Executive Summary: 2016 Mortgage Servicing Rules

Prepared by the NASCUS Legislative & Regulatory Affairs Department
December 2016

The CFPB issued a final rule amending certain mortgage servicing provisions under Regulation Z and Regulation Z.  In addition, the Bureau issued an interpretive rule under the Fair Debt Collection Practices Act (FDCPA), relating to servicers’ compliance with certain mortgage servicing provisions as amended by the 2016 Mortgage Servicing Rule. This summary provide a high-level synopsis of the mortgage servicing rule changes. 

The majority of the rules provisions become effective on October 19, 2017.  However, a number of provisions become effective on April 19, 2018.  You can access the final rule here and the FDCPA interpretive rule here.

Successors in Interest

The rule makes several changes related to successors in interest, including the following:

  • Adds similar definitions of “successor in interest” under Regulations X (subpart C) and Regulation Z.
  • Under Regulation X, a person is a “successor in interest” if the borrower transfers an ownership interest in a property securing a mortgage loan to the person by means of one of the following types of transfers:
    • Transfer by devise, descent or operation of law on the death of a joint tenant or tenant by the entirety;
    • Transfer to a relative resulting from the death of the borrower
    • Transfer where the spouse or children of the borrower become an owner of the property
    • Transfer resulting from dissolution of marriage decree, legal separation agreement or from an incidental property settlement agreement by which the spouse of the borrower becomes an owner of the property
    • 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.
  • Specifies how a servicer confirms a successor in interest’s identity and ownership interest in property secured by the mortgage loan. 
  • Requires services to respond to written requests from an individual claiming to be a successor in interest if (i) the request includes the name of the borrower from whom the person received an ownership interest and (ii) the request includes information that enables the servicer to identify the mortgage loan. The servicer’s response must include a written description of the documents required to confirm the person’s identity and ownership interest in the property.
  • Requires servicers (other than small servicers and qualified lenders) to maintain certain policies/procedures with respect to successors in interest.  Policies/procedures that are “reasonably designed to ensure that, upon receiving notice of the existence of a potential successor in interest, the servicer can:
  • Promptly provider a potential successor in interest with a description of the documents the servicer reasonably requires to confirm the person’s identity and ownership interest in the property; and
  • Upon receiving those documents, the servicer can promptly notify a potential successor in interest of the servicer’s determination regarding the potential successor’s status.
  • Specifies that a confirmed successor in interest shall be considered a borrower for purposes of Regulation X’s mortgage servicing regulations including those provisions pertaining to:
    • Servicing transfer
    • Error Resolution
    • Request for Information
    • Early Intervention
    • Continuity of Contract
    • Loss Mitigation
    • Force-placed Insurance
    • Escrow provisions
  • Specifies that a confirmed successor in interest shall be considered a consumer for purposes of Regulation Z’s mortgage servicing provisions including those pertaining to:
    • Periodic statement requirements
    • Provisions on interest rate adjustment notices
    • Payment processing/payoff statement requirements
    • Mortgage transfer notice requirements
  • Under the final rule, a servicer is not required to provide a specific written disclosure or notice to a confirmed successor in interest IF the servicer provides the same written disclosure or notice to another borrower or consumer.
  • Unless a servicer is exempt from loss mitigation requirements, it must review/evaluate a loss mitigation application received from a confirmed successor in interest as required by Regulation X IF the property is the confirmed successor in interest’s principal residence.
  • The final rule’s provisions regarding “Successors in Interest” will become effective on April 19, 2018.

Definition of Delinquency

  • Defines “delinquency” to mean a period of time during which a borrower and a borrower’s mortgage loan obligation are delinquent.  The mortgage loan obligation becomes 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.  Note: the rule applies this definition to specified mortgage servicing provisions of Regulation X and the periodic statement provisions for mortgage loans under Regulation Z.
  • The provisions pertaining to delinquency will become effective on October 19, 2017.

Requests for Information

  • The final rule changes how a servicer must respond to requests for ownership information on loans 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.
    • Where Fannie Mae/Freddie Mac is the owner or trustee and the request expressly request the name or number of the trust/pool, the servicer must provide the name of the trust, the trustee’s name, address and contact info.
    • Where Fannie Mae/Freddie Mac is the owner or trustee and the request does not expressly request the name or number of the trust/pool, the servicer is only required to provide the name and contact info for Fannie Mae/Freddie Mac.
    • Where Fannie Mae/Freddie Mac is not the owner or trustee, the servicer must provide the name of the trust, the trustee’s name, address and contact info.
  • The rule’s provisions pertaining to requests for information will become effective on October 19, 2017.

