by Michelle R. Rodriguez, Esq.
Woodland Hills Mortgage

Effective October 19, 2017, changes to the Dodd Frank mortgage servicing rules went into effect. These new rules make small adjustments to some of the existing rules. Generally, the servicing rules apply to consumer loans secured by 1-4 unit residential properties. However, some of the new rules only apply to loans secured by the borrower’s primary residence. In addition, the new rules do not change the coverage of the existing rules. Unless otherwise specified, all of the rules below refer to the Dodd-Frank mortgage servicing rules found in sections 36-41 of Regulation X promulgated under the authority of the Real Estate Settlement Procedures Act (“RESPA”). Changes to the rules are outlined below.

Definition of Deliquency. The new rules clarify and define the period of time during which a borrower and the borrower’s mortgage loan obligation are delinquent. The rules state 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. Thus, the delinquency begins on the date the periodic payment becomes due and unpaid even if the servicer will not assess a late charge if the borrower makes the periodic payment within a certain time frame after the periodic payment is due.

Force-Placed Insurance Disclosures. The new rules update the existing force-placed insurance disclosures to address situations when the insurance coverage is insufficient. It also specifically allows servicers to add the loan account number to the notices. However, be careful when attempting to search the internet for the model forms that you don’t pull up the old model forms instead which lack the appropriate language. Look for the “insufficient coverage” language to be sure you have the new model forms. Here is a link to a website that, as of November 17, 2017, which has the updated model forms: www.law.cornell.edu/cfr/text/12/appendix-MS-3_to_part_1024.

EARLY INTERVENTION

Early Intervention. The Early Intervention requirements, generally, apply to consumer mortgage loans secured by 1-4 unit dwellings that are the borrower’s primary residence, with exceptions that are not spelled out in this article. Early Intervention procedures refer to the “live contact” requirement (phone calls), and written notices that a servicer must send to the borrower after the borrower has or is in default.

Phone Contact

The new rules clarify the Consumer Financial Protection Bureau’s (“CFPB”) intent that the servicer attempt to contact the borrower by phone no later than the 36th day of delinquency, and again on the 36th day after each payment is due thereafter so long as the borrower remains delinquent.

Written Notice

The new rule also clarify that the 45 day written notice must be given no later than the 45th day of delinquency, and once every 180 days, so long as the loan remains delinquent. If the loan is not delinquent, 180 days after the first 45 day notice was sent, another notice does not need to be sent until the loan is 45 days delinquent.

Early Intervention – Borrowers in Bankruptcy. While a borrower is in Bankruptcy, the servicer is exempt from the live contact requirements, and is exempt from the written notice requirement if: a) no loss mitigation options are available to the borrower, or b) if any borrower on the loan has provided to the servicer a Fair Debt Collection Practices Act (“FDCPA”) notice to cease communication with the borrower. There are two things to note here:

  • If even one loss mitigation option is available to the borrower (deed in lieu of foreclosure, for example), then this exemption would not apply; and
  • If the servicer does not meet the definition of a debt collector under the FDCPA, then the exemption would not apply.

If the servicer is not exempt from the written notice requirements, then the servicer must comply with those requirements modified as such:

  • If borrower is delinquent when they go into Bankruptcy, the servicer must provide the written notice no later than the 45th day after the borrower files for Bankruptcy.
  • If the borrower is not delinquent when they go into Bankruptcy, the servicer must provide the written notice not later than the 45th day of the borrower’s delinquency. The servicer must comply with these timing requirements regardless of whether the servicer provided the written notice in the preceding 180 day period.

Important: The written notice cannot contain a request for payment. Servicers may consider having a separate written notice for borrowers in Bankruptcy that does not contain a request for payment. Servicers are not required to provide the written notice more than once during a single Bankruptcy case.

With certain exceptions, the servicer must resume compliance with the live contact and written notice requirements after the next payment due date that follows the earliest of: (a) the Bankruptcy case is dismissed, (b) the Bankruptcy case is closed, or (c) the borrower reaffirms personal liability for the loan. If the borrower has been discharged from personal liability for the loan through the Bankruptcy, the servicer is not required to resume compliance with the live contact requirements, but must resume compliance with the written notice requirement if the borrower has made any partial or periodic payment on the loan after the start of the Bankruptcy.

