Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), 10695-10899 [2013-01248]
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Vol. 78
Thursday,
No. 31
February 14, 2013
Part II
Bureau of Consumer Financial Protection
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12 CFR Part 1024
Mortgage Servicing Rules Under the Real Estate Settlement Act
(Regulation X); Final Rule
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1024
[Docket No. CFPB–2012–0034]
RIN 3170–AA14
Mortgage Servicing Rules Under the
Real Estate Settlement Procedures Act
(Regulation X)
Bureau of Consumer Financial
Protection.
ACTION: Final rule; official
interpretations.
AGENCY:
The Bureau of Consumer
Financial Protection is amending
Regulation X, which implements the
Real Estate Settlement Procedures Act of
1974, and implementing a commentary
that sets forth an official interpretation
to the regulation. The final rule
implements provisions of the DoddFrank Wall Street Reform and Consumer
Protection Act regarding mortgage loan
servicing. Specifically, this final rule
implements Dodd-Frank Act sections
addressing servicers’ obligations to
correct errors asserted by mortgage loan
borrowers; to provide certain
information requested by such
borrowers; and to provide protections to
such borrowers in connection with
force-placed insurance. Additionally,
this final rule addresses servicers’
obligations to establish reasonable
policies and procedures to achieve
certain delineated objectives; to provide
information about mortgage loss
mitigation options to delinquent
borrowers; to establish policies and
procedures for providing delinquent
borrowers with continuity of contact
with servicer personnel capable of
performing certain functions; and to
evaluate borrowers’ applications for
available loss mitigation options.
Further, this final rule modifies and
streamlines certain existing servicingrelated provisions of Regulation X. For
instance, this final rule revises
provisions relating to mortgage
servicers’ obligation to provide
disclosures to borrowers in connection
with transfers of mortgage servicing, and
mortgage servicers’ obligation to manage
escrow accounts, including restrictions
on purchasing force-placed insurance
for certain borrowers with escrow
accounts and requirements to return
amounts in an escrow account to a
borrower upon payment in full of a
mortgage loan. Concurrently with the
issuance of this final rule, the Bureau is
issuing a rule implementing
amendments relating to mortgage
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SUMMARY:
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servicing to the Truth in Lending Act in
Regulation Z.
DATES: This final rule is effective on
January 10, 2014.
FOR FURTHER INFORMATION CONTACT:
Regulation X (RESPA): Whitney
Patross, Attorney; Jane Gao, Terry
Randall or Michael Scherzer, Counsels;
Lisa Cole or Mitchell E. Hochberg,
Senior Counsels, Office of Regulations,
at (202) 435–7700.
Regulation Z (TILA): Whitney Patross,
Attorney; Marta Tanenhaus or Mitchell
E. Hochberg, Senior Counsels, Office of
Regulations, at (202) 435–7700.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
The Bureau of Consumer Financial
Protection (Bureau) is amending
Regulation X, which implements the
Real Estate Settlement Procedures Act of
1974, and implementing a commentary
that sets forth an official interpretation
to the regulation (the 2013 RESPA
Servicing Final Rule). The final rule
implements provisions of the DoddFrank Wall Street Reform and Consumer
Protection Act regarding mortgage loan
servicing.1 Specifically, this final rule
implements Dodd-Frank Act sections
addressing servicers’ obligations to
correct errors asserted by mortgage loan
borrowers; to provide certain
information requested by such
borrowers; and to provide protections to
such borrowers in connection with
force-placed insurance. Additionally,
this final rule addresses servicers’
obligations to establish reasonable
policies and procedures to achieve
certain delineated objectives; to provide
information about mortgage loss
mitigation options to delinquent
borrowers; to establish policies and
procedures for providing delinquent
borrowers with continuity of contact
with servicer personnel capable of
performing certain functions; and to
evaluate borrowers’ applications for
available loss mitigation options.
Further, this final rule modifies and
streamlines certain existing servicingrelated provisions of Regulation X. For
instance, this final rule revises
provisions relating to mortgage
servicers’ obligation to provide
disclosures to borrowers in connection
with a transfer of mortgage servicing,
and mortgage servicers’ obligation to
manage escrow accounts, including
restrictions on purchasing force-placed
insurance for certain borrowers with
escrow accounts and requirements to
return amounts in an escrow account to
a borrower upon payment in full of a
1 Public
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Law 111–203, 124 Stat. 1376 (2010).
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mortgage loan. Concurrently with the
issuance of this final rule, the Bureau is
issuing a rule implementing
amendments relating to mortgage
servicing to the Truth in Lending Act in
Regulation Z (the 2013 TILA Servicing
Final Rule).
On August 10, 2012, the Bureau
issued proposed rules that would have
amended Regulation X, which
implements RESPA,2 as well as
Regulation Z, which implements TILA,3
regarding mortgage servicing
requirements.4 The Proposed Servicing
Rules proposed to implement the DoddFrank Act amendments to TILA and
RESPA with respect to, among other
things, periodic mortgage statements,
disclosures for ARMs, prompt crediting
of mortgage loan payments, requests for
mortgage loan payoff statements, error
resolution, information requests, and
protections relating to force-placed
insurance. In the 2012 RESPA Servicing
Proposal, the Bureau also proposed to
use its authority to adopt requirements
relating to servicer policies and
procedures, early intervention with
delinquent borrowers, continuity of
contact, and procedures for evaluating
and responding to loss mitigation
applications.5 The proposals sought to
address fundamental problems that
underlie many consumer complaints
and recent regulatory and enforcement
actions, as set forth in more detail
below.
The Bureau is finalizing the Proposed
Servicing Rules with respect to nine
2 See Press Release, U.S. Consumer Fin. Prot.
Bureau, Consumer Financial Protection Bureau
Proposes Rules to Protect Mortgage Borrowers (Aug.
10, 2012) available at http://www.consumerfinance.
gov/pressreleases/consumer-financial-protectionbureau-proposes-rules-to-protect-mortgageborrowers/. The proposal was published in the
Federal Register on September 17, 2012. 77 FR
57200 (Sept. 17 2012) (2012 RESPA Servicing
Proposal).
3 See Press Release, U.S. Consumer Fin. Prot.
Bureau, Consumer Financial Protection Bureau
Proposes Rules to Protect Mortgage Borrowers
(August 10, 2012) available at http://www.consumer
finance.gov/pressreleases/consumer-financialprotection-bureau-proposes-rules-to-protectmortgage-borrowers/. This proposal was also
published in the Federal Register on September 17,
2012. 77 FR 57318 (Sept. 17, 2012) (2012 TILA
Servicing Proposal; and, together with the 2012
RESPA Servicing Proposal, the Proposed Servicing
Rules).
4 The 2013 RESPA Servicing Final Rule and the
2013 TILA Servicing Final Rule are referred to
collectively as the Final Servicing Rules.
5 For ease of discussion, this notice uses the term
‘‘discretionary rulemakings’’ to refer to a set of
regulations implemented using the Bureau’s
authorities under section 6(j), 6(k)(1)(E), or 19(a) of
RESPA to expand requirements beyond those
explicit in RESPA. The ‘‘discretionary rulemakings’’
include requirements relating to servicer policies
and procedures, early intervention with delinquent
borrowers, continuity of contact, and procedures for
evaluating and responding to loss mitigation
applications, as set forth in §§ 1024.38–41.
