D)
The Bureau is adopting new Sec. 1026.41(e)(4)(iii)(D) as proposed.
Section 1026.41(e)(4)(iii)(D) excludes from the small servicer
determination the new category of transactions serviced by a servicer
for a seller financer that meet all of the criteria identified in the
definition of seller financer under Sec. 1026.36(a)(5). Section
1026.36(a)(5) identifies a seller financer as a natural person, estate,
or trust that provides seller financing for the sale of only one
property in any 12-month period to purchasers of such property, which
is owned by the natural person, estate, or trust and serves as security
for the financing.\322\ The natural person, estate, or trust cannot
have constructed, or acted as a contractor for the construction of, a
residence on the property in its ordinary course of business.\323\ The
financing must have a repayment schedule that does not result in
negative amortization and must have a fixed rate or an adjustable rate
that is adjustable after five or more years, subject to reasonable
annual and lifetime limitations on interest rate increases. If the
financing agreement has an adjustable rate, the rate is determined by
the addition of a margin to an index rate and is subject to reasonable
rate adjustment limitations. The index the adjustable rate is based on
is a widely available index such as indices for U.S. Treasury
securities or the London Interbank Offered Rate (LIBOR).\324\
---------------------------------------------------------------------------
\322\ Section 1026.36(a)(5)(i).
\323\ Section 1026.36(a)(5)(ii).
\324\ Section 1026.36(a)(5)(iii).
---------------------------------------------------------------------------
In addition to the general comments discussed in the section-by-
section analysis of Sec. 1026.41(e)(iii), the Bureau received a
comment generally supportive of proposed Sec. 1026.41(e)(4)(iii)(D)
from a trade association that also said that the proposed exemption was
overly restrictive in limiting seller financers to one loan per 12-
month period. The commenter stated that depository institutions would
need to establish internal controls to track and monitor whether a
seller financer provides financing for more than one property in any
12-month period, which the commenter said may create an incentive for
small banks to terminate collection contract relationships.
The Bureau has narrowly tailored this new category of transactions
that are excluded when determining whether a servicer qualifies as a
small servicer. Section 1026.41(e)(4)(iii)(D) relates only to
transactions serviced by the servicer for a seller financer that meet
all of the criteria identified in the definition of seller financer
under Sec. 1026.36(a)(5). In contrast to the criteria identified in a
second definition of seller financer under Sec. 1026.36(a)(4), which
permits seller financing for the sale of up to three properties in any
12-month period, the criteria identified in the definition of seller
financer under Sec. 1026.36(a)(5) permits seller financing for the
sale of only one property in any 12-month period. Limiting the seller
financer criteria to the sale of only one property in any 12-month
period reduces the risk that this new category of transactions excluded
from the small servicer determination will be used to circumvent the
servicing rules.
As the cost of servicing such transactions is likely to be
relatively high, and may include costs to verify that a seller-financed
transaction meets all of the criteria identified in the definition of
seller financer under Sec. 1026.36(a)(5), the Bureau believes that it
is appropriate to permit servicers to charge a fee for servicing the
loans described in Sec. 1026.41(e)(4)(iii)(D). The Bureau will
continue to monitor this market to determine if the small servicer
exemption is being manipulated to evade TILA's requirements or
otherwise cause consumer harm.
Legal Authority
The Bureau is exempting transactions serviced by a servicer for a
seller financer that meet all of the criteria identified in the
definition of seller financer under Sec. 1026.36(a)(5) from the
periodic statement requirement under section 128(f) of TILA pursuant to
its authority under section 105(a) and (f) of TILA and section 1405(b)
of the Dodd-Frank Act.
For the reasons discussed above, the Bureau believes that the
exemption in Sec. 1026.41(e)(4)(iii)(D) is appropriate under section
105(a) of TILA to facilitate servicer compliance. The Bureau believes
that excluding from the small servicer determination transactions
serviced by a servicer for a seller financer that meet all of the
criteria identified in the definition of seller financer under Sec.
1026.36(a)(5) facilitates compliance with TILA by allowing depository
institutions to service seller-financed transactions, without losing
status as a small servicer, in order to provide high-contact servicing
and to service loans cost-effectively and in compliance with applicable
regulatory requirements. In addition, consistent with section 1405(b)
of the Dodd-Frank Act, the Bureau believes that exempting from the
requirements of section 128(f) of TILA those transactions serviced by a
servicer for a seller financer that meet all of the criteria identified
in the definition of seller financer under Sec. 1026.36(a)(5) is in
the interest of consumers and in the public interest.
41(e)(5) Certain Consumers in Bankruptcy
Current Sec. 1026.41(e)(5) provides that a servicer is exempt from
the requirement to provide a periodic statement for a mortgage loan
while the consumer is a debtor in bankruptcy. Current comment 41(e)(5)-
3 states that, if there are joint obligors on the mortgage loan, the
exemption applies if any of the consumers is in bankruptcy, and current
comment 41(e)(5)-2.ii explains that a servicer has no obligation to
resume providing a periodic statement with respect to any portion of
the mortgage debt that is discharged in bankruptcy. Proposed revisions
to Sec. 1026.41(e)(5) generally would have limited the exemption to a
consumer in bankruptcy whose bankruptcy plan or statement of intention
provides for surrendering the property or avoiding the lien securing
the mortgage loan, as well as to a consumer who has requested that a
servicer cease providing a periodic statement. In cases where a
mortgage loan has multiple obligors and not all of them are in
bankruptcy, the exemption would have applied to a non-bankrupt obligor
only when (1) one of the obligors is in chapter 12 or chapter 13
bankruptcy and (2) the non-bankrupt obligor requests that a servicer
cease providing a periodic statement. The proposal also would have
specified the circumstances when the exemption terminates and a
servicer must resume providing a periodic statement.
The Bureau is adopting Sec. 1026.41(e)(5) with several revisions
from the proposal. As revised, Sec. 1026.41(e)(5) and associated
commentary limit the circumstances in which a servicer is exempt from
the
[[Page 72311]]
periodic statement requirements with respect to a consumer who is a
debtor in bankruptcy or has discharged personal liability for a
mortgage loan through bankruptcy. (Except where noted specifically,
this section-by-section analysis of Sec. 1026.41(e)(5) uses the term
periodic statement to refer to both a periodic statement and a coupon
book that meets the requirements of Sec. 1026.41(e)(3).) In addition
to the limited exemption from the requirement to provide a periodic
statement with respect to a consumer who is a debtor in bankruptcy or
has discharged personal liability for a mortgage loan through
bankruptcy, Sec. 1026.41(e)(5) provides a transitional single-billing-
cycle exemption under certain circumstances to enable a servicer to
transition to a periodic statement modified for bankruptcy and to an
unmodified periodic statement upon the conclusion of the bankruptcy
case or the reaffirmation of the debt.\325\ Once effective, final Sec.
1026.41(e)(5) will apply to a mortgage loan irrespective of whether the
consumer became a debtor in bankruptcy before or after the final rule's
effective date.
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\325\ Section 1026.41(f) sets forth certain modifications to a
periodic statement or coupon book when a consumer on a mortgage loan
is a debtor in bankruptcy under title 11 of the United States Code,
or if such consumer has discharged personal liability for the
mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, or 1328.
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In contrast to the proposal, the final rule applies the exemption
at the loan level, such that a servicer is exempt with respect to all
consumers on a mortgage loan if the exemption criteria are met with
respect to any one consumer on the loan.\326\ As in the proposal, the
final rule generally allows a consumer in bankruptcy to opt in or out
of receiving a periodic statement by making a written request to the
servicer, but the final rule contains a new provision allowing a
servicer to establish an exclusive address for such requests, subject
to certain requirements. In addition, the final rule includes a new
provision that ensures that a servicer has a period of time to
transition to providing a periodic statement with the modifications set
forth in Sec. 1026.41(f) or to resume providing a periodic statement
without such modifications following a consumer's bankruptcy case. The
final rule also contains various technical changes from the proposal,
such as use of the term bankruptcy plan instead of plan of
reorganization, to improve clarity. These and other changes from the
proposal are described in more detail below.
---------------------------------------------------------------------------
\326\ The proposal used the term primary obligor. The final rule
instead uses the term consumer for clarity, given that it is already
a defined term under Regulation Z.
---------------------------------------------------------------------------
Background
Currently, Sec. 1026.41(e)(5) provides a blanket exemption from
the requirement to send a periodic statement if a consumer is in
bankruptcy or has discharged personal liability for a mortgage loan
through bankruptcy. The Bureau deliberated on this issue in two
rulemakings prior to the proposal, each of which was based in part on
the requirement in section 128(f) of TILA, as amended by section 1420
of the Dodd-Frank Act, that a creditor, assignee, or servicer must
provide a periodic statement for a residential mortgage loan.
On January 17, 2013, the Bureau issued the 2013 TILA Servicing
Final Rule implementing the periodic statement requirements and related
exemptions in Sec. 1026.41. In the 2013 TILA Servicing Final Rule, the
Bureau acknowledged industry's concern that the Bankruptcy Code's
automatic stay prevents attempts to collect a debt from a consumer in
bankruptcy, but the Bureau explained that it did not believe the
Bankruptcy Code would prevent a servicer from sending a consumer a
statement on the status of the mortgage loan.\327\ The Bureau further
explained that the 2013 TILA Servicing Final Rule allowed servicers to
make changes to the periodic statement when a consumer is in
bankruptcy, such as including a message about the bankruptcy and
presenting the amount due to reflect payment obligations determined by
the individual bankruptcy proceeding.\328\
---------------------------------------------------------------------------
\327\ 78 FR 10901, 10966 (Feb. 14, 2013).
\328\ Id. at 10966 n.125.
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After publication of the 2013 TILA Servicing Final Rule, servicers
and their representatives expressed more detailed concerns about the
requirement to provide periodic statements to consumers under
bankruptcy protection. The Bureau received numerous requests for
clarification regarding how to reconcile the periodic statement
requirements with various bankruptcy law requirements. Industry
stakeholders expressed concern that bankruptcy courts, under certain
circumstances, may find that a periodic statement violates the
automatic stay or discharge injunction, even if a disclaimer were
included. They requested guidance regarding whether and how servicers
could permit consumers to opt out of receiving statements. Bankruptcy
trustees explained that sending a periodic statement that fails to
recognize the unique character of chapter 13's treatment of a mortgage
in default arguably violates the Bankruptcy Code's automatic stay.
Servicers and trustees further questioned how a periodic statement
could be adapted to the specific circumstances that may arise depending
on the type of bankruptcy proceeding (i.e., liquidation under chapter
7, or reorganization under chapter 11, chapter 12, or chapter 13).
Consequently, the Bureau determined in 2013 that the interaction of
bankruptcy law and the periodic statement requirements warranted
further study and that there was insufficient time before the rule's
January 10, 2014, effective date to reconcile completely the various
competing requirements. Accordingly, the Bureau issued the October 2013
IFR, which added current Sec. 1026.41(e)(5) to exempt a servicer from
the periodic statement requirements with respect to a consumer in
bankruptcy.\329\ The Bureau explained in commentary that the exemption
in Sec. 1026.41(e)(5) applies to any consumer sharing primary
liability on a mortgage loan with a debtor in bankruptcy \330\ and that
a servicer has no obligation to resume compliance with Sec. 1026.41
with respect to any portion of a mortgage loan that is discharged under
applicable provisions of the Bankruptcy Code.\331\
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\329\ 78 FR 62993, 63000-02 (Oct. 23, 2013).
\330\ Comment 41(e)(5)-3.
\331\ Comment 41(e)(5)-2.ii.
---------------------------------------------------------------------------
In issuing the October 2013 IFR, the Bureau did not take a position
as to whether providing a periodic statement to a consumer in
bankruptcy violates the automatic stay or discharge injunction. The
Bureau also did not discourage servicers that send tailored periodic
statements to consumers in bankruptcy from continuing to do so.
Further, the Bureau expressed its belief that some consumers facing the
complexities of bankruptcy may benefit from receiving a periodic
statement, tailored to their circumstances.\332\
---------------------------------------------------------------------------
\332\ 78 FR 62993, 63001 (Oct. 23, 2013).
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In the October 2013 IFR, the Bureau stated that it would continue
to examine this issue and might reinstate the requirement to provide a
consumer in bankruptcy with a periodic statement. However, the Bureau
explained that it would not reinstate any such requirement without
notice and comment rulemaking and an appropriate implementation period.
The Bureau solicited comment on the scope of the exemption, when a
servicer qualifies for the exemption and when it must resume providing
a periodic statement, and how the content of a periodic statement might
be tailored to
[[Page 72312]]
meet the particular needs of a consumer in bankruptcy.\333\
---------------------------------------------------------------------------
\333\ Id. at 63002.
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After issuing the October 2013 IFR, the Bureau continued to engage
various stakeholders on the scope of this exemption, including hosting
a roundtable discussion on June 16, 2014, with representatives of
consumer advocacy groups, bankruptcy attorneys, servicers, trade
groups, bankruptcy trustees, and the U.S. Trustee Program. The Bureau
also sought comment from bankruptcy judges and experts and conducted
its own further analysis of the intersection of the periodic statement
requirements and bankruptcy law.\334\
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\334\ Written or oral presentations to the Bureau imparting
information or argument directed to the merits or outcome of the IFR
were subject to the Bureau's policy on ex parte presentations. See
Bureau of Consumer Fin. Prot., CFPB Bulletin 11-3, CFPB Policy on Ex
Parte Presentations in Rulemaking Proceedings (Aug. 16, 2011),
available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------
Based upon its review of the comments received on the October 2013
IFR and its study of the intersection of the periodic statement
requirements and bankruptcy law, the Bureau proposed to reinstate the
periodic statement requirements with respect to a consumer in
bankruptcy under certain circumstances. The Bureau proposed these
modifications through notice and comment rulemaking, rather than simply
finalizing the IFR with modifications, to provide the public with the
opportunity to consider and comment more fully on the Bureau's specific
proposal.
The Bureau proposed to limit the scope of the exemption in Sec.
1026.41(e)(5) to a consumer in bankruptcy who has made a determination
to surrender the property or avoid the lien securing the mortgage loan
or who has requested that a servicer cease providing periodic
statements. The Bureau believed that drawing a distinction between a
consumer who intends to retain the property and one who intends to
surrender the property could strike an appropriate balance between a
consumer's need for information about the mortgage loan and the burden
on a servicer to provide information to such a consumer while avoiding
violations of bankruptcy law.
The Bureau believed that this approach, favored by many commenters,
was consistent with bankruptcy case law. Courts have observed that
whether periodic statements are appropriate in bankruptcy typically
depends on whether ``the debtor needed the information contained in the
statements when the statements were sent'' and that debtors need
information about their mortgage loan when they intend to retain
property, not when they intend to surrender it.\335\ Some courts have
found that a periodic statement was permissible when the debtor planned
to retain the property but that the same form of periodic statement
violated the automatic stay when the same debtor later decided to
surrender the home.\336\
---------------------------------------------------------------------------
\335\ Connor v. Countrywide Bank NA (In re Connor), 366 B.R.
133, 136, 138 (Bankr. D. Haw. 2007)); see also Henry v. Assocs. Home
Equity Servs., Inc. (In re Henry), 266 B.R. 457, 471 (Bankr. C.D.
Cal. 2001) (collecting cases).
\336\ Connor, 366 B.R. at 138 (debtor failed to state a claim
for stay violation related to periodic statements received prior to
chapter 13 plan confirmation, but debtor did state a claim related
to statements received after conversation to chapter 7 because
debtor had indicated his intent to surrender the property); In re
Joens, No. 03-02077, 2003 WL 22839822, at *2-3 (Bankr. N.D. Iowa
Nov. 21, 2003) (creditor violated automatic stay by sending
collection letters and periodic statements to chapter 7 debtor who
intended to surrender, but noting that it would have been proper to
send statements if the debtor had intended to retain).
---------------------------------------------------------------------------
Courts have held that periodic statements are appropriate for a
chapter 7 debtor if the statement of intention identifies an intent to
retain the property \337\ or if the debtor otherwise continues to make
voluntary payments after the bankruptcy case.\338\ Similarly, courts
have found that chapter 13 debtors who have not yet proposed a plan of
reorganization may benefit from periodic statements because they need
information about the amount of their mortgage loan debt in order to
formulate a plan of reorganization \339\ and that chapter 13 debtors
also benefit from periodic statements if their proposed or confirmed
plan provides that they will retain the property and continue making
payments.\340\
---------------------------------------------------------------------------
\337\ In re Henry, 266 B.R. at 471 (holding that creditor did
not violate the automatic stay by sending periodic statements and
notice of default to debtors who retain their property by continuing
to make payments without reaffirming the mortgage loan); Kibler v.
WFS Fin., Inc. (In re Kibler), Case No. 97-25258-B-7, Adv. No. 00-
2604, 2001 WL 388764 (Bankr. E.D. Cal. Mar. 19, 2001) (noting that
borrowers who retain their property by continuing to make payments
without reaffirming the mortgage loan ``need to receive normal
billings to avoid a contract default and potential foreclosure'').
\338\ See 4 Collier on Bankruptcy ] 524.04 (``Section 524(j)
clarifies that when a debtor does not reaffirm a mortgage debt
secured by real estate that is the debtor's principal residence, the
creditor may continue to send statements to the debtor in the
ordinary course of business and collect payments made voluntarily by
the debtor.'') (citing Jones v. Bac Home Loans Servicing, LP (In re
Jones), Case No. 08-05439-AJM-7, Adv. No. 09-50281, 2009 WL 5842122,
at *3 (Bankr. S.D. Ind. Nov. 2009)); cf. Ramirez v. Gen. Motors
Acceptance Corp. (In re Ramirez), 280 B.R. 252, 257-58 (C.D. Cal.
2002) (holding that creditor did not violate discharge injunction by
sending periodic statements and a ``summary of voluntary payments''
to a debtor who his vehicle without reaffirming the loan).
\339\ Connor, 366 B.R. at 138 (holding that debtor failed to
state a claim for stay violation related to periodic statements
received prior to chapter 13 plan confirmation); Pultz v. NovaStar
Mortg., Inc. (In re Pultz), 400 B.R. 185, 190-92 (Bankr. D. Md.
2008) (noting that sending of single loan statement was useful to
the debtor for forecasting the amount of the unsecured debt she
could pay through her chapter 13 plan); Schatz v. Chase Home Fin.
(In re Schatz), 452 B.R. 544 (Bankr. M.D. Pa. 2011) (``I also
recognize that such information could assist a Chapter 13 debtor in
drafting his Chapter 13 plan.'').
\340\ In re Henry, 266 B.R. at 471 (``A secured creditor should
be encouraged to send out payment coupons, envelopes and periodic
statements if a debtor has filed a statement that the debtor plans
to keep property subject to secured debt and to make payments.'');
Cousins v. CitiFinancial Mortg. Co. (In re Cousins), 404 B.R. 281,
286-87 (Bankr. S.D. Ohio 2009) (stating in dicta that periodic
statements can be helpful to chapter 13 debtors making direct
payments to understand amounts due).
---------------------------------------------------------------------------
Conversely, bankruptcy courts have determined that periodic
statements can constitute impermissible collection attempts in
violation of the automatic stay when a consumer has identified an
intent to surrender the property, either through the statement of
intention in a chapter 7 case or a plan of reorganization in a chapter
13 case.\341\ Similarly, courts have held that a chapter 13 consumer
with a plan of reorganization that provides for avoiding a junior
lien--that is, rendering the lien unenforceable and treating the
mortgage debt as an unsecured claim--has no need for statements
regarding the amounts due under the mortgage loan.\342\ Finally, courts
have found that consumers do not need statements when they have
actually surrendered or vacated the property,\343\ or requested that
the servicer not send periodic statements.\344\
[[Page 72313]]
In these cases, courts finding an automatic stay or discharge
injunction violation have often looked to the totality of the
creditor's collection efforts, beyond the creditor's providing a
periodic statement.
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\341\ Joens, 2003 WL 22839822, at *2-3 (holding that creditor
violated automatic stay by sending several collection letters and
periodic statements to chapter 7 debtor who had indicated an intent
to surrender); Connor, 366 B.R. at 138 (holding that debtor stated a
claim related to periodic statements and demand letter received
after conversion to chapter 7 because he had indicated his intent to
surrender the property).
\342\ Curtis v. LaSalle Nat'l Bank (In re Curtis), 322 B.R. 470,
484-85 (Bankr. D. Mass. 2005) (holding that wholly unsecured junior
lienholder violated automatic stay by, among other things, sending a
RESPA transfer letter demanding payment to a chapter 13 debtor whose
plan provided for avoiding the lien).
\343\ In re Roush, 88 B.R. 163, 164-65 (Bankr. S.D. Ohio 1988)
(holding that creditor violated the discharge injunction when it
sent a collection letter to debtor three years after debtor
surrendered property); In re Bruce, No. 00-50556 C-7, 2000 WL
33673773, at *4 (Bankr. M.D.N.C. Nov. 7, 2000) (holding that
creditor violated the discharge injunction by sending periodic
statements and calling the debtor at his place of employment after
receiving notice that the debtor had vacated the property).
\344\ In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. Fla. 1999)
(holding that creditor violated the stay by, among other things,
sending periodic statements to chapter 13 debtor who had asked not
to receive them).
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Therefore, the Bureau proposed to revise the scope of the exemption
in Sec. 1026.41(e)(5). Consistent with most comments the Bureau
received on the IFR and the case law discussed above, proposed Sec.
1026.41(e)(5) would have limited the scope of the exemption generally
to when a consumer is no longer retaining the property, will no longer
make regular payments on the mortgage loan, or has affirmatively
requested not to receive a statement. Proposed Sec. 1026.41(e)(5)(i)
would have provided an exemption from the periodic statement
requirements in Sec. 1026.41 when two conditions are satisfied. First,
the proposal would have required the consumer to be a debtor in a
bankruptcy case, to have discharged personal liability for the mortgage
loan through bankruptcy, or to be a primary obligor on a mortgage loan
for which another primary obligor is a debtor in a chapter 12 or
chapter 13 case. The purpose of this requirement would have been to
limit the exemption to consumers who may be protected by the Bankruptcy
Code's automatic stay or discharge injunction.
Second, one of the following circumstances also would have had to
apply: (1) The consumer requests in writing that the servicer cease
providing a periodic statement; \345\ (2) the consumer's confirmed plan
of reorganization provides that the consumer will surrender the
property securing the mortgage loan, provides for the avoidance of the
lien securing the mortgage loan, or otherwise does not provide for, as
applicable, the payment of pre-bankruptcy arrearages or the maintenance
of payments due under the mortgage loan; (3) a court enters an order in
the consumer's bankruptcy case providing for the avoidance of the lien
securing the mortgage loan, lifting the automatic stay pursuant to 11
U.S.C. 362 with respect to the property securing the mortgage loan, or
requiring the servicer to cease providing a periodic statement; or (4)
the consumer files with the overseeing bankruptcy court a statement of
intention pursuant to 11 U.S.C. 521(a) identifying an intent to
surrender the property securing the mortgage loan. As commenters on the
IFR noted, in each of these situations, a consumer is no longer
retaining the property, is no longer making regular periodic payments
on the mortgage loan, or has affirmatively requested not to receive a
statement. As a result, the Bureau believed that the periodic
statement's value is diminished and there is an increased risk of a
court finding that a servicer violated the automatic stay by sending a
periodic statement in this circumstance.
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\345\ The Bureau understands from its outreach that at least one
large national servicer provides periodic statements to all of its
consumers in bankruptcy who have a first-lien mortgage, except those
who opt out, and that it believes its practice is consistent with
the automatic stay.
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With respect to joint obligors who are not in bankruptcy, proposed
Sec. 1026.41(e)(5)(i) would have effectively limited the exemption to
those co-obligors who (i) share primary liability with a consumer who
is a debtor in a chapter 12 or chapter 13 case and (ii) have requested
that a servicer cease providing a periodic statement. As the Bureau
noted in the proposal, a non-debtor joint obligor is protected by the
Bankruptcy Code's automatic stay provisions only in chapter 12 or
chapter 13 cases.\346\ The Bureau understood that these joint obligors
generally have a need to continue receiving periodic statements.
Moreover, these joint obligors are not bound by a debtor's decision to
surrender the property securing the mortgage loan. Accordingly, the
Bureau believed that it was appropriate for the non-debtor joint
obligors to continue receiving periodic statements unless non-debtor
joint obligors have requested that the servicer cease providing them.
---------------------------------------------------------------------------
\346\ See 11 U.S.C. 1201, 1301.
---------------------------------------------------------------------------
Proposed comment 41(e)(5)(i)-1 would have clarified the exemption's
applicability with respect to joint obligors. The proposed comment
stated that when two or more consumers are primarily liable on a
mortgage loan, an exemption under Sec. 1026.41(e)(5)(i) with respect
to one of the primary obligors does not affect the servicer's
obligations to comply with Sec. 1026.41 with respect to the other
primary obligors. The Bureau explained that the proposed comment was
meant to eliminate ambiguity concerning whether a servicer must
continue to provide a statement to joint obligors when an exemption
under Sec. 1026.41(e)(5)(i) applies to one of the obligors. The
proposed comment also referenced proposed Sec. 1026.41(f), explaining
that, if one of the joint obligors is in bankruptcy and no exemption
under Sec. 1026.41(e)(5)(i) applies, the servicer would have been
required to provide a periodic statement with certain bankruptcy-
specific modifications set forth in Sec. 1026.41(f). In that instance,
the servicer could have provided a periodic statement with the
bankruptcy-specific modifications to any of the primary obligors on the
mortgage loan, even if not all of them are in bankruptcy.
Proposed comment 41(e)(5)(i)-2 also would have clarified that, for
purposes of Sec. 1026.41(e)(5), the term plan of reorganization
referred to a consumer's plan of reorganization filed under applicable
provisions of the Bankruptcy Code and confirmed by a court with
jurisdiction over a consumer's bankruptcy case. The proposed comment
was intended to avoid confusion about the meaning of the term plan of
reorganization and whether the term refers to a proposed plan or one
that has been confirmed by a court.
Finally, proposed comment 41(e)(5)(i)(B)(4)-1 would have further
clarified that, for purposes of determining whether a servicer is
exempt under Sec. 1026.41(e)(5)(i) based on a consumer's statement of
intention filed in the consumer's bankruptcy case, a servicer must rely
on a consumer's most recently filed statement of intention. Thus, under
the proposed rule, if a consumer originally filed a statement of
intention identifying an intent to retain the property, but the
consumer then filed an amended statement of intention identifying an
intent to surrender the property, a servicer would have had to rely on
the amended filing to determine that the exemption applies. The Bureau
explained that the proposed comment was meant to avoid uncertainty
about whether the exemption applied when a consumer filed multiple or
amended statements of intention.
Proposed Sec. 1026.41(e)(5)(ii) would have specified when a
servicer must resume providing a periodic statement in compliance with
Sec. 1026.41. First, proposed Sec. 1026.41(e)(5)(ii)(A) would have
provided that a servicer is not exempt from the requirements of Sec.
1026.41 with respect to a consumer who submits a written request to
continue receiving a periodic statement, unless a court enters an order
prohibiting the servicer from providing a periodic statement. The
Bureau explained that consumers should have the right to choose to
receive information regarding their mortgage loan, particularly when
their intent with regard to retaining the property changes. In advance
of the proposal, the Bureau understood that, for example, some chapter
7 debtors will file a statement of intention that initially identifies
an intent to surrender the property but will subsequently decide to
keep the property. In that case, the Bureau
[[Page 72314]]
believed a consumer should be able to receive a periodic statement.
Proposed comment 41(e)(5)(ii)-1 would have clarified that a servicer
must comply with a consumer's most recent written request to cease or
to continue, as applicable, providing a periodic statement.
Second, proposed Sec. 1026.41(e)(5)(ii)(B) would have provided
that a servicer must resume compliance with Sec. 1026.41 within a
reasonably prompt time after the next payment due date that follows the
earliest of the following outcomes in either the consumer's or the
joint obligor's bankruptcy case, as applicable: (1) The case is
dismissed; (2) the case is closed; (3) the consumer reaffirms the
mortgage loan pursuant to 11 U.S.C. 524; or (4) the consumer receives a
discharge pursuant to 11 U.S.C. 727, 1141, 1228, or 1328. Proposed
Sec. 1026.41(e)(5)(ii)(B) would have largely tracked current comment
41(e)(5)-2.i, and the Bureau explained its belief that an exemption
would no longer be necessary once the consumer has exited bankruptcy or
reaffirmed personal liability for the mortgage loan. The Bureau also
thought that the proposed ``reasonably prompt'' standard would be
flexible enough to account for instances in which a servicer had no
reason to know that the consumer's bankruptcy case had terminated.
In combination, proposed Sec. 1026.41(e)(5)(ii)(A) and (B) would
have required a servicer to resume providing a periodic statement
within a reasonably prompt time after the next payment due date
following receipt of a consumer's written request, the case closing or
dismissal, the consumer's reaffirmation of the mortgage loan, or the
consumer receiving a discharge. Proposed comment 41(e)(5)(ii)-2 would
have clarified that delivering, emailing, or placing the periodic
statement in the mail within four days after the next payment due date,
or within four days of the close of any applicable courtesy period,
generally would be considered reasonably prompt. (With respect to
coupon books, resuming compliance would have required providing a new
coupon book only to the extent the servicer had not previously provided
the consumer with a coupon book that covered the upcoming billing
cycle.) This interpretation of reasonably prompt would have been
consistent with the Bureau's interpretation currently set forth in
comment 41(b)-1, which clarifies the timing requirements for a periodic
statement generally.
Finally, proposed comment 41(e)(5)-1 would have clarified that, if
an agent of a consumer submitted a request to cease or to continue
providing a periodic statement, the request would have been deemed
submitted by the consumer. The Bureau explained its understanding that
attorneys or housing counselors often communicate with a servicer on a
consumer's behalf and believed that it was important to clarify that a
servicer must comply with a request to cease or commence providing a
periodic statement by an agent of a consumer.
The Bureau sought comment on all aspects of the proposal, including
the scope of the proposed exemption, the requirements for qualifying
for the exemption, and when servicers must resume providing a periodic
statement.
Comments on the Proposed Scope of the Exemption
The Bureau received numerous comments in response to proposed
revisions to Sec. 1026.41(e)(5). As described below, the Bureau also
conducted additional outreach. The summary below generally does not
address comments received in response to the IFR because the Bureau
addressed those comments in the proposal.\347\
---------------------------------------------------------------------------
\347\ See 79 FR 74247.
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Commenters generally addressed five broad issues: (1) For mortgage
loans with multiple obligors, whether the exemption should be
determined at the individual consumer level or at the loan level; (2)
whether and when a periodic statement should be required for a consumer
who is in bankruptcy or has discharged personal liability for a
mortgage loan through bankruptcy; (3) assuming a periodic statement is
required with respect to a consumer in bankruptcy in some
circumstances, whether a consumer's request to receive or cease
receiving a periodic statement must be submitted in writing and not
orally; (4) the conditions under which the exemption should terminate;
and (5) whether the trustee of a consumer's bankruptcy case should
receive a copy of the periodic statement.
Consumer-specific vs. loan-level exemption.Consumer advocacy groups
and industry commenters differed on whether the periodic statement
exemption should apply to a specific consumer (as proposed) or at the
loan level (as in the existing rule). Several consumer advocacy groups
supported without qualification the proposal's treatment of co-obligors
because it would allow a co-obligor who is not in bankruptcy to
continue to receive a periodic statement even when the criteria for an
exemption are satisfied with respect to the obligor in bankruptcy.
Several industry commenters urged a loan-level exemption, for many
of the same reasons advanced in comments on the early intervention
bankruptcy exemption.\348\ For example, these commenters stated that
servicers' systems are set up to manage communications at the account
or loan level, such that they code an entire account (rather than
designate a specific consumer) as subject to bankruptcy-related
communication restrictions; that many servicers cannot suppress, or
cease sending, statements as to one obligor while providing them to a
co-obligor; that servicers have difficulty removing names from the
account without affecting other aspects of loan administration, such as
notices required by State law; and that, when co-obligors live
together, a servicer cannot prevent the wrong consumer from opening the
periodic statement. One servicer recommended requiring co-obligors to
submit a joint written request to the servicer in order to receive a
periodic statement. Other industry commenters suggested that servicers
be expressly allowed to include one or all obligors' names on the
statement, at the servicer's discretion. One servicer said that it
would require two years to update systems to provide consumer-specific
periodic statements when a consumer is in bankruptcy.
---------------------------------------------------------------------------
\348\ See section-by-section analysis of Sec. 1024.39.
---------------------------------------------------------------------------
The Bureau conducted additional outreach with several servicers to
determine their current practices and systems capabilities. These
servicers stated that they suppress or cease communications at the
account or loan level; for example, when a consumer files bankruptcy,
invokes the FDCPA cease communication right, or is a party to
litigation against the servicer, these servicers flag the entire
mortgage loan account as one for which they should not send certain
communications. Some servicers stated that their systems can identify
the reason for suppressing communications (e.g., bankruptcy, a
consumer's invocation of the FDCPA cease communication right, or
ongoing litigation), and a few could identify the specific co-obligor
who, for example, filed for bankruptcy. A few servicers said that they
could provide duplicate notices to co-obligors at different addresses,
but most servicers said that they cannot provide certain communications
to one obligor while providing other communications to a co-obligor at
a different address. One servicer said that it can provide unique
notices to different co-obligors at different addresses upon special
request but that the process is manual and
[[Page 72315]]
would not be practical if required routinely.
A trade association recommended that the final rule clarify that a
servicer must provide only one periodic statement per loan per month.
The commenter also advised that servicing systems cannot remove a name
from an account because servicers need to send some information to each
obligor regardless of bankruptcy. The commenter further stated that
sending a periodic statement to a non-bankrupt co-obligor indicating
that any part of the debt has been discharged (even as to another co-
obligor) may estop the servicer from collecting the debt.
Whether and when to require statements for consumers in bankruptcy.
The Bureau received comments supporting and opposing the proposed
requirement to provide a periodic statement under any circumstances to
a consumer who is in bankruptcy or has discharged personal liability
for the mortgage loan through bankruptcy. Consumer advocacy groups
strongly supported providing a periodic statement to a consumer in
bankruptcy, while industry commenters offered differing views. Some
industry commenters were generally supportive of providing a periodic
statement to a consumer in bankruptcy, subject to certain conditions,
while others strongly opposed any requirement to provide a periodic
statement to a consumer in bankruptcy.
Consumer advocacy groups strongly supported the proposal to limit
the scope of the exemption, stating, among other things, that it would
preserve the ability of consumers in bankruptcy to receive essential
account information. These commenters further recommended that the
exemption should not apply if a consumer has a pending loss mitigation
application because such a consumer may decide to retain the property
after being approved for loss mitigation. Consumer advocacy groups
stated that receiving a periodic statement would help consumers
understand their payment obligations, maintain mortgage payments, and
make payments to the trustee on the arrearage. Both consumer advocacy
groups and the U.S. Trustee Program noted that servicers sometimes
misapply payments and supported the proposal in part because periodic
statements might show whether servicers apply payments correctly or
impose improper fees.
Consumer advocacy groups also recommended requiring a servicer to
provide a notice to the consumer upon determining that the bankruptcy
exemption applies to a particular loan. The recommended notice would
advise that standard periodic statements will no longer be provided,
the basis for the exemption, and the consumer's right to continue
receiving statements modified for consumers in bankruptcy.
Some industry commenters expressed general support for requiring
servicers to provide periodic statements to consumers in bankruptcy.
For example, a servicer and a trade association both noted the need to
provide accurate and clear information to a consumer in bankruptcy. One
bank agreed that a servicer should provide a periodic statement
following bankruptcy to a consumer who has discharged personal
liability for a mortgage loan but retained possession of the property.
The bank requested that the final rule state expressly that a periodic
statement is required in this circumstance.
Some industry commenters voiced strong opposition to providing a
periodic statement to a consumer in bankruptcy, either in general or
under the specific circumstances set forth in the proposal. Industry
commenters stressed the lack of any safe harbor from liability under
the Bankruptcy Code and noted that servicers are subject to individual
judges' interpretations of the Bankruptcy Code. Industry commenters
expressed concern that providing a periodic statement could give rise
to the risk of litigation from a consumer who alleges an automatic stay
violation.
Several commenters asserted that the Bureau would be
inappropriately intruding on bankruptcy law by requiring a servicer to
send a periodic statement to a consumer in bankruptcy. A trade
association expressed general concern that requiring a periodic
statement for a consumer in bankruptcy could conflict with bankruptcy
law. A credit union expressed concerns that the proposal purports to
override bankruptcy law regarding communicating with a consumer in
bankruptcy. Another trade association stated that some case law
suggests that TILA cannot be interpreted as mandating communications
that violate the automatic stay, and a different trade association
commented that TILA does not apply to a mortgage loan that has been
discharged through bankruptcy. Another trade association pointed to the
complexity of bankruptcy law, stating that the Bureau should respect
the delicate balance between creditors and debtors and should not
attempt to strengthen protections for consumers in bankruptcy through
amendments to Regulation Z.
Numerous industry commenters objected to the burden that servicers
would face in providing a periodic statement to a consumer in
bankruptcy. They explained that most of the burden would result from
the need to alter a periodic statement to comply with the proposal (as
discussed in more detail in the section-by-section analysis of Sec.
1026.41(f)). In particular, numerous industry commenters strongly
opposed any requirement to provide a periodic statement that is
modified for a consumer in chapter 13, stating, among other things,
that the proposed changes would be difficult to operationalize and
manage and would likewise be difficult and resource-intensive to
implement or apply consistently and correctly. Some industry commenters
noted that many servicers would have to change their systems in order
to comply with the proposal. Credit unions and community banks
expressed concern about these systems limitations more uniformly than
did large servicers and national banks. Further, some commenters stated
that switching to a modified periodic statement when a consumer is in
bankruptcy would increase burden because consumers may move in-and-out
of bankruptcy multiple times. Industry commenters also questioned
whether the burden would be justified, as any one servicer may have
only a limited number of loans in bankruptcy. One trade association
commented that the complex interface with bankruptcy law would require
servicers to consult with legal counsel, increasing cost.
Some industry commenters stated that receiving a periodic statement
could confuse or anger a consumer in bankruptcy, while others suggested
that a periodic statement is less valuable or unnecessary for at least
some of these consumers. Some servicers commented that statements are
unnecessary for the roughly 50% of chapter 13 consumers who make
mortgage payments through the trustee because the trustee is the one
sending the payments to the servicer. These commenters stated the
Federal Rules of Bankruptcy Procedure applicable to chapter 13 cases
already require a servicer to provide the trustee and the consumer with
sufficient ongoing information about the mortgage loan, in addition to
providing a procedure at the end of the case to reconcile whether the
consumer is current on the mortgage loan. One credit union suggested
that consumers can obtain the relevant information in other ways, such
as by making a request to a servicer or a trustee.
A trade association discussed some servicers' current practices
with respect to consumers who are in bankruptcy or who have discharged
personal liability. For example, one servicer allows a consumer to opt
out but otherwise sends a modified periodic statement that
[[Page 72316]]
shows account activity accompanied by bankruptcy disclaimers. Another
sends a modified periodic statement disclosing payments received. And
another sends monthly periodic statements containing disclaimers and
other limited information, which allows the statement to be used for
consumers in different chapters of bankruptcy. Servicers reported to
the Bureau that they engage in a range of practices with respect to
borrowers in bankruptcy: Some do not send periodic statements to any
consumers in bankruptcy; others provide statements to consumers in only
certain chapters of bankruptcy or provide statements only upon a
consumer's request. Some industry commenters suggested generally that
the Bureau adopt a rule that is consistent with one or more of these
current practices.
Some commenters addressed specifically the criteria for the
proposed exemption. One servicer generally supported the proposed two-
pronged, multi-factor exemption test. Other commenters, while generally
supportive, took issue with specific aspects of the proposal, as
discussed more fully below. Several industry commenters suggested that
the proposed exemption criteria would be difficult to implement and
that determining if the exemption applied would require complex
analysis.
Some industry commenters made recommendations about which consumers
in bankruptcy should receive a periodic statement. Consistent with the
proposal, a trade association recommended not requiring a periodic
statement for a consumer in chapter 13 who files a plan identifying an
intent not to make loan payments, as well as for a consumer in chapter
7 who files a statement of intention identifying an intent to surrender
the property. Another trade association stated that a chapter 13 debtor
does not need any statements because the plan of reorganization sets
forth the consumer's payment obligation, the servicer's proof of claim
discloses the arrearage, and the servicer's change-in-payment notices
(required by the Bankruptcy Rules) alert the consumer to any change in
the payment amount. A servicer and several trade associations requested
that the exemption apply when a consumer in chapter 11, chapter 12, or
chapter 13 bankruptcy has a cram-down plan--that is, a plan that
reduces the mortgage debt to the value of the collateral.
Alternatively, some commenters stated that a servicer should have more
flexibility to modify the required disclosures for cram-down plans
because they are atypical and can have unique payment requirements.
Trade associations also recommended that the proposed exemption should
apply not only when a consumer's confirmed plan of reorganization
provides for the surrender of the property, but also when a consumer's
proposed plan of reorganization provides for the surrender of the
property, likening a proposed plan of reorganization to a statement of
intention filed by a consumer in a chapter 7 case.
Opt-ins and opt-outs. The Bureau received various comments on
whether a potential requirement to provide a periodic statement to a
consumer in bankruptcy should apply only to a consumer who opts in, or
affirmatively requests, to receive a periodic statement, as well as
comments on whether an opt-in or opt-out should be in writing. Consumer
advocacy groups and the U.S. Trustee Program strongly opposed any opt-
in requirement for reasons similar to those the Bureau articulated in
the proposal: Consumers may not be aware that they can opt in; some
consumers will fail to opt in (particularly if a written opt-in is
required), even though they want to receive a periodic statement; and
an opt-in requirement would slow and perhaps impede the consumer's
access to information after filing for bankruptcy. These commenters
added that the proposal, as a practical matter, already incorporated an
opt-in requirement because a consumer must declare in court filings
whether the consumer intends to retain or surrender the property and a
consumer would avoid triggering the exemption only by choosing to
retain the property.
Several industry commenters advocated for an express opt-in
requirement. They stated that this approach would provide greater
protection from automatic stay violations and be much less burdensome
than requiring servicers to review bankruptcy court filings to
determine whether the exemption applies. A trade association suggested
that an opt-in would simplify compliance. Another trade association
suggested that an opt-in requirement would prevent consumers in chapter
13 bankruptcy from being confused as to why one creditor in the
bankruptcy case continues to send periodic statements notwithstanding
the bankruptcy. One trade association, however, stated that opt-ins and
opt-outs cause additional burden and expense for servicers because they
are another data field to track.
Some industry commenters addressed the specifics of how opt-in
requests should be made. Several trade associations stated that opt-ins
should be effective if sent to either a specific address designated by
the servicer or the servicer's address listed on the proof of claim.
One industry commenter recommended that servicers should give a notice
including the following disclosures to the consumer's counsel upon
receipt of bankruptcy filing: (1) That the consumer can opt in to
receiving a statement, (2) that all other aspects of the automatic stay
will remain in place, and (3) a request for an appropriate address in
the event that the consumer wants the counsel to manage receipt of
periodic statements. Several industry commenters that already provide a
periodic statement to a consumer in bankruptcy, subject to the
consumer's ability to opt out, requested that the final rule
grandfather a consumer's previous decision to opt out of receiving
periodic statements, so that such a consumer does not need to opt out
again. Some commenters also suggested that all co-obligors on a
mortgage loan be required to jointly submit a request.
The Bureau also received comments on whether a consumer's request
to receive or cease receiving periodic statements must be submitted in
writing and not orally. Industry commenters generally favored a writing
requirement, stating that it will make compliance easier and offer more
protection from the automatic stay because a writing creates a record
to which the parties and a court can refer. Some industry commenters
suggested that opt-outs via email or other electronic forms of
communications should satisfy the requirement. Two servicers stated
that oral opt-outs should be permitted so that consumers could more
easily opt out of receiving statements. Consumer advocacy groups
suggested that a consumer should be able to exercise any opt-in right
orally and that, if the Bureau adopts a writing requirement, a servicer
should have to inform a consumer who makes an oral request of the need
to submit a written request. Further, these commenters stated that the
Bureau should not permit a servicer to designate an exclusive address
for written requests because this creates an additional hurdle for a
consumer. They stated that servicers have misused the exclusive address
requirement for qualified written requests.
Transitioning to modified and unmodified periodic statements.
Industry commenters generally suggested that the proposal would not
afford a servicer sufficient time to begin providing a modified
periodic statement to a consumer in bankruptcy or to resume providing
an unmodified periodic statement after the consumer
[[Page 72317]]
exits bankruptcy. One servicer explained that providing a periodic
statement tailored to bankruptcy requires disclosing additional or
different information than a normal periodic statement and can require
the servicer to account for payments differently. This commenter also
stated that providing a periodic statement immediately following
bankruptcy can be difficult because, for example, servicers subject to
the National Mortgage Settlement are currently required to perform
account reconciliation after a chapter 13 case is dismissed or
discharged so that they can account for any payments received during
the case. Another servicer stated that servicers cannot resume
providing periodic statements within four days after the next payment
due date because their systems may not contain the information
necessary to produce the next statement. This servicer stated that, if
the Bureau finalizes such a requirement, it may need to adjust the
contents of the periodic statement, for example, to remove distinctions
between pre- and post-petition payments. Some trade associations
expressed concerns similar to those above.
Several industry commenters recommended allowing servicers a
reasonable amount of time after the second payment due date to
transition to a modified statement or to resume providing an unmodified
statement following bankruptcy. Some commenters specifically
recommended allowing up to two billing cycles or up to 60 days. Another
trade association recommended that the Bureau should not require
servicers to provide a modified periodic statement under Sec.
1026.41(f) to a consumer in bankruptcy until 30 days after the servicer
files a proof of claim. The trade association explained that a servicer
might not know the correct amount to disclose as the amount due under
Sec. 1026.41(f)(3)(ii) until the servicer completes a post-filing
escrow analysis; it added that a servicer currently has 120 days
following the bankruptcy filing to conduct the analysis and proof of
claim.
The U.S. Trustee Program suggested that the Bureau revise the
proposal to clarify how the requirement to resume providing a periodic
statement after the bankruptcy concludes would apply to a servicer who
was providing a periodic statement during the bankruptcy. Only one
commenter responded to the proposal's request for comment as to whether
servicers receive timely notifications that a consumer has filed or
exited bankruptcy. This servicer stated that, on occasion, it does not
receive timely notices from the bankruptcy court.
The Bureau conducted additional outreach to several servicers
regarding how they monitor for case openings, ongoing case activity,
and case closings. Most servicers stated that they monitor these
occurrences electronically and that they subscribe to some form of a
third-party electronic notification system. As a result, these
servicers learn of new filings, important case activity, and case
closings quickly, usually within approximately a day. Servicers may
also learn of filings through notices from the consumer or bankruptcy
court. Some servicers rely on a manual review of the bankruptcy
documents, including the consumer's bankruptcy petition or plan of
reorganization, as the servicer receives them. Other servicers simply
cease all activity with respect to the account until they receive a
notice that the consumer has emerged from bankruptcy.
Providing statements to a chapter 13 trustee. Most commenters were
opposed to any requirement that servicers provide periodic statements
to a trustee overseeing a consumer's chapter 13 case. Several
commenters stated the requirement would increase cost or burden on
servicers without sufficient corresponding benefit to consumers. The
burden would include systems updates and providing additional copies of
periodic statements each month. One trade association and a bank
commented that providing a trustee with access to a consumer's periodic
statement would raise privacy concerns because the trustee is not the
consumer's representative and might be adverse to the consumer in
certain circumstances. The bank advised that it would incur additional
redaction costs to remove the account number from each periodic
statement before sending it to a trustee. Several commenters stated
that trustees can obtain necessary information by requesting it from
the servicer or consumer or via, among other things, the proof of
claim, change-in-payment notices, or notices of post-petition fees.
Several servicers suggested that overseeing payment application is not
one of a trustee's duties under the Bankruptcy Code. Although one
servicer acknowledged that trustees may have an interest in proper
payment application, it stated that some trustees would want to receive
periodic statements in every case while others would not, which could
make the rule difficult to implement.
The U.S. Trustee Program stated that trustees should receive
periodic statements for consumers in chapter 13 bankruptcy because, in
cases where the trustee is making mortgage payments on behalf of the
consumer, the trustee needs to know what payments are due and how they
are applied. The U.S. Trustee Program also stated that receiving
periodic statements will enable a trustee to determine whether a
servicer's actual payment application matches representations the
servicer makes to the bankruptcy court. In addition, the U.S. Trustee
Program stated that it would be incongruous for a periodic statement to
instruct a consumer to contact the trustee with questions (as proposed)
while denying the trustee information necessary to answer those
questions. Moreover, the U.S. Trustee Program observed that a trustee
is not necessarily able to obtain the necessary information directly
from a servicer and that obtaining it directly from a consumer results
in costs to both the trustee and the consumer, as well as delays in the
trustee's receipt of information. Finally, the U.S. Trustee Program
stated that a trustee's receipt of a chapter 13 consumer's periodic
statement would not necessarily raise privacy concerns, suggesting that
servicers may not need to combine the mortgage statement with
statements relating to other information.
Requiring Periodic Statements for Consumers in Bankruptcy
The Bureau is adopting Sec. 1026.41(e)(5) with several revisions
from the proposal. Among other things, revised Sec. 1026.41(e)(5)
limits the circumstances in which a servicer is exempt from the
periodic statement requirements when a consumer is a debtor in
bankruptcy or has discharged personal liability for a mortgage loan
through bankruptcy. The Bureau continues to believe that a consumer in
bankruptcy will generally benefit from receiving a periodic statement
under certain circumstances.
The Bureau understands that a consumer in bankruptcy often does not
receive information about a mortgage loan that would be disclosed on a
periodic statement. As the Bureau explained in the proposal, consumers
in bankruptcy have submitted complaints to the Bureau alleging that
their servicers have denied requests to receive a periodic statement or
other written information regarding upcoming payments. Consumers have
complained that, as a result, they may fall behind on payments or lack
basic information about the status of their loans. Bankruptcy case law
also provides evidence that some servicers do not provide periodic
statements to consumers in bankruptcy, even when
[[Page 72318]]
requested to do so by the consumer.\349\ The Bureau understands that,
to address this issue, approximately 30 bankruptcy courts have adopted
local rules permitting or requiring a servicer to provide a periodic
statement to a consumer in bankruptcy under certain circumstances.\350\
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\349\ See, e.g., Henry v. Assocs. Home Equity Servs., Inc. (In
re Henry), 266 B.R. 457, 471 (Bankr. C.D. Cal. 2001) (``A secured
creditor should be encouraged to send out payment coupons, envelopes
and periodic statements if a debtor has filed a statement that the
debtor plans to keep property subject to secured debt and to make
payments. Debtors frequently complain to the court that they want to
make their payments, but their creditors do not cooperate by
providing payment coupons.''); In re Freeman, 352 B.R. 628 (Bankr.
N.D. W. Va. 2006) (overruling creditor's objection to the debtor's
request for periodic statements that were normally required by State
law); cf. Payne v. Mortg. Elec. Registration Sys., Inc. (In re
Payne), 387 B.R. 614, 626 (Bankr. D. Kan. 2008) (``[The servicer]'s
representative testified [that the servicer] does not send payments
books to mortgagors in bankruptcy because [the servicer] cannot
present a true and accurate accounting of the loan payments [the
servicer] is receiving from the Trustee as opposed to debtors'
payments history.'').
\350\ See, e.g., LBR 4001-2, Bankr. M.D. Ala.; LBR 4072-1,
Bankr. N.D. Ala.; Model Chapter 13 Plan, Bankr. S.D. Ala.; Bankr. D.
Colo. LBR 4001-4; Bankr. S.D. Ill. Model Chapter 13 Plan; Bankr.
E.D. La. General Order 2012-1 (adopting model Chapter 13 plan);
Bankr. D. Md. L.R. 4001-5; Bankr. D. Mass. L.R. 4001-3; Bankr. E.D.
Mich. Model Chapter 13 Plan; Bankr. E.D. Mo. L.R. 3021; Bankr. W.D.
Mo. L.R. 4001-4; Bankr. D. Mont. LBR 4001-3; Bankr. D. Kan. Bk. S.O.
08-4; District of New Jersey Local Bankruptcy Rules, D.N.J LBR 4001-
3; Bankr. N.D.N.Y. Model Chapter 13 Plan; Bankr. E.D.N.C. LBR 4001-
2; Bankr. M.D.N.C Standing Order, In re Terms and Provisions
Available for Incorporation into Chapter 13 Confirmation Orders;
Bankr. W.D.N.C. LBR 4001-1; Bankr. D.N.H. L. Form 3015-1A, Model
Chapter 13 Plan; Bankr. N.D. Ohio Admin. Order 13-02, In re Form
Chapter 13 Plan; Bankr. D. Or. L.R. 3015-1; Bankr. D. R.I. LBR 4001-
1; Bankr. D. S.C.SC LBR 3015-1 (adopting model Chapter 13 plan);
Bankr. N.D. TX General Order 2010-1, In re Amended Standing Order
Concerning All Chapter 13 Cases; Bankr. S.D. TX Uniform Plan and
Motion for Valuation of Collateral; Bankr. W.D. TX (Austin Div.),
Consolidated Standing Order for Chapter 13 Case Administration for
Austin Division (adopting model Chapter 13 plan); Bankr. W.D. TX
(San Antonio Div.), Model Chapter 13 Plan; Bankr. D. Vt. LBR 3071-1;
Bankr. W.D. Wash. L. Form 13-4; Bankr. E.D. Wis. Model Chapter 13
Plan.
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The Bureau believes that a consumer's status in bankruptcy should
not act as a bar to receiving fundamental information about the
mortgage loan account. Like all consumers, those in bankruptcy may
benefit from information regarding the application of their payments to
principal, interest, escrow, and fees. As the Bureau noted in the 2013
TILA Servicing Final Rule, the explanation of amount due, transaction
activity, and past payment breakdown give consumers the information
they need to identify possible errors on the account and enable
consumers to understand the costs of their mortgage loan.\351\
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\351\ 78 FR 10901, 10964-67 (Feb. 14, 2013).
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In the absence of a requirement that servicers provide periodic
statements, consumers in bankruptcy often lack crucial information
about their mortgage loan account. The Bureau understands that, for
example, consumers in chapter 7 bankruptcy or those who have discharged
personal liability for a mortgage loan often do not receive written
information regarding their mortgage payments. The lack of information
is particularly troubling for consumers in chapter 7 bankruptcy who use
the ride-through option--that is, consumers who discharge personal
liability for the mortgage loan but continue making mortgage payments
to forestall foreclosure, which enables them to remain in their home.
In that instance, the lien is unaffected by bankruptcy, such that a
consumer's post-bankruptcy failure to stay current on the mortgage
would enable a servicer to foreclose on the property, even though the
servicer could not pursue a deficiency judgment against the consumer
personally.\352\ The Bureau understands that, although in many cases
using this option may be a strategic decision by a consumer to avoid a
future deficiency judgment, in some instances, courts will not permit a
consumer to reaffirm a mortgage loan, and consumers are forced to use
the ride-through option. Current Sec. 1026.41(e)(5) exempts a servicer
from providing a periodic statement for the life of the mortgage loan
in these circumstances, even if the maturity date is years away and the
consumer continues making regular payments.
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\352\ See In re Henry, 266 B.R. at 476 (discussing the ride-
through option and disagreement among courts as to whether the
Bankruptcy Code permits it); In re Covel, 474 B.R. 702, 708 (Bankr.
W.D. Ark. 2012) (holding that Congress eliminated the ride-through
option for personal property in 2005, but ``[b]y not making
corresponding changes concerning real property, Congress appears to
tacitly recognize a ride through option for real property.'');
Kibler v. WFS Fin., Inc. (In re Kibler), Case No. 97-25258-B-7, Adv.
No. 00-2604, 2001 WL 388764, at *5 (Bankr. E.D. Cal. Mar. 19, 2001)
(``In jurisdictions that recognize the `ride-though' option, debtors
may want to preserve their property, yet not incur the potential
personal liability imposed by a reaffirmation agreement. These
debtors . . . need to receive normal monthly billings to avoid a
contract default and potential foreclosure.'').
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Congress mandated in the Dodd-Frank Act that consumers receive
periodic statements and did not provide a bankruptcy exception. In
addition, the 2005 amendments to the Bankruptcy Code provide expressly
that a mortgage creditor does not violate the discharge injunction by
seeking to obtain periodic payments on a discharged mortgage loan in
the ordinary course of its relationship with a consumer in lieu of
pursuing foreclosure.\353\ A leading bankruptcy treatise interprets
these amendments as permitting a servicer to send a periodic statement
to a consumer who has used the ride-through option.\354\ Both the Dodd-
Frank Act and the 2005 amendments to the Bankruptcy Code therefore
indicate that Congress contemplated that consumers could receive
periodic statements about their mortgage loans notwithstanding the
bankruptcy process. The Bureau believes that maintaining a complete
exemption from the periodic statement requirements with respect a
consumer in bankruptcy would not further Congress's goals.
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\353\ 11 U.S.C. 524(j) (``Subsection (a)(2) does not operate as
an injunction against an act by a creditor that is the holder of a
secured claim, if--(1) such creditor retains a security interest in
real property that is the principal residence of the debtor; (2)
such act is in the ordinary course of business between the creditor
and the debtor; and (3) such act is limited to seeking or obtaining
periodic payments associated with a valid security interest in lieu
of pursuit of in rem relief to enforce the lien.'').
\354\ See 4 Collier on Bankruptcy ] 524.09 (Alan N. Resnick &
Henry J. Sommer eds., 16th ed. 2014) (``Section 524(j) clarifies
that when a debtor does not reaffirm a mortgage debt secured by real
estate that is the debtor's principal residence, the creditor may
continue to send statements to the debtor in the ordinary course of
business and collect payments made voluntarily by the debtor. The
provision makes clear that debtors do not have to reaffirm such
debts in order to keep paying them. In fact, it has long been the
practice that mortgage debts are not reaffirmed.'').
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The Bureau also believes that a consumer in chapter 13 will benefit
from receiving the information set forth in periodic statements
provided under Sec. 1026.41. With respect to mortgage loans, chapter
13 contains unique provisions that allow a consumer to repay pre-
bankruptcy arrearages over a reasonable period of time while also
making the regular periodic payments as they come due under the
mortgage loan.\355\ Under chapter 13, servicers may need to adopt
special accounting practices for consumers with these ``cure and
maintain'' plans and separately track payments made on the pre-
bankruptcy arrearages and the regular periodic payments.\356\ These
[[Page 72319]]
accounting practices differ from a servicer's usual practice because,
so long as a consumer is timely making all the payments due under the
plan, a servicer should not treat a consumer as delinquent by, among
other things, assessing certain fees and charges. As commenters noted,
the bankruptcy plan and updates from a trustee may provide a consumer
in chapter 13 with some information about the mortgage loan, but they
do not inform a consumer about payments the servicer has received and
applied, nor do they provide the same standardized point-in-time
information about the consumer's mortgage loan as does a periodic
statement.
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\355\ 11 U.S.C. 1322(b)(5).
\356\ See, e.g., Boday v. Franklin Credit Mgmt. Corp. (In re
Boday), 397 B.R. 846, 850-51 (Bankr. N.D. Ohio 2008) (``Section
1322(b)(5), by splitting a claim, means that a creditor is no longer
permitted to allocate payments according to the terms of its
contract. Instead, its effect is to require that any prepetition
arrearage claim must be paid separately, according to the terms of
the debtor's confirmed plan, based upon the creditor's allowed
claim. The remaining debt, consisting of those payments which become
due after the petition is filed, is then paid according to the terms
of the parties' contract and original loan amortization as if no
default ever existed . . . . From an accounting standpoint, this
requires that a creditor allocate a debtor's loan payments in the
following manner: First, the creditor must apply the arrearage
payments it receives during the plan's duration in accordance with
the terms of the plan, so that upon completion of the plan the
debtor is deemed current on the prepetition amortization schedule.
Accord 8 Collier on Bankruptcy ] 1329.09[3] (15th ed. rev.2005).
Second, payments received from the debtor to service those payments
which contractually accrue postpetition[ ] must be allocated
according to the terms of the parties' contract as if no default had
occurred.''); In re Wines, 239 B.R. 703, 708 (Bankr. D.N.J. 1999)
(``Crediting payments outside the plan to the installments due
contemporaneously according to the original schedule is the only way
to put the debtors in the same position as if default had never
occurred.''); In re Collins, No. 07-30454, 2007 WL 2116416, at *13
(Bankr. E.D. Tenn. July 19, 2007) (holding that chapter 13 cure and
maintain plan can include provisions requiring servicer to apply
payments separately and stating that such a provision ``is not only
reasonable but required''); see also Fannie Mae, Fannie Mae Single
Family 2016 Servicing Guide, at E.2.2.04 (July 13, 2016), available
at https://www.fanniemae.com/content/guide/servicing/index.html
(``Details to be noted with the receipt of all payments pre-
confirmation[:] Type of payment (pre-petition or post-petition)[;]
Amount received; Date received[;] Source of the payment[; and]
Allocation of the payment (principal, interest, late charges, etc.)
. . . Unless the court requires the payments to be applied under the
terms of the repayment plan, the servicer should generally hold any
pre-petition payments it receives as ``unapplied'' funds until an
amount equal to the contractual monthly or biweekly payment due is
available for application . . . .'').
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The Bureau understands that the amendments to the Federal Rules of
Bankruptcy Procedure, effective December 1, 2011, which require a
servicer to disclose certain mortgage loan information to a consumer in
chapter 13,\357\ were motivated in part by pervasive and documented
servicer failures to make accurate filings or disclose fees during
chapter 13 cases.\358\ Consumers would often successfully make all
payments required under their chapter 13 plan, only to find that the
servicer claimed substantial additional amounts were still owed.\359\
Courts have detailed some servicers' failure to properly credit
payments made pursuant to chapter 13 plans, noting that servicers'
systems and accounting practices often fail to adjust to the needs of
chapter 13, and courts have sanctioned servicers or disallowed
fees.\360\ These difficulties were also documented in and formed the
basis of part of the National Mortgage Settlement, which required,
among other things, that the subject servicers properly account for
payments received in bankruptcy.\361\
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\357\ Fed. R. Bankr. P. 3002.1 (requiring, among other things,
servicers to provide 21-day advance notice of a change in payment
amount and notice within 180 days after a servicer incurs a fees or
expense for which the consumer is liable, and also providing for a
reconciliation process at the end of the case to determine if a
servicer disputes whether the consumer is current on the mortgage
loan).
\358\ Fed. R. Bankr. P. 3002.1 Advisory Committee's Notes (2011)
(``[Rule 3002.1] is added to aid in the implementation of Sec.
1322(b)(5), which permits a chapter 13 debtor to cure a default and
maintain payments on a home mortgage over the course of the debtor's
plan. It applies regardless of whether the trustee or the debtor is
the disbursing agent for postpetition mortgage payments. In order to
be able to fulfill the obligations of Sec. 1322(b)(5), a debtor and
the trustee have to be informed of the exact amount needed to cure
any prepetition arrearage, see Rule 3001(c)(2), and the amount of
the postpetition payment obligations.''); In re Sheppard, No. 10-
33959-KRH, 2012 WL 1344112, at *2 (Bankr. E.D. Va. Apr. 18, 2012)
(``Bankruptcy Rule 3002.1 was adopted to resolve significant and
often hidden problems encountered by Chapter 13 debtors who utilized
Sec. 1322(b)(5) of the Bankruptcy Code to cure mortgage defaults in
their confirmed plans. While debtors could cure an arrearage on
their principal residence under Sec. 1322(b)(5), they often
incurred significant fees and other costs as a result of
postpetition defaults or from interest or escrow fluctuations under
the terms of the original loan documents. Fearful that any attempt
to address these fees and charges could be construed as a violation
of the automatic stay, many creditors would not inform debtors that
these charges had been incurred until after the Chapter 13 case was
closed. As the fees and charges were postpetition obligations not
included in the plan and thus not discharged at the conclusion of
the case, these debtors would emerge from bankruptcy only to face a
substantial and previously undisclosed arrearage. This outcome was
inconsistent with the goal of providing debtors with a fresh
start.''); In re Thongta, 480 B.R. 317, 319 (Bankr. E.D. Wis. 2012)
(similar).
\359\ See, e.g., Sheppard, 2012 WL 1344112, at *2; Thongta, 480
B.R. at 319.
\360\ See, e.g., In re Jones, 366 B.R. 584, 594-98 (Bankr. E.D.
La. 2007) (sanctioning servicer that applied all amounts received to
pre- and post-petition charges, interest, and non-interest bearing
debt, resulting ``in such a tangled mess'' that neither the CPA
debtor nor the servicer could explain the accounting, and stating
that ``[i]n this Court's experience, few, if any, lenders make the
adjustments necessary to properly account for a reorganized debt
repayment plan.''); In re Hudak, No. 08-10478-SBB, 2008 WL 4850196,
at *5 (Bankr. D. Colo. Oct. 24, 2008) (``Many courts have noted that
mortgage lenders simply do not accommodate for the accounting
intricacies created by Chapter 13.''); Payne v. Mortg. Elec.
Registration Sys., Inc. (In re Payne), 387 B.R. 614, 627 (Bankr. D.
Kan. 2008) (``[The servicer] admitted their computer system does not
allow debtors who make all their payments in a timely manner to exit
bankruptcy current on their mortgage obligation.''); In re Myles,
395 B.R. 599, 606 (Bankr. M.D. La. 2008) (holding that debtors
stated claim for stay violation where creditor allegedly treated a
chapter 13 debtor as in default due to improper payment application
and applied payments to improper fees as a result); Boday, 397 B.R.
at 850-51 (Bankr. N.D. Ohio 2008) (holding that creditor violated
plan and section 1322(b)(5) by applying plan payments to interest
rather than principal under daily simply interest loan); In re
Rathe, 114 B.R. 253, 256-57 (Bankr. D. Idaho 1990) (``[The
servicer]'s accounting procedure applied payments to the earliest
payments due and not to the payments due and owing during the
pendency of the plan. The purpose of a Chapter 13 plan is to allow a
debtor to pay arrearages during the pendency of the plan while
continuing to make payments at the contract rate. Payments made
during the pendency of the Chapter 13 plan should have been applied
by [the servicer] to the current payments due and owing with the
arrearage amounts to be applied to the back payments. [The servicer]
cannot utilize its accounting procedures to contravene the terms of
a confirmed Chapter 13 plan and the Bankruptcy Code.''); In re
Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008) (sanctioning servicer
for misapplying payments and noting that ``[t]he reconciliation of
Debtor's account took [the servicer] four months to research and
three hearings before this Court to explain,'' that ``[a]n account
history was not produced until two months after the filing of the
Objection,'' and that ``[a]n additional two months were spent
obtaining the necessary information to explain or establish the
substantial charges, costs, and fees reflected on the account''),
vacated in part, 647 F.3d 553 (5th Cir. 2011).