Forced Placed Insurance

  • Amends the forced-placed insured disclosures and model forms to account for situations where a servicer wished to force-place insurance when there is insufficient (rather than expiring or expired) hazard insurance on the property. 
  • Allows servicers to include a borrower’s mortgage loan account number on forced-placed insurance notices.
  • The rule’s provisions pertaining to forced-placed insurance will become effective on October 19, 2017.

Early Intervention

  • The final rule clarifies a servicer’s early intervention, live contact and written notice obligations.  Specifically, that:
    • Servicers must establish live contact (or make good faith efforts to establish such contact) as long as the borrower remains delinquent and must provide multiple early intervention written notices under certain circumstances. 
    • The rule provides an exemption from early intervention live contact requirements for a mortgage loan when either (i) any borrower on the loan is in bankruptcy or (ii) the servicer is a debt collector under the FDCPA with respect to the mortgage loan and any borrower on the loan has invoked the FDCPA’s cease communication protection with respect to the loan.
    • If either the first or second condition is met, the servicer is also exempt from the written notice requirements for the mortgage loan if no loss mitigation option is available.
    • If any loss mitigation option is available, the servicer must comply with modified written notice requirements for the mortgage loan, unless both the first and second conditions are met.  If both conditions are met, the servicer is exempt from the written notice requirements for the mortgage loan.
    • The rule requires a servicer resume compliance with the early intervention requirements once the bankruptcy case is closed or dismissed; or the borrower reaffirms personal liability for the mortgage loan.
  • The early intervention provisions will become effective on October 19, 2017.

Loss Mitigation

  • Requires servicers to meet the loss mitigation requirements more than once during the life of a loan for borrowers who become current on payments at any time between a borrower’s prior complete loss mitigation application and a subsequent loss mitigation application.
  • Modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the foreclosure action of either a superior or subordinate lienholder.
  • Clarifies how servicers select the date by which borrowers should return documents/information necessary to complete a loss mitigation application.
  • Clarifies the servicer’s obligations if a borrower submits a complete loss mitigation application more than 37 days before a foreclosure sale.  Specifically, that a servicer must not move for a foreclosure judgment, order of sale, or conduct a foreclosure sale unless certain circumstances are met.
  • Requires a servicer to provide a written notice to a borrower within five days (excluding Saturdays, Sundays and holidays) after it receives a complete loss mitigation application.
  • Addresses and clarifies how loss mitigation procedures and timelines apply when a transferee servicer receives a mortgage loan that has a pending loss mitigation application at the time of the transfer.
  • The loss mitigation changes take effect on October 19, 2017.

Prompt Payment Crediting

  • Clarifies that periodic payments (made during temporary loss mitigation programs) must continue to be credited according to the borrower’s loan contract and could be credit as a partial payment.  Periodic payments (made during a permanent loan modification) must be credited under the terms of the permanent loan agreement.
  • The prompt payment crediting changes take effect on October 19, 2017.

Periodic Statements

  • Clarifies certain periodic statement disclosure requirements for mortgage loans that have been accelerated, permanently modified or are in temporary loss mitigation programs.
  • Requires servicers to send modified periodic statements to consumers who have filed for bankruptcy, subject to certain exemptions.  The content of the statement will vary based on the type of bankruptcy filing (Chapter 7 or 11; Chapter 12 or 13). The rule provides sample forms for servicers.
  • Exempts servicers from the periodic statement requirements 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.
  • The changes regarding the bankruptcy periodic statement exemption and modified statements for consumers in bankruptcy are effective on April 19, 2018 and the remaining changes pertaining to periodic statements are effective on October 19, 2017.

FDCPA Interpretive Rule

  • The CFPB issued an FDCPA Interpretive Rule along with the mortgage servicing final rule.  The interpretive rule provides safe harbors from liability for servicers taking the following actions in compliance with Regulations X or Z:
    • Communicating about a mortgage loan which a confirmed successor in interest as required or authorized by mortgage servicing rules under Regulations X or Z;
    • Providing a written early intervention notice to a borrower who has invoked cease communication protection under the FDCPA; or
    • Responding to borrower-initiated communications concerning loss mitigation after the borrower has invoked cease communication protection under the FDCPA.