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major topics, as summarized below, as
well as certain technical and
streamlining amendments. The goals of
the Final Servicing Rules are to provide
better disclosure to consumers of their
mortgage loan obligations and to better
inform consumers of, and assist
consumers with, options that may be
available for consumers having
difficulty with their mortgage loan
obligations. The amendments also
address critical servicer practices
relating to, among other things,
correcting errors, imposing charges for
force-placed insurance, crediting
mortgage loan payments, and providing
payoff statements. The Bureau’s final
rules are set forth in two separate
notices because some provisions
implement requirements that Congress
imposed under TILA while other
provisions implement requirements
Congress imposed under RESPA.6
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A. Major Topics in the Final Servicing
Rules
1. Periodic billing statements (2013
TILA Servicing Final Rule). Creditors,
assignees, and servicers must provide a
periodic statement for each billing cycle
containing, among other things,
information on payments currently due
and previously made, fees imposed,
transaction activity, application of past
payments, contact information for the
servicer and housing counselors, and,
where applicable, information regarding
delinquencies. These statements must
meet the timing, form, and content
requirements provided in the rule. The
rule contains sample forms that may be
used. The periodic statement
requirement generally does not apply to
fixed-rate loans if the servicer provides
a coupon book, so long as the coupon
book contains certain information
specified in the rule and certain other
information specified in the rule is
made available to the consumer. The
rule also includes an exemption for
small servicers as discussed below.
2. Interest rate adjustment notices
(2013 TILA Servicing Final Rule).
Creditors, assignees, and servicers must
provide a consumer whose mortgage has
an adjustable rate with a notice between
210 and 240 days prior to the first
payment due after the rate first adjusts.
This notice may contain an estimate of
the new rate and new payment.
Creditors, assignees, and servicers also
must provide a notice between 60 and
120 days before payment at a new level
is due when a rate adjustment causes
6 Note that TILA and RESPA differ in their
terminology. Whereas Regulation Z generally refers
to ‘‘consumers’’ and ‘‘creditors,’’ Regulation X
generally refers to ‘‘borrowers’’ and ‘‘lenders.’’
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the payment to change. The current
annual notice that must be provided for
adjustable-rate mortgages (ARMs) for
which the interest rate, but not the
payment, has changed over the course of
the year is no longer required. The rule
contains model and sample forms that
servicers may use.
3. Prompt payment crediting and
payoff statements (2013 TILA Servicing
Final Rule). Servicers must promptly
credit periodic payments from
borrowers as of the day of receipt. A
periodic payment consists of principal,
interest, and escrow (if applicable). If a
servicer receives a payment that is less
than the amount due for a periodic
payment, the payment may be held in
a suspense account. When the amount
in the suspense account covers a
periodic payment, the servicer must
apply the funds to the consumer’s
account. In addition, creditors,
assignees, and servicers must provide an
accurate payoff balance to a consumer
no later than seven business days after
receipt of a written request from the
borrower for such information.
4. Force-placed insurance (2013
RESPA Servicing Final Rule). Servicers
are prohibited from charging a borrower
for force-placed insurance coverage
unless the servicer has a reasonable
basis to believe the borrower has failed
to maintain hazard insurance, as
required by the loan agreement, and has
provided required notices. An initial
notice must be sent to the borrower at
least 45 days before charging the
borrower for force-placed insurance
coverage, and a second reminder notice
must be sent no earlier than 30 days
after the first notice. The rule contains
model forms that servicers may use. If
a borrower provides proof of hazard
insurance coverage, the servicer must
cancel any force-placed insurance
policy and refund any premiums paid
for overlapping periods in which the
borrower’s coverage was in place. The
rule also provides that charges related to
force-placed insurance (other than those
subject to State regulation as the
business of insurance or authorized by
Federal law for flood insurance) must be
for a service that was actually performed
and must bear a reasonable relationship
to the servicer’s cost of providing the
service. Where the borrower has an
escrow account for the payment of
hazard insurance premiums, the
servicer is prohibited from obtaining
force-place insurance where the servicer
can continue the borrower’s homeowner
insurance, even if the servicer needs to
advance funds to the borrower’s escrow
account to do so. The rule against
obtaining force-placed insurance in
cases in which hazard insurance may be
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maintained through an escrow account
exempts small servicers, as discussed
below, so long as any force-placed
insurance purchased by the small
servicer is less expensive to a borrower
than the amount of any disbursement
the servicer would have made to
maintain hazard insurance coverage.
5. Error resolution and information
requests (2013 RESPA Servicing Final
Rule). Servicers are required to meet
certain procedural requirements for
responding to written information
requests or complaints of errors. The
rule requires servicers to comply with
the error resolution procedures for
certain listed errors as well as any error
relating to the servicing of a mortgage
loan. Servicers may designate a specific
address for borrowers to use. Servicers
generally are required to acknowledge
the request or notice of error within five
days. Servicers also generally are
required to correct the error asserted by
the borrower and provide the borrower
written notification of the correction, or
to conduct an investigation and provide
the borrower written notification that no
error occurred, within 30 to 45 days.
Further, within a similar amount of
time, servicers generally are required to
acknowledge borrower written requests
for information and either provide the
information or explain why the
information is not available.
6. General servicing policies,
procedures, and requirements (2013
RESPA Servicing Final Rule). Servicers
are required to establish policies and
procedures reasonably designed to
achieve objectives specified in the rule.
The reasonableness of a servicer’s
policies and procedures takes into
account the size, scope, and nature of
the servicer’s operations. Examples of
the specified objectives include
accessing and providing accurate and
timely information to borrowers,
investors, and courts; properly
evaluating loss mitigation applications
in accordance with the eligibility rules
established by investors; facilitating
oversight of, and compliance by, service
providers; facilitating transfer of
information during servicing transfers;
and informing borrowers of the
availability of written error resolution
and information request procedures. In
addition, servicers are required to retain
records relating to each mortgage loan
until one year after the mortgage loan is
discharged or servicing is transferred,
and to maintain certain documents and
information for each mortgage loan in a
manner that enables the services to
compile it into a servicing file within
five days. This section includes an
exemption for small servicers as
discussed below. The Bureau and
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prudential regulators will be able to
supervise servicers within their
jurisdiction to assure compliance with
these requirements but there will not be
a private right of action to enforce these
provisions.
7. Early intervention with delinquent
borrowers (2013 RESPA Servicing Final
Rule). Servicers must establish or make
good faith efforts to establish live
contact with borrowers by the 36th day
of their delinquency and promptly
inform such borrowers, where
appropriate, that loss mitigation options
may be available. In addition, a servicer
must provide a borrower a written
notice with information about loss
mitigation options by the 45th day of a
borrower’s delinquency. The rule
contains model language servicers may
use for the written notice. This section
includes an exemption for small
servicers as discussed below.
8. Continuity of contact with
delinquent borrowers (2013 RESPA
Servicing Final Rule). Servicers are
required to maintain reasonable policies
and procedures with respect to
providing delinquent borrowers with
access to personnel to assist them with
loss mitigation options where
applicable. The policies and procedures
must be reasonably designed to ensure
that a servicer assigns personnel to a
delinquent borrower by the time a
servicer provides such borrower with
the written notice required by the early
intervention requirements, but in any
event, by the 45th day of a borrower’s
delinquency. These personnel should be
accessible to the borrower by phone to
assist the borrower in pursuing loss
mitigation options, including advising
the borrower on the status of any loss
mitigation application and applicable
timelines. The personnel should be able
to access all of the information provided
by the borrower to the servicer and
provide that information, when
appropriate, to those responsible for
evaluating the borrower for loss
mitigation options. This section
includes an exemption for small
servicers as discussed below. The
Bureau and the prudential regulators
will be able to supervise servicers
within their jurisdiction to assure
compliance with these requirements but
there will not be a private right of action
to enforce these provisions.
