16 Oct Federal Regulatory Update
On October 15, 2013, the Consumer Financial Protection Bureau (the “Bureau”) issued a bulletin providing guidance in implementing certain 2013 Real Estate Settlement Procedures Act and Truth-in-Lending Act final servicing rules, effective January 10, 2014.
CFPB BULLETIN 2013-12
Policies and Procedures Rule
According to the Policies and Procedures Rule, starting on January 10, 2014, a servicer must have policies and procedures reasonably designed to ensure that, upon notification of the death of a borrower, the servicer promptly identifies and facilitates communication with a successor in interest of the deceased borrower with respect to the property that secures the deceased borrower’s mortgage loan. A successor in interest is the spouse, child, or heir of a deceased borrower or other party with an interest in the property.
The following are examples of servicer practices the Bureau would consider to be components of policies and procedures that are reasonably designed to achieve the objectives of the successor in interest provision in the Policies and Procedures Rule:
- 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 considering the laws of the relevant jurisdiction, for the party to establish the death of the borrower and the identity and legal interest of the successor in interest. Such documents might include, for example, a death certificate, an executed will, or a court order determining a succession to real property;
- Upon notification of the death of a borrower, promptly identifying and evaluating any issues that the servicer must consider in reviewing the rights and obligations of successors in interest with respect to the property and mortgage loan, including, for example:
- Receipt of acceptable proof of the successor in interest’s identity and legal interest in the property;
- Standing of the mortgage loan as current or delinquent;
- Eligibility of the successor in interest to continue making payments on the mortgage loan;
- Whether a trial modification or other loss mitigation option was in place at the time of the borrower’s death;
- Whether there is a pending or planned foreclosure proceeding;
- Eligibility of the successor in interest for loss mitigation options; and
- Eligibility of the successor in interest to assume the mortgage loan, with or without a simultaneous loan modification or other loss mitigation option;
- Promptly providing successors in interest with information about the above issues, including any servicer prerequisites for the successor in interest to continue payment on the mortgage loan, assume the mortgage loan, and, where appropriate, qualify for available loss mitigation options;
- Promptly providing successors in interest with any documents, forms, or other materials the servicer requires for the successor in interest to continue making payments and to apply and be evaluated for an assumption and, where appropriate, loss mitigation options;
- Upon receipt from the successor in interest of required documents, forms or other materials, promptly evaluating the successor in interest for and, where appropriate, implementing options set forth above; and
- Providing employees with information and training regarding the effect of laws and investor and other requirements on the servicer’s obligations following the death of a borrower, and complying with those laws and requirements, including:
- Servicing guidelines, such as those published by Fannie Mae and Freddie Mac;
- The Garn-St. Germain Act of 1982, which imposes certain limits on the application of due-on-sale clauses when real property is transferred as a result of the death of a borrower; and
- Federal or state law restricting the disclosure of the deceased borrower’s nonpublic personal information.
Servicers should consider whether best practices with regard to their policies and procedures regarding successors in interest would include the following:
- Upon notification of the death of a borrower, promptly evaluating whether to postpone or withdraw any pending or planned foreclosure proceeding to provide a successor in interest with reasonable time to establish ownership rights and pursue assumption and, if applicable, loss mitigation options; and
- Promptly providing a successor in interest with information about the possible consequences of assuming the mortgage loan, such as any costs and the fact that a later loss mitigation option is not guaranteed if the successor in interest assumes the loan without a loss mitigation option already in place or arranged to commence simultaneously with the assumption.
Early Intervention Rule
For purposes of the Early Intervention Rule, 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. Thus, once the rule goes into effect, for each billing cycle for which a borrower is delinquent for at least 36 days, servicers are required to make good faith efforts to establish live contact with the borrower by the 36th day and, if appropriate, to inform the borrower about the availability of loss mitigation options.
