As we all know, the CFPB was not affected by the government shutdown. To make sure we all were aware they were open for business, the CFPB released a bulletin and interim final rule meant to clarify the mortgage servicing rules that take effect in January 2014. The bulletin and interim final rule were issued on Tuesday, Oct. 15, 2013. The bulletin addresses the bank’s communications with family members after a borrower dies, contact with delinquent borrowers, and treatment of consumers who have filed for bankruptcy or invoked certain protections under the Fair Debt Collection Practices Act.CFPB Director Richard Cordray was quoted as saying, “As servicing implementation enters its final phases, we heard from many sources that it was important to address these remaining issues to ensure a smooth transition and provide certainty to the market,” he also stated, “When mortgage servicers better understand the rules they have to follow, that is better for consumers.”Mortgage servicers are typically responsible for collecting payments from mortgage borrowers on behalf of the financial institution that actually has the loan on their books. Servicers also typically handle customer service, escrow accounts, collections, loan modifications and foreclosures.
In January, the CFPB issued rules to protect homeowners who are struggling to make their mortgage payments, including those who are facing foreclosure. The rules protect mortgage borrowers from any surprises by their servicers.
The issues clarified are:
- Home retention efforts after a borrower dies: In cases in which a borrower dies, the rules the CFPB issued in January required the servicers to have policies and procedures in place to ensure that they promptly identify and communicate with family members, heirs or other parties who have a legal interest in the home. The CFPB bulletin provides examples of servicer policies and procedures, which include allowing for continued payment on the mortgage as well as evaluating the heir (or whomever the legal interest in the home passes to) for assumption of the mortgage and, if appropriate, for loss mitigation measures.
- Early intervention requirement to contact delinquent borrowers: The CFPB’s rules require servicers to attempt to contact the borrowers each time they miss a payment to provide information that can help get them current. The CFPB bulletin clarifies that this requirement can be satisfied by the contact that servicers have with the borrowers, for example, when conducting a collection call or evaluating them for loss mitigation. Also, the method of contact may vary depending on how long the delinquency has continued or whether the borrower is communicating or responding to the servicers attempts to communicate.
- Interplay between the servicing rules, bankruptcy code and the Fair Debt Collection Practices Act (FDCPA): Both the FDCPA and bankruptcy law provide significant protections for consumers who decide to invoke them and restrict certain types of communications. The CFPB bulletin clarifies that even if the delinquent borrower has invoked the right to stop communication pursuant to the FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act are still required. Specifically, servicers must communicate with the borrower in regard to requests for loss mitigation, information requests, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages and periodic statements. However, servicers will not be required to provide specific early intervention contacts or ongoing notices of interest rate adjustments to delinquent borrowers who have instructed the servicer to stop communicating with them. It also clarifies that further assessment is warranted regarding how bankruptcy protections intersect with these servicing requirements and how to ensure that the servicing communications do not confuse consumers regarding the status of their loans.
Among other things, the interim final rule also clarifies regulations issued by the CFPB in January to require consumers to receive housing counseling before taking out a high-cost mortgage. The rule specifies which federally required disclosure must be used as the basis for counseling for a small group of closed-end loans that are not subject to RESPA.