9. Loss Mitigation Procedures (2013
RESPA Servicing Final Rule). Servicers
are required to follow specified loss
mitigation procedures for a mortgage
loan secured by a borrower’s principal
residence. If a borrower submits an
application for a loss mitigation option,
the servicer is generally required to
acknowledge the receipt of the
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application in writing within five days
and inform the borrower whether the
application is complete and, if not, what
information is needed to complete the
application. The servicer is required to
exercise reasonable diligence in
obtaining documents and information to
complete the application.
For a complete loss mitigation
application received more than 37 days
before a foreclosure sale, the servicer is
required to evaluate the borrower,
within 30 days, for all loss mitigation
options for which the borrower may be
eligible in accordance with the
investor’s eligibility rules, including
both options that enable the borrower to
retain the home (such as a loan
modification) and non-retention options
(such as a short sale). Servicers are free
to follow ‘‘waterfalls’’ established by an
investor to determine eligibility for
particular loss mitigation options. The
servicer must provide the borrower with
a written decision, including an
explanation of the reasons for denying
the borrower for any loan modification
option offered by an owner or assignee
of a mortgage loan with any inputs used
to make a net present value calculation
to the extent such inputs were the basis
for the denial. A borrower may appeal
a denial of a loan modification program
so long as the borrower’s complete loss
mitigation application is received 90
days or more before a scheduled
foreclosure sale.
The rule restricts ‘‘dual tracking,’’
where a servicer is simultaneously
evaluating a consumer for loan
modifications or other alternatives at the
same time that it prepares to foreclose
on the property. Specifically, the rule
prohibits a servicer from making the
first notice or filing required for a
foreclosure process until a mortgage
loan account is more than 120 days
delinquent. Even if a borrower is more
than 120 days delinquent, if a borrower
submits a complete application for a
loss mitigation option before a servicer
has made the first notice or filing
required for a foreclosure process, a
servicer may not start the foreclosure
process unless (1) the servicer informs
the borrower that the borrower is not
eligible for any loss mitigation option
(and any appeal has been exhausted), (2)
a borrower rejects all loss mitigation
offers, or (3) a borrower fails to comply
with the terms of a loss mitigation
option such as a trial modification.
If a borrower submits a complete
application for a loss mitigation option
after the foreclosure process has
commenced but more than 37 days
before a foreclosure sale, a servicer may
not move for a foreclosure judgment or
order of sale, or conduct a foreclosure
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sale, until one of the same three
conditions has been satisfied. In all of
these situations, the servicer is
responsible for promptly instructing
foreclosure counsel retained by the
servicer not to proceed with filing for
foreclosure judgment or order of sale, or
to conduct a foreclosure sale, as
applicable.
This section includes an exemption
for small servicers as defined above.
However, a small servicer is required to
comply with two requirements: (1) A
small servicer may not make the first
notice or filing required for a foreclosure
process unless a borrower is more than
120 days delinquent, and (2) a small
servicer may not proceed to foreclosure
judgment or order of sale, or conduct a
foreclosure sale, if a borrower is
performing pursuant to the terms of a
loss mitigation agreement.
All of the provisions in the section
relating to loss mitigation can be
enforced by individuals. Additionally,
the Bureau and the prudential regulators
can also supervise servicers within their
jurisdiction to assure compliance with
these requirements.
B. Scope of the Final Servicing Rules
The Final Servicing Rules have
somewhat different scopes, with respect
to the types of mortgage loan
transactions covered and the loans that
are exempted. With respect to the 2013
TILA Servicing Final Rule, certain
requirements, specifically the periodic
statement and ARM disclosure
requirements, only apply to closed-end
mortgage loans, whereas other
requirements, specifically the
requirements for crediting of payments
and providing payoff statements, apply
to both open-end and closed-end
mortgage loans. Reverse mortgage
transactions and timeshare plans are
exempt from the periodic statement
requirement. ARMs with terms of one
year or less are exempt from the ARM
disclosure requirements.
With respect to the 2013 RESPA
Servicing Final Rule, certain
requirements generally apply to
federally related mortgage loans that are
closed-end, with certain exemptions for
loans on property of 25 acres or more,
business-purpose loans, temporary
financing, loans secured by vacant land,
and certain loan assumptions or
conversions. Open-end lines of credit
(home equity plans) are generally
exempt from the requirements in the
2013 RESPA Servicing Final Rule. The
general servicing policies, procedure,
and requirements, early intervention,
continuity of contact, and loss
mitigation procedures provisions are
generally inapplicable to servicers of
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reverse mortgage transactions or to
servicers of mortgage loans for which
the servicers are also qualified lenders
under the Farm Credit Act of 1971.
In the 2013 TILA Servicing Final
Rule, the Bureau is exercising its
authority under TILA to provide an
exemption from the periodic statement
requirement for small servicers, defined
as servicers that service 5,000 mortgage
loans or less and only service mortgage
loans the servicer or an affiliate owns or
originated (small servicers). In this 2013
RESPA Servicing Final Rule, the Bureau
has elected not to extend to these small
servicers most provisions of the Final
Rule that are not being promulgated to
implement specific mandates in the
Dodd-Frank Act but are, instead, being
issued by the Bureau, in the exercise of
its discretion, pursuant to its
discretionary rulemaking authority
under RESPA, as amended by the DoddFrank Act, and title X of the Dodd-Frank
Act. The exemptions from the
discretionary rulemakings include those
relating to general servicing policies,
procedures, and requirements; early
intervention with delinquent borrowers;
continuity of contact; and most of the
requirements for evaluating and
responding to loss mitigation
applications. Further, the Bureau is not
restricting small servicers from
purchasing force-placed insurance for
borrowers with escrow accounts for the
payment of hazard insurance, so long as
the cost to the borrower of the forceplaced insurance obtained by a small
servicer is less than the amount the
small servicer would be required to
disburse from the borrower’s escrow
account to ensure that the borrower’s
hazard insurance premium charges were
paid in a timely manner. Small servicers
are required to comply with limited loss
mitigation procedure requirements.
These include (1) a prohibition on
making the first notice or filing required
for a foreclosure process unless a
borrower is more than 120 days
delinquent and (2) a prohibition on
making the first notice or filing or
moving for foreclosure judgment or
order of sale, or conducting a
foreclosure sale, when a borrower is
performing pursuant to the terms of a
loss mitigation agreement. The
exemptions applicable to small servicers
in the 2013 TILA Servicing Rule and the
2013 RESPA Servicing Rule are also
being extended to Housing Finance
Agencies, without regard to the number
of mortgage loans serviced by any such
agency, and these agencies are included
within the definition of small servicer.
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II. Background
A. Overview of the Mortgage Servicing
Market and Market Failures
The mortgage market is the single
largest market for consumer financial
products and services in the United
States, with approximately $10.3 trillion
in loans outstanding.7 Mortgage
servicers play a vital role within the
broader market by undertaking the dayto-day management of mortgage loans
on behalf of lenders who hold the loans
in their portfolios or (where a loan has
been securitized) investors who are
entitled to the loan proceeds.8 Over 60
percent of mortgage loans are serviced
by mortgage servicers for investors.
Servicers’ duties typically include
billing borrowers for amounts due,
collecting and allocating payments,
maintaining and disbursing funds from
escrow accounts, reporting to creditors
or investors, and pursuing collection
and loss mitigation activities (including
foreclosures and loan modifications)
with respect to delinquent borrowers.