\361\ See, e.g., Exhibit A at 9, United States v. Bank of Am.,
(2014) (No. 12-361 (RMC), 2014 WL 1016286 (National Mortgage
Settlement)), available at https://d9klfgibkcquc.cloudfront.net/Ocwen-Consent-Judgment-Ex-A.pdf (providing that, among other things,
``[i]n active chapter 13 cases, Servicer shall ensure that: a.
Prompt and proper application of payments is made on account of (a)
pre-petition arrearage amounts and (b) postpetition payment amounts
and posting thereof as of the successful consummation of the
effective confirmed plan; b. the debtor is treated as being current
so long as the debtor is making payments in accordance with the
terms of the then effective confirmed plan and any later effective
payment change notices'').
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In light of these documented concerns about servicers not properly
applying payments in chapter 13 cases, the Bureau believes that a
periodic statement would benefit a consumer in chapter 13 by, for
example, enabling the consumer or the consumer's attorney to monitor
for payment application errors. Moreover, in cases where a consumer was
current as of the date of the bankruptcy petition or is making periodic
payments directly to a servicer, a monthly reminder of amounts due may
help a consumer make timely payments. The Bureau notes that the U.S.
Trustee Program and other commenters strongly supported requiring
servicers to provide a periodic statement to a consumer in chapter 13
for these and other reasons.
The Bureau understands and appreciates the concerns expressed by
many servicers that their systems are not currently set up to easily
track how payments are applied in chapter 13 cases and that, in order
to be able to disclose this information on a periodic statement, they
may need to incur significant costs to upgrade their systems. Servicers
and trade groups also
[[Page 72320]]
stated that consumers may not understand the complexities of accounting
for payments made under a chapter 13 plan. However, as the Bureau noted
in the 2013 TILA Servicing Final Rule, this complexity argues for
providing a consumer with a periodic statement. Commenters, including
consumer advocacy groups, the U.S. Trustee Program, and other
bankruptcy experts, have stated that consumers and their attorneys need
the information on a periodic statement to understand the status of
their mortgage loan and payments while in bankruptcy. Similarly,
participants in the Bureau's consumer testing generally reacted
favorably to the prospect of receiving a periodic statement while in
chapter 13, often noting that they did not receive this same
information during their own bankruptcy cases and wished that they had.
In addition, the Bureau notes that, while the Bankruptcy Rules provide
for a reconciliation procedure once the consumer completes all payments
under a chapter 13 plan, a large proportion of chapter 13 cases are
dismissed prior to completion.\362\ As a result, many consumers in
chapter 13 bankruptcy will not have a trustee or court oversee and
ultimately determine whether a servicer correctly applied payments. For
these consumers, having a record of payments made and applied may help
resolve disputes once the bankruptcy case is over.\363\ Accordingly,
the Bureau believes that all consumers in chapter 13 cases who intend
to retain the property, including those making payments through a
trustee, would benefit from receiving periodic statements.
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\362\ See Ed Flynn, Chapter 13 Revisited: Can it help Solve the
Judiciary's Fiscal Problems?, 32 Am. Bankr. Inst. J. 20, 20 (Dec.
2013).
\363\ The Bureau further notes that in instances where
bankruptcy courts have local rules expressly permitting periodic
statements or coupon books, the rules predominantly apply when the
consumer is a debtor under chapter 13. See supra, note 350.
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The Bureau recognizes that industry will incur costs associated
with providing periodic statements to consumers in bankruptcy. The
Bureau believes that most of those costs will be associated with one-
time systems changes necessary to implement Sec. 1026.41(f), as well
as some additional ongoing costs to ensure that servicers accurately
track and disclose payments they receive from consumers in chapter 13
who are repaying their pre-bankruptcy arrearage. The Bureau thus
believes that, as discussed in the section-by-section analysis of Sec.
1026.41(f) and in parts VII and IX below, once servicers update their
systems, providing periodic statements to consumers in bankruptcy will
not add significant ongoing cost. In addition, some servicers informed
the Bureau that they already supply periodic statements to some or all
consumers in bankruptcy. For these servicers, the additional burden of
complying with Sec. 1026.41(e)(5) should be reduced.
Interaction With Bankruptcy Law
As noted above, several commenters suggested that requiring a
periodic statement for a consumer in bankruptcy would inappropriately
interfere with bankruptcy law. Some of these commenters stated that a
bankruptcy court may hold a servicer in violation of the Bankruptcy
Code's automatic stay for providing a periodic statement to a consumer
in bankruptcy, even if the servicer did so in order to comply with TILA
and Regulation Z.\364\ Some commenters suggested that, by a requiring a
periodic statement for a consumer in bankruptcy, the Bureau would be
effectively overruling bankruptcy law's general prohibition on
creditors communicating with a debtor. Two commenters raised a question
about the constitutionality of the Bureau's rulemaking in this area
based on concerns about separation of powers, suggesting that the
rulemaking would affect a judicial branch function. These two
commenters urged the Bureau to defer to the expertise of the bankruptcy
courts in developing a periodic statement.
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\364\ Some commenters stated that the risk of automatic stay
violations could be reduced by requiring a consumer in bankruptcy to
make an affirmative request before a servicer would be required to
provide a periodic statement. The Bureau addresses those comments
below.
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As discussed more in the section-by-section analysis of Sec.
1026.41(f), the Bureau has considered the rulings of bankruptcy courts
in developing the periodic statement. The Bureau believes that the
final rule is consistent with, rather than in conflict with, bankruptcy
law. The Bureau has tailored Sec. 1026.41(e)(5) to avoid requiring a
servicer to send a periodic statement in circumstances when case law
suggests that doing so would violate the automatic stay. As discussed
above and in the proposal, courts have observed that whether periodic
statements are appropriate in bankruptcy typically depends on whether
``the debtor needed the information contained in the statements when
the statements were sent'' and that debtors need information about the
mortgage loan when they intend to retain property, not when they intend
to surrender it.\365\ For example, under the final rule, a servicer
generally will not be required to provide a periodic statement to a
consumer in bankruptcy who has articulated an intent to surrender the
property through a bankruptcy plan, a statement of intention filed with
the bankruptcy court, or has made a written request to cease receiving
a periodic statement.
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\365\ Connor v. Countrywide Bank NA (In re Connor), 366 B.R.
133, 136, 138 (Bankr. D. Haw. 2007)); see also Henry v. Assocs. Home
Equity Servs., Inc. (In re Henry), 266 B.R. 457, 471 (Bankr. C.D.
Cal. 2001) (collecting cases).
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The Bureau is not aware of any case law holding a servicer in
violation for providing a periodic statement in the circumstances
required by the final rule. Industry commenters cited several decisions
finding automatic stay violations, but they all involved actions by a
servicer that the final rule would not require, such as aggressive
collections after the consumer agreed to surrender the property or
sending notices misstating the consumer's obligations.\366\ Reports
from servicers appear to confirm that liability for alleged stay
violations is unlikely: For example, a large national servicer advised
the Bureau that it provides periodic statements to all consumers in
bankruptcy with mortgage loans secured by a first lien, subject to a
consumer's right to opt out, and that it believes this practice
complies with the automatic stay. Given the case law on this issue, the
tailored requirements of Sec. 1026.41(e)(5) as described in more
detail below, and the experiences of servicers that already provide
periodic statements to consumers in bankruptcy, the Bureau does not
believe that requiring servicers to send periodic statements to some
consumers in bankruptcy exposes servicers to a risk of significant
litigation or liability in the courts.
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\366\ See, e.g., In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D.
Fla. 1999) (holding that creditor violated the stay by sending
periodic statements to chapter 13 debtor who had asked not to
receive them); Connor v. Countrywide Bank NA (In re Connor), 366
B.R. 133, 136, 138 (Bankr. D. Haw. 2007) (debtor failed to state a
claim for stay violation related to periodic statements received
prior to chapter 13 plan confirmation, but debtor did state a claim
related to statements received after conversation to chapter 7
because debtor had indicated his intent to surrender the property);
In re Schinabeck, No. 08-41942, 2014 WL 5325781 (Bankr. E.D. Tex.
Oct. 20, 2014) (holding that servicer violated the discharged
injunction where it sent at least 60 written communications,
including some after the consumer had filed the lawsuit alleging a
discharge injunction violation, to a consumer who had vacated the
property before bankruptcy and had requested to cease receiving
communications about the property).
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[[Page 72321]]
The Bureau's conclusion is informed particularly by the comments
from the U.S. Trustee Program, which did not express concerns that the
proposal would result in automatic stay violations and specifically
stated that the proposal took the proper approach. Moreover, Congress
amended TILA to require periodic statements for mortgage loans without
any exception for consumers in bankruptcy, and the final rule simply
limits the circumstances in which a servicer is exempt from this
Congressionally-imposed requirement.\367\ For the reasons discussed,
the Bureau believes that Sec. 1026.41(e)(5) does not inappropriately
intrude upon bankruptcy law.
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\367\ One commenter stated that Regulation Z does not apply to a
mortgage loan for which a consumer has discharged personal liability
through bankruptcy. A bankruptcy discharge does not, however, by
itself affect Regulation Z coverage. A bankruptcy discharge does not
per se eliminate the existence of a debt or nullify an extension of
credit; rather, the discharge operates as an injunction against
collecting the debt as a personal liability of the consumer. See 11
U.S.C. 524(a) (``A discharge in a case under this title . . .
operates as an injunction against the commencement or continuation
of an action, the employment of process, or an act, to collect,
recover or offset any such debt as a personal liability of the
debtor, whether or not discharge of such debt is waived.''); see
also 11 U.S.C. 524(f) (clarifying that the discharge injunction does
not prevent a debtor from ``voluntarily repaying any debt'').
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Final Rule
The Bureau is finalizing Sec. 1026.41(e)(5) and associated
commentary with several revisions from the proposal. As revised, Sec.
1026.41(e)(5) limits the circumstances in which a servicer is exempt
from the periodic statement requirements when a consumer is a debtor in
bankruptcy or has discharged the mortgage loan through bankruptcy. The
exemption criteria in the final rule depart from the proposal in three
primary ways. First, the exemption applies at the mortgage-loan level
rather than as to specific consumers. When the criteria for an
exemption are satisfied with respect to one consumer on a mortgage
loan, a servicer is also exempt from the periodic statement
requirements with respect to any other consumer on the mortgage loan.
Second, the exemption can be triggered by a consumer's proposed
bankruptcy plan, instead of only by the consumer's confirmed plan.\368\
Third, the final rule generally provides that a servicer is exempt upon
the consumer filing a statement of intention identifying an intent to
surrender the dwelling securing the mortgage loan only if the consumer
has not made any partial or periodic payment on the mortgage loan after
the commencement of the consumer's bankruptcy case.
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\368\ The final rule uses the term bankruptcy plan instead of
plan of reorganization to improve clarity.
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The final rule also allows a servicer to establish an exclusive
address that a consumer in bankruptcy must use to submit a written
request to opt into or out of receiving periodic statements, provided
that the servicer notifies the consumer of the address in a manner that
is reasonably designed to inform the consumer of the address and uses
the same address both for opt-ins and opt-outs. The final rule further
sets forth a transitional single-billing-cycle exemption under certain
circumstances to enable a servicer to transition to a periodic
statement modified for bankruptcy and to an unmodified periodic
statement upon the conclusion of the bankruptcy case or reaffirmation
of the debt.
The Bureau is finalizing proposed comment 41(e)(5)-1 substantially
as proposed, with minor revisions to improve clarity. Comment 41(e)(5)-
1 clarifies that a written request that a servicer cease or continue
providing a periodic statement is deemed to be submitted by the
consumer if an agent of the consumer, such as the consumer's bankruptcy
counsel, submits the request. The Bureau is finalizing proposed comment
41(e)(5)(ii)-1 substantially as proposed, renumbered as comment
41(e)(5)-2, with minor revisions to improve clarity. Comment 41(e)(5)-2
states that a consumer's most recent written request under Sec.
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) determines whether the exemption
in Sec. 1026.41(e)(5)(i) applies. The Bureau is also finalizing new
comment 41(e)(5)-3, which clarifies that a consumer's written request
under Sec. 1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) is effective as of the
date of receipt by the servicer. The Bureau is finalizing proposed
comment 41(e)(5)(ii)-3, renumbered as comment 41(e)(5)(i)-4, without
revision. The comment clarifies that, if a consumer's bankruptcy case
is revived or if the court reinstates a previously dismissed case or
reopens a case, Sec. 1026.41(e)(5) may apply again.
41(e)(5)(i) Exemption
Scope of Exemption
Final Sec. 1026.41(e)(5)(i) provides that a servicer is exempt
from the requirements of Sec. 1026.41 with regard to a mortgage loan
if a two-prong test is satisfied. First, any consumer on the loan must
be a debtor in bankruptcy under title 11 of the United States Code or
must have discharged personal liability for the mortgage loan through
bankruptcy pursuant to 11 U.S.C. 727, 1141, 1228, or 1328.
Second, one of the following additional conditions in Sec.
1026.41(e)(5)(i)(B)(1) through (4) must apply with regard to any
consumer on the mortgage loan: (1) The consumer requests in writing
that the servicer cease providing a periodic statement; (2) the
consumer's bankruptcy plan provides that the consumer will surrender
the dwelling securing the mortgage loan, provides for the avoidance of
the lien securing the mortgage loan, or otherwise does not provide for,
as applicable, the payment of pre-bankruptcy arrearage or the
maintenance of payments due under the mortgage loan; (3) a court enters
an order in the bankruptcy case providing for the avoidance of the lien
securing the mortgage loan, lifting the automatic stay pursuant to 11
U.S.C. 362 with regard to the dwelling securing the mortgage loan, or
requiring the servicer to cease providing a periodic statement; or (4)
the consumer files with the court overseeing the bankruptcy case a
statement of intention pursuant to 11 U.S.C. 521(a) identifying an
intent to surrender the dwelling securing the mortgage loan and a
consumer has not made any partial or periodic payment on the mortgage
loan after the commencement of the consumer's bankruptcy case.
Changes to the Proposed Exemption Criteria
Apart from the exceptions discussed below, the Bureau is adopting
proposed Sec. 1026.41(e)(5)(i) and associated commentary substantially
as proposed, with various revisions to improve clarity. The exemption
in the final rule departs from the proposal in three primary ways: (1)
The exemption applies at the mortgage-loan level; (2) it can be
triggered by a consumer's proposed bankruptcy plan; and (3) it includes
an exemption upon the consumer filing a statement of intention
identifying an intent to surrender the dwelling securing the mortgage
loan only if a consumer has not made any partial or periodic payment on
the mortgage loan after the commencement of the consumer's bankruptcy
case.
Loan-level exemption. The exemption in final Sec. 1026.41(e)(5)(i)
applies at the loan level. This differs from the proposal, which would
have exempted a servicer from the periodic statement requirements as to
a specific consumer in bankruptcy but not, for example, as to any of
the consumer's co-obligors who were not in bankruptcy. The Bureau is
removing the reference to primary obligors that was in the
[[Page 72322]]
proposal. As the Bureau is finalizing the exemption at the loan level
rather than at the consumer level, and, as consumer is a defined term
in Regulation Z, the Bureau believes it is more appropriate to refer
solely to consumers and not to primary obligors in the regulation. The
Bureau does not believe the omission of primary obligors from the
regulation text is a substantive change. Comment 41(e)(5)(i)-1
discusses the applicability of the exemption when there is more than
one primary obligor. Comment 41(e)(5)(i)-1 clarifies that, when two or
more consumers are joint obligors with primary liability on a mortgage
loan subject to Sec. 1026.41, the exemption applies if any one of the
consumers meets the criteria set forth in Sec. 1026.41(e)(5)(i). The
comment also offers an example in which two spouses jointly own a home
and are primary obligors on the mortgage loan. One spouse files chapter
13 bankruptcy and has a bankruptcy plan that provides for surrendering
the home. In part, Sec. 1026.41(e)(5)(i) exempts the servicer from
providing a periodic statement with regard to that mortgage loan,
unless one of the spouses requests in writing that the servicer provide
a periodic statement pursuant to Sec. 1026.41(e)(5)(ii).
In general, the Bureau believes that a non-debtor co-obligor would
benefit from receiving a periodic statement, just like any other
consumer with a mortgage loan. Nonetheless, commenters raised
legitimate concerns about the proposal, which in some circumstances
would have exempted a servicer as to one co-obligor but not another.
Commenters indicated that most servicers' systems currently would not
accommodate such a requirement. For example, servicers' systems
typically suppress communications at the loan level, and some servicers
cannot easily remove names from an account. Nor can servicers' systems
automate sending a periodic statement to one address while providing
other mortgage-related notices to another address, which may have been
necessary under the proposal when co-obligors live separately. For
these reasons, servicers reported that they might have to reorder
fundamentally their systems to comply with the proposal. Furthermore,
the Bureau understands that a requirement to provide different
disclosures to different addresses could cause conflict with mortgage
security instruments, which often state that there can be only a single
notice address for each mortgage loan. Implementing and complying with
the proposed consumer-specific exemption therefore could have been
resource-intensive.
Definition of bankruptcy plan. Final Sec. 1026.41(e)(5)(i)(B)(2)
provides that a servicer is exempt from the periodic statement
requirements depending on the terms of a consumer's bankruptcy plan.
The proposal used the term confirmed plan of reorganization, and
proposed comment 41(e)(5)(i)-2 would have clarified the meaning of that
term. The Bureau is finalizing the proposed comment, renumbered in the
final rule as comment 41(e)(5)(i)(B)(2)-1, with revisions. The comment
clarifies that the term bankruptcy plan, for purposes of Sec.
1026.41(e)(5)(i)(B)(2), refers to a consumer's most recently filed
bankruptcy plan filed under the applicable provisions of title 11 of
the United States Code, regardless of whether the court overseeing the
consumer's bankruptcy case has confirmed or approved the plan. Unlike
the proposal, the final rule looks to the consumer's most recently
filed bankruptcy plan, and it does not require the bankruptcy plan to
be confirmed. The condition under Sec. 1026.41(e)(5)(i)(B)(2) is thus
satisfied if the consumer's most recently filed bankruptcy plan
provides that the consumer will surrender the dwelling securing the
mortgage loan, provides for the avoidance of the lien securing the
mortgage loan, or otherwise does not provide for, as applicable, the
payment of pre-bankruptcy arrearage or the maintenance of payments due
under the mortgage, whether or not that plan is confirmed or a prior
plan provided for the payment of the mortgage loan.
The Bureau is adopting these changes so that the exemption criteria
in Sec. 1026.41(e)(5)(i)(B)(2) are based on a consumer's most recent
expressed intent to retain or surrender the property as identified in a
proposed or confirmed bankruptcy plan. As the Bureau explained in the
proposal, the value of receiving a periodic statement is diminished for
a consumer who intends to surrender the property. Additionally,
providing a periodic statement to a consumer who has indicated, through
a bankruptcy plan, an intention to surrender the property, could
increase the risk of a court finding that a servicer violated the
automatic stay. The Bureau understands that a consumer will often
perform according to a proposed plan for several months before a plan
is confirmed, and a consumer who is surrendering the property or
avoiding the lien may not benefit from a statement during that
interval. The Bureau therefore does not believe that a servicer should
have to provide a periodic statement to a consumer whose proposed
bankruptcy plan indicates that the consumer intends to cease making
payments on the mortgage loan.
Payment after bankruptcy filing and statement of intention. Final
Sec. 1026.41(e)(5)(i)(B)(4) requires both that a consumer has filed
with the bankruptcy court a statement of intention identifying an
intent to surrender the dwelling securing the mortgage loan and that a
consumer has not made any partial or periodic payment on the mortgage
loan after the commencement of the consumer's bankruptcy case. Unlike
the proposal, the final rule requires a servicer to provide a periodic
statement to a consumer whose statement of intention identifies an
intent to surrender the property if a consumer either has made any
partial or periodic payment on the mortgage loan after the commencement
of the bankruptcy case or has requested in writing that the servicer
provide a periodic statement.\369\ The Bureau believes that making a
payment on the mortgage loan may be a better indication of the
consumer's intention to keep the property than a formal statement of
intention filed with the bankruptcy court.\370\ The statement of
intention may reflect only the consumer's intention at a point in time
and not the consumer's present intention. Moreover, the Bureau is also
aware that a consumer in bankruptcy will often file a statement of
intent identifying a purported intent to surrender the home even when
the consumer fully intends to retain the property and continue making
mortgage payments. The Bureau believes that such a consumer benefits
from receiving periodic information about the loan and that, as
discussed above, providing a periodic statement to a consumer who is
continuing to make voluntary mortgage payments is consistent with
bankruptcy law.\371\
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\369\ As noted above, one commenter requested that the final
rule state more explicitly when a servicer is required to provide a
periodic statement to a consumer who has discharged personal
liability for the mortgage loan. The Bureau believes that the final
rule does make these circumstances clear generally and that the
inclusion of the partial or periodic payment language further
eliminates any potential ambiguity.
\370\ Even if a servicer were to return a consumer's partial
payment or hold it in suspense, the servicer would still be required
to resume compliance with Sec. 1026.41 after the bankruptcy case
concludes because the consumer would have made the payment. The
final rule looks to the consumer's actions in determining the scope
of the exemption.
\371\ See, e.g., Henry v. Assocs. Home Equity Servs., Inc. (In
re Henry), 266 B.R. at 471 (Bankr. C.D. Cal. 2001) (holding that
creditor did not violate the automatic stay by sending periodic
statements and notice of default to debtors who retain their
property by continuing to make payments without reaffirming the
mortgage loan); Kibler v. WFS Fin., Inc. (In re Kibler), Case No.
97-25258-B-7, Adv. No. 00-2604, 2001 WL 388764 (Bankr. E.D. Cal.
Mar. 19, 2001) (noting that borrowers who retain their property by
continuing to make payments without reaffirming the mortgage loan
``need to receive normal billings to avoid a contract default and
potential foreclosure''); 4 Collier on Bankruptcy ] 524.04
(``Section 524(j) clarifies that when a debtor does not reaffirm a
mortgage debt secured by real estate that is the debtor's principal
residence, the creditor may continue to send statements to the
debtor in the ordinary course of business and collect payments made
voluntarily by the debtor.'') (citing Jones v. Bac Home Loans
Servicing, LP (In re Jones), Case No. 08-05439-AJM-7, Adv. No. 09-
50281, 2009 WL 5842122, at *3 (Bankr. S.D. Ind. Nov. 25, 2009)).
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[[Page 72323]]
In addition, as with the expression of the consumer's intent in a
bankruptcy plan, the Bureau believes that the consumer's most recent
statement of intention is the relevant filing for purposes of Sec.
1026.41(e)(5)(i)(B)(4). The Bureau has finalized comment
41(e)(5)(i)(B)(4)-1 accordingly. The comment also provides an
illustrative example.
41(e)(5)(ii) Reaffirmation or Consumer Request To Receive Statement or
Coupon Book
The Bureau is finalizing proposed Sec. 1026.41(e)(5)(ii) with
revisions. Final Sec. 1026.41(e)(5)(ii) provides that a servicer
ceases to qualify for an exemption pursuant to Sec. 1026.41(e)(5)(i)
with respect to a mortgage loan if the consumer reaffirms personal
liability for the loan or any consumer on the mortgage loan requests in
writing that the servicer provide a periodic statement or coupon book,
unless a court enters an order in the bankruptcy case requiring the
servicer to cease providing a periodic statement or coupon book.
Proposed Sec. 1026.41(e)(5)(ii)(A) would have similarly required a
servicer to resume compliance with the periodic statement requirements
upon receipt of a consumer's written request, unless a court ordered
the servicer to cease providing a periodic statement or coupon book.
Proposed Sec. 1026.41(e)(ii)(B) would have likewise required a
servicer to resume compliance after the consumer reaffirmed personal
liability for the mortgage loan, among other things. The Bureau
believes that final Sec. 1026.41(e)(5)(ii) more clearly states that a
servicer ceases to qualify for an exemption pursuant to Sec.
1026.41(e)(5)(i) with respect to a mortgage loan after either receipt
of a consumer's written request or the consumer reaffirms personal
liability for the mortgage loan.
The Bureau is also adopting new comment 41(e)(5)(ii)-1 to clarify
what form of periodic statement a servicer would provide after a
consumer reaffirms personal liability for a mortgage loan or opts into
receiving a periodic statement. The comment explains that a servicer
would provide a modified statement only if Sec. 1026.41(f) applies to
the mortgage loan at that time. The comment explains that, for example,
Sec. 1026.41(f) does not apply with respect to a mortgage loan once
the consumer has reaffirmed personal liability; therefore, following a
consumer's reaffirmation, a servicer generally would provide a periodic
statement that complies with Sec. 1026.41 but without the
modifications set forth in Sec. 1026.41(f). The comment further
explains that Sec. 1026.41(f) does apply, however, with respect to a
mortgage loan following a consumer's written request to receive a
periodic statement, so long as any consumer on the mortgage loan
remains in bankruptcy or has discharged personal liability for the
mortgage loan; accordingly, following that written request, a servicer
must provide a periodic statement that includes the modifications set
forth in Sec. 1026.41(f).
Written Opt-Out and Opt-In Requests Under 41(e)(5)(i) and 41(e)(5)(ii)
As explained above, Sec. 1026.41(e)(5)(i)(B)(1) provides that a
servicer may honor a consumer in bankruptcy's written request that the
servicer cease providing a periodic statement. Section
1026.41(e)(5)(ii) provides, in part, that a servicer ceases to qualify
for an exemption pursuant to Sec. 1026.41(e)(5)(i) with respect to a
mortgage loan if any consumer on the mortgage loan requests in writing
that the servicer provide a periodic statement, unless a court enters
an order in the bankruptcy case requiring the servicer to cease
providing a periodic statement. Thus, Sec. 1026.41(e)(5)(i)(B)(1)
provides an opt-out mechanism and Sec. 1026.41(e)(5)(ii) provides an
opt-in mechanism.
Section 1026.41(e)(5)(i)(B)(1) generally provides the requirements
for opt-out. Section 1026.41(e)(5)(i)(B)(1) does not prohibit servicers
from continuing to honor opt-out requests received, whether orally or
in writing, from consumers in bankruptcy before the effective date, so
long as the servicer can document that the consumer affirmatively made
the request. Servicers may choose to require consumers to submit a new
written request, but the Bureau is not requiring it. The Bureau
believes that imposing such a requirement in the final rule would
unnecessarily increase burden on consumers and servicers.
As noted above, the Bureau is adopting comment 41(e)(5)-1, which
clarifies that, if an agent of the consumer, such as the consumer's
bankruptcy counsel, submits a request under Sec.
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii), the request is deemed to be
submitted by the consumer. The Bureau is also adopting new comment
41(e)(5)-3, which clarifies that a consumer's written request under
Sec. 1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) is effective as of the date
of receipt by the servicer.
Requiring written opt-out and opt-in. Requiring opt-out and opt-in
requests to be in writing reduces the potential for litigation in the
bankruptcy court and eliminates ambiguities about whether a consumer
made an effective request. Although a written requirement imposes
greater burden on consumers, a significant majority of consumers in
bankruptcy are represented by counsel, who should be able to assist
them with preparing a request.\372\ The section-by-section analysis of
Sec. 1026.41(e)(5)(iii) discusses the final rule provision that a
servicer may establish an address that a consumer must use to submit a
written request that the servicer cease or continue providing a
periodic statement.
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\372\ See In re LaGrone, 525 B.R. 419, 427 (Bankr. N.D. Ill.
2015) (citing By the Numbers--Pro Se Filers in the Bankruptcy
Courts, The Third Branch News (U.S. Cts.) Oct. 2011, available at
http://www.uscourts.gov/News/TheThirdBranch/11-10-01/By_the_Numbers-Pro_Se_Filers_in_the_Bankruptcy_Courts.aspx, for the proposition
that in 2011 debtors were represented by counsel in 92% of chapter 7
cases and 90% of chapter 13 cases).
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No universal opt-in requirement. The Bureau declines to require
that a consumer in bankruptcy always submit an affirmative request to a
servicer in order to receive a periodic statement. The Bureau shares
the concern of some commenters that a consumer who wants to receive a
periodic statement may nonetheless fail to make an affirmative request
to opt in. Moreover, absent an express requirement that a servicer
provide notice to a consumer of the right to opt in, a consumer may not
be aware of this right, and the Bureau is concerned about the burden
such a new notice requirement would impose on servicers. The Bureau is
also concerned that a notice-and-opt-in procedure could create long
delays between the bankruptcy filing and when a consumer receives a
periodic statement, potentially causing a consumer to be unaware of
additional fees and charges. The final rule already provides that a
servicer has period of time constituting a limited exemption from the
requirements of Sec. 1026.41 before it must provide a periodic
statement subject to Sec. 1026.41(f) to a consumer in bankruptcy, and
the Bureau is
[[Page 72324]]
concerned that lengthening this period with a notice-and-opt-in
procedure could deprive the consumer of important information about the
mortgage loan during a time when the consumer is attempting to reorder
the consumer's financial affairs.
The Bureau does not believe an affirmative opt-in requirement is
necessary to protect servicers from violating the automatic stay or
discharge injunction. As discussed above, bankruptcy courts hold
consistently that a servicer does not violate the automatic stay when
it provides an accurate periodic statement to a consumer who intends to
retain a property through bankruptcy, including specifically in the
circumstances in which the final rule would require a periodic
statement.\373\ The Bureau notes that the U.S. Trustee Program opposed
an opt-in requirement and did not express concerns that the proposal
would result in automatic stay violations. Additionally, from outreach
and comments received, the Bureau is aware that at least one large
servicer provides a periodic statement to all of its consumers in
bankruptcy who have a first-lien mortgage, subject to the consumer's
right to opt out, and that this servicer believes its practice complies
with the automatic stay. The final rule allows a consumer in bankruptcy
to opt out of receiving a periodic statement, so a servicer does not
risk an automatic stay violation by sending a periodic statement to a
consumer who has requested not to receive them.
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\373\ See supra, note 335-340.
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The Bureau further notes that the final rule incorporates a de
facto opt-in requirement. As consumer advocacy groups commented about
the proposal, a consumer must identify in either the bankruptcy plan or
the statement of intention whether the consumer intends to retain or
surrender the property. The exemption under Sec. 1026.41(e)(5)(i) does
not apply if the consumer identifies an intent to retain the property,
but it does apply if the consumer identifies an intent to surrender
(unless the consumer subsequently makes a partial or periodic payment
on the mortgage loan or requests in writing that the servicer provide a
periodic statement). Accordingly, in practice, a servicer will
generally not be required to provide a periodic statement to a consumer
in bankruptcy unless the consumer has taken an affirmative step
identifying an intent to retain the property.
The Bureau believes that a consumer who makes such an affirmative
step likely benefits from receiving a periodic statement.\374\ Indeed,
consumer testing participants stated overwhelmingly that they would
prefer to receive a periodic statement if they intended to retain their
property through bankruptcy.\375\ The Bureau has also received
complaints from consumers who are retaining their property but do not
receive periodic statements from their servicers due to the bankruptcy.
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\374\ The Bureau acknowledges that, in some circumstances, the
final rule may require a servicer to provide a periodic statement to
a consumer who has not yet filed a statement of intention or
bankruptcy plan and thus to a consumer who has not yet made clear an
intent to retain or surrender the property. In this circumstance,
however, courts have held that a periodic statement would be helpful
to the consumer because it provides information that may be relevant
to deciding whether to retain or surrender. See, e.g., Connor v.
Countrywide Bank NA (In re Connor), 366 B.R. 133, 136, 138 (Bankr.
D. Haw. 2007) (holding that debtor failed to state a claim for stay
violation related to periodic statements received prior to chapter
13 plan confirmation).
\375\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing, at 58 (Feb. 2016), available at http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
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The Bureau also does not believe that the final rule imposes
substantially more burden than would a universal opt-in regime. The
Bureau understands that a servicer likely will expend more resources to
determine whether an exemption applies under the final rule, such as by
reviewing bankruptcy court filings, than it would if it were required
to send a periodic statement only upon receiving a request from the
consumer. As noted above, however, a servicer may have incurred other
costs if the Bureau had required the servicer to provide a notice to
the consumer about an opt-in right. Moreover, as already discussed, the
Bureau believes there are substantial benefits to consumers of not
adopting an express opt-in requirement.
Other opt-in and opt-out issues raised by commenters. The Bureau is
not adopting commenters' other recommendations relating to the written
request requirement. For example, the Bureau is not adopting one
commenter's recommendation that the rule require all co-obligors to
sign any opt-in or opt-out requests. The Bureau believes that this
approach would present practical challenges because some consumers may
not be able to obtain a signature from all co-obligors and some
consumers would be unaware of the need to obtain additional signatures.
In such circumstances, requiring all co-obligors to sign a request
could make it inappropriately difficult for a consumer to receive a
periodic statement.
The Bureau also is not adopting commenters' recommendation to
require that a servicer inform a consumer attempting to opt in or opt
out orally about the need to submit a written request. Many consumers
in bankruptcy are represented by counsel who can advise them of the
writing requirement. The Bureau believes that requiring this notice
could add an unnecessary compliance obligation. Although not required,
the Bureau nevertheless encourages servicers to inform consumers of the
writing requirement and notes that doing so does not violate Sec.
1026.41(e)(5).
41(e)(5)(iii) Exclusive Address
Under new Sec. 1026.41(e)(5)(iii), a servicer may establish an
address that a consumer must use to submit a written request that the
servicer cease or continue providing a periodic statement. The Bureau
believes that allowing servicers to designate an address for these
purposes may reduce compliance burden for servicers and facilitate
consumers' exercise of their opt-in and opt-out preferences.
The Bureau shares some commenters' concerns, however, that some
consumers may not know the specific address and therefore be unable to
exercise these rights. Therefore, Sec. 1026.41(e)(5)(iii) requires a
servicer establishing a specific address for this purpose to notify the
consumer of the address in a manner that is reasonably designed to
inform the consumer of the address. For example, a servicer may be able
to satisfy this requirement by including the address on the servicer's
Web site or the periodic statement. Section 1026.41(e)(5)(iii) does not
necessarily require that the servicer inform the consumer of the
address in writing; for example, when a consumer has called the
servicer requesting a periodic statement, the servicer may inform the
consumer of the address in that phone call with the consumer. Section
1026.41(e)(5)(iii) also provides that, if a servicer designates a
specific address for opt-in and opt-out requests, it must designate the
same address for both. Requiring the same address for opt-ins and opt-
outs should reduce the potential for uncertainty or mistakes about
which address consumers or their counsel should use for making
requests.
41(e)(5)(iv) Timing of Compliance Following Transition
The Bureau is finalizing new Sec. 1026.41(e)(5)(iv) to ensure that
a servicer has a sufficient period of time to transition to providing a
modified or an unmodified periodic statement in connection with a
consumer's
[[Page 72325]]
bankruptcy case. Section 1026.41(e)(5)(iv)(A) specifies the three
bankruptcy-related events that would cause a servicer to transition to
providing a different form of periodic statement: (1) A mortgage loan
becomes subject to the requirement to provide a modified periodic
statement pursuant to Sec. 1026.41(f); (2) a mortgage loan ceases to
be subject to the requirement to provide a modified periodic statement
pursuant to Sec. 1026.41(f); or (3) a servicer ceases to qualify for
an exemption pursuant to a Sec. 1026.41(f) with respect to a mortgage
loan.
Comment 41(e)(5)(iv)(A)-1 clarifies when a mortgage loan becomes,
or ceases to be, subject to the requirements of Sec. 1026.41(f). The
comment states that a mortgage loan becomes subject to the requirements
of Sec. 1026.41(f) when, for example, any consumer who is on the
mortgage loan becomes a debtor in bankruptcy or discharges personal
liability for the mortgage loan. A mortgage loan may cease to be
subject to the requirements of Sec. 1026.41(f) when, for example, the
consumer in bankruptcy reaffirms personal liability for a mortgage loan
or the consumer's bankruptcy case is closed or dismissed without the
consumer having discharged personal liability.
Comment 41(e)(5)(iv)(A)-2 clarifies when a servicer ceases to
qualify for an exemption pursuant Sec. 1026.41(e)(5)(i) with respect
to a mortgage loan. The comment states that a servicer ceases to
qualify for an exemption pursuant to Sec. 1026.41(e)(5)(i) with
respect to a mortgage loan when, for example, (1) the consumer's
bankruptcy case is dismissed or closed; (2) the consumer files an
amended bankruptcy plan or statement of intention that provides, as
applicable, for the maintenance of payments due under the mortgage loan
and the payment of pre-petition arrearage or that the consumer will
retain the dwelling securing the mortgage loan; (3) the consumer makes
a partial or periodic payment on the mortgage loan despite having filed
a statement of intention identifying an intent to surrender the
dwelling securing the mortgage loan, thus making Sec.
1026.1(e)(5)(i)(B)(4) inapplicable; (4) the consumer in bankruptcy
reaffirms personal liability for the mortgage loan; or (5) the consumer
submits a written request pursuant to Sec. 1026.41(e)(5)(ii) that the
servicer continue providing a periodic statement.
Section 1026.41(e)(5)(iv)(B) provides that a servicer is exempt
from the periodic statement requirements with respect to a single
billing cycle if the payment due date for that billing cycle is no more
than 14 days after the date on which an event listed in Sec.
1026.41(e)(5)(iv)(A) occurs. Comment 41(e)(5)(iv)(B)-1 clarifies that
this single-billing-cycle exemption applies only for the first billing
cycle that occurs after an event listed in Sec. 1026.41(e)(5)(iv)(A)
occurs. The comment explains that, if a servicer is required to provide
a periodic statement, the servicer must do so beginning with the next
billing cycle, in accordance with the timing provisions of Sec.
1026.41(e)(5)(iv)(C).
Section 1026.41(e)(5)(iv)(C) sets forth the timeframe within which
a servicer must provide the next periodic statement after an event
listed in Sec. 1026.41(e)(5)(iv)(A) occurs. When one of the events
listed in Sec. 1026.41(e)(5)(iv)(A) occurs, a servicer must provide
the next modified or unmodified periodic statement by delivering or
placing it in the mail within a reasonably prompt time after the first
payment due date, or the end of any courtesy period for the payment's
corresponding billing cycle, that is more than 14 days after the date
on which the applicable event listed in Sec. 1026.41(e)(5)(iv)(A)
occurs. Comment 41(e)(5)(iv)(C)-1 clarifies that delivering, emailing,
or placing the periodic statement in the mail within four days after
the payment due date or the end of the courtesy period generally would
be considered reasonably prompt. Comment 41(e)(5)(iv)(C)-2 clarifies
that Sec. 1026.41(e)(5)(iv)(C) applies to the timing of only the first
periodic statement or coupon book a servicer provides after one of the
events listed in Sec. 1026.41(e)(5)(iv)(A) occurs. For subsequent
billing cycles, a servicer must provide a periodic statement in
accordance with the timing requirements of Sec. 1026.41(a)(2) and (b)
(or Sec. 1026.41(e)(3), in the case of a coupon book). Comment
41(e)(5)(iv)(C)-3 clarifies that Sec. 1026.41(e)(5)(iv)(C) requires a
servicer to provide a new coupon book after one of the events listed in
Sec. 1026.41(e)(5)(iv)(A) occurs only to the extent the servicer has
not previously provided the consumer with a coupon book that covered
the upcoming billing cycle. Section 1026.41(e)(iv)(C) and comments
41(e)(5)(iv)(C)-1 and 2 thus impose timing requirements that are
similar to those in Sec. 1026.41(b) and comment 41(b)-1 in the non-
bankruptcy context.
Industry commenters expressed concern about a servicer's ability to
transition to providing modified periodic statements that are both
accurate and timely following a consumer's bankruptcy filing, stating
that the transition could be particularly difficult if a servicer
learns of the consumer's bankruptcy within just a few days before it
was scheduled to provide the next periodic statement. Similarly,
servicers expressed concern about their ability to timely provide an
unmodified periodic statement after the close of a consumer's
bankruptcy case. An industry commenter suggested that additional time
is necessary because the National Mortgage Settlement requires certain
servicers to perform an account reconciliation after the close of a
consumer's chapter 13 case.
The Bureau believes Sec. 1026.41(e)(5)(iv) provides an appropriate
transition period for a servicer while also not unnecessarily
disadvantaging a consumer. The Bureau therefore declines to adopt
commenters' recommendations that the rule should uniformly allow a
transition period until the second payment due date, of two billing
cycles, or of 60 days. Under the final rule, a servicer will have more
than 14 days before the first billing cycle due date for which it must
provide the next periodic statement when a mortgage loan becomes
subject to the requirement to provide a modified periodic statement, a
mortgage loan ceases to be subject to the requirement to provide a
modified periodic statement, or the servicer ceases to qualify for an
exemption pursuant to Sec. 1026.41(e)(5)(i). The Bureau notes that, in
practice, the final rule will afford most servicers a longer transition
period than 14 days because Sec. 1026.41(b) states that providing a
periodic statement is timely if it occurs within a reasonably prompt
time after the close of any courtesy period.\376\
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\376\ For example, a servicer with a courtesy period of 15 days
would have at least 29 days (the 14-day period before the first
payment due date plus the 15-day courtesy period) before it would be
required to provide a periodic statement with the modification set
forth in Sec. 1026.41(f). At that point, the servicer would have to
deliver the periodic statement within a reasonably prompt time. See
12 CFR 1026.41(b); comment 41(b)-1 (explaining that ``[d]elivering,
emailing or placing the periodic statement in the mail within four
days of the close of the courtesy period of the previous billing
cycle generally would be considered reasonably prompt'').
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Other Issues Raised by Commenters
The Bureau declines to adopt commenters' suggestion to exempt a
servicer from the periodic statement when a consumer is in chapter 12
bankruptcy or has a bankruptcy plan that reduces the outstanding amount
of the mortgage loan to the value of the collateral--that is, a cram-
down plan. The Bureau believes that such a consumer would benefit from
the information contained in a periodic statement, including in
particular the
[[Page 72326]]
disclosure of payments received and applied, as would any other
consumer. As commenters noted, however, in this situation the
consumer's payment obligations during bankruptcy may be tailored to
that specific consumer, such as requiring payments seasonally to
coincide with the consumer's harvest or reducing payments to the
remaining secured portion of the loan. A servicer therefore could bear
additional costs attempting to disclose those specific circumstances on
a periodic statement. The Bureau believes that the additional costs may
not be warranted given that those types of bankruptcy cases are
relatively infrequent.\377\ Accordingly, as suggested by some
commenters and in order to reduce burden further, the final rule
provides servicers with flexibility as to how to present the
information on periodic statements sent to consumers with cram-down
plans, as explained in more detail in the section-by-section analysis
of Sec. 1026.41(f).
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\377\ For example, that there was an average of approximately
545 chapter 12 cases filed nationwide annually between 2011 and
2014. See Administrative Office of the U.S. Courts, U.S. Bankruptcy
Courts--Caseload Statistics Data Tables, available at http://www.uscourts.gov/statistics-reports/caseload-statistics-data-tables.
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The Bureau also declines to require a servicer to send a periodic
statement to a trustee overseeing a consumer's bankruptcy case.
Industry commenters objected to the burden of preparing and mailing
statements to a trustee, as well as to potential costs related to
ensuring that the periodic statement does not disclose any personal
information to the trustee. Some commenters also noted that trustees
are not uniformly interested in receiving periodic statements. The
Bureau recognizes that some trustees would use periodic statements to
monitor how servicers apply payments and acknowledges that the
information contained on the periodic statement may otherwise be
difficult for the trustee to obtain. Nonetheless, the Bureau declines
to mandate that servicers provide periodic statements to bankruptcy
trustees at this time, based on concern about the burden this could
impose on servicers.
The Bureau also declines to adopt other recommendations some
commenters made relating to the exemption, for example, that the Bureau
should require additional notices to the consumer or consumer's counsel
regarding the exemption.
Legal Authority
The Bureau is exercising its authority under sections 105(a) and
(f) of TILA and section 1405(b) of the Dodd-Frank Act to exempt
servicers from the requirement in section 128(f) of TILA to provide
periodic statements for a mortgage loan in certain bankruptcy-related
circumstances. For the reasons discussed above, the Bureau believes
this exemption is necessary and proper under section 105(a) of TILA to
facilitate compliance. In addition, consistent with section 105(f) of
TILA and in light of the factors in that provision, the Bureau believes
that imposing the periodic statement requirements for certain consumers
in bankruptcy may not currently provide a meaningful benefit to those
consumers in the form of useful information. Consistent with section
1405(b) of the Dodd-Frank Act, the Bureau also believes that the
modification of the requirements in section 128(f) of TILA to provide
this exemption is in the interest of consumers and in the public
interest.
41(e)(6) Charged-Off Loans
Proposed Sec. 1026.41(e)(6) would have exempted a servicer from
the requirements of Sec. 1026.41 for a mortgage loan charged off in
accordance with loan-loss provisions, but only if the servicer would
not charge any additional fees or interest on the account, and only
after the servicer provided the consumer a periodic statement with
various additional disclosures relating to the effects of charge off.
For the reasons set forth below, the Bureau is adopting Sec.
1026.41(e)(6)(i) as proposed but is revising the disclosures that must
appear on the periodic statement that servicers must provide before
exercising the exemption. As finalized, Sec. 1026.41(e)(6)(ii) also
contains provisions relating to when a servicer must resume compliance
with the periodic statement requirement.
The periodic statement rule set forth in Sec. 1026.41 requires the
creditor, assignee, or servicer of a closed-end consumer credit
transaction secured by a dwelling (a mortgage loan) to provide the
consumer, for each billing cycle, a periodic statement meeting certain
time, form, and content requirements.\378\ The Bureau understands that
a servicer, pursuant to certain accounting standards and at a
creditor's direction, may be required to charge off a delinquent
mortgage loan in accordance with applicable loan-loss provisions.
Charge off is an accounting practice that indicates that the creditor
or servicer no longer considers the mortgage loan to be an asset.
However, charge off does not release the consumer from liability for
the mortgage loan. In some cases, although the mortgage loan has been
charged off, the underlying lien secured by the dwelling remains in
place. Therefore, even after charge off, the credit transaction is
still secured by a dwelling. As explained in the proposal, under Sec.
1026.41, unless the lien is released, the periodic statement is
required for all charged-off mortgage loans, regardless of whether the
mortgage loan was charged off prior to the effective date of the rule,
January 10, 2014.
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\378\ For purposes of Sec. 1026.41, the term servicer includes
the creditor, assignee, or servicer, as applicable. 12 CFR
1026.41(a)(2).
---------------------------------------------------------------------------
In advance of the proposal, the Bureau understood that the
servicing of charged-off mortgage loans may differ from the servicing
of non-charged-off mortgage loans. A servicer's software, systems, and
platforms may treat charged-off mortgage loans distinctly, such that
providing a periodic statement for a charged-off mortgage loan may be
more burdensome, and therefore more costly, than providing a periodic
statement for a non-charged-off mortgage loan. The Bureau also
understood, however, that, even after charge-off, a servicer may pass
along various fees to the consumer, such as attorney's fees, court
costs, filing fees, garnishment fees, property maintenance fees, taxes,
insurance, and fees for maintaining the lien. In the proposal, the
Bureau explained that, where a servicer continues to charge a consumer
fees and interest, the periodic statement may provide significant value
to the consumer. An important role of the periodic statement is to
document fees and charges to the consumer; as long as such charges may
be assessed, the consumer is entitled to receive a periodic
statement.\379\ In advance of the proposal, the Bureau considered
concerns expressed about circumstances in which periodic statements
should not be required and acknowledged that some circumstances could
make providing a periodic statement more complicated. However, such
circumstances are often precisely when a consumer most needs the
periodic statement.
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\379\ See 2013 TILA Servicing Final Rule, 78 FR 10901, 10960
(Feb. 14, 2013).
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Balancing these considerations, the Bureau proposed Sec.
1026.41(e)(6), which would have exempted servicers from the
requirements of Sec. 1026.41 for a mortgage loan that a servicer has
charged off in accordance with loan-loss provisions, but only if the
servicer would not charge any additional fees or interest on the
account and would provide the consumer a periodic statement with
specified disclosures within 30 days of charge off or the most recent
periodic
[[Page 72327]]
statement. Proposed comment 41(e)(6)-1 would have clarified the
relationship between proposed Sec. Sec. 1026.41(e)(6) and 1026.39,
which requires certain disclosures upon the purchase, assignment, or
transfer of a mortgage loan. Proposed comment 41(e)(6)-2 would have
clarified when the obligation to provide periodic statements resumes
under certain circumstances. The Bureau is adopting Sec. 1026.41(e)(6)
and comments 41(e)(6)-1 and -2 with several revisions from the
proposal, as described below. Some of the revisions are substantive,
while others are technical to improve clarity.
In the proposal, the Bureau sought comment on whether limiting the
exemption for charged-off mortgage loans as proposed would be
appropriate. Additionally, the Bureau sought comment on whether, with
respect to mortgage loans that were charged off prior to the rule's
effective date, the Bureau should provide servicers additional time to
comply with either the proposed exemption for charged-off mortgage
loans or the otherwise applicable periodic statement rule. Finally, the
Bureau sought comment on whether there are alternatives to periodic
statements for charged-off mortgage loans, such as an annual reminder
to the consumer of a loan's status, including what might be the
associated benefits to consumers and costs to servicers of such
alternatives.
The Bureau received numerous comments on proposed Sec.
1026.41(e)(6). Some industry commenters and consumer advocacy groups
generally expressed support for the proposal. One trade association
expressed particular support for the proposed requirement to have clear
labeling on the proposed final periodic statement, arguing that it
would help consumers understand what has happened to their debt and
various implications thereof. A servicer expressed appreciation for the
approach taken in the proposal, agreeing that providing periodic
statements to consumers with charged-off loans would provide little
benefit to consumers while posing significant costs to servicers.
Other commenters recommended various revisions to the proposal. A
trade association and a servicer requested that servicers be allowed to
amend the periodic statements provided under Sec. 1026.41(e)(6) as to
continuing liability when the debt has been discharged in bankruptcy. A
commenter also requested that servicers should not be required to
provide a periodic statement under Sec. 1026.41(e)(6) if the consumer
has sent the servicer a cease communication letter pursuant to section
805(c) of the FDCPA. A state trade association commented that, although
the exemption under proposed Sec. 1026.41(e)(6) is worthwhile, the
exemption should not depend on whether the servicer will continue to
charge any fees, as providing statements after charge off imposes a
heavy burden, servicers may have no choice but to assess additional
fees, and the servicer should not be required to forego collecting such
fees to take advantage of the exemption. One servicer generally agreed
with the proposed exemption from providing periodic statements for
charged-off mortgage loans. However, the servicer indicated that the
proposed requirements would require servicers to create and maintain a
new periodic statement that differs from the existing periodic
statements, which takes between 60 and 90 days to create. This servicer
thus expressed a preference for providing a simple notice setting forth
the relevant information instead of a periodic statement that must
comply with the requirements of proposed Sec. 1026.41(e)(6). Another
servicer requested that the Bureau clarify whether the proposed
commentary for when there is a change in ownership likewise applies
when there is an assignment for collection but no change in ownership.
Consumer advocacy groups suggested that the Bureau should clarify
certain required language on the periodic statement provided under
Sec. 1026.41(e)(6), stating that consumers will not clearly understand
the meaning and implications of charge off. One consumer advocacy group
stated that the periodic statement should clearly state that the charge
off does not eliminate the consumer's liability and that a lien secured
by the dwelling remains in place. This commenter also suggested that
servicers should be required to provide an annual reminder of the
loan's status with important information, until the loan is
transferred, assigned, or foreclosed upon, or the borrower has
successfully obtained loss mitigation.
Other consumer advocacy groups stated that the periodic statement
provided under Sec. 1026.41(e)(6) should not contain the label ``Final
Statement,'' as proposed, because the periodic statement might not in
fact be final if the servicer is later required to provide a periodic
statement, for example, because it adds fees or interest to the
account. These commenters recommended that the Bureau consider the
following specific adjustments to the periodic statement following
charge off: Delete any reference to finality; indicate that the
creditor or future creditor can go back to charging interest and fees
and collecting on the debt; include an explanation that the creditor
must notify the borrower and resume statements before the creditor may
recommence charging interest or fees; include an explanation of the
prohibition on various charges accruing if collection activity resumes;
and detail the right of resumption. Additionally, these consumer
advocacy groups stated that the periodic statement should emphasize
that later creditors who have not received the periodic statement may
later resume retroactive collection efforts, suggesting that this
practice could be problematic for some borrowers who, having not
retained the final statement, would have no proof that the creditor
cannot do so. Finally, these consumer advocacy groups recommended
requiring servicers to provide additional statements about the charged-
off mortgage loan as a reminder, perhaps every six months, but also
suggested finalizing a rule that would permit the servicer to stop
providing periodic statements if they mark the mortgage as satisfied
and remove the lien on the property post-charge-off.
One credit union commenter opposed requiring servicers to provide a
periodic statement with the modifications proposed under Sec.
1026.41(e)(6), indicating that providing a periodic statement with the
term ``Final Statement'' could be misleading to consumers because
servicers may make attempts to recover the debt after charge off, for
example, through foreclosure. This commenter recommended that a
periodic statement should not contain this language and instead contain
language stating that, if the balance due is not paid, the loan may be
referred to foreclosure.
A trade association stated that loans that were charged off before
the effective date of the proposed amendments should not be subject to
any periodic statement requirements. The association commented that
guidance the Bureau issued in 2013, clarifying that the Bureau expects
servicers to provide periodic statements for mortgage loans after
charge off, came too late during industry's implementation of the 2013
Mortgage Servicing Final Rules for vendors to integrate the systems
changes to comply in advance of the 2014 effective date.
The Bureau is adopting Sec. 1026.41(e)(6) with several revisions,
as described below. As finalized, Sec. 1026.41(e)(6)(i) provides that
a servicer is exempt from the requirements of Sec. 1026.41 for a
mortgage loan if two conditions are met. First, under Sec.
1026.41(e)(6)(i)(A), the servicer
[[Page 72328]]
must have charged off the loan in accordance with loan-loss provisions
and will not charge any additional fees or interest on the account.
Second, under Sec. 1026.41(e)(6)(i)(B), the servicer must provide,
within 30 days of charge off or the most recent periodic statement, a
periodic statement, clearly and conspicuously labeled ``Suspension of
Statements & Notice of Charge Off--Retain This Copy for Your Records.''
Section 1026.41(e)(6)(i)(B) also requires that this periodic statement
provide a clear and conspicuous explanation that, as applicable: The
mortgage loan has been charged off and the servicer will not charge any
additional fees or interest on the account; the servicer will no longer
provide the consumer a periodic statement for each billing cycle; the
lien on the property remains in place and the consumer remains liable
for the mortgage loan obligation and any obligations arising from or
related to the property, which may include property taxes; the consumer
may be required to pay the balance on the account in the future, for
example, upon sale of the property; the balance on the account is not
being canceled or forgiven; and the loan may be purchased, assigned or
transferred. Providing this periodic statement as required under Sec.
1026.41(e)(6)(i)(B) will provide important consumer protections while
relieving the burden on servicers associated with providing ongoing
periodic statements under Sec. 1026.41. The Bureau stresses that a
servicer does not need to include any of the enumerated statements
unless they apply to a particular consumer. For example, if a consumer
has discharged personal liability for the mortgage loan through
bankruptcy, the servicer would not need to include on the periodic
statement an explanation that the consumer remains liable for the
mortgage loan obligation.
The Bureau is finalizing proposed comment 41(e)(6)-2, but
incorporating it in Sec. 1026.41(e)(6)(ii) instead of finalizing it as
a comment. Section 1026.41(e)(6)(ii) clarifies when a servicer must
resume compliance with Sec. 1026.41 after exercising the exemption
under Sec. 1026.41(e)(6)(i) and how a servicer must treat fees or
interest that accrued while the exemption applied. Section
1026.41(e)(6)(ii)(A) states that, if a servicer fails at any time to
treat the mortgage loan that is exempt under Sec. 1026.41(e)(6)(i) as
charged off or charges any additional fees or interest on the account,
the obligation to provide a periodic statement pursuant to Sec.
1026.41 resumes. Section 1026.41(e)(6)(ii)(B) states that a servicer
may not retroactively assess fees or interest on the account for the
period of time during which the exemption in Sec. 1026.41(e)(6)(i)
applied. As the Bureau explained in the proposal, if the servicer or
covered person at any time no longer treats the mortgage loan as
charged off, begins charging fees or interest on the account, or
retroactively assesses fees or interest on the account, such conduct
would contravene the purpose of the exemption from the otherwise
applicable periodic statement requirement. As noted above, an important
role of the periodic statement is to document fees and charges to the
consumer. As long as such charges may be assessed, the consumer is
entitled to receive a periodic statement.
The Bureau is adopting three comments to clarify the requirements
of Sec. 1026.41(e)(6). The Bureau is adopting comment 41(e)(6)-1
substantially as proposed but separating it into two separate comments
to clarify a servicer's obligations when there is a change in ownership
and separately when there is a change in servicing. Comment 41(e)(6)-1,
as finalized, clarifies the relationship between Sec. Sec.
1026.41(e)(6) and 1026.39, which requires certain disclosures upon the
purchase, assignment, or transfer of a mortgage loan. The comment
provides that, if a charged-off mortgage loan is subsequently
purchased, assigned, or transferred, Sec. 1026.39(b) requires a
covered person, as defined in Sec. 1026.39(a)(1), to provide a
mortgage transfer disclosure.\380\
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\380\ Section 1026.39(a)(1) defines a covered person as any
person, as defined in 12 CFR 1026.2(a)(22), that becomes the owner
of an existing mortgage loan by acquiring legal title to the debt
obligation, whether through a purchase, assignment or other
transfer, and who acquires more than one mortgage loan in any
twelve-month period.
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Comment 41(e)(6)-2, as finalized, clarifies a servicer's rights and
obligations under Sec. 1026.41(e)(6) when there is a change in
servicing. The comment provides that a servicer may take advantage of
the exemption in Sec. 1026.41(e)(6)(i), subject to the requirements of
that paragraph, and may rely on a prior servicer's provision to the
consumer of the periodic statement required under Sec.
1026.41(e)(6)(i)(B), unless the servicer provided the consumer a
periodic statement pursuant to Sec. 1026.41(a). As noted above, the
substance of this comment appeared in the proposal as a portion of
comment 41(e)(6)-1. The Bureau also notes that comment 41(e)(6)-2
refers to the rights and obligations of a servicer, whereas the
proposal would have referred to a covered person who would otherwise be
subject to the requirements of Sec. 1026.41.
The Bureau is also adopting new comment 41(e)(6)(i)(B)-1 to clarify
the ``clearly and conspicuously'' standard for purposes of Sec.
1026.41(e)(6)(i)(B). The comment reiterates that the periodic statement
required under Sec. 1026.41(e)(6)(i)(B) must be clearly and
conspicuously labeled ``Suspension of Statements & Notice of Charge
Off--Retain This Copy for Your Records'' and that it must provide
certain clear and conspicuous explanations to the consumer, as
applicable, but no minimum type size or other technical requirements
are imposed. Comment 41(e)(6)(i)(B)-1 further states that the clear and
conspicuous standard generally requires that disclosures be in a
reasonably understandable form and readily noticeable to the consumer.
Finally, the comment refers to comment 41(c)-1, which discusses the
same standard for the periodic statements more generally.
Section 1026.41(e)(6) differs from the proposal in four primary
ways. First, the Bureau is revising the label that must appear clearly
and conspicuously on the periodic statement provided under Sec.
1026.41(e)(6). Section 1026.41(e)(6)(i) requires that the periodic
statement that a servicer provides as a prerequisite to taking
advantage of the exemption in Sec. 1026.41(e)(6) be clearly and
conspicuously labeled in bold print ``Suspension of Statements & Notice
of Charge Off--Retain This Copy for Your Records.'' The proposal would
have required the label to read, ``Final Statement--Retain This Copy
for Your Records.'' As the Bureau explained in the proposal, consumers
should be advised to retain this periodic statement provided under
Sec. 1026.41(e)(6) for record-keeping purposes, as they may need the
information therein for tax or accounting purposes or to demonstrate
the status of the loan to various parties. However, as some commenters
noted, the proposed label may have misled consumers because a servicer
might still refer the loan to foreclosure following charge-off and
provide an additional statement at that time, or the periodic statement
that the servicer provides under Sec. 1026.41(e)(6)(ii) may not in
fact have been the final periodic statement. For example, as Sec.
1026.41(e)(6)(ii)(A) clarifies, a servicer must resume providing
periodic statements to a consumer if a servicer later either fails to
treat the mortgage loan as charged off or charges any additional fees
or interest on the account. Therefore, Sec. 1026.41(e)(6)(ii) and
comment 41(e)(6)-1 no longer require a reference to the ``Final
Statement'' as in the proposal.
[[Page 72329]]
Second, a periodic statement provided under Sec. 1026.41(e)(6)
must provide two new disclosures that the proposal would not have
required. First, the statement must explain that the servicer will no
longer provide the consumer a periodic statement for each billing
cycle. This disclosure should alert consumers that they will no longer
receive these types of communications. Second, the statement must
explain that the lien on the property remains in place and that the
consumer remains liable for the mortgage loan obligation and any
obligations arising from or related to the property, which may include
property taxes. These additional disclosures may help consumers better
understand the meaning and consequences of charge off, including the
consumers' ongoing obligations with respect to the mortgage loan and
the property. The Bureau is adopting the remaining disclosures as
proposed. Together, the requisite disclosures offer consumers
information to help them understand the meaning and consequences of
charge off. The Bureau is including these disclosures to address
commenters' concerns that consumers could misconstrue the charge off to
mean that the mortgage loan obligation or lien has been released, or
the debt forgiven, when in fact this is generally not the case.
Third, as explained above, the Bureau is revising proposed comment
41(e)(6)-2 and is incorporating it into Sec. 1026.41(e)(6)(ii).
Fourth, the Bureau is adopting new comment 41(e)(6)(i)(B)-1, to clarify
the ``clearly and conspicuously'' standard for purposes of the label
required under Sec. 1026.41(e)(6)(i)(B). The Bureau believes that this
comment will help servicers understand what the rule requires.
The Bureau is adopting Sec. 1026.41(e)(6) to reduce the burden on
servicers of otherwise having to provide a regular periodic statement
on an ongoing basis and to also ensure that consumers still receive
important information about the mortgage loan. Although the general
periodic statement requirements in Sec. 1024.41(a) through (d) provide
important consumer protections, if a servicer will not charge any
additional fees or interest on the account, the benefit to a consumer
of receiving a regular periodic statement may be minimal, and there
will be potential for increased costs passed on to consumers.
The Bureau has narrowly tailored the exemption from the
requirements of Sec. 1026.41. As noted above, the exemption applies
only to mortgage loans that have been charged off in accordance with
loan-loss provisions and only if the servicer will not charge any
additional fees or interest on the account. Additionally, the exemption
requires that the servicer provide the consumer the periodic statement
required under Sec. 1026.41(e)(6)(i) with specific disclosures. The
Bureau believes that limiting the exemption in this fashion reduces the
risk that this exemption will be used to circumvent the servicing
rules.
The Bureau declines to adopt other amendments to the disclosures
required by Sec. 1026.41(e)(6)(i)(B) that commenters recommended,
including, among others, adding an explanation of possible future fees
or interest, or the consumer's right of redemption. Generally, the
periodic statement required under Sec. 1026.41(e)(6)(i) is not the
appropriate vehicle for these or other recommended disclosures. The
Bureau is concerned that including these additional disclosures could
overload the consumer with information. Moreover, additional
disclosures are likely to increase compliance costs.
The Bureau also declines to adopt one commenter's recommendation to
remove the predicate that servicers may take advantage of the exemption
under Sec. 1026.41(e)(6) only if they do not charge any additional
fees or interest on the account. The commenter stated that providing
periodic statements after charge off imposes a heavy burden on
servicers, servicers may have no choice but to assess fees, and
servicers should not be required to forego collecting such fees to take
advantage of the exemption. As the Bureau explained in the 2013 TILA
Servicing Final Rule, in determining the disclosures that a general
periodic statement must contain, the Bureau aimed to allow periodic
statements to serve a variety of important purposes, including
informing consumers of their payment obligations, providing information
about the mortgage loan, and creating a record of transactions that
increase or decrease the outstanding balance.\381\ The Bureau continues
to believe that periodic statements should serve these purposes and
allowing servicers to charge additional fees or interest without
providing a periodic statement to disclose such fees or interest would
not accomplish this end. Consumers cannot adequately protect their
interests if they are not aware that their mortgage loan is accruing
interest or fees.\382\
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\381\ 78 FR 10901, 10959, (Feb. 14, 2013).
\382\ As explained in the proposal, the exemption under Sec.
1026.41(e)(6) is similar to existing Sec. 1026.5(b)(2)(i), which
provides an exemption for certain charged-off accounts from the
periodic statement requirement in Sec. 1026.7 for open-end credit
transactions. Section 1026.5(b)(2)(i) states, in relevant part, that
``[a] periodic statement need not be sent for an account . . . if
the creditor has charged off the account in accordance with loan-
loss provisions and will not charge any additional fees or interest
on the account. . . .'' 12 CFR 1026.5(b)(2)(i). In finalizing this
exemption under Sec. 1026.5(b)(2)(i), the Board weighed the costs
and benefits and determined that ``the value of a periodic statement
does not justify the cost of providing the disclosure because the
amount of a consumer's obligation will not be increasing,'' while
reiterating that ``this provision does not apply if a creditor has
charged off the account but continues to accrue new interest or
charge new fees.'' 74 FR 5244, 5276 (Jan. 29, 2009). The Bureau
continues to agree with the Board's reasoning and believes that a
similar analysis applies with respect to the proposed exemption from
the periodic statement requirement in Sec. 1026.41 for a mortgage
loan that a servicer has charged off in accordance with loan-loss
provisions if the servicer will not charge any additional fees or
interest on the account. However, because closed-end consumer credit
transactions secured by a dwelling are distinct from unsecured,
open-end credit transactions by virtue of the underlying lien, the
Bureau also believes that it is appropriate to impose additional
requirements in this context.
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The Bureau also declines to allow servicers to provide a simple
written notification setting forth relevant information in place of a
periodic statement, as one industry commenter recommended. The
commenter stated that Sec. 1026.41(e)(6) will require servicers to
create and maintain a new and different periodic statement, and that
the new periodic statement could take several months to create. The
Bureau acknowledges that servicers using the exemption under Sec.
1026.41(e)(6) will incur some additional costs to create and maintain a
periodic statement with the additional disclosures required under Sec.
1026.41(e)(6). However, the Bureau is not mandating that servicers
discontinue providing periodic statements for charged-off mortgage
loans as Sec. 1026.41(e)(6) allows. Rather, servicers will have the
option to take advantage of the exemption. The Bureau also notes that
the periodic statement required under Sec. 1026.41(e)(6)(i) would not
significantly differ from the periodic statement otherwise provided
under Sec. 1026.41 except that it would include additional disclosures
related to the charge off. Further, although a simple written
notification may contain some relevant information appropriate for
consumers, the Bureau believes that including the required additional
disclosures on the periodic statement under Sec. 1026.41(e)(6) will be
clearer for consumers and create a single record for the consumer to
retain.