Commentary to the Early Intervention Rule states that good faith efforts to establish live contact consist of reasonable steps under the circumstances to reach a borrower. For delinquencies that begin on or after January 10, 2014, the Bureau would consider the following communications reasonable steps under the circumstances to establish live contact:
- A borrower working with a servicer to obtain loss mitigation. The live contact requirement is satisfied with regard to cases in which a borrower is delinquent in consecutive billing cycles if the servicer has established and is maintaining ongoing contact with the 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.
- A borrower stops paying under a loss mitigation plan or becomes delinquent after curing a prior default. As specified in the commentary to the final rule, a borrower is not delinquent under the rule if performing as agreed under a loss mitigation option designed to bring the borrower current on a previously missed payment. This includes forbearance plans and trial modifications. If the borrower fails to make a loss mitigation payment, a new delinquency begins and the servicer has an obligation to make good faith efforts to contact the borrower within 36 days of the start of the delinquency and for each of any subsequent billing periods for which the borrower’s obligation is due and unpaid. Similarly, if a borrower successfully cures a prior default but becomes delinquent again, the servicer has an obligation to make good faith efforts to contact the borrower within 36 days for each of the subsequent billing periods for which the borrower’s obligation is due and unpaid.
- Communication in conjunction with other contact. A servicer may, but need not, rely on live contact established at the borrower’s initiative to satisfy the live contact requirement. Servicers may also combine contacts made according to the Early Intervention Rule with contacts made with borrowers for other reasons, for instance by adding a brief script to collection calls to inform borrowers that loss mitigation options may be available in accordance with the rule.
- A borrower is unresponsive. The Bureau believes that a borrower’s failure to respond to a servicer’s repeated attempts at communication is a relevant circumstance to consider. For example, “good faith efforts” to establish live contact with regard to delinquencies occurring after 6 or more consecutive delinquencies might require no more than making a single telephone call or including a sentence requesting the borrower to contact the servicer with regard to the delinquencies in the periodic statement or in an electronic communication. Such efforts might be appropriate where there is little or no hope of home retention, such as when all applicable loss mitigation possibilities have been exhausted, including a short sale or deed in lieu of foreclosure, as may occur in the later stages of foreclosure.
The Fair Debt Collection Practices Act (“FDCPA”) grants borrowers the right generally to bar debt collectors from communicating with them.
Regardless of a “cease communication” instruction sent by the borrower, a servicer that is considered a debt collector under the FDCPA that provides disclosures to and communicates with the borrower to comply with the servicing rules regarding the following areas is not liable under the FDCPA:
- Error resolution;
- Requests for information;
- Force-placed insurance;
- Loss mitigation;
- ARM initial interest rate adjustment; and
- Periodic statement.
This conclusion does not extend to the notices/communications required by the early intervention rule and the ARM interest rate adjustment with corresponding payment change rule.
The error resolution, information requests, and loss mitigation servicing rules, respectively, require servicers to investigate and resolve certain borrower-reported errors relating to the servicing of the borrower’s mortgage loan, respond appropriately to borrower requests for information with respect to a borrower’s mortgage loan, and consider appropriately a borrower’s loss mitigation application. A borrower’s “cease communications” request according to the FDCPA should ordinarily be understood to exclude these categories of communication because the borrower has specifically requested the communication at issue.
Even if the borrower sends a “cease communications” request while a specific action the borrower requested of the servicer is in process, the borrower usually should be understood to have excluded the specific action from the general request to cease communication. Only if the borrower sends a communication to the servicer specifically withdrawing the request for the action may a servicer cease to carry out the requirements of the provisions above.
The servicing rule provisions regarding force-placed insurance, ARM initial rate adjustments, and periodic statements, respectively, require the servicer to provide borrowers with disclosures regarding the forced placement of hazard insurance, a disclosure regarding an ARM’s initial interest rate adjustment, and a periodic statement for each billing cycle. A servicer acting as a debt collector would not be liable under the FDCPA for complying with these requirements despite a borrower’s “cease communication” request.