Early Intervention – FECPA Cease Communication Notice Similar to the Early Intervention rules for borrowers in Bankruptcy, if a borrower sends an FDCPA notice to cease communications with the borrower to a servicer subject to the FDCPA, then the servicer is exempt from both the RESPA live contact requirements and the written notice requirements. This is true only if there are no loss mitigation options available to the borrower, or while any borrower on the loan is in Bankruptcy, or if the servicer is subject to the FDCPA.

If the servicer is not subject to the FDCPA, then the exemption from the live contact requirements does not apply. If there are any loss mitigation options available to the borrower and the borrower is not in Bankruptcy, then the servicer is not exempt from the written notice requirements. If the servicer is not exempt, then the servicer will still have to comply with the written notice requirement under the Early Intervention rules, but they must modify the notice by including the following statement: “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 contract. Please read this letter carefully.” This wording is found in Model clause MS-4(D). Also, the written notice may not contain a request for payment.

Tip: Servicers might consider creating a separate notice in their system to be used when an FDCPA cease communication notice is received, to provide the additional statement and to omit the request for payment.

Timing: In addition to new wording to add to the notice, there are intricate timing requirements regarding when the written notice must be sent. The servicer is prohibited from providing the written notice 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 servicer has provided a written notice, servicer must provide the written notice again no later than 190 days after 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 or 190 days after the provision of the prior written notice, whichever is later.

LOSS MITIGATION

Loss Mitigation. The changes to the loss mitigation rules generally apply to consumer mortgage loans secured by 1-4 unit dwellings that are the borrower’s primary residence, with exceptions that are not spelled out in this article.

“Reasonable Date” Guidance and Completed Loss Mitigation Application. The new rules give some guidance in how servicers should select the reasonable date by which a borrower should return documents and information to complete a loss mitigation application. The rules clarify that the servicer may not take actions towards foreclosure when considering a completed loss mitigation application received more than 37 days prior to the foreclosure sale. In addition, the rules further clarify that servicers may stop collecting documents and information regarding loss mitigation options for which the servicer has confirmed that the borrower is not eligible. The servicer cannot stop collecting documents and information based solely on the borrower’s stated preference for or against a loss mitigation option.

Short Term Loss Mitigation Options. The provision for short term loss mitigation options was added to the rules to make it clear that servicers can offer short term loss mitigation options to borrowers in default, and provide a framework for fitting these short terms options into the Dodd-Frank loss mitigation notices and time-lines. After offering a payment forbearance or repayment plan, unless the borrower has rejected the offer, the servicer must provide the borrower a written notice: (1) Stating the specific payment terms and duration of the program or plan; (2) That the servicer offered the plan based on an evaluation of an incomplete application; (3) That other loss mitigation options may be available; and (4) 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 plan.

Notice of Complete Loss Mitigation Application. The new rules add a new notice of completed loss mitigation application, to be sent to the borrower within 5 business days (excluding federal holidays, Saturday & Sunday) of receiving a complete loss mitigation application. The servicer is not required to provide the notice if: (1) Servicer has already provided borrower an initial receipt notice that the application is complete and servicer has not requested additional info; (2)The application was not complete or facially complete more than 37 days before a foreclosure sale; or (3) Servicer has already provided borrower with a notice of loss mitigation options being offered.

Third Party Documents/Information not in Borrower’s Control. Most of the changes to the Dodd Frank servicing rules that went into effect in October were clarifications or dealt with issues that had been known problems since the servicing rules went into effect. But the provisions regarding information not in the borrowers control were added after the CFPB received many frustrating, and often heartbreaking, complaints from consumers who had problems getting loan modifications because the servicer did not obtain information that was not in the borrowers control.