The Bureau also declines to require servicers to provide borrowers
with semi-annual or annual periodic statements following the periodic
statement provided under
[[Page 72330]]
Sec. 1026.41(e)(6)(ii). The Bureau believes that, on balance, the
additional cost to servicers of tracking the appropriate timeframes and
providing these additional periodic statements outweighs the potential
benefit to consumers of receiving these statements.
The Bureau also declines to adopt one commenter's recommendation
that servicers should not be required to provide a periodic statement
if the consumer has sent a cease communication letter pursuant to
805(c) of the FDCPA. As noted in the Bureau's October 2013 Servicing
Bulletin, periodic statements are specifically mandated by the Dodd-
Frank Act, which makes no mention of their potential cessation under
the FDCPA and presents a more recent and specific statement of
legislative intent regarding these disclosures than does the FDCPA.
Moreover, the Bureau believes that the periodic statements provide
useful information to consumers regardless of their collections status.
Finally, the Bureau notes that nothing in Sec. 1026.41(e)(6) affects a
debt collector's obligations under the FDCPA, including, for example,
the requirement to provide the consumer a written validation notice
under section 809 of the FDCPA.
Further, the Bureau declines to offer an exemption from the
requirement to provide periodic statements for mortgage loans that were
charged off before this final rule's effective date. As the Bureau
indicated in the proposal, under the current rule, the periodic
statement is required for charged-off mortgage loans unless the lien is
released. For charged-off mortgage loans, if a servicer wishes to take
advantage of the new exemption in Sec. 1026.41(e)(6), the servicer
must comply with the requirements of that section and provide, within
30 days of the most recent periodic statement, a periodic statement
that meets the requirements of Sec. 1026.41(e)(6)(i).
Legal Authority
The Bureau is exempting from the periodic statement requirement
under section 128(f) of TILA a mortgage loan that a servicer has
charged off in accordance with loan-loss provisions if the servicer
will not charge any additional fees or interest on the account,
provided that the servicer must provide the consumer a periodic
statement under Sec. 1026.41(e)(6) within 30 days of charge off or the
most recent periodic statement. The Bureau is adopting this exemption
pursuant to its authority under section 105(a) and (f) of TILA and
section 1405(b) of the Dodd-Frank Act.
For the reasons discussed above, the Bureau believes that the
exemption is necessary and proper under section 105(a) of TILA to
facilitate TILA compliance. As discussed above, the Bureau believes
that the proposal to exempt certain mortgage loans that a servicer has
charged off facilitates compliance with TILA by allowing servicers to
service loans cost effectively in compliance with applicable regulatory
requirements.
In addition, consistent with section 105(f) of TILA and in light of
the factors in that provision, for servicers that are required to
charge off mortgage loans in accordance with loan-loss provisions, the
Bureau believes that requiring them to comply with the periodic
statement requirement in section 128(f) of TILA would not provide a
meaningful benefit to consumers in the form of useful information or
protection. The Bureau believes, as noted above, that requiring
provision of periodic statements would impose significant costs and
burden. Specifically, the Bureau believes that the requirement will not
complicate, hinder, or make more expensive the credit process. In
addition, consistent with section 1405(b) of the Dodd-Frank Act, for
the reasons discussed above, the Bureau believes that exempting a
mortgage loan that a servicer has charged off in accordance with loan-
loss provisions if the servicer will not charge any additional fees or
interest on the account, provided that the servicer must provide the
consumer a periodic statement under Sec. 1026.41(e)(6) within 30 days
of charge off or the most recent periodic statement, from the
requirements of section 128(f) of TILA would be in the interest of
consumers and in the public interest.
In addition, the Bureau relies on its authority pursuant to section
1022(b) of the Dodd-Frank Act to prescribe regulations necessary or
appropriate to carry out the purposes and objectives of Federal
consumer financial law, including the purposes and objectives of Title
X of the Dodd-Frank Act. Specifically, the Bureau believes that this
final rule is necessary and appropriate to carry out the purpose under
section 1021(a) of the Dodd-Frank Act of ensuring that all consumers
have access to markets for consumer financial products and services
that are fair, transparent, and competitive, and the objective under
section 1021(b) of the Dodd-Frank Act of ensuring that markets for
consumer financial products and services operate transparently and
efficiently to facilitate access and innovation.
41(f) Modified Periodic Statements and Coupon Books for Certain
Consumers in Bankruptcy
Currently, Sec. 1026.41(e)(5) exempts servicers from the
requirement to provide a periodic statement for a mortgage loan while a
consumer is a debtor in bankruptcy. (Except where noted specifically,
the section-by-section analyses of Sec. 1026.41(f), including this
overview and the analyses of Sec. 1026.41(f)(1) through (4), use the
term periodic statement to refer to both a periodic statement and a
coupon book that meets the requirements of Sec. 1026.41(e)(3).) As
discussed in the section-by-section analysis of Sec. 1026.41(e)(5),
the proposal would have limited that exemption to a specified set of
consumers who are in bankruptcy or have discharged personal liability
for a mortgage loan through bankruptcy. Further, proposed Sec.
1026.41(f) would have specified that, when no exemption under Sec.
1026.41(e)(5) applied, servicers may make various clarifications and
modifications to the periodic statement requirements with respect to
those consumers. For the reasons set forth below, the Bureau is
adopting Sec. 1026.41(f) largely as proposed, but with some
substantive revisions.
As discussed in greater detail in the section-by-section analysis
of Sec. 1026.41(e)(5), the Bureau sought comment in the October 2013
IFR as to how the content of a periodic statement might be tailored to
meet the particular needs of consumers in bankruptcy. The Bureau
received written comments in response to that solicitation during the
official comment period. Prior to issuing the proposal, the Bureau
continued to receive comments and consulted with servicers, trade
groups, consumer advocacy groups, bankruptcy attorneys, bankruptcy
trustees, and bankruptcy judges regarding how a periodic statement may
be tailored for purposes of bankruptcy, including hosting a roundtable
discussion on June 16, 2014. The Bureau already addressed these
comments and outreach efforts in the proposal; \383\ the discussion
below generally addresses only the comments the Bureau received after
issuing the proposal.
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\383\ 78 FR 74175, 74246-74251 (Dec. 15, 2014).
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The Bureau received comments relating to various elements of
proposed Sec. 1026.41(f). Comments specific to particular subsections
are summarized in the relevant section-by-section analyses below.
Some consumer advocacy groups and industry commenters addressed
more
[[Page 72331]]
generally proposed Sec. 1026.41(f). They expressed general support for
the proposed modifications to the periodic statement requirement. One
consumer advocacy group stated that consumers and their attorneys would
benefit from being able to ensure that the servicer is correctly
applying payments. Other consumer advocacy groups expressed strong
support for the proposal, stating that receiving disclosures regarding
pre-petition and post-petition payments would resolve concerns about
misapplication of payments and consumer understanding of their
bankruptcy obligations. A trade association stated that the proposed
amendments would protect credit unions from liability related to
automatic stay violations.
The Bureau also received numerous comments from members of industry
stating directly or indirectly that complying with proposed Sec.
1026.41(f) would be costly and burdensome. Some credit unions stated
that credit unions in particular would not be able to manage the level
of detail that the proposal would have required. Other industry
commenters stated that servicers in general would have difficulty
accurately making the proposed disclosures. Several commenters stated
that complying with the proposed modifications would require systems
updates. Some of these commenters stated that the modified periodic
statements would provide little corresponding benefit to consumers, for
example, because the consumer can obtain the information from other
sources, such as a bankruptcy trustee.
Having considered the comments it received following the proposal,
the Bureau is adopting Sec. 1026.41(f) with the revisions discussed
below. In general, the Bureau believes that it is appropriate to modify
or omit certain of the disclosures required by Sec. 1026.41(d) with
respect to a periodic statement provided to a consumer in bankruptcy or
who has discharged the mortgage loan through bankruptcy. As explained
in more detail in the section-by-section analyses of Sec.
1026.41(f)(1) through (3), the Bureau believes that the final rule's
modifications and omissions are necessary to ensure that a periodic
statement takes into account the unique circumstances of bankruptcy and
accurately reflects the payments made by a consumer in bankruptcy. The
Bureau further believes that it is appropriate to require certain
modifications to the periodic statement specifically for consumers who
have filed under chapter 12 or chapter 13, in part because of the
special treatment of mortgage loans secured by a consumer's principal
residence under chapter 12 and chapter 13, which permit a consumer to
repay pre-bankruptcy arrearages over a reasonable time while continuing
to make monthly periodic payments due under the loan.\384\
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\384\ See 11 U.S.C. 1222(b)(5), 1322(b)(5) (both stating that a
plan ``may provide for the curing of any default within a reasonable
time and maintenance of payments while the case is pending on any
unsecured claim or secured claim on which the last payment is due
after the date on which the final payment under the plan is due.'').
Under chapter 12, moreover, a court may modify the terms of a
mortgage loan secured by a principal residence. 11 U.S.C.
1222(b)(2).
---------------------------------------------------------------------------
Thus, as explained in more detail in respective section-by-section
analyses below, Sec. 1026.41(f)(1) through (5) set forth various
requirements for these modified periodic statements. Briefly stated,
Sec. 1026.41(f)(1) permits the periodic statement to omit certain
delinquency information that would otherwise be required under Sec.
1026.41(d) when the consumer is in bankruptcy. Section 1026.41(f)(2)
requires all periodic statements modified under Sec. 1026.41(f) to
include certain informational disclosures about the bankruptcy. Section
1026.41(f)(3) sets forth various specific modifications to the periodic
statement when the consumer is in chapter 12 or chapter 13 bankruptcy.
Section 1026.41(f)(4) describes how a servicer complies with Sec.
1026.41(f) when there is more than one primary obligor. And Sec.
1026.41(f)(5) sets forth certain requirements when the servicer
provides a coupon book under Sec. 1026.41(e)(3) instead of a periodic
statement.
Under revised Sec. 1026.41(f), these requirements apply while any
consumer on a mortgage loan is a debtor in bankruptcy under title 11 of
the United States Code or if such consumer has discharged personal
liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228,
or 1328. This modifies the proposal to clarify that, where applicable,
Sec. 1026.41(f) applies only while such consumer is a debtor in
bankruptcy or has discharged personal liability for the mortgage loan.
Once the bankruptcy case ends, Sec. 1026.41(f) no longer applies
unless the consumer has discharged personal liability for the mortgage
loan.\385\
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\385\ See also the section-by-section analysis of Sec.
1026.41(e)(5). Under the final rule, Sec. 1026.41(e)(5)(iv)(B) and
comment 41(e)(5)(iv)(B)-1 and -2 set forth guidelines for resuming
the obligation to provide a periodic statement or coupon book under
Sec. 1026.41 without the modifications set forth in Sec.
1026.41(f) when the bankruptcy case is dismissed, the case is
closed, or the consumer reaffirms the mortgage loan pursuant to 11
U.S.C. 524.
---------------------------------------------------------------------------
The Bureau is also adopting proposed comments 41(f)-1 through -3
with revisions to improve clarity. The Bureau is renumbering proposed
comment 41(f)-3 as comment 41(f)-4 because the Bureau is finalizing a
new comment as comment 41(f)-3. The Bureau is also adopting new
comments 41(f)-5 and -6.
The Bureau received no comments on proposed comment 41(f)-1 but is
revising it to improve clarity. As revised, the comment provides that,
except as provided in Sec. 1026.41(e)(5), Sec. 1026.41(f) applies
with regard to a mortgage loan for which any consumer with primary
liability is a debtor in a case under title 11 of the United States
Code. The comment further states that, after the debtor exits
bankruptcy, Sec. 1026.41(f) continues to apply if the consumer has
discharged personal liability for the mortgage loan, but Sec.
1026.41(f) does not apply if the consumer has reaffirmed personal
liability for the mortgage loan or otherwise has not discharged
personal liability for the mortgage loan.
The Bureau received few comments on proposed comment 41(f)-2, which
generally would have allowed servicers some flexibility to use
different terminology on a periodic statement than that found on the
sample form in appendix H-30. A servicer supported the proposal to
allow flexibility in modifying the terminology on a periodic statement.
In the context of Sec. 1026.41(f)(3), some trade associations stated
more generally that they support express flexibility to revise the
terminology relating to the payment amount. However, another servicer
suggested that the proposed comment used an example that would create
challenges for some consumers in chapter 12 bankruptcy. The proposed
comment would have stated that a servicer may, for example, refer to
amounts past due as unpaid post-petition payments, and the commenter
stated that some chapter 12 debtors may not have monthly post-petition
payment obligations, so consumers would not benefit from receiving a
modified periodic statement under Sec. 1026.41(f).
Having considered these comments, the Bureau is adopting comment
41(f)-2 substantially as proposed, with several revisions to improve
clarity by better aligning the comment with the terminology used on the
sample periodic statement provided in appendix H-30, as well as with
terminology that consumer testing participants more readily understood.
As revised, comment 41(f)-2 provides that, with regard to a periodic
statement provided under Sec. 1026.41(f), a servicer may use
terminology other than that found on the sample periodic statements in
appendix H-30, so long as
[[Page 72332]]
the new terminology is commonly understood. The comment refers to
comment 41(d)-3, which includes similar language with respect to
periodic statements generally. Comment 41(f)-2 also provides a non-
exhaustive list of examples. The list includes examples that also
appear on the new sample forms in appendices H-30(E) and H-30(F).
Comment 41(f)-2, as finalized, does not include several examples that
were in the proposal; the Bureau believes the examples provided in the
final rule are more appropriate than the proposed examples with respect
to the final sample forms. The Bureau does not intend for these changes
to alter the meaning of the comment.
Comment 41(f)-2 explains that, for purposes of Sec. 1026.41(f)(1)
through (3), servicers may use terminology specific to the
circumstances of bankruptcy. This approach is consistent with that of
existing comment 41(d)-3, which provides similar flexibility on
periodic statements generally with respect to, for example, regional
differences in terminology. Some industry commenters stated that courts
sometimes disfavor terms such as ``amount due,'' ``payment due date,''
and ``overdue'' or ``past due payments,'' as those terms call to mind
an attempt to collect a debt; court decisions have occasionally focused
on the precise language of the terms used on a periodic statement.\386\
The Bureau also believes that the need to distinguish between pre-
petition and post-petition payments in a chapter 13 case may require
different terminology than that used on other periodic statements.
Although many testing participants expressed a preference for the more-
familiar terms ``amount due'' or ``due date'' that normally appear on
periodic statements and other bills,\387\ the consumer testing on
sample forms demonstrated that consumers generally understood
alternative terminology. Testing also suggested that some consumers
prefer more technical, bankruptcy-specific language.\388\ As to one
commenter's concern that proposed comment 41(f)-2 would have offered an
example that would create challenges for some consumers in chapter 12
bankruptcy, the Bureau notes that comment 41(f)-2 is designed to afford
servicers greater flexibility, within certain limitations. If the
specific language offered as an example is not appropriate in a certain
context, a servicer does not need to use that language.
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\386\ See, e.g., In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D.
Fla. 1999) (statement listed the ``total amount due''); Butz v.
People First Fed. Credit Union (In re Butz), 444 B.R. 301, 305
(Bankr. M.D. Pa. 2011) (statement requested immediate payment of an
``amount due''); Harris v. Mem'l Hosp. (In re Harris), 374 B.R. 611,
61461 (Bankr. N.D. Ohio 2007) (statement advised that the ``account
is past due'').
\387\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing, at 53-54 (Feb. 2016), available at
http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/
(report on consumer testing submitted to the Bureau of Consumer Fin.
Prot.).
\388\ Id at 58.
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The Bureau is adopting a new comment, finalized as comment 41(f)-3,
to clarify that the requirements of Sec. 1026.41, including the
content and layout requirements of Sec. 1026.41(d), apply unless
modified expressly by Sec. 1026.41(e)(5) or (f). For example, as
described in more detail in the section-by-section analysis of Sec.
1026.41(d)(3), the disclosure of past payment breakdown information is
already in Sec. 1026.41(d)(3) and need not be restated in Sec.
1026.41(f). The comment clarifies that the requirement under Sec.
1026.41(d)(3) to disclose a past payment breakdown applies without
modification with respect to a periodic statement provided to a
consumer in bankruptcy.
The Bureau is adopting proposed comment 41(f)-3 but is renumbering
the comment as 41(f)-4. The Bureau sought comment on whether the
proposed comment may afford servicers too little or too much
flexibility with respect to the required content of a periodic
statement. A servicer supported additional flexibility in modifying the
periodic statement requirements under Sec. 1026.41(f). The Bureau is
finalizing the comment as proposed. The comment provides that a
periodic statement or coupon book provided under Sec. 1026.41(f) may
be modified as necessary to facilitate compliance with title 11 of the
United States Code, the Federal Rules of Bankruptcy Procedure, court
orders, and local rules, guidelines, and standing orders. The comment
provides an example: A periodic statement or coupon book may include
additional disclosures or disclaimers not required under Sec.
1026.41(f) but that are related to the consumer's status as a debtor in
bankruptcy or that advise the consumer how to submit a written request
under Sec. 1026.41(e)(5)(i)(B)(1) that the servicer cease providing a
periodic statement or coupon book.
As explained in the proposal, servicers may need flexibility to
modify the periodic statement's content to comply with applicable rules
and guidelines. The Bureau understands that many local bankruptcy rules
already impose certain requirements regarding periodic statements, and
the Bureau believes that servicers should be able to comply with both
those rules and Regulation Z. The Bureau further believes that giving
servicers the flexibility to include disclosures related to a
consumer's status in bankruptcy is important and necessary to permit
servicers to comply with local practice or rules.
The Bureau is adopting new comment 41(f)-5 to clarify the timing of
compliance with Sec. 1026.41(f), when applicable. The comment states
that a servicer must begin to provide a periodic statement or coupon
book that complies with Sec. 1026.41(f) within the timeframe set forth
in Sec. 1026.41(e)(5)(iv).\389\
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\389\ See section-by-section analysis of Sec. 1026.41(e)(5)(iv)
for more detail.
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41(f)(1) Requirements Not Applicable
For the reasons set forth below, the Bureau is adopting Sec.
1026.41(f)(1) substantially as proposed, with minor revisions.
Generally stated, the provision allows a periodic statement for
consumers in bankruptcy to omit certain information about a consumer's
failure to make timely payments. The provision also explains that such
a periodic statement need not show the amount due more prominently than
other disclosures on the page.
Section 1026.41(d) requires a periodic statement to disclose
information related to a consumer's failure to make timely payments.
Section 1026.41(d)(1)(ii) sets forth one such disclosure, requiring a
periodic statement to include the amount of any late fee and the date
on which the fee will be imposed if payment has not been received.
Section 1026.41(d)(8) requires that a periodic statement include
certain information for consumers who are 45 days or more delinquent on
a mortgage loan. Specifically, current Sec. 1024.41(d)(8)(i), (ii),
and (v) require the disclosure of the date on which the consumer became
delinquent; a notification of possible risks, such as foreclosure and
expenses, that may be incurred if the delinquency is not cured; and a
notice of whether the servicer has made the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure
process, if applicable. Section 1026.41(d) also contains certain layout
requirements, including the requirement in Sec. 1026.41(d)(1)(iii)
that the amount due be displayed more prominently than other
disclosures on the page.
Proposed Sec. 1026.41(f)(1) would have provided that certain of
Sec. 1026.41(d)'s
[[Page 72333]]
disclosures and layout requirements do not apply to a periodic
statement provided to consumers in bankruptcy under proposed Sec.
1026.41(f). The proposal would have further provided that servicers may
exclude the disclosures set forth in Sec. 1026.41(d)(1)(ii) and
(d)(8)(i), (ii), and (v), and that servicers do not need to comply with
Sec. 1026.41(d)(1)(iii)'s requirement to display the amount due more
prominently than other disclosures on the page.
The Bureau solicited comment on whether these modifications would
be appropriate and whether additional modifications are necessary. The
Bureau also solicited comment on whether the proposed modifications or
additional modifications would be necessary if the Bureau required a
consumer in chapter 7 or chapter 11 (or a consumer who has discharged
personal liability for the mortgage loan through bankruptcy) to opt in
to receiving a periodic statement by submitting a written request to a
servicer.
A servicer and a trade association expressed support for the
proposal. A chapter 13 trustee recommended that the final rule retain
Sec. 1026.41(d)(7)(i)'s requirement to disclose the outstanding
principal balance, while some trade associations stated that the final
rule should clarify that servicers are permitted to disclose the
outstanding principal balance according to contractual accounting
methods. The final rule does not require a servicer to use any
particular accounting method when calculating the outstanding principal
balance, so long as the servicer accurately discloses this amount.
Consumer advocacy groups expressed limited support for aspects of
proposed Sec. 1026.41(f)(1). They stated that Sec. 1026.41(f)(1)
should not apply after the bankruptcy case closes and the consumer
continues making payments on the mortgage loan--that is, it should not
apply to consumers who use chapter 7 to discharge personal liability
but continue making payments on the mortgage after bankruptcy so that
they can keep the property (the ride-through option). These consumer
advocacy groups asserted that the delinquency information, such as the
late fee disclosure, is no different from any other contractual term
and that they were unaware of any case law holding that delinquency
information violates the discharge injunction. Thus, the consumer
advocacy groups stated that consumers who use the ride-through option
should receive a periodic statement with all the normal information,
including delinquency information, following bankruptcy.
Several comments addressed whether servicers should be required to
disclose late fee and past due amount information. Consumer advocacy
groups initially stated that it may be appropriate to allow servicers
to omit information about a late fee for chapter 13 consumers because
some servicers do not charge late fees for payments disbursed by
chapter 13 trustees. Upon reviewing the consumer testing report, some
consumer advocacy groups stated definitively that the Bureau should
require the disclosure that a late fee will be charged if payment is
not received by the specified date.
Some trade associations stated that the Bureau should either
require a late fee disclosure when applicable or make clear that the
final rule does not prohibit a servicer from including one on a
periodic statement provided to a consumer in bankruptcy. Two trade
associations commented that Sec. 1026.41(f)(1) should also allow a
servicer to exclude past due amounts from the amount due on a periodic
statement provided to a consumer in chapter 7 because including them
could be seen as a collection attempt that violates the automatic stay.
This commenter suggested that servicers be given the flexibility to
list past due amounts elsewhere on a periodic statement, such as in the
explanation of amount due or a separate box.
The Bureau is finalizing Sec. 1026.41(f)(1) substantially as
proposed. For consumers in bankruptcy or who have discharged personal
liability for a mortgage loan through bankruptcy, Sec. 1026.41(f)(1)
permits servicers to omit from the periodic statement the amount of any
late payment fee that will be imposed and the date on which that fee
will be imposed if payment has not been received. These disclosures
would normally be required under Sec. 1026.41(d)(1)(ii). Section
1026.41(f)(1) also permits servicers to omit for these consumers the
delinquency-related disclosures set forth in Sec. 1024.41(d)(8)(i),
(ii), and (v)--that is, the length of the consumer's delinquency; a
notification of possible risks, such as foreclosure and expenses, that
may be incurred if the delinquency is not cured; and a notice of
whether the servicer has made the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process, if
applicable. Finally, Sec. 1026.41(f)(1) states that, for these
consumers, the requirement in Sec. 1026.41(d)(1)(iii) to show the
amount due more prominently than other disclosures on the page does not
apply.
The Bureau continues to believe that receiving information
regarding the consequences of late payments or continued delinquencies,
such as disclosures regarding potential fees and possible foreclosure,
provides tangible benefits to consumers. Indeed, consumer testing
suggested that some consumers prefer to receive information about the
delinquency, including the consequences of non-payment.\390\ Moreover,
the Bureau continues to believe that a consumer in bankruptcy may
already be aware of the consequences of non-payment and may have filed
for bankruptcy precisely to avoid those consequences. Nonetheless, as
the Bureau acknowledged in the proposal, bankruptcy courts have found
that certain statements regarding potential late fees or foreclosure
and other language that could be construed as threatening consequences
for a failure to make payments could, in certain instances, violate the
automatic stay. The Bureau is therefore permitting servicers to exclude
from the periodic statement certain information regarding consequences
of late payment or continued non-payment. The final rule, however, does
not prohibit a servicer from including these disclosures.
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\390\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing, at 56 (Feb. 2016), available at http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on
consumer testing submitted to the Bureau of Consumer Fin. Prot.)
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Consistent with the flexibility the Bureau is affording servicers
in modifying the periodic statement as necessary, discussed above, the
Bureau also believes it is appropriate to give servicers the
flexibility to include other disclosures, such as a disclaimer
acknowledging the consumer's bankruptcy case and advising that the
statement is for informational purposes only, as the most prominent
disclosures on the page. The Bureau notes that the amount due
disclosures required by Sec. 1026.41(d)(1) must still be located at
the top of the first page of the statement.
The Bureau declines to adopt a rule that would provide that Sec.
1026.41(f)(1) does not apply for consumers using the ride-through
option. Such a rule would allow servicers to omit certain disclosures
while the consumer is in bankruptcy but require it again after the
bankruptcy case closes. The Bureau believes that consumers using the
ride-through option would benefit from receiving the disclosures and
that section 524(j) of the Bankruptcy Code may allow servicers the
freedom to include information about the
[[Page 72334]]
consequences of non-payment on a periodic statement following a
consumer's discharge. However, the Bureau understands that chapter 7
cases often last six months or less, and it may be operationally
difficult and burdensome for servicers to switch to yet a third version
of the periodic statement following bankruptcy. Finally, while Sec.
1026.41(f)(1) allows servicers to omit certain disclosures from the
periodic statement, the final rule does not, as noted above, prohibit a
servicer from including them. The Bureau encourages those servicers
that currently include such information on a periodic statement without
violating the automatic stay or discharge injunction during or after
bankruptcy to continue doing so.
The Bureau further continues to believe that the remainder of the
delinquency disclosures required by Sec. 1026.41(d)(8)--that is, Sec.
1026.41(d)(8)(iii), (iv), (vi), and (vii)--may be appropriate for
consumers in a chapter 7 or chapter 11 case and for consumers who have
discharged personal liability for a mortgage loan. For example,
references to any loss mitigation program to which the consumer has
agreed \391\ or to homeownership counselor information \392\ do not
relate to amounts owed, nor do they threaten consequences for non-
payment. No commenter specifically identified this information as
problematic and none cited case law indicating that providing it would
cause a servicer to violate the automatic stay. The Bureau finds
particularly instructive the comments submitted by the U.S. Trustee
Program, which did not identify any automatic stay concerns related to
this delinquency information.
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\391\ 12 CFR 1026.41(d)(8)(iv).
\392\ 12 CFR 1026.41(d)(8)(vii).
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Additionally, the Bureau continues to believe that consumers in
chapter 7 or chapter 11 bankruptcy (or those who have discharged
personal liability for a mortgage loan through bankruptcy) who are
intending to retain their homes have a need for information regarding
recent account activity \393\ and the amount needed to bring the loan
current.\394\ As the Bureau stated in the 2013 TILA Servicing Final
Rule, the accounting associated with mortgage loan payments is
complicated and can be even more so in delinquency situations.\395\ The
account history helps a consumer better understand the exact amount
owed on the loan and how that total was calculated, and it enables a
consumer to better identify errors in payment application. Moreover,
the Bureau understands that many housing counselors believe that this
information is vital when trying to assist a consumer to pursue home
retention options and cure prior defaults because it enables the
counselor to understand the circumstances of a consumer's delinquency.
The Bureau continues to believe that this information may have unique
benefits for a consumer in bankruptcy because such a consumer may be
facing an immediate decision whether to retain or surrender a home and
in that situation the consumer needs accurate information about the
amount the consumer owes.
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\393\ 12 CFR 1026.41(d)(8)(iii).
\394\ 12 CFR 1026.41(d)(8)(vi).
\395\ 78 FR 10901, 10971 (Feb. 14, 2013).
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The Bureau further notes that the disclosures in Sec.
1026.41(d)(8) do not require a servicer to use any specific language. A
servicer is therefore permitted to describe those disclosures in any
number of ways to avoid concerns about, for example, the account
history appearing to be a collection attempt rather than simply
providing useful information.
For similar reasons, the Bureau declines to adopt a recommendation
to allow servicers to exclude past due amounts from the amount due. The
Bureau believes that providing such information to a consumer who is
retaining the property through bankruptcy would be helpful, would not
violate the automatic stay, and is consistent with some servicers'
current practices. The Bureau further notes that participants in the
Bureau's consumer testing overwhelmingly preferred and found clearer
periodic statements which included past due amounts in the amount due.
Some testing participants had difficulty determining how much they
needed to pay to retain their homes when past due amounts were listed
separately.
41(f)(2) Bankruptcy Notices
Proposed Sec. 1026.41(f)(2) would have required that a periodic
statement modified under Sec. 1026.41(f) include the following on the
first page: (1) A statement identifying the consumer's status as a
debtor in bankruptcy or the discharged nature of the mortgage loan, and
(2) a statement that the periodic statement is for informational
purposes only. Two industry commenters expressed support for Sec.
1026.41(f)(2) as proposed. No commenters opposed proposed Sec.
1026.41(f)(2). The Bureau is adopting the proposed disclosures, with
revisions.
The Bureau sought comment on whether servicers should be permitted
to include the disclosures under proposed Sec. 1026.41(f)(2) on a
separate page enclosed with the periodic statement, whether the
disclosures under proposed Sec. 1026.41(f)(2) should be permissive
rather than mandatory, and whether there are other appropriate
disclosures that should be permitted or required. A servicer stated
that the disclosures in proposed Sec. 1026.41(f)(2) should be
mandatory and included on the first page of the periodic statement. A
trade association expressed support for requiring the proposed
disclaimers when the debtor requests in writing to continue to receive
a periodic statement.
As revised, Sec. 1026.41(f)(2) requires the periodic statement to
include a statement identifying the consumer's status as a debtor in
bankruptcy or the discharged nature of the mortgage loan, and a
statement that the periodic statement is for informational purposes
only. The Bureau understands that this requirement is consistent with
the practice of servicers that currently provide a periodic statement
to consumers in bankruptcy. Consumer testing participants generally
understood the content of these disclosures.\396\ Most testing
participants also inferred from the language that appears on the sample
forms in appendices H-30(E) and H-30(F) that the sample forms were
informational in nature rather than primarily an attempt to collect a
debt.\397\
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\396\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing, at 13 (Feb. 2016), available at http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
\397\ Id. at 13-14.
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Although a servicer recommended that the disclosures be included on
the first page of the periodic statement, the Bureau is not adopting
that proposed requirement. Servicers may locate the statements on the
first page if they wish, but doing so may not be feasible or
appropriate in some circumstances. Section 1026.41(f)(2) therefore
grants servicers flexibility to determine how to include the relevant
disclosures.
41(f)(3) Chapter 12 and Chapter 13 Consumers
For the reasons set forth below, the Bureau is finalizing Sec.
1026.41(f)(3) with several revisions. As proposed, Sec. 1026.41(f)(3)
generally would have set forth additional modifications for a periodic
statement provided to consumers in chapter 12 or chapter 13 cases.
Proposed Sec. 1026.41(f)(3)(i) would have permitted the omission of
certain disclosures relating to delinquency.
[[Page 72335]]
Proposed Sec. 1026.41(f)(3)(ii) through (v) would have described how a
periodic statement for a consumer in chapter 12 or chapter 13
bankruptcy may disclose the amount due, explanation of amount due, past
payment breakdown, and transaction activity. Proposed Sec.
1026.41(f)(3)(vi) would have required the periodic statement to include
specific information about the pre-petition arrearage. Proposed Sec.
1026.41(f)(3)(vii) would have required several additional standard
bankruptcy-specific disclosures on the periodic statement. The comments
on each of these specific aspects of the proposal are discussed in the
respective section-by-section analyses below.
The Bureau also received comments relating generally to Sec.
1026.41(f)(3). Consumer advocacy groups, a chapter 13 trustee, and the
U.S. Trustee Program generally supported the proposal regarding
modified periodic statements for consumers in bankruptcy. These
commenters noted servicers' history of misapplying payments in
bankruptcy and argued that requiring pre-petition and post-petition
disclosures would discourage improper fees and improve servicing
practices.
Numerous credit unions and trade associations objected to the
entirety of the proposal, arguing that it would introduce too much
burden for credit unions. The commenters stated that credit unions'
systems are not equipped to modify a periodic statement as proposed
Sec. 1026.41(f)(3) would have required, so they would bear significant
implementation costs. Commenters stated that, for example, some credit
unions may track the amount of the pre-petition arrearage and post-
petition payments ``off-system,'' that is, in a manner that is not
readily automated or cannot be exported onto a periodic statement.
These comments were consistent with comments the Bureau had received on
the IFR, in which commenters stated that some servicers may be tracking
pre-petition arrearage and post-petition payments in an Excel file or
in another format that could not be exported easily to a periodic
statement and some simply wait until the end of the consumer's
bankruptcy case and compare the chapter 13 trustee's ledger to payments
they received. Comments on the proposal stated that, no matter the
method by which credit unions track the pre-petition arrearage and
post-petition payments, most credit unions currently cannot easily
export the pre-petition and post-petition information into a monthly
statement. Additionally, one commenter stated that credit unions'
systems currently are not equipped to produce numerous different
versions of periodic statements in order to comply with various local
rules and orders in individual cases. Several commenters stated that
their systems currently cannot differentiate between pre-petition and
post-petition payments and the proposed modifications under Sec.
1026.41(f)(3) would pose challenges.
Other industry commenters similarly objected to proposed Sec.
1026.41(f)(3) in its entirety as unworkable in light of systems
limitations and the complexity of chapter 13 bankruptcy cases. One
commenter stated that servicing platforms have limited functionality
with respect to pre-petition and post-petition payments, and that
attempting to reconcile accurately payments from the consumer and the
trustee would be exceedingly difficult.
The Bureau also received comments relating to accounting methods
for consumers in bankruptcy and how proposed Sec. 1026.41(f)(3) would
affect servicers' accounting practices. Some industry commenters,
including banks, trade associations, and an industry working group,
stated that the proposal was inconsistent with their accounting
practices. Some commenters stated that proposed Sec. 1026.41(f)(3)
would have inappropriately mandated that servicers adhere to a
bankruptcy accounting method, under which the servicer applies post-
petition periodic payments received to the current month and pre-
petition arrearage payments are the only amounts allocated to the
amount that is past due as of the bankruptcy filing. Commenters stated
that, in practice, servicers generally use the contractual accounting
method, under which they apply all payments to the oldest outstanding
debt as is normally done under the contract.
Servicers generally requested that the Bureau provide them
flexibility to make disclosures under Sec. 1026.41(f)(3) based on
either method. A servicer provided a mock-up of a periodic statement
that includes the contractual accounting method on page one and the
bankruptcy accounting method on page two. Some commenters recommended
requiring certain information relating to the bankruptcy on the second
page only after a proof of claim is filed and only when the information
is relevant to the consumer, such as when the consumer is curing a pre-
petition arrearage and maintaining post-petition obligations. A
commenter also stated that consumers who were current on the mortgage
loan when they filed for bankruptcy are better served by a contractual
statement than the modified statement under Sec. 1026.41(f). One
servicer stated that, because it currently employs contractual
accounting, the proposal to break down how post-petition payments are
applied to principal, interest, and escrow could confuse consumers. One
commenter stated that consumers may not understand how transactions are
applied due to differences in trustees' and servicers' accounting
methods. A trade association argued that requiring disclosure of pre-
petition and post-petition payments could be interpreted as requiring
disclosure of how funds will be applied even before the servicer
applies them. Some commenters objected to requiring disclosures under
Sec. 1026.41(f)(3), saying that servicers do not know how trustees
will apply payments in advance, and servicers will be unable to match
the trustee's accounting on a real-time basis.
Consumer advocacy groups and the U.S. Trustee Program favored the
bankruptcy accounting method. Consumer advocacy groups stated that
consumers might be confused by a periodic statement that did not take
into account the consumer's status in bankruptcy because, for example,
it might list late fees that normally would be charged to a consumer
who is behind on a mortgage payments but that would be inappropriate to
impose on a consumer who is making timely chapter 13 plan payments. In
addition, they stated that bankruptcy accounting is preferable because
it shows the amounts the consumer is obligated to pay while in
bankruptcy, as well as how those payments are applied. Consumer
advocacy groups also stated that bankruptcy accounting is required
under applicable bankruptcy law. They further stated that Fannie Mae
and Freddie Mac already require servicers to track payments according
to the terms of a chapter 13 plan.
Some commenters opposed requiring a periodic statement to be sent
when the consumer has a cram-down bankruptcy plan--that is, the plan
provides, for example, that the outstanding amount of the loan will be
reduced to the value of the collateral--because it would be difficult
to capture accurately all aspects of the cram-down and that servicers
would need to prepare the periodic statement manually. These commenters
also stated that most cram-downs are unsuccessful and that servicers
would have to revert to the contractual application of payments
following bankruptcy. These commenters offered three suggestions with
respect to mortgage loans subject to a cram-down plan: Exempt servicers
from the periodic statement requirement with respect to such loans;
permit servicers to send an unmodified periodic statement; or permit
servicers to send a
[[Page 72336]]
periodic statement that discloses the amounts due and past payments
related to only the remaining secured portion of the loan.
Several commenters requested clarification of the definition of
pre-petition and post-petition payments proposed in comment 41(f)(3)-2.
A servicer stated that the proposed comment could be interpreted to
mean that there can be no pre-petition or post-petition payments after
a bankruptcy filing and before there is a confirmed plan. The servicer
stated this interpretation could create a circumstance in which no
information about the payments would be required in bankruptcy
statements. The servicer recommended that the Bureau require a periodic
statement to include the best information reasonably available to
servicers.
The Bureau notes that some trade associations requested
clarification that servicers have the flexibility to adjust information
disclosed on a periodic statement based on information they receive
from trustees or through the National Data Center. These trade
associations stated that servicers may need to determine how to apply
payments made through trustees if the treatment is not readily
apparent. The Bureau notes that the final rule does not prohibit a
servicer from adjusting its records based on information it obtains
from a trustee or other sources, including the National Data Center.
The final rule does not, however, require a servicer to consult these
sources before providing a periodic statement.
The Bureau is adopting Sec. 1026.41(f)(3) with the revisions
discussed below and in the section-by-section analyses of Sec.
1026.41(f)(3)(i) through (vi). Section 1024.41(f)(3) generally sets
forth additional modifications for a periodic statement provided to
consumers in chapter 12 or chapter 13 cases.
The Bureau acknowledges that servicers will incur costs and burden
to implement Sec. 1026.41(f)(3) in particular. Nevertheless, the
Bureau is adopting Sec. 1026.41(f)(3) because of the benefits to
consumers. As explained in the section-by-section analysis of Sec.
1026.41(e)(5), consumers in chapter 12 and chapter 13 bankruptcy
generally benefit from receiving the information in a periodic
statement; consumer testing \398\ and consumer complaint information
indicate that consumers generally want to receive a periodic statement;
and bankruptcy courts, the Advisory Committee on Bankruptcy Rules, and
Congress have recognized that debtors need mortgage loan information.
The modifications under Sec. 1026.41(f)(3) balance burden reduction on
servicers and consumers' access to crucial information by tailoring the
disclosures to account for a chapter 12 or chapter 13 bankruptcy case.
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\398\ Id. at 13, 33, 51.
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The Bureau is revising certain aspects of Sec. 1026.41(f)(3) to
reduce some of the implementation burden. For example, as explained in
the section-by-section analysis of Sec. 1026.41(f)(3)(iv), the final
rule does not modify the requirements of Sec. 1026.41(d)(3) with
respect to a periodic statement provided to consumers in chapter 12 or
chapter 13 as proposed Sec. 1026.41(f)(3)(iv) would have done.
Servicers are not required to alter how they disclose their method of
applying payments for purposes of providing a periodic statement to a
consumer in bankruptcy. Moreover, not all information must appear on
the first page and some information may be omitted.\399\ A servicer may
choose to include additional information on a periodic statement,
including bankruptcy-specific information, such as descriptions of
agreed orders or additional details about post-petition payments, even
if such information is not required by Sec. 1026.41.
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\399\ See, e.g., comment 41(d)-2 (providing that a periodic
statement may omit information that is not applicable to the
mortgage loan); comment 41(f)(2)-4 (providing that a periodic
statement or coupon book provided under Sec. 1026.41(f) may be
modified as necessary to facilitate compliance with title 11 of the
United States Code, the Federal Rules of Bankruptcy Procedure, court
orders, and local rules, guidelines, and standing orders); comment
41(f)(3)(v)-1 (explaining that a servicer may omit pre-petition
arrearage information until the servicer has a reasonable
opportunity to determine the amount of the pre-petition arrearage,
but providing that the servicer may not omit the pre-petition
arrearage after the deadline the bankruptcy court has fixed for
filing a proof of claim).
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The Bureau is adopting several comments to Sec. 1026.41(f)(3). The
Bureau is not finalizing proposed comment 41(f)(3)-1 but is adopting
proposed comments 41(f)(3)-2 through -4 with revisions. As proposed,
comment 41(f)(3)-1 would have clarified that the term plan of
reorganization, for purposes of Sec. 1026.41(f)(3), refers to a
consumer's plan of reorganization filed under the applicable provision
of chapter 12 or chapter 13 of the Bankruptcy Code and confirmed by a
court with jurisdiction over the consumer's bankruptcy case. The Bureau
proposed this comment to help avoid any confusion about the meaning of
the term plan of reorganization and whether the term refers to a
proposed plan or one that has been confirmed by a court. The Bureau is
not adopting proposed comment 41(f)(3)-1 because the final rule uses
the term bankruptcy plan, and the Bureau does not believe that term
needs to be clarified for purposes of Sec. 1026.41(f).
The Bureau is revising proposed comment 41(f)(3)-2 and renumbering
the comment as 41(f)(3)-1. The comment contains two parts. First,
comment 41(f)(3)-1.i is similar to the proposal but contains revisions
to improve clarity. It provides that, for purposes of Sec.
1026.41(f)(3), pre-petition payments are payments made to cure the
consumer's pre-bankruptcy defaults, and post-petition payments are
payments made to satisfy the mortgage loan's periodic payments as they
come due after the bankruptcy case is filed. The comment provides an
illustrative example.
Second, the Bureau is adopting new 41(f)(3)-1.ii to gives servicers
flexibility with respect to chapter 12 cases and cram-down plans. The
comment provides that, if a consumer is a debtor in a case under
chapter 12 or if a consumer's bankruptcy plan modifies the terms of the
mortgage loan, such as by reducing the outstanding balance of the
mortgage loan or altering the applicable interest rate, the disclosures
under Sec. 1026.41(d)(1) and (2) and (f)(3)(ii) and (iii) may disclose
either the amount payable under the original terms of the mortgage
loan, the amount payable under the remaining secured portion of the
adjusted mortgage loan, or a statement that the consumer should contact
the trustee or the consumer's attorney with any questions about the
amount payable. The comment further provides that, in such cases, the
remaining disclosures under Sec. 1026.41(d) or (f)(3), as applicable,
may be limited to how payments are applied to the remaining secured
portion of the adjusted mortgage loan. The Bureau is adopting this
comment to accommodate industry commenters' request for flexibility
when a consumer has a cram-down plan, given that the plans are
atypical. Although it is important for consumers with such plans to
receive a periodic statement (as explained in the section-by-section
analysis of Sec. 1026.41(e)(5)), consumers with cram-down plans may
better understand a periodic statement disclosing the terms of the
portion of either the modified or unmodified mortgage loan, depending
on the specific terms of the plan.
The Bureau is adopting proposed comment 41(f)(3)-3 without revision
but renumbering it as comment 41(f)(3)-2. This comment clarifies the
distinction between fees and charges imposed before the bankruptcy case
was filed and those imposed after filing. It provides that, for
purposes of Sec. 1026.41(f)(3), post-petition fees and charges are
those fees and charges
[[Page 72337]]
imposed after the bankruptcy case is filed. The comment further states
that, to the extent that the court overseeing the consumer's bankruptcy
case requires such fees and charges to be included as an amendment to a
servicer's proof of claim, a servicer may include such fees and charges
in the balance of the pre-petition arrearage under Sec.
1026.41(f)(3)(v)(C) rather than treating them as post-petition fees and
charges for purposes of Sec. 1026.41(f)(3).
The Bureau is also adopting proposed comment 41(f)(3)-4
substantially as proposed, renumbered as comment 41(f)(3)-3, with
revisions for clarity and to indicate the renumbering of certain
regulatory provisions referenced in the comment. The comment addresses
the disclosures that must be made on the first modified periodic
statement provided to a consumer under proposed Sec. 1024.41(f)(3)
after an exemption under Sec. 1026.41(e) expires. The comment states
that Sec. 1026.41(f)(3)(iii) through (v) requires, in part, the
disclosure of certain information regarding account activity that has
occurred since the last statement. For purposes of the first periodic
statement provided to the consumer following termination of an
exemption under Sec. 1026.41(e), those disclosures regarding account
activity that has occurred since the last statement may be limited to
account activity since the last payment due date that occurred while
the exemption was in effect. The comment includes a reference to
comment 41(d)-5, which includes similar language addressing the
disclosures that servicers must make on the first unmodified periodic
statement provided to a consumer after an exemption under Sec.
1026.41(e) terminates.
41(f)(3)(i) Requirements Not Applicable
For the reasons set forth in the proposal, the Bureau is adopting
Sec. 1026.41(f)(3)(i) as proposed. Section 1026.41(f)(3)(i) provides
that, in addition to omitting the information set forth in Sec.
1026.41(f)(1), the periodic statement may also omit the information set
forth in Sec. 1026.41(d)(8)(iii), (iv), (vi), and (vii), which relate
generally to a consumer's account history, loss mitigation, the total
payment amount needed to bring the account current, and homeownership
counselor information.
Consumer advocacy groups opposed permitting servicers to exclude
information about the consumer's account history if the confirmed plan
of reorganization provides for maintenance of payments and the servicer
contends that the consumer has failed to maintain the post-petition
payments. The commenters stated that, for unknown reasons, servicers
have recently permitted some debtors to remain delinquent on post-
petition payments for months or years without providing notification to
debtors, their attorneys, or chapter 13 trustees. To combat this
problem, the commenters recommended that the periodic statement
disclose the date on which the consumer became delinquent on post-
petition payments and an account history listing past due post-petition
payments.
As the Bureau explained in the proposal, requiring a periodic
statement to include the delinquency information in Sec.
1026.41(d)(8)(iii), (iv), (vi), and (vii) could be confusing or of
little value to consumers in a chapter 13 case. Information related to
pre-bankruptcy defaults may not be helpful, and in fact may be
confusing, to a consumer whose bankruptcy plan is designed to repay
those defaults over time. Moreover, industry commenters stated that a
consumer who fails to make several plan payments will likely face
immediate consequences in bankruptcy, such as a trustee's motion to
dismiss or a servicer's motion for relief from the automatic stay, and
the delinquency information in these disclosures may serve less value
in that scenario. The Bureau acknowledges that information related to
post-petition defaults could be helpful to consumers, and the Bureau
encourages servicers that currently provide such information to
continue doing so, but the Bureau is concerned about the additional
burden a requirement to provide these disclosures could impose on
servicers. Accordingly, Sec. 1026.41(f)(3)(i) provides that a servicer
may omit the delinquency information required by current Sec.
1026.41(d)(8).
41(f)(3)(ii) and (iii) Amount Due and Explanation of Amount Due
For the reasons set forth in the proposal and those explained
below, the Bureau is adopting Sec. 1024.41(f)(3)(ii) and (iii)
substantially as proposed, with revisions to improve clarity. Thus,
Sec. 1026.41(f)(3)(ii) and (iii) respectively modify the amount due
and explanation of amount due disclosures, required under Sec.
1026.41(d)(1) and (2), for purposes of periodic statements provided to
consumers in chapter 12 or chapter 13 bankruptcy.
Under Sec. 1026.41(d)(1), a periodic statement must disclose,
among other things, the payment due date and the amount due. Section
1026.41(d)(2) requires disclosure of an explanation of amount due,
including: (1) The monthly payment amount, with a breakdown showing how
much, if any, will be applied to principal, interest, and escrow; (2)
the total sum of any fees or charges imposed since the last statement;
and (3) any payment amount past due. Section 1026.41(f)(3)(ii) and
(iii) of the final rule generally provides that these amount due and
explanation of amount due disclosure may be limited to the monthly
post-petition payments due under the mortgage loan and any post-
petition fees or charges imposed since the last periodic statement.
Generally stated, comments 41(f)(3)(ii)-1 and (iii)-1 clarify, in part,
that these disclosures would not be required to include the amounts of
any payments on account of a consumer's pre-petition arrearage or that
are due under a court order.
The Bureau solicited comment on whether the explanation of amount
due should include a breakdown of the amount of the monthly payment
that will be applied to principal, interest, and escrow or whether a
more limited disclosure is appropriate, such as listing the monthly
payment as a lump sum or listing the principal and interest as a
combined figure with the escrow amount disclosed separately.
Additionally, the Bureau requested comment on whether a servicer should
be permitted or required to include post-petition fees and charges in
the amount due disclosure.
Consumer advocacy groups submitted a comment expressing strong
support for the proposal's requirement that the explanation of amount
due break down the principal, interest, escrow, and fees and charges
(as is currently required for non-bankruptcy periodic statements under
Sec. 1026.41). The commenters reasoned that the disclosures will
enable debtors, their attorneys, and chapter 13 trustees to detect when
servicers fail to properly apply payments in accordance with bankruptcy
law and the underlying mortgage contract.
Numerous industry commenters supported aspects of Sec.
1026.41(f)(3)(ii) and (iii) while also suggesting changes. One servicer
supported disclosing post-petition information, as well as the amount
of the arrearage balance. A trade organization and two servicers
supported limiting the amount due disclosure under Sec.
1026.41(f)(3)(ii) to the post-petition payment and any fees and
charges, instead of including any pre-petition amounts. Another
servicer agreed that the amount due disclosure should include post-
petition payments but stated that attempting to collect fees and
charges without court approval could violate the automatic stay. In
contrast, another servicer stated that the National Mortgage Settlement
requires disclosure of fees and charges during
[[Page 72338]]
bankruptcy, that it is industry practice to collect them as they are
incurred, and that bankruptcy law does not prohibit this. One servicer
requested that the Bureau clarify in comment 41(f)(3)(ii)-1 that
compliance with Federal Rule of Bankruptcy Procedure 3002.1(c) is not a
prerequisite for disclosing a post-petition fee or charge in the
explanation of amount due disclosure under Sec. 1026.41(f)(3)(iii).
One servicer stated that it does not object to disclosing the amount of
overdue payments in the explanation of amount due but requested
flexibility.
Several other industry commenters stated that the amount due
disclosure should not include any past due amounts that became due and
unpaid during the bankruptcy case. Some of these commenters stated
that, when consumers make the post-petition payments to a trustee,
there is often a delay before the trustee forwards the payment to the
servicer, and, as a result, periodic statements may inaccurately show
the consumer as behind on payments. One commenter added that repayment
of past due amounts is often resolved through a court-approved agreed
order, which may be inconsistent with the periodic statement's amount
due disclosure. Another commenter stated that periodic statements under
Sec. 1026.41(f) would be for informational purposes only, and that
disclosing payment of an amount in default may be a collection effort
inconsistent with the bankruptcy proceeding.
These industry commenters also stated that seeking payment of past
due post-petition amounts could violate the automatic stay. They
recommended limiting the amount due disclosure to the current monthly
payment and permitting servicers to identify past due amounts elsewhere
in the statement--either in the explanation of amount due disclosure
under Sec. 1026.41(f)(3)(iii) or in a separate box for outstanding
post-petition payments. A servicer suggested placing the amount due
disclosure with a disclaimer that the periodic statement is not an
attempt to collect a debt.
Several commenters stated that servicers' systems cannot currently
differentiate between pre-petition and post-petition payments. One
servicer stated that its systems can track post-petition payments but
currently cannot translate the information into a periodic statement. A
credit union stated that its systems currently cannot limit the amount
due disclosure to reflect only post-petition payments as proposed. A
servicer similarly stated that it would have to alter its systems to
allow the amount due disclosure to contain only post-petition payments.
Numerous industry commenters also argued that principal and
interest should be permitted to be disclosed as a lump sum in the
explanation of amount due disclosure under Sec. 1026.41(f)(3)(iii).
Some commenters stated that, because servicers apply payments to the
oldest outstanding debt, consumers will be confused if the principal-
interest breakdown of a payment due in one month differs from how that
payment is actually applied in the following month. One servicer also
stated that breaking down principal and interest could complicate
reporting requirements to loan owners because servicers must apply or
remit payments according to the underlying contract. Another servicer
stated that, because it currently applies payments received to the
oldest outstanding debt, the proposal to break down how post-petition
payments are applied to principal, interest, and escrow could result in
consumer confusion. A trade association opposing a breakdown of
principal, interest, and escrow stated that, if such a breakdown is
required, the Bureau should require the most detailed breakdown
possible, given concerns about violating the FDCPA's prohibition
against making false, deceptive, or misleading representations.
One servicer stated that the breakdown of principal and interest
may not match the trustee's records because servicers may not be able
to discern how the trustee allocates payments. That servicer also
stated that allowing the disclosure of principal and interest
components in a lump sum would also ensure that the periodic statement
discloses escrow and fees separately. Some trade associations argued
that such a lump sum disclosure offers the consumer the necessary
information, the amount of the required post-petition maintenance
payment and the balance of the pre-petition arrearage. One commenter
stated that consumers would still receive disclosure of the actual
application of funds in the past payment breakdown section under
proposed Sec. 1026.41(f)(3)(iv). One servicer stated that a rule
requiring servicers to disclose a breakdown of principal and interest
is inconsistent with the Bankruptcy Code and Bankruptcy Rules.
The U.S. Trustee Program stated that removing a breakdown of
principal, interest, taxes, and insurance would render the periodic
statements less helpful. Consumer advocacy groups and a chapter 13
trustee indicated strong support for breaking down the payments into
these constituent parts, saying that it would help consumers and
attorneys monitor for payment application errors.
Several commenters recommended that, if the Bureau does require
periodic statements to disclose a breakdown of principal and interest,
the breakdown should disclose how a servicer is applying payments
according to the terms of the mortgage loan agreement, rather than
according to bankruptcy accounting. These commenters stated that, while
they track separately pre-petition and post-petition payments, they
actually apply and remit funds to the investor in accordance with the
mortgage loan agreement. They added that, if the debtor fails to
complete all payments and the case is dismissed, the servicer is to
apply the payments as if the bankruptcy case never occurred. Some trade
associations stated that, if the Bureau requires the past payment
breakdown to identify principal and interest, the breakdown should
include all payments received, not just post-petition payments.
One servicer commented that the proposal did not address certain
product types, such as payment option loans. The servicer requested
clarification as to whether it could continue to provide periodic
statements disclosing the various payment options consistent with the
sample form in appendix H-30(C), or whether it would be appropriate to
provide such a consumer with statements that disclose only the minimum
payment option.
The Bureau is adopting Sec. 1026.41(f)(3)(ii) and (iii)
substantially as proposed, with revisions to improve clarity. Thus,
Sec. 1026.41(f)(3)(ii) provides that the amount due information set
forth in Sec. 1026.41(d)(1) may be limited to the date and amount of
the post-petition payments due and any post-petition fees and charges
imposed by the servicer.
Comment 41(f)(3)(ii)-1 clarifies the amounts that must be included
in the amount due and the amounts that may be included in the amount
due at a servicer's discretion. The comment provides that the amount
due under Sec. 1026.41(d)(1) is not required to include any amounts
other than post-petition payments the consumer is required to make
under the terms of the bankruptcy plan, including any past due post-
petition payments, and post-petition fees and charges that a servicer
has imposed. The comment further provides that the servicer is not
required to include in the amount due any pre-petition payments due
under the bankruptcy plan or other amounts payable pursuant to a court
order. The comment further provides that the servicer is not required
to include in the
[[Page 72339]]
amount due any post-petition fees and charges that the servicer has not
imposed. The comment explains that a servicer that defers collecting a
fee or a charge until after complying with the Federal Rule of
Bankruptcy Procedure 3002.1 procedures, and thus after a potential
court determination on whether the fee or charge is allowed, is not
required to disclose the fee or charge until complying with such
procedures. The comment concludes by explaining that a servicer may
include in the amount due other amounts due to the servicer that are
not post-petition payments or fees or charges, such as amounts due
under an agreed order, provided those other amounts are also disclosed
in the explanation of amount due and transaction activity.
Section 1026.41(f)(3)(iii) similarly provides that the explanation
of amount due information set forth in Sec. 1026.41(d)(2) may be
limited to the following: (1) The monthly post-petition payment amount,
including a breakdown showing how much, if any, will be applied to
principal, interest, and escrow; (2) the total sum of any post-petition
fees or charges imposed since the last statement; and (3) any post-
petition payment amount past due. Comment 41(f)(3)(iii)-1 clarifies the
amounts that must be included in the explanation of amount due and the
amounts that may be included in the explanation amount due at a
servicer's discretion. The comment provides that the explanation of
amount due under Sec. 1026.41(d)(2) is not required to include any
amounts other than the post-petition payments, including the amount of
any past due post-petition payments, and post-petition fees and charges
that a servicer has imposed. The comment further clarifies that,
consistent with Sec. 1026.41(d)(3)(i), the post-petition payments must
be broken down by the amount, if any, that will be applied to
principal, interest, and escrow. The comment states that the servicer
is not required to disclose, as part of the explanation of amount due,
any pre-petition payments or the amount of the consumer's pre-
bankruptcy arrearage. Finally, the comment clarifies that, however, a
servicer may identify other amounts due to the servicer provided those
amounts are also disclosed in the amount due and transaction activity.
The comment includes a reference to new comment 41(d)-4, which explains
certain disclosure requirements if the consumer has agreed to a
temporary loss mitigation program.
The Bureau continues to believe that it is appropriate to allow
servicers to limit the amount due and explanation of amount due
disclosures to include only post-petition payments and any fees and
charges that the servicer is attempting to collect from the consumer
during the bankruptcy case. In addition to the reasons provided by
commenters, as the Bureau explained in the proposal, the Bureau
understands that some local rules adopted by bankruptcy courts that
address periodic statements provide that the statements should reflect
the post-petition payments, and that these local rules would not
require a servicer to include pre-petition payments or amounts due
under a court order in the amount due field.\400\ Accordingly, Sec.
1026.41(f)(2)(ii) and (iii) requires a servicer to include post-
petition payments in the amount due and explanation of amount due,
including any past due post-petition payments, but does not require a
servicer to include pre-petition payments that may be due under the
bankruptcy plan.
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\400\ The Bureau proposed under Sec. 1026.41(f)(3)(vi) to
require disclosures relating to a consumer's pre-petition arrearage.
As described in the section-by-section analysis of Sec.
1026.41(f)(3)(v), the Bureau renumbered that provision. Thus, the
contents of Sec. 1026.41(f)(3)(vi) relating to the date of post-
petition delinquency are entirely new.
---------------------------------------------------------------------------
The Bureau declines to adopt the recommendation of several industry
commenters to allow servicers to omit past due post-petition amounts
from the amount due and explanation of amount due and, for example, to
permit servicers to include these amounts elsewhere on a periodic
statement. As explained above in the section-by-section analysis of
Sec. 1026.41(f)(1), the Bureau believes that it is important for
consumers to understand the full amounts they need to pay to stay
current on the periodic payments, which, in the chapter 12 and chapter
13 context, include post-petition payments. Consumer testing
participants preferred and found clearer sample forms that included
past due post-petition amounts in the amount due and explanation of
amount due.
The Bureau also is requiring the explanation of amount due to
contain a breakdown of how much, if any, of the post-petition payment
will be applied to principal, interest, and escrow, as would normally
be required under Sec. 1026.41(d)(2)(i). Although, as some commenters
suggested, there may be some discrepancy between the principal-interest
allocation in the amount to be paid one month and how that payment was
actually applied in the following month, the Bureau notes that this
prospect is not unique to bankruptcy consumers--it may arise any time a
consumer is delinquent and pays less than the full outstanding amount.
Moreover, consumer testing suggested that many consumers in bankruptcy
find a breakdown of principal and interest helpful.\401\ Further, the
Bureau believes that the potential for some confusion is outweighed by
the benefits of disclosing the breakdown of the post-petition payments
by principal, interest, and escrow. As the Bureau explained in the
proposal, this breakdown is intended to give a consumer a snapshot of
why the consumer is being asked to pay the amount due. Without an
explanation of, for example, the amount attributable to escrow, a
consumer and the consumer's attorney may be unable to discern how a
servicer calculated the amount due.
---------------------------------------------------------------------------
\401\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing, at 39-40 (Feb. 2016), available at
http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/
(report on consumer testing submitted to the Bureau of Consumer Fin.
Prot.)
---------------------------------------------------------------------------
Some national trade associations asked that, if the rule required a
principal-interest breakdown, the final rule should expressly endorse
contractual accounting. The Bureau does not believe it is necessary or
appropriate in this context to define how servicers should apply
payments they receive from consumers in bankruptcy. Section 1026.41
imposes disclosure requirements; it does not establish accounting
methods. Nonetheless, servicers must accurately disclose how they are
applying payments, whether they use contractual or bankruptcy
accounting.
As explained in the proposal, the Bureau believes that consumers,
including those in bankruptcy, benefit from learning of fees and
charges that have been imposed on their account. This information
assists consumers' efforts to budget their finances and timely pay fees
and charges. The Bureau further believes that servicers also benefit
from fees or charges being disclosed on the periodic statement because
it aids them in collecting the fees and charges quickly. The Bureau
acknowledges the concern raised in comments that servicers should be
permitted to disclose the fees and charges first to a bankruptcy court
through the procedures set forth in Federal Rule of Bankruptcy
Procedure 3002.1. Under the final rule, if a servicer defers collecting
a fee or charge until after complying with the Federal Rule of
Bankruptcy Procedure 3002.1 procedures, the servicer is not required to
disclose the fee or charge until it has already complied with those
procedures. To ensure that consumers
[[Page 72340]]
receive timely notice of such fees or charges, Sec. 1026.41(f)(2)(iii)
requires a servicer to include in the explanation of amount due the
total sum of any post-petition fees or charges imposed since the last
periodic statement.
With respect to payment option loans, the Bureau notes that a
servicer may display the amount due and the explanation of amount due
in the form and manner set forth in the sample form in appendix H-
30(C). The sample forms tailored to consumers in bankruptcy, found at
appendices H-30(E) and H-30(F) of the proposal and final rule, are
intended to provide examples of how a servicer may comply with Sec.
1026.41(f). The Bureau understands that certain product types may
necessitate displaying the mortgage loan in a different manner.
41(f)(3)(iv)
The Bureau is not adopting Sec. 1026.41(f)(3)(iv) as proposed. For
the reasons described below, the Bureau is adopting the contents it
proposed under Sec. 1026.41(f)(3)(v), renumbered as Sec.
1026.41(f)(3)(iv).
Past Payment Breakdown as Proposed
As proposed, Sec. 1026.41(f)(3)(iv) would have provided that
periodic statements under Sec. 1026.41(f) must disclose the past
payment breakdown, limited to the total of post-petition payments
received and a breakdown of how those funds were applied. The Bureau
has determined that it is not necessary to modify the requirements of
Sec. 1026.41(d)(3) for purposes of a periodic statement provided to a
consumer in a chapter 12 or chapter 13 bankruptcy case. Section
1026.41(d)(3) therefore applies to such periodic statements without
modification. As explained in the relevant section-by-section analyses,
proposed Sec. 1026.41(f)(3)(v) is adopted as revised at Sec.
1026.41(f)(3)(iv).
The Bureau solicited comment on whether the past payment breakdown
should include a breakdown of the amount of the post-petition payments
that were applied to principal, interest and escrow, or whether a more
limited disclosure is appropriate, such as listing the amounts applied
as a lump sum or listing the principal and interest as a combined
figure with the escrow amount broken out separately. Consumer advocacy
groups and the U.S. Trustee Program supported the proposal, stating
that it would allow consumers, their attorneys, and trustees to
identify payment application errors. Consistent with their comments on
the explanation of amount due disclosure under Sec.
1026.41(f)(3)(iii), several industry commenters stated that the past
payments breakdown disclosure should reflect contractual accounting. As
such, they stated it should reflect all payments applied to the loan,
not just post-petition payments. However, one servicer stated that the
past payment breakdown should not disclose pre-petition payments held
in suspense because a consumer may be confused by the accumulation of
small payments made by a trustee. Some servicers suggested that
servicers include a statement in the Important Messages box indicating
whether the past payments breakdown was a contractual or bankruptcy
accounting.
Several industry commenters requested permission to disclose
principal and interest as a lump sum in the past payments breakdown
disclosure. In the alternative, they asked that the principal and
interest allocation reflect contractual accounting, saying this will
show how the payment actually was applied. One commenter who also asked
that principal and interest be a lump sum in the explanation of amount
due disclosure under Sec. 1026.41(f)(3)(iii) suggested that principal
and interest be disclosed separately in the past payments breakdown.
As the Bureau explained in the proposal, disclosing a breakdown of
the post-petition payments by principal, interest, and escrow provides
a consumer with a snapshot of how their payments have been applied.
This allows a consumer to identify potential errors in payment
application, including any misapplication of payments to escrow or
fees. This breakdown also plays an important role in educating a
consumer, and consumer testing showed that participants found a
breakdown of past payments generally helpful, and that they preferred a
principal-interest breakdown.\402\ However, the Bureau now believes
that the past payments breakdown disclosure should include all payments
applied to the loan, not just post-petition payments, so that consumers
know the status of all payments received by a servicer. Further, a
servicer that applies payments contractually should be permitted to
disclose this application on the periodic statement. Proposed Sec.
1026.41(f)(3)(iv) arguably would have limited the past payments
breakdown to only post-petition payments applied, which may have left
consumers unable to determine when a servicer applied other amounts to
the loan. Similarly, the proposal could have made it challenging for
consumers to determine how much was applied to the loan in the year-to-
date disclosure under proposed Sec. 1026.41(f)(3)(iv)(B). The proposal
may have also made it difficult for servicers to disclose accurately
all the amounts that they are applying to the mortgage loan.
---------------------------------------------------------------------------
\402\ Id.at 39.
---------------------------------------------------------------------------
Given the foregoing, the Bureau is not adopting the proposed
requirement for periodic statements modified under Sec. 1026.41(f) to
disclose the past payment breakdowns by breaking out only post-petition
payments. Instead, the past payment breakdown for consumers in
bankruptcy must include all payments, just as it does for consumers not
in bankruptcy under Sec. 1026.41(d)(3). As the Bureau previously
discussed in the context of Sec. 1026.36(c)(1)'s prompt crediting
requirements, servicers commonly maintain separate suspense accounts
for pre-petition and post-petition payments,\403\ and these servicers
may, but are not required to, include more than one suspense account in
the past payment breakdown in order to accurately disclose how they are
applying payments. The Bureau is eliminating under Sec.
1026.41(f)(3)(iv) any reference to the past payment breakdown. As
described below, the provisions that would have followed Sec.
1026.41(f)(3)(iv) are renumbered accordingly.
---------------------------------------------------------------------------
\403\ 78 FR 10901, 10956 (Feb. 13, 2013).