Indeed, without dedicated companies to
perform these activities, it is
questionable whether a secondary
market for mortgage-backed securities
would exist in this country.9 Given the
7 Inside Mortg. Fin., Outstanding 1–4 Family
Mortgage Securities, in 2 The 2012 Mortgage Market
Statistical Annual 7 (2012). For general background
on the market and the recent crisis, see the 2012
TILA–RESPA Proposal available at http://
www.consumerfinance.gov/knowbeforeyouowe/
(last accessed Jan. 10, 2013).
8 As of June 2012, approximately 36 percent of
outstanding mortgage loans were held in portfolio;
54 percent of mortgage loans were owned through
mortgage-backed securities issued by Federal
National Mortgage Association (Fannie Mae) and
the Federal Home Loan Mortgage Corporation
(Freddie Mac), together referred to as the
government-sponsored enterprises (GSEs), as well
as securities issued by the Government National
Mortgage Association (Ginnie Mae); and 10 percent
of loans were owned through private label
mortgage-backed securities. Strengthening the
Housing Market and Minimizing Losses to
Taxpayers, Hearing Before the S. Comm. on
Banking, Housing and Urban Affairs (2012)
(Testimony of Laurie Goodman, Amherst
Securities), available at http://banking.senate.gov/
public/index.cfm?FuseAction=Hearings.Testimony
&Hearing_ID=53bda60f-64c1-43d8-9adfa693c31eb56b&Witness_ID=b06f2fb1-59dd-488186cb-1082464d3119. A securitization results in the
economic separation of the legal title to the
mortgage loan and a beneficial interest in the
mortgage loan obligation. In a securitization
transaction, a securitization trust is the owner or
assignee of a mortgage loan. An investor is a
creditor of the trust and is entitled to cash flows
that are derived from the proceeds of the mortgage
loans. In general, certain investors (or an insurer
entitled to act on behalf of the investors) may direct
the trust to take action as the owner or assignee of
the mortgage loans for the benefit of the investors
or insurers. See, e.g., Adam Levitin & Tara Twomey,
Mortgage Servicing, 28 Yale J. on Reg. 1, 11 (2011)
(Levitin & Twomey).
9 See, e.g., Levitin & Twomey, at 11 (‘‘All
securitizations involved third-party servicers * * *
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nature of their activities, servicers can
have a direct and profound impact on
borrowers.
Mortgage servicing is performed by
banks, thrifts, credit unions, and nonbanks under a variety of business
models. In some cases, creditors service
mortgage loans that they originate or
purchase and hold in portfolio. Other
creditors sell the ownership of the
underlying mortgage loan, but retain the
mortgage servicing rights in order to
retain the relationship with the
borrower, as well as the servicing fee
and other ancillary income. In still other
cases, servicers have no role at all in
origination or loan ownership, but
rather purchase mortgage servicing
rights on securitized loans or are hired
to service a portfolio lender’s loans.10
These different servicing structures
can create difficulties for borrowers if a
servicer makes mistakes, fails to invest
sufficient resources in its servicing
operations, or avoids opportunities to
work with borrowers for the mutual
benefit of both borrowers and owners or
assignees of mortgage loans. Although
the mortgage servicing industry has
numerous participants, the industry is
highly concentrated, with the five
largest servicers servicing
approximately 53 percent of outstanding
mortgage loans in this country.11 Small
servicers generally operate in discrete
segments of the market, for example, by
specializing in servicing delinquent
loans, or by servicing loans that they
originate.12
Contracts between the servicer and
the mortgage loan owner specify the
rights and responsibilities of each party.
In the context of securitized loans, the
contracts may require the servicer to
balance the competing interests of
different classes of investors when
borrowers become delinquent. Certain
provisions in servicing contracts may
limit the servicer’s ability to offer
certain types of loan modifications to
borrowers. Such contracts also may
limit the circumstances under which
owners or assignees of mortgage loans
can transfer servicing rights to a
[m]ortgage servicers provide the critical link
between mortgage borrowers and the SPV and
RMBS investors, and servicing arrangements are an
indispensable part of securitization.’’).
10 See, e.g., Diane E. Thompson, Foreclosing
Modifications: How Servicer Incentives Discourage
Loan Modifications, 86 Wash. L. Rev. 755, 763
(2011) (‘‘Thompson’’).
11 See Top 100 Mortgage Servicers in 2012, Inside
Mortg. Fin., Sept. 28, 2012, at 13 (As of the end of
the fourth quarter of 2011, the top five largest
servicers serviced $5.66 trillion of mortgage loans).
12 Fitch Ratings, U.S. Residential and Small
Balance Commercial Mortgage Servicer Rating
Criteria, at 14–15 (Jan. 31, 2011), available at
http://www.fitchratings.com. (account required to
access information).
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different servicer. Further, servicer
contracts govern servicer requirements
to advance payments to owners of
mortgage loans, and to recoup advances
made by servicers, including from
ultimate recoveries on liquidated
properties.
Compensation structures vary
somewhat for loans held in portfolio
and securitized loans,13 but have tended
to make pure mortgage servicing (where
the servicer has no role in origination)
a high-volume, low-margin business.
Such compensation structures
incentivize servicers to ensure that
investment in operations closely tracks
servicer expectations of delinquent
accounts, and an increase in the number
of delinquent accounts a servicer must
service beyond that projected by the
servicer strains available servicer
resources. A servicer will expect to
recoup its investment in purchasing
mortgage servicing rights and earn a
profit primarily through a net servicing
fee (which is typically expressed as a
constant rate assessed on unpaid
mortgage balances), interest float on
payment accounts between receipt and
disbursement, and cross-marketing
other products and services to
borrowers. Under this business model,
servicers act primarily as payment
collectors and processors, and will have
limited incentives to provide other
customer service. Servicers greatly vary
in the extent to which they invest in
customer service infrastructure. For
example, servicer staffing ratios have
varied between approximately 100 loans
per full-time employee to over 4,000
loans per full time employee.14
13 At securitization, the cash flow that was part
of interest income is bifurcated between the loan
and the mortgage servicing right (MSR). The MSR
represents the present value of all the cash flows,
both positive and negative, related to servicing a
mortgage. Prime MSRs are largely created by the
GSE minimum servicing fee rate, which is
calculated as 25 basis points (bps) per annum. The
servicing fee rate is typically paid to the servicer
monthly and the monthly amount owed is
calculated by multiplying the pro rata portion of the
servicing fee rate by the stated principal balance of
the mortgage loan at the payment due date.
Accounting rules require that a capitalized asset be
created if the ‘‘compensation’’ for servicing
(including float/ancillary) exceeds ‘‘adequate
compensation.’’ For loans held in portfolio, there is
no bifurcation of the interest income from the loan.
The owner of the loan simply negotiates pricing,
terms, and standards with the servicer, which, at
larger institutions, is typically a separate affiliate or
subsidiary of the owner of the loans. Keefe, Bruyette
& Woods, Inc., PowerPoint Presentation, KBW
Mortgage Matters: Mortgage Servicing Primer (Apr.
2012).
14 Richard O’Brien, High Time for High-Touch,
Mortg. Banking, Feb. 1, 2009, at 39. Industry
participants generally indicated to the Bureau that
servicers targeted a loan to employee ratio of 1,000–
1,200 mortgage loans per full time employee for
mortgage loans that are current, and 125–150
mortgage loans per full time employee for mortgage
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Servicers are generally not subject to
market discipline from consumers
because consumers have little
opportunity to switch servicers. Rather,
servicers compete to obtain business
from the owners of loans—investors,
assignees, and creditors—and thus
competitive pressures tend to drive
servicers to lower the price of servicing
and scale their investment in providing
service to consumers accordingly.
