CFPB proposes more changes to the Mortgage Servicing Rules Implemented in January of 2014. Final Comments Due February 25, 2014
While the proposed CFPB rule changes clearly address some issues that need clarification, the CFPB is also seeking to further strengthen borrower rights and the potential for more claims against servicers in the loss mitigation process. While compelling arguments to “level the playing field” could have been made by borrower advocates during the height of the most recent real estate collapse, it is a legitimate question whether increased protections need to occur. It is clear that loan underwriting standards are now wholly different than they were during the foreclosure crises and that far fewer foreclosures are occurring. It is also clear that the greatest beneficiaries of the proposed changes will still likely be borrowers on severely delinquent loans, many of which were originated during the foreclosure crises. Time will tell whether the new and existing rules balance the playing field, or provide too much protection by adding even more complexity to technical and sometimes confusing default servicing procedures. The following is an outline of some of the proposed changes.
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Proposed (11.20.14), CFPB Changes to Mortgage Servicing Rules. Final comment period expires February 20, 2015. The following is an outline of some of the proposed changes. To link to entire document: http://files.consumerfinance.gov/f/201411_cfpb_proposed-rule_mortgage-servicing.pdf
- Proposed Changes to Small Servicer Definition: Current rules provide “smaller servicer “exemptions to servicers who service 5,000 or fewer mortgage loans for all of which they are the creditor or assignee. The proposed rules would exclude certain seller-financed transactions from being counted against the 5,000 limit.
- Proposed Changes to Require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan. Currently a borrower must be provided with right to be evaluated for options to avoid foreclosure only once during the life of the loan). The proposed rules would expand protections to borrowers who have brought their loans current at any time since the last loss mitigation application.
- Proposed Changes to Expand consumer protections to surviving family members and other homeowners. Currently, If a borrower dies, servicers must promptly identify and communicate with family members, heirs, or other parties, known as “successors in interest”. The proposed rules expand the circumstances that a consumer would be a successor in interest and include when a property is transferred after a divorce, legal separation, through a family trust, between spouses, from a parent to a child or when a borrower who is a joint tenant dies. The proposed rules also seek to give such successors generally the same protections under the CFPB’s mortgage servicing rules as the original borrower. Such protections include the right to get information about the loan and right to the foreclosure protections.
- Proposed Changes to Require servicers to notify borrowers when loss mitigation applications are complete. The proposed rules would require servicers to notify borrowers promptly that the application is complete, so that borrowers know the status of the application and their protections.
- Proposed Changes Protect struggling borrowers during servicing transfers. The rules currently prohibit a servicer from proceeding to foreclosure once it receives a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. The CFPB contends that in some cases, borrowers are not receiving this protection and servicers’ foreclosure counsel may not be taking adequate steps to delay foreclosure proceedings or sales. The proposed rules are specified to clarify what steps servicers and their foreclosure counsel must take to protect borrowers from a wrongful foreclosure sale. The CFPB is proposing that servicers who do not take reasonable steps to prevent the sale must dismiss a pending foreclosure action.
- Clarify when a borrower becomes delinquent: Several of the consumer protections under the CFPB current rules depend upon how long a consumer has been delinquent on a mortgage. The proposed rules would clarify that delinquency, for purposes of the servicing rules, begins on the day a borrower fails to make a periodic payment. Under the proposed rules, when a borrower misses a payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date of delinquency advances.
- Note: The proposed rules would also allow a junior lienor to commence foreclosure of a senior lienor even if the borrower is not 120 days delinquent on the junior lienor loan.
- Provide more information to borrowers in bankruptcy: Currently, servicers do not have to provide periodic statements or loss mitigation information to borrowers in bankruptcy. The proposed rules would generally require servicers to provide periodic statements to those borrowers, with specific information tailored for bankruptcy. Servicers also currently do not have to provide certain disclosures to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act. The proposed rules would require servicers to provide written early intervention notices to let those borrowers know about loss mitigation options.