---------------------------------------------------------------------------
Transaction Activity
Proposed Sec. 1026.41(f)(3)(v) would have required a modified
disclosure of transaction activity. The Bureau is renumbering the
provision as Sec. 1026.41(f)(3)(iv) and adopting the provision
substantially as proposed, with revisions to improve clarity.
Specifically, revised Sec. 1026.41(f)(3)(iv) requires the disclosure
of transaction activity under Sec. 1026.41(d)(4) \404\ to include all
payments the servicer has received since the last statement, including
all post-petition and pre-petition payments and payments of post-
petition fees and charges, and all post-petition fees and charges the
servicer has imposed since the last statement. The provision also
states that the brief description of the activity, required under Sec.
1026.41(d)(4), need not identify the source of any payments.
---------------------------------------------------------------------------
\404\ Section 1026.41(d)(4) requires a periodic statement to
include a list of all the transaction activity that occurred since
the last statement. It defines transaction activity for purposes of
the provision as any activity that causes a credit or debit to the
amount currently due. It also provides that the list must include
the date of the transaction, a brief description of the transaction,
and the amount of the transaction for each activity in the list.
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[[Page 72341]]
As revised, Sec. 1026.41(f)(3)(iv) incorporates the substance of
proposed comment 41(f)(3)(v)-1 relating to transaction activity. The
Bureau is therefore not adopting that proposed comment.
The Bureau solicited comment on whether the transaction activity
should include post-petition payments, pre-petition payments, and post-
petition fees and charges, or whether it should disclose different or
additional types of activity. The Bureau received few comments
specifically addressing this provision. Consumer advocacy groups
supported the proposal, saying that it would help provide consumers in
bankruptcy a complete and accurate record of account activity just as
the transaction activity disclosure currently does for consumers who
are not in bankruptcy. The consumer advocacy groups also stated that
the transaction activity disclosure should include pre-petition arrears
and post-petition amounts due that the servicer receives, regardless of
whether they are disbursed by the consumer or the trustee, and that it
is relatively unimportant to disclose the source of the payments. After
reviewing the report summarizing the Bureau's consumer testing,
however, two of these groups reconsidered and stated that disclosing
the source of the payments is important to help consumers understand
whether the payments were from the consumer or were pre-petition
arrearage payments from a trustee. Some trade associations supported
the proposal because it did not require servicers to identify the
source of the payments. One servicer agreed that the transaction
activity disclosure should include post-petition payments and fees and
charges but stated that it should not include payments on the pre-
petition arrearage because those payments are already disclosed in the
pre-petition arrearage box.
The Bureau believes that consumers in bankruptcy may benefit if the
transaction activity disclosed includes pre-petition payments. Although
those payments do not affect the amount due (which may be limited to
post-petition payments and fees in a chapter 12 or chapter 13
bankruptcy), they nonetheless serve to reduce a consumer's delinquency.
Moreover, the Bureau understands that there may be a significant delay
between when a consumer sends a pre-petition payment to a trustee and
when a servicer ultimately receives that payment. Consumers may benefit
by having a record of when such payments are received by the servicer.
The Bureau notes that consumer testing suggests that consumers may be
able to use the transaction activity disclosures to identify key
information about timing of past payments \405\ and fees and unpaid
amounts included in the payment amount disclosure.\406\
---------------------------------------------------------------------------
\405\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement
Forms for Mortgage Servicing, at 37 (Feb. 2016), available at http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
\406\ Id. at 55-56.
---------------------------------------------------------------------------
However, the Bureau recognizes that it may be difficult for
servicers to identify whether a payment came from a trustee, a
consumer, or a third-party. Thus, Sec. 1026.41(f)(3)(iv) does not
require that Sec. 1026.41(d)(4)'s brief description of the transaction
activity identify the source of the payments received by the servicer.
The transaction activity disclosure, however, must include activity
since the last statement.
41(f)(3)(v) Pre-Petition Arrearage
Proposed Sec. 1026.41(f)(3)(vi) would have required a periodic
statement to include certain information about the pre-petition
arrearage, if applicable. The proposal would have required a periodic
statement to contain the following disclosures, grouped in close
proximity: The total of all pre-petition payments received since the
last statement, the total of all pre-petition payments received since
the beginning of the current calendar year, and the current balance of
the consumer's pre-petition arrearage. The Bureau is renumbering the
provision as Sec. 1026.41(f)(3)(v) and adopting certain revisions to
the content of the disclosures and their location on the periodic
statement.
The Bureau solicited comment on whether periodic statements should
include the pre-petition payments received and applied and the balance
of the pre-petition arrearage, and whether there are alternative
avenues for apprising consumers of this information. Several consumer
advocacy groups, a chapter 13 trustee, and the U.S. Trustee Program
supported such disclosure, saying that it would help consumers to
understand how their bankruptcy plans are progressing. Two of these
consumer advocacy groups stated that it is unnecessary to require a
breakdown of pre-petition payments by principal, interest, and escrow.
Numerous industry commenters opposed the disclosure of pre-petition
payments because of systems limitations and the potential burden of
tracking this information accurately. They stated that they would have
to update their systems to disclose a pre-petition arrearage.
Several servicers and some trade associations suggested that the
periodic statement should include the amount paid on the arrearage over
the entire bankruptcy case rather than year-to-date. These commenters
stated this will provide more helpful information to consumers about
how their bankruptcy plans are progressing. Other industry commenters
also suggested that the Bureau require disclosure of the arrearage's
starting balance instead of the amount received last month. One
servicer requested clarification on whether the disclosure of pre-
petition payments received and how they were applied referred to how
the payments were applied to reduce the outstanding pre-petition claim
balance or how they were applied to the mortgage loan account.
The Bureau is adopting the pre-petition arrearage disclosure with
several revisions. As revised, Sec. 1026.41(f)(3)(v) requires a
periodic statement modified in accordance with Sec. 1026.41(f) to
include, if applicable, the total of all pre-petition payments received
since the last statement, the total of all pre-petition payments
received since the beginning of the consumer's bankruptcy case, and the
current balance of the consumer's pre-petition arrearage. The pre-
petition arrearage disclosures must be grouped in close proximity to
each other and located on the first page of the statement or,
alternatively, on a separate page enclosed with the periodic statement
or in a separate letter.
The Bureau believes that consumers should have an accurate record
of the payments received by a servicer, including pre-petition
arrearage payments. Consumers need this information to track the
delinquency, understand payment application, and monitor their accounts
for possible servicer error. Consequently, the Bureau is mandating the
inclusion of specified pre-petition information. Without this
information, periodic statements would not provide any indication
whether chapter 12 or chapter 13 consumers are contractually current or
delinquent. Moreover, while some participants in the Bureau's consumer
testing did not find the pre-petition arrearage disclosure helpful,
most readily understood it and responded positively to its inclusion on
the tested forms.\407\
---------------------------------------------------------------------------
\407\ Id. at 56-57.
---------------------------------------------------------------------------
The final rule requires disclosure of pre-petition payments
received since the beginning of the bankruptcy case, whereas the
proposal would have
[[Page 72342]]
required disclosure of pre-petition payments received only since the
beginning of the current calendar year. As some commenters noted, a
disclosure of the payments received since the beginning of the plan is
more helpful for consumers in bankruptcy because it provides a more
complete picture of the overall progress in the consumer's the
bankruptcy plan.
Further, the Bureau has learned that servicers generally keep
records of this information and that servicers of Fannie Mae and
Freddie Mac loans are required to do so. The Bureau therefore believes
that, with an appropriate implementation period, servicers would be
able to disclose the information on a periodic statement. During
outreach with industry participants, several servicers informed the
Bureau that they expected that their third-party systems vendors would
develop sufficient programming upgrades to enable servicers to more
easily track and disclose information about pre-petition arrearages.
Accordingly, Sec. 1026.41(f)(3)(v) requires a servicer to disclose, if
applicable, the total of all pre-petition payments received since the
last periodic statement, the total of all pre-petition payments
received since the beginning of the consumer's bankruptcy case, and the
current balance of the consumer's pre-petition arrearage.
The Bureau continues to believe that the pre-petition arrearage
disclosure does not need to include a breakdown of principal, interest,
and escrow. No commenters suggested that such a breakdown would be
helpful or necessary, as the purpose of this disclosure is to inform
the consumer of the consumer's overall progress in reducing a pre-
bankruptcy delinquency. Moreover, the Bureau understands that servicers
may not be equipped currently to disclose a breakdown of this
information on the periodic statement as modified for bankruptcy.
Unlike the proposal, the final rule expressly permits servicers to
include the disclosures on the first page of the periodic statement, on
a separate enclosed page, or in a separate letter. The final rule
ensures that these important disclosures are prominent while addressing
industry's concerns about the cost of compliance given current systems
limitations.
The Bureau is also adopting proposed comment 41(f)(3)(vi)-1,
renumbered as comment 41(f)(3)(v)-1, with certain revisions. The final
comment provides that, if the amount of the pre-petition arrearage is
subject to dispute, or has not yet been determined by the servicer, the
periodic statement may include a statement acknowledging the unresolved
amount of the pre-petition arrearage. Thus, the comment addresses
situations where the servicer has not filed a proof of claim specifying
the amount of the pre-petition arrearage, where an objection has been
filed to the servicer's proof of claim, or where the servicer has not
had time to determine the amount of the pre-petition arrearage before
having to provide a periodic statement. Final comment 41(f)(3)(v)-1
further clarifies that a servicer may omit the information required by
Sec. 1026.41(f)(3)(v) from the periodic statement until such time as
the servicer has had a reasonable opportunity to determine the amount
of the pre-petition arrearage, and that the servicer may not omit that
information from the periodic statement after the date that the
bankruptcy court has fixed for filing proofs of claim in the consumer's
bankruptcy case.
41(f)(3)(vi) Additional Disclosures
Proposed Sec. 1026.41(f)(3)(vii) would have required periodic
statements under Sec. 1026.41(f) to include certain additional
bankruptcy-specific disclosures. The Bureau solicited comment on
whether servicers should be permitted to include the proposed
additional disclosures on a separate page enclosed with the periodic
statement, whether the proposed disclosures should be permissive or
mandatory when applicable, and whether there are other disclosures that
a servicer should be required to include in a periodic statement under
proposed Sec. 1026.41(f).
The Bureau received several comments on this aspect of the
proposal. Two servicers recommended that the Bureau allow servicers
flexibility as to the location of the disclosures, citing servicers'
systems limitations as the reason. One of these servicers expressed
support for the proposed disclosures. Some trade associations
specifically supported the proposal under Sec. 1026.41(f)(3)(vii)(D)
to require a statement directing consumers to contact their attorneys
or trustees with payment application questions, stating that servicers
cannot answer those questions. The Bureau received no comments opposing
the additional disclosures proposed.
The Bureau is renumbering this provision as Sec. 1026.41(f)(3)(vi)
and mandating a new disclosure relating to post-petition delinquency
when applicable. The Bureau is otherwise adopting the provision
substantially as proposed, with minor revisions to improve clarity.
Section 1026.41(f)(3)(vi) requires a servicer to include five
additional statements on the periodic statement, as applicable, when a
consumer is in chapter 12 or chapter 13 bankruptcy. Under the final
rule, servicers have flexibility to determine where on the periodic
statement the disclosures will appear.
Section 1026.41(f)(3)(vi)(A) requires a statement that the amount
due includes only post-petition payments and does not include other
payments that may be due under the terms of the consumer's bankruptcy
plan. The purpose of this disclosure is to ensure that a consumer
understands that there may be additional amounts due under the plan
that relate to the mortgage debt. The Bureau continues to believe that
consumers may benefit from this disclosure, and consumer testing shows
that consumers may find this statement helpful.
Section 1026.41(f)(3)(vi)(B) provides that, if the consumer's
bankruptcy plan requires the consumer to make the post-petition
mortgage payments directly to a bankruptcy trustee, the periodic
statement must include a statement that the consumer should send the
payment to the trustee and not to the servicer. This proposed
disclosure is intended to ensure that consumers have information about
whether to send a post-petition payment to the trustee or servicer. The
Bureau continues to believe that such a disclosure is appropriate. Some
consumer testing participants cited this statement when explaining that
they would follow their bankruptcy plan's instructions as to where to
send payments.
Section 1026.41(f)(3)(vi)(C) and (D) requires disclosures tailored
to when the consumer makes payments to a trustee. Section
1026.41(f)(3)(vi)(C) requires a statement that the information
disclosed on the periodic statement may not include payments the
consumer has made to the trustee and may not be consistent with the
trustee's records. Section 1026.41(f)(3)(vi)(D) requires a statement
that encourages the consumer to contact the consumer's attorney or the
trustee with questions regarding the application of payments. The
Bureau is requiring these disclosures because there can be a delay
between when a trustee receives a payment from a consumer and when the
trustee remits that payment to a servicer. For pre-petition payments in
particular, the Bureau understands that the delay can be weeks or even
months, as a trustee may not distribute payments on pre-petition claims
until the creditor files a proof of claim or until higher priority
claims have been paid. Thus, the periodic statement the consumer
receives may not include all payments
[[Page 72343]]
the consumer has made. Additionally, the Bureau understands that a
trustee may allocate payments differently than a servicer, and until
the allocations are reconciled, the periodic statement may indicate
different allocations than a trustee's records. Based on these timing
and allocation issues, the Bureau believes that it is appropriate to
advise consumers of the differences between a servicer's records and a
trustee's records and to encourage consumers to contact the attorney or
trustee with questions. Consumer testing participants generally stated
that these statements were helpful to explain why a servicer's records
may differ from a trustee's or not include all of the consumer's
payments made to a trustee.
Finally, the Bureau is adding new Sec. 1026.41(f)(3)(vi)(E). If
the consumer is more than 45 days delinquent on post-petition payments,
Sec. 1026.41(f)(3)(vi)(E) requires the periodic statement to include a
statement that the servicer has not received all the payments that
became due since the consumer filed for bankruptcy. The Bureau
considered whether to require periodic statements to include an account
history listing only post-petition payments the consumer has failed to
make or, alternatively, the date the consumer became delinquent on
post-petition payments. Although the Bureau believes that this
information would be beneficial to a consumer who is delinquent on
mortgage payments due during the bankruptcy case, the Bureau is
concerned that requiring this information may impose additional burdens
on servicers. Nonetheless, the Bureau agrees with the consumer advocacy
group commenters that consumers need to know when the servicer believes
that the consumer has not made all required post-petition payments.
Among other consequences, the failure to make a post-petition payment
could lead to dismissal of the bankruptcy case. Accordingly, the Bureau
is requiring in Sec. 1026.41(f)(3)(vi)(E) that, if the consumer is at
least 45 days delinquent on post-petition payments, the periodic
statement must include a statement that the servicer has not received
all of the consumer's payments due during the bankruptcy case. The
Bureau believes that this disclosure will help alert consumers to any
delinquency and that, because the language is standard, the burden on
industry should be low.
41(f)(4) Multiple Obligors
Proposed Sec. 1026.41(f)(4) would have addressed the situation
where more than one consumer is primarily obligated on a mortgage loan
and a servicer is required to provide at least one of the primary
obligors with a modified periodic statement pursuant to Sec.
1026.41(f). Proposed Sec. 1026.41(f)(4) provided that, in this
circumstance, the servicer may provide the modified version of the
periodic statement to any or all of the primary obligors instead of
providing any statements that do not include the bankruptcy-specific
modifications, even if not all primary obligors are debtors in
bankruptcy.
The Bureau only received one comment on this aspect of the
proposal. A trade association commenter agreed with the proposal to
permit servicers to provide only one type of periodic statement per
mortgage loan account.
The Bureau is adopting Sec. 1026.41(f)(4) substantially as
proposed, with minor revisions to improve clarity. As revised, Sec.
1026.41(f)(4) provides that, if Sec. 1026.41(f) applies in connection
with a mortgage loan with more than one primary obligor, the servicer
may provide the modified statement to any or all of the primary
obligors, even if a primary obligor to whom the servicer provides the
modified statement is not a debtor in bankruptcy.
The Bureau is also adopting comment 41(f)(4)-1 substantially as
proposed but with certain revisions. As revised, comment 41(f)(4)-1
provides that, when two or more consumers are joint obligors with
primary liability on a mortgage loan subject to Sec. 1026.41, a
servicer may send the periodic statement to any one of the primary
obligors. Comment 41(f)(4)-1 further clarifies that Sec. 1026.41(f)(4)
provides that a servicer may provide a modified statement under Sec.
1026.41(f), if applicable, to any or all of the of the primary
obligors, even if the primary obligor to whom the servicer provides the
modified statement is not a debtor in bankruptcy. The comment specifies
that the servicer need not provide an unmodified statement to any of
the primary obligors. The comment provides an illustrative example.
This result is consistent with comment 41(a)-1, which clarifies
that, when more than one consumer is primarily obligated on a mortgage
loan, a servicer may send the periodic statement to any one of the
primary obligors; the servicer would not be required to provide
periodic statements to all primary obligors. The Bureau also recognizes
that, given current limitations on technology, servicers would incur
costs if they were required to send one version of the periodic
statement to a consumer in bankruptcy and a different version to the
consumer's non-bankrupt co-obligors. As clarified by comment 41(f)(4)-1
of the final rule, Sec. 1026.41(f)(4) should eliminate those costs.
The Bureau notes that comment 41(f)(4)-1, as revised, does not
include a proposed example describing a servicer's obligations when
there are multiple obligors on the mortgage loan and an exemption
applies under Sec. 1026.41(e)(5)(ii). As described in greater detail
in the section-by-section analysis of Sec. 1026.41(e)(5), revisions to
comment 41(e)(5)(i)-1 clarify that, subject to certain restrictions,
servicers are exempt from providing any periodic statement with regard
to a mortgage loan if one of the primary obligors, for example, files
chapter 13 bankruptcy and has a bankruptcy plan that provides for
surrendering the dwelling that secures the mortgage loan.
New comment 41(f)(4)-2 clarifies disclosure requirements when co-
obligors are both debtors under different chapters of bankruptcy. The
comment provides that, if two or more consumers are joint obligors with
primary liability on a mortgage loan subject to Sec. 1026.41 and are
debtors under different chapters of bankruptcy, only one of which is
subject to Sec. 1026.41(f)(3), a servicer may, but need not, include
the modifications set forth in Sec. 1026.41(f)(3). The comment sets
forth an illustrative example.
41(f)(5) Coupon Books
The Bureau proposed Sec. 1026.41(f)(5) to require a coupon book to
comply with certain requirements of Sec. 1026.41(f) where applicable.
The Bureau solicited comment on applying the modifications set forth in
proposed Sec. 1026.41(f)(1) and (f)(3)(i) through (v) and (vii) when a
servicer provides a coupon book under Sec. 1026.41(e)(3). In
particular, the Bureau solicited comment on whether there may be
alternative means to providing consumers with substantially the same
information regarding the mortgage loan account while they are in
bankruptcy. Additionally, the Bureau solicited comment on whether
servicers should be required to issue a new coupon book or other
disclosures immediately upon a consumer's bankruptcy filing. Finally,
the Bureau solicited comment on servicers' current practices with
respect to providing a coupon book to consumers in bankruptcy.
The Bureau received no comments on Sec. 1026.41(f)(5) and is
adopting it substantially as proposed, with minor modifications to
improve clarity. Under Sec. 1026.41(f)(5), a servicer that provides a
coupon book instead of a periodic statement under Sec. 1026.41(e)(3)
must include in the coupon book the disclosures set forth in Sec.
1026.41(f)(2) and (f)(3)(vi), as applicable. The servicer
[[Page 72344]]
may include these disclosures anywhere in the coupon book provided to
the consumer or on a separate page enclosed with the coupon book. The
servicer must make available upon request to the consumer by telephone,
in writing, in person, or electronically, if the consumer consents, the
pre-petition arrearage information listed in Sec. 1026.41(f)(3)(v), as
applicable. Section 1026.41(f)(5) also provides that the modifications
set forth in Sec. 1026.41(f)(1) and (f)(3)(i) through (iv) and (vi)
apply to a coupon book and other information a servicer provides to the
consumer under Sec. 1026.41(e)(3).
The Bureau continues to believe that Sec. 1026.41(f)(5) will not
impose significant burden on servicers that use a coupon book. The
statements set forth in Sec. 1026.41(f)(1) and (f)(3)(vi) are the only
new, bankruptcy-specific disclosures that a servicer must include in a
coupon book. These are standardized statements; servicers will not need
to craft language for individual consumers. Additionally, the Bureau is
allowing servicers to include these statements anywhere in the coupon
book or on a separate page enclosed with the coupon book.
As to the pre-petition arrearage information set forth in Sec.
1026.41(f)(3)(v), the Bureau understands that servicers already
maintain internal records regarding pre-petition payments and the
balance of the pre-petition arrearage. Therefore, the Bureau does not
believe that the cost of providing this information upon a consumer's
request will impose significant new burdens.
The remainder of the modifications set forth in proposed Sec.
1026.41(f)(1) and (f)(3)(i) through (iv) and (vi) do not require a
servicer to modify any of the disclosures in the coupon book or provide
new information to a consumer. Rather, these modifications provide that
certain disclosures (such as a description of late payment fees) are
not required when a consumer is in bankruptcy and clarify the
requirements for certain other disclosures (such as amount due) in a
manner that is consistent with the information already provided in a
coupon book. Thus, while a servicer has the option to modify its coupon
books to omit certain disclosures that are not required when a consumer
is in bankruptcy, Sec. 1026.41(f)(5) does not require servicers to
redesign their coupon books specifically for consumers in bankruptcy,
and servicers can determine the most cost-efficient method of providing
the required information.
Servicers also are not required to update the coupon book with the
bankruptcy disclosures immediately upon learning of the bankruptcy
filing. Section 1026.41(f)(5) permits a servicer to provide a modified
coupon book according to its normal schedule. For example, if a
servicer provided a 12-month coupon book to a consumer in January and
the consumer filed for bankruptcy in March, the servicer would not need
to issue a new, modified coupon book accompanied by Sec. 1026.41(f)(1)
and (f)(3)(vi) disclosures until the following January.
Sample Forms
Section 1026.41(c) specifies that sample forms for periodic
statements are provided in appendix H-30 and that proper use of these
forms complies with the form and layout requirements of Sec.
1026.41(c) and (d). The Bureau believes that sample forms are
appropriate to provide servicers with guidance for complying with the
requirements of Sec. 1026.41(c) and (d) as modified by Sec.
1026.41(f). The Bureau therefore exercises its authority under, among
other things, section 128(f) of TILA to finalize sample forms for Sec.
1026.41(c) and (d) as modified by Sec. 1026.41(f). The Bureau notes
that these are not required forms and that any arrangements of the
information that meet the requirements of Sec. 1026.41 would be
considered in compliance with the section. For the reasons discussed,
the Bureau believes that finalizing the sample forms in appendices H-
30(E) and H-30(F) is appropriate.
Appendix H-30(E) provides a sample form for complying with the
requirements of Sec. 1026.41(c) and (d) as modified by Sec.
1026.41(f) with respect to a consumer in a chapter 7 or chapter 11
bankruptcy case or who has discharged personal liability for a mortgage
loan. This form includes disclosures that may not be applicable in all
circumstances. For example, the form includes certain delinquency-
related information to demonstrate compliance with Sec. 1026.41(d)(8)
as modified by Sec. 1026.41(f), but a periodic statement does not need
to include this information if it is not applicable to a mortgage loan.
Appendix H-30(F) provides a sample form for complying with the
requirements of Sec. 1026.41(c) and (d) as modified by Sec.
1026.41(f) with respect to a consumer in a chapter 12 or chapter 13
bankruptcy case. Not all information on this form will be applicable in
all circumstances. For example, the form includes a pre-petition
arrearage disclosure to demonstrate compliance with Sec.
1026.41(f)(3)(v), but a periodic statement does not need to include
this information if it is not applicable to a mortgage loan. In
addition, comment 41(f)(3)-1.ii clarifies that a servicer has
additional flexibility in making certain disclosures when the consumer
is in chapter 12 or has a plan that modifies the terms of the mortgage
loan, and a servicer has the flexibility to make corresponding changes
to the sample form.
The sample forms in appendices H-30(E) and H-30(F) use some
terminology that differs from terminology used on the sample forms
located in appendices H-30(A) through H-30(C), such as ``payment
amount'' instead of ``amount due'' and ``past unpaid amount'' instead
of ``overdue payment.'' This alternative terminology is not required
but serves simply an example of how servicers may comply with the
requirements of Sec. 1026.41(c) and (d) as modified by Sec.
1026.41(f). As comment 41(f)-2 states, a periodic statement may use
terminology other than that found on the sample forms in appendix H-30,
so long as the new terminology is commonly understood. For example, a
servicer could use commonly understood terms such as ``amount due,''
``explanation of amount due,'' and ``past due payment,'' on a periodic
statement provided to a consumer in bankruptcy without affecting the
servicer's safe harbor afforded by Sec. 1026.41(c).
Consistent with Sec. 1026.41(f)(1) and (f)(3)(i), the sample forms
in appendices H-30(E) and H-30(F) omit certain disclosures otherwise
required by Sec. 1026.41(d), including disclosures that appear on the
sample forms located on appendixes H-30(A) through H-30(C), such as the
amount of any late payment fee and the date on which it will be
assessed. A servicer has the option to include such disclosures on a
periodic statement provided to a consumer in bankruptcy, and doing so
would not affect the servicer's safe harbor for using the forms located
in appendices H-30(E) or H-30(F). Similarly, a servicer may use a
different presentation of the explanation of amount due, such as that
on the sample form in appendix H-30(C), for payment option and other
special types of loans, without affecting the servicer's safe harbor
under Sec. 1026.41(c).
Proposed sample forms. The proposed rule included proposed sample
forms in appendices H-30(E) and H-30(F). A credit union supported the
Bureau's efforts to gauge consumer understanding and stated that some
proposed iterations of the sample forms may facilitate consumer
comprehension. Two trade associations recommended that the Bureau
publish the anticipated final
[[Page 72345]]
versions of the forms for notice and comment prior to issuing a final
rule. Consumer advocacy groups generally did not oppose sample forms,
and one consumer advocacy group suggested that the Bureau publish
Spanish-language versions of the forms.
Other trade associations requested that the Bureau state expressly
that safe harbors remain in place under both the Dodd-Frank Act and
TILA if servicers use the sample forms, even if a servicer omits
certain information that Regulation Z does not require or a servicer
rearranges the format or layout of the form. The commenters stated
that, absent such a statement, servicers might feel compelled to
include information that appears in the sample form exactly as
displayed even if the regulation does not require such disclosures in
the precise layout of the sample form.
Several commenters stated that providing a sample form similar to
the one that servicers provide to a consumer not in bankruptcy would
facilitate consumer comprehension, minimize burden on servicers, or
avoid potential conflicts with debt collection and bankruptcy law.
Other commenters suggested the Bureau provide a single sample form that
could be used for a consumer in any chapter of bankruptcy, which could
be achieved by permitting a servicer to omit certain information that
is not relevant to a particular consumer's loan. Some trade
associations requested flexibility as to how to display the information
required by Sec. 1026.41(d) as modified by Sec. 1026.41(f), including
suggesting that a servicer should have wide latitude when drafting the
narrative messages required by Sec. 1026.41(f)(2) and (f)(3)(vi) to
incorporate language that has been received positively by consumers and
bankruptcy courts.
Some commenters also commented on the format and presentation of
the proposed sample forms. For example, the U.S. Trustee Program
recommended that the Bureau use less technical language, referring in
particular to the proposed form's use of the term ``post-petition
payments.'' Several consumer advocacy groups favored the technical
language, however, noting that most consumers in bankruptcy would have
an attorney to help them understand the disclosures. Other commenters
had various alternative terminology and formatting suggestions.
As discussed above, the Bureau believes it is appropriate to
provide sample forms to assist servicers in complying with Sec.
1026.41(f). The Bureau reiterates that, as sample forms, their use is
permissive and, as comment 41(c)-2 states, servicers may provide
additional information on a periodic statement unless expressly
prohibited by Sec. 1024.41 or another provision of subpart E of
Regulation Z. In addition, comment Sec. 1024.41(d)-2 states that
servicers need not include on a periodic statement information that is
inapplicable to a mortgage loan, while comment Sec. 1026.41(f)-4
clarifies that a servicer may modify a periodic statement or coupon
book as necessary to facilitate compliance with the Bankruptcy Code,
the Federal Rules of Bankruptcy Procedure, court orders, and local
rules, guidelines, and standing orders. A servicer thus does not lose a
safe harbor under the Dodd-Frank Act or TILA by omitting inapplicable
information or modifying a periodic statement in a manner consistent
with the rule, including those comments. In addition, as discussed
above, a servicer is permitted to use alternative terminology on a
periodic statement so long as it is commonly understood. A servicer may
use different language to convey the statements required by Sec.
1026.41(f)(2) and (f)(3)(vi), so long as that language contains the
information required by those provisions and is commonly understood.
The Bureau also notes that, as explained in more detail below, the
final sample forms in appendices H-30(E) and H-30(F) incorporate
information the Bureau received through public comments and consumer
testing. The final sample forms use language that is less technical
than on the proposed forms and which testing participants readily
understood. They incorporate many elements from the existing periodic
statement sample forms located in appendices H-30(A) through H-30(C),
while providing servicers flexibility as to how to incorporate new
disclosures required by Sec. 1026.41(f). The Bureau intends for
consumers to be able to comprehend the language in the new sample forms
and for servicers not to have to fundamentally redesign their periodic
statement templates for consumers in bankruptcy.
The Bureau further believes that there has been a sufficient
opportunity to comment on the sample forms. The final sample forms in
appendices H-30(E) and H-30(F) closely resemble both the proposed
sample forms and the tested prototypes. Stakeholders have commented on
both the proposed sample forms and the prototypes used during consumer
testing (the prototypes were included in the testing report that the
Bureau published for public comment, as discussed below). The Bureau
therefore believes that it is not necessary to seek additional comments
on the final forms. The Bureau is not at this time providing sample
forms in languages other than English, but the Bureau will continue to
consider whether to do so in the future and whether additional consumer
testing on such forms would be necessary or appropriate.
Consumer testing methodology. The Bureau conducted consumer testing
on the proposed sample forms and revisions thereto following
publication of the proposed rule. The Bureau published and sought
comment on a report summarizing the methods and results of the consumer
testing.\408\ The Bureau received approximately 20 comments on the
testing report from, among others, trade associations, servicers,
credit unions, and consumer advocacy groups.
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\408\ 81 FR 24519 (Apr. 26, 2016); Fors Marsh Group, Testing of
Bankruptcy Periodic Statement Forms for Mortgage Servicing (Feb.
2016), available at http://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on consumer testing submitted to the
CFPB).
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Commenters were divided on aspects of the Bureau's testing
methodology. For example, several industry commenters and one consumer
advocacy group stated that the testing should have used a larger and
more diverse sample of consumers. The consumer advocacy group stated
that the study lacked any mention of minority group outreach,
especially to representatives from the Hispanic communities, and
recommended publishing the forms in Spanish. A credit union commented
that the testing results would have been more statistically sound had
the consumers been asked a more controlled set of questions, and a
trade association questioned why the report does not cite to medical
literature in support of its conclusions, particularly with respect to
the monitoring of eye tracking movements in one round of testing. Some
trade associations expressed general concern that it was unclear how
the Bureau would use the findings from the eye-tracking tool employed
in that round of testing and more specific concern that the Bureau
might rely on eye-tracking results obtained from, at most, five
participants. Some trade associations stated that the Bureau should
have solicited greater input on the testing methodology from other
stakeholders who may use and review the forms, such as bankruptcy
judges, bankruptcy attorneys, or trade associations. Some commenters
suggested that the Bureau conduct additional testing, with one
recommending additional testing
[[Page 72346]]
focused on the pre-petition arrearage disclosure.
Some trade associations also commented that the testing did not
account for the variety of procedures used in chapter 13 cases, such as
cases in which the consumer sends all mortgage payments to a trustee,
the trustee makes several streams of payments to a servicer, or the
trustee provides information about the mortgage loan to the consumer. A
trade association questioned how the testing would correlate to policy
determinations related to the substantive requirements of periodic
statements for consumers in bankruptcy.
Several commenters expressed concerns about the inclusion of a
payment coupon on the tested forms. For example, a bank stated that a
blank payment coupon with a payment date but no payment amount, which
was used in the second and third rounds of testing, seemed confusing. A
trade association expressed concern that the testing report indicates
that consumers focused on the payment coupon instead of the outstanding
principal balance; the trade association recommended that the form be
redesigned to focus the consumer on information other than the payment
coupon.
On the other hand, some consumer advocacy groups, industry
commenters, and a bankruptcy trustee expressed support for the Bureau's
consumer testing process. They commented favorably on, among other
things, the use of multiple revised statements to determine which
presentation might be most comprehensible to consumers and stated that
the forms are clearer as a result of the testing process. They also
noted that participants' understanding of the forms appeared to
increase with each successive round of testing, and they suggested that
the Bureau factor the report's findings into the rulemaking.
The Bureau believes that the testing it conducted is appropriate.
The testing methodology, including the number of rounds, the number of
participants who reviewed each form in each round, the participants'
relevant background experience, and the iterative process of form
design and consumer interviews, is consistent with the testing the
Bureau conducted in connection with other rulemakings, including the
2013 TILA Servicing Final Rule. The Bureau notes that consumers'
comprehension of the periodic statements improved from round to round
and that the Bureau has integrated adjustments from the testing where
appropriate. For example, the Bureau has revised the narrative
statements required by Sec. 1026.41(f)(2) and (f)(3)(vi) from the
proposed sample forms so that the final sample forms use language that
testing participants found easier to understand. Similarly, the Bureau
has adjusted the presentation of the Sec. 1026.41(f)(3)(v) pre-
petition arrearage disclosure from the proposed sample form so that the
final sample form presents the information more effectively. While
consumer testing cannot replicate every possible unique factual
circumstance that may arise in a bankruptcy case, the Bureau's testing
and the disclosures on the forms did address various scenarios such as,
for example, a consumer who should make monthly post-petition payments
to a trustee instead of a servicer. Most testing participants stated
that, consistent with the direction on the sample form, they would
continue to send such payments to the trustee if their bankruptcy plan
so required.
The Bureau also emphasizes that it is not relying solely on the
consumer testing to determine that the sample forms will be effective;
it is also relying on its knowledge of, and expertise in, consumer
understanding and behavior, as well as principles of effective
disclosure design. The Bureau further notes that many aspects of the
final sample forms are similar or identical to aspects of the existing
sample forms in appendices H-30(A) through H-30(C), which the Bureau
previously tested in connection with the 2013 TILA Servicing Final Rule
and which are now familiar to many consumers. Finally, the Bureau
acknowledges that the eye-tracking findings came from only a handful of
testing participants and has placed only limited weight on the eye-
tracking findings.
As to a commenter's question regarding how the consumer testing
would inform the substantive requirements of periodic statements for
consumers in bankruptcy, the Bureau notes that the purpose of the
testing was to test consumer understanding and make the sample forms
clearer for consumers. As to the concerns some commenters raised about
payment coupons on the sample forms, the Bureau notes that Sec.
1026.41 does not mandate the inclusion of a payment coupon on periodic
statements. The Bureau included them on the tested forms because
servicers commonly include payment coupons on periodic statements.
Servicers have flexibility to adjust the sample forms and the content
of any payment coupon they choose to include on a periodic statement.
Consumer testing results. Commenters made numerous comments about
the specific disclosures and language that appeared on the tested
versions of the forms. To the extent that these comments addressed the
findings set forth in the testing report or the accuracy of the
language on the final sample forms, they are addressed below. The
Bureau does not address, however, comments that suggested alternative
disclosures or language without referencing the testing report or the
findings therein. Some of the comments the Bureau received raise issues
that relate to the substantive requirements of Sec. 1026.41(e)(5) or
(f) rather than to the format or design of the sample forms. Most of
these comments are similar to comments the Bureau previously received
in response to the proposal and that the Bureau addressed above in the
section-by-section analyses of Sec. 1026.41(e)(5) and (f). Some
commenters submitted substantive comments on the proposal. These
comments were similar to the comments received on the proposal and,
where appropriate, are addressed in the relevant section-by-section
analyses.
Some commenters recommended that the sample forms incorporate
specific language that testing participants understood or preferred.
For example, consumer advocacy groups recommended that the Bureau adopt
the language tested in round three relating to the pre-petition
arrearage because consumers demonstrated a high level of comprehension
and because the information would benefit consumers in various ways. A
chapter 13 trustee also recommended that the sample form in appendix H-
30(F) refer expressly to ``pre-petition arrearage,'' in part because
the first round of testing showed that consumers understand the phrase.
This trustee further recommended that, based on the testing
participants' positive responses, the sample forms should separately
break down principal and interest, include language stating that the
periodic statement is being sent for informational and compliance
purposes only, and include a message that the statement may not show
recent payments sent to the trustee but not yet forwarded to the
servicer. A servicer commented that the form in appendix H-30(E) should
use the term ``account information'' because testing participants
preferred it over ``delinquency information.'' Another servicer
recommended that the final forms use concise versions of certain
disclosures that were tested in certain rounds.
Other commenters indicated that the final forms should not
incorporate disclosures that the consumer testing participants did not
readily understand. Among concerns about other disclosures, one credit
union commented that testing participants'
[[Page 72347]]
trust in the accuracy of the tested forms was diminished by some of the
narrative statements regarding the unique circumstances of chapter 13
cases, such as a disclaimer that the periodic statement may not be up
to date. Similarly, one commenter expressed concern that consumers
paying their mortgage through a chapter 13 trustee would be confused by
a periodic statement, citing the uncertainty some testing participants
expressed about the meaning of the narrative messages. Two servicers
commented that testing participants appeared uncertain about how much
they should pay when reviewing certain of the tested forms, such as
when past due amounts were listed separately from the amount currently
due. One of these servicers further stated that testing participants
had some difficulty distinguishing between pre-petition and post-
petition payments when both types of payments were listed in the
transaction activity and past payment breakdown. One credit union
stated that the participants' feedback on the forms' overall
organization, clarity, and helpfulness suggested that the participants
did not fully understand the disclosures. Some commenters recommended
making clearer whether amounts due and payments received relate to pre-
petition arrearage or to post-petition payments. One servicer cautioned
that providing greater detail about the breakdown of principal,
interest, and escrow could confuse consumers comparing the previous
month's statement to the subsequent month's statement. A credit union
also noted that some testing participants stated that they would rather
the periodic statements be sent to their attorneys to avoid
miscommunications, and it added, more generally, that the Bureau should
not ignore the report's negative findings.
Industry commenters took opposing views on the testing report's
finding that testing participants preferred disclosure of the
consequences of nonpayment and language that uses the term ``due.''
Some commenters stated that the forms should reflect the participants'
preference because it conveys information clearly and accurately, while
others stated that disclosing this information and using ``due''
language could raise concerns about the automatic stay. One servicer
expressed concerns that providing a periodic statement similar to the
tested forms could violate the automatic stay because some testing
participants stated that several iterations of the tested forms were
collection attempts rather than purely informational notices. A trade
association argued that the sample forms should not identify the number
of days a mortgage loan is delinquent because testing participants'
reactions varied as to whether the disclosure would be helpful.\409\
---------------------------------------------------------------------------
\409\ Final Sec. 1026.41(f) permits, but does not require, a
servicer to disclose the length of a delinquency on a periodic
statement.
---------------------------------------------------------------------------
The Bureau acknowledges that, as commenters noted, some versions of
the narrative messages shown to testing participants received mixed or
negative reactions, primarily in the first round and, to a lesser
degree, the second round of testing. The Bureau notes that participants
in each successive round found the various narrative messages to be
clearer than those in the prior round, and the Bureau believes, that
the versions of the messages included on the final sample forms in
appendices H-30(E) and H-30(F) are clear and generally understandable
to consumers. For example, while some participants in round one stated
the periodic statement tested was untrustworthy because of a message
that it might not be up to date, participants in the later rounds found
helpful a revised message that recent payments to a trustee may not be
disclosed on the statement because the trustee had not yet forwarded
them to the servicer.
The final versions of the sample forms in appendices H-30(E) and H-
30(F) incorporate findings set forth in the testing report, including
specifically the language regarding pre-petition arrearage that
participants found helpful in the third round of testing. Similarly,
the final sample forms include language identifying payments as ``pre-
petition'' or ``post-petition'' payments, which some participants found
helpful; the forms also include ``plain language'' terminology
identifying those payments to assist consumers who are less familiar
with bankruptcy-specific terminology. In addition, the sample form in
appendix H-30(E) uses the term ``account history'' in lieu of
``delinquency information,'' as testing participants found that term
helpful.
The Bureau believes that the testing report indicates that
consumers generally should understand the account information as
displayed on the sample forms. For example, testing participants
readily comprehended the principal-interest breakdown and preferred
such a disclosure over a combined disclosure. Consistent with this
finding and the Bureau's other knowledge and experience regarding
disclosures, the final rule requires a periodic statement to include a
principal-interest breakdown. Testing participants also generally
understood the pre-petition arrearage disclosure, and their
comprehension was highest in the final round of testing, which used a
disclosure similar to the disclosure on the final sample form. The
final sample forms also present the amount due and explanation of
amount due in the manner that participants found most helpful.
Moreover, the Bureau believes that, as consumer advocacy groups
commented and as explained in the testing report, a consumer may
understand the disclosures on a periodic statement when they relate to
the consumer's own mortgage loan and bankruptcy rather than a
hypothetical testing scenario.
As to commenters' concerns about some participants' preference that
a servicer provide the periodic statement to their bankruptcy attorney,
the Bureau notes that, depending on the circumstances, a servicer may
be able to satisfy the requirements of Sec. 1026.41 by providing a
periodic statement to a consumer's attorney. The Bureau further notes
that, while some testing participants stated that the tested forms
appeared to be more in the nature of collection attempts than purely
informational, most participants viewed the forms as informational, and
nearly all participants expressed a preference for receiving a similar
form if they were attempting to retain their home through bankruptcy.
More generally, as explained in the section-by-section of Sec.
1026.41(e)(5), the Bureau does not believe that a servicer is likely to
violate the automatic stay by providing a periodic statement that
complies with the provision of Sec. 1026.41(c) and (d) as modified by
Sec. 1026.41(f), nor does the Bureau believe that an automatic stay
violation is likely when a servicer uses properly one of the sample
forms in appendices H-30(E) or H-30(F).
Format and Design of the Sample Forms. Several commenters had
suggestions on the general design and format of the sample forms. For
example, a consumer advocacy group suggested that the sample forms
display information in a bullet point format, while other consumer
advocacy groups recommended that certain of the bankruptcy-related
narrative messages be located in a separate box because testing
participants preferred that approach. Some servicers recommended
against listing multiple suspense accounts in the past payments
breakdown, as was done in one version of the tested forms. Industry
commenters stated that the bankruptcy sample forms should be similar to
the non-bankruptcy sample forms, that the Bureau should have a single
bankruptcy
[[Page 72348]]
sample form that could be adapted to all chapters of bankruptcy, and
that servicers should have flexibility in how they present the required
information. Two consumer advocacy groups stated that the sample forms
should describe a trustee's pre-petition payments as payments rather
than partial payments. The Bureau also received several comments asking
how the sample forms in appendices H-30(E) or H-30(F) should address
specific scenarios or hypotheticals.
As noted above, the sample forms are one way a servicer may choose
to present the required information in a manner that complies with the
formatting requirements of Sec. 1026.41(c), (d), and (f). To the
extent that a servicer may wish to use a different format or add
additional informational, it may do so within the limits provided by
the rule. For example, a servicer may, as one commenter suggested,
disclose one or multiple suspense accounts on a periodic statement
without jeopardizing its safe harbor use of the sample forms.
Consistent with these commenters' general recommendations, the
sample forms in appendices H-30(E) and H-30(F) incorporate to a large
degree the format and content of the sample forms in appendices H-30(A)
through H-30(C). For example, the sample forms all contain the same
general presentation of general account information, amount due,
transaction activity, and past payment breakdown, among other things.
The sample form in appendix H-30(E) contains the same disclosures in a
similar format as the form in appendix H-30(B), except that appendix H-
30(E) omits three specific pieces of information, adds a short
bankruptcy message, and uses alternative terminology that a servicer
may but is not required to use for a consumer in bankruptcy. The Bureau
believes that these similarities will help reduce the potential burdens
on a servicer that chooses to use the new sample forms and will help
make the forms generally understandable to consumers.
Legal Authority
The Bureau is adopting Sec. 1026.41(f), which contains content and
layout requirements for periodic statements in bankruptcy, to implement
section 128(f) of TILA as well as section 105(a) of TILA and section
1032(a) of the Dodd-Frank Act. Section 128(f)(1)(e) of TILA requires
the periodic statement to include a description of any late payment
fees. For the reasons discussed above, the Bureau is using its
authority under section 105(a) and (f) of TILA to exempt servicers from
having to include this information in periodic statements provided to
consumers who are in bankruptcy or have discharged personal liability
for a mortgage loan. This proposed exemption is additionally authorized
under section 1405(b) of the Dodd-Frank Act.
41(g) Successors in Interest
As explained in part V.A. and the section-by-section analysis of
Regulation X Sec. 1024.32, the final rule allows servicers to provide
an initial explanatory written notice and acknowledgment form to
confirmed successors in interest who are not liable on the mortgage
loan obligation. The notice explains that the confirmed successor in
interest is not liable unless and until the confirmed successor in
interest assumes the mortgage loan obligation under State law. The
notice also indicates that the confirmed successor in interest must
return the acknowledgment to receive certain servicing notices under
the Mortgage Servicing Rules. For the reasons stated in part V.A. and
in this discussion, the final rule includes new Sec. 1026.41(g), which
provides that, if, upon confirmation, a servicer provides a confirmed
successor in interest who is not liable on the mortgage loan obligation
with such a written notice and acknowledgment form, the servicer is not
required to provide to the confirmed successor in interest any written
disclosure required by Sec. 1026.41 unless and until the confirmed
successor in interest either assumes the mortgage loan obligation under
State law or has provided an executed acknowledgment in accordance with
Regulation X Sec. 1024.32(c)(1)(iv) that the confirmed successor in
interest has not revoked.
The final rule does not mandate that servicers send the initial
written notice and acknowledgment form; instead Regulation X Sec.
1024.32(c)(1) gives servicers the option to do so and, if they choose
to do so, Sec. 1026.41(g) relieves them of the obligation to provide
periodic statements until the confirmed successor in interest
affirmatively indicates a desire to receive them by returning the
acknowledgment or assumes the mortgage loan obligation under State law.
Similar provisions in Sec. Sec. 1024.32(c)(2), 1026.20(g), and
1026.39(f) address the disclosures required by, respectively, the
Mortgage Servicing Rules in Regulation X and Sec. Sec. 1026.20(c),
(d), and (e), and 1026.39. As noted in part V.A., the Bureau has
decided to excuse servicers that have not received an acknowledgment
back from a confirmed successor in interest from the requirement to
send periodic statements and other Mortgage Servicing Rule notices
because doing so relieves servicers of the costs associated with
sending notices to confirmed successors in interest who are not liable
on the mortgage loan obligation and do not want them. However, if a
confirmed successor in interest assumes a mortgage loan obligation
under State law, the information in the initial notice and
acknowledgment form is no longer applicable, and Sec. 1026.41(g)
accordingly does not suspend the servicer's obligation to provide
periodic statements.
Appendix H to Part 1026--Closed-End Model Forms and Clauses
Appendix H-4(C) to Part 1026
The 2013 TILA Servicing Final Rule revised the commentary to Sec.
1026.19(b) to reflect the revised Sec. 1026.20(c) and revised Sec.
1026.20(d) ARM notices. The proposal would have modified the Variable-
Rate Model Clauses in appendix H-4(C) to reflect the language in the
revised commentary. The Bureau is adopting these modifications as
proposed. No change to the table of contents of appendix H is
necessary.
Appendix H-14 to Part 1026
The 2013 TILA Servicing Final Rule changed the commentary to Sec.
1026.19(b) to reflect the revised Sec. 1026.20(c) and revised Sec.
1026.20(d) ARM notices. This proposal would have modified the Variable-
Rate Mortgage Sample form in appendix H-14 to reflect the language in
the revised commentary. The Bureau is adopting these modifications as
proposed. No change to the table of contents of appendix H is
necessary.
Appendix H-30(C) to Part 1026
This proposal would have made a minor technical revision to the
entry for H-30(C) in the table of contents at the beginning of this
appendix and republishes sample form H-30(C). The technical change
amends ``Sample Form of Periodic Statement for a Payment-Options Loan
(Sec. 1026.41)'' to ``Sample Form of Periodic Statement for a Payment-
Option Loan (Sec. 1026.41).'' The Bureau is adopting this technical
change as proposed.
Appendices H-30(E) and H-30(F) to Part 1026
This final rule provides sample forms for periodic statements for
certain consumers in bankruptcy in proposed appendices H-30(E) and H-
30(F) and makes corresponding additions to the table of contents for
appendix H. Section 1026.41(c) specifies that sample forms for periodic
statements are provided in appendix H-30 and that proper use of these
forms complies with
[[Page 72349]]
the form and layout requirements of Sec. 1026.41(c) and (d). The
Bureau believes that sample forms are appropriate to provide servicers
with guidance for complying with the requirements of Sec. 1026.41(c)
and (d) as modified by proposed Sec. 1026.41(f). The Bureau therefore
exercises its authority under, among other things, section 128(f) of
TILA to provide sample forms for Sec. 1026.41(c) and (d), as modified
by Sec. 1026.41(f). Appendix H-30(E) provides a sample form for
complying with the requirements of Sec. 1026.41(f) with respect to a
consumer in a chapter 7 or chapter 11 bankruptcy case or a consumer who
has discharged personal liability for a mortgage loan. Appendix H-30(F)
provides a sample form for complying with the requirements of Sec.
1026.41(f) with respect to a consumer in a chapter 12 or chapter 13
bankruptcy case. They would not be required forms, however, and any
arrangements of the information that meet the requirements of Sec.
1026.41 would be considered in compliance with the section.
VI. Effective Date
The Bureau proposed an effective date of 280 days (approximately
nine months) after publication of a final rule for all of the final
rule provisions except the changes to Sec. 1026.41(e)(5) and (f)
(bankruptcy periodic statement exemption and modified statements), for
which the Bureau proposed an effective date of one year after
publication. As discussed further below, the Bureau is adopting an
effective date of one year after publication for most provisions, with
an extended effective date of 18 months after publication for the
provisions relating to bankruptcy periodic statements and to successors
in interest.
The Bureau received over a dozen comments on the effective date,
all of which were from industry commenters, including both servicers
and industry trade associations. Nearly all of the commenters
recommended extensions of the proposed effective dates, generally to
one year, 18 months, or two years. Several commenters suggested one
effective date for all provisions, while others suggested that having
two different effective dates was appropriate and requested more time
to implement those provisions regarding bankruptcy periodic statements,
successors in interest, and early intervention notices. Industry trade
association commenters requested an explicit safe harbor for servicers
that come into compliance before the effective date.
Approximately half of commenters discussing the effective date
indicated that an implementation period of 12 months or less would be
sufficient for the provisions other than those regarding bankruptcy and
successors in interest, while approximately half requested more time to
implement the provisions other than those regarding bankruptcy and
successors in interest. Approximately half of commenters discussing the
effective date indicated that an implementation period of 18 months
would be sufficient for the provisions regarding bankruptcy and
successors in interest, while approximately half requested more time to
implement those provisions. One commenter indicated that consumer-
focused enhancements to the rule, including the provisions addressing
successors in interest, loss mitigation, transfers, and bankruptcy
should be implemented promptly but cautioned that these areas involve
significant operational complexity and will require significant time to
implement properly. Similarly, in explaining their recommended
extensions to the proposed effective dates, several commenters focused
on the need for sufficient time to update operating systems and
software; coordinate with third party service providers and, if
applicable, bankruptcy trustees; train staff; and test customer support
and technology to comply with the final rule.
Regarding bankruptcy periodic statement requirements specifically,
several industry commenters requested that the Bureau allow servicers a
sufficiently long period to implement the changes necessary to comply.
Multiple trade associations recommended 18 months. A systems vendor
commenter and a credit union commenter each recommended 24 months.
Another credit union commenter estimated it would take approximately
four to six months for vendors to develop the statements, three months
to test the statements, and two months to train employees and inform
consumers about the statements, for a total of nine to 11 months.
Industry trade association commenters noted that this rulemaking is
not subject to a statutory deadline. They stated that the prior
rulemakings under title XIV of the Dodd-Frank Act did not provide
sufficient implementation time and so urged the Bureau to extend the
effective dates. Several commenters pointed out that the industry is
still implementing other Bureau rules, including the 2013 Integrated
Mortgage Disclosures under the Real Estate Settlement Procedures Act
and the Truth in Lending Act and the 2015 Home Mortgage Disclosure Act
rulemaking. Commenters also indicated that they might have to implement
other upcoming anticipated rules.
For the reasons discussed in detail below, the Bureau is adopting
an effective date of one year after publication for all provisions,
except for an effective date of 18 months after publication for the
bankruptcy periodic statement exemption and modified statements (Sec.
1026.41(e)(5) and (f)) and for the following regulation text and
commentary provisions specifically addressing successors in interest:
In Regulation X, Sec. 1024.30(d) and related comments 30(d)-1 through
-3; the definitions of successor in interest and confirmed successor in
interest in Sec. 1024.31 and related comments 31 (Successor in
interest)-1 and -2; Sec. 1024.32(c) and related comments 32(c)(1)-1,
32(c)(2)-1 and -2, and 32(c)(4)-1; Sec. 1024.35(e)(5); Sec.
1024.36(d)(3) and (i) and related comments 36(i)-1 through -3; Sec.
1024.38(b)(1)(vi) and related comments 38(b)(1)(vi)-1 through -5;
comment 41(b)-1; comment appendix MS to part 1024-2; and in Regulation
Z, Sec. 1026.2(a)(11) and (27) and related comments 2(a)(11)-4 and
2(a)(27)(i)-1 and -2; comment 20(e)(4)-3; Sec. 1026.20(f); comment
36(c)(1)(iii)-2; Sec. 1026.39(f); comment 41(c)-5; and Sec.
1026.41(g). The Bureau considered the comments, including the potential
issues that could arise as a result of an inadequate implementation
period and industry's focus on other recent mortgage rulemakings, and
believes that these effective dates achieve the right balance between
affording industry sufficient time for implementation and promptly
affording consumers the benefits of the final rule.
The Bureau recognizes that the final rule provisions regarding
bankruptcy periodic statements and successors in interest may take more
time to implement than the other final rule provisions. Specifically,
servicers and third-party service providers need sufficient time to
coordinate, develop, and test systems required to modify periodic
statements for consumers in bankruptcy. They also need sufficient time
to train employees regarding the bankruptcy periodic statement
requirements. In addition, although the successor in interest
provisions generally should not require the same levels of operating
systems changes as the bankruptcy periodic statement requirements, the
Bureau acknowledges that these proposed provisions generated more
comments than any other aspect of the proposal. Many servicers may need
to institute new systems to track potential and confirmed successors in
interest who
[[Page 72350]]
are not obligated on the loan, particularly as to those successors in
interest who are not already covered under the policies and procedures
requirement in existing Sec. 1024.38(b)(1)(vi). Servicers also need
sufficient time to develop policies and procedures relating to the
types of documents that they will accept to confirm successor in
interest status for common factual scenarios that could arise under the
final rule's broader definition of successor in interest. The Bureau
also recognizes that servicers may wish to work with third-party
service providers to ensure compliance with the successor in interest
provisions. Thus, the Bureau believes that an implementation period of
18 months is reasonable for the changes to the bankruptcy periodic
statement exemption and modified statements and to the provisions
specifically addressing successors in interest.
After further consideration, the Bureau also believes it is
unlikely that servicers could implement within the proposed 280 days
(approximately nine months) all of the remaining provisions of the
final rule, including the early intervention notice requirements for
which commenters specifically requested an extension of time for
compliance. The Bureau recognizes that, in particular, the new notices
required under the final rule will require some systems changes while
servicers are, at the same time, implementing most of the other changes
in the final rule. Thus, the Bureau believes that a one-year
implementation period is reasonable for all of the provisions of the
final rule other than the bankruptcy periodic statements and successor
in interest provisions identified above.
The Bureau considered whether to offer servicers a safe harbor for
early compliance, as requested by some commenters. Specifically, the
Bureau considered whether to adopt an early effective date (i.e., at or
shortly after the time of publication in the Federal Register) and
permit optional compliance with some or all of the final rule
provisions for a specific period of time (e.g., one year or 18 months,
depending on the provision) after that effective date, at which time
compliance would be mandatory. For the reasons discussed below, the
Bureau is choosing not to set an early effective date with optional
early compliance.
The Bureau does not believe that it is appropriate to permit
servicers to choose optional early compliance for only some provisions
of the final rule without requiring early compliance with other
provisions. The provisions of the existing rule are closely intertwined
with each other and with the final rule; early compliance with only
some provisions of the final rule risks interfering with the
connections among the different parts of the rule. Nor does the Bureau
believe that servicers would choose or be able to comply with all
aspects of the final rule prior to the mandatory compliance dates, in
part because, as noted above, some provisions will require systems
changes. Thus, the Bureau believes that any optional early compliance
would require the Bureau to specify those provisions of the final rule
with which a servicer must also comply if it chooses to comply early
with other provisions of the final rule. This task would be
speculative, given that the Bureau did not receive any comments on
which portions of the proposal would be feasible for an early optional
compliance period. In addition, offering an early optional compliance
period could result in confusion about when, during that period,
servicers must comply with either the current rule provisions or the
final rule provisions.
In addition, the Bureau is concerned about causing considerable
uncertainty for servicers, consumers, and regulators by adopting an
early effective date and permitting optional compliance with some or
all of the final rule provisions for a specific period of time after
that date. Even if some servicers were to choose to comply with all
aspects of the final rule prior to the mandatory compliance dates, it
would result in broader compliance challenges and potential unnecessary
litigation. Consumers may have difficulty understanding whether their
servicers are complying with specific provisions at any given time.
Regulators and the judiciary would have to spend additional time and
resources to determine which servicers are complying with the final
rule provisions at which times, and the lack of certainty could
potentially lead to inconsistent interpretations, treatment of
different servicers, and application of borrower protections.
The Bureau recognizes, however, that there are several instances
where the final rule adopts new commentary to the current regulation
that clarifies, reinforces, or does not conflict with the existing rule
and commentary. Servicers may already be operating in a manner that is
consistent with both these new commentary provisions and the existing
regulation text and commentary. In those instances, servicers that
continue to rely on the existing regulation and commentary prior to the
effective dates do not violate the existing rules, even though the new
commentary provisions are not yet effective during that period.
Similarly, the Bureau is aware, as noted in several parts of the
section-by-section analysis above, that servicers may already be
engaged in several consumer-friendly practices that are not
specifically required under the current rule and thus do not violate
the current rule. Some of these practices not only may be required
under the final rule as of the effective dates but also will be subject
to specific requirements as of those dates. For example, some servicers
currently are providing periodic statements to consumers in bankruptcy
or providing notices of complete applications to consumers. Those
statements or notices may not meet all of the specific requirements
under the final rule but are nonetheless beneficial to borrowers. As
another example, some servicers currently reevaluate borrowers for loss
mitigation options in certain circumstances (such as a new hardship)
under the requirements of Sec. 1024.41, even if they are not required
to do so for a borrower's subsequent complete loss mitigation
application under the current rule, as provided in Sec. 1024.41(i).
Those reevaluations are not a violation of the current rule and may
benefit borrowers in those circumstances. The Bureau recognizes that
some servicers may be engaging in several other such practices, in
addition to the above examples, that are not mandated by the current
rule. Where such practices that will be mandated by the final rule are
in compliance with the current rule or are not in violation of the
current rule, servicers may continue those practices in compliance with
the existing rule without necessarily adopting all of the specific
requirements of the final rule before their effective dates.
For the reasons discussed above, the Bureau believes that these
effective dates, which provide extended implementation periods of one
year and 18 months, are appropriate and will provide industry with
sufficient time to revise and update policies and procedures;
coordinate with third-party service providers to implement and test
systems changes; and train staff. In addition, to assist industry with
efficient and effective implementation of the rule, the Bureau intends
to provide implementation material in advance of the effective dates in
the form of revisions to the Bureau's small entity compliance guide to
the mortgage servicing rules and other aids.
[[Page 72351]]
VII. Dodd-Frank Act Section 1022(b)
A. Overview
In developing the final rule, the Bureau has considered the final
rule's potential benefits, costs, and impacts.\410\ The proposal set
forth a preliminary analysis of these effects, and the Bureau requested
comment on this topic. In addition, the Bureau has consulted, or
offered to consult with, the prudential regulators, the Securities and
Exchange Commission, HUD, the HUD Office of Inspector General, the
Federal Housing Finance Agency, the Federal Trade Commission, the
Department of the Treasury, the Department of Agriculture, and the
Department of Veterans Affairs, including regarding consistency with
any prudential, market, or systemic objectives administered by such
agencies.
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\410\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
requires the Bureau to consider the potential benefits and costs of
the regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products and services; the impact of the rule on insured depository
institutions and insured credit unions with less than $10 billion in
total assets as described in section 1026 of the Dodd-Frank Act; and
the impact on consumers in rural areas.
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The final rule covers nine major topics, summarized below,
generally in the order they appear in the final rule. More details can
be found in the section-by-section analysis above.
1. Successors in interest. The Bureau is finalizing three sets of
rule changes relating to successors in interest. First, the Bureau is
adopting definitions of successor in interest for purposes of
Regulation X's subpart C and Regulation Z that are modeled on the
categories of transfers protected under section 341(d) of the Garn-St
Germain Act. Second, the Bureau is finalizing rules relating to how a
mortgage servicer confirms a successor in interest's identity and
ownership interest.\411\ Third, the Bureau is applying the Regulation X
and Z mortgage servicing rules to successors in interest once a
servicer confirms the successor in interest's status.
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\411\ This final rule uses the term ``successor in interest's
status'' to refer to the successor in interest's identity and
ownership interest in the property.
---------------------------------------------------------------------------
2. Definition of delinquency. The Bureau is finalizing a general
definition of delinquency that applies to all of the servicing
provisions of Regulation X and the provisions regarding periodic
statements for mortgage loans in Regulation Z. Delinquency means a
period of time during which a borrower and a borrower's mortgage loan
obligation are delinquent. A borrower and a borrower's mortgage loan
obligation are delinquent beginning on the date a periodic payment
sufficient to cover principal, interest, and, if applicable, escrow,
becomes due and unpaid, until such time as no periodic payment is due
and unpaid.
3. Requests for information. The Bureau is finalizing amendments
that change how a servicer must respond to requests for information
asking for ownership information for loans in trust for which the
Federal National Mortgage Association (Fannie Mae) or Federal Home Loan
Mortgage Corporation (Freddie Mac) is the owner of the loan or the
trustee of the securitization trust in which the loan is held.
4. Force-placed insurance. The Bureau is finalizing amendments to
the force-placed insurance disclosures and model forms to account for
when a servicer wishes to force-place insurance when the borrower has
insufficient, rather than expiring or expired, hazard insurance
coverage on the property. Additionally, servicers now will have the
option to include a borrower's mortgage loan account number on the
notices required under Sec. 1024.37. The Bureau also is finalizing
several technical edits to correct discrepancies between the model
forms and the text of Sec. 1024.37.
5. Early intervention. The Bureau is clarifying the early
intervention live contact obligations for servicers to establish or
make good faith efforts to establish live contact so long as the
borrower remains delinquent. The Bureau is also clarifying requirements
regarding the frequency of the written early intervention notices,
including when there is a servicing transfer. In addition, regarding
certain borrowers who are in bankruptcy or who have invoked their cease
communication rights under the FDCPA, the Bureau is finalizing
exemptions for servicers from complying with the live contact
obligations but requiring servicers to provide written early
intervention notices under certain circumstances.
6. Loss mitigation. The Bureau is finalizing several amendments
relating to the loss mitigation requirements. The final rule: (1)
Requires servicers to meet the loss mitigation requirements more than
once in the life of a loan for borrowers who become current on payments
at any time between the borrower's prior complete loss mitigation
application and a subsequent loss mitigation application; (2) Modifies
an existing exception to the 120-day prohibition on foreclosure filing
to allow a servicer to join the foreclosure action of a superior or
subordinate lienholder; (3) Clarifies how servicers select the
reasonable date by which a borrower should return documents and
information to complete an application; (4) Clarifies that, if the
servicer has already made the first notice or filing, and a borrower
timely submits a complete loss mitigation application: (i) The servicer
must not move for foreclosure judgment or order of sale, or conduct a
foreclosure sale, even where the sale proceedings are conducted by a
third party, unless one of the specified circumstances is met (i.e.,
the borrower's loss mitigation application is properly denied,
withdrawn, or the borrower fails to perform on a loss mitigation
agreement); (ii) That absent one of the specified circumstances,
conduct of the sale violates the rule; (iii) That the servicer must
instruct foreclosure counsel promptly not to make any further
dispositive motion, to avoid a ruling or order on a pending dispositive
motion, or to prevent conduct of a foreclosure sale, unless one of the
specified circumstances is met; and (iv) That the servicer is not
relieved from its obligations by counsel's actions or inactions; (5)
Requires that servicers provide a written notice to a borrower within
five days (excluding Saturdays, Sundays, or legal holidays) after they
receive a complete loss mitigation application and requires that the
notice: (i) Indicate that the servicer has received a complete
application; (ii) provide the date of completion, a statement that the
servicer expects to complete its evaluation within 30 days from the
date it received the complete application, and an explanation that the
borrower is entitled to certain specific foreclosure protections and
may be entitled to additional protections under State or Federal law;
(iii) Clarify that the servicer might need additional information
later, in which case the evaluation could take longer and the
foreclosure protections could end if the servicer does not receive the
information as requested.; (6) Sets forth how servicers must attempt to
obtain information not in the borrower's control and evaluate a loss
mitigation application while waiting for third party information;
requires servicers to exercise reasonable diligence to obtain the
information and prohibits servicers from denying borrowers solely
because a servicer lacks required information not in the borrower's
control, except under certain circumstances; requires servicers in this
circumstance to complete all possible steps in the evaluation process
within the 30 days, notwithstanding the lack of the required third-
party information; requires that servicers promptly provide a written
notice to the borrower if the servicer lacks required third party
information 30 days after receiving the
[[Page 72352]]
borrower's complete application and cannot evaluate the application in
accordance with applicable requirements established by the owner or
assignee of the mortgage loan; and requires servicers to notify
borrowers of their determination on the application in writing promptly
upon receipt of the third party information it lacked; (7) Permits
servicers to offer a short-term repayment plan based upon an evaluation
of an incomplete loss mitigation application; (8) Clarifies that
servicers may stop collecting documents and information from a borrower
for a particular loss mitigation option after receiving information
confirming that, pursuant to any requirements established by the owner
or assignee, the borrower is ineligible for that option; and clarifies
that servicers may not stop collecting documents and information for
any loss mitigation option based solely upon the borrower's stated
preference but may stop collecting documents and information for any
loss mitigation option based on the borrower's stated preference in
conjunction with other information, as prescribed by requirements
established by the owner or assignee of the mortgage loan; and (9)
Addresses and clarifies how loss mitigation procedures and timelines
apply when a transferee servicer receives a mortgage loan for which
there is a loss mitigation application pending at the time of a
servicing transfer.