Servicers also earn revenue from fees
assessed on borrowers, including fees
on late payments, fees for obtaining
force-placed insurance, and fees for
services, such as responding to
telephone inquiries, processing
telephone payments, and providing
payoff statements.15 As a result,
servicers have an incentive to look for
opportunities to impose fees on
borrowers to enhance revenues.
These attributes of the servicing
market created problems for certain
borrowers even prior to the financial
crisis. For example, borrowers
experienced problems with mortgage
servicers even during regional mortgage
market downturns that preceded the
financial crisis.16 There is evidence that
borrowers were subjected to improper
fees that servicers had no reasonable
basis to impose, improper force-placed
insurance practices, and improper
foreclosure and bankruptcy practices.17
loans that are delinquent. Between 1992 and 2000,
as servicers sought to make their operations more
efficient, loans serviced per full time employee
increased from approximately 700 loans in 1992 to
over 1,200 loans by 2000. Michael A. Stegman et
al., Preventative Servicing Is Good for Business and
Affordable Homeownership Policy, 18 Housing
Pol’y Debate 243, 274 (2007). As an example of
current mortgage servicing staffing levels, Ocwen
services 162 mortgage loans per servicing employee.
See Morningstar Credit Ratings, LLC, Operational
Risk Assessment—Ocwen Loan Servicing, LLC, at 7
(2012) available at http://www.ocwen.com/docs/
Morningstar-Sept-2012.pdf.
15 See, e.g., Bank of America, Mortgage Servicing
Fees, available at https://
www8.bankofamerica.com/home-loans/mortgageservicing-fees.go (last accessed Jan. 11, 2013); Metro
Credit Union, Mortgage Servicing Fee Schedule,
available at http://www.metrocu.org/home/fiFiles/
static/documents/Mortgage_Servicing_Fee_
Schedule.pdf (last accessed Jan. 6, 2013); Acqura
Loan Services, Mortgage Loan Servicing Fee
Schedule, available at http://www.acqurals.com/
feeschedule.html (last accessed Jan. 11, 2013);
Sovereign Bank, FAQ—What Are the Mortgage
Loan Servicing Fees?, available at https://customer
service.sovereignbank.com/app/answers/detail/a_
id/22/∼/what-are-the-mortgage-loan-servicingfees%3F (last accessed Jan. 11, 2013).
16 See Problems in Mortgage Servicing from
Modification to Foreclosure: Hearings Before the S.
Comm. on Banking, Hous., & Urban Affairs, 111th
Cong. 53–54 (2010) (statement of Thomas J. Miller,
Iowa Att’y Gen.) (‘‘Miller Testimony’’). See also,
Kurt Eggert, Limiting Abuse and Opportunism by
Mortgage Servicers, 15 Housing Pol’y Debate 753
(2004), available at http://ssrn.com/
abstract=992095.
17 See Kurt Eggert, Limiting Abuse and
Opportunism by Mortgage Servicers, 15 Housing
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When the financial crisis erupted,
many servicers—and especially the
larger servicers with their scale business
models—were ill-equipped to handle
the high volumes of delinquent
mortgages, loan modification requests,
and foreclosures they were required to
process. Mortgage loan delinquency
rates nearly doubled between 2007 and
2009 from 5.4 percent of first-lien
mortgage loans to 9.4 percent of firstlien mortgage loans.18 Many servicers
lacked the infrastructure, trained staff,
controls, and procedures needed to
manage effectively the flood of
delinquent mortgages they were forced
to handle.19 One study of complaints to
the HOPE Hotline reported that over
half of the complaints (27,000 out of
48,000) were from borrowers who could
not reach their servicers and obtain
information about the status of
applications they had submitted for
options to avoid foreclosure.20
Consumer harm has manifested in
many different areas, and major
servicers have entered into significant
settlement agreements with Federal and
State governmental authorities. For
example, in April 2011, the Office of the
Comptroller of the Currency (OCC) and
the Board of Governors of the Federal
Reserve System (Board), following onsite reviews of foreclosure processing at
14 federally regulated mortgage
servicers, found significant deficiencies
at each of the servicers reviewed. As a
result, the OCC and the Board
undertook formal enforcement actions
against several major servicers for
unsafe and unsound residential
mortgage loan servicing practices.21
Pol’y Debate 753 (2004), available at http://
ssrn.com/abstract=992095 (collecting cases).
18 U.S. Census Bureau, Table 1194: Mortgage
Originations and Delinquency and Foreclosure
Rates: 1990 to 2010, in The 2012 Statistical Abstract
of the United States, (2012), available at http://
www.census.gov/compendia/statab/2012/tables/
12s1194.pdf (last accessed Jan. 6, 2013).
19 See U.S. Dep’t of the Treasury, Making Contact:
The Path to Improving Mortgage Industry
Communication With Homeowners, at 3 (2012),
available at http://www.treasury.gov/initiatives/
financial-stability/reports/Documents/SPOC%20
Special%20Report_Final.pdf (last accessed Jan. 6,
2013).
20 See U.S. Gov’t Accountability Office, GAO–10–
634, Troubled Asset Relief Program: Further
Actions Needed to Fully and Equitably Implement
Foreclosure Mitigation Programs, at 15 (2010).
21 Press Release, Office of the Comptroller of the
Currency, NR 2011–47, OCC Takes Enforcement
Action Against Eight Servicers for Unsafe and
Unsound Foreclosure Practices (Apr. 13, 2011),
available at http://www.occ.gov/news-issuances/
news-releases/2011/nr-occ-2011-47.html; Press
Release, Fed. Reserve Bd., Federal Reserve Issues
Enforcement Actions Related to Deficient Practices
in Residential Mortgage Loan Servicing (April 13,
2011) (‘‘Fed Press Release’’), available at http://
www.federalreserve.gov/newsevents/press/
enforcement/20110413a.htm. In addition to
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These enforcement actions generally
focused on practices relating to (1) filing
of foreclosure documents without, for
example, proper affidavits or
notarizations; (2) failing to always
ensure that loan documents were
properly endorsed or assigned and, if
necessary, in the possession of the
appropriate party at the appropriate
time; (3) failing to devote sufficient
financial, staffing, and managerial
resources to ensure proper
administration of foreclosure processes;
(4) failing to devote adequate oversight,
internal controls, policies and
procedures, compliance risk
management, internal audit, third-party
management, and training to foreclosure
processes; and (5) failing to oversee
sufficiently outside counsel and other
third-party providers handling
foreclosure-related services.22
Other investigations of servicers have
found similar problems. For example,
the Government Accountability Office
(GAO) has found pervasive problems in
broad segments of the mortgage
servicing industry impacting delinquent
borrowers, such as servicers who have
misled, or failed to communicate with,
borrowers, lost or mishandled borrowerprovided documents supporting loan
modification requests, and generally
provided inadequate service to
delinquent borrowers. It has been
recognized in Inspector General reports,
and the Bureau has learned from
outreach with mortgage investors, that
servicers may be acting to maximize
their self-interests in the handling of
delinquent borrowers, rather than the
interests of owners or assignees of
mortgage loans.23
enforcement actions against major servicers, Federal
agencies have also undertaken formal enforcement
actions against major service providers to mortgage
servicers.
22 Press Release, Federal Reserve Bd., Federal
Reserve Issues Enforcement Actions Related to
Deficient Practices in Residential Mortgage Loan
Servicing (April 13, 2011), available at http://
www.federalreserve.gov/newsevents/press/
enforcement/20110413a.htm. None of the servicers
admitted or denied the OCC’s or Federal Reserve
Board’s findings.