The servicer must use reasonable diligence to obtain the third party documents/information. Under the new rules, if the servicer is unable to obtain the documents within 30 days after receiving the completed loss mitigation application, then except as noted below, the servicer must not deny a complete loss mitigation application solely because the servicer lacks required documents or information not in the borrower’s control. But, if the servicer can’t determine which loss mitigation options, if any, it will offer the borrower without the missing documents or information, the servicer may deny the application and provide the borrower with a written notice of loss mitigation options being offered to the borrower, and a written notice of missing third party documents.’

Pre-foreclosure Review. Before the new rules went into effect, the old rules allowed a servicer to waive the 120 day pre-foreclosure waiting period prior to filing a foreclosure action if the servicer was joining the foreclosure action of a junior lienholder only. A servicer can now waive the 120 pre-foreclosure waiting periodprior to filing a foreclosure action if it is joining the foreclosure action of a senior lienholder. This won’t have a lot of utility in California, because most foreclosures in California are conducted non-judicially, but it will be extremely useful in judicial foreclosure states.

Duplicative Requests for Loss Mitigation Options. The old rules provided for a “one and done” approach to duplicative requests for loss mitigation options. Under the new rules, a servicer must comply with loss mitigation requirements unless servicer has previously complied 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.

Loss Mitigation Applications During Servicing Transfers. Servicing transfers has long been an area of concern for the CFPB. So it is no surprise that they used this rulemaking opportunity to clarify some of the timing and other requirements with respect to loss mitigation applications in process at the time of a servicing transfer.

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 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), the transferee servicer must comply with the loss mitigation requirements 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 1024.41 of the loss mitigation rules to which a borrower was entitled before a transfer continue to apply notwithstanding the transfer.

If a transferee servicer acquires the servicing of a mortgage loan for which the period to provide the notice of receipt of loss mitigation application 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.

A transferee that must provide the above notice under the above section 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 in the notice of receipt of loss mitigation application, notwithstanding the pre-foreclosure review rules. For purposes of the pre-foreclosure rules for loss mitigation applications received prior to a foreclosure filing, a borrower who submits a complete loss mitigation application on or before the reasonable date disclosed to the borrower in the notice of receipt of loss mitigation application shall be treated as having done so during the pre-foreclosure review period set forth in paragraph (f)(1) of 1041.41. A transferee that must provide the above notice under the above section shall comply with paragraphs (c), (d), and (g) of 1042.41 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 in the notice of receipt of loss mitigation application.

Loans owned by Fannie Mae or Freddie Mac. The new rules change how the servicer must respond to requests for ownership information when Fannie or Freddie is the owner of a loan or a trust that holds the loan.

More to come. If you are craving more changes to the Dodd Frank servicing rules, you are in luck – there are more changes regarding successors-in-interest that go into effect April 19, 2018. Those changes are outside of the scope of this article. For more information on the upcoming changes, and the changes already in effect, visit the CFPB’s website on the mortgage servicing rules: www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/mortserv/.

The changes to the Dodd-Frank servicing rules that went into effect 10/19/2017 were not game-changers. For the most part, they clarified or cleaned-up the existing rules to address known issues and problems that have come to light since the original rules were introduced. Many people are asking whether the recent change in presidential administrations, or the even-more-recent announcement of the resignation of Richard Cordray as Director of the CFPB means that some or all of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the servicing rules, will be repealed. Time will tell. A prudent person will comply with the existing rules, and hope for a lighter regulatory burden in the future.

ENDNOTES:

  1. 12 C.F.R. §1024.37 et. seq. (2017).
  2. 12 C.F.R. §1024.37(c)(v) (2017).
  3. 12 C.F.R.§ 1024.39 (2017).
  4. 12 C.F.R. §1024.39(c) (2017).
  5. 12 C.F.R. §1024.39(d) (2017).
  6. Interim Final Rule on the Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act , 82 FR 47953-01 (2017).
  7. Id.
  8. Official Bureau Interpretation Paragraph 41(b)(1)-1 (2017).
  9. 12 C.F.R. § 1024.41(c)(2)(iii) (2017).
  10. 12 C.F.R. §1024.41(i) (2017).
  11. 12 C.F.R. § 1024.41(k) (2017).
  12. 12 C.F.R. § 1024.36(d) (2017).