7. Prompt payment crediting. The Bureau is clarifying how servicers
must treat periodic payments made by consumers who are performing under
either temporary loss mitigation programs or permanent loan
modifications. Periodic payments made pursuant to temporary loss
mitigation programs must continue to be credited according to the loan
contract and could, if appropriate, be credited as partial payments,
while periodic payments made pursuant to a permanent loan modification
must be credited under the terms of the permanent loan agreement.
8. Periodic statements. The Bureau is finalizing several
requirements relating to periodic statements. The final rule: (1)
Clarifies certain periodic statement disclosure requirements relating
to mortgage loans that have been accelerated, are in temporary loss
mitigation programs, or have been permanently modified, to conform
generally the disclosure of the amount due with the Bureau's
understanding of the legal obligation in each of those circumstances,
including that the amount due may only be accurate for a specified
period of time when a mortgage loan has been accelerated; (2) Requires
servicers to send modified periodic statements (or coupon books, where
servicers are otherwise permitted to send coupon books instead of
periodic statements) to consumers who have filed for bankruptcy,
subject to certain exceptions, with content varying depending on
whether the consumer is a debtor in a chapter 7 or 11 bankruptcy case,
or a chapter 12 or 13 bankruptcy case; and includes proposed sample
periodic statement forms that servicers may use for consumers in
bankruptcy to ensure compliance with Sec. 1026.41; and (3) Exempts
servicers from the periodic statement requirement for charged-off
mortgage loans if the servicer will not charge any additional fees or
interest on the account and provides a periodic statement including
additional disclosures related to the effects of charge-off.
9. Small servicer. The Bureau is finalizing certain changes to the
small servicer determination. The small servicer exemption generally
applies to servicers who service 5,000 or fewer mortgage loans for all
of which the servicer is the creditor or assignee. The final rule
excludes certain seller-financed transactions and mortgage loans
voluntarily serviced for a non-affiliate, even if the non-affiliate is
not a creditor or assignee, from being counted toward the 5,000 loan
limit, allowing servicers that would otherwise qualify for small
servicer status to retain their exemption while servicing those
transactions.
In addition to the changes discussed above, the final rule also
makes technical corrections and minor clarifications to wording
throughout several provisions of Regulations X and Z that generally are
not substantive in nature.
B. Provisions To Be Analyzed
The analysis below considers the potential benefits, costs, and
impacts to consumers and covered persons of the following key
provisions of the final rule:
1. Requirements related to successors in interest.
2. A new definition of ``delinquency'' for purposes of Regulation
X's mortgage servicing rules.
3. Early intervention written notice requirements for certain
consumers.
4. Changes to loss mitigation procedures, including:
Requiring a notice of complete application for loss
mitigation applications;
Requirements applicable when determination of what loss
mitigation options to offer a borrower is delayed because information
outside the borrower's control is missing;
Clarifications to the dual tracking protections in Sec.
1024.41(g);
Requiring review of multiple loss mitigation applications
from the same borrower in some circumstances;
Clarification of how loss mitigation timelines apply in
the case of servicing transfers; and
Permitting evaluation for short-term repayment plans based
on incomplete applications.
5. Periodic statement requirements applicable to consumers in
bankruptcy.
6. An exemption from the servicing rule's periodic statement
requirement for mortgage loans that have been charged off.
7. Revisions to the small servicer determination.
In addition to the changes listed above, the final rule modifies or
clarifies other provisions of the 2013 Mortgage Servicing Final Rules.
These other changes include: Commentary relaxing certain information
provision requirements under Sec. 1024.36(a) when a borrower requests
information about the owner of a loan and Fannie Mae or Freddie Mac is
the owner of the loan or the trustee of the securitization trust in
which the loan is held; an amendment to the force-placed insurance
notice described in Sec. 1024.37(c) through (e) to require the notice
to state that coverage is insufficient (rather than expiring or
expired), when applicable, and to allow inclusion of the account number
on the notice; a policies and procedures requirement under Sec.
1024.38(b)(2)(vi) regarding identifying and obtaining documents not in
the borrower's control that a servicer requires to determine what loss
mitigation options, if any, to offer a borrower; commentary regarding a
servicer's flexibility in collecting documents and information to
complete a loss mitigation application under Sec. 1024.41(b)(1);
commentary under Sec. 1024.41(b)(2)(i) to clarify how a servicer must
treat a loss mitigation application it receives when no foreclosure
sale has been scheduled; commentary relevant to the reasonable date for
return of documents under Sec. 1024.41(b)(2)(ii); amendments to Sec.
1024.41(c)(2)(iv) clarifying when a loss mitigation application is
considered facially complete; an exception to Sec. 1024.41(f)(1)'s
120-day pause for circumstances in which a servicer joins the
foreclosure action of a superior or subordinate lienholder; commentary
clarifying the effect of Sec. 1026.36(c)'s and Sec. 1026.41(d)'s
prompt crediting and periodic statement requirements with regard to
loan modifications and loans that have been accelerated; commentary
[[Page 72353]]
to clarify the information that must be included in a periodic
statement pursuant to Sec. 1026.41(d) following a period when the
servicer was exempt from sending periodic statements; removal of the
phrase ``creditor or assignee'' from the description of voluntarily
serviced loans that may be excluded in determining the small servicer
exemption under Sec. 1026.41(e)(4), and certain other minor changes.
The Bureau believes these modifications and clarifications will
generally benefit consumers and covered persons and impose minimal new
costs on consumers and covered persons.
C. Data Limitations and Quantification of Benefits, Costs and Impacts
Prior to publishing the proposal, the Bureau engaged in extensive
outreach on many of the issues addressed by the final rule, including
discussions with several servicers of different sizes, consultations
with other stakeholders, and convening a roundtable on the application
of the mortgage servicing rules in the case of bankrupt borrowers. The
Bureau received several comments related to the potential impacts of
the proposal on consumers and industry. However, as discussed further
below, the data with which to quantify the potential costs, benefits,
and impacts of the final rule are generally limited.
Quantifying the benefits of the final rule for consumers presents
particular challenges. As discussed further below, certain provisions
may directly save consumers time and money while others may benefit
consumers by, for example, facilitating household budgeting, supporting
the consumer's ability to obtain credit, and reducing default and
avoidable foreclosure. Many of these benefits are qualitative in
nature, while others are quantifiable but would require a wide range of
data that is not currently available to the Bureau.
In addition, the Bureau believes, based on industry outreach, that
many servicers already follow procedures that comply with at least some
provisions of the final rule. However, the Bureau does not have
representative data on the extent to which servicer operations
currently comply with the final rule. Consequently, the Bureau is
unable to quantify the benefits to consumers or the costs to servicers
of the final rule. Even with additional representative data, the Bureau
would need information on the cost of changing current servicer
practices in order to quantify the cost of closing any gaps between
current practices and those mandated by the final rule.
In light of these data limitations, the analysis below generally
provides a qualitative discussion of the benefits, costs, and impacts
of the final rule. General economic principles, together with the
limited data that are available, provide insight into these benefits,
costs, and impacts.
D. Small Servicer Exemption
Small servicers--generally, those that service 5,000 or fewer
mortgage loans, all of which the servicer or affiliates own or
originated--are exempt from many of the provisions of the 2013 Mortgage
Servicing Final Rules, including most of the provisions affected by the
final rule.\412\ Therefore, most of the discussion of potential
benefits and costs below generally does not apply to small servicers or
to consumers whose mortgage loans are serviced by small servicers. The
two exceptions are (1) the provisions related to successors in
interest, which create new, limited information request procedures for
potential successors in interest and extend the protections of the
Mortgage Servicing Rules, including certain provisions from which small
servicers are not exempt, to confirmed successors in interest, and (2)
the definition of delinquency in Sec. 1024.31, which may affect the
scope of the 2013 RESPA Servicing Final Rule's prohibition on
initiating foreclosure proceedings unless a borrower's mortgage loan
obligation is more than 120 days delinquent. For those provisions, the
discussion of potential benefits and costs does apply to loans serviced
by small servicers.
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\412\ Section 1026.41(e)(4)(ii) defines the term small servicer
as a servicer that either: (1) Services, together with any
affiliates, 5,000 or fewer mortgage loans, for all of which the
servicer (or an affiliate) is the creditor or assignee; (2) is a
Housing Finance Agency, as defined in 24 CFR 266.5; or (3) is a
nonprofit entity that services 5,000 or fewer mortgage loans,
including any mortgage loans serviced on behalf of associated
nonprofit entities, for all of which the servicer or an associated
nonprofit entity is the creditor.
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E. Potential Benefits and Costs to Consumers and Covered Persons
The Bureau believes that, compared to the baseline established by
the 2013 Mortgage Servicing Final Rules, many of the final rule
provisions benefit both consumers and covered persons by increasing the
clarity and precision of the servicing rules and thereby reducing
compliance costs. Other benefits and costs are considered below.
1. Successors in Interest
The final rule includes new requirements for mortgage servicers
with respect to successors in interest. For purposes of these
provisions, successors in interest generally include individuals who
receive an ownership interest in a property securing a mortgage loan in
certain types of transfers that are protected by the Garn-St Germain
Act, including, for example, certain transfers resulting from the death
of the borrower, transfers to the borrower's spouse or children, or
transfers resulting from divorce. As described in more detail below,
these provisions relate to how mortgage servicers confirm a successor
in interest's identity and ownership interest in the property and apply
the Mortgage Servicing Rules to confirmed successors in interest.
Section 1024.36(i) generally requires a servicer to respond to a
written request that indicates that the person making the request may
be a successor in interest by providing that person with a description
of the documents the servicer reasonably requires to confirm the
person's identity and ownership interest in the property. Section
1024.38(b)(1)(vi) requires servicers to maintain certain policies and
procedures with respect to successors in interest, which are generally
intended to facilitate the process of confirming a person's status as a
successor in interest and communicating with the person about the
status.
Section 1024.30(d) provides that a confirmed successor in interest
shall be considered a borrower for the purposes of the Mortgage
Servicing Rules in Regulation X. Similarly, Sec. 1026.2(a)(11)
provides that a confirmed successor in interest is a consumer with
respect to the Mortgage Servicing Rules in Regulation Z. Under the
final rule, the Mortgage Servicing Rules apply with respect to a
confirmed successor in interest regardless of whether that person has
assumed the mortgage loan obligation (i.e., legal liability for the
mortgage debt) under State law.
Potential benefits and costs to consumers. As described in more
detail below, the final rule will benefit successors in interest by
permitting them to protect and manage their interest in the property,
and to make key decisions about that property interest, without
unnecessary delays and associated costs.\413\
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\413\ The Dodd-Frank Act's broad definition of consumer includes
successors in interest since it means an individual or an agent,
trustee, or representative acting on behalf of an individual. 12
U.S.C. 5481(4).
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The Bureau understands, based on pre-proposal discussions with
certain large servicers, that only a small number of properties for
which they service mortgage loans are transferred to
[[Page 72354]]
successors in interest in any given year.\414\ The Bureau does not have
representative data on current servicer policies toward such successors
in interest. Because the Garn-St Germain Act prevents foreclosure
solely on the basis that a home was transferred to a successor in
interest, the Bureau expects that servicers currently are servicing
loans for successors in interest, regardless of whether such successors
in interest assume the mortgage loan. The Bureau does not have
representative information on the standards servicers use in servicing
loans for successors in interest; however, as discussed below, the
Bureau believes, based on information it has received through the
comment process and from consumers and other stakeholders prior to
issuing the proposal, that in many cases successors in interest would
benefit from additional protections.
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\414\ One large servicer indicated that in recent years the
number of successors in interest applying to assume a mortgage loan
each year represented less than 0.03 percent of the total loans it
services. However, this number does not include successors in
interest that did not apply to assume the loan but nonetheless might
have benefitted from the final rule (for example, because they would
have been able to obtain more information about the loan before
deciding whether to apply to assume the loan). Data from the
American Housing Survey indicate that, in 2011, 239,000 homeowners
(approximately 0.5 percent of those with a mortgage) had assumed the
mortgage loan on their home; however, these data do not indicate
whether the homeowner was a successor in interest as defined in the
final rule at the time the loan was assumed. Office of Policy Dev.
and Research, U.S. Dep't of Hous. & Urban Dev. & U.S. Census Bureau,
U.S. Dep't of Commerce, American Housing Survey for the United
States: 2011, at 79 (Sept. 2013), available at http://www.census.gov/content/dam/Census/programs-surveys/ahs/data/2011/h150-11.pdf.
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The final rule will help potential successors in interest confirm
their status as successors in interest by requiring generally that
servicers respond to written requests from potential successors in
interest with a description of the documents the servicer requires to
confirm the person's identity as a successor in interest, reducing the
time and effort required to establish their status in the eyes of the
servicer. In their comments, consumer advocacy groups and government
commenters confirmed what the Bureau had heard through prior reports
from consumers, consumer advocacy groups, and other stakeholders: That
successors in interest often have difficulty demonstrating their
identity and ownership interest in the property to servicers'
satisfaction and that some servicers currently require successors in
interest to submit documents that are unreasonable in light of the
particular situation of that successor in interest or in light of the
laws of the relevant jurisdiction. The Bureau has heard repeated
reports that some servicers have taken a long time to confirm the
successor in interest's status, even after receipt of appropriate
documentation. The Bureau has also heard reports that servicers may
fail to communicate to the successor in interest whether the servicer
has confirmed the successor in interest's status. Unnecessary delays
and other difficulties can harm successors in interest because
successors in interest who have not been confirmed by the servicer may
not be able to obtain information about the mortgage, and in some
instances servicers may be unwilling to accept payment from the
unconfirmed successor in interest. These problems may lead successors
in interest to incur unnecessary costs related to the mortgage or
deprive them of rights to which they would otherwise be entitled and
may even lead to unnecessary foreclosures.
The final rule will also benefit successors in interest after they
have been confirmed by the servicer by extending the protections of the
Mortgage Servicing Rules to confirmed successors in interest,
regardless of whether they assume the obligations of the mortgage loan
under State law. The benefits of the Mortgage Servicing Rules to
consumers generally are discussed in the 2013 RESPA Servicing Final
Rule and the 2013 TILA Servicing Final Rule, in which the Bureau noted
that the need for these rules arises in part from the fact that,
because borrowers generally do not choose their servicers, it is
difficult for consumers to protect themselves from shoddy service or
harmful practices.\415\ This reasoning is particularly applicable to
successors in interest because they may not be parties to the mortgage
loan. In addition, successors in interest may find that they have a
particular need for access to information about the mortgage loan
secured by the property that they now own. Access to this information
may help them avoid unwarranted or unnecessary costs and fees on the
mortgage loan and prevent unnecessary foreclosure.
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\415\ See 78 FR 10695, 10842-61 (Feb. 14, 2013); 78 FR 10901,
10978-94 (Feb. 14, 2013).
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Furthermore, confirmed successors in interest obtaining an
ownership interest in a home that is their principal residence may
benefit in particular from Regulation X's rules relating to loss
mitigation procedures, particularly when deciding whether to assume the
obligations of the mortgage loan. Successors in interest may often
experience a disruption in household income due to death or divorce and
therefore may be more likely than other homeowners to need loss
mitigation to avoid foreclosure. If the servicer does not evaluate the
successor in interest promptly for loss mitigation options, or if the
servicer requires the successor in interest to assume the mortgage
obligation before it will evaluate the successor in interest for loss
mitigation options, the successor in interest will be required to
decide whether to assume the mortgage obligation without knowing what
loss mitigation options will be available. As noted by some government
and consumer advocacy group commenters, the final rule helps confirmed
successors in interest to assess whether they will be able to afford to
keep the home, permitting them to make a more fully informed decision
about whether to accept the mortgage obligation.
Potential benefits and costs to covered persons. The costs of
complying with the final rule's provisions related to successors in
interest depend on servicers' current policies and procedures. Because
the Garn-St Germain Act generally protects successors in interest from
enforcement of due-on-sale provisions after transfer of homeownership
to them, servicers are effectively required to continue servicing loans
following their transfer to successors in interest. Thus, the Bureau
believes that servicers likely already have some policies and
procedures in place for confirming a successor in interest's identity
and ownership interest in the property (and thereby determining whether
the Garn-St Germain Act is applicable) and for servicing a loan secured
by property that has been transferred to a successor in interest. The
final rule establishes certain standards for the performance of these
activities. To the extent to which some servicers are meeting these
standards already, the costs for these servicers will be reduced.
However, many servicers may need to significantly alter certain of
their policies and procedures to comply with the final rule's successor
in interest provisions.
The revisions to Sec. 1024.38(b)(1)(vi) and new Sec. 1024.36(i)
may require servicers to develop and implement new policies and
procedures for confirming a successor in interest's interest in a
property and communicating with potential successors in interest about
documents the servicer requires to confirm the person's status. Under
current Sec. 1024.38(b)(1)(vi), servicers must maintain policies and
procedures designed to identify and facilitate
[[Page 72355]]
communication promptly with the successor in interest of a deceased
borrower. As discussed above, the Bureau believes that, because the
Garn-St Germain Act generally protects successors in interest from
enforcement of due-on-sale provisions, servicers likely already have
some policies and procedures in place for confirming the identity and
ownership interest in the property of a successor in interest following
most transfers covered by the final rule. However, the Bureau does not
have data on the extent to which servicers' current policies and
procedures may comply with the final rule's successor in interest
provisions or the extent of the changes that will be required to bring
policies and procedures into compliance with these provisions. In
addition, servicers may not currently have policies in place for
establishing a successor in interest's status when the transferor of
the property retains an ownership interest following the transfer. Such
transfers may not change servicers' servicing approach at all under
current practice, whereas under the final rule servicers will be
required to treat confirmed successors in interest as borrowers for
purposes of the servicing rules.
Some industry commenters pointed out that legal determinations of
successorship are often complex and may involve competing claims or
borrower confusion about their legal status. The Bureau acknowledges
that such determinations may be difficult, particularly when there is a
dispute regarding title to the property, and that laws relevant to
successorship vary across jurisdictions. However, servicers must
already make such determinations to assess whether the Garn-St Germain
Act applies and, more generally, because, in order to protect the
investor's security interest in the property, servicers may need to
know who owns the property securing the loan they are servicing. Thus,
while servicers will bear costs of establishing and carrying out
procedures to establish a successor in interest's status under the
final rule, the Bureau expects that in most cases servicers will be
revising or formalizing existing processes for establishing ownership
of the property following a transfer.
In addition, some industry commenters said that the proposed rule's
provisions could increase the risk of fraud losses. One commenter noted
that the Bureau's discussion of benefits and costs in the preamble to
the proposed rule did not discuss the possibility of increased servicer
fraud losses. However, the Bureau does not expect that the final rule
will lead to a significant increase in fraud losses to servicers.
Servicers can comply with the final rule while taking steps designed to
prevent fraudulent claims prior to confirming a successor in interest's
status.\416\ Furthermore, because fraudulently establishing oneself as
a confirmed successor in the eyes of the servicer would not affect
title to the property, it is not clear what direct benefit this would
offer to a fraudster or what direct fraud losses it would cause for the
servicer.
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\416\ For example, comment 38(b)(1)(vi)-2 to Regulation X
indicates that the documents that a servicer requires to confirm a
potential successor in interest's identity and ownership interest in
the property may include documents the servicer reasonably believes
are necessary to prevent fraud or other criminal activity (such as
if a servicer has reason to believe that the documents presented are
forged).
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Sections 1024.30(d) and 1026.2(a)(11), which extend the protections
of the Mortgage Servicing Rules to confirmed successors in interest,
generally require servicers to continue to apply existing policies and
procedures to a set of loans that were subject to the Mortgage
Servicing Rules prior to an ownership interest in the property being
transferred to the successor in interest. As discussed above, the
Bureau expects that such loans make up a small fraction of the total
loans serviced by any particular servicer. For these reasons, the
Bureau expects that the cost to servicers of complying with most
existing Mortgage Servicing Rules with respect to confirmed successors
in interest generally will be small.
Servicers may need to develop new policies and procedures to
address certain circumstances specific to successors in interest. For
example, servicers will need to decide whether to send the notice and
acknowledgment form permitted by Sec. 1024.32(c)(1) through (3) before
sending Mortgage Servicing Rule notices to a confirmed successor or may
need to develop new policies and procedures for cases in which,
following the transfer, the transferor retains an interest in the
property or there are multiple borrowers. Servicers currently must
address such situations in some manner, but given the final rule's
requirement to comply with the Mortgage Servicing Rules with respect to
successors in interest, servicers will likely need to reconsider
policies and procedures to ensure they are in compliance.
The Bureau acknowledges that, due to the unique circumstances of a
confirmed successor in interest who has recently obtained an interest
in the property, there may be additional costs associated with
complying with the Mortgage Servicing Rules with respect to confirmed
successors in interest. For example, confirmed successors in interest
may have experienced a disruption in household income due to death or
divorce and therefore may be more likely to seek loss mitigation to
avoid foreclosure, possibly delaying the foreclosure process. Confirmed
successors in interest may also be more likely to seek information
regarding the loan that is secured by the property in which they now
hold an interest. Compensation structures in servicing, which tend to
make mortgage servicing a high-volume, low-margin business, may mean
that servicers are not compensated for the time required to address the
circumstances of some successors in interest even when doing so might
minimize the aggregate costs to servicers and investors.\417\
Nonetheless, because the Bureau believes that the number of successors
in interest serviced at any given time is small and that many servicers
are already performing servicing tasks with respect to successors in
interest, the Bureau expects that servicers would not incur significant
additional costs as a result of the final rule's successor in interest
provisions.
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\417\ See 78 FR 10695, 10843-44 (Feb. 14, 2013).
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One industry commenter noted that, in discussing the costs and
benefits of the proposed successor in interest provisions in the
preamble to the proposed rule, the Bureau did not discuss the costs to
servicers of becoming equipped to originate mortgage loans. However,
the final rule does not require servicers to originate mortgage loans.
2. Definition of ``Delinquency''
The final rule adds a general definition of delinquency in Sec.
1024.31 that applies to all sections of subpart C of Regulation X,
replacing the existing definition of delinquency for purposes of
Sec. Sec. 1024.39 and 1024.40(a). Delinquency is defined as a period
of time during which a borrower and a borrower's mortgage loan
obligation are delinquent, and 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. Comment 31 (Delinquency)-2 clarifies that, if a servicer
applies payments to the oldest outstanding periodic payment, a payment
by a delinquent borrower advances the date the borrower's delinquency
began. The Bureau
[[Page 72356]]
understands from its pre-proposal outreach and from commenters that the
majority of servicers credit payments made to a delinquent account to
the oldest outstanding periodic payment. Some servicers that use this
method have expressed concern about how to calculate the length of a
borrower's delinquency without increased certainty from the
Bureau.\418\
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\418\ See Am. Bankers Ass'n. Letter to Bureau of Consumer Fin.
Prot. (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Pages/default.aspx#2014.
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The Bureau believes that the final rule's definition will clarify
the application of the servicing rules without imposing significant new
burdens on servicers. The Bureau recognizes that, in principle, the
definition could affect the circumstances under which a servicer may
initiate foreclosure proceedings, because the definition of
``delinquency'' affects the application of Sec. 1024.41(f)(1)'s
prohibition on initiating foreclosure proceedings unless ``a borrower's
mortgage loan obligation is more than 120 days delinquent.'' In
particular, Comment 31 (Delinquency)-2 implies that a servicer that
otherwise applies payments to the oldest outstanding periodic payment
may not initiate foreclosure proceedings unless the borrower has missed
the equivalent of at least four monthly payments. Absent this
clarification, Sec. 1024.41(f)(1) could be interpreted to permit such
a servicer to commence foreclosure even if the borrower has missed only
one payment, so long as the payment was missed more than 120 days ago
and the borrower has not become current since. However, information
gathered in pre-proposal industry outreach indicates that servicers
generally would not treat borrowers who are behind by three or fewer
payments as seriously delinquent. More specifically, servicers
contacted by the Bureau during pre-proposal outreach, when asked about
policies for referring a loan for foreclosure, uniformly told the
Bureau that they generally would not initiate foreclosure in cases
where a borrower is making regular payments, even if such a borrower
has a long-standing delinquency of up to three months' payments. In
addition, Fannie Mae and Freddie Mac guidelines generally prevent
servicers from initiating foreclosure if a loan is delinquent by fewer
than four monthly payments. Therefore, the Bureau expects that the
final rule's definition will not impose meaningful new constraints on
servicers.
3. Early Intervention Written Notices
The final rule revises the scope of the exemptions from the early
intervention requirements in Sec. 1024.39(c) and (d) for two groups of
borrowers: Those who are debtors in bankruptcy and those who have
exercised their cease communication rights under the FDCPA regarding
their mortgage loans when a servicer is subject to the FDCPA with
respect to those loans. Servicers are currently exempt from each of
Sec. 1024.39's early intervention requirements with respect to these
two groups of borrowers. Under the final rule, servicers remain exempt
from the live contact requirement of Sec. 1024.39(a) with respect to
these borrowers. Servicers also remain exempt from the written notice
requirement with respect to these borrowers if no loss mitigation
option is available and if a borrower invokes the FDCPA's cease
communication protections while any borrower on the mortgage loan is a
debtor in bankruptcy. However, if these conditions are not met, the
final rule requires that a servicer provide these two groups of
borrowers with a modified version of the written early intervention
notice that is generally required by Sec. 1024.39(b). Notices sent to
such borrowers may not include a request for payment, and notices sent
to borrowers who have exercised their cease communication rights under
the FDCPA must include certain other modifications and may not be
provided more than once during any 180-day period.
Potential benefits and costs to consumers. As discussed in more
detail below, Sec. 1024.39(c) and (d) of the final rule may benefit
borrowers who are in bankruptcy or who have exercised their cease
communication rights under the FDCPA by providing them with information
about loss mitigation options that could enable them to remain in their
homes or avoid other costs associated with default on their mortgages.
The Bureau recognizes that many borrowers affected by this
provision will have already received early intervention communications
prior to filing for bankruptcy or invoking the FDCPA's cease
communication protections. Most homeowners who file for bankruptcy are
delinquent on their mortgage payments prior to filing for bankruptcy,
in which case their servicers frequently will have been required to
send early intervention communications prior to the filing.\419\
However, many borrowers filing for bankruptcy are not delinquent on
their mortgages at the time of filing, and so, under the IFR, do not
receive required communications about loss mitigation options if they
become delinquent while in bankruptcy. Even borrowers who do receive an
early intervention written notice prior to their bankruptcy filing may
benefit from information about available loss mitigation options after
filing for bankruptcy, given that the borrower's servicer may have
changed or new loss mitigation options may have otherwise become
available since the borrower initially became delinquent. Information
regarding loss mitigation may have unique value for borrowers in
bankruptcy as they make decisions about how best to eliminate or
reorganize their debts.
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\419\ One study found that, among homeowners that file for
bankruptcy, more than 60 percent of homeowners with prime mortgages
and more than 75 percent of homeowners with subprime mortgages were
delinquent on their mortgages prior to filing for bankruptcy. Wenli
Li & Michelle J. White, Mortgage Default, Foreclosure, and
Bankruptcy (Nat'l Bureau of Economic Research, Working Paper No.
15472, Nov. 2009), available at http://www.nber.org/papers/w15472.
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Borrowers have FDCPA protections only with respect to debt
collectors and a servicer generally is considered a debt collector for
purposes of the FDCPA only if the servicer acquires servicing rights to
a mortgage loan after the mortgage loan is in default. Therefore, at
the time a borrower first becomes delinquent on a mortgage loan, the
servicer is not covered by the FDCPA with respect to that mortgage
loan, and is thus generally obligated to provide written early
intervention communications no later than the 45th day of the
borrower's delinquency even if that borrower provides the servicer with
a cease communication notification. When servicing of a borrower's loan
is subsequently transferred while the loan is in default, the borrower
has FDCPA protections with respect to the transferee servicer and may
then properly invoke the FDCPA's cease communication protection. When
the initial early intervention communications came from a different
servicer that may have offered different loss mitigation options, such
borrowers may benefit from written information about loss mitigation
options available from the new servicer.
The final rule also may impose costs on some borrowers in both
groups who would prefer not to receive any servicer communications
regarding their mortgage loan. Both the Bankruptcy Code's automatic
stay and the FDCPA's cease communication provision are intended to
protect borrowers from being harassed by creditors while the borrowers
are attempting to work
[[Page 72357]]
through difficult financial circumstances. By requiring servicers to
send early intervention written notices to such borrowers, the final
rule may cause some borrowers to receive unwanted communications.
However, the Bureau notes that final Sec. 1024.39(c) and (d) limit the
content and frequency of such communications so as to reduce any
perceived harassment. Specifically, the modified written notice may not
contain a request for payment. Furthermore, the written notice is not
required to be provided more than once to borrowers in bankruptcy
during a single bankruptcy case and may not be provided more than once
during any 180-day period to borrowers who have invoked their FDCPA
cease communication rights.
Potential benefits and costs to covered persons. The requirement to
send notices to borrowers who are in bankruptcy or who have provided a
cease communication notification under the FDCPA will result in certain
compliance costs for non-exempt servicers. These servicers will incur
one-time costs from changing their systems to provide early
intervention notices to these groups of borrowers and will incur
ongoing costs from distributing these notices to an additional
population. The Bureau believes that most, if not all, servicers are
likely to service at least some mortgages for homeowners in bankruptcy.
Fewer servicers are likely to service mortgage loans for borrowers who
have FDCPA rights with respect to the mortgage loan, because these
rights are triggered only if the servicer acquired the servicing rights
at a time when the mortgage loan was already in default. Servicers that
do not have a practice of acquiring servicing rights from others, or a
practice of acquiring the servicing rights to loans that are in
default, are therefore not subject to the FDCPA and are not affected by
the final rule.
Servicers will bear one-time costs to develop early intervention
notices that comply with the modified requirements for borrowers in
bankruptcy or who have exercised FDCPA cease communication rights. The
Bureau expects that these one-time costs will be relatively small given
the limited nature of the modifications and the fact that the final
rule includes a model clause for the specific disclosures required for
borrowers who have exercised their FDCPA cease communication rights. In
addition, servicers will need to ensure that their procedures for
sending written early intervention notices are designed to identify
borrowers who must receive modified notices under the final rule.
However, servicers already must identify borrowers in bankruptcy and
borrowers that have exercised FDCPA cease communication rights in order
to comply with bankruptcy law and the FDCPA. Therefore, the Bureau
expects that servicers will need to make only minor changes to their
procedures to begin sending written early intervention notices to such
borrowers.
Servicers will also incur ongoing costs from the requirement to
distribute notices to these additional groups of borrowers. However,
the Bureau believes that the number of additional written early
intervention notices that are required by the final rule is relatively
small. With respect to borrowers in bankruptcy, FHFA data indicate
that, for homeowners with GSE loans, between 0.3 percent and 0.4
percent of borrowers were in bankruptcy during 2015.\420\ Based on
information from industry and other Federal agencies, the Bureau
believes that the percentage of homeowners with non-GSE loans in
bankruptcy may be higher but that the overall percentage of homeowners
with mortgage loans in bankruptcy is less than 1 percent. The Bureau
expects that the share of borrowers who have exercised the FDCPA cease
communication right is likewise relatively small, since the right is
available only to borrowers for whom the servicer acquired servicing
rights after the loan is in default.
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\420\ Fed. Housing Fin. Agency, Foreclosure Prevention Report,
at 6 (January 2016), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_January2016.pdf.
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4. Loss Mitigation Procedures
Notice of Complete Loss Mitigation Application
Section 1024.41(c)(3) requires a servicer to provide a borrower a
written notice within five days (excluding legal public holidays,
Saturdays, and Sundays) after receiving a borrower's complete loss
mitigation application, subject to certain limitations discussed below.
The notice informs the borrower that the application is complete; the
date the servicer received the complete application; and certain other
information regarding the borrower's rights under the servicing rules.
A notice is not required if the application was not complete or
facially complete more than 37 days before a scheduled foreclosure
sale; the servicer has already notified the borrower under Sec.
1024.41(b)(2)(i)(B) that the application is complete and the servicer
has not subsequently requested additional documents or information from
the borrower to complete the application; or the servicer has already
provided a notice approving or denying the application.
Potential benefits and costs to consumers. Section 1024.41(c)(3)
creates a new requirement to notify a borrower that a loss mitigation
application is complete in those cases where the application was not
complete when the servicer provided the notice acknowledging receipt of
an application under Sec. 1024.41(b)(2)(i)(B). Although this is a new
requirement, the Bureau understands, based on pre-proposal outreach and
comments it received, that many servicers nonetheless already notify
borrowers in writing once their applications are complete. However,
such notices may not include all the information borrowers need to
determine when the application was considered complete for purposes of
determining their protections under Regulation X's mortgage servicing
rules.
The new required notice is intended to benefit borrowers who apply
for loss mitigation by providing them with more information about their
application status and foreclosure protections, thereby allowing them
to better protect their interests. Borrowers who have not yet received
a notice will be able to infer that their applications are not yet
complete and, if necessary, to follow up with the servicer to determine
what remains missing. Once borrowers have received the notice, they
will know that the servicer is prohibited from completing the
foreclosure process until the application has been evaluated and will
be able to plan based on the expectation that a decision will be
reached within 30 days (unless the servicer determines that more
information is needed). The notice will also provide the borrower, the
servicer's compliance function, regulators, and courts with a written
record that can help them evaluate a servicer's compliance with Sec.
1024.41(c)(1)'s 30-day evaluation requirement and other requirements
that depend on the date the servicer received a complete application.
As noted above, several servicers informed the Bureau during pre-
proposal outreach efforts or in comments that they already provide a
notice informing the borrower that an application is complete. Some
commenters also said that they are already in close contact with
borrowers about the status of their loss mitigation applications. To
the extent that servicers are already providing a notice that includes
some of the information required by the notice or otherwise
communicating such information to borrowers, the incremental benefit to
[[Page 72358]]
borrowers of the provision may be reduced. Another industry commenter
expressed concern that the costs of providing these notices could limit
servicers' ability to make other changes that could benefit borrowers
or could increase the cost of servicing non-performing loans, thereby
reducing access to credit. The Bureau recognizes that additional costs
to servicers can create negative consequences for consumers but agrees
with other commenters that the notices will have significant benefits
for many borrowers.
Potential benefits and costs to covered persons. Servicers will
incur costs associated with changing their policies and procedures and
updating their systems to ensure that they are sending notices in
compliance with the final rule and, in addition, will incur
distribution costs associated with sending notices to borrowers.
However, the Bureau expects that these costs may be less than those
associated with some other disclosure requirements, for two reasons.
First, to comply with Sec. 1024.41, servicers must already determine
the time at which an application is complete and whether foreclosure
protections apply under Sec. 1024.41(f)(2) and (g); thus, servicers
will not be required to make any new determinations in order to comply
with the requirement. Second, based on pre-proposal industry outreach
and comments on the proposal, the Bureau understands that many
servicers are already sending a written notification informing
applicants that their applications are complete, so the costs of the
new requirement will be limited for these servicers.
In addition, the Bureau notes that certain provisions of the notice
requirement are intended to prevent servicers from incurring
unnecessary costs in connection with the requirement. The notice is not
required under certain circumstances in which a borrower would not
benefit from the notice, including when the servicer is able to notify
the borrower of the outcome of its evaluation before the notice is
sent.
Information Outside of the Borrower's Control
The final rule amends Sec. 1024.41(c)(1) and comment 41(b)(1)-4
and adds Sec. 1024.41(c)(4) to address a servicer's obligations with
respect to information not in the borrower's control that the servicer
requires to determine which loss mitigation options, if any, it will
offer the borrower. A servicer must exercise reasonable diligence in
obtaining such information. The final rule also prohibits a servicer
from denying a borrower's complete application due to a lack of
information not in the borrower's control except under certain
circumstances; requires that a servicer inform a borrower in writing if
the servicer is unable to complete its evaluation within 30 days of
receiving a complete application because it lacks information from a
party other than the borrower or the servicer; requires that a servicer
promptly provide the borrower written notice stating the servicer's
determination upon receipt of missing information from a party other
than the borrower or the servicer; and requires the servicer to provide
the determination notice under Sec. 1024.41(c)(1) promptly upon
receipt of the required third-party information.
Potential benefits and costs to consumers. Under the existing rule,
if a servicer receives a complete loss mitigation application more than
37 days before a foreclosure sale, the servicer must, within 30 days of
receipt, determine what loss mitigation options, if any, it will offer
a borrower, regardless of whether it has received required information
not in the borrower's control. The new provision will benefit borrowers
applying for loss mitigation in situations in which the servicer faces
delays in receiving necessary information from a party other than the
servicer or the borrower, such as homeowner association payoff
information or approval of the loan owner, investor, or mortgage
insurance company. It may also indirectly reduce the likelihood that
evaluations are delayed by encouraging investors and servicers to
consider more carefully what third-party documents are required as part
of a loss mitigation application. When evaluations are nonetheless
delayed beyond 30 days, the final rule will reduce the impact on the
borrower of such delays by requiring servicers to exercise reasonable
diligence in obtaining the information, limiting their ability to deny
the borrower's application solely on the basis of missing information
outside the borrower's control, and ensuring that the borrower is aware
of the application's status.
The Bureau understands from pre-proposal industry outreach that
servicers currently follow different practices in the event they have
not received required information that is outside the borrower's
control 30 days after receipt of a complete loss mitigation
application. Some servicers informed the Bureau that they exceed the
30-day evaluation timeframe in Sec. 1024.41(c)(1) and wait to receive
the information before making any decision on the application. One
servicer informed the Bureau that it sends a denial notice to borrowers
but also informs them that the servicer will reevaluate the application
upon receipt of the third-party information. As a result, borrowers may
be receiving conflicting messages from servicers about the status of
their applications, and, in some cases, borrowers' applications for
loss mitigation may be denied because the servicer has experienced a
delay in receiving required information that is not in the borrower's
control. The final rule requires servicers to give borrowers clearer
information about their application status.
Potential benefits and costs to covered persons. The final rule
will benefit servicers by clarifying servicer responsibilities when
non-borrower information has not been received within 30 days of
receiving a complete application from the borrower and preventing
servicers from risking non-compliance with the evaluation requirement
in order to provide a benefit to borrowers seeking loss mitigation
options. On the other hand, the changes require servicers to review and
perhaps change their policies applicable to gathering information from
parties other than the borrower and informing borrowers of their loss
mitigation decisions, which will impose one-time costs of revising
policies and systems. In addition, servicers will bear the one-time
costs of developing the new required notice and the ongoing cost of
providing consumers with the new notice required by the final rule. One
commenter estimated that, in addition to internal legal, business
process, and technology costs, the vendor costs associated with
programming the new notice would be $2,000.
The final rule provision also may impose costs on servicers because
the requirement not to make a determination unless the servicer has
obtained information outside of the borrower's control or has been
unable to obtain such documents or information for a significant period
of time while exercising reasonable diligence may delay the foreclosure
process for a servicer that would otherwise deny an application without
having received such information. The Bureau understands from pre-
proposal industry outreach that, in cases where investor approval has
not been delegated to the servicer, the missing non-borrower
information is frequently investor approval of the application. Because
investors bear costs when foreclosure proceedings are delayed,
investors have
[[Page 72359]]
incentives to weigh the cost of expediting their approval process
against the potential delay in a foreclosure proceeding.
Clarification of the 2013 RESPA Servicing Final Rule's Dual Tracking
Protections
The final rule includes revised commentary to Sec. 1024.41(g) that
clarifies servicers' obligations with respect to Sec. 1024.41(g)'s
prohibition against moving for foreclosure judgment or order of sale,
or conducting a sale, during evaluation of a complete loss mitigation
application received more than 37 days before a foreclosure sale.
Revised comment 41(g)-3 explains that the prohibitions against moving
for judgment or order of sale or conducting a sale may require a
servicer to act through foreclosure counsel; that upon receipt of a
complete application, the servicer must instruct counsel promptly to
take certain steps to avoid a violation of Sec. 1024.41(g); and that
the servicer is not relieved of its obligations because the foreclosure
counsel's actions or inactions caused a violation. Similarly, comment
38(b)(3)(iii)-1 clarifies that policies and procedures required under
Sec. 1024.38(b)(3)(iii) to facilitate sharing of information with
service provider personnel responsible for handling foreclosure
proceedings must be reasonably designed to ensure that servicer
personnel promptly inform service provider personnel handling
foreclosure proceedings that the servicer has received a complete loss
mitigation application. New comment 41(g)-5 explains that Sec.
1024.41(g) prohibits a servicer from conducting a foreclosure sale,
even if a person other than the servicer administers or conducts the
foreclosure sale proceedings.
Section 1024.41(g) is intended to protect borrowers by preventing a
foreclosure sale from going forward while review of a complete loss
mitigation application is pending. The revised commentary clarifies
servicers' obligations to protect borrowers from foreclosure when a
complete loss mitigation application is pending, even if it may be late
in the foreclosure process. The commentary may reduce servicer
compliance costs by adding clarity regarding the application of Sec.
1024.41(g) when a foreclosure sale has been scheduled. At the same
time, servicers will bear costs in confirming that their policies and
procedures for foreclosures, including communication with counsel, meet
the requirements of Sec. 1024.41(g) in light of the revised
commentary. However, the Bureau does not believe that the revisions
will impose significant burdens on servicers. Section 1024.41(g) and
its existing commentary already require servicers to prevent a
scheduled foreclosure sale from going forward when a timely loss
mitigation application has been received. The commentary is intended to
aid servicers in complying with Sec. 1024.41(g) by elaborating upon
and clarifying a servicer's obligations under the existing requirement,
but does not impose new obligations on servicers.
The Bureau recognizes that there may be situations where servicers,
despite their attempts to delay foreclosure sales, have to dismiss a
foreclosure proceeding to avoid a violation of Sec. 1024.41(g), and
then may have to re-file where the borrower ultimately does not qualify
for, or perform on, a loss mitigation option. The costs of dismissal
may be significant in an individual case. However, the Bureau does not
believe that the final commentary will impose significant overall costs
on servicers because Sec. 1024.41(g) already prohibits the conduct of
a foreclosure sale when a timely loss mitigation application is
pending. Moreover, the Bureau expects that servicers generally will be
able to avoid the costs of dismissal so long as they comply with
existing requirements.
Review of Multiple Loss Mitigation Applications
Currently, Sec. 1024.41(i) requires a servicer to comply with the
requirements of Sec. 1024.41 for only a single complete loss
mitigation application for a borrower's mortgage loan account. The
final rule revises Sec. 1024.41(i) to require servicers to comply with
the requirements of Sec. 1024.41 each time a borrower submits a loss
mitigation application, unless the servicer has previously complied
with Sec. 1024.41 for a borrower's complete loss mitigation
application and the borrower has been delinquent at all times since the
borrower submitted the prior application.
Potential benefits and costs to consumers. Section 1024.41's loss
mitigation procedures are intended to protect borrowers from harm in
connection with the process of evaluating a borrower for loss
mitigation options and proceeding to foreclosure. As discussed in the
2013 RESPA Servicing Final Rule, benefits to these borrowers include a
period of 120 days in which to submit a loss mitigation application
before foreclosure can commence, restrictions on dual tracking, an
appeals process for denials of loss mitigation applications, and
consideration for all available loss mitigation alternatives.\421\ The
final rule makes these benefits available to borrowers who complete a
loss mitigation application, become (or remain) current after they
submit that application, and subsequently encounter difficulties making
payments and apply for loss mitigation again. The provision thereby
benefits borrowers in two general circumstances: First, borrowers who
have previously applied for and received a loan modification, and then
subsequently have difficulty making payments on the modified loan
(perhaps due to an unrelated hardship months or years after the
modification), will be able to obtain the protections of Sec.
1024.41's procedures for a subsequent loss mitigation application.
Second, borrowers who previously applied for loss mitigation but were
not approved for any option that they chose to accept will be able to
apply for loss mitigation and benefit from Sec. 1024.41's procedures
if they become (or remain) current on their loan following the prior
complete application.
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\421\ See 78 FR 10695, 10857-60 (Feb. 14, 2013).
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A significant percentage of the borrowers who receive loan
modifications subsequently become delinquent. The OCC Mortgage Metrics
Report indicates that, for modifications completed since the second
quarter of 2014, 13 to 16 percent of modified loans were 60 or more
days delinquent six months after modification, and 20 percent were 60
or more days delinquent after one year.\422\ For the HAMP program, as
of January 2016, 33 percent of the permanent modifications that became
effective between April 2009 and January 2016 had defaulted by the end
of this period.\423\ These numbers suggest that a significant fraction
of borrowers receiving loan modifications may benefit from the final
rule's provision because they will have the protection of Sec.
1024.41's loss mitigation procedures in the wake of these subsequent
delinquencies. Many such borrowers may have received a loan
modification that was affordable for them but then suffered a
subsequent hardship. On the other hand, the large number of borrowers
who become delinquent as soon as six months after
[[Page 72360]]
completing a loan modification suggests that, in many cases, the
subsequent delinquency may reflect, not a new adverse event, but the
failure of the modification to achieve an affordable monthly payment
for the borrower in light of the circumstances that preceded the
modification. To the extent that a borrower's circumstances have not
changed significantly, a subsequent loss mitigation application may not
yield a new option for which the borrower is eligible and that the
borrower finds more beneficial.
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\422\ Office of the Comptroller of the Currency, OCC Mortgage
Metrics Report: Disclosure of Nat'l Bank and Fed. Savings Ass'n
Mortgage Loan Data, at 30 (Third Quarter 2015), available at http://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics/mortgage-metrics-q3-2015.pdf.
\423\ See Fed. Housing Fin. Agency, Foreclosure Prevention
Report, at 3 (Jan. 2016), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_January2016.pdf (reporting that, of
650,511 permanent modifications that became effective between April
2009 and January 2016, 211,918 had defaulted by the end of the
period).
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The Bureau does not have data indicating the number of borrowers in
the second group--that is, those who apply for loss mitigation, are not
approved for any option that they choose to accept, and subsequently
become or remain current on their mortgage. The Bureau notes that the
final rule may provide additional flexibility to borrowers who are
current on their mortgage but might benefit from a loss mitigation
option, because such borrowers could apply and determine whether they
are eligible for loss mitigation without losing the right to Sec.
1024.41's loss mitigation procedures in the future. For example,
homeowners who are able to make their mortgage payments but would like
to determine whether a short sale is possible will be able to apply for
a short sale without losing the protection of Sec. 1024.41's loss
mitigation procedures in connection with a subsequent application for
loss mitigation.
The benefits to borrowers of the final rule's revision to Sec.
1024.41(i) depend on whether and under what circumstances investors
make loss mitigation options available to borrowers who have completed
an earlier loss mitigation application and perhaps received a loan
modification. Section 1024.41 does not require a servicer to make any
loss mitigation options available to a borrower, but only governs a
servicer's evaluation of a borrower for any loss mitigation option that
is available. Many borrowers may not realize benefits from the change
to Sec. 1024.41(i), even though it may entitle them to the protections
in Sec. 1024.41 with regard to a subsequent loss mitigation
application, because they are not eligible to receive a second loan
modification. For example, Fannie Mae and Freddie Mac's servicing
guidelines generally do not permit a subsequent loan modification when
a borrower has become 60 days delinquent within the 12 months after a
borrower receives a prior loan modification.\424\ The Bureau notes,
however, that, for some borrowers affected by the final rule, any loss
mitigation option provided as a result of the revision may be the first
loss mitigation option offered to that borrower, even if it is not the
first evaluation of a complete application.
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\424\ See Fannie Mae, Fannie Mae Single Family 2012 Servicing
Guide, at Sec. 602.05 Redefault (Mar. 14, 2012), available at
https://www.fanniemae.com/content/guide/svc031412.pdf; Freddie Mac,
Single-Family Seller/Servicer Guide, at Sec. 9206.6: Ineligibility
for Freddie Mac Standard Modification, available at http://www.allregs.com/tpl/Viewform.aspx?formid=00051757&formtype=agency.
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Potential benefits and costs to covered persons. The final rule
will impose costs on servicers by requiring them to evaluate certain
borrowers' subsequent loss mitigation applications in accordance with
Sec. 1024.41's requirements. Costs of complying with Sec. 1024.41's
requirements include those arising from the requirements to send
specific notices, comply with the rule's timelines for evaluation of
loss mitigation applications, evaluate the borrower for all loss
mitigation options available to the borrower, and, under certain
circumstances, to delay initiation of foreclosure proceedings. The
extent to which these requirements impose additional costs on servicers
depends on their current policies with respect to subsequent loss
mitigation applications. The Bureau learned through its pre-proposal
outreach efforts that many servicers already reevaluate borrowers who
reapply for loss mitigation using the procedures set forth in Sec.
1024.41. To the extent that servicer practices already meet the
requirements of the rule, the burden on servicers will be reduced.
Some industry commenters expressed concern that the requirement to
review multiple loss mitigation applications would increase the burden
to servicers of complying with Sec. 1024.41, and in particular that
borrowers might take advantage of the ability to submit multiple loss
mitigation applications to ``game the system'' and delay a possible
foreclosure. The Bureau notes that any costs imposed by the rule are
mitigated by the fact that servicers can determine whether any loss
mitigation options are available to borrowers and set the eligibility
criteria for any subsequent loss mitigation application. In addition,
the requirement that the borrower bring the loan current before Sec.
1024.41's loss mitigation procedures apply to a subsequent application
mitigates the costs of the final rule's provision for servicers by
limiting the risk that a borrower will use multiple loss mitigation
applications as a way to postpone foreclosure.
Loss Mitigation Timelines and Servicing Transfers
Section 1024.41(k) of the final rule addresses the requirements
applicable to loss mitigation applications pending at the time of a
servicing transfer. Section 1024.41(k) clarifies that, subject to
certain exceptions, a transferee servicer must comply with Sec.
1024.41's requirements within the same timeframes that were applicable
to the transferor servicer. The first exception applies to the written
notification required by Sec. 1024.41(b)(2)(i)(B), which servicers
generally must provide within five days of a borrower's initial
application. The final rule provides that, if a transferee servicer
acquires the servicing of a mortgage loan for which the period to
provide the notice required by Sec. 1024.41(b)(2)(i)(B) has not
expired as of the transfer date and the transferor servicer has not
provided such notice, the transferee servicer must provide the notice
within 10 days (excluding legal public holidays, Saturdays, and
Sundays) of the transfer date. The second exception applies to the
evaluation of loss mitigation applications, which servicers generally
must complete within thirty days after receipt of a complete
application. The final rule provides that, if a transferee servicer
acquires the servicing of a mortgage loan for which a complete loss
mitigation application is pending as of the transfer date, the
transferee servicer must complete the evaluation within 30 days of the
transfer date. The final rule also provides that, if a borrower's
appeal under Sec. 1024.41(h) is pending as of the transfer date or is
timely filed after the transfer date, a transferee servicer must
determine the appeal within 30 days of the transfer date or 30 days of
the date the borrower made the appeal, whichever is later, if it is
able to determine whether it should offer the borrower the loan
modification options subject to the appeal; a transferee servicer that
is unable to determine an appeal must treat the appeal as a complete
loss mitigation application and evaluate the borrower for all loss
mitigation options available to the borrower from the transferee
servicer.
Potential benefits and costs to consumers. Section 1024.41(k) is
intended to benefit borrowers who have loss mitigation applications in
process at the time their mortgage loans are transferred to another
servicer by ensuring that the transfer does not unnecessarily delay the
completion or evaluation of their applications or limit their ability
to obtain the protections of Sec. 1024.41. Delays in the processing of
loss mitigation applications can prolong
[[Page 72361]]
a borrower's delinquency, during which time fees and other costs may
accrue, making it more difficult for the borrower to recover from
financial distress. For some borrowers, delays in completing loss
mitigation applications could prevent them from obtaining protections
under Sec. 1024.41, such as the prohibition on initiating foreclosure
proceedings if a borrower has completed a loss mitigation application
more than 37 days before a foreclosure sale.
The Bureau does not have representative data on how quickly
servicers currently comply with the various loss mitigation
requirements in the event of a servicing transfer but believes that
timelines vary significantly across servicers. The Bureau understands
that, while some servicers may already have practices that would comply
with the final rule's timelines, others may not. To the extent that
servicer practices already comply with Sec. 1024.41(k), consumer
benefits from the final rule will be lower.
Potential benefits and costs to covered persons. Section 1024.41(k)
is intended to reduce the costs to servicers that engage in servicing
transfers of complying with the loss mitigation rules by clarifying the
application of loss mitigation timelines in the context of a servicing
transfer. At the same time, while transferor and transferee servicers
are currently required under Sec. 1024.38 to have policies and
procedures in place to ensure the timely transfer and receipt of
accurate data, including through the devotion of appropriate personnel
and resources, Sec. 1024.41(k) will impose incremental costs on
servicers to the extent that, under their current transfer procedures,
their transfers do not comply with the final rule's timelines.
Transferor and transferee servicers both may be required to devote more
personnel and other resources in the days or weeks before and after a
transfer to ensure that the data is accurately transferred in a way
that permits the transferee servicer to comply with the timelines with
respect to all pending loss mitigation applications.
The final rule's exceptions, including extended timelines in
connection with the acknowledgment notice confirming receipt of a loss
mitigation application and the evaluation of loss mitigation
applications and determination of appeals, are intended to mitigate the
costs to servicers of complying with the final rule in circumstances in
which the Bureau understands that complying with the timelines that are
otherwise applicable would be especially difficult. The final rule
generally provides transferee servicers with as much time to provide
the acknowledgement notice, to evaluate loss mitigation applications,
and to determine the outcome of appeals as servicers generally have
when they receive a consumer's application, complete application, or
appeal (as applicable) directly from the consumer.
Evaluation for Short-Term Repayment Plans Based on Incomplete
Applications
Section 1024.41(c)(2)(iii) of the final rule permits a servicer to
offer short-term repayment plans based upon an evaluation of an
incomplete loss mitigation application. This is an exception to the
general rule under Sec. 1024.41(c)(2)(i) that a servicer may not
evaluate a borrower for loss mitigation options based on an incomplete
application, and parallels an existing exception to this rule, which
permits a servicer to offer a short-term payment forbearance program
based upon an incomplete application. Borrowers who are offered a
short-term repayment plan based on an incomplete application will not
lose their protections under Sec. 1024.41 with respect to a subsequent
loss mitigation application.
As with the existing exception for short-term payment forbearance
plans, Sec. 1024.41(c)(2)(iii) of the final rule is intended to
benefit borrowers and servicers by permitting servicers to offer a
short-term loss mitigation option to address a temporary hardship,
while preserving borrowers' loss mitigation protections, in situations
in which completing an application would be time-consuming or
burdensome or would significantly delay a decision. The provision does
not impose costs on borrowers because a borrower always has the option
to reject a short-term repayment plan based on review of an incomplete
loss mitigation application, provide a complete loss mitigation
application, and be reviewed for all loss mitigation options available
to the borrower (and receive other protections) under Sec. 1024.41.
Similarly, the provision does not impose costs on servicers because it
does not impose any new obligations on servicers.
5. Periodic Statement Requirements Applicable to Consumers in
Bankruptcy
The final rule revises Sec. 1026.41(e)(5) to limit the
circumstances in which a servicer is exempt from the periodic statement
requirements with respect to a consumer who is a debtor in bankruptcy
and adds Sec. 1026.41(f) to modify the content of periodic statements
for certain consumers in bankruptcy. Currently, Sec. 1026.41(e)(5)
provides that a servicer is exempt from the requirement to provide
periodic statements for a mortgage loan while the consumer is a debtor
in bankruptcy. In general, Sec. 1026.41(e)(5) of the final rule limits
the exemption to consumers in bankruptcy who are surrendering the
property or avoiding the lien securing the mortgage loan, to consumers
in bankruptcy who have requested in writing that a servicer cease
providing periodic statements or coupon books, and in certain other
circumstances. Notwithstanding meeting the above conditions for an
exemption, the final rule requires servicers to provide periodic
statements or coupon books if the consumer reaffirms personal liability
for the mortgage loan or requests statements in writing (unless a court
has entered an order requiring otherwise) and to resume providing
periodic statements when the consumer exits bankruptcy with respect to
any portion of the mortgage debt that is not discharged through
bankruptcy.
Potential benefits and costs to consumers. The periodic statement
requirements in Sec. 1026.41 are intended to benefit consumers by
providing accurate information about payments that consumers can use to
monitor the servicer, assert errors if necessary, and track the
accumulation of equity so that they can effectively determine how to
allocate income and consider options for refinancing. As revised, Sec.
1026.41(e)(5) is intended to make these benefits available to consumers
in bankruptcy who own a home subject to a mortgage and intend to retain
the home post-bankruptcy. The Bureau does not have representative data
describing the number of consumers in the bankruptcy process that own a
home and intend to retain it through the bankruptcy process. The FHFA
reports that of the mortgage loans serviced for Fannie Mae and Freddie
Mac, between 0.3 percent and 0.4 percent were in bankruptcy during
2015.\425\ However, based on information the Bureau has received from
servicers and other Federal agencies, the Bureau believes that the
percentage of non-GSE loans in bankruptcy may be significantly higher.
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\425\ Fed. Housing Fin. Agency, Foreclosure Prevention Report,
at 6 (Jan. 2016), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_January2016.pdf.
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There are at least two reasons to expect that consumers who are in
bankruptcy and intend to retain the property are particularly likely to
benefit from receiving periodic statements. First, consumers in
bankruptcy have demonstrated difficulties in meeting their financial
obligations and face unique challenges in rehabilitating their
finances. Such consumers face complex decisions
[[Page 72362]]
about how to restructure their financial lives and may derive
particular benefit from information about the status of their mortgages
that enables them to allocate income and make other decisions about
their finances. Second, as discussed in the section-by-section analysis
of Sec. 1026.41(e)(5), there is evidence that some servicers may be
especially prone to error in applying payments of consumers in
bankruptcy, particularly in the context of chapter 13 cases. This
evidence indicates that it may be especially important for consumers in
bankruptcy to be able to monitor how servicers apply their payments.
Further, the Bureau understands based on consumer testing of proposed
modifications to periodic statements and consumer complaint information
that many consumers in bankruptcy want to receive periodic statements.
Potential benefits and costs to covered persons. Section
1026.41(e)(5) and (f) will impose costs on servicers by requiring them
to modify systems to provide statements that show how payments are
applied for consumers in bankruptcy, particularly those in chapter 13
bankruptcy. The Bureau understands from comments and from pre-proposal
industry outreach that the principal systems some servicers currently
use to process and apply mortgage payments are not designed to
accommodate payments from consumers in chapter 13 bankruptcy and that
many servicers account for payments from consumers in chapter 13
bankruptcy using a separate system or process. Servicer systems for
producing periodic statements are generally not designed to produce
statements for consumers in chapter 13 bankruptcy. While servicers
generally must be capable of accounting for payments from consumers in
chapter 13 bankruptcy, this accounting currently may not be done on a
timeline that permits statements to be produced on a regular billing
cycle. Several commenters noted that these system limitations mean
complying with the rule will require costly system updates. While some
larger servicers already have systems designed to provide similar
disclosures in bankruptcy, the Bureau acknowledges that, for many
servicers, this will involve significant one-time costs to develop new
systems. In the final rule, the Bureau is not requiring a past payment
breakdown that distinguishes between pre-petition and post-petition
payments, which some commenters identified as particularly burdensome.
In addition, some servicers indicated that they expected vendors would
modify software platforms used to generate periodic statements to
accommodate requirements to send modified periodic statements to
consumers in bankruptcy. While this will not eliminate all costs to
servicers of establishing systems to provide periodic statements for
consumers in bankruptcy, the Bureau expects that vendor adjustments to
their systems will help mitigate the burden of the rule for many
servicers.
Some commenters noted that, in order to send statements in
compliance with the proposed rule, servicers would need to analyze
multiple factors, such as which chapter of the Bankruptcy Code the
consumer has filed under and whether the plan of reorganization
provides that the consumer intends to retain the home. The Bureau
understands, based on outreach to industry, that many servicers already
track these aspects of each bankruptcy case. The Bureau does expect
that there will be one-time costs to ensure that servicing systems
capture this information in order to determine whether periodic
statements are required and in what form.
Because the final rule requires sending periodic statements to an
additional group of consumers, servicers will also incur additional
vendor costs associated with distributing statements. With respect to
servicers that provide consumers with coupon books, the final rule will
require servicers to provide transaction activity and past payment
application information to consumers upon a consumer's request,
consistent with current Sec. 1026.41(e)(3)(iii). The Bureau does not
believe that providing this information will impose significant new
costs on servicers that provide coupon books because the Bureau
understands that the vast majority of servicers are already required to
provide such information in response to a consumer's written
information request pursuant to Sec. 1024.36.
The final rule includes sample forms for periodic statements in
bankruptcy. Sample forms will lower costs to servicers by eliminating
the need to develop compliant forms of periodic statements, and may
also increase the overall usefulness to consumers of the periodic
statements.
6. Periodic Statements Following Charge Off
The final rule adds a new exemption from the requirement to provide
periodic statements under Sec. 1026.41. The exemption applies to a
mortgage loan that a servicer has charged off in accordance with loan-
loss provisions if the servicer will not charge any additional fees or
interest on the account, provided that the servicer must provide the
consumer a periodic statement within 30 days of charge off or the most
recent periodic statement. The periodic statement must clearly and
conspicuously labeled ``Suspension of Statements & Notice of Charge
Off--Retain This Copy for Your Records'' and clearly and conspicuously
explain that, as applicable: The mortgage loan has been charged off and
the servicer will not charge any additional fees or interest on the
account; the servicer will no longer provide the consumer a periodic
statement for each billing cycle; the lien on the property remains in
place and the consumer remains liable for the mortgage loan obligation
and any obligations arising from or related to the property, which may
include property taxes; the consumer may be required to pay the balance
on the account in the future, for example, upon sale of the property;
the balance on the account is not being canceled or forgiven; and the
loan may be purchased, assigned, or transferred.
Potential benefits and costs to consumers. The periodic statement
requirements in Sec. 1026.41 are intended to benefit consumers by
providing accurate information about payments that consumers can use to
monitor the servicer, assert errors if necessary, and track the
accumulation of equity. Where a consumer's loan has been charged off
and the servicer will no longer charge any additional fees or interest
on the account, these benefits are significantly decreased. So long as
the consumer is aware that no additional fees or interest will be
charged, monthly statements will include no new information useful to
the consumer. A periodic statement notifying the consumer of suspension
of periodic statements and charge off, on the other hand, may provide
consumers with important information about the ongoing status of the
loan and the significance of its status. The required periodic
statement will clarify that, although the mortgage loan has been
charged off, the obligation remains in place. The periodic statement
will also describe the implications of the remaining lien to the
consumer.
Although periodic statements would not provide new information to
consumers where accounts have been charged off and fees and interest no
longer accrue, they may provide a benefit to some consumers as a
reminder that the lien on the property remains in place. It is possible
that, particularly years after charge off, a consumer (or successor in
interest to the property securing the loan) may not realize that the
obligation remains
[[Page 72363]]
outstanding and the lien is still in place. A periodic statement that
details the status could mitigate this issue but may not completely
address it in all cases. This represents a potential cost of the
exemption to some consumers.
Potential benefits and costs to covered persons. Because the
provision does not impose any new requirements on servicers, it does
not impose any new costs. The provision will benefit servicers by
giving them the option to send a periodic statement explaining to the
consumer the consequences of the charge off in lieu of continuing to
send periodic statements for charged-off mortgage loans when they find
it less costly to do so.
7. Small Servicer Exemption
The final rule amends certain criteria for determining whether a
servicer qualifies for the small servicer exemption set forth under
Sec. 1026.41(e)(4). The final rule provides that transactions serviced
by the servicer for a seller financer that meet certain criteria are
not considered in determining whether a servicer qualifies as a small
servicer. Small servicers (generally, those that service, together with
any affiliates, 5,000 or fewer mortgage loans, for all of which the
servicer (or an affiliate) is the creditor or assignee) are exempt from
certain mortgage servicing requirements, including several of
Regulation X's requirements, such as certain provisions related to
force-placed insurance, general servicing policies and procedures, and
communicating with borrowers about, and evaluation of applications for,
loss mitigation options, and Regulation Z's requirement to provide
periodic statements for residential mortgage loans. The final rule
permits small servicers to maintain their small servicer status if they
service transactions for a limited class of seller financers: Those
that provide seller financing for only one property in any 12-month
period for the purchase of a property that they own, so long as they
did not construct a residence on the property in the ordinary course of
business and the financing meets certain restrictions.
The Bureau believes that the changes to Sec. 1026.41(e)(4) will
have little or no effect on consumers who are not parties to seller-
financed transactions. The Bureau understands that the practice of
servicing seller-financed transactions is not widespread and that
depository institutions offering this service do not obtain significant
revenue from the practice, but instead offer the service as an
accommodation to depository customers that are seller financers. Thus,
the Bureau expects that, in the absence of the final rule, small
servicers would generally choose not to service seller-financed
transactions in order to maintain their status as small servicers.
Consequently, the Bureau does not expect that servicers' status as
small servicers will ultimately be affected by the rule. Therefore, the
final rule will not have any significant effect on the number of
consumers whose servicer qualifies for the small servicer exemption.
Given the limited nature of servicing loans for seller financers,
and given the Bureau's understanding that these services are offered by
depository institutions to their customers when alternative service
providers are generally not available, the Bureau believes that, if
seller financers were unable to obtain servicing from the depository
institution where they do their banking then, in many cases, they would
be likely to instead service the loan themselves. Consumers who
purchase homes from seller financers may benefit from the servicing of
the loan by a small servicer rather than directly by the seller
financer. Purchasers of seller-financed residential real estate may
benefit from a financial institution receiving scheduled periodic
payments and providing an independent accounting as a third party to
the transaction. In addition, small servicers may be able to process
payments and perform other servicing activities at a lower cost than
seller financers, and this cost savings may be passed on to purchasers
of seller-financed residential real estate.
The final rule will benefit certain servicers by allowing them to
service some seller-financed transactions while still qualifying as
small servicers. One commenter pointed out that, to ensure that
servicing such transactions does not jeopardize their small servicer
status, servicers would need to establish internal controls to track
and monitor whether a seller financer provides financing for more than
one property. The Bureau acknowledges that servicers could incur costs
to verify that the seller-financed transactions they service meet the
criteria of the final rule and that any such costs would mitigate the
benefits from the final rule's changes to Sec. 1026.41(e)(4).
F. Potential Specific Impacts of the Final Rule
Depository Institutions and Credit Unions With $10 Billion or Less in
Total Assets, as Described in Section 1026
The Bureau believes that a large fraction of depository
institutions and credit unions with $10 billion or less in total assets
that are engaged in servicing mortgage loans qualify as ``small
servicers'' for purposes of the mortgage servicing rules because they
service 5,000 or fewer loans, all of which they or an affiliate own or
originated. The Bureau estimates that 96 percent of insured
depositories and credit unions with $10 billion or less in total assets
service 5,000 mortgage loans or fewer.\426\ The Bureau believes that
servicers that service loans that they neither own nor originated tend
to service more than 5,000 loans, given the returns to scale in
servicing technology. The impact of the final rule on small servicers,
which are exempt from many of the provisions of the servicing rules
that are affected by the final rule, is discussed below in connection
with the Regulatory Flexibility Act.