23 See, e.g., Jody Shenn, PIMCO: This is who’s
actually going to be punished by the mortgage fraud
settlement, Bloomberg News, February 10, 2012; cf.,
Office of Inspector Gen., Fed. Hous. Fin. Agency,
Evaluation of FHFA’s Oversight of Fannie Mae’s
Transfer of Mortgage Servicing Rights from Bank of
America to High Touch Servicers, at 12 (Sept. 18,
2012) (‘‘FHA OIG MSR Report’’). The Inspector
General for FHFA observed that ‘‘Fannie Mae may
have had (what one of its executives described as)
a ‘misalignment of interests’ with its servicers. As
guarantor or loan holder, Fannie Mae could face
significant losses from a default. However, a
servicer earns only a fraction of a percent of the
unpaid balance of a mortgage it services and, thus,
the fees derived from any particular loan may not—
at least for the servicer—provide adequate incentive
to undertake anything more than the bare minimum
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The mortgage servicing industry,
however, is not monolithic. Some
servicers provide high levels of
customer service. Some of these
servicers are compensated by investors
in a way that incentivizes them to
provide this level of service in order to
optimize investor outcomes.24 Other
servicers provide high levels of
customer service because they are
servicing loans of their own retail
customers within their local community
or (in the case of credit unions)
membership base. These servicers seek
to provide other products and services
to consumers—and to others within the
community or membership base—and
thus have an interest in preserving their
reputations and relationships with their
consumers. For example, as discussed
further below, small servicers that the
Bureau consulted as part of a process
required under the Small Business
Regulatory Enforcement Fairness Act of
1996 (SBREFA) described their
businesses as requiring a ‘‘high touch’’
model of customer service both to
ensure loan performance and maintain a
strong reputation in their local
communities.25
B. The National Mortgage Settlement
and Other Regulatory Requirements
In response to the unprecedented
financial crisis and pervasive problems
in mortgage servicing, including the
systemic violation of State foreclosure
laws by many of the largest servicers,
State and Federal regulators have
engaged in a number of individual
servicing related enforcement and
regulatory actions over the last few
years and have begun discussions about
comprehensive national standards.
For example, the Federal government,
joined by 49 State attorneys general,26
of effort in order to prevent a default. This will
typically include sending out delinquency notices
to borrowers who have not made timely payments,
telephoning delinquent borrowers, and, ultimately,
initiating foreclosure proceedings.’’
24 For example, Fannie Mae rewards servicers that
provide high levels of customer service by
compensating them through (1) base servicing fees,
(2) incentive payments for mortgage modifications,
and (3) a performance payment based on the
servicer’s success as contrasted with that of a
benchmark portfolio. See FHA OIG MSR Report at
12.
25 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking (Jun, 11, 2012) (‘‘Small
Business Review Panel Report’’), available at
www.consumerfinance.gov.
26 Oklahoma elected not to participate in the
National Mortgage Settlement and executed a
separate settlement with the servicers that are
parties to the National Mortgage Settlement. See
State of Oklahoma, Oklahoma Mortgage Settlement
Fact Sheet (Feb. 9, 2012), available at http://
www.oag.ok.gov/oagweb.nsf/0/2737eec87426
c427862579c10003c950/$FILE/Oklahoma%20
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10701
entered into settlements with the
nation’s five largest servicers in
February 2012 (the National Mortgage
Settlement).27 Exhibit A to each of the
settlements is a Settlement Term Sheet,
which sets forth standards that each of
the five largest servicers must follow to
comply with the terms of the
settlement.28 The settlement standards
contained in the Settlement Term Sheet
are sub-divided into the following eight
categories: (1) Foreclosure and
bankruptcy information and
documentation; (2) third-party provider
oversight; (3) bankruptcy; (4) loss
mitigation; (5) protections for military
personnel; (6) restrictions on servicing
fees; (7) force-placed insurance; and (8)
general servicer duties and prohibitions.
Apart from the National Mortgage
Settlement, Federal regulatory agencies
have also issued guidance on mortgage
servicing and loan modifications,29
conducted coordinated reviews of the
nation’s largest servicers,30 and taken
enforcement actions against individual
companies.31 Further, the Bureau and
other Federal agencies have been
engaged since spring 2011 in informal
Mortgage%20Settlement%20FAQs.pdf (last
accessed Jan. 10, 2013).
27 The National Mortgage Settlement is available
at: http://www.nationalmortgagesettlement.com/.
The five servicers subject to the settlement are Bank
of America, JP Morgan Chase, Wells Fargo,
CitiMortgage, and Ally/GMAC.
28 See United States of America v. Bank of
America Corp., at Appendix A, (National Mortgage
Settlement), available at http://
www.nationalmortgagesettlement.com.
29 Office of the Comptroller of the Currency, OCC
2011–29, Foreclosure Management: Supervisory
Guidance, OCC Bull., June 2011, available at
http://www.occ.gov/news-issuances/bulletins/2011/
bulletin-2011-29.html; Letter from Edward J.
DeMarco, Acting Dir. of Fed. Hous. Fin. Agency, to
Hon. Elijah E. Cummings, Ranking Member, Comm.
on Oversight and Gov’t Reform, U.S. H. of Rep. (Jan.
20, 2012), available at http://www.fhfa.gov/
webfiles/23056/PrincipalForgivenessltr12312.pdf;
Fannie Mae, Program Guidance, Home Affordable
Modification Program, available at https://
www.hmpadmin.com/portal/programs/
guidance.jsp. Fed. Hous. Fin. Agency, Frequently
Asked Questions—Servicing Alignment Initiative,
available at http://www.fhfa.gov/webfiles/21191/
FAQs42811Final.pdf.
30 See Fed. Reserve Sys., Office of the Comptroller
of the Currency, & Office of Thrift Supervision, U.S.
Dep’t of the Treasury, Interagency Review of
Foreclosure Policies and Practices (2011)
(Interagency Foreclosure Report) (a joint review of
foreclosure processing of 14 federally regulated
mortgage servicers during the fourth quarter of 2010
by the Federal Reserve System, Office of the
Comptroller of the Currency, and Office of Thrift
Supervision), available at http://www.occ.gov/
news-issuances/news-releases/2011/nr-occ-201147a.pdf.
31 See Interagency Foreclosure Report, at 5; Press
Release, Fed. Reserve Bd., Press Release (May 24,
2012), available at http://www.federalreserve.gov/
newsevents/press/enforcement/20120524a.htm;
Press Release, Fed. Reserve Bd. (Feb. 27, 2012),
available at http://www.federalreserve.gov/
newsevents/press/enforcement/20120227a.htm;
OCC Press Release.
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discussions about the potential
development of national mortgage
servicing standards through interagency
regulations and guidance.
Servicers are currently required to
navigate overlapping requirements
governing their servicing
responsibilities. Servicers must comply
with requirements established by
owners or assignees of mortgage loans.
These include, as applicable, (1)
servicing guidelines required by Fannie
Mae, Freddie Mac, and Ginnie Mae; (2)
government insured program guidelines
issued by the Federal Housing
Administration (FHA), Department of
Veterans Affairs (VA), and the Rural
Housing Service; (3) contractual
agreements with investors (such as
pooling and servicing agreements and
subservicing contracts); and (4) bank or
institution policies.
Servicers are also required to consider
the impact of State and even local
regulation on mortgage servicing.
