The Consumer Financial Protection Bureau has adopted a final rule that provides new measures to ensure that homeowners and struggling borrowers are treated fairly by mortgage servicers.
The CFPB’s final rule, which amends Reg. X—Real Estate Settlement Procedures (12 CFR Part 1024) and Reg. Z—Truth in Lending (12 CFR Part 1026), is the result of a November 2014 proposed rulemaking that addressed nine major mortgage-related topics.
Stronger protections. Although the final rule adopted many of the proposed provisions, the bureau made a number of changes after considering comments received from the public. The new protections provided to consumers include:
- requiring servicers to provide foreclosure protections for borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application;
- expanding consumer protections to surviving family members and other homeowners by establishing a broad definition of "successor in interest" that generally includes persons who receive property upon the death of a relative or joint tenant; as a result of a divorce or legal separation; through certain trusts; or from a spouse or parent;
- providing borrowers in bankruptcy periodic statements with specific information tailored for bankruptcy, as well as a modified written early intervention notice to let those borrowers know about loss mitigation options;
- requiring servicers to notify borrowers promptly and in writing that a loss mitigation application is complete, so that borrowers know the status of the application and have more information about their protections;
- a clarification that, if mortgage servicing is transferred, the new servicer must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer, but provides limited extensions to these timeframes under certain circumstances;
- a clarification that, if a servicer has already made the first foreclosure notice or filing and receives a timely complete loss mitigation application, servicers and their foreclosure counsel must not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, even if a third party conducts the sale proceedings, unless the borrower’s loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement;
- a clarification that delinquency, for purposes of the servicing rules, begins on the date a borrower’s periodic payment becomes due and unpaid; and
- allowing servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full periodic payment.
Other protections afforded by the final rule include, among other things, the use of force-placed insurance by a servicer when the borrower has insufficient, rather than expiring or expired, hazard insurance coverage on the property; and the exclusion of certain seller-financed transactions and mortgage loans, voluntarily serviced for a non-affiliate, from being counted toward the 5,000 loan limit in the small servicer exemption.
Safe harbor. The CFPB also issued an interpretive rule under the Fair Debt Collection Practices Act relating to servicers’ compliance with certain of the mortgage servicing provisions as amended by the final rule. The interpretive rule provides a safe harbor from liability under the FDCPA for actions done or omitted in good faith in conformity with the interpretive ruling.
Effective dates. Most of the provisions of the final rule will take effect 12 months after publication in the Federal Register. The provisions relating to successors in interest and the provisions relating to periodic statements for borrowers in bankruptcy will take effect 18 months after publication in the Federal Register.
Protecting the vulnerable. Commenting on the final rule, CFPB Director Richard Cordray stated, "These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable."