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\426\ Based on an analysis of December 2015 Call Report data as
compiled by SNL Financial.
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With respect to servicers that are not small servicers as defined
in Sec. 1026.41(e)(4), the Bureau believes that the consideration of
benefits and costs of covered persons presented above provides a
largely accurate analysis of the impacts of the final rule on
depository institutions and credit unions with $10 billion or less in
total assets that are engaged in servicing mortgage loans.
Impact of the Final Rule's Provisions on Consumer Access to Credit and
on Consumers in Rural Areas
The Bureau believes that the additional costs to servicers from the
final rule are not likely to be extensive enough to have a significant
impact on consumer access to credit. The exemption of small servicers
from many provisions of the final rule will help maintain consumer
access to credit through these providers.
Consumers in rural areas may experience benefits from the final
rule that are different in certain respects from the benefits
experienced by consumers in general. Consumers in rural areas may be
more likely to obtain mortgages from small local banks and credit
unions that either service the loans in portfolio or sell the loans and
retain the servicing rights. The business model of these servicers may
mean that they already provide most of the benefits to consumers that
the final rule is designed to provide. It is also possible, however,
that a lack of alternative lenders in certain rural areas may reduce
competition and therefore the level of customer service, making it
possible for the final rule to provide rural consumers with greater
benefits
[[Page 72364]]
than consumers elsewhere. More specifically, seller financing may be
more common in rural areas, and the final rule's provisions related to
servicing of seller-financed loans may help small servicers continue to
service such loans in rural areas.
VIII. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct an initial regulatory flexibility analysis (IRFA) and a
final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities.\427\ The Bureau also is subject
to certain additional procedures under the RFA involving the convening
of a panel to consult with small business representatives prior to
proposing a rule for which an IRFA is required.\428\
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\427\ 5 U.S.C. 601 through 612.
\428\ 5 U.S.C. 609.
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The undersigned certified that the proposed rule would not have a
significant economic impact on a substantial number of small entities
and that an IRFA was therefore not required. The final rule adopts the
proposed rule with some modifications that do not lead to a different
conclusion. Therefore, a FRFA is not required.\429\
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\429\ 5 U.S.C. 605(b).
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A. Application of the Final Rule to Small Entities
The analysis below evaluates the potential economic impact of the
final rule on small entities as defined by the RFA.\430\ The analysis
uses as a baseline the 2013 Mortgage Servicing Final Rules as currently
in effect. The Bureau has identified five categories of small entities
that may be subject to the final rule for purposes of the RFA:
Commercial banks/savings institutions (NAICS 522110 and 522120), credit
unions (NAICS 522130), firms providing real estate credit (NAICS
522292), firms engaged in other activities related to credit
intermediation (NAICS 522390), and small non-profit organizations.
Commercial banks, savings institutions, and credit unions are small
businesses if they have $550 million or less in assets. Firms providing
real estate credit are small businesses if average annual receipts do
not exceed $38.5 million, and firms engaged in other activities related
to credit intermediation are small businesses if their average annual
receipts do not exceed $20.5 million. A small non-profit organization
is any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field.
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\430\ For purposes of assessing the impacts of the final rule on
small entities, ``small entities'' is defined in the RFA to include
small businesses, small not-for-profit organizations, and small
government jurisdictions. 5 U.S.C. 601(6). A ``small business'' is
determined by application of Small Business Administration
regulations and reference to the North American Industry
Classification System (``NAICS'') classifications and size
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small
governmental jurisdiction'' is the government of a city, county,
town, township, village, school district, or special district with a
population of less than 50,000. 5 U.S.C. 601(5).
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The Bureau estimates that there are approximately 9,868 insured
depositories (banks, thrifts and credit unions) and 862 non-
depositories that engage in mortgage servicing and are therefore
subject to the 2013 Mortgage Servicing Final Rules.\431\ Of these, the
Bureau estimates that approximately 8,308 depositories and 742 non-
depositories are ``small entities'' as defined in the RFA.\432\
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\431\ The estimated number of insured depositories engaged in
mortgage servicing is based on the December 2015 Call Report data as
compiled by SNL Financial, and the estimated number of non-
depositories is based on December 2015 data from the Nationwide
Mortgage Licensing System and Registry.
\432\ The estimated number of insured depositories engaged in
mortgage servicing that are small entities is based on the December
2015 Call Report data as compiled by SNL Financial, and the
estimated number of non-depositories that are ``small entities'' as
defined in the RFA is based on December 2015 data from the
Nationwide Mortgage Licensing System and Registry. Non-profits and
small non-profits engaged in mortgage loan servicing would be
included in this estimate if their primary activity is originating
or servicing loans. The Bureau has not been able to separately
estimate the number of non-profits and small non-profits engaged in
loan servicing.
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The large majority of these small entities qualify as ``small
servicers'' for purposes of the 2013 Mortgage Servicing Final Rules:
Generally, servicers that service 5,000 or fewer mortgage loans, all of
which the servicer or affiliates own or originated. The Bureau
estimates that, among 9,050 small entities subject to the 2013 Mortgage
Servicing Final Rules, all but approximately 11 depositories and all
but approximately 78 non-depositories (collectively, approximately 1.0
percent of all small entities subject to the 2013 Mortgage Servicing
Final Rules) service 5,000 loans or fewer.\433\ The Bureau does not
have data to indicate whether these institutions service loans that
they do not own and did not originate. However, as discussed in the
2013 RESPA Servicing Final Rule, the Bureau believes that a servicer
that services 5,000 loans or fewer is unlikely to service loans that it
did not originate, because a servicer that services loans for others is
likely to see servicing as a stand-alone line of business and would
likely need to service substantially more than 5,000 loans to justify
its investment in servicing activities.\434\
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\433\ For insured depositories, the estimate is based on an
analysis of the December 2015 Call Report data as compiled by SNL
Financial, and the estimated number of non-depositories that are
``small entities'' as defined in the RFA is based on December 2015
data from the Nationwide Mortgage Licensing System and Registry.
\434\ 78 FR 10695, 10866 (Feb. 14, 2013). For example, one
industry participant estimated that most servicers would need a
portfolio of 175,000 to 200,000 loans to be profitable. Bonnie
Sinnock, Servicers Search for 'Goldilocks' Size for Max Profits,
American Banker (Sept. 10, 2015), available at http://www.americanbanker.com/news/consumer-finance/servicers-search-for-goldilocks-size-for-max-profits-1076620-1.html.
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Small servicers are exempt from many of the servicing provisions of
Regulation X and Regulation Z. Pursuant to Sec. 1024.30, small
servicers are exempt from Regulation X's general servicing policies and
procedures requirements (Sec. 1024.38), early intervention and
continuity of contact requirements (Sec. Sec. 1024.39 and 1024.40),
and all loss mitigation procedures requirements of Sec. 1024.41 other
than Sec. 1024.41(j), which makes applicable to small servicers Sec.
1024.41(f)(1)'s prohibition on initiating foreclosure proceedings
unless a borrower is more than 120 days delinquent and prohibits
servicers from initiating foreclosure proceedings while a borrower is
performing pursuant to the terms of an agreement on a loss mitigation
option. Similarly, pursuant to Sec. 1026.41(e)(4), small servicers are
exempt from Regulation Z's requirement to provide periodic statements
for residential mortgage loans pursuant to Sec. 1026.41.
Given the Bureau's estimate that all but approximately 1.0 percent
of small entities subject to the rule are small servicers, the final
rule provisions that amend sections of Regulation X and Regulation Z
from which small servicers are exempt will have no effect on almost all
small entities, and therefore will not have a significant economic
impact on a substantial number of small entities. Most provisions of
the final rule would amend Sec. Sec. 1024.38 through 1024.41 and
1026.41 and would therefore not affect small servicers.
In addition, certain provisions of the final rule apply to small
servicers but reduce servicer compliance costs by relaxing the existing
rules. This includes changes to the commentary to Sec. 1024.36(a) to
reduce disclosure requirements when a borrower requests information
about ownership of a loan
[[Page 72365]]
for which Fannie Mae or Freddie Mac is the owner of the loan or the
trustee of the securitization trust in which the loan is held; an
additional exception to Sec. 1024.41(f)(1)'s 120-day pause on
initiating foreclosure proceedings for a servicer joining the
foreclosure action of a senior lienholder; and revisions to the
definition of small servicer in Sec. 1026.41(e)(4)(iii) that permit
small servicers to service loans for seller financers under certain
circumstances.
There are three provisions of the final rule that do apply to small
servicers and could potentially impose new costs on a substantial
number of small entities: (1) The provisions related to successors in
interest, which create a new, limited information request procedure for
potential successors in interest and extend the protections of all the
Mortgage Servicing Rules, including certain provisions from which small
servicers are not exempt, to confirmed successors in interest; (2) the
definition of delinquency in Sec. 1024.31, which may affect the scope
of the 2013 RESPA Servicing Final Rule's prohibition on initiating
foreclosure proceedings unless a borrower's mortgage loan obligation is
more than 120 days delinquent; and (3) a minor revision to the content
of force-placed insurance notices required by Sec. 1024.37(c). The
following sections of this part discuss in greater detail the potential
impact of these three provisions of the final rule on small servicers.
B. Successors in Interest
The final rule imposes new requirements on mortgage servicers with
respect to successors in interest. For purposes of these provisions,
successors in interest generally include individuals who acquire an
ownership interest in the property securing a mortgage loan through
transfers that are protected by the Garn-St Germain Act, including, for
example, certain transfers resulting from the death of the borrower,
transfers to the borrower's spouse or children, or transfers incident
to divorce. The provisions relate to how mortgage servicers confirm a
successor in interest's identity and ownership interest in the property
and apply the Mortgage Servicing Rules to confirmed successors in
interest.
Small servicers must comply with some, but not all, of the Mortgage
Servicing Rules, and the final rule requires small servicers to comply
with that same set of rules with respect to confirmed successors in
interest. Small servicers must comply, at least in part, with
Regulation X's requirements regarding escrow accounts (Sec. Sec.
1024.17 and 1024.34), general disclosure requirements (Sec. 1024.32),
mortgage servicing transfers (Sec. 1024.33), error resolution
procedures (Sec. 1024.35), requests for information (Sec. 1024.36),
force-placed insurance (Sec. 1024.37), and certain prohibitions on
initiating foreclosure proceedings and moving for foreclosure judgment
or order of sale (Sec. 1024.41(f)(1) and (j)), and with Regulation Z's
requirements regarding ARM disclosures (Sec. 1026.20(c) and (d)),
regarding escrow account cancellation notices (Sec. 1026.20(e)),
regarding payment processing, the prohibition on pyramiding of late
fees, and the requirement to provide payoff statements (Sec.
1026.36(c)), and regarding mortgage transfer disclosures (Sec.
1026.39). The final rule requires small servicers to comply with each
of these provisions with respect to successors in interest once a
servicer has confirmed the successor in interest's identity and
ownership interest in the property.
The Bureau does not believe that the application of these
requirements to confirmed successors in interest will have a
significant impact on the small entities subject to the Mortgage
Servicing Rules. While the Bureau does not have representative data on
the number of loans that are serviced by small servicers and for which
the underlying property has been transferred to a successor in
interest, the Bureau expects that such loans make up a small fraction
of the total loans serviced by any small servicer. The final rule does
not require small servicers to develop new policies and procedures, but
rather to continue to apply existing policies and procedures for
servicing loans subject to the servicing rules to what the Bureau
believes is a relatively small set of loans previously subject to the
Mortgage Servicing Rules before the interest in the property was
transferred to a successor in interest.
In addition, given that under the Garn-St Germain Act small
servicers are effectively obligated to service loans secured by
property that has been transferred to a successor in interest, many
small servicers are likely servicing such loans using the same policies
and procedures that they use to service other mortgage loans that are
already subject to the Mortgage Servicing Rules. Given that there are
fixed costs associated with developing servicing policies and
procedures and systems to implement those policies and procedures, it
may be less costly for servicers to apply the same policies and
procedures with respect to successors in interest that they apply to
all other loans they service, rather than developing separate policies,
procedures and systems to service loans for successors in interest.
Moreover, as discussed in the 2013 RESPA Servicing Final Rule and the
2013 TILA Servicing Final Rule, the Bureau believes that small
servicers generally depend on a relationship-based business model that
depends on repeat business and could suffer significant harm from any
major failure to treat customers properly because small servicers are
particularly vulnerable to ``word of mouth.'' \435\ A servicer that had
a practice of servicing loans for confirmed successors in interest
using lower standards than those used to service other loans would risk
reputational harm and an associated loss of business.
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\435\ 78 FR 10696, 10843 (Feb. 14, 2013); 78 FR 10902, 10978
(Feb. 14, 2013).
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Small servicers are also subject to Sec. 1024.36(i), which
generally requires a servicer to respond to a written request that
indicates that the person making the request may be a successor in
interest by providing the person with a description of the documents
the servicer reasonably requires to confirm the person's identity and
ownership interest in the property. Small servicers are required to
treat the person making the request as a borrower for the purposes of
the procedural requirements of Sec. 1024.36(c) through (g)--that is,
servicers must respond to these requests the way they must respond to
other written information requests, by generally acknowledging receipt
of the request within five days and responding within 30 or 45 days
without charge.
However, because small servicers are exempt from Sec. 1024.38,
they are not subject to Sec. 1024.38(b)(1)(vi), which requires
servicers to have policies and procedures in place to provide promptly
upon request a description of what documents the servicer reasonably
requires to confirm the person's status, and, upon the receipt of such
documents, notify the person promptly, as applicable, that the servicer
has confirmed the person's status, has determined that additional
documents are required (and what those documents are), or has
determined that the person is not a successor in interest. Therefore,
the final rule does not necessarily require small servicers to make any
changes to their policies and procedures for identifying successors in
interest, but only to communicate to potential successors, using the
same procedures they use to respond to other borrower requests, what
documents they reasonably need to confirm a person's status as a
successor in interest. Because small servicers may not need to make any
changes to the documents they require and will already have
[[Page 72366]]
procedures in place for responding to borrower requests generally, the
Bureau believes that the costs to small servicers of complying with
Sec. 1024.36(i) will be small.
C. Definition of Delinquency
The final rule adds a general definition of delinquency in Sec.
1024.31 that applies to all sections of subpart C of Regulation X,
replacing the existing definition of delinquency for purposes of
Sec. Sec. 1024.39 and 1024.40(a). Under the final rule, delinquency is
defined as a period of time during which a borrower and a borrower's
mortgage loan obligation are delinquent, and 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. Comment 31 (Delinquency)-2
clarifies that, if a servicer applies payments to the oldest
outstanding periodic payment, a payment by a delinquent borrower
advances the date the borrower's delinquency began. The Bureau
understands from its pre-proposal outreach and from comments that the
majority of servicers credit payments made to a delinquent account to
the oldest outstanding periodic payment. The Bureau also understands
that some servicers that use this method may be concerned about how to
calculate the length of a borrower's delinquency without increased
certainty from the Bureau.\436\
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\436\ See Am. Bankers Ass'n. Letter to Bureau of Consumer Fin.
Prot. (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Pages/default.aspx#2014.
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The Bureau believes that the final rule's definition will clarify
the application of the servicing rules--thereby reducing the costs to
small servicers of complying with the rules--without imposing
significant new burdens on servicers. The Bureau recognizes that, in
principle, the definition could affect the circumstances under which a
servicer may initiate foreclosure proceedings, because the definition
of ``delinquency'' affects the application of Sec. 1024.41(f)(1)'s
prohibition on initiating foreclosure proceedings unless ``a borrower's
mortgage loan obligation is more than 120 days delinquent.'' \437\ In
particular, Comment 31 (Delinquency)-2 implies that a servicer that
otherwise applies payments to the oldest outstanding periodic payment
may not initiate foreclosure proceedings unless the borrower has missed
the equivalent of at least four monthly payments. In contrast, the
current rule could be interpreted to permit the servicer to commence
foreclosure even if the borrower has missed only one payment, so long
as the payment was missed more than 120 days ago and the borrower has
not become current since. However, information gathered in pre-proposal
industry outreach indicates that the majority of servicers generally do
not initiate foreclosure proceedings in the case of consumers that are
behind by three or fewer payments. In addition, Fannie Mae and Freddie
Mac servicing guidelines generally prevent servicers from initiating
foreclosure if a loan is delinquent by fewer than four monthly
payments. For servicers that do not apply payments to the oldest
outstanding periodic payment, the final rule will not affect their
application of the 120-day pre-foreclosure review period.
---------------------------------------------------------------------------
\437\ Small servicers, while otherwise exempt from the
provisions of Sec. 1024.41, are not exempt from Sec. 1024.41(f)(1)
pursuant to Sec. 1024.41(j).
---------------------------------------------------------------------------
In addition, the Bureau believes that it is particularly unlikely
that a small servicer would initiate foreclosure proceedings with
respect to a borrower who is not at least four payments behind. As the
Bureau stated in the 2013 RESPA Servicing Final Rule, the vast majority
of small servicers are community banks and credit unions that generally
maintain a ``relationship'' model that depends on repeat business and
are particularly vulnerable to reputational harm from a failure to
treat customers well. The Bureau believes that such servicers would be
particularly unlikely to initiate foreclosure proceedings in a case
where a consumer had fallen behind by a few mortgage payments but
continued to make regular payments going forward. For these reasons,
the Bureau expects that the final rule's definition will not impose
meaningful new constraints on servicers.
D. Changes to Force-Placed Insurance Notices
The final rule includes changes to force-placed insurance notices,
which pursuant to Sec. 1024.37 servicers must deliver to borrowers
before they can charge borrowers for force-placed insurance, to modify
the prescribed notices slightly to accommodate the circumstance where a
consumer's hazard insurance coverage is insufficient, rather than
expiring or expired. This change is intended to reduce the burden on
servicers and borrowers by providing greater clarity in circumstances
where the form of notice that is currently required does not accurately
describe the deficiency in the borrower's insurance coverage. The
change represents a minor amendment to the required force-placed
insurance notice and the Bureau does not believe that it will impose
any significant burden on servicers.
Certification
Accordingly, the undersigned certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities.
IX. Paperwork Reduction Act
Certain provisions of the final rule contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 \438\ (Paperwork Reduction Act or PRA). The
collection of information contained in the final rule, and identified
as such, has been submitted to OMB for review under section 3507(d) of
the PRA. Notwithstanding any other provision of law, under the PRA, the
Bureau may not conduct or sponsor, and a person is not required to
respond to, this information collection unless the information
collection displays a currently valid control number.
---------------------------------------------------------------------------
\438\ 44 U.S.C. 3501 through 3521.
---------------------------------------------------------------------------
The final rule amends 12 CFR part 1024 (Regulation X), which
implements the Real Estate Settlement Procedures Act (RESPA), and 12
CFR part 1026 (Regulation Z), which implements the Truth in Lending Act
(TILA). Regulations X and Z currently contain collections of
information approved by OMB. The Bureau's OMB control number for
Regulation X is 3170-0016 and for Regulation Z is 3170-0015.
Information collections for the final rule would be authorized under
OMB control numbers 3170-0027 for Regulation X and 3170-0028 for
Regulation Z.
On December 15, 2014, notice of the proposed rule was published in
the Federal Register. The Bureau invited comment on: (1) Whether the
proposed collections of information are necessary for the proper
performance of the functions of the Bureau, including whether the
information will have practical utility; (2) the accuracy of the
estimated burden associated with the proposed collections of
information; (3) how to enhance the quality, utility, and clarity of
the information to be collected; and (4) how to minimize the burden of
complying with the proposed collections of information, including the
application of automated collection techniques or other forms of
information technology. The comment period for the proposed information
collection expired on March 16, 2015.
[[Page 72367]]
The Bureau received two comments addressing the PRA notice. An
industry commenter noted the Bureau's estimate of the one-time hourly
burden of complying with the proposed rule's successor in interest
provisions and noted that the estimated time would not be sufficient
for a servicer to become equipped to originate mortgage loans. However,
the final rule does not require servicers to originate mortgage loans.
Another industry commenter noted the Bureau's estimate of the one-time
and ongoing burden of providing two new notices: The notice to
consumers when a loss mitigation application is complete and the notice
provided when evaluation of a loss mitigation application is delayed
because necessary information from third parties has not been
submitted. This commenter expressed concern that the estimated costs
would increase the cost of servicing, and that this would have negative
implications for consumers. The Bureau discusses the impacts of these
notices on consumers and servicers in the Dodd-Frank Act section
1022(b) discussion above.
The Bureau is requiring six new information collection
requirements, or changes to existing information collection
requirements, in Regulation X:
1. Provisions requiring servicers to communicate with potential
successors in interest about their requirements for confirming a
successor in interest's identity and ownership interest in the property
and to treat confirmed successors in interest as borrowers for purposes
of the Mortgage Servicing Rules in Regulation X.
2. Minor changes to force-placed insurance notices to address the
circumstance in which a borrower's hazard insurance coverage is
insufficient (rather than expired or expiring) and permit the
consumer's account number to be included on the notice.
3. Provisions requiring servicers to provide early intervention
written notices to consumers in bankruptcy and to consumers who have
provided the servicer with a cease communications notice under the
FDCPA.
4. Requirement that servicers provide a notice to consumers when a
loss mitigation application is complete.
5. Requirement that servicers provide a notice to consumers if
their determination with respect to a loss mitigation application is
delayed beyond a date that is 30 days after receipt of a complete loss
mitigation application because information from third parties required
to evaluate the application has not been submitted.
6. Requirement that servicers comply with the loss mitigation
provisions of Regulation X with respect to multiple loss mitigation
applications from the same borrower. Servicers that offer loss
mitigation options in the ordinary course of business are required to
follow certain procedures when evaluating loss mitigation applications,
including (1) providing a notice telling the borrower if the loss
mitigation application is incomplete, approved, or denied (and, for
denials of loan modification requests, a more detailed notice of the
specific reason for denial and appeal rights), (2) providing a notice
of the appeal determination, and (3) providing servicers of senior or
second liens encumbering the property that is the subject of the loss
mitigation application copies of the loss mitigation application.
The Bureau is also requiring two new information collection
requirements, or changes to existing information collection
requirements, in Regulation Z:
7. Requirement that servicers treat confirmed successors in
interest as consumers for purposes of the Mortgage Servicing Rules in
Regulation Z.
8. Requirement that servicers provide periodic statements to
consumers in bankruptcy.
These information collections are required to provide benefits for
consumers and are mandatory.\439\ Because the Bureau does not collect
any information, no issue of confidentiality arises. The likely
respondents would be federally insured depository institutions (such as
commercial banks, savings banks, and credit unions) and non-depository
institutions (such as mortgage brokers, real estate investment trusts,
private-equity funds, etc.) that service consumer mortgages.\440\
---------------------------------------------------------------------------
\439\ See 15 U.S.C. 1601 et seq.; 12 U.S.C. 2601 et seq.
\440\ For purposes of this PRA analysis, references to
``creditors'' or ``lenders'' shall be deemed to refer collectively
to commercial banks, savings institutions, credit unions, and
mortgage companies (i.e., non-depository lenders), unless otherwise
stated. Moreover, reference to ``respondents'' shall generally mean
all categories of entities identified in the sentence to which this
footnote is appended, except as otherwise stated or if the context
indicates otherwise.
---------------------------------------------------------------------------
Under the rule, the Bureau accounts for the entire paperwork burden
for respondents under Regulation X. The Bureau generally also accounts
for the paperwork burden associated with Regulation Z for the following
respondents pursuant to its administrative enforcement authority:
Insured depository institutions with more than $10 billion in total
assets, their depository institution affiliates, and certain non-
depository institutions. The Bureau and the FTC generally both have
enforcement authority over non-depository institutions for Regulation
Z. Accordingly, the Bureau has allocated to itself half of the
estimated burden to non-depository institutions. Other Federal agencies
are responsible for estimating and reporting to OMB the total paperwork
burden for the institutions for which they have administrative
enforcement authority. They may, but are not required to, use the
Bureau's burden estimation methodology.
Using the Bureau's burden estimation methodology, the Bureau
believes the total estimated industry burden under Regulation X for the
approximately 10,730 respondents subject to the final rule will be
approximately 128,000 hours for one time changes and 64,000 hours
annually. Using the Bureau's burden estimation methodology, the total
estimated industry burden under Regulation Z for the approximately
10,730 banks, savings institutions, credit unions, and mortgage
companies subject to the final rule, including Bureau respondents,\441\
is approximately 7,000 hours for one-time changes and 8,300 hours
annually. The estimates presented in this part IX represent weighted
averages across respondents. The Bureau expects that the amount of time
required to implement each of the changes for a given institution may
vary based on the size, complexity, and practices of the respondent.
---------------------------------------------------------------------------
\441\ For purposes of this PRA analysis, the Bureau's depository
respondents with respect to the changes to Regulation Z are 120
depository institutions and depository institution affiliates that
service closed-end consumer mortgages. The Bureau's non-depository
respondents are an estimated 862 non-depository servicers. Unless
otherwise specified, all references to burden hours and costs for
the Bureau respondents for the collection requirements under the
changes to Regulation Z are based on a calculation of the burden
from all of the Bureau's depository respondents and half of the
burden from the Bureau's non-depository respondents.
---------------------------------------------------------------------------
For purposes of this PRA analysis, the Bureau estimates that there
are 9,868 depository institutions and credit unions subject to the
final rule, and an additional 862 non-depository institutions. Based on
discussions with industry, the Bureau assumes that all depository
respondents except for one large entity and 95% of non-depository
respondents (and 100% of small non-depository respondents) use third-
party software and information technology vendors. Under existing
contracts, vendors would absorb the one-time software and information
technology costs associated with complying with the final rule for
large- and medium-
[[Page 72368]]
sized respondents but not for small respondents.
A. Information Collection Requirements--Regulation X
The Bureau believes the following aspects of the final rule are
information collection requirements under the PRA.
1. Successors in Interest
Under the final rule, servicers are generally required (1) to
respond to a written request from a person that indicates that the
person may be a successor in interest by providing that person with a
description of the documents the servicer reasonably requires to
confirm the person's identity and ownership interest in the property
and (2) to have policies and procedures reasonably designed to ensure
that the servicer can provide promptly upon request a description of
what documents the servicer reasonably requires to confirm the person's
identity and ownership interest in the property, and, upon the receipt
of such documents, notify the person promptly, as applicable, that the
servicer has confirmed the person's status, has determined that
additional documents are required (and what those documents are), or
has determined that the person is not a successor in interest.
Servicers are also subject to Regulation X's mortgage servicing
requirements, including loss mitigation requirements, with respect to
confirmed successors in interest.
All respondents will have a one-time burden under this requirement
associated with reviewing the regulation and developing a compliance
plan. Certain respondents will have one-time burden in hours from
training personnel in compliance with the requirement. The Bureau
estimates that one-time hourly burden to comply with the disclosure
requirements to be eight hours and forty-five minutes, on average, per
respondent.
Respondents will have ongoing burden in hours and vendor costs
associated with the information technology used in producing the
required disclosures. All respondents will have ongoing vendor costs
associated with distributing (e.g., mailing) the required disclosures
and some will have production costs associated with the new
disclosures. The Bureau estimates this ongoing burden to be 10 minutes
and $0.44, on average, for each respondent.
2. Changes to Force-Placed Insurance Disclosures
The final rule makes minor changes to the content of required
force-placed insurance notices, which are required before a servicer
may charge a borrower for force-placed insurance.
All respondents will have a one-time burden under this requirement
associated with reviewing the regulation and developing a compliance
plan. All respondents will also have one-time burden in hours or vendor
costs from changing existing systems to accommodate the required new
disclosure. The Bureau estimates the one-time hourly burden to comply
with the disclosure requirements to be one hour and 15 minutes and $70,
on average, per respondent.
Because the content of the required notices will not change
substantially under the final rule and the circumstances under which
the disclosures are required will not change, there will not be an
ongoing burden under the final rule.
3. Early Intervention Written Notices
The final rule requires that servicers send written early
intervention notices to borrowers in bankruptcy and borrowers who have
exercised their cease communication rights under the FDCPA. These
notices must meet certain requirements that do not apply to the early
intervention notices that must be sent to other borrowers. Borrowers
have rights under the FDCPA only with respect to accounts that were
delinquent at the time the servicer acquired the servicing rights.
Therefore, servicers that do not acquire servicing rights in the course
of their business are not subject to these modified disclosure
requirements.
All respondents will have a one-time burden under this requirement
associated with reviewing the regulation and developing a compliance
plan. Certain respondents will have one-time burden in hours or vendor
costs from changing existing systems to accommodate the required new
disclosure. The Bureau estimates the one-time hourly burden to comply
with the disclosure requirements to be nine hours and 30 minutes, on
average, per respondent.
Respondents will have ongoing burden in hours and vendor costs
associated with the information technology used in producing the
disclosure. All respondents will have ongoing vendor costs associated
with distributing (e.g., mailing) the disclosure and some will have
production costs associated with the new disclosure. The Bureau
estimates this ongoing burden to be four hours and $380, on average,
for each respondent.
4. Notice of Complete Loss Mitigation Application
The final rule requires a servicer to provide a written notice to a
borrower within five days (excluding legal public holidays, Saturdays,
and Sundays) after receiving the borrower's complete application. The
Bureau understands that the practice of providing borrowers with a
written notice informing them that their loss mitigation application is
complete is a common business practice (i.e., a ``usual and customary''
business practice) today for most mortgage servicers. However, the
Bureau understands that the specific content of the required notices
may not reflect existing common practices.
All respondents will have a one-time burden under this requirement
associated with reviewing the regulation and developing a compliance
plan. In addition, while the Bureau considers borrower notifications
that loss mitigation applications are complete as the normal course of
business, institutions may still have to incur one-time costs
associated with modifying their existing disclosures to comply with the
final rule's disclosure provisions. As a result, the Bureau's one-time
burden incorporates these costs. The Bureau estimates this one-time
burden to be ten hours and 20 minutes, on average, for each respondent.
5. Notice Regarding Outstanding Third-Party Information
The final rule requires written notice to borrowers within thirty
days following receipt of a complete loss mitigation application if the
servicer has not received information from a party other than the
servicer or the borrower that is necessary to make a determination of
which loss mitigation options, if any, to offer the borrower.
All respondents will have a one-time burden under this requirement
associated with reviewing the regulation and developing a compliance
plan. Certain respondents will have one-time burden in hours or vendor
costs from creating software and information technology capability to
produce the disclosure. The Bureau estimates that one-time hourly
burden to comply with the disclosure requirements to be ten hours and
20 minutes, on average, per respondent.
Respondents will have ongoing burden in hours and vendor costs
associated with the information technology used in producing the
disclosure. All respondents will have ongoing vendor costs associated
with distributing (e.g., mailing) the disclosure
[[Page 72369]]
and some will have production costs associated with the new disclosure.
The Bureau estimates this ongoing burden to be 10 minutes and $12, on
average, for each respondent.
6. Requirement To Evaluate Multiple Loss Mitigation Applications
Currently, servicers (other than small servicers) are required to
comply with the loss mitigation provisions of Sec. 1024.41 only once
during the life of a loan, including the provision of up to three
notices per loss mitigation application. Under the final rule,
servicers must comply with the loss mitigation provisions of Sec.
1024.41 for borrowers who have previously completed a loss mitigation
application, so long as the borrower has become current in the period
following the completion of the prior application.
All respondents will have a one-time burden under this requirement
associated with reviewing the regulation and developing a compliance
plan. Certain respondents will have a one-time burden from revising
their systems to provide for evaluation of borrowers for subsequent
loss mitigation applications. The Bureau estimates this one-time burden
to be four hours and 30 minutes, on average, for each respondent. The
Bureau estimates the ongoing burden to be 103 hours and $181, on
average, for each respondent.
B. Information Collection Requirements--Regulation Z
1. Successors in Interest Under Regulation Z
Under the final rule, servicers are subject to Regulation Z's
mortgage servicing requirements with respect to confirmed successors in
interest. All respondents will have a one-time burden under this
requirement associated with reviewing the regulation and developing a
compliance plan. The Bureau estimates that one-time hourly burden to
comply with the disclosure requirements to be one hour and 50 minutes,
on average, per respondent.
Certain respondents will have ongoing vendor costs associated with
distributing (e.g., mailing) the required disclosures and some will
have production costs associated with the new required disclosures. The
Bureau estimates this ongoing burden to be 10 minutes and $7, on
average, for each respondent.
2. Periodic Statements
Under the final rule, respondents that are not small servicers must
provide periodic statements to certain consumers in bankruptcy.
All respondents that are not small servicers will have a one-time
burden under this requirement associated with reviewing the regulation
and developing a compliance plan. Certain respondents will have one-
time burden in hours or vendor costs from changing existing systems to
produce the required new disclosure. The Bureau estimates that one-time
hourly burden to comply with the disclosure requirements to be 31
hours, on average, per respondent.
Respondents will have ongoing burden in hours and vendor costs
associated with the information technology used in producing the
disclosure. Certain respondents will have ongoing vendor costs
associated with distributing (e.g., mailing) the disclosure and some
will have production costs associated with the new disclosure. The
Bureau estimates this ongoing burden to be 43 hours and $4,273, on
average, for each respondent.
C. Summary of Burden Hours--Regulation X
The estimated burden on Bureau respondents from the changes to
Regulation X is summarized below. Under the final rule, the Bureau
accounts for the entire paperwork burden for respondents under
Regulation X.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Disclosures per Hours burden Total burden Total vendor
Respondents respondent per disclosure hours costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ongoing:
Successors in Interest--Regulation X........................... 10,730 6 0.016 1,086 $4,731
Force-Placed Insurance......................................... 10,730 0 0 0 0
Early Intervention Written Notices............................. 592 1,261 0.003 2,239 223,890
Notice of Complete Loss Mitigation Application................. 592 0 0 0 0
Third-Party Information........................................ 592 44 0.003 67 6,681
Loss Mitigation--Subsequent Applications....................... 592 709 0.144 60,571 107,100
One-Time:
Successors in Interest--Regulation X........................... 10,730 1 8.745 93,830 0
Force-Placed Insurance......................................... 10,730 1 1.272 13,652 729,936
Early Intervention Written Notices............................. 592 1 9.514 5,632 0
Notice of Complete Loss Mitigation Application................. 592 1 10.277 6,084 0
Third-Party Information........................................ 592 1 10.327 6,114 60,000
Loss Mitigation--Subsequent Applications....................... 592 1 4.505 2,667 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.
D. Summary of Burden Hours--Regulation Z
The estimated burden on Bureau respondents from the changes to
Regulation Z is summarized below. The Bureau accounts for the paperwork
burden associated with Regulation Z for the following respondents
pursuant to its administrative enforcement authority: Insured
depository institutions with more than $10 billion in total assets,
their depository institution affiliates, and certain non-depository
institutions. The Bureau and the FTC generally both have enforcement
authority over non-depository institutions for Regulation Z.
Accordingly, the Bureau has allocated to itself half of the estimated
burden to non-depository institutions.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total burden Total vendor
Bureau Disclosures Hours burden hours for costs for
respondents per bureau per disclosure bureau bureau
respondent respondents respondents
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ongoing:
Successors in Interest--Regulation Z........................... 551 35 0.003 56 $5,678
Periodic Statements in Bankruptcy.............................. 193 23,938 0.002 8,247 824,670
[[Page 72370]]
One-Time:
Successors in Interest--Regulation Z........................... 551 1 1.842 1,015 0
Periodic Statements in Bankruptcy.............................. 193 1 30.935 5,971 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.
List of Subjects
12 CFR Part 1024
Condominiums, Consumer protection, Housing, Insurance, Mortgages,
Mortgagees, Mortgage servicing, Reporting and recordkeeping
requirements.
12 CFR Part 1026
Advertising, Appraisal, Appraiser, Banking, Banks, Consumer
protection, Credit, Credit unions, Mortgages, National banks, Reporting
and recordkeeping requirements, Savings associations, Truth in lending.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau amends 12 CFR
parts 1024 and 1026 as follows:
PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)
0
1. The authority citation for part 1024 continues to read as follows:
Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532,
5581.
Subpart B--Mortgage Settlement and Escrow Accounts
0
2. Section 1024.6 is amended by revising paragraphs (d)(1) and (2) to
read as follows:
Sec. 1024.6 Special information booklet at time of loan application.
* * * * *
(d) Permissible changes. (1) No changes to, deletions from, or
additions to the special information booklet currently prescribed by
the Bureau shall be made other than the permissible changes specified
in paragraphs (d)(2) and (3) of this section or changes as otherwise
approved in writing by the Bureau in accordance with the procedures
described in this paragraph (d). A request to the Bureau for approval
of any changes other than the permissible changes specified in
paragraphs (d)(2) and (3) of this section shall be submitted in writing
to the address indicated in the definition of Public Guidance Documents
in Sec. 1024.2, stating the reasons why the applicant believes such
changes, deletions, or additions are necessary.
(2) The cover of the booklet may be in any form and may contain any
drawings, pictures, or artwork, provided that the words ``settlement
costs'' are used in the title. Names, addresses and telephone numbers
of the lender or others and similar information may appear on the
cover, but no discussion of the matters covered in the booklet shall
appear on the cover.
* * * * *
0
3. Section 1024.9 is amended by revising paragraphs (a)(5) and (c) to
read as follows:
Sec. 1024.9 Reproduction of settlement statements.
(a) * * *
(5) The following variations in layout and format are within the
discretion of persons reproducing the HUD-1 and do not require prior
Bureau approval: Size of pages; tint or color of pages; size and style
of type or print; vertical spacing between lines or provision for
additional horizontal space on lines (for example, to provide
sufficient space for recording time periods used in prorations);
printing of the HUD-1 contents on separate pages, on the front and back
of a single page, or on one continuous page; use of multicopy tear-out
sets; printing on rolls for computer purposes; reorganization of
sections B through I, when necessary to accommodate computer printing;
and manner of placement of the HUD number, but not the OMB approval
number, neither of which may be deleted. The expiration date associated
with the OMB number listed on the form may be deleted. Any changes in
the HUD number or OMB approval number may be announced by notice in the
Federal Register, rather than by amendment of this part.
* * * * *
(c) Written approval. Any other deviation in the HUD-1 or HUD-1A
forms is permissible only upon receipt of written approval of the
Bureau; provided, however, that notwithstanding contrary instructions
in this section or appendix A of this part, reproducing the HUD-1 or
HUD-1A forms with the Bureau's OMB approval number displayed in place
of HUD's OMB approval number does not require the written approval of
the Bureau. A request to the Bureau for approval shall be submitted in
writing to the address indicated in the definition of Public Guidance
Documents in Sec. 1024.2 and shall state the reasons why the applicant
believes such deviation is needed. The prescribed form(s) must be used
until approval is received.
0
4. Section 1024.17 is amended by revising paragraph (h)(1) to read as
follows:
Sec. 1024.17 Escrow accounts.
* * * * *
(h) Format for initial escrow account statement. (1) The format and
a completed example for an initial escrow account statement are set out
in Public Guidance Documents entitled ``Initial Escrow Account
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure
Statement--Example,'' available in accordance with the direction in the
definition of Public Guidance Documents in Sec. 1024.2.
* * * * *
Subpart C--Mortgage Servicing
0
5. Effective April 19, 2018, Sec. 1024.30 is amended by adding
paragraph (d) to read as follows:
Sec. 1024.30 Scope.
* * * * *
(d) Successors in interest. A confirmed successor in interest shall
be considered a borrower for purposes of Sec. 1024.17 and this
subpart.
0
6. Section 1024.31 is amended by:
0
a. Adding a definition of Delinquency in alphabetical order; and
0
b. Effective April 19, 2018, adding definitions of Confirmed successor
in interest and Successor in interest in alphabetical order.
The additions read as follows:
Sec. 1024.31 Definitions.
* * * * *
Confirmed successor in interest means a successor in interest once
a servicer has confirmed the successor in interest's identity and
ownership interest in a
[[Page 72371]]
property that secures a mortgage loan subject to this subpart.
* * * * *
Delinquency means a period of time during which a borrower and a
borrower's mortgage loan obligation are delinquent. A borrower and a
borrower's mortgage loan obligation are delinquent beginning on the
date a periodic payment sufficient to cover principal, interest, and,
if applicable, escrow becomes due and unpaid, until such time as no
periodic payment is due and unpaid.
* * * * *
Successor in interest means a person to whom an ownership interest
in a property securing a mortgage loan subject to this subpart is
transferred from a borrower, provided that the transfer is:
(1) A transfer by devise, descent, or operation of law on the death
of a joint tenant or tenant by the entirety;
(2) A transfer to a relative resulting from the death of a
borrower;
(3) A transfer where the spouse or children of the borrower become
an owner of the property;
(4) A transfer resulting from a decree of a dissolution of
marriage, legal separation agreement, or from an incidental property
settlement agreement, by which the spouse of the borrower becomes an
owner of the property; or
(5) A transfer into an inter vivos trust in which the borrower is
and remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property.
* * * * *
0
7. Effective April 19, 2018, Sec. 1024.32 is amended by adding
paragraph (c) to read as follows:
Sec. 1024.32 General disclosure requirements.
* * * * *
(c) Successors in interest--(1) Optional notice with acknowledgment
form. Upon confirmation, a servicer may provide a confirmed successor
in interest who is not liable on the mortgage loan obligation with a
written notice together with a separate acknowledgment form that meets
the requirements of paragraph (c)(1)(iv) of this section and that does
not require acknowledgment of any items other than those identified in
paragraph (c)(1)(iv) of this section. The written notice must clearly
and conspicuously explain that:
(i) The servicer has confirmed the successor in interest's identity
and ownership interest in the property;
(ii) Unless the successor in interest assumes the mortgage loan
obligation under State law, the successor in interest is not liable for
the mortgage debt and cannot be required to use the successor in
interest's assets to pay the mortgage debt, except that the lender has
a security interest in the property and a right to foreclose on the
property, when permitted by law and authorized under the mortgage loan
contract;
(iii) The successor in interest may be entitled to receive certain
notices and communications about the mortgage loan if the servicer is
not providing them to another confirmed successor in interest or
borrower on the account;
(iv) In order to receive such notices and communications, the
successor in interest must execute and provide to the servicer an
acknowledgment form that:
(A) Requests receipt of such notices and communications if the
servicer is not providing them to another confirmed successor in
interest or borrower on the account; and
(B) Indicates that the successor in interest understands that such
notices do not make the successor in interest liable for the mortgage
debt and that the successor in interest is only liable for the mortgage
debt if the successor in interest assumes the mortgage loan obligation
under State law; and
(C) Informs the successor in interest that there is no time limit
to return the acknowledgment but that the servicer will not begin
sending such notices and communications to the confirmed successor in
interest until the acknowledgment is returned; and
(v) Whether or not the successor in interest executes the
acknowledgment described in paragraph (c)(1)(iv) of this section, the
successor in interest is entitled to submit notices of error under
Sec. 1024.35, requests for information under Sec. 1024.36, and
requests for a payoff statement under Sec. 1026.36 with respect to the
mortgage loan account, with a brief explanation of those rights and how
to exercise them, including appropriate address information.
(2) Effect of failure to execute acknowledgment. If, upon
confirmation, a servicer provides a confirmed successor in interest who
is not liable on the mortgage loan obligation with a written notice and
acknowledgment form in accordance with paragraph (c)(1) of this
section, the servicer is not required to provide to the confirmed
successor in interest any written disclosure required by Sec. 1024.17,
Sec. 1024.33, Sec. 1024.34, Sec. 1024.37, or Sec. 1024.39 or to
comply with the live contact requirements in Sec. 1024.39(a) with
respect to the confirmed successor in interest until the confirmed
successor in interest either assumes the mortgage loan obligation under
State law or executes an acknowledgment that complies with paragraph
(c)(1)(iv) of this section and provides it to the servicer.
(3) Additional copies of acknowledgment form. If a servicer
provides a confirmed successor in interest with a written notice and
acknowledgment form in accordance with paragraph (c)(1) of this
section, the servicer must make additional copies of the written notice
and acknowledgment form available to the confirmed successor in
interest upon written or oral request.
(4) Multiple notices unnecessary. Except as required by Sec.
1024.36, a servicer is not required to provide to a confirmed successor
in interest any written disclosure required by Sec. 1024.17, Sec.
1024.33, Sec. 1024.34, Sec. 1024.37, or Sec. 1024.39(b) if the
servicer is providing the same specific disclosure to another borrower
on the account. A servicer is also not required to comply with the live
contact requirements set forth in Sec. 1024.39(a) with respect to a
confirmed successor in interest if the servicer is complying with those
requirements with respect to another borrower on the account.
0
8. Effective April 19, 2018, Sec. 1024.35 is amended by adding
paragraph (e)(5) to read as follows:
Sec. 1024.35 Error resolution procedures.
* * * * *
(e) * * *
(5) Omissions in responses to requests for documentation. In its
response to a request for documentation under paragraph (e)(4) of this
section, a servicer may omit location and contact information and
personal financial information (other than information about the terms,
status, and payment history of the mortgage loan) if:
(i) The information pertains to a potential or confirmed successor
in interest who is not the requester; or
(ii) The requester is a confirmed successor in interest and the
information pertains to any borrower who is not the requester.
* * * * *
0
9. Effective April 19, 2018, Sec. 1024.36 is amended by adding
paragraphs (d)(3) and (i) to read as follows:
Sec. 1024.36 Requests for information.
* * * * *
(d) * * *
(3) Omissions in responses to requests. In its response to a
request for information, a servicer may omit location and contact
information and personal financial information (other than information
about the terms, status,
[[Page 72372]]
and payment history of the mortgage loan) if:
(i) The information pertains to a potential or confirmed successor
in interest who is not the requester; or
(ii) The requester is a confirmed successor and the information
pertains to any borrower who is not the requester.
* * * * *
(i) Potential successors in interest. (1) With respect to any
written request from a person that indicates that the person may be a
successor in interest and that includes the name of the transferor
borrower from whom the person received an ownership interest and
information that enables the servicer to identify the mortgage loan
account, a servicer shall respond by providing the potential successor
in interest with a written description of the documents the servicer
reasonably requires to confirm the person's identity and ownership
interest in the property and contact information, including a telephone
number, for further assistance. With respect to the written request, a
servicer shall treat the potential successor in interest as a borrower
for purposes of the requirements of paragraphs (c) through (g) of this
section.
(2) If a written request under paragraph (i)(1) of this section
does not provide sufficient information to enable the servicer to
identify the documents the servicer reasonably requires to confirm the
person's identity and ownership interest in the property, the servicer
may provide a response that includes examples of documents typically
accepted to establish identity and ownership interest in a property;
indicates that the person may obtain a more individualized description
of required documents by providing additional information; specifies
what additional information is required to enable the servicer to
identify the required documents; and provides contact information,
including a telephone number, for further assistance. A servicer's
response under this paragraph (i)(2) must otherwise comply with the
requirements of paragraph (i)(1). Notwithstanding paragraph (f)(1)(i)
of this section, if a potential successor in interest subsequently
provides orally or in writing the required information specified by the
servicer pursuant to this paragraph (i)(2), the servicer must treat the
new information, together with the original request, as a new, non-
duplicative request under paragraph (i)(1), received as of the date the
required information was received, and must respond accordingly.
(3) In responding to a request under paragraph (i)(1) of this
section prior to confirmation, the servicer is not required to provide
any information other than the information specified in paragraphs
(i)(1) and (2) of this section. In responding to a written request
under paragraph (i)(1) that requests other information, the servicer
must indicate that the potential successor in interest may resubmit any
request for information once confirmed as a successor in interest.
(4) If a servicer has established an address that a borrower must
use to request information pursuant to paragraph (b) of this section, a
servicer must comply with the requirements of paragraph (i)(1) of this
section only for requests received at the established address.
0
10. Section 1024.37 is amended by revising paragraphs (c)(2)(v),
(c)(4), (d)(2)(ii) introductory text, (d)(2)(ii)(B), (d)(3), (d)(4),
and (e)(4) to read as follows:
Sec. 1024.37 Force-placed insurance.
* * * * *
(c) * * *
(2) * * *
(v) A statement that:
(A) The borrower's hazard insurance is expiring, has expired, or
provides insufficient coverage, as applicable;
(B) The servicer does not have evidence that the borrower has
hazard insurance coverage past the expiration date or evidence that the
borrower has hazard insurance that provides sufficient coverage, as
applicable; and
(C) If applicable, identifies the type of hazard insurance for
which the servicer lacks evidence of coverage;
* * * * *
(4) Additional information. Except for the mortgage loan account
number, a servicer may not include any information other than
information required by paragraph (c)(2) of this section in the written
notice required by paragraph (c)(1)(i) of this section. However, a
servicer may provide such additional information to a borrower on
separate pieces of paper in the same transmittal.
(d) * * *
(2) * * *
(ii) Servicer lacking evidence of continuous coverage. A servicer
that has received hazard insurance information after delivering to a
borrower or placing in the mail the notice required by paragraph
(c)(1)(i) of this section, but has not received, from the borrower or
otherwise, evidence demonstrating that the borrower has had sufficient
hazard insurance coverage in place continuously, must set forth in the
notice required by paragraph (c)(1)(ii) of this section the following
information:
* * * * *
(B) The information required by paragraphs (c)(2)(ii) through (iv)
and (ix) through (xi) and (d)(2)(i)(B) and (D) of this section;
* * * * *
(3) Format. A servicer must set the information required by
paragraphs (d)(2)(i)(B) and (D) of this section in bold text. The
requirements of paragraph (c)(3) of this section apply to the
information required by paragraph (d)(2)(i)(C) of this section. A
servicer may use form MS-3B in appendix MS-3 of this part to comply
with the requirements of paragraphs (d)(1) and (d)(2)(i) of this
section. A servicer may use form MS-3C in appendix MS-3 of this part to
comply with the requirements of paragraphs (d)(1) and (d)(2)(ii) of
this section.
(4) Additional information. Except for the borrower's mortgage loan
account number, a servicer may not include any information other than
information required by paragraph (d)(2)(i) or (ii) of this section, as
applicable, in the written notice required by paragraph (c)(1)(ii) of
this section. However, a servicer may provide such additional
information to a borrower on separate pieces of paper in the same
transmittal.
* * * * *
(e) * * *
(4) Additional information. Except for the borrower's mortgage loan
account number, a servicer may not include any information other than
information required by paragraph (e)(2) of this section in the written
notice required by paragraph (e)(1) of this section. However, a
servicer may provide such additional information to a borrower on
separate pieces of paper in the same transmittal.
* * * * *
0
11. Section 1024.38 is amended by:
0
a. Adding paragraph (b)(2)(vi); and
0
b. Effective April 19, 2018, revising paragraph (b)(1)(vi).
The addition and revision read as follows:
Sec. 1024.38 General servicing policies, procedures, and
requirements.
* * * * *
(b) * * *
(1) * * *
(vi)(A) Upon receiving notice of the death of a borrower or of any
transfer of the property securing a mortgage loan, promptly facilitate
communication with any potential or confirmed successors in interest
regarding the property;
[[Page 72373]]
(B) Upon receiving notice of the existence of a potential successor
in interest, promptly determine the documents the servicer reasonably
requires to confirm that person's identity and ownership interest in
the property and promptly provide to the potential successor in
interest a description of those documents and how the person may submit
a written request under Sec. 1024.36(i) (including the appropriate
address); and
(C) Upon the receipt of such documents, promptly make a
confirmation determination and promptly notify the person, as
applicable, that the servicer has confirmed the person's status, has
determined that additional documents are required (and what those
documents are), or has determined that the person is not a successor in
interest.
* * * * *
(2) * * *
(vi) Promptly identify and obtain documents or information not in
the borrower's control that the servicer requires to determine which
loss mitigation options, if any, to offer the borrower in accordance
with the requirements of Sec. 1024.41(c)(4).
* * * * *
0
12. Section 1024.39 is amended by revising paragraphs (a), (b)(1), (c),
and (d) to read as follows:
Sec. 1024.39 Early intervention requirements for certain borrowers.
(a) Live contact. Except as otherwise provided in this section, a
servicer shall establish or make good faith efforts to establish live
contact with a delinquent borrower no later than the 36th day of a
borrower's delinquency and again no later than 36 days after each
payment due date so long as the borrower remains delinquent. Promptly
after establishing live contact with a borrower, the servicer shall
inform the borrower about the availability of loss mitigation options,
if appropriate.
(b) Written notice--(1) Notice required. Except as otherwise
provided in this section, a servicer shall provide to a delinquent
borrower a written notice with the information set forth in paragraph
(b)(2) of this section no later than the 45th day of the borrower's
delinquency and again no later than 45 days after each payment due date
so long as the borrower remains delinquent. A servicer is not required
to provide the written notice, however, more than once during any 180-
day period. If a borrower is 45 days or more delinquent at the end of
any 180-day period after the servicer has provided the written notice,
a servicer must provide the written notice again no later than 180 days
after the provision of the prior written notice. If a borrower is less
than 45 days delinquent at the end of any 180-day period after the
servicer has provided the written notice, a servicer must provide the
written notice again no later than 45 days after the payment due date
for which the borrower remains delinquent.
* * * * *
(c) Borrowers in bankruptcy--(1) Partial exemption. While any
borrower on a mortgage loan is a debtor in bankruptcy under title 11 of
the United States Code, a servicer, with regard to that mortgage loan:
(i) Is exempt from the requirements of paragraph (a) of this
section;
(ii) Is exempt from the requirements of paragraph (b) of this
section if no loss mitigation option is available, or if any borrower
on the mortgage loan has provided a notification pursuant to the Fair
Debt Collection Practices Act (FDCPA) section 805(c) (15 U.S.C.
1692c(c)) with respect to that mortgage loan as referenced in paragraph
(d) of this section; and
(iii) If the conditions of paragraph (c)(1)(ii) of this section are
not met, must comply with the requirements of paragraph (b) of this
section, as modified by this paragraph (c)(1)(iii):
(A) If a borrower is delinquent when the borrower becomes a debtor
in bankruptcy, a servicer must provide the written notice required by
paragraph (b) of this section not later than the 45th day after the
borrower files a bankruptcy petition under title 11 of the United
States Code. If the borrower is not delinquent when the borrower files
a bankruptcy petition, but subsequently becomes delinquent while a
debtor in bankruptcy, the servicer must provide the written notice not
later than the 45th day of the borrower's delinquency. A servicer must
comply with these timing requirements regardless of whether the
servicer provided the written notice in the preceding 180-day period.
(B) The written notice required by paragraph (b) of this section
may not contain a request for payment.
(C) A servicer is not required to provide the written notice
required by paragraph (b) of this section more than once during a
single bankruptcy case.
(2) Resuming compliance. (i) Except as provided in paragraph
(c)(2)(ii) of this section, a servicer that was exempt from paragraphs
(a) and (b) of this section pursuant to paragraph (c)(1) of this
section must resume compliance with paragraphs (a) and (b) of this
section after the next payment due date that follows the earliest of
the following events:
(A) The bankruptcy case is dismissed;
(B) The bankruptcy case is closed; and
(C) The borrower reaffirms personal liability for the mortgage
loan.
(ii) With respect to a mortgage loan for which the borrower has
discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or
1328, a servicer:
(A) Is not required to resume compliance with paragraph (a) of this
section; and
(B) Must resume compliance with paragraph (b) of this section if
the borrower has made any partial or periodic payment on the mortgage
loan after the commencement of the borrower's bankruptcy case.
(d) Fair Debt Collection Practices Act--partial exemption. With
regard to a mortgage loan for which any borrower has provided a
notification pursuant to the Fair Debt Collection Practices Act (FDCPA)
section 805(c) (15 U.S.C. 1692c(c)), a servicer subject to the FDCPA
with respect to that borrower's loan:
(1) Is exempt from the requirements of paragraph (a) of this
section;
(2) Is exempt from the requirements of paragraph (b) of this
section if no loss mitigation option is available, or while any
borrower on that mortgage loan is a debtor in bankruptcy under title 11
of the United States Code as referenced in paragraph (c) of this
section; and
(3) If the conditions of paragraph (d)(2) of this section are not
met, must comply with the requirements of paragraph (b) of this
section, as modified by this paragraph (d)(3):
(i) In addition to the information required pursuant to paragraph
(b)(2) of this section, the written notice must include a statement
that the servicer may or intends to invoke its specified remedy of
foreclosure. Model clause MS-4(D) in appendix MS-4 to this part may be
used to comply with this requirement.
(ii) The written notice may not contain a request for payment.
(iii) A servicer is prohibited from providing the written notice
more than once during any 180-day period.
0
13. Section 1024.41 is amended by:
0
a. Revising paragraphs (c)(1) introductory text and (c)(2)(iii) and
(iv);
0
b. Adding paragraphs (c)(3) and (4);
0
c. Revising paragraphs (f)(1)(iii) and (i); and
0
d. Adding paragraph (k).
The revisions and additions read as follows:
Sec. 1024.41 Loss mitigation procedures.
* * * * *
(c) * * *
(1) Complete loss mitigation application. Except as provided in
[[Page 72374]]
paragraph (c)(4)(ii) of this section, if a servicer receives a complete
loss mitigation application more than 37 days before a foreclosure
sale, then, within 30 days of receiving the complete loss mitigation
application, a servicer shall:
* * * * *
(2) * * *
(iii) Short-term loss mitigation options. Notwithstanding paragraph
(c)(2)(i) of this section, a servicer may offer a short-term payment
forbearance program or a short-term repayment plan to a borrower based
upon an evaluation of an incomplete loss mitigation application.
Promptly after offering a payment forbearance program or a repayment
plan under this paragraph (c)(2)(iii), unless the borrower has rejected
the offer, the servicer must provide the borrower a written notice
stating the specific payment terms and duration of the program or plan,
that the servicer offered the program or plan based on an evaluation of
an incomplete application, that other loss mitigation options may be
available, and that the borrower has the option to submit a complete
loss mitigation application to receive an evaluation for all loss
mitigation options available to the borrower regardless of whether the
borrower accepts the program or plan. A servicer shall not make the
first notice or filing required by applicable law for any judicial or
non-judicial foreclosure process, and shall not move for foreclosure
judgment or order of sale or conduct a foreclosure sale, if a borrower
is performing pursuant to the terms of a payment forbearance program or
repayment plan offered pursuant to this paragraph (c)(2)(iii). A
servicer may offer a short-term payment forbearance program in
conjunction with a short-term repayment plan pursuant to this paragraph
(c)(2)(iii).
(iv) Facially complete application. A loss mitigation application
shall be considered facially complete when a borrower submits all the
missing documents and information as stated in the notice required
under paragraph (b)(2)(i)(B) of this section, when no additional
information is requested in such notice, or once the servicer is
required to provide the borrower a written notice pursuant to paragraph
(c)(3)(i) of this section. If the servicer later discovers that
additional information or corrections to a previously submitted
document are required to complete the application, the servicer must
promptly request the missing information or corrected documents and
treat the application as complete for the purposes of paragraphs (f)(2)
and (g) of this section until the borrower is given a reasonable
opportunity to complete the application. If the borrower completes the
application within this period, the application shall be considered
complete as of the date it first became facially complete, for the
purposes of paragraphs (d), (e), (f)(2), (g), and (h) of this section,
and as of the date the application was actually complete for the
purposes of this paragraph (c). A servicer that complies with this
paragraph (c)(2)(iv) will be deemed to have fulfilled its obligation to
provide an accurate notice under paragraph (b)(2)(i)(B) of this
section.
(3) Notice of complete application. (i) Except as provided in
paragraph (c)(3)(ii) of this section, within 5 days (excluding legal
public holidays, Saturdays, and Sundays) after receiving a borrower's
complete loss mitigation application, a servicer shall provide the
borrower a written notice that sets forth the following information:
(A) That the loss mitigation application is complete;
(B) The date the servicer received the complete application;
(C) That the servicer expects to complete its evaluation within 30
days of the date it received the complete application;
(D) That the borrower is entitled to certain foreclosure
protections because the servicer has received the complete application,
and, as applicable, either:
(1) If the servicer has not made the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure
process, that the servicer cannot make the first notice or filing
required to commence or initiate the foreclosure process under
applicable law before evaluating the borrower's complete application;
or
(2) If the servicer has made the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process,
that the servicer has begun the foreclosure process, and that the
servicer cannot conduct a foreclosure sale before evaluating the
borrower's complete application;
(E) That the servicer may need additional information at a later
date to evaluate the application, in which case the servicer will
request that information from the borrower and give the borrower a
reasonable opportunity to submit it, the evaluation process may take
longer, and the foreclosure protections could end if the servicer does
not receive the information as requested; and
(F) That the borrower may be entitled to additional protections
under State or Federal law.
(ii) A servicer is not required to provide a notice pursuant to
paragraph (c)(3)(i) of this section if:
(A) The servicer has already provided the borrower a notice under
paragraph (b)(2)(i)(B) of this section informing the borrower that the
application is complete and the servicer has not subsequently requested
additional information or a corrected version of a previously submitted
document from the borrower pursuant to paragraph (c)(2)(iv) of this
section;
(B) The application was not complete or facially complete more than
37 days before a foreclosure sale; or
(C) The servicer has already provided the borrower a notice
regarding the application under paragraph (c)(1)(ii) of this section.
(4) Information not in the borrower's control--(i) Reasonable
diligence. If a servicer requires documents or information not in the
borrower's control to determine which loss mitigation options, if any,
it will offer to the borrower, the servicer must exercise reasonable
diligence in obtaining such documents or information.
(ii) Effect in case of delay. (A)(1) Except as provided in
paragraph (c)(4)(ii)(A)(2) of this section, a servicer must not deny a
complete loss mitigation application solely because the servicer lacks
required documents or information not in the borrower's control.
(2) If a servicer has exercised reasonable diligence to obtain
required documents or information from a party other than the borrower
or the servicer, but the servicer has been unable to obtain such
documents or information for a significant period of time following the
30-day period identified in paragraph (c)(1) of this section, and the
servicer, in accordance with applicable requirements established by the
owner or assignee of the borrower's mortgage loan, is unable to
determine which loss mitigation options, if any, it will offer the
borrower without such documents or information, the servicer may deny
the application and provide the borrower with a written notice in
accordance with paragraph (c)(1)(ii) of this section. When providing
the written notice in accordance with paragraph (c)(1)(ii) of this
section, the servicer must also provide the borrower with a copy of the
written notice required by paragraph (c)(4)(ii)(B) of this section.
(B) If a servicer is unable to make a determination within the 30-
day period identified in paragraph (c)(1) of this section as to which
loss mitigation options, if any, it will offer to the borrower because
the servicer lacks required documents or information from
[[Page 72375]]
a party other than the borrower or the servicer, the servicer must,
within such 30-day period or promptly thereafter, provide the borrower
a written notice, informing the borrower:
(1) That the servicer has not received documents or information not
in the borrower's control that the servicer requires to determine which
loss mitigation options, if any, it will offer to the borrower on
behalf of the owner or assignee of the mortgage;
(2) Of the specific documents or information that the servicer
lacks;
(3) That the servicer has requested such documents or information;
and
(4) That the servicer will complete its evaluation of the borrower
for all available loss mitigation options promptly upon receiving the
documents or information.
(C) If a servicer must provide a notice required by paragraph
(c)(4)(ii)(B) of this section, the servicer must not provide the
borrower a written notice pursuant to paragraph (c)(1)(ii) of this
section until the servicer receives the required documents or
information referenced in paragraph (c)(4)(ii)(B)(2) of this section,
except as provided in paragraph (c)(4)(ii)(A)(2) of this section. Upon
receiving such required documents or information, the servicer must
promptly provide the borrower with the written notice pursuant to
paragraph (c)(1)(ii) of this section.
* * * * *
(f) * * *
(1) * * *
(iii) The servicer is joining the foreclosure action of a superior
or subordinate lienholder.
* * * * *
(i) Duplicative requests. A servicer must comply with the
requirements of this section for a borrower's loss mitigation
application, unless the servicer has previously complied with the
requirements of this section for a complete loss mitigation application
submitted by the borrower and the borrower has been delinquent at all
times since submitting the prior complete application.
* * * * *
(k) Servicing transfers--(1) In general--(i) Timing of compliance.
Except as provided in paragraphs (k)(2) through (4) of this section, if
a transferee servicer acquires the servicing of a mortgage loan for
which a loss mitigation application is pending as of the transfer date,
the transferee servicer must comply with the requirements of this
section for that loss mitigation application within the timeframes that
were applicable to the transferor servicer based on the date the
transferor servicer received the loss mitigation application. All
rights and protections under paragraphs (c) through (h) of this section
to which a borrower was entitled before a transfer continue to apply
notwithstanding the transfer.
(ii) Transfer date defined. For purposes of this paragraph (k), the
transfer date is the date on which the transferee servicer will begin
accepting payments relating to the mortgage loan, as disclosed on the
notice of transfer of loan servicing pursuant to Sec.
1024.33(b)(4)(iv).
(2) Acknowledgment notices--(i) Transferee servicer timeframes. If
a transferee servicer acquires the servicing of a mortgage loan for
which the period to provide the notice required by paragraph
(b)(2)(i)(B) of this section has not expired as of the transfer date
and the transferor servicer has not provided such notice, the
transferee servicer must provide the notice within 10 days (excluding
legal public holidays, Saturdays, and Sundays) of the transfer date.
(ii) Prohibitions. A transferee servicer that must provide the
notice required by paragraph (b)(2)(i)(B) of this section under this
paragraph (k)(2):
(A) Shall not make the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process
until a date that is after the reasonable date disclosed to the
borrower pursuant to paragraph (b)(2)(ii) of this section,
notwithstanding paragraph (f)(1) of this section. For purposes of
paragraph (f)(2) of this section, a borrower who submits a complete
loss mitigation application on or before the reasonable date disclosed
to the borrower pursuant to paragraph (b)(2)(ii) of this section shall
be treated as having done so during the pre-foreclosure review period
set forth in paragraph (f)(1) of this section.
(B) Shall comply with paragraphs (c), (d), and (g) of this section
if the borrower submits a complete loss mitigation application to the
transferee or transferor servicer 37 or fewer days before the
foreclosure sale but on or before the reasonable date disclosed to the
borrower pursuant to paragraph (b)(2)(ii) of this section.
(3) Complete loss mitigation applications pending at transfer. If a
transferee servicer acquires the servicing of a mortgage loan for which
a complete loss mitigation application is pending as of the transfer
date, the transferee servicer must comply with the applicable
requirements of paragraphs (c)(1) and (4) of this section within 30
days of the transfer date.
(4) Applications subject to appeal process. If a transferee
servicer acquires the servicing of a mortgage loan for which an appeal
of a transferor servicer's determination pursuant to paragraph (h) of
this section has not been resolved by the transferor servicer as of the
transfer date or is timely filed after the transfer date, the
transferee servicer must make a determination on the appeal if it is
able to do so or, if it is unable to do so, must treat the appeal as a
pending complete loss mitigation application.