Significantly, New York, California, and
Oregon have all adopted varying
statutory or regulatory restrictions on
mortgage servicers. For example, the
Superintendent of Banks of the State of
New York repeatedly adopted shortterm emergency regulations governing
mortgage servicers on a continuous
basis since July 2010.32 These
regulations impose obligations on
servicers with respect to, among other
things, consumer complaints and
inquiries, statements of accounts,
crediting of payments, payoff balances,
and loss mitigation procedures.33 The
California Homeowner Bill of Rights,
which was enacted in 2012, imposes
requirements on servicers with respect
to evaluations of borrowers for loss
mitigation options before various
foreclosure documents may be filed for
California’s non-judicial foreclosure
process.34 Further, Oregon implemented
regulations on mortgage servicers not to
engage in unfair or deceptive conduct
by: assessing fees for payments made on
or before a payment due date; assessing
or collecting fees not authorized by a
security instrument or mortgage,
misrepresenting information relating to
a loan modification or set forth in an
affidavit, declaration, or other sworn
statement detailing a borrower’s default
and the servicer’s right to foreclose;
failing to comply with certain
provisions of RESPA; or failing to deal
32 New York State Department of Financial
Services, Explanatory All Institutions Letter
(October 7, 2012), available at http://
www.dfs.ny.gov/legal/regulations/emergency/
banking/ar419lt.htm (last accessed Dec. 7, 2012).
33 3 N.Y.C.R.R. 419.1 et seq.
34 See Cal. Civ. Code § 2923.6.
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with a borrower in good faith.35 Further,
Massachusetts has recently proposed
new regulations to protect consumers
with respect to mortgage servicing
practices, including with respect to loss
mitigation procedures.36
C. RESPA and Regulation X
Congress originally enacted the Real
Estate Settlement Procedures Act of
1974 (RESPA) based on findings that
significant reforms in the real estate
settlement process were needed to
ensure that consumers are provided
with greater and more timely
information on the nature and costs of
the residential real estate settlement
process and are protected from
unnecessarily high settlement charges
caused by certain abusive practices
found by Congress. See 12 U.S.C.
2601(a). In 1990, Congress amended
RESPA by adding a new section 6
covering persons responsible for
servicing federally related mortgage
loans and imposing on such servicers
certain obligations.37 These included
required disclosures at application
concerning whether the lender intended
to service the mortgage loan and
disclosures upon an actual transfer of
servicing rights.38 RESPA section 6
further imposed substantive and
disclosure requirements for escrow
account management and required
servicers to respond to ‘‘qualified
written requests’’—written error
resolution or information requests
relating to the ‘‘servicing’’ of the
borrower’s mortgage loan.39
Section 19(a) of RESPA authorizes the
Bureau (and formerly directed the
Department of Housing and Urban
Development (HUD)) to prescribe such
rules and regulations, to make such
interpretations, and to grant such
reasonable exemptions for classes of
35 OAR 137–020–0805. Notably, Oregon’s
regulations initially implemented mortgage
servicing requirements with respect to open-end
lines of credit (home equity plans) and, further,
required servicers to comply with GSE guidelines
for loan modifications. Oregon suspended these
requirements and reissued the rule as OAR 137–
020–0805 on the basis that such suspension was
necessary to facilitate compliance. See In the matter
of: Suspension of OAR 137–020–0800 and
Adoption of OAR 137–020–0805 (February 15,
2012), available at http://www.oregonmla.org/Web
siteAttachments/Misc%20Events%20Attachments/
OAR%20137-020-0805%202%2015%2012%20
AG%20Servicing%20Rules%20(00540177).pdf (last
accessed Jan. 6, 2013).
36 See Press Release, Massachusetts Division of
Banks Proposes New Standards for Mortgage
Servicing (Nov. 8, 2012), available at http://
www.mass.gov/ocabr/docs/dob/standards-for-mortservicing2012.pdf (last accessed Jan. 6, 2013).
37 Public Law 101–625, 104 Stat. 4079 (1990),
sections 941–42.
38 See 12 U.S.C. 2605(a) through (e).
39 See 12 U.S.C. 2605(e) and 2609.
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transactions, as may be necessary to
achieve the purposes of RESPA. See 12
U.S.C. 2617(a).
Historically, Regulation X, 24 CFR
part 3500, implemented RESPA. General
rulemaking authority for RESPA
transferred to the Bureau on July 21,
2011. See sections 1061 and 1098 of the
Dodd-Frank Act. Pursuant to the DoddFrank Act and RESPA, as amended, the
Bureau published for public comment
an interim final rule establishing a new
Regulation X, 12 CFR part 1024,
implementing RESPA. 76 FR 78978
(Dec. 20, 2011). The Bureau’s Regulation
X took effect on December 30, 2011. The
requirements in section 6 of RESPA for
mortgage servicing are implemented
primarily by § 1024.21.
D. The Dodd-Frank Act
The Dodd-Frank Act imposes certain
new requirements related to mortgage
servicing. As set forth above, some of
these new requirements are
amendments to RESPA addressed in
this final rule and others are
amendments to TILA, addressed in the
2013 TILA Servicing Final Rule.
Section 1463 of the Dodd-Frank Act
added new sections 6(k), 6(l), and 6(m)
to RESPA. 12 U.S.C. 2605. Sections
6(k)(1)(A), 6(k)(2), 6(l) and 6(m) impose
restrictions on servicers with respect to
force-placed insurance. Specifically,
section 6(k)(1)(A) of RESPA provides
that a servicer may not obtain forceplaced hazard insurance with respect to
any property secured by a federally
related mortgage unless there is a
reasonable basis to believe the borrower
has failed to comply with the loan
contract’s requirement to maintain
property insurance. Further, under
section 6(l) of RESPA, a servicer is
deemed not to have a reasonable basis
for obtaining force-placed insurance,
unless the servicer sends to the
borrower, by first-class mail, two
written notices. The first notice must be
sent at least 45 days before imposing on
the borrower any charge for force-placed
insurance, and the second notice must
be sent at least 30 days after the first
written notice and at least 15 days
before imposing on the borrower any
charge for force-placed insurance. The
notices must remind borrowers of their
obligation to maintain hazard insurance
on the property, alert borrowers to the
servicer’s lack of evidence of insurance
coverage, tell borrowers what they must
do to provide proof of hazard insurance
coverage, and state that the servicer may
obtain coverage at the borrower’s
expense if the borrower fails to provide
evidence of coverage. Under section
6(l)(3) of RESPA, within fifteen days of
receipt by a servicer of a borrower’s
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existing insurance coverage, servicers
must terminate force-placed insurance
coverage and refund to the borrower any
premiums charged during any period
when the borrower had hazard
insurance in place. Finally, section 6(m)
of RESPA requires that all charges
imposed on the borrower related to
force-placed insurance, apart from
charges subject to State regulation as the
business of insurance, must be bona fide
and reasonable.
Section 1463 of the Dodd-Frank Act
further added section 6(k)(1)(B)–(D) of
RESPA, which prohibits certain acts and
practices by servicers of federally
related mortgage loans with regard to
responding to borrower assertions of
error and requests for information.
Specifically, section 6(k)(1)(B) of RESPA
prohibits servicers from charging fees
for responding to valid qualified written
requests. Section 6(k)(1)(C) of RESPA
provides that a servicer of a federally
related mortgage loan must not fail to
take timely action to respond to a
borrower’s requests to correct errors
relating to: (1) Allocation of payments;
(2) final balances for purposes of paying
off the loan; (3) avoiding foreclosure; or
(4) other standard servicer duties.
Finally, section 6(k)(1)(D) provides that
a servicer must respond within ten
business days to a request from a
borrower to provide the identity,
address, and other relevant contact
information about the owner or assignee
of the loan. In addition, section 1463(c)
amends section 6(e) of RESPA to reduce
the amount of time within which
servicers must correct errors and
respond to requests for information.