(i) Determining appeal. If a transferee servicer is required under
this paragraph (k)(4) to make a determination on an appeal, the
transferee servicer must complete the determination and provide the
notice required by paragraph (h)(4) of this section within 30 days of
the transfer date or 30 days of the date the borrower made the appeal,
whichever is later.
(ii) Servicer unable to determine appeal. A transferee servicer
that is required to treat a borrower's appeal as a pending complete
loss mitigation application under this paragraph (k)(4) must comply
with the requirements of this section for such application, including
evaluating the borrower for all loss mitigation options available to
the borrower from the transferee servicer. For purposes of paragraph
(c) or (k)(3) of this section, as applicable, such a pending complete
loss mitigation application shall be considered complete as of the date
the appeal was received by the transferor servicer or the transferee
servicer, whichever occurs first. For purposes of paragraphs (e)
through (h) of this section, the transferee servicer must treat such a
pending complete loss mitigation application as facially complete under
paragraph (c)(2)(iv) as of the date it was first facially complete or
complete, as applicable, with respect to the transferor servicer.
(5) Pending loss mitigation offers. A transfer does not affect a
borrower's ability to accept or reject a loss mitigation option offered
under paragraph (c) or (h) of this section. If a transferee servicer
acquires the servicing of a mortgage loan for which the borrower's time
period under paragraph (e) or (h) of this section for accepting or
rejecting a loss mitigation option offered by the transferor servicer
has not expired as of the transfer date, the transferee servicer must
allow the borrower to accept or reject the offer during the unexpired
balance of the applicable time period.
0
14. Revise the heading for appendix MS--Mortgage Servicing to read as
follows:
[[Page 72376]]
Appendix MS to Part 1024--Mortgage Servicing
* * * * *
0
15. Revise appendix MS-3 to part 1024 to read as follows:
Appendix MS-3 to Part 1024
Model Force-Placed Insurance Notice Forms
Table of Contents
MS-3(A)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(c)(2)
MS-3(B)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(d)(2)(i)
MS-3(C)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(d)(2)(ii)
MS-3(D)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(e)(2)
MS-3(A)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(c)(2)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Please provide insurance information for [Property Address]
Dear [Borrower's Name]:
Our records show that your [hazard] [Insurance Type] insurance
[is expiring] [expired] [provides insufficient coverage], and we do
not have evidence that you have obtained new coverage. Because
[hazard] [Insurance Type] insurance is required on your property,
[we bought insurance for your property] [we plan to buy insurance
for your property]. You must pay us for any period during which the
insurance we buy is in effect but you do not have insurance.
You should immediately provide us with your insurance
information. [Describe the insurance information the borrower must
provide]. [The information must be provided in writing.]
The insurance we [bought] [buy]:
May be significantly more expensive than the
insurance you can buy yourself.
May not provide as much coverage as an
insurance policy you buy yourself.
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
MS-3(B)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(d)(2)(i)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Second and final notice--please provide insurance
information for [Property Address]
Dear [Borrower's Name]:
This is your second and final notice that our records show that
your [hazard] [Insurance Type] insurance [is expiring] [expired]
[provides insufficient coverage], and we do not have evidence that
you have obtained new coverage. Because [hazard] [Insurance Type]
insurance is required on your property, [we bought insurance for
your property] [we plan to buy insurance for your property]. You
must pay us for any period during which the insurance we buy is in
effect but you do not have insurance.
You should immediately provide us with your insurance
information. [Describe the insurance information the borrower must
provide]. [The information must be provided in writing.]
The insurance we [bought] [buy]:
[Costs $[premium charge]] [Will cost an
estimated $[premium charge]] annually, which may be significantly
more expensive than insurance you can buy yourself.
May not provide as much coverage as an
insurance policy you buy yourself.
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
MS-3(C)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(d)(2)(ii)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Second and final notice--please provide insurance
information for [Property Address]
Dear [Borrower's Name]:
We received the insurance information you provided, but we are
unable to verify coverage from [Date Range].
Please provide us with insurance information for [Date Range]
immediately.
We will charge you for insurance we [bought] [plan to buy] for
[Date Range] unless we can verify that you have insurance coverage
for [Date Range].
The insurance we [bought] [buy]:
[Costs $[premium charge]] [Will cost an
estimated $[premium charge]] annually, which may be significantly
more expensive than insurance you can buy yourself.
May not provide as much coverage as an
insurance policy you buy yourself.
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
MS-3(D)--Model Form for Force-Placed Insurance Notice Containing
Information Required by Sec. 1024.37(e)(2)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Please update insurance information for [Property Address]
Dear [Borrower's Name]:
Because we did not have evidence that you had [hazard]
[Insurance Type] insurance on the property listed above, we bought
insurance on your property and added the cost to your mortgage loan
account.
The policy that we bought [expired] [is scheduled to expire].
Because [hazard][Insurance Type] insurance] is required on your
property, we intend to maintain insurance on your property by
renewing or replacing the insurance we bought.
The insurance we buy:
[Costs $[premium charge]] [Will cost an
estimated $[premium charge]] annually, which may be significantly
more expensive than insurance you can buy yourself.
May not provide as much coverage as an
insurance policy you buy yourself.
If you buy [hazard] [Insurance Type] insurance, you should
immediately provide us with your insurance information.
[Describe the insurance information the borrower must provide].
[The information must be provided in writing.]
If you have any questions, please contact us at [telephone
number].
[If applicable, provide a statement advising a borrower to
review additional information provided in the same transmittal.]
0
16. In appendix MS-4 to part 1024, MS-4(D) is added to read as follows:
Appendix MS-4 to Part 1024--Model Clauses for the Written Early
Intervention Notice
* * * * *
MS-4(D)--Written Early Intervention Notice for Servicers Subject to
FDCPA (Sec. 1024.39(d)(2)(iii))
This is a legally required notice. We are sending this notice to
you because you are behind on your mortgage payment. We want to
notify you of possible ways to avoid losing your home. We have a
right to invoke foreclosure based on the terms of your mortgage
contact. Please read this letter carefully.
0
17. In supplement I to part 1024--Official Bureau Interpretations:
0
a. Under Sec. 1024.30--Scope, after the entry 30(b) Exemptions:
0
i. The heading Paragraph 30(c)(2) is added, and paragraph 1 under that
heading is added.
0
ii. Effective April 19, 2018, the heading 30(d) Successors in interest
is added, and paragraphs 1 through 3 under that heading are added.
0
b. Under Sec. 1024.31-Definitions:
0
i. The heading Delinquency is added, in alphabetical order, and
paragraphs 1 through 4 under that heading are added.
0
ii. Effective April 19, 2018, the heading Successor in interest is
added, in alphabetical order, and paragraphs 1 and 2 under that heading
are added.
0
c. Effective April 19, 2018, after the entry for Sec. 1024.31--
Definitions, add the entry Sec. 1024.32--General Disclosure
Requirements.
0
d. Under Sec. 1024.36--Requests for Information:
0
i. Under 36(a) Information request, paragraph 2 is revised.
0
ii. Effective April 19, 2018, after the entry for Paragraph
36(f)(1)(iv), the
[[Page 72377]]
heading 36(i) Potential successors in interest is added, and paragraphs
1 through 3 under that heading are added.
0
e. Under Sec. 1024.37--Force-Placed Insurance:
0
i. The heading 37(d)(4) Updating notice with borrower information is
redesignated as 37(d)(5) Updating notice with borrower information.
0
ii. Under newly redesignated heading 37(d)(5) Updating notice with
borrower information, paragraph 1 is revised.
0
f. The heading for Section 1024.38 is revised and under that heading:
0
i. Effective April 19, 2018, after the entry for Paragraph
38(b)(1)(iv), the heading Paragraph 38(b)(1)(vi) is added, and
paragraphs 1 through 5 under that heading are added.
0
ii. After the entry for Paragraph 38(b)(2)(v), the heading 38(b)(3)
Facilitating oversight of, and compliance by, service providers, the
heading Paragraph 38(b)(3)(iii), and paragraph 1 under that heading are
added.
0
g. Under Sec. 1024.39--Early Intervention Requirements for Certain
Borrowers:
0
i. Under 39(a) Live contact, paragraphs 1 introductory text, 1.i., and
2 are revised; paragraphs 3 and 4 are redesignated as paragraphs 4 and
5; a new paragraph 3 is added; newly redesignated paragraphs 4 and 5
are revised; and paragraph 6 is added.
0
ii. Under 39(b)(1) Notice required, paragraphs 2 and 3 are revised and
paragraph 5 is added.
0
iii. After the entry for Paragraph 39(b)(2)(iv), the heading 39(c)
Borrowers in bankruptcy is added, and paragraphs 1 and 2 under that
heading are added.
0
iv. Under 39(c) Borrowers in bankruptcy:
0
A. The heading 39(c)(1) Borrowers in bankruptcy--Partial exemption is
added, and paragraph 1 under that heading is added.
0
B. The heading Paragraph 39(c)(1)(ii) is added, and paragraphs 1 and 2
under that heading are added.
0
C. The heading Paragraph 39(c)(1)(iii) is added, and paragraph 1 under
that heading is added.
0
D. The heading 39(c)(2) Resuming compliance is added, and paragraph 1
under that heading is added.
0
v. The heading 39(d) Fair Debt Collection Practices Act--partial
exemption is added, and paragraphs 1 and 2 under that heading are
added.
0
vi. The heading 39(d)(1) Borrowers in bankruptcy is removed, and
paragraphs 1 through 3 under that heading are removed.
0
vii. The heading Paragraph 39(d)(2) is added, and paragraph 1 under
that heading is added.
0
h. Under Sec. 1024.40--Continuity of Contact, under 40(a) In general,
paragraph 3 is revised.
0
i. Under Sec. 1024.41--Loss Mitigation Procedures:
0
i. Effective April 19, 2018, under 41(b) Receipt of a loss mitigation
application, paragraph 1 is added.
0
ii. Under 41(b)(1) Complete loss mitigation application, paragraph 1 is
revised, the introductory text to paragraph 4 is revised, and paragraph
4.iii is revised.
0
iii. Under 41(b)(2)(i) Requirements, paragraph 1 is added.
0
iv. Under 41(b)(2)(ii) Time period disclosure, paragraph 1 is revised,
and paragraphs 2 and 3 are added.
0
v. The heading for 41(c) is revised.
0
vi. Under 41(c)(1) Complete loss mitigation application, paragraph 4 is
added.
0
vii. The heading for 41(c)(2)(iii) is revised, paragraphs 1 through 3
under that heading are revised, and paragraphs 4 through 6 under that
heading are added.
0
viii. After the entry for 41(c)(2)(iv) Facially complete application,
the heading 41(c)(3) Notice of complete application is added.
0
ix. The heading Paragraph 41(c)(3)(i) is added, and paragraphs 1
through 3 under that heading are added.
0
x. The heading 41(c)(4) Information not in the borrower's control is
added.
0
xi. The heading 41(c)(4)(i) Diligence requirements is added, and
paragraphs 1 and 2 under that heading are added.
0
xii. The heading 41(c)(4)(ii) Effect in case of delay is added, and
paragraphs 1 and 2 under that heading are added.
0
xiii. Under 41(d) Denial of loan modification options, paragraph
(c)(1)(4) is removed.
0
xiv. Under 41(g) Prohibition on foreclosure sale, paragraph 3 is
revised, and paragraph 5 is added.
0
xv. Under 41(i) Duplicative requests, paragraphs 1 and 2 are revised.
0
xvi. The heading 41(k) Servicing transfers is added, and paragraph 1
under that heading is added.
0
xvii. The heading 41(k)(1) In general is added.
0
xviii. The heading 41(k)(1)(i) Timing of compliance is added, and
paragraphs 1 through 3 under that heading are added.
0
xix. The heading 41(k)(1)(ii) Transfer date defined is added, and
paragraph 1 under that heading is added.
0
xx. The heading 41(k)(2) Acknowledgment notices is added.
0
xxi. The heading 41(k)(2)(ii) Prohibitions is added, and paragraphs 1
through 3 under that heading are added.
0
xxii. The heading 41(k)(3) Complete loss mitigation applications
pending at transfer is added, and paragraphs 1 and 2 under that heading
are added.
0
xxiii. The heading 41(k)(4) Applications subject to appeal process is
added, and paragraphs 1 and 2 under that heading are added.
0
xxiv. The heading 41(k)(5) Pending loss mitigation offers is added, and
paragraph 1 under that heading is added.
0
j. The heading for Appendix MS is revised.
0
k. Effective April 19, 2018, under the heading for Appendix MS,
paragraph 2 is revised.
The revisions and additions read as follows:
Supplement I to Part 1024--Official Bureau Interpretations
* * * * *
Subpart C--Mortgage Servicing
Sec. 1024.30 Scope.
* * * * *
Paragraph 30(c)(2).
1. Principal residence. If a property ceases to be a borrower's
principal residence, the procedures set forth in Sec. Sec. 1024.39
through 1024.41 do not apply to a mortgage loan secured by that
property. Determination of principal residence status will depend on
the specific facts and circumstances regarding the property and
applicable State law. For example, a vacant property may still be a
borrower's principal residence.
30(d) Successors in interest.
1. Treatment of confirmed successors in interest. Under Sec.
1024.30(d), a confirmed successor in interest must be considered a
borrower for purposes of this subpart and Sec. 1024.17, regardless of
whether the successor in interest assumes the mortgage loan obligation
under State law. For example, if a servicer receives a loss mitigation
application from a confirmed successor in interest, the servicer must
review and evaluate the application and notify the confirmed successor
in interest in accordance with the procedures set forth in Sec.
1024.41 if the property is the confirmed successor in interest's
principal residence and the procedures set forth in Sec. 1024.41 are
otherwise applicable. Treatment of a confirmed successor in interest as
a borrower for purposes of this subpart and Sec. 1024.17 does not
affect whether the confirmed successor in interest is subject to the
contractual obligations of the mortgage loan agreement, which is
determined by applicable State law. Communications in compliance with
this part to a confirmed successor in interest as defined in Sec.
1024.31 do not violate
[[Page 72378]]
section 805(b) of the Fair Debt Collection Practices Act (FDCPA)
because consumer for purposes of FDCPA section 805 includes any person
who meets the definition in this part of confirmed successor in
interest.
2. Assumption of the mortgage loan obligation. A servicer may not
require a confirmed successor in interest to assume the mortgage loan
obligation under State law to be considered a borrower for purposes of
Sec. 1024.17 and this subpart. If a successor in interest assumes a
mortgage loan obligation under State law or is otherwise liable on the
mortgage loan obligation, the protections that the successor in
interest enjoys under this part are not limited to the protections that
apply under Sec. 1024.30(d) to a confirmed successor in interest.
3. Treatment of transferor borrowers. Even after a servicer's
confirmation of a successor in interest, the servicer is still required
to comply with all applicable requirements of this subpart with respect
to the transferor borrower.
Sec. 1024.31 Definitions.
Delinquency.
1. Length of delinquency. A borrower's delinquency begins on the
date an amount sufficient to cover a periodic payment of principal,
interest, and, if applicable, escrow becomes due and unpaid, and lasts
until such time as no periodic payment 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.
2. Application of funds. If a servicer applies payments to the
oldest outstanding periodic payment, a payment by a delinquent borrower
advances the date the borrower's delinquency began. For example, assume
a borrower's mortgage loan obligation provides that a periodic payment
sufficient to cover principal, interest, and escrow is due on the first
of each month. The borrower fails to make a payment on January 1 or on
any day in January, and on January 31 the borrower is 30 days
delinquent. On February 3, the borrower makes a periodic payment. The
servicer applies the payment it received on February 3 to the
outstanding January payment. On February 4, the borrower is three days
delinquent.
3. Payment tolerance. For any given billing cycle for which a
borrower's payment is less than the periodic payment due, if a servicer
chooses not to treat a borrower as delinquent for purposes of any
section of this subpart, that borrower is not delinquent as defined in
Sec. 1024.31.
4. Creditor's contract rights. This subpart does not prevent a
creditor from exercising a right provided by a mortgage loan contract
to accelerate payment for a breach of that contract. Failure to pay the
amount due after the creditor accelerates the mortgage loan obligation
in accordance with the mortgage loan contract would begin or continue
delinquency.
* * * * *
Successor in interest.
1. Joint tenants and tenants by the entirety. If a borrower who has
an ownership interest as a joint tenant or tenant by the entirety in a
property securing a mortgage loan subject to this subpart dies, a
surviving joint tenant or tenant by the entirety with a right of
survivorship in the property is a successor in interest as defined in
Sec. 1024.31.
2. Beneficiaries of inter vivos trusts. In the event of a transfer
into an inter vivos trust in which the borrower is and remains a
beneficiary and which does not relate to a transfer of rights of
occupancy in the property, the beneficiaries of the inter vivos trust
rather than the inter vivos trust itself are considered to be the
successors in interest for purposes of Sec. 1024.31. For example,
assume Borrower A transfers her home into such an inter vivos trust for
the benefit of her spouse and herself. As of the transfer date,
Borrower A and her spouse would be considered successors in interest
and, upon confirmation, would be borrowers for purposes of certain
provisions of Regulation X. If the lender has not released Borrower A
from the loan obligation, Borrower A would also remain a borrower more
generally for purposes of Regulation X.
Sec. 1024.32 General Disclosure Requirements.
32(c) Confirmed successors in interest.
32(c)(1) Optional notice with acknowledgment form.
1. A servicer may identify in the acknowledgment form examples of
the types of notices and communications identified in Sec.
1024.32(c)(1)(iii), such as periodic statements and mortgage servicing
transfer notices. Any examples provided should be the types of notices
or communications that would be available to a confirmed successor in
interest if the confirmed successor in interest executed the
acknowledgment and returned it to the servicer.
32(c)(2) Effect of failure to execute acknowledgment.
1. No time limit to return acknowledgment. A confirmed successor in
interest may provide an executed acknowledgment that complies with
Sec. 1024.32(c)(1)(iv) to the servicer at any time after confirmation.
2. Effect of revocation of acknowledgment. If a confirmed successor
in interest who is not liable on the mortgage loan obligation executes
and then later revokes an acknowledgment pursuant to Sec.
1024.32(c)(1)(iv), the servicer is not required to provide to the
confirmed successor in interest any written disclosure required by
Sec. 1024.17, Sec. 1024.33, Sec. 1024.34, Sec. 1024.37, or Sec.
1024.39 or to comply with the live contact requirements in Sec.
1024.39(a) with respect to the confirmed successor in interest from the
date the revocation is received until the confirmed successor in
interest either assumes the mortgage loan obligation under State law or
executes a new acknowledgment that complies with Sec.
1024.32(c)(1)(iv) and provides it to the servicer.
32(c)(4) Multiple notices unnecessary.
1. Specific written disclosure. A servicer may rely on Sec.
1024.32(c)(4) if the servicer provides a specific written disclosure
required by Sec. 1024.17, Sec. 1024.33, Sec. 1024.34, Sec. 1024.37,
or Sec. 1024.39(b) to another borrower. For example, a servicer is not
required to provide a force-placed insurance notice required under
Sec. 1024.37 to a confirmed successor in interest if the servicer is
providing the same force-placed insurance notice to a transferor
borrower or to another confirmed successor in interest.
* * * * *
Sec. 1024.36 Requests for Information.
36(a) Information request.
* * * * *
2. Owner or assignee of a mortgage loan. i. When a loan is not held
in a trust for which an appointed trustee receives payments on behalf
of the trust, a servicer complies with Sec. 1024.36(d) by responding
to a request for information regarding the owner or assignee of a
mortgage loan by identifying the person on whose behalf the servicer
receives payments from the borrower. A servicer is not the owner or
assignee for purposes of Sec. 1024.36(d) if the servicer holds title
to the loan, or title is assigned to the servicer, solely for the
administrative convenience of the servicer in servicing the mortgage
loan obligation. The Government National Mortgage Association is not
the owner or assignee for purposes of such requests for information
solely as a result of its role as the guarantor of the security in
which the loan serves as the collateral.
[[Page 72379]]
ii. When the loan is held in a trust for which an appointed trustee
receives payments on behalf of the trust, a servicer complies with
Sec. 1024.36(d) by responding to a borrower's request for information
regarding the owner, assignee, or trust of the mortgage loan with the
following information, as applicable:
A. For any request for information where the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation is
not the owner of the loan or the trustee of the securitization trust in
which the loan is held: The name of the trust, and the name, address,
and appropriate contact information for the trustee. Assume, for
example, a mortgage loan is owned by Mortgage Loan Trust, Series ABC-1,
for which XYZ Trust Company is the trustee. The servicer complies with
Sec. 1024.36(d) by identifying the owner as Mortgage Loan Trust,
Series ABC-1, and providing the name, address, and appropriate contact
information for XYZ Trust Company as the trustee.
B. If the request for information did not expressly request the
name or number of the trust or pool and the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation is the owner
of the loan or the trustee of the securitization trust in which the
loan is held: The name and contact information for the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation, as
applicable, without also providing the name of the trust.
C. If the request for information did expressly request the name or
number of the trust or pool and the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation is the owner
of the loan or the trustee of the securitization trust in which the
loan is held: The name of the trust, and the name, address, and
appropriate contact information for the trustee, as in comment 36(a)-
2.ii.A above.
* * * * *
36(i) Potential successors in interest.
1. Requests that indicate that the person may be a successor in
interest. Section 1024.36(i) requires a servicer to respond to certain
written requests received from a person that indicate the person may be
a successor in interest. Examples of written requests that indicate
that the person may be a successor in interest include, without
limitation, a written statement from a person other than a borrower
indicating that there has been a transfer of ownership or of an
ownership interest in the property to the person or that a borrower has
been divorced, legally separated, or died, or a written loss mitigation
application received from a person other than a borrower.
2. Time limits. A servicer must respond to a request under Sec.
1024.36(i) not later than the time limits set forth in Sec.
1024.36(d)(2). Servicers subject to Sec. 1024.38(b)(1)(vi)(B) must
also maintain policies and procedures reasonably designed to ensure
that, upon receiving notice of the existence of a potential successor
in interest, the servicer can promptly determine the documents the
servicer reasonably requires to confirm that person's identity and
ownership interest in the property and promptly provide to the
potential successor in interest a description of those documents and
how the person may submit a written request under Sec. 1024.36(i)
(including the appropriate address). Depending on the facts and
circumstances of the request, responding promptly may require a
servicer to respond more quickly than the time limits established in
Sec. 1024.36(d)(2).
3. Potential successor in interest's representative. An information
request pursuant to Sec. 1024.36(i) is submitted by a potential
successor in interest if the information request is submitted by an
agent of the potential successor in interest. A servicer may undertake
reasonable procedures to determine if a person that claims to be an
agent of a potential successor in interest has authority from the
potential successor in interest to act on the potential successor in
interest's behalf, for example, by requiring that a person that claims
to be an agent of the potential successor in interest provide
documentation from the potential successor in interest stating that the
purported agent is acting on the potential successor in interest's
behalf. Upon receipt of such documentation, the servicer shall treat
the request for information as having been submitted by the potential
successor in interest.
Sec. 1024.37 Force-placed insurance.
* * * * *
37(d)(5) Updating notice with borrower information.
1. Reasonable time. If the written notice required by Sec.
1024.37(c)(1)(ii) was put into production a reasonable time prior to
the servicer delivering or placing the notice in the mail, the servicer
is not required to update the notice with new insurance information
received. For purposes of Sec. 1024.37(d)(5), a reasonable time is no
more than five days (excluding legal holidays, Saturdays, and Sundays).
* * * * *
Sec. 1024.38 General servicing policies, procedures, and
requirements.
* * * * *
38(b)(1) Accessing and providing timely and accurate information.
* * * * *
Paragraph 38(b)(1)(vi).
1. Identification of potential successors in interest. A servicer
may be notified of the existence of a potential successor in interest
in a variety of ways. For example, a person could indicate that there
has been a transfer of ownership or of an ownership interest in the
property or that a borrower has been divorced, legally separated, or
died, or a person other than a borrower could submit a loss mitigation
application. A servicer must maintain policies and procedures
reasonably designed to ensure that the servicer can retain this
information and promptly facilitate communication with potential
successors in interest when a servicer is notified of their existence.
A servicer is not required to conduct a search for potential successors
in interest if the servicer has not received actual notice of their
existence.
2. Documents reasonably required. The documents a servicer requires
to confirm a potential successor in interest's identity and ownership
interest in the property must be reasonable in light of the laws of the
relevant jurisdiction, the specific situation of the potential
successor in interest, and the documents already in the servicer's
possession. The required documents may, where appropriate, include, for
example, a death certificate, an executed will, or a court order. The
required documents may also include documents that the servicer
reasonably believes are necessary to prevent fraud or other criminal
activity (for example, if a servicer has reason to believe that
documents presented are forged).
3. Examples of reasonable requirements. Because the relevant law
governing each situation may vary from State to State, the following
examples are illustrative only. The examples illustrate what documents
it would generally be reasonable for a servicer to require to confirm a
potential successor in interest's identity and ownership interest in
the property under the specific circumstances described.
i. Tenancy by the entirety or joint tenancy. Assume that a servicer
knows that the potential successor in interest and the transferor
borrower owned the property as tenants by the entirety or joint tenants
and that the transferor borrower has died. Assume further that, upon
the death of the transferor borrower, the applicable law of the
[[Page 72380]]
relevant jurisdiction does not require a probate proceeding to
establish that the potential successor in interest has sole interest in
the property but requires only that there be a prior recorded deed
listing both the potential successor in interest and the transferor
borrower as tenants by the entirety (e.g., married grantees) or joint
tenants. Under these circumstances, it would be reasonable for the
servicer to require the potential successor in interest to provide
documentation of the recorded instrument, if the servicer does not
already have it, and the death certificate of the transferor borrower.
Because in this situation a probate proceeding is not required under
the applicable law of the relevant jurisdiction, it generally would not
be reasonable for the servicer to require documentation of a probate
proceeding.
ii. Affidavits of heirship. Assume that a potential successor in
interest indicates that an ownership interest in the property
transferred to the potential successor in interest upon the death of
the transferor borrower through intestate succession and offers an
affidavit of heirship as confirmation. Assume further that, upon the
death of the transferor borrower, the applicable law of the relevant
jurisdiction does not require a probate proceeding to establish that
the potential successor in interest has an interest in the property but
requires only an appropriate affidavit of heirship. Under these
circumstances, it would be reasonable for the servicer to require the
potential successor in interest to provide the affidavit of heirship
and the death certificate of the transferor borrower. Because a probate
proceeding is not required under the applicable law of the relevant
jurisdiction to recognize the transfer of title, it generally would not
be reasonable for the servicer to require documentation of a probate
proceeding.
iii. Divorce or legal separation. Assume that a potential successor
in interest indicates that an ownership interest in the property
transferred to the potential successor in interest from a spouse who is
a borrower as a result of a property agreement incident to a divorce
proceeding. Assume further that the applicable law of the relevant
jurisdiction does not require a deed conveying the interest in the
property but accepts a final divorce decree and accompanying separation
agreement executed by both spouses to evidence transfer of title. Under
these circumstances, it would be reasonable for the servicer to require
the potential successor in interest to provide documentation of the
final divorce decree and an executed separation agreement. Because the
applicable law of the relevant jurisdiction does not require a deed, it
generally would not be reasonable for the servicer to require a deed.
iv. Living spouses or parents. Assume that a potential successor in
interest indicates that an ownership interest in the property
transferred to the potential successor in interest from a living spouse
or parent who is a borrower by quitclaim deed or act of donation. Under
these circumstances, it would be reasonable for the servicer to require
the potential successor in interest to provide the quitclaim deed or
act of donation. It generally would not be reasonable, however, for the
servicer to require additional documents.
4. Additional documentation required for confirmation
determination. Section 1024.38(b)(1)(vi)(C) requires a servicer to
maintain policies and procedures reasonably designed to ensure that,
upon receipt of the documents identified by the servicer, the servicer
promptly notifies a potential successor in interest that, as
applicable, the servicer has confirmed the potential successor in
interest's status, has determined that additional documents are
required, or has determined that the potential successor in interest is
not a successor in interest. If a servicer reasonably determines that
it cannot make a determination of the potential successor in interest's
status based on the documentation provided, it must specify what
additional documentation is required. For example, if there is pending
litigation involving the potential successor in interest and other
claimants regarding who has title to the property at issue, a servicer
may specify that documentation of a court determination or other
resolution of the litigation is required.
5. Prompt confirmation and loss mitigation. A servicer's policies
and procedures must be reasonably designed to ensure that the servicer
can promptly notify the potential successor in interest that the
servicer has confirmed the potential successor in interest's status.
Notification is not prompt for purposes of this requirement if it
unreasonably interferes with a successor in interest's ability to apply
for loss mitigation options according to the procedures provided in
Sec. 1024.41.
* * * * *
38(b)(3) Facilitating oversight of, and compliance by, service
providers.
Paragraph 38(b)(3)(iii).
1. Sharing information with service provider personnel handling
foreclosure proceedings. A servicer's policies and procedures must be
reasonably designed to ensure that servicer personnel promptly inform
service provider personnel handling foreclosure proceedings that the
servicer has received a complete loss mitigation application and
promptly instruct foreclosure counsel to take any step required by
Sec. 1024.41(g) sufficiently timely to avoid violating the prohibition
against moving for judgment or order of sale, or conducting a
foreclosure sale.
* * * * *
Sec. 1024.39 Early intervention requirements for certain borrowers.
39(a) Live contact.
1. Delinquency. Section 1024.39 requires a servicer to establish or
attempt to establish live contact no later than the 36th day of a
borrower's delinquency. This provision is illustrated as follows:
i. Assume a mortgage loan obligation with a monthly billing cycle
and monthly payments of $2,000 representing principal, interest, and
escrow due on the first of each month.
A. The borrower fails to make a payment of $2,000 on, and makes no
payment during the 36-day period after, January 1. The servicer must
establish or make good faith efforts to establish live contact not
later than 36 days after January 1--i.e., on or before February 6.
B. The borrower makes no payments during the period January 1
through April 1, although payments of $2,000 each on January 1,
February 1, and March 1 are due. Assuming it is not a leap year, the
borrower is 90 days delinquent as of April 1. The servicer may time its
attempts to establish live contact such that a single attempt will meet
the requirements of Sec. 1024.39(a) for two missed payments. To
illustrate, the servicer complies with Sec. 1024.39(a) if the servicer
makes a good faith effort to establish live contact with the borrower,
for example, on February 5 and again on March 25. The February 5
attempt meets the requirements of Sec. 1024.39(a) for both the January
1 and February 1 missed payments. The March 25 attempt meets the
requirements of Sec. 1024.39(a) for the March 1 missed payment.
* * * * *
2. Establishing live contact. Live contact provides servicers an
opportunity to discuss the circumstances of a borrower's delinquency.
Live contact with a borrower includes speaking on the telephone or
conducting an in-person meeting with the borrower but not leaving a
recorded phone message. A servicer may rely on live contact established
at the borrower's initiative to satisfy the live contact requirement in
[[Page 72381]]
Sec. 1024.39(a). Servicers may also combine contacts made pursuant to
Sec. 1024.39(a) with contacts made with borrowers for other reasons,
for instance, by telling borrowers on collection calls that loss
mitigation options may be available.
3. Good faith efforts. Good faith efforts to establish live contact
consist of reasonable steps, under the circumstances, to reach a
borrower and may include telephoning the borrower on more than one
occasion or sending written or electronic communication encouraging the
borrower to establish live contact with the servicer. The length of a
borrower's delinquency, as well as a borrower's failure to respond to a
servicer's repeated attempts at communication pursuant to Sec.
1024.39(a), are relevant circumstances to consider. For example,
whereas ``good faith efforts'' to establish live contact with regard to
a borrower with two consecutive missed payments might require a
telephone call, ``good faith efforts'' to establish live contact with
regard to an unresponsive borrower with six or more consecutive missed
payments might require no more than including a sentence requesting
that the borrower contact the servicer with regard to the delinquencies
in the periodic statement or in an electronic communication. Comment
39(a)-6 discusses the relationship between live contact and the loss
mitigation procedures set forth in Sec. 1024.41.
4. Promptly inform if appropriate. i. Servicer's determination. It
is within a servicer's reasonable discretion to determine whether
informing a borrower about the availability of loss mitigation options
is appropriate under the circumstances. The following examples
demonstrate when a servicer has made a reasonable determination
regarding the appropriateness of providing information about loss
mitigation options.
A. A servicer provides information about the availability of loss
mitigation options to a borrower who notifies a servicer during live
contact of a material adverse change in the borrower's financial
circumstances that is likely to cause the borrower to experience a
long-term delinquency for which loss mitigation options may be
available.
B. A servicer does not provide information about the availability
of loss mitigation options to a borrower who has missed a January 1
payment and notified the servicer that full late payment will be
transmitted to the servicer by February 15.
ii. Promptly inform. If appropriate, a servicer may inform
borrowers about the availability of loss mitigation options orally, in
writing, or through electronic communication, but the servicer must
provide such information promptly after the servicer establishes live
contact. A servicer need not notify a borrower about any particular
loss mitigation options at this time; if appropriate, a servicer need
only inform borrowers generally that loss mitigation options may be
available. If appropriate, a servicer may satisfy the requirement in
Sec. 1024.39(a) to inform a borrower about loss mitigation options by
providing the written notice required by Sec. 1024.39(b)(1), but the
servicer must provide such notice promptly after the servicer
establishes live contact.
5. Borrower's representative. Section 1024.39 does not prohibit a
servicer from satisfying its requirements by establishing live contact
with and, if applicable, providing information about loss mitigation
options to a person authorized by the borrower to communicate with the
servicer on the borrower's behalf. A servicer may undertake reasonable
procedures to determine if a person that claims to be an agent of a
borrower has authority from the borrower to act on the borrower's
behalf, for example, by requiring a person that claims to be an agent
of the borrower to provide documentation from the borrower stating that
the purported agent is acting on the borrower's behalf.
6. Relationship between live contact and loss mitigation
procedures. If the servicer has established and is maintaining ongoing
contact with the borrower under the loss mitigation procedures under
Sec. 1024.41, including during the borrower's completion of a loss
mitigation application or the servicer's evaluation of the borrower's
complete loss mitigation application, or if the servicer has sent the
borrower a notice pursuant to Sec. 1024.41(c)(1)(ii) that the borrower
is not eligible for any loss mitigation options, the servicer complies
with Sec. 1024.39(a) and need not otherwise establish or make good
faith efforts to establish live contact. A servicer must resume
compliance with the requirements of Sec. 1024.39(a) for a borrower who
becomes delinquent again after curing a prior delinquency.
* * * * *
39(b)(1) Notice required.
* * * * *
2. Frequency of the written notice. A servicer need not provide the
written notice under Sec. 1024.39(b) more than once during a 180-day
period beginning on the date on which the written notice is provided. A
servicer must provide the written notice under Sec. 1024.39(b) at
least once every 180 days to a borrower who is 45 days or more
delinquent. This provision is illustrated as follows: Assume a borrower
becomes delinquent on March 1, the amount due is not fully paid during
the 45 days after March 1, and the servicer provides the written notice
on the 45th day after March 1, which is April 15. Assume the borrower
also fails to make the payment due on April 1 and the amount due is not
fully paid during the 45 days after April 1. The servicer need not
provide the written notice again until after the 180-day period
beginning on April 15--i.e., no sooner than on October 12--and then
only if the borrower is at that time 45 days or more delinquent.
i. If the borrower is 45 days or more delinquent on October 12, the
date that is 180 days after the prior provision of the written notice,
the servicer is required to provide the written notice again on October
12.
ii. If the borrower is less than 45 days delinquent on October 12,
the servicer must again provide the written notice 45 days after the
payment due date for which the borrower remains delinquent. For
example, if the borrower becomes delinquent on October 1, and the
amount due is not fully paid during the 45 days after October 1, the
servicer will need to provide the written notice again no later than 45
days after October 1--i.e., by November 15.
3. Borrower's representative. Comment 39(a)-5 explains how a
servicer may satisfy the requirements under Sec. 1024.39 with a person
authorized by the borrower to communicate with the servicer on the
borrower's behalf.
* * * * *
5. Servicing transfers. A transferee servicer is required to comply
with the requirements of Sec. 1024.39(b) regardless of whether the
transferor servicer provided a written notice to the borrower in the
preceding 180-day period. However, a transferee servicer is not
required to provide a written notice under Sec. 1024.39(b) if the
transferor servicer provided the written notice under Sec. 1024.39(b)
within 45 days of the transfer date. For example, assume a borrower has
monthly payments, with a payment due on March 1. The transferor
servicer provides the notice required by Sec. 1024.39(b) on April 10.
The loan is transferred on April 12. Assuming the borrower remains
delinquent, the transferee servicer is not required to provide another
written notice until 45 days after May 1, the first post-transfer
payment due date--i.e., by June 15.
* * * * *
39(c) Borrowers in bankruptcy.
[[Page 72382]]
1. Borrower's representative. If the borrower is represented by a
person authorized by the borrower to communicate with the servicer on
the borrower's behalf, the servicer may provide the written notice
required by Sec. 1024.39(b), as modified by Sec. 1024.39(c)(1)(iii),
to the borrower's representative. See comment 39(a)-5. In general,
bankruptcy counsel is the borrower's representative. A servicer's
procedures for determining whether counsel is the borrower's
representative are generally considered reasonable if they are limited
to, for example, confirming that the attorney's name is listed on the
borrower's bankruptcy petition or other court filing.
2. Adapting requirements in bankruptcy. Section 1024.39(c) does not
require a servicer to communicate with a borrower in a manner that
would be inconsistent with applicable bankruptcy law or a court order
in a bankruptcy case. If necessary to comply with such law or court
order, a servicer may adapt the requirements of Sec. 1024.39 as
appropriate.
39(c)(1) Borrowers in bankruptcy--Partial exemption.
1. Commencing a case. Section 1024.39(c)(1) applies once a petition
is filed under title 11 of the United States Code, commencing a case in
which the borrower is a debtor in bankruptcy.
Paragraph 39(c)(1)(ii).
1. Availability of loss mitigation options. In part, Sec.
1024.39(c)(1)(ii) exempts a servicer from the requirements of Sec.
1024.39(b) if no loss mitigation option is available. A loss mitigation
option is available if the owner or assignee of a mortgage loan offers
an alternative to foreclosure that is made available through the
servicer and for which a borrower may apply, even if the borrower
ultimately does not qualify for such option.
2. Fair Debt Collections Practices Act. i. Exemption. To the extent
the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. 1692 et seq.)
applies to a servicer's communications with a borrower in bankruptcy
and any borrower on the mortgage loan has provided a notification
pursuant to FDCPA section 805(c) notifying the servicer that the
borrower refuses to pay a debt or that the borrower wishes the servicer
to cease further communications, with regard to that mortgage loan,
Sec. 1024.39(c)(1)(ii) exempts a servicer from providing the written
notice required by Sec. 1024.39(b).
ii. Example. For example, assume that two spouses jointly own a
home and are both primarily liable on the mortgage loan. Further assume
that the servicer is subject to the FDCPA with respect to that mortgage
loan. One spouse is a debtor in bankruptcy under title 11 of the United
States Code subject to Sec. 1024.39(c). The other spouse provided the
servicer a notification pursuant to FDCPA section 805(c). Section
1024.39(c)(1)(ii) exempts the servicer from providing the written
notice required by Sec. 1024.39(b) with respect to that mortgage loan.
Paragraph 39(c)(1)(iii).
1. Joint obligors. When two or more borrowers are joint obligors
with primary liability on a mortgage loan subject to Sec. 1024.39, if
any of the borrowers is a debtor in bankruptcy, a servicer may provide
the written notice required by Sec. 1024.39(b), as modified by Sec.
1024.39(c)(1)(iii), to any borrower.
39(c)(2) Resuming compliance.
1. Bankruptcy case revived. If the borrower's bankruptcy case is
revived, for example if the court reinstates a previously dismissed
case or reopens the case, Sec. 1024.39(c)(1) once again applies.
However, Sec. 1024.39(c)(1)(iii)(C) provides that a servicer is not
required to provide the written notice more than once during a single
bankruptcy case. For example, assume a borrower's bankruptcy case
commences on June 1, the servicer provides the written notice on July
10 in compliance with Sec. 1024.39(b) as modified by Sec.
1024.39(c)(1)(iii), and the bankruptcy case is dismissed on August 1.
If the court subsequently reopens or reinstates the borrower's
bankruptcy case and the servicer does not provide a second written
notice for that bankruptcy case, the servicer has complied with Sec.
1024.39(b) and (c)(1)(iii).
39(d) Fair Debt Collection Practices Act--partial exemption.
1. Availability of loss mitigation options. In part, Sec.
1024.39(d)(2) exempts a servicer from providing the written notice
required by Sec. 1024.39(b) if no loss mitigation option is available.
A loss mitigation option is available if the owner or assignee of a
mortgage loan offers an alternative to foreclosure that is made
available through the servicer and for which a borrower may apply, even
if the borrower ultimately does not qualify for such option.
2. Early intervention communications under the FDCPA. To the extent
the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. 1692 et seq.)
applies to a servicer's communications with a borrower, a servicer does
not violate FDCPA section 805(c) by providing the written notice
required by Sec. 1024.39(b) as modified by Sec. 1024.39(d)(3) after a
borrower has provided a notification pursuant to FDCPA section 805(c)
with respect to that borrower's loan. Nor does a servicer violate FDCPA
section 805(c) by providing loss mitigation information or assistance
in response to a borrower-initiated communication after the borrower
has invoked the cease communication right under FDCPA section 805(c). A
servicer subject to the FDCPA must continue to comply with all other
applicable provisions of the FDCPA, including restrictions on
communications and prohibitions on harassment or abuse, false or
misleading representations, and unfair practices as contained in FDCPA
sections 805 through 808 (15 U.S.C. 1692c through 1692f).
Paragraph 39(d)(2).
1. Borrowers in bankruptcy. To the extent the Fair Debt Collection
Practices Act (FDCPA) (15 U.S.C. 1692 et seq.) applies to a servicer's
communications with a borrower and the borrower has provided a
notification pursuant to FDCPA section 805(c) notifying the servicer
that the borrower refuses to pay a debt or that the borrower wishes the
servicer to cease further communications, with regard to that mortgage
loan, Sec. 1024.39(d)(2) exempts a servicer from providing the written
notice required by Sec. 1024.39(b) while any borrower on the mortgage
loan is also a debtor in bankruptcy under title 11 of the United States
Code. For an example, see comment 39(c)(1)(ii)-1.ii.
Sec. 1024.40 Continuity of contact.
40(a) In general.
* * * * *
3. Delinquency. See Sec. 1024.31 for the definition of delinquency
applicable to subpart C of Regulation X.
* * * * *
Sec. 1024.41 Loss mitigation procedures.
41(b) Receipt of a loss mitigation application.
1. Successors in interest. i. If a servicer receives a loss
mitigation application from a potential successor in interest before
confirming that person's identity and ownership interest in the
property, the servicer may, but need not, review and evaluate the loss
mitigation application in accordance with the procedures set forth in
Sec. 1024.41. If a servicer complies with the requirements of Sec.
1024.41 for a complete loss mitigation application submitted by a
potential successor in interest before confirming that person's
identity and ownership interest in the property, Sec. 1024.41(i)'s
limitation on duplicative requests applies to that person, provided the
servicer's evaluation of loss mitigation options available to the
person would not have resulted in a different determination due to the
person's confirmation as a successor in interest if it had been
[[Page 72383]]
conducted after the servicer confirmed the person's status as a
successor in interest.
ii. If a servicer receives a loss mitigation application from a
potential successor in interest and elects not to review and evaluate
the loss mitigation application before confirming that person's
identity and ownership interest in the property, the servicer must
preserve the loss mitigation application and all documents submitted in
connection with the application, and, upon such confirmation, the
servicer must review and evaluate the loss mitigation application in
accordance with the procedures set forth in Sec. 1024.41 if the
property is the confirmed successor in interest's principal residence
and the procedures set forth in Sec. 1024.41 are otherwise applicable.
For purposes of Sec. 1024.41, the servicer must treat the loss
mitigation application as if it had been received on the date that the
servicer confirmed the successor in interest's status. If the loss
mitigation application is incomplete at the time of confirmation
because documents submitted by the successor in interest became stale
or invalid after they were submitted and confirmation is 45 days or
more before a foreclosure sale, the servicer must identify the stale or
invalid documents that need to be updated in a notice pursuant to Sec.
1024.41(b)(2).
41(b)(1) Complete loss mitigation application.
1. In general. A servicer has flexibility to establish its own
application requirements and to decide the type and amount of
information it will require from borrowers applying for loss mitigation
options. In the course of gathering documents and information from a
borrower to complete a loss mitigation application, a servicer may stop
collecting documents and information for a particular loss mitigation
option after receiving information confirming that, pursuant to any
requirements established by the owner or assignee of the borrower's
mortgage loan, the borrower is ineligible for that option. A servicer
may not stop collecting documents and information for any loss
mitigation option based solely upon the borrower's stated preference
but may stop collecting documents and information for any loss
mitigation option based on the borrower's stated preference in
conjunction with other information, as prescribed by any requirements
established by the owner or assignee. A servicer must continue to
exercise reasonable diligence to obtain documents and information from
the borrower that the servicer requires to evaluate the borrower as to
all other loss mitigation options available to the borrower. For
example:
i. Assume a particular loss mitigation option is only available for
borrowers whose mortgage loans were originated before a specific date.
Once a servicer receives documents or information confirming that a
mortgage loan was originated after that date, the servicer may stop
collecting documents or information from the borrower that the servicer
would use to evaluate the borrower for that loss mitigation option, but
the servicer must continue its efforts to obtain documents and
information from the borrower that the servicer requires to evaluate
the borrower for all other available loss mitigation options.
ii. Assume applicable requirements established by the owner or
assignee of the mortgage loan provide that a borrower is ineligible for
home retention loss mitigation options if the borrower states a
preference for a short sale and provides evidence of another applicable
hardship, such as military Permanent Change of Station orders or an
employment transfer more than 50 miles away. If the borrower indicates
a preference for a short sale or, more generally, not to retain the
property, the servicer may not stop collecting documents and
information from the borrower pertaining to available home retention
options solely because the borrower has indicated such a preference,
but the servicer may stop collecting such documents and information
once the servicer receives information confirming that the borrower has
an applicable hardship under requirements established by the owner or
assignee, such as military Permanent Change of Station orders or
employment transfer.
* * * * *
4. Although a servicer has flexibility to establish its own
requirements regarding the documents and information necessary for a
loss mitigation application, the servicer must act with reasonable
diligence to collect information needed to complete the application. A
servicer must request information necessary to make a loss mitigation
application complete promptly after receiving the loss mitigation
application. Reasonable diligence for purposes of Sec. 1024.41(b)(1)
includes, without limitation, the following actions:
* * * * *
iii. A servicer offers a borrower a short-term payment forbearance
program or a short-term repayment plan based on an evaluation of an
incomplete loss mitigation application and provides the borrower the
written notice pursuant to Sec. 1024.41(c)(2)(iii). If the borrower
remains in compliance with the short-term payment forbearance program
or short-term repayment plan, and the borrower does not request further
assistance, the servicer may suspend reasonable diligence efforts until
near the end of the payment forbearance program or repayment plan.
However, if the borrower fails to comply with the program or plan or
requests further assistance, the servicer must immediately resume
reasonable diligence efforts. Near the end of a short-term payment
forbearance program offered based on an evaluation of an incomplete
loss mitigation application pursuant to Sec. 1024.41(c)(2)(iii), and
prior to the end of the forbearance period, if the borrower remains
delinquent, a servicer must contact the borrower to determine if the
borrower wishes to complete the loss mitigation application and proceed
with a full loss mitigation evaluation.
* * * * *
41(b)(2)(i) Requirements.
1. Foreclosure sale not scheduled. For purposes of Sec.
1024.41(b)(2)(i), if no foreclosure sale has been scheduled as of the
date a servicer receives a loss mitigation application, the servicer
must treat the application as having been received 45 days or more
before any foreclosure sale.
* * * * *
41(b)(2)(ii) Time period disclosure.
1. Thirty days is generally reasonable. In general and subject to
the restrictions described in comments 41(b)(2)(ii)-2 and -3, a
servicer complies with the requirement to include a reasonable date in
the written notice required under Sec. 1024.41(b)(2)(i)(B) by
including a date that is 30 days after the date the servicer provides
the written notice.
2. No later than the next milestone. For purposes of Sec.
1024.41(b)(2)(ii), subject to the restriction described in comment
41(b)(2)(ii)-3, the reasonable date must be no later than the earliest
of:
i. The date by which any document or information submitted by a
borrower will be considered stale or invalid pursuant to any
requirements applicable to any loss mitigation option available to the
borrower;
ii. The date that is the 120th day of the borrower's delinquency;
iii. The date that is 90 days before a foreclosure sale;
iv. The date that is 38 days before a foreclosure sale.
3. Seven-day minimum. A reasonable date for purposes of Sec.
1024.41(b)(2)(ii)
[[Page 72384]]
must never be less than seven days from the date on which the servicer
provides the written notice pursuant to Sec. 1024.41(b)(2)(i)(B).
* * * * *
41(c) Evaluation of loss mitigation applications.
41(c)(1) Complete loss mitigation application.
* * * * *
4. 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, 12 CFR part 1002, or a
notice required pursuant to the Fair Credit Reporting Act, with the
notice required pursuant to Sec. 1024.41(c)(1), unless otherwise
prohibited by applicable law.
* * * * *
41(c)(2)(iii) Short-term loss mitigation options.
1. Short-term payment forbearance program. The exemption in Sec.
1024.41(c)(2)(iii) applies to, among other things, short-term payment
forbearance programs. For purposes of Sec. 1024.41(c)(2)(iii), a
payment forbearance program is a loss mitigation option pursuant to
which a servicer allows a borrower to forgo making certain payments or
portions of payments for a period of time. A short-term payment
forbearance program for purposes of Sec. 1024.41(c)(2)(iii) allows the
forbearance of payments due over periods of no more than six months.
Such a program would be short-term regardless of the amount of time a
servicer allows the borrower to make up the missing payments.
2. Short-term loss mitigation options and incomplete applications.
Section 1024.41(c)(2)(iii) allows a servicer to offer a borrower a
short-term payment forbearance program or a short-term repayment plan
based on an evaluation of an incomplete loss mitigation application.
The servicer must still comply with the other requirements of Sec.
1024.41 with respect to the incomplete loss mitigation application,
including the requirement in Sec. 1024.41(b)(2) to review the
application to determine if it is complete, the requirement in Sec.
1024.41(b)(1) to exercise reasonable diligence in obtaining documents
and information to complete a loss mitigation application (see comment
41(b)(1)-4.iii), and the requirement in Sec. 1024.41(b)(2)(i)(B) to
provide the borrower with written notice that the servicer acknowledges
the receipt of the application and has determined that the application
is incomplete.
3. Short-term loss mitigation options and complete applications.
Even if a servicer offers a borrower a short-term payment forbearance
program or a short-term repayment plan based on an evaluation of an
incomplete loss mitigation application, the servicer must still comply
with all applicable requirements in Sec. 1024.41 if the borrower
completes a loss mitigation application.
4. Short-term repayment plan. The exemption in Sec.
1024.41(c)(2)(iii) applies to, among other things, short-term repayment
plans. For purposes of Sec. 1024.41(c)(2)(iii), a repayment plan is a
loss mitigation option with terms under which a borrower would repay
all past due payments over a specified period of time to bring the
mortgage loan account current. A short-term repayment plan for purposes
of Sec. 1024.41(c)(2)(iii) allows for the repayment of no more than
three months of past due payments and allows a borrower to repay the
arrearage over a period lasting no more than six months.
5. Specific payment terms and duration. i. General requirement.
Section 1024.41(c)(2)(iii) requires a servicer to provide the borrower
a written notice stating, among other things, the specific payment
terms and duration of a short-term payment forbearance program or a
short-term repayment plan offered based on an evaluation of an
incomplete application. Generally, a servicer complies with these
requirements if the written notice states the amount of each payment
due during the program or plan, the date by which the borrower must
make each payment, and whether the mortgage loan will be current at the
end of the program or plan if the borrower complies with the program or
plan.
ii. Disclosure of payment amounts that may change. At the time a
servicer provides the written notice pursuant to Sec.
1024.41(c)(2)(iii), if the servicer lacks information necessary to
determine the amount of a specific payment due during the program or
plan (for example, because the borrower's interest rate will change to
an unknown rate based on an index or because an escrow account
computation year as defined in Sec. 1024.17(b) will end and the
borrower's escrow payment might change), the servicer complies with the
requirement to disclose the specific payment terms and duration of a
short-term payment forbearance program or short-term repayment plan if
the disclosures are based on the best information reasonably available
to the servicer at the time the notice is provided and the written
notice identifies which payment amounts may change, states that such
payment amounts are estimates, and states the general reason that such
payment amounts might change. For example, if an escrow account
computation year as defined in Sec. 1024.17(b) will end during a
borrower's short-term repayment plan, the written notice complies with
Sec. 1024.41(c)(2)(iii) if it identifies the payment amounts that may
change, states that those payment amounts are estimates, and states
that the affected payments might change because the borrower's escrow
payment might change.
6. Timing of notice. Generally, a servicer acts promptly to provide
the written notice required by Sec. 1024.41(c)(2)(iii) if the servicer
provides such written notice no later than five days (excluding legal
public holidays, Saturdays, and Sundays) after offering the borrower a
short-term payment forbearance program or short-term repayment plan. A
servicer may provide the written notice at the same time the servicer
offers the borrower the program or plan. A written offer that contains
all the required elements of the written notice also satisfies Sec.
1024.41(c)(2)(iii).
* * * * *
41(c)(3) Notice of complete application.
Paragraph 41(c)(3)(i).
1. Completion date. A servicer complies with Sec.
1024.41(c)(3)(i)(B) by disclosing on the notice the most recent date
the servicer received the complete loss mitigation application. For
example, assume that a borrower first submits a complete loss
mitigation application on March 1. The servicer must disclose March 1
as the date the servicer received the application under Sec.
1024.41(c)(3)(i)(B). Assume the servicer discovers on March 10 that it
requires additional information or corrected documents to complete the
application and promptly requests such additional information or
documents from the borrower pursuant to Sec. 1024.41(c)(2)(iv). If the
borrower subsequently completes the application on March 21, the
servicer must provide another notice in accordance with Sec.
1024.41(c)(3)(i) and disclose March 21 as the date the servicer
received the complete application. See comment 41(c)(3)(i)-3.
2. First notice or filing. Section 1024.41(c)(3)(i)(D)(1) and (2)
sets forth different requirements depending on whether the servicer has
made the first notice or filing under applicable law for any judicial
or non-judicial foreclosure process at the time the borrower submits a
complete loss mitigation application. See comment 41(f)-1 for a
description of
[[Page 72385]]
whether a document is considered the first notice or filing under
applicable law.
3. Additional notices. Except as provided in Sec.
1024.41(c)(3)(ii), Sec. 1024.41(c)(3)(i) requires a servicer to
provide a written notice every time a loss mitigation application
becomes complete. For example, assume that a borrower first submits a
complete loss mitigation application on March 1, and the servicer
provides the notice under Sec. 1024.41(c)(3)(i). Assume the servicer
discovers on March 10 that it requires additional information or
corrected documents regarding a source of income that the borrower
previously identified. The servicer must promptly request such
additional information or documents from the borrower pursuant to Sec.
1024.41(c)(2)(iv). If the borrower subsequently completes the
application on March 21, the servicer must provide another notice in
accordance with Sec. 1024.41(c)(3)(i), unless an exception applies
under Sec. 1024.41(c)(3)(ii). See comment 41(c)(3)(i)-1.
41(c)(4) Information not in the borrower's control.
41(c)(4)(i) Diligence requirements.
1. During the first 30 days following receipt of a complete loss
mitigation application. Section 1024.41(c)(4)(i) requires a servicer to
act with reasonable diligence to obtain documents or information not in
the borrower's control, which includes information in the servicer's
control, that the servicer requires to determine which loss mitigation
options, if any, it will offer to the borrower. At a minimum and
without limitation, a servicer must request such documents or
information from the appropriate party:
i. Promptly upon determining that the servicer requires the
documents or information to determine which loss mitigation options, if
any, the servicer will offer the borrower; and
ii. By a date that will enable the servicer to complete the
evaluation within 30 days of receiving the complete loss mitigation
application, as set forth in Sec. 1024.41(c)(1), to the extent
practicable.
2. More than 30 days following receipt of a complete loss
mitigation application. If a servicer has not, within 30 days of
receiving a complete loss mitigation application, received the required
documents or information from a party other than the borrower or the
servicer, the servicer acts with reasonable diligence pursuant to Sec.
1024.41(c)(4)(i) by heightening efforts to obtain the documents or
information promptly, to minimize delay in making a determination of
which loss mitigation options, if any, it will offer to the borrower.
Such heightened efforts include, for example, promptly verifying that
it has contacted the appropriate party and determining whether it
should obtain the required documents or information from a different
party.
41(c)(4)(ii) Effect in case of delay.
1. Third-party delay. Notwithstanding delay in receiving required
documents or information from any party other than the borrower or the
servicer, Sec. 1024.41(c)(1)(i) requires a servicer to complete all
possible steps in the process of evaluating a complete loss mitigation
application within 30 days of receiving the complete loss mitigation
application. Such steps may include requirements imposed on the
servicer by third parties, such as mortgage insurance companies,
guarantors, owners, or assignees. For example, if a servicer can
determine a borrower's eligibility for all available loss mitigation
options based on an evaluation of the borrower's complete loss
mitigation application subject only to approval from the mortgage
insurance company, Sec. 1024.41(c)(1)(i) requires the servicer to do
so within 30 days of receiving the complete loss mitigation application
notwithstanding the need to obtain such approval before offering the
borrower any loss mitigation options.
2. Offers not prohibited. Section 1024.41(c)(4)(ii)(A)(2) permits a
servicer to deny a complete loss mitigation application (in accordance
with applicable investor requirements) if, after exercising reasonable
diligence to obtain the required documents or information from a party
other than the borrower or the servicer, the servicer has been unable
to obtain such documents or information for a significant period of
time and the servicer cannot complete its determination without the
required documents or information. Section 1024.41(c)(4)(ii)(A)(2) does
not require a servicer to deny a complete loss mitigation application
and permits a servicer to offer a borrower a loss mitigation option,
even if the servicer does not obtain the requested documents or
information.
* * * * *
41(g) Prohibition on foreclosure sale.
* * * * *
3. Interaction with foreclosure counsel. The prohibitions in Sec.
1024.41(g) against moving for judgment or order of sale or conducting a
sale may require a servicer to act through foreclosure counsel retained
by the servicer in a foreclosure proceeding. If a servicer has received
a complete loss mitigation application, the servicer must instruct
counsel promptly not to make a dispositive motion for foreclosure
judgment or order of sale; where such a dispositive motion is pending,
to avoid a ruling on the motion or issuance of an order of sale; and,
where a sale is scheduled, to prevent conduct of a foreclosure sale,
unless one of the conditions in Sec. 1024.41(g)(1) through (3) is met.
A servicer is not relieved of its obligations because foreclosure
counsel's actions or inaction caused a violation.
* * * * *
5. Conducting a sale prohibited. Section 1024.41(g) prohibits a
servicer from conducting a foreclosure sale, even if a person other
than the servicer administers or conducts the foreclosure sale
proceedings. Where a foreclosure sale is scheduled, and none of the
conditions under Sec. 1024.41(g)(1) through (3) are applicable,
conduct of the sale violates Sec. 1024.41(g).
* * * * *
41(i) Duplicative requests.
1. Applicability of loss mitigation protections. Under Sec.
1024.41(i), a servicer must comply with Sec. 1024.41 with respect to a
loss mitigation application unless the servicer has previously done so
for a complete loss mitigation application submitted by the borrower
and the borrower has been delinquent at all times since submitting the
prior complete application. Thus, for example, if the borrower has
previously submitted a complete loss mitigation application and the
servicer complied fully with Sec. 1024.41 for that application, but
the borrower then ceased to be delinquent and later became delinquent
again, the servicer again must comply with Sec. 1024.41 for any
subsequent loss mitigation application submitted by the borrower. When
a servicer is required to comply with the requirements of Sec. 1024.41
for such a subsequent loss mitigation application, the servicer must
comply with all applicable requirements of Sec. 1024.41. For example,
in such a case, the servicer's provision of the notice of determination
of which loss mitigation options, if any, it will offer to the borrower
under Sec. 1024.41(c)(1)(ii) regarding the borrower's prior complete
loss mitigation application does not affect the servicer's obligations
to provide a new notice of complete application under Sec.
1024.41(c)(3)(i) regarding the borrower's subsequent complete loss
mitigation application.
2. Servicing transfers. Section 1024.41(i) provides that a servicer
need not comply with Sec. 1024.41 for a subsequent loss mitigation
application
[[Page 72386]]
from a borrower where certain conditions are met. A transferee servicer
and a transferor servicer, however, are not the same servicer.
Accordingly, a transferee servicer is required to comply with the
applicable requirements of Sec. 1024.41 upon receipt of a loss
mitigation application from a borrower whose servicing the transferee
servicer has obtained through a servicing transfer, even if the
borrower previously received an evaluation of a complete loss
mitigation application from the transferor servicer.
41(k) Servicing transfers.
1. Pending loss mitigation application. For purposes of Sec.
1024.41(k), a loss mitigation application is pending if it was subject
to Sec. 1024.41 and had not been fully resolved before the transfer
date. For example, a loss mitigation application would not be
considered pending if a transferor servicer had denied a borrower for
all options and the borrower's time for making an appeal, if any, had
expired prior to the transfer date, such that the transferor servicer
had no continuing obligations under Sec. 1024.41 with respect to the
application. A pending application is considered a pending complete
application if it was complete as of the transfer date under the
transferor servicer's criteria for evaluating loss mitigation
applications.
41(k)(1) In general.
41(k)(1)(i) Timing of compliance.
1. Obtaining loss mitigation documents and information. i. In
connection with a transfer, a transferor servicer must timely transfer,
and a transferee servicer must obtain from the transferor servicer,
documents and information submitted by a borrower in connection with a
loss mitigation application, consistent with policies and procedures
adopted pursuant to Sec. 1024.38(b)(4). A transferee servicer must
comply with the applicable requirements of Sec. 1024.41 with respect
to a loss mitigation application received as a result of a transfer,
even if the transferor servicer was not required to comply with Sec.
1024.41 with respect to that application (for example, because Sec.
1024.41(i) precluded applicability of Sec. 1024.41 with respect to the
transferor servicer). If an application was not subject to Sec.
1024.41 prior to a transfer, then for purposes of Sec. 1024.41(b) and
(c), a transferee servicer is considered to have received the loss
mitigation application on the transfer date. Any such application is
subject to the timeframes for compliance set forth in Sec. 1024.41(k).
ii. A transferee servicer must, in accordance with Sec.
1024.41(b)(1), exercise reasonable diligence to complete a loss
mitigation application, including a facially complete application,
received as a result of a transfer. In the transfer context, reasonable
diligence includes ensuring that a borrower is informed of any changes
to the application process, such as a change in the address to which
the borrower should submit documents and information to complete the
application, as well as ensuring that the borrower is informed about
which documents and information are necessary to complete the
application.
iii. A borrower may provide documents and information necessary to
complete an application to a transferor servicer after the transfer
date. Consistent with policies and procedures maintained pursuant to
Sec. 1024.38(b)(4), the transferor servicer must timely transfer, and
the transferee servicer must obtain, such documents and information.
2. Determination of rights and protections. For purposes of Sec.
1024.41(c) through (h), a transferee servicer must consider documents
and information that constitute a complete loss mitigation application
for the transferee servicer to have been received as of the date such
documents and information were received by the transferor servicer,
even if such documents and information were received by the transferor
servicer after the transfer date. See comment 41(k)(1)(i)-1.iii. An
application that was facially complete under Sec. 1024.41(c)(2)(iv)
with respect to the transferor servicer remains facially complete under
Sec. 1024.41(c)(2)(iv) with respect to the transferee servicer as of
the date it was facially complete with respect to the transferor
servicer. If an application was complete with respect to the transferor
servicer, but is not complete with respect to the transferee servicer,
the transferee servicer must treat the application as facially complete
under Sec. 1024.41(c)(2)(iv) as of the date the application was
complete with respect to the transferor servicer.
3. Duplicative notices not required. A transferee servicer is not
required to provide notices under Sec. 1024.41 with respect to a
particular loss mitigation application that the transferor servicer
provided prior to the transfer. For example, if the transferor servicer
provided the notice required by Sec. 1024.41(b)(2)(i)(B) prior to the
transfer, the transferee servicer is not required to provide the notice
again for that application.
41(k)(1)(ii) Transfer date defined.
1. Transfer date. Section 1024.41(k)(1)(ii) provides that the
transfer date is the date on which the transferee servicer will begin
accepting payments relating to the mortgage loan, as disclosed on the
notice of transfer of loan servicing pursuant to Sec.
1024.33(b)(4)(iv). The transfer date is the same date as that on which
the transfer of the servicing responsibilities from the transferor
servicer to the transferee servicer occurs. The transfer date is not
necessarily the same date as either the effective date of the transfer
of servicing as disclosed on the notice of transfer of loan servicing
pursuant to Sec. 1024.33(b)(4)(i) or the sale date identified in a
servicing transfer agreement.
41(k)(2) Acknowledgment notices.
41(k)(2)(ii) Prohibitions.
1. Examples of prohibitions. Section 1024.41(k)(2)(ii)(A) and (B)
adjusts the timeframes for certain borrower rights and foreclosure
protections where Sec. 1024.41(k)(2)(i) applies. These provisions are
illustrated as follows: Assume a transferor servicer receives a
borrower's initial loss mitigation application on October 1, and the
loan is transferred five days (excluding legal public holidays,
Saturdays, or Sundays) later, on October 8. Assume that Columbus Day, a
legal public holiday, occurs on October 14, and the transferee servicer
provides the notice required by Sec. 1024.41(b)(2)(i)(B) 10 days
(excluding legal public holidays, Saturdays, or Sundays) after the
transfer date, on October 23. Assume the transferee servicer discloses
a 30-day reasonable date, November 22, under Sec. 1024.41(b)(2)(ii).
i. If the transferor servicer receives the borrower's initial loss
mitigation application when the borrower's mortgage loan is 101 days
delinquent, the borrower's mortgage loan would be 123 days delinquent
on October 23, the date the transferee servicer provides the notice
required by Sec. 1024.41(b)(2)(i)(B). Pursuant to Sec.
1024.41(k)(2)(ii)(A), the transferee servicer cannot make the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process until after November 22, the reasonable
date disclosed under Sec. 1024.41(b)(2)(ii), and then only if the
borrower has not submitted a complete application by that date.
ii. If the transferor servicer receives the borrower's initial loss
mitigation application 55 days before the foreclosure sale, the date
that the transferee servicer provides the notice required by Sec.
1024.41(b)(2)(i)(B), October 23, is 33 days before the foreclosure
sale. Pursuant to Sec. 1024.41(k)(2)(ii)(B), the transferee servicer
must comply with Sec. 1024.41(c), (d), and (g) if the borrower submits
a complete loss mitigation application on
[[Page 72387]]
or before November 22, the reasonable date disclosed under Sec.
1024.41(b)(2)(ii).
2. Applicability of loss mitigation provisions. Section
1024.41(k)(2)(ii)(A) prohibits a servicer from making the first notice
or filing required by applicable law for any judicial or non-judicial
foreclosure process until a date that is after the reasonable date
disclosed to the borrower pursuant to Sec. 1024.41(b)(2)(ii),
notwithstanding Sec. 1024.41(f)(1). Section 1024.41(k)(2)(ii)(B)
requires a servicer to comply with Sec. 1024.41(c), (d), and (g) if a
borrower submits a complete loss mitigation application on or before
the reasonable date disclosed in the notice required by Sec.
1024.41(b)(2)(i)(B), even if the servicer would otherwise not be
required to comply with Sec. 1024.41(c), (d), and (g) because the
application is submitted 37 days or fewer before a foreclosure sale.
Section 1024.41(k)(2)(ii) provides additional protections for borrowers
but does not remove any protections. Servicers remain subject to the
requirements of Sec. 1024.41 as applicable and so, for example, must
comply with Sec. 1024.41(h) if the servicer receives a complete loss
mitigation application 90 days or more before a foreclosure sale.
Similarly, a servicer is prohibited from making the first notice or
filing before the borrower's mortgage loan obligation is more than 120
days delinquent, even if that is after the reasonable date disclosed to
the borrower pursuant to Sec. 1024.41(b)(2)(ii).
3. Reasonable date when no milestones remain. Generally, a servicer
does not provide the notice required under Sec. 1024.41(b)(2)(i)(B)
after the date that is 38 days before a foreclosure sale, so at least
one milestone specified in comment 41(b)(ii)-1 always remains
applicable. When Sec. 1024.41(k)(2)(i) applies, however, the
transferee servicer may sometimes provide the notice after the date
that is 38 days before a foreclosure sale. When this occurs, the
transferee servicer must determine the reasonable date when none of the
four specified milestones remain. The other requirements of Sec.
1024.41(b)(2)(ii) continue to apply. In this circumstance, a reasonable
date may occur less than 30 days, but not less than seven days, after
the date the transferee servicer provides the written notice pursuant
to Sec. 1024.41(b)(2)(i)(B).
41(k)(3) Complete loss mitigation applications pending at transfer.
1. Additional information or corrections to a previously submitted
document. If a transferee servicer acquires the servicing of a mortgage
loan for which a complete loss mitigation application is pending as of
the transfer date and the transferee servicer determines that
additional information or a correction to a previously submitted
document is required based upon its criteria for evaluating loss
mitigation applications, the application is considered facially
complete under Sec. 1024.41(c)(2)(iv) as of the date it was first
facially complete or complete, as applicable, with respect to the
transferor servicer. Once the transferee servicer receives the
information or corrections necessary to complete the application, Sec.
1024.41(c)(3) requires the transferee servicer to provide a notice of
complete application.
2. Applications first complete upon transfer. If the borrower's
loss mitigation application was incomplete based on the transferor
servicer's criteria prior to transfer but is complete based upon the
transferee servicer's criteria, the application is considered a pending
loss mitigation application complete as of the transfer date for
purposes of Sec. 1024.41(k)(3). Consequently, the transferee servicer
must comply with the applicable requirements of Sec. 1024.41(c)(1) and
(4) within 30 days of the transfer date. For purposes of Sec.
1024.41(c) through (h), the application is complete as of the date the
transferor servicer received the documents and information constituting
the complete application. See comment 41(k)(1)(i)-2. In such
circumstances, Sec. 1024.41(c)(3) requires the transferee servicer to
provide a notice of complete application that discloses the date the
transferor servicer received the documents and information constituting
the complete application.
41(k)(4) Applications subject to appeal process.
1. Obtaining appeal. A borrower may submit an appeal of a
transferor servicer's determination pursuant to Sec. 1024.41(h) to the
transferor servicer after the transfer date. Consistent with policies
and procedures maintained pursuant to Sec. 1024.38(b)(4), the
transferor servicer must timely transfer, and the transferee servicer
must obtain, documents and information regarding such appeals.
2. Servicer unable to determine appeal. A transferee servicer may
be unable to make a determination on an appeal when, for example, the
transferor servicer denied a borrower for a loan modification option
that the transferee servicer does not offer or when the transferee
servicer receives the mortgage loan through an involuntary transfer and
the transferor servicer failed to maintain proper records such that the
transferee servicer lacks sufficient information to review the appeal.
In that circumstance, the transferee servicer is required to treat the
appeal as a pending complete application, and it must permit the
borrower to accept or reject any loss mitigation options offered by the
transferor servicer, even if it does not offer the loss mitigation
options offered by the transferor servicer, in addition to the loss
mitigation options, if any, that the transferee servicer determines to
offer the borrower based on its own evaluation of the borrower's
complete loss mitigation application. For example, assume a transferor
servicer denied a borrower for all loan modification options but
offered the borrower a short sale option, and assume that the
borrower's appeal of the loan modification denial was pending as of the
transfer date. If the transferee servicer is unable to determine the
borrower's appeal, the transferee servicer must evaluate the borrower
for all available loss mitigation options in accordance with Sec.
1024.41(c) and (k)(3). At the conclusion of such evaluation, the
transferee servicer must permit the borrower to accept the short sale
option offered by the transferor servicer, even if the transferee
servicer does not offer the short sale option, in addition to any loss
mitigation options the transferee servicer determines to offer the
borrower based upon its own evaluation.
41(k)(5) Pending loss mitigation offers.
1. Obtaining evidence of borrower acceptance. A borrower may
provide an acceptance or rejection of a pending loss mitigation offer
to a transferor servicer after the transfer date. Consistent with
policies and procedures maintained pursuant to Sec. 1024.38(b)(4), the
transferor servicer must timely transfer, and the transferee servicer
must obtain, documents and information regarding such acceptances and
rejections, and the transferee servicer must provide the borrower with
any timely accepted loss mitigation option, even if the borrower
submitted the acceptance to the transferor servicer.
Appendix MS to Part 1024--Mortgage Servicing Model Forms and Clauses
* * * * *
2. Permissible changes. Servicers may make certain changes to
the format or content of the forms and clauses and may delete any
disclosures that are inapplicable without losing the protection from
liability so long as those changes do not affect the substance,
clarity, or meaningful sequence of the forms and clauses. Servicers
making revisions to that effect will lose their protection from
civil liability. Except as otherwise specifically required,
acceptable changes include, for example:
i. Use of ``borrower'' and ``servicer'' instead of pronouns.
[[Page 72388]]
ii. Substitution of the words ``lender'' and ``servicer'' for
each other.
iii. Addition of graphics or icons, such as the servicer's
corporate logo.
iv. Modifications to remove language that could suggest
liability under the mortgage loan agreement if such language is not
applicable. For example, in the case of a confirmed successor in
interest who has not assumed the mortgage loan obligation under
State law and is not otherwise liable on the mortgage loan
obligation, this could include:
A. Use of ``the mortgage loan'' or ``this mortgage loan''
instead of ``your mortgage loan'' and ``the monthly payments''
instead of ``your monthly payments.''
B. Use of ``Payments due on or after [Date] may be sent to''
instead of ``Send all payments due on or after [Date] to'' in
notices of transfer.
C. Use of ``We will charge the loan account'' instead of ``You
must pay us'' in notices relating to force-placed insurance.
* * * * *
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
18. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511,
5512, 5532, 5581; 15 U.S.C. 1601 et seq.
Subpart A--General
0
19. Effective April 19, 2018, Sec. 1026.2 is amended by revising
paragraph (a)(11) and adding paragraph (a)(27) to read as follows:
Sec. 1026.2 Definitions and rules of construction.
* * * * *
(a) * * *
(11) Consumer means a cardholder or natural person to whom consumer
credit is offered or extended. However, for purposes of rescission
under Sec. Sec. 1026.15 and 1026.23, the term also includes a natural
person in whose principal dwelling a security interest is or will be
retained or acquired, if that person's ownership interest in the
dwelling is or will be subject to the security interest. For purposes
of Sec. Sec. 1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41,
the term includes a confirmed successor in interest.
* * * * *
(27)(i) Successor in interest means a person to whom an ownership
interest in a dwelling securing a closed-end consumer credit
transaction is transferred from a consumer, provided that the transfer
is:
(A) A transfer by devise, descent, or operation of law on the death
of a joint tenant or tenant by the entirety;
(B) A transfer to a relative resulting from the death of the
consumer;
(C) A transfer where the spouse or children of the consumer become
an owner of the property;
(D) A transfer resulting from a decree of a dissolution of
marriage, legal separation agreement, or from an incidental property
settlement agreement, by which the spouse of the consumer becomes an
owner of the property; or
(E) A transfer into an inter vivos trust in which the consumer is
and remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property.
(ii) Confirmed successor in interest means a successor in interest
once a servicer has confirmed the successor in interest's identity and
ownership interest in the dwelling.
* * * * *
Subpart C--Closed-End Credit
0
20. Effective April 19, 2018, Sec. 1026.20 is amended by adding
paragraph (f) to read as follows:
Sec. 1026.20 Disclosure requirements regarding post-consummation
events.
* * * * *
(f) Successor in interest. If, upon confirmation, a servicer
provides a confirmed successor in interest who is not liable on the
mortgage loan obligation with a written notice and acknowledgment form
in accordance with Regulation X, Sec. 1024.32(c)(1) of this chapter,
the servicer is not required to provide to the confirmed successor in
interest any written disclosure required by paragraphs (c), (d), and
(e) of this section unless and until the confirmed successor in
interest either assumes the mortgage loan obligation under State law or
has provided the servicer an executed acknowledgment in accordance with
Regulation X, Sec. 1024.32(c)(1)(iv) of this chapter, that the
confirmed successor in interest has not revoked.
Subpart E--Special Rules for Certain Home Mortgage Transactions
0
21. Section 1026.36 is amended by revising the introductory text of
paragraphs (c)(1) and (2) to read as follows:
Sec. 1026.36 Prohibited acts or practices and certain requirements
for credit secured by a dwelling.
* * * * *
(c) * * *
(1) Payment processing. In connection with a closed-end consumer
credit transaction secured by a consumer's principal dwelling:
* * * * *
(2) No pyramiding of late fees. In connection with a closed-end
consumer credit transaction secured by a consumer's principal dwelling,
a servicer shall not impose any late fee or delinquency charge for a
payment if:
* * * * *
0
22. Effective April 19, 2018, Sec. 1026.39 is amended by adding
paragraph (f) to read as follows:
Sec. 1026.39 Mortgage transfer disclosures.
* * * * *
(f) Successor in interest. If, upon confirmation, a servicer
provides a confirmed successor in interest who is not liable on the
mortgage loan obligation with a written notice and acknowledgment form
in accordance with Regulation X, Sec. 1024.32(c)(1) of this chapter,
the servicer is not required to provide to the confirmed successor in
interest any written disclosure required by paragraph (b) of this
section unless and until the confirmed successor in interest either
assumes the mortgage loan obligation under State law or has provided
the servicer an executed acknowledgment in accordance with Regulation
X, Sec. 1024.32(c)(1)(iv) of this chapter, that the confirmed
successor in interest has not revoked.
0
23. Section 1026.41 is amended by:
0
a. Revising paragraphs (d)(8)(i) and (e)(4)(iii)(A);
0
b. Adding paragraphs (e)(4)(iii)(D) and (e)(6); and
0
c. Effective April 19, 2018:
0
i. Revising paragraph (e)(5); and
0
ii. Adding paragraphs (f) and (g).
The revisions and additions read as follows:
Sec. 1026.41 Periodic statements for residential mortgage loans.
* * * * *
(d) * * *
(8) * * *
(i) The length of the consumer's delinquency;
* * * * *
(e) * * *
(4) * * *
(iii) * * *
(A) Mortgage loans voluntarily serviced by the servicer for a non-
affiliate of the servicer and for which the servicer does not receive
any compensation or fees.
* * * * *
(D) Transactions serviced by the servicer for a seller financer
that meets all of the criteria identified in Sec. 1026.36(a)(5).
(5) Certain consumers in bankruptcy--(i) Exemption. Except as
provided in paragraph (e)(5)(ii) of this section, a servicer is exempt
from the
[[Page 72389]]
requirements of this section with regard to a mortgage loan if:
(A) Any consumer on the mortgage loan is a debtor in bankruptcy
under title 11 of the United States Code or has discharged personal
liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228,
or 1328; and
(B) With regard to any consumer on the mortgage loan:
(1) The consumer requests in writing that the servicer cease
providing a periodic statement or coupon book;
(2) The consumer's bankruptcy plan provides that the consumer will
surrender the dwelling securing the mortgage loan, provides for the
avoidance of the lien securing the mortgage loan, or otherwise does not
provide for, as applicable, the payment of pre-bankruptcy arrearage or
the maintenance of payments due under the mortgage loan;
(3) A court enters an order in the bankruptcy case providing for
the avoidance of the lien securing the mortgage loan, lifting the
automatic stay pursuant to 11 U.S.C. 362 with regard to the dwelling
securing the mortgage loan, or requiring the servicer to cease
providing a periodic statement or coupon book; or
(4) The consumer files with the court overseeing the bankruptcy
case a statement of intention pursuant to 11 U.S.C. 521(a) identifying
an intent to surrender the dwelling securing the mortgage loan and a
consumer has not made any partial or periodic payment on the mortgage
loan after the commencement of the consumer's bankruptcy case.
(ii) Reaffirmation or consumer request to receive statement or
coupon book. A servicer ceases to qualify for an exemption pursuant to
paragraph (e)(5)(i) of this section with respect to a mortgage loan if
the consumer reaffirms personal liability for the loan or any consumer
on the loan requests in writing that the servicer provide a periodic
statement or coupon book, unless a court enters an order in the
bankruptcy case requiring the servicer to cease providing a periodic
statement or coupon book.
(iii) Exclusive address. A servicer may establish an address that a
consumer must use to submit a written request under paragraph
(e)(5)(i)(B)(1) or (e)(5)(ii) of this section, provided that the
servicer notifies the consumer of the address in a manner that is
reasonably designed to inform the consumer of the address. If a
servicer designates a specific address for requests under paragraph
(e)(5)(i)(B)(1) or (e)(5)(ii) of this section, the servicer shall
designate the same address for purposes of both paragraphs
(e)(5)(i)(B)(1) and (e)(5)(ii) of this section.
(iv) Timing of compliance following transition--(A) Triggering
events for transitioning to modified and unmodified periodic
statements. A servicer transitions to providing a periodic statement or
coupon book with the modifications set forth in paragraph (f) of this
section or to providing a periodic statement or coupon book without
such modifications when one of the following three events occurs:
(1) A mortgage loan becomes subject to the requirements of
paragraph (f) of this section;
(2) A mortgage loan ceases to be subject to the requirements of
paragraph (f) of this section; or
(3) A servicer ceases to qualify for an exemption pursuant to
paragraph (e)(5)(i) of this section with respect to a mortgage loan.
(B) Transitional single-billing-cycle exemption. A servicer is
exempt from the requirements of this section with respect to a single
billing cycle when the payment due date for that billing cycle is no
more than 14 days after the date on which one of the events listed in
paragraph (e)(5)(iv)(A) of this section occurs.
(C) Timing of first modified or unmodified statement after
transition. When one of the events listed in paragraph (e)(5)(iv)(A) of
this section occurs, a servicer must provide the next modified or
unmodified periodic statement or coupon book that complies with the
requirements of this section by delivering or placing it in the mail
within a reasonably prompt time after the first payment due date, or
the end of any courtesy period for the payment's corresponding billing
cycle, that is more than 14 days after the date on which the applicable
event listed in paragraph (e)(5)(iv)(A) of this section occurs.
(6) Charged-off loans. (i) A servicer is exempt from the
requirements of this section for a mortgage loan if the servicer:
(A) Has charged off the loan in accordance with loan-loss
provisions and will not charge any additional fees or interest on the
account; and
(B) Provides, within 30 days of charge-off or the most recent
periodic statement, a periodic statement, clearly and conspicuously
labeled ``Suspension of Statements & Notice of Charge Off--Retain This
Copy for Your Records.'' The periodic statement must clearly and
conspicuously explain that, as applicable, the mortgage loan has been
charged off and the servicer will not charge any additional fees or
interest on the account; the servicer will no longer provide the
consumer a periodic statement for each billing cycle; the lien on the
property remains in place and the consumer remains liable for the
mortgage loan obligation and any obligations arising from or related to
the property, which may include property taxes; the consumer may be
required to pay the balance on the account in the future, for example,
upon sale of the property; the balance on the account is not being
canceled or forgiven; and the loan may be purchased, assigned, or
transferred.
(ii) Resuming compliance. (A) If a servicer fails at any time to
treat a mortgage loan that is exempt under paragraph (e)(6)(i) of this
section as charged off or charges any additional fees or interest on
the account, the obligation to provide a periodic statement pursuant to
this section resumes.
(B) Prohibition on retroactive fees. A servicer may not
retroactively assess fees or interest on the account for the period of
time during which the exemption in paragraph (e)(6)(i) of this section
applied.
(f) Modified periodic statements and coupon books for certain
consumers in bankruptcy. While any consumer on a mortgage loan is a
debtor in bankruptcy under title 11 of the United States Code, or if
such consumer has discharged personal liability for the mortgage loan
pursuant to 11 U.S.C. 727, 1141, 1228, or 1328, the requirements of
this section are subject to the following modifications with regard to
that mortgage loan:
(1) Requirements not applicable. The periodic statement may omit
the information set forth in paragraphs (d)(1)(ii) and (d)(8)(i), (ii),
and (v) of this section. The requirement in paragraph (d)(1)(iii) of
this section that the amount due must be shown more prominently than
other disclosures on the page shall not apply.
(2) Bankruptcy notices. The periodic statement must include the
following:
(i) A statement identifying the consumer's status as a debtor in
bankruptcy or the discharged status of the mortgage loan; and
(ii) A statement that the periodic statement is for informational
purposes only.
(3) Chapter 12 and chapter 13 consumers. In addition to any other
provisions of this paragraph (f) that may apply, with regard to a
mortgage loan for which any consumer with primary liability is a debtor
in a chapter 12 or chapter 13 bankruptcy case, the requirements of this
section are subject to the following modifications:
(i) Requirements not applicable. In addition to omitting the
information set
[[Page 72390]]
forth in paragraph (f)(1) of this section, the periodic statement may
also omit the information set forth in paragraphs (d)(8)(iii), (iv),
(vi), and (vii) of this section.
(ii) Amount due. The amount due information set forth in paragraph
(d)(1) of this section may be limited to the date and amount of the
post-petition payments due and any post-petition fees and charges
imposed by the servicer.
(iii) Explanation of amount due. The explanation of amount due
information set forth in paragraph (d)(2) of this section may be
limited to:
(A) The monthly post-petition payment amount, including a breakdown
showing how much, if any, will be applied to principal, interest, and
escrow;
(B) The total sum of any post-petition fees or charges imposed
since the last statement; and
(C) Any post-petition payment amount past due.
(iv) Transaction activity. The transaction activity information set
forth in paragraph (d)(4) of this section must include all payments the
servicer has received since the last statement, including all post-
petition and pre-petition payments and payments of post-petition fees
and charges, and all post-petition fees and charges the servicer has
imposed since the last statement. The brief description of the activity
need not identify the source of any payments.
(v) Pre-petition arrearage. If applicable, a servicer must
disclose, grouped in close proximity to each other and located on the
first page of the statement or, alternatively, on a separate page
enclosed with the periodic statement or in a separate letter:
(A) The total of all pre-petition payments received since the last
statement;
(B) The total of all pre-petition payments received since the
beginning of the consumer's bankruptcy case; and
(C) The current balance of the consumer's pre-petition arrearage.
(vi) Additional disclosures. The periodic statement must include,
as applicable:
(A) A statement that the amount due includes only post-petition
payments and does not include other payments that may be due under the
terms of the consumer's bankruptcy plan;
(B) If the consumer's bankruptcy plan requires the consumer to make
the post-petition mortgage payments directly to a bankruptcy trustee, a
statement that the consumer should send the payment to the trustee and
not to the servicer;
(C) A statement that the information disclosed on the periodic
statement may not include payments the consumer has made to the trustee
and may not be consistent with the trustee's records;
(D) A statement that encourages the consumer to contact the
consumer's attorney or the trustee with questions regarding the
application of payments; and
(E) If the consumer is more than 45 days delinquent on post-
petition payments, a statement that the servicer has not received all
the payments that became due since the consumer filed for bankruptcy.
(4) Multiple obligors. If this paragraph (f) applies in connection
with a mortgage loan with more than one primary obligor, the servicer
may provide the modified statement to any or all of the primary
obligors, even if a primary obligor to whom the servicer provides the
modified statement is not a debtor in bankruptcy.
(5) Coupon books. A servicer that provides a coupon book instead of
a periodic statement under paragraph (e)(3) of this section must
include in the coupon book the disclosures set forth in paragraphs
(f)(2) and (f)(3)(vi) of this section, as applicable. The servicer may
include these disclosures anywhere in the coupon book provided to the
consumer or on a separate page enclosed with the coupon book. The
servicer must make available upon request to the consumer by telephone,
in writing, in person, or electronically, if the consumer consents, the
information listed in paragraph (f)(3)(v) of this section, as
applicable. The modifications set forth in paragraphs (f)(1) and
(f)(3)(i) through (iv) and (vi) of this section apply to a coupon book
and other information a servicer provides to the consumer under
paragraph (e)(3) of this section.
(g) Successor in interest. If, upon confirmation, a servicer
provides a confirmed successor in interest who is not liable on the
mortgage loan obligation with a written notice and acknowledgment form
in accordance with Regulation X, Sec. 1024.32(c)(1) of this chapter,
the servicer is not required to provide to the confirmed successor in
interest any written disclosure required by this section unless and
until the confirmed successor in interest either assumes the mortgage
loan obligation under State law or has provided the servicer an
executed acknowledgment in accordance with Regulation X, Sec.
1024.32(c)(1)(iv) of this chapter, that the confirmed successor in
interest has not revoked.
0
24. Appendix H to part 1026 is amended by:
0
a. Revising the entry for H-30(C) in the table of contents at the
beginning of the appendix;
0
b. Adding entries for H-30(E) and H-30(F) in the table of contents at
the beginning of the appendix;
0
c. Revising H-4(C), H-14, and H-30(C); and
0
d. Adding H-30(E) and H-30(F).
The additions and revisions read as follows:
Appendix H to Part 1026--Closed-End Model Forms and Clauses
* * * * *
H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan
(Sec. 1026.41)
* * * * *
H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7
or Chapter 11 Bankruptcy
H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12
or Chapter 13 Bankruptcy
* * * * *
H-4(C)--Variable Rate Model Clauses
This disclosure describes the features of the adjustable-rate
mortgage (ARM) program you are considering. Information on other ARM
programs is available upon request.
How Your Interest Rate and Payment Are Determined
Your interest rate will be based on [an index plus a
margin] [a formula].
Your payment will be based on the interest rate, loan
balance, and loan term.
--[The interest rate will be based on (identification of index) plus
our margin. Ask for our current interest rate and margin.]
--[The interest rate will be based on (identification of formula).
Ask us for our current interest rate.]
--Information about the index [formula for rate adjustments] is
published [can be found] ___.
--[The initial interest rate is not based on the (index) (formula)
used to make later adjustments. Ask us for the amount of current
interest rate discounts.]
How Your Interest Rate Can Change
Your interest rate can change (frequency).
[Your interest rate cannot increase or decrease more
than __ percentage points at each adjustment.]
Your interest rate cannot increase [or decrease] more
than __ percentage points over the term of the loan.
How Your Payment Can Change
Your payment can change (frequency) based on changes in
the interest rate.
[Your payment cannot increase more than (amount or
percentage) at each adjustment.]
[You will be notified at least 210, but no more than
240, days before first payment at the adjusted level is due after
the initial interest rate adjustment of the loan. This notice will
contain information about the
[[Page 72391]]
adjustment, including the interest rate, payment amount, and loan
balance.]
[You will be notified at least 60, but no more than
120, days before first payment at the adjusted level is due after
any interest rate adjustment resulting in a corresponding payment
change. This notice will contain information about the adjustment,
including the interest rate, payment amount, and loan balance.]
[For example, on a $10,000 [term] loan with an initial
interest rate of __ [(the rate shown in the interest rate column
below for the year 19 __)] [(in effect (month) (year)], the maximum
amount that the interest rate can rise under this program is __
percentage points, to __%, and the monthly payment can rise from a
first-year payment of $__ to a maximum of $__ in the __ year. To see
what your payments would be, divide your mortgage amount by $10,000;
then multiply the monthly payment by that amount. (For example, the
monthly payment for a mortgage amount of $60,000 would be: $60,000 /
$10,000 = 6; 6 x __ = $__ per month.)]
[Example
The example below shows how your payments would have changed
under this ARM program based on actual changes in the index from
1982 to 1996. This does not necessarily indicate how your index will
change in the future.
The example is based on the following assumptions:
------------------------------------------------------------------------
------------------------------------------------------------------------
Amount................................... $10,000.
Term..................................... ----.
Change date.............................. ----.
Payment adjustment....................... (frequency).
Interest adjustment...................... (frequency).
[Margin] *............................... ----.
------------------------------------------------------------------------
Caps __ [periodic interest rate cap]....................................
__ [lifetime interest rate cap..........................................
__ [payment cap]........................................................
[Interest rate carryover]...............................................
[Negative amortization].................................................
[Interest rate discount].**.............................................
Index(identification of index or formula)...............................
------------------------------------------------------------------------
* This is a margin we have used recently, your margin may be different.
** This is the amount of a discount we have provided recently; your loan
may be discounted by a different amount.]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Margin
Year Index (%) (percentage Interest rate Monthly payment Remaining
points) (%) ($) balance ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1982..................................................... ................. ................. ................. ................. .................
1983..................................................... ................. ................. ................. ................. .................
1984..................................................... ................. ................. ................. ................. .................
1985..................................................... ................. ................. ................. ................. .................
1986..................................................... ................. ................. ................. ................. .................
1987..................................................... ................. ................. ................. ................. .................
1988..................................................... ................. ................. ................. ................. .................
1989..................................................... ................. ................. ................. ................. .................
1990..................................................... ................. ................. ................. ................. .................
1991..................................................... ................. ................. ................. ................. .................
1992..................................................... ................. ................. ................. ................. .................
1993..................................................... ................. ................. ................. ................. .................
1994..................................................... ................. ................. ................. ................. .................
1995..................................................... ................. ................. ................. ................. .................
1996..................................................... ................. ................. ................. ................. .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that
amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000 / $10,000 = 6; 6 x __ = $__ per
month.)
* * * * *
H-14--Variable Rate Mortgage Sample
This disclosure describes the features of the adjustable-rate
mortgage (ARM) program you are considering. Information on other ARM
programs is available upon request.
How Your Interest Rate and Payment Are Determined
Your interest rate will be based on an index rate plus
a margin.
Your payment will be based on the interest rate, loan
balance, and loan term.
--The interest rate will be based on the weekly average yield on
United States Treasury securities adjusted to a constant maturity of
1 year (your index), plus our margin. Ask us for our current
interest rate and margin.
--Information about the index rate is published weekly in the
Wall Street Journal.
Your interest rate will equal the index rate plus our
margin unless your interest rate ``caps'' limit the amount of change
in the interest rate.
How Your Interest Rate Can Change
Your interest rate can change yearly.
Your interest rate cannot increase or decrease more
than 2 percentage points per year.
Your interest rate cannot increase or decrease more
than 5 percentage points over the term of the loan.
How Your Monthly Payment Can Change
Your monthly payment can increase or decrease
substantially based on annual changes in the interest rate.
[For example, on a $10,000, 30-year loan with an
initial interest rate of 12.41 percent in effect in July 1996, the
maximum amount that the interest rate can rise under this program is
5 percentage points, to 17.41 percent, and the monthly payment can
rise from a first-year payment of $106.03 to a maximum of $145.34 in
the fourth year. To see what your payment is, divide your mortgage
amount by $10,000; then multiply the monthly payment by that amount.
(For example, the monthly payment for a mortgage amount of $60,000
would be: $60,000 / $10,000 = 6; 6 x 106.03 = $636.18 per month.)]
[You will be notified at least 210, but no more than
240, days before first payment at the adjusted level is due after
the initial interest rate adjustment of the loan. This notice will
contain information about the adjustment, including the interest
rate, payment amount, and loan balance.]
[You will be notified at least 60, but no more than
120, days before first payment at the adjusted level is due after
any interest rate adjustment resulting in a corresponding payment
change. This notice will contain information about the adjustment,
including the interest rate, payment amount, and loan balance.]
[Example
The example below shows how your payments would have changed
under this ARM program based on actual changes in the index from
1982 to 1996. This does not necessarily indicate how your index will
change in the future. The example is based on the following
assumptions:
------------------------------------------------------------------------
------------------------------------------------------------------------
Amount................................... $10,000.
Term..................................... 30 years.
Payment adjustment....................... 1 year.
Interest adjustment...................... 1 year.
Margin................................... 3 percentage points.
------------------------------------------------------------------------
Caps __ 2 percentage points annual interest rate........................
__ 5 percentage points lifetime interest rate...........................
Index __ Weekly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year..
------------------------------------------------------------------------
[[Page 72392]]
----------------------------------------------------------------------------------------------------------------
Margin *
Year (as of 1st week ending in Index (percentage Interest rate Monthly Remaining
July) points) (%) payment ($) balance ($)
----------------------------------------------------------------------------------------------------------------
1982............................ 14.41 3 17.41 145.90 9,989.37
1983............................ 9.78 3 * * 15.41 129.81 9,969.66
1984............................ 12.17 3 15.17 127.91 9,945.51
1985............................ 7.66 3 ** 13.17 112.43 9,903.70
1986............................ 6.36 3 *** 12.41 106.73 9,848.94
1987............................ 6.71 3 *** 12.41 106.73 9,786.98
1988............................ 7.52 3 *** 12.41 106.73 9,716.88
1989............................ 7.97 3 *** 12.41 106.73 9,637.56
1990............................ 8.06 3 *** 12.41 106.73 9,547.83
1991............................ 6.40 3 *** 12.41 106.73 9,446.29
1992............................ 3.96 3 *** 12.41 106.73 9,331.56
1993............................ 3.42 3 *** 12.41 106.73 9,201.61
1994............................ 5.47 3 *** 12.41 106.73 9,054.72
1995............................ 5.53 3 *** 12.41 106.73 8,888.52
1996............................ 5.82 3 *** 12.41 106.73 8,700.37
----------------------------------------------------------------------------------------------------------------
* This is a margin we have used recently; your margin may be different.
** This interest rate reflects a 2 percentage point annual interest rate cap.
*** This interest rate reflects a 5 percentage point lifetime interest rate cap.
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then
multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount
of $60,000 taken out in 1982 would be: $60,000 / $10,000 = 6; 6 x $106.73 = $640.38.)]
[You will be notified at least 210, but no more than
240, days before first payment at the adjusted level is due after
the initial interest rate adjustment of the loan. This notice will
contain information about the adjustment, including the interest
rate, payment amount, and loan balance.]
[You will be notified at least 60, but no more than
120, days before first payment at the adjusted level is due after
any interest rate adjustment resulting in a corresponding payment
change. This notice will contain information about the adjustment,
including the interest rate, payment amount, and loan balance.]
* * * * *
BILLING CODE 4810-AM-P
H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan
[[Page 72393]]
[GRAPHIC] [TIFF OMITTED] TR19OC16.000
* * * * *
H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or
Chapter 11 Bankruptcy
[[Page 72394]]
[GRAPHIC] [TIFF OMITTED] TR19OC16.001
H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or
Chapter 13 Bankruptcy
[[Page 72395]]
[GRAPHIC] [TIFF OMITTED] TR19OC16.002
BILLING CODE 4810-AM-C
0
25. In supplement I to part 1026:
0
a. Effective April 19, 2018, under Section 1026.2--Definitions and
Rules of Construction:
0
i. Under 2(a)(11) Consumer, paragraph 4 is added.
0
ii. After the entry for 2(a)(25) Security Interest, the heading
Paragraph 2(a)(27), the heading 2(a)(27)(i) Successor in interest, and
paragraphs 1 and 2 under that heading are added.
0
b. Effective April 19, 2018, under Section 1026.20--Disclosure
requirements regarding post-consummation events, under 20(e)(4) Form of
disclosures, paragraph 3 is added.
0
c. Under Section 1026.36--Prohibited Acts or Practices and Certain
Requirements for Credit Secured by a Dwelling:
0
i. Under Paragraph 36(c)(1)(i), paragraphs 4 and 5 are added.
0
ii. Effective April 19, 2018, under Paragraph 36(c)(1)(iii), paragraph
2 is revised.
0
d. Under Section 1026.41--Periodic Statements for Residential Mortgage
Loans:
[[Page 72396]]
0
i. Under 41(a) In general, paragraph 1 is revised.
0
ii. Under 41(c) Form of the periodic statement, paragraph 5 is added.
0
iii. Under 41(d) Content and layout of the periodic statement,
paragraph 1 is revised, and paragraphs 4 and 5 are added.
0
iv. After the entry for 41(d), the heading 41(d)(1) Amount due is
added, and paragraphs 1 through 3 under that heading are added.
0
v. The heading 41(d)(2) Explanation of amount due is added, and
paragraphs 1 and 2 under that heading are added.
0
vi. After the entry for 41(d)(4), the heading 41(d)(8) Delinquency
information is added, and paragraphs 1 and 2 under that heading are
added.
0
vii. After the entry for 41(d)(8), the heading 41(e) Exemptions is
added.
0
viii. The heading for 41(e)(5) is revised, and under that heading
paragraphs 1 through 3 are revised, and paragraph 4 is added.
0
ix. The heading 41(e)(5)(i) Exemption is added, and paragraph 1 under
that heading is added.
0
x. The heading Paragraph 41(e)(5)(i)(B)(2) is added, and paragraph 1
under that heading is added.
0
xi. The heading Paragraph 41(e)(5)(i)(B)(4) is added, and paragraph 1
under that heading is added.
0
xii. The heading 41(e)(5)(ii) Reaffirmation or consumer request to
receive statement or coupon book is added, and paragraph 1 under that
heading is added.
0
xiii. The heading 41(e)(5)(iv) Timing of compliance following
transition is added.
0
xiv. The heading 41(e)(5)(iv)(A) Triggering events for transitioning to
modified or unmodified statement or coupon book is added, and
paragraphs 1 and 2 under that heading are added.
0
xv. The heading 41(e)(5)(iv)(B) Transitional single-billing-cycle
exemption is added, and paragraph 1 under that heading is added.
0
xvi. The heading 41(e)(5)(iv)(C) Timing of first modified or unmodified
statement or coupon book after transition is added, and paragraphs 1
through 3 under that heading are added.
0
xvii. The heading 41(e)(6) Charged-off loans is added, and paragraphs 1
and 2 under that heading are added.
0
xviii. Under 41(e)(6) Charged-off loans, the heading Paragraph
41(e)(6)(i)(B) is added, and paragraph 1 under that heading is added.
0
xix. The heading 41(f) Modified periodic statements and coupon books
for certain consumers in bankruptcy is added, and paragraphs 1 through
6 under that heading are added.
0
xx. The heading 41(f)(3) Chapter 12 and chapter 13 consumers is added,
and paragraphs 1 through 3 under that heading are added.
0
xxi. The heading 41(f)(3)(ii) Amount due is added, and paragraph 1
under that heading is added.
0
xxii. The heading 41(f)(3)(iii) Explanation of amount due is added, and
paragraph 1 under that heading is added.
0
xxiii. The heading 41(f)(3)(v) Pre-petition arrearage is added, and
paragraph 1 under that heading is added.
0
xxiv. The heading 41(f)(4) Multiple obligors is added, and paragraphs 1
and 2 under that heading are added.
The additions and revisions read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Subpart A--General
* * * * *
Sec. 1026.2 Definitions and Rules of Construction.
* * * * *
2(a)(11) Consumer
* * * * *
4. Successors in interest. i. Assumption of the mortgage loan
obligation. A servicer may not require a confirmed successor in
interest to assume the mortgage loan obligation to be considered a
consumer for purposes of Sec. Sec. 1026.20(c) through (e), 1026.36(c),
1026.39, and 1026.41. If a successor in interest assumes a mortgage
loan obligation under State law or is otherwise liable on the mortgage
loan obligation, the protections the successor in interest enjoys under
this part are not limited to Sec. Sec. 1026.20(c) through (e),
1026.36(c), 1026.39, and 1026.41.
ii. Communications with confirmed successors in interest.
Communications in compliance with this part to a confirmed successor in
interest as defined in Sec. 1026.2(a)(27)(ii) do not violate section
805(b) of the Fair Debt Collection Practices Act (FDCPA) because
consumer for purposes of FDCPA section 805 includes any person who
meets the definition in this part of confirmed successor in interest.
iii. Treatment of transferor consumer. Even after a servicer's
confirmation of a successor in interest, the servicer is still required
to comply with all applicable requirements of Sec. Sec. 1026.20(c)
through (e), 1026.36(c), 1026.39, and 1026.41 with respect to the
consumer who transferred an ownership interest to the successor in
interest.
iv. Multiple notices unnecessary. Except as required by Regulation
X, 12 CFR 1024.36, a servicer is not required to provide to a confirmed
successor in interest any written disclosure required by Sec.
1026.20(c), (d), or (e), Sec. 1026.39, or Sec. 1026.41 if the
servicer is providing the same specific disclosure to another consumer
on the account. For example, a servicer is not required to provide a
periodic statement required by Sec. 1026.41 to a confirmed successor
in interest if the servicer is providing the same periodic statement to
another consumer; a single statement may be sent in that billing cycle.
If a servicer confirms more than one successor in interest, the
servicer need not send any disclosure required by Sec. 1026.20(c),
(d), or (e), Sec. 1026.39, or Sec. 1026.41 to more than one of the
confirmed successors in interest.
* * * * *
Paragraph 2(a)(27)
2(a)(27)(i) Successor in interest
1. Joint tenants and tenants by the entirety. If a consumer who has
an ownership interest as a joint tenant or tenant by the entirety in a
dwelling securing a closed-end consumer credit transaction dies, a
surviving joint tenant or tenant by the entirety with a right of
survivorship in the property is a successor in interest as defined in
Sec. 1026.2(a)(27)(i).
2. Beneficiaries of inter vivos trusts. In the event of a transfer
into an inter vivos trust in which the consumer is and remains a
beneficiary and which does not relate to a transfer of rights of
occupancy in the property, the beneficiaries of the inter vivos trust
rather than the inter vivos trust itself are considered to be the
successors in interest for purposes of Sec. 1026.2(a)(27)(i). For
example, assume Consumer A transfers her home into such an inter vivos
trust for the benefit of her spouse and herself. As of the transfer
date, Consumer A and her spouse are considered successors in interest
and, upon confirmation, are consumers for purposes of certain
provisions of this part. If the creditor has not released Consumer A
from the loan obligation, Consumer A also remains a consumer more
generally for purposes of this part.
* * * * *
Subpart C--Closed-End Credit
* * * * *
Sec. 1026.20 Disclosure requirements regarding post-consummation
events.
* * * * *
20(e)(4) Form of disclosures.
* * * * *
3. Modifications of disclosures. The requirements of Sec.
1026.20(e)(4) to
[[Page 72397]]
provide the Sec. 1026.20(e) disclosures with the headings, content,
order, and format substantially similar to model form H-29 in appendix
H to this part do not preclude creditors and servicers from modifying
the disclosures to accommodate particular consumer circumstances or
transactions not addressed by the form or from adjusting the statement
required by Sec. 1026.20(e)(2)(ii)(A), concerning consequences if the
consumer fails to pay property costs, to the circumstances of the
particular consumer.
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Sec. 1026.36 Prohibited acts or practices and certain requirements
for credit secured by a dwelling.
* * * * *
Paragraph 36(c)(1)(i).
* * * * *
4. Temporary loss mitigation programs. If a loan contract has not
been permanently modified but the consumer has agreed to a temporary
loss mitigation program, a periodic payment under Sec.
1026.36(c)(1)(i) is the amount sufficient to cover principal, interest,
and escrow (if applicable) for a given billing cycle under the loan
contract, regardless of the payment due under the temporary loss
mitigation program.
5. Permanent loan modifications. If a loan contract has been
permanently modified, a periodic payment under Sec. 1026.36(c)(1)(i)
is an amount sufficient to cover principal, interest, and escrow (if
applicable) for a given billing cycle under the modified loan contract.
* * * * *
Paragraph 36(c)(1)(iii).
* * * * *
2. Payment requirements--Limitations. Requirements for making
payments must be reasonable; it should not be difficult for most
consumers and potential successors in interest to make conforming
payments. For example, it would be reasonable to require a cut-off time
of 5 p.m. for receipt of a mailed check at the location specified by
the servicer for receipt of such check.
* * * * *
Sec. 1026.41 Periodic Statements for Residential Mortgage Loans.
* * * * *
41(a) In general.
1. Recipient of periodic statement. When two consumers are joint
obligors with primary liability on a closed-end consumer credit
transaction secured by a dwelling subject to Sec. 1026.41, the
periodic statement may be sent to either one of them. For example, if
spouses jointly own a home, the servicer need not send statements to
both spouses; a single statement may be sent.
* * * * *
41(c) Form of the periodic statement.
* * * * *
5. Permissible changes. Servicers may modify the sample forms for
periodic statements provided in appendix H-30 of this part to remove
language that could suggest liability under the mortgage loan agreement
if such language is not applicable. For example, in the case of a
confirmed successor in interest who has not assumed the mortgage loan
obligation under State law and is not otherwise liable on the mortgage
loan obligation, a servicer may modify the forms to:
i. Use ``this mortgage'' or ``the mortgage'' instead of ``your
mortgage.''
ii. Use ``The payments on this mortgage are late'' instead of ``You
are late on your mortgage payments.''
iii. Use ``This is the amount needed to bring the loan current''
instead of ``You must pay this amount to bring your loan current.''
41(d) Content and layout of the periodic statement.
1. Close proximity. Section 1026.41(d) requires several disclosures
to be provided in close proximity to one another. To meet this
requirement, the items to be provided in close proximity must be
grouped together, and set off from other groupings of items. This may
be accomplished in a variety of ways, for example, by presenting the
information in boxes, or by arranging the items on the document and
including spacing between the groupings. Items in close proximity may
not have any unrelated text between them. Text is unrelated if it does
not explain or expand upon the required disclosures.
* * * * *
4. Temporary loss mitigation programs. If the consumer has agreed
to a temporary loss mitigation program, the disclosures required by
Sec. 1026.41(d)(2), (3), and (5) regarding how payments were and will
be applied must identify how payments are applied according to the loan
contract, regardless of the temporary loss mitigation program.
5. First statement after exemption terminates. Section
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) requires the disclosure of the
total sum of any fees or charges imposed since the last statement, the
total of all payments received since the last statement, including a
breakdown of how payments were applied, and a list of all transaction
activity since the last statement. For purposes of the first periodic
statement provided to the consumer following termination of an
exemption under Sec. 1026.41(e), the disclosures required by Sec.
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be limited to account
activity since the last payment due date that occurred while the
exemption was in effect. For example, if mortgage loan payments are due
on the first of each month and the servicer's exemption under Sec.
1026.41(e) terminated on January 15, the first statement provided to
the consumer after January 15 may be limited to the total sum of any
fees or charges imposed, the total of all payments received, a
breakdown of how the payments were applied, and a list of all
transaction activity since January 1.
41(d)(1) Amount due.
1. Acceleration. If the balance of a mortgage loan has been
accelerated but the servicer will accept a lesser amount to reinstate
the loan, the amount due under Sec. 1026.41(d)(1) must identify only
the lesser amount that will be accepted to reinstate the loan. The
periodic statement must be accurate when provided and should indicate,
if applicable, that the amount due is accurate only for a specified
period of time. For example, the statement may include language such as
``as of [date]'' or ``good through [date]'' and provide an amount due
that will reinstate the loan as of that date or good through that date,
respectively.
2. Temporary loss mitigation programs. If the consumer has agreed
to a temporary loss mitigation program, the amount due under Sec.
1026.41(d)(1) may identify either the payment due under the temporary
loss mitigation program or the amount due according to the loan
contract.
3. Permanent loan modifications. If the loan contract has been
permanently modified, the amount due under Sec. 1026.41(d)(1) must
identify only the amount due under the modified loan contract.
41(d)(2) Explanation of amount due.
1. Acceleration. If the balance of a mortgage loan has been
accelerated but the servicer will accept a lesser amount to reinstate
the loan, the explanation of amount due under Sec. 1026.41(d)(2) must
list both the reinstatement amount that is disclosed as the amount due
and the accelerated amount but not the monthly payment amount that
would otherwise be required under Sec. 1026.41(d)(2)(i). The periodic
statement must also include an explanation that the reinstatement
amount will be accepted to reinstate the loan through the ``as of
[date]'' or ``good through [date],'' as applicable, along
[[Page 72398]]
with any special instructions for submitting the payment. The
explanation should be on the front page of the statement or,
alternatively, may be included on a separate page enclosed with the
periodic statement. The explanation may include related information,
such as a statement that the amount disclosed is ``not a payoff
amount.''
2. Temporary loss mitigation programs. If the consumer has agreed
to a temporary loss mitigation program and the amount due identifies
the payment due under the temporary loss mitigation program, the
explanation of amount due under Sec. 1026.41(d)(2) must include both
the amount due according to the loan contract and the payment due under
the temporary loss mitigation program. The statement must also include
an explanation that the amount due is being disclosed as a different
amount because of the temporary loss mitigation program. The
explanation should be on the front page of the statement or,
alternatively, may be included on a separate page enclosed with the
periodic statement or in a separate letter.
* * * * *
41(d)(8) Delinquency information.
1. Length of delinquency. For purposes of Sec. 1026.41(d)(8), the
length of a consumer's delinquency is measured as of the date of the
periodic statement or the date of the written notice provided under
Sec. 1026.41(e)(3)(iv). A consumer's delinquency begins on the date an
amount sufficient to cover a periodic payment of principal, interest,
and escrow, if applicable, becomes due and unpaid, even if the consumer
is afforded a period after the due date to pay before the servicer
assesses a late fee. A consumer is delinquent if one or more periodic
payments of principal, interest, and escrow, if applicable, are due and
unpaid.
2. Application of funds. For purposes of Sec. 1026.41(d)(8), if a
servicer applies payments to the oldest outstanding periodic payment, a
payment by a delinquent consumer advances the date the consumer's
delinquency began. For example, assume a mortgage loan obligation under
which a consumer's periodic payment is due on the first of each month.
A consumer fails to make a payment on January 1 but makes a periodic
payment on February 3. The servicer applies the payment received on
February 3 to the outstanding January payment. On February 4, the
consumer is three days delinquent, and the next periodic statement
should disclose the length of the consumer's delinquency using February
2 as the first day of delinquency.
41(e) Exemptions.
* * * * *
41(e)(5) Certain consumers in bankruptcy.
1. Consumer's representative. If an agent of the consumer, such as
the consumer's bankruptcy counsel, submits a request under Sec.
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii), the request is deemed to be
submitted by the consumer.
2. Multiple requests. A consumer's most recent written request
under Sec. 1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) that the servicer
cease or continue, as applicable, providing a periodic statement or
coupon book determines whether the exemption in Sec. 1026.41(e)(5)(i)
applies.
3. Effective upon receipt. A consumer's written request under Sec.
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) is effective as of the date of
receipt by the servicer.
4. Bankruptcy case revived. If a consumer's bankruptcy case is
revived, for example, if the court reinstates a previously dismissed
case or reopens a case, Sec. 1026.41(e)(5) may apply again, including
the timing requirements in Sec. 1026.41(e)(5)(iv).
41(e)(5)(i) Exemption.
1. Multiple obligors. When two or more consumers are joint obligors
with primary liability on a mortgage loan subject to Sec. 1026.41,
Sec. 1026.41(e)(5)(i) applies if any one of the consumers meets its
criteria. For example, assume that two spouses jointly own a home and
are primary obligors on the mortgage loan. One spouse files for chapter
13 bankruptcy and has a bankruptcy plan that provides for surrendering
the dwelling that secures the mortgage loan. In part, Sec.
1026.41(e)(5)(i) exempts the servicer from providing a periodic
statement with regard to that mortgage loan, unless one of the spouses
requests in writing that the servicer provide a periodic statement or
coupon book pursuant to Sec. 1026.41(e)(5)(ii). If either spouse,
including the one who is not a debtor in bankruptcy, submits a written
request to receive a periodic statement or coupon book, the servicer
must provide a periodic statement or coupon book for that mortgage loan
account.
Paragraph 41(e)(5)(i)(B)(2).
1. Bankruptcy plan. For purposes of Sec. 1026.41(e)(5)(i)(B)(2),
bankruptcy plan refers to the consumer's most recently filed bankruptcy
plan under the applicable provisions of title 11 of the United States
Code, regardless of whether the court overseeing the consumer's
bankruptcy case has confirmed or approved the plan.
Paragraph 41(e)(5)(i)(B)(4).
1. Statement of intention. For purposes of Sec.
1026.41(e)(5)(i)(B)(4), the statement of intention refers to the
consumer's most recently filed statement of intention. For example, if
a consumer files a statement of intention on June 1 identifying an
intent to surrender the dwelling securing the mortgage loan but files
an amended statement of intention on June 15 identifying an intent to
retain the dwelling, the consumer's June 15 statement of intention is
the relevant filing for purposes of Sec. 1026.41(e)(5)(i)(B)(4).
41(e)(5)(ii) Reaffirmation or consumer request to receive statement
or coupon book.
1. Form of periodic statement or coupon book. Section
1026.41(e)(5)(ii) generally requires a servicer, notwithstanding Sec.
1026.41(e)(5)(i), to resume providing a periodic statement or coupon
book if the consumer in bankruptcy reaffirms personal liability for the
mortgage loan or any consumer on the mortgage loan requests in writing
that the servicer provide a periodic statement or coupon book. Whether
a servicer provides a periodic statement or coupon book as modified by
Sec. 1026.41(f) or an unmodified periodic statement or coupon book
depends on whether or not Sec. 1026.41(f) applies to that mortgage
loan at that time. For example, Sec. 1026.41(f) does not apply with
respect to a mortgage loan once the consumer has reaffirmed personal
liability; therefore, following a consumer's reaffirmation, a servicer
generally would provide a periodic statement or coupon book that
complies with Sec. 1026.41 but without the modifications set forth in
Sec. 1026.41(f). See comment 41(f)-6. Section 1026.41(f) does apply,
however, with respect to a mortgage loan following a consumer's written
request to receive a periodic statement or coupon book, so long as any
consumer on the mortgage loan remains in bankruptcy or has discharged
personal liability for the mortgage loan; accordingly, following that
written request, a servicer must provide a periodic statement or coupon
book that includes the modifications set forth in Sec. 1026.41(f).
41(e)(5)(iv) Timing of compliance following transition.
41(e)(5)(iv)(A) Triggering events for transitioning to modified and
unmodified periodic statements.
1. Section 1026.41(f) becomes applicable or ceases to apply.
Section 1026.41(e)(5)(iv) sets forth the time period in which a
servicer must provide
[[Page 72399]]
a periodic statement or coupon book for the first time after a mortgage
loan either becomes subject to the requirements of Sec. 1026.41(f) or
ceases to be subject to the requirements of Sec. 1026.41(f). A
mortgage loan becomes subject to the requirements of Sec. 1026.41(f)
when, for example, any consumer on the mortgage loan becomes a debtor
in bankruptcy or discharges personal liability for the mortgage loan. A
mortgage loan may cease to be subject to the requirements of Sec.
1026.41(f) when, for example, the consumer in bankruptcy reaffirms
personal liability for a mortgage loan or the consumer's bankruptcy
case is closed or dismissed without the consumer having discharged
personal liability for the mortgage loan. See comment 41(f)-6.
2. Servicer ceases to qualify for an exemption. Section
1026.41(e)(5)(iv) sets forth the time period in which a servicer must
provide a periodic statement or coupon book for the first time after a
servicer ceases to qualify for an exemption pursuant to Sec.
1026.41(e)(5)(i) with respect to a mortgage loan. A servicer ceases to
qualify for an exemption pursuant to Sec. 1026.41(e)(5)(i) with
respect to a mortgage loan when, for example:
i. The consumer's bankruptcy case is dismissed or closed without
the consumer having discharged personal liability for the mortgage
loan;
ii. The consumer files an amended bankruptcy plan or statement of
intention that provides, as applicable, for the maintenance of payments
due under the mortgage loan and the payment of pre-petition arrearage
or that the consumer will retain the dwelling securing the mortgage
loan;
iii. A consumer makes a partial or periodic payment on the mortgage
loan despite the consumer in bankruptcy having filed a statement of
intention identifying an intent to surrender the dwelling securing the
mortgage loan, thus making Sec. 1026.41(e)(5)(i)(B)(4) inapplicable;
iv. The consumer in bankruptcy reaffirms personal liability for the
mortgage loan; or
v. The consumer submits a written request pursuant to Sec.
1026.41(e)(ii) that the servicer resume providing a periodic statement
or coupon book.
41(e)(5)(iv)(B) Transitional single-billing-cycle exemption.
1. An exemption under Sec. 1026.41(e)(5)(iv) applies for only the
first billing cycle that occurs after one of the events listed in Sec.
1026.41(e)(5)(iv)(A) occurs. If a servicer is required to provide a
periodic statement or coupon book, the servicer must do so beginning
with the next billing cycle in accordance with the timing provisions of
Sec. 1026.41(e)(5)(iv)(C).
41(e)(5)(iv)(C) Timing of first modified or unmodified statement or
coupon book after transition.
1. Reasonably prompt time. Section 1026.41(e)(5)(iv)(C) requires
that, when one of the events listed in Sec. 1026.41(e)(5)(iv)(A)
occurs, a servicer must provide the next periodic statement or coupon
book by delivering or placing it in the mail within a reasonably prompt
time after the next payment due date, or the end of any courtesy period
for the payment's corresponding billing cycle, that is more than 14
days after the date on which the applicable event listed in Sec.
1026.41(e)(5)(iv)(A) occurs. Delivering, emailing, or placing the
periodic statement or coupon book in the mail within four days after
the payment due date or the end of the courtesy period generally would
be considered reasonably prompt. See comment 41(b)-1.
2. Subsequent periodic statements or coupon books. Section
1026.41(e)(5)(iv)(C) applies to the timing of only the first periodic
statement or coupon book a servicer provides after one of the events
listed in Sec. 1026.41(e)(5)(iv)(A) occurs. For subsequent billing
cycles, a servicer must provide a periodic statement or coupon book in
accordance with the timing requirements of Sec. 1026.41(a)(2) and (b),
as applicable.
3. Duplicate coupon books not required. With respect to coupon
books, Sec. 1026.41 requires a servicer to provide a new coupon book
after one of the events listed in Sec. 1026.41(e)(5)(iv)(A) occurs
only to the extent the servicer has not previously provided the
consumer with a coupon book that covered the upcoming billing cycle.
41(e)(6) Charged-off loans.
1. Change in ownership. If a charged-off mortgage loan is
subsequently purchased, assigned, or transferred, Sec. 1026.39(b)
requires a covered person, as defined in Sec. 1026.39(a)(1), to
provide mortgage transfer disclosures. See Sec. 1026.39.
2. Change in servicing. A servicer may take advantage of the
exemption in Sec. 1026.41(e)(6)(i), subject to the requirements of
that paragraph, and may rely on a prior servicer's provision to the
consumer of a periodic statement pursuant to Sec. 1026.41(e)(6)(i)(B)
unless the servicer provided the consumer a periodic statement pursuant
to Sec. 1026.41(a).
Paragraph 41(e)(6)(i)(B).
1. Clearly and conspicuously. Section 1026.41(e)(6)(i)(B) requires
that the periodic statement be clearly and conspicuously labeled
``Suspension of Statements & Notice of Charge Off--Retain This Copy for
Your Records'' and that it clearly and conspicuously provide certain
explanations to the consumer, as applicable, but no minimum type size
or other technical requirements are imposed. The clear and conspicuous
standard generally requires that disclosures be in a reasonably
understandable form and readily noticeable to the consumer. See comment
41(c)-1.
41(f) Modified periodic statements and coupon books for certain
consumers in bankruptcy.
1. Compliance after the bankruptcy case ends. Except as provided in
Sec. 1026.41(e)(5), Sec. 1026.41(f) applies with regard to a mortgage
loan for which any consumer with primary liability is a debtor in a
case under title 11 of the United States Code. After the debtor exits
bankruptcy, Sec. 1026.41(f) continues to apply if the consumer has
discharged personal liability for the mortgage loan, but Sec.
1026.41(f) does not apply if the consumer has reaffirmed personal
liability for the mortgage loan or otherwise has not discharged
personal liability for the mortgage loan.
2. Terminology. With regard to a periodic statement provided under
Sec. 1026.41(f), a servicer may use terminology other than that found
on the sample periodic statements in appendix H-30, so long as the new
terminology is commonly understood. See comment 41(d)-3. For example, a
servicer may take into account terminology appropriate for consumers in
bankruptcy and refer to the ``amount due'' identified in Sec.
1026.41(d)(1), as the ``payment amount.'' Similarly, a servicer may
refer to an amount past due identified in Sec. 1026.41(d)(2)(iii) as
``past unpaid amount.'' Additionally, a servicer may refer to the
delinquency information required by Sec. 1026.41(d)(8) as an ``account
history,'' and to the amount needed to bring the loan current, referred
to in Sec. 1026.41(d)(8)(vi) as ``the total payment amount needed to
bring the account current,'' as ``unpaid amount.''
3. Other periodic statement requirements continue to apply. The
requirements of Sec. 1026.41, including the content and layout
requirements of Sec. 1026.41(d), apply unless modified expressly by
Sec. 1026.41(e)(5) or (f). For example, the requirement under Sec.
1026.41(d)(3) to disclose a past payment breakdown applies without
modification with respect to a periodic statement provided to a
consumer in bankruptcy.
[[Page 72400]]
4. Further modifications. A periodic statement or coupon book
provided under Sec. 1026.41(f) may be modified as necessary to
facilitate compliance with title 11 of the United States Code, the
Federal Rules of Bankruptcy Procedure, court orders, and local rules,
guidelines, and standing orders. For example, a periodic statement or
coupon book may include additional disclosures or disclaimers not
required under Sec. 1026.41(f) but that are related to the consumer's
status as a debtor in bankruptcy or that advise the consumer how to
submit a written request under Sec. 1026.41(e)(5)(i)(B)(1). See
comment 41(f)(3)-1.ii for a discussion of the treatment of a bankruptcy
plan that modifies the terms of the mortgage loan, such as by reducing
the outstanding balance of the mortgage loan or altering the applicable
interest rate.
5. Commencing compliance. A servicer must begin to provide a
periodic statement or coupon book that complies with paragraph (f) of
this section within the timeframe set forth in Sec. 1026.41(e)(5)(iv).
6. Reaffirmation. For purposes of Sec. 1026.41(f), a consumer who
has reaffirmed personal liability for a mortgage loan is not considered
to be a debtor in bankruptcy.
41(f)(3) Chapter 12 and chapter 13 consumers.
1. Pre-petition payments and post-petition payments. i. For
purposes of Sec. 1026.41(f)(3), pre-petition payments are payments
made to cure the consumer's pre-bankruptcy defaults, and post-petition
payments are payments made to satisfy the mortgage loan's periodic
payments as they come due after the bankruptcy case is filed. For
example, assume a consumer is $3,600 in arrears as of the bankruptcy
filing date on a mortgage loan requiring monthly periodic payments of
$2,000. The consumer's most recently filed bankruptcy plan requires the
consumer to make payments of $100 each month for 36 months to pay the
pre-bankruptcy arrearage, and $2,000 each month to satisfy the monthly
periodic payments. Assuming the consumer makes the payments according
to the plan, the $100 payments are the pre-petition payments and the
$2,000 payments are the post-petition payments for purposes of the
disclosures required under Sec. 1026.41(f)(3).
ii. If a consumer is a debtor in a case under chapter 12 or if a
consumer's bankruptcy plan modifies the terms of the mortgage loan,
such as by reducing the outstanding balance of the mortgage loan or
altering the applicable interest rate, the disclosures under Sec.
1026.41(d)(1) and (2) and (f)(3)(ii) and (iii) may disclose either the
amount payable under the original terms of the mortgage loan, the
amount payable under the remaining secured portion of the adjusted
mortgage loan, or a statement that the consumer should contact the
trustee or the consumer's attorney with any questions about the amount
payable. In such cases, the remaining disclosures under Sec.
1026.41(d) or (f)(3), as applicable, may be limited to how payments are
applied to the remaining secured portion of the adjusted mortgage loan.
2. Post-petition fees and charges. For purposes of Sec.
1026.41(f)(3), post-petition fees and charges are those fees and
charges imposed after the bankruptcy case is filed. To the extent that
the court overseeing the consumer's bankruptcy case requires such fees
and charges to be included as an amendment to a servicer's proof of
claim, a servicer may include such fees and charges in the balance of
the pre-petition arrearage under Sec. 1026.41(f)(3)(v)(C) rather than
treating them as post-petition fees and charges for purposes of Sec.
1026.41(f)(3).
3. First statement after exemption terminates. Section Sec.
1026.41(f)(3)(iii) through (v) requires, in part, the disclosure of
certain information regarding account activity that has occurred since
the last statement. For purposes of the first periodic statement
provided to the consumer following termination of an exemption under
Sec. 1026.41(e), those disclosures regarding account activity that has
occurred since the last statement may be limited to account activity
since the last payment due date that occurred while the exemption was
in effect. See comment 41(d)-5.
41(f)(3)(ii) Amount due.
1. Amount due. The amount due under Sec. 1026.41(d)(1) is not
required to include any amounts other than post-petition payments the
consumer is required to make under the terms of a bankruptcy plan,
including any past due post-petition payments, and post-petition fees
and charges that a servicer has imposed. The servicer is not required
to include in the amount due any pre-petition payments due under a
bankruptcy plan or other amounts payable pursuant to a court order. The
servicer is not required to include in the amount due any post-petition
fees and charges that the servicer has not imposed. A servicer that
defers collecting a fee or charge until after complying with the
Federal Rule of Bankruptcy Procedure 3002.1 procedures, and thus after
a potential court determination on whether the fee or charge is
allowed, is not required to disclose the fee or charge until complying
with such procedures. However, a servicer may include in the amount due
other amounts due to the servicer that are not post-petition payments
or fees or charges, such as amounts due under an agreed order, provided
those other amounts are also disclosed in the explanation of amount due
and transaction activity.
41(f)(3)(iii) Explanation of amount due.
1. Explanation of amount due. The explanation of amount due under
Sec. 1026.41(d)(2) is not required to include any amounts other than
the post-petition payments, including the amount of any past due post-
petition payments and post-petition fees and charges that a servicer
has imposed. Consistent with Sec. 1026.41(d)(3)(i), the post-petition
payments must be broken down by the amount, if any, that will be
applied to principal, interest, and escrow. The servicer is not
required to disclose, as part of the explanation of amount due, any
pre-petition payments or the amount of the consumer's pre-bankruptcy
arrearage. However, a servicer may identify other amounts due to the
servicer provided those amounts are also disclosed in the amount due
and transaction activity. See comment 41(d)-4.
41(f)(3)(v) Pre-petition arrearage.
1. Pre-petition arrearage. If the pre-petition arrearage is subject
to dispute, or has not yet been determined by the servicer, the
periodic statement may include a statement acknowledging the unresolved
amount of the pre-petition arrearage. A servicer may omit the
information required by Sec. 1026.41(f)(3)(v) from the periodic
statement until such time as the servicer has had a reasonable
opportunity to determine the amount of the pre-petition arrearage. The
servicer may not omit the information required by Sec.
1026.41(f)(3)(v) from the periodic statement after the date that the
bankruptcy court has fixed for filing proofs of claim in the consumer's
bankruptcy case.
41(f)(4) Multiple obligors.
1. Modified statements. When two or more consumers are joint
obligors with primary liability on a mortgage loan subject to Sec.
1026.41, a servicer may send the periodic statement to any one of the
primary obligors. See comment 41(a)-1. Section 1026.41(f)(4) provides
that a servicer may provide a modified statement under Sec.
1026.41(f), if applicable, to any or all of the primary obligors, even
if a primary obligor to whom the servicer provides the modified
statement is not a debtor in bankruptcy. The servicer need not provide
an unmodified statement to any
[[Page 72401]]
of the primary obligors. For example, assume that two spouses jointly
own a home and are both primarily liable on the mortgage loan. One
spouse files for chapter 13 bankruptcy, and that spouse's chapter 13
bankruptcy plan provides that the same spouse will retain the home by
making pre-petition and post-petition payments. The servicer complies
with Sec. 1026.41 by providing the modified periodic statement under
Sec. 1026.41(f) to either spouse.
2. Obligors in different chapters of bankruptcy. If two or more
consumers are joint obligors with primary liability on a mortgage loan
subject to Sec. 1026.41 and are debtors under different chapters of
bankruptcy, only one of which is subject to Sec. 1026.41(f)(3), a
servicer may, but need not, include the modifications set forth in
Sec. 1026.41(f)(3). For example, assume one joint obligor is a debtor
in a case under chapter 7 and another joint obligor is a debtor in a
case under chapter 13, and that the servicer is not exempt from the
periodic statement requirement under Sec. 1026.41(e)(5). The periodic
statement or coupon book is subject to the modifications set forth in
Sec. 1026.41(f)(1) and (2), but the servicer may determine whether it
is appropriate to include the modifications set forth in Sec.
1026.41(f)(3).
* * * * *
Dated: August 2, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-18901 Filed 10-18-16; 8:45 am]
BILLING CODE 4810-AM-P
Office of the Federal Register, National Archives and Records Administration
Section
Rules and Regulations
Action
Final rule.
Dates
This final rule is effective on October 19, 2017, except that the following amendments are effective on April 19, 2018: Amendatory instructions 5, 6.b, 7, 8, 9, 11.b, 17.a.ii, 17.b.ii, 17.c, 17.d.ii, 17.f.i, 17.i.i, 17.k, 19, 20, 22, 23.c, 25.a, 25.b, 25.c.ii, and 25.d.ii. For additional discussion regarding the effective date of the rule, see part VI of the SUPPLEMENTARY INFORMATION below.
Contact
Dania L. Ayoubi, David H. Hixson, Alexandra W. Reimelt, or Joel L. Singerman, Counsels; or William R. Corbett, Laura A. Johnson, or Amanda E. Quester, Senior Counsels; Office of Regulations, at (202) 435-7700.
FR Citation
81
FR
72160
RIN Number
3170-AA49
CFR Citation
12
CFR
1024 12
CFR
1026
CFR Associated
Condominiums; Consumer Protection; Housing; Insurance; Mortgages; Mortgagees; Mortgage Servicing; Reporting and Recordkeeping Requirements; Advertising; Appraisal; Appraiser; Banking; Banks; Credit; Credit Unions; National Banks; Savings Associations
and
Truth in Lending