Section 1463(b) and (d) of the DoddFrank Act amended sections 6(f) and
6(g) of RESPA with respect to penalties
for violation of section 6 of RESPA, and
refund of escrow account balances,
respectively.40
Finally, section 1463(a) of the DoddFrank Act adds section 6(k)(1)(E) to
RESPA, which provides that a servicer
of a federally related mortgage loan
must ‘‘comply with any other obligation
found by the [Bureau], by regulation, to
be appropriate to carry out the
consumer protection purposes of this
Act.’’ 41 This provision provides the
Bureau authority to establish
prohibitions on servicers of federally
related mortgage loans appropriate to
carry out the consumer protection
40 As set forth below, section 1463(d) is
implemented by § 1024.34(b) of this rule. Section
1463(b), however, is not implemented by this
rulemaking. Accordingly, pursuant to section
1400(c) of the Dodd-Frank Act, the amendments to
section 6(f) of RESPA in section 1463(b) of the
Dodd-Frank Act are effective as of January 21, 2013.
41 12 U.S.C. 2605(k)(1)(E).
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purposes of RESPA. As discussed
below, in light of the systemic problems
in the mortgage servicing industry
discussed above, the Bureau is
exercising this authority in this
rulemaking to implement protections for
borrowers with respect to mortgage
servicing.
Section 1022(b)(1) of the Dodd-Frank
Act authorizes the Bureau to prescribe
rules ‘‘as may be necessary or
appropriate to enable the Bureau to
administer and carry out the purposes
and objectives of the Federal consumer
financial laws, and to prevent evasions
thereof[.]’’ 12 U.S.C. 5512(b)(1). RESPA
and title X of the Dodd-Frank Act are
Federal consumer financial laws.
Accordingly, the Bureau proposed to
exercise its authority under section
1022(b) of the Dodd-Frank Act to
prescribe rules to carry out the purposes
of RESPA and title X and prevent
evasion of those laws.
III. Summary of the Rulemaking
Process
A. Outreach and Consumer Testing
The Bureau has conducted extensive
outreach in developing the Final
Servicing Rules. Prior to issuing the
Proposed Servicing Rules on August 10,
2012, Bureau staff met with consumers,
consumer advocates, mortgage servicers,
force-placed insurance carriers, industry
trade associations, other Federal
regulatory agencies, and other interested
parties to discuss various aspects of the
statute, servicing industry operations,
and consumer harm impacts. Outreach
included meetings with numerous
individual servicers to understand their
operations and the potential benefits
and burdens of the proposed mortgage
servicing rules. As discussed above and
in connection with section 1022 of the
Dodd-Frank Act below, the Bureau has
also consulted with relevant Federal
regulators both regarding the Bureau’s
specific rules and the need for and
potential contents of national mortgage
servicing standards in general.
Further, the Bureau solicited input
from small servicers through a Small
Business Review Panel (Small Business
Review Panel) with the Chief Counsel
for Advocacy of the Small Business
Administration (Advocacy) and the
Administrator of the Office of
Information and Regulatory Affairs
within the Office of Management and
Budget (OMB).42 The Small Business
42 The Small Business Regulatory Enforcement
Fairness Act of 1996 requires the Bureau to convene
a Small Business Review Panel before proposing a
rule that may have a significant economic impact
on a substantial number of small entities. See
Public Law 104–121, tit. II, 110 Stat. 847, 857 (1996)
(as amended by Pub. L. 110–28, sec. 8302 (2007)).
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Review Panel’s findings and
recommendations are contained in the
Small Business Review Panel Report.43
The Bureau has adopted
recommendations provided by the
participants on the Small Business
Review Panel and includes below a
discussion of such recommendations in
connection with the applicable
requirement.
Further, prior to the issuing the
Proposed Servicing Rules on August 10,
2012, the Bureau engaged ICF Macro
(Macro), a research and consulting firm
that specializes in designing disclosures
and consumer testing, to conduct oneon-one cognitive interviews regarding
disclosures connected with mortgage
servicing. During the first quarter of
2012, the Bureau and Macro worked
closely to develop and test disclosures
that would satisfy the requirements of
the Dodd-Frank Act and provide
information to consumers in a manner
that would be understandable and
useful. These disclosures related to the
force-placed insurance notices set forth
in this rule, as well as the ARM interest
rate adjustment notices and the periodic
statement disclosure set forth in the
2013 TILA Servicing Final Rule.
Macro conducted three rounds of oneon-one cognitive interviews with a total
of 31 participants in the Baltimore,
Maryland metro area (Towson,
Maryland), Memphis, Tennessee, and
Los Angeles, California. Participants
were all consumers who held a
mortgage loan and represented a range
of ages and education levels. Efforts
were made to recruit a significant
number of participants who had trouble
making mortgage payments in the last
two years. During the interviews,
participants were shown disclosure
forms for periodic statements, ARM
interest rate adjustment notices, and
force-placed insurance notices.
Participants were asked specific
questions to test their understanding of
the information presented in each of the
disclosures, how easily they could find
various pieces of information presented
in each of the disclosures, and how they
would use the information presented in
each of the disclosures. The disclosures
were revised after each round of testing.
After the Bureau issued the Proposed
Servicing Rules, Macro conducted a
fourth round of one-on-one cognitive
interviews with eight participants in
Philadelphia, Pennsylvania. Again,
participants were consumers who held
43 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking (June 11, 2012) (‘‘SBREFA
Final Report’’), available at http://
www.consumerfinance.gov.
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a mortgage loan and represented a range
of ages and education levels. During the
interviews, participants were asked to
review two different versions of a
servicing transfer notice and early
intervention model clauses, which
relate to requirements the Bureau is
implementing under RESPA.
Participants were asked specific
questions to test their reaction to and
understanding of the content of the
servicing transfer notice and the early
intervention model clauses. This
process was repeated for each of the five
clauses being tested. Specific findings
from the consumer testing are discussed
in detail throughout where relevant.44
One commenter, identifying itself as a
research organization, observed that the
consumer testing the Bureau has
conducted with respect to the mortgage
servicing disclosures follows the path of
evidence-based decision-making. This
commenter asserted, however, that the
Bureau should consider undertaking
steps in evaluating the proposed forms,
including possibly undertaking
additional testing because other
consumer financial disclosures,
including the forms the Bureau
proposed with the 2012 TILA–RESPA
Proposal, have gone through more
testing. At the same time, however, the
commenter observed that the decreased
level of testing might be justified on
various grounds, such as, for example,
the fact that studies have found that
small numbers of individuals can
identify the vast majority of usability
problems, the fact that the testing was
done with participants familiar with
mortgages, and the fact that the Bureau
is working on a tight schedule to
finalize rules by January 21, 2013 when
statutory provisions would go into
effect.
The Bureau believes that the testing it
conducted is appropriate. The Bureau
observes that the forms the Bureau
proposed as part of the 2012 TILA–
RESPA Proposal contained significantly
more complicated financial information
than the forms finalized as part of the
current rulemakings. Additionally, the
2012 TILA–RESPA Proposal, when
finalized, would substantially change
consumers’ mortgage shopping
experience; by contrast, the Final
Mortgage Servicing Rules are intended
to improve, but not substantially alter,
consumers’ experience with their
mortgage servicers. These differences, in
terms of level of complication and
degree of change from current practice,
44 ICF Int’l, Inc., Summary of Findings: Design
and Testing of Mortgage Servicing Disclosures (Aug.
2012) (‘‘Macro Report’’), available at http://
www.regulations.gov/#!documentDetail;D=CFPB2012-0033-0003.
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justify the different levels of resources
the Bureau allocated to the two different
testing projects. Lastly, Macro’s findings
show that there was notable consistency
across the different rounds of testing in
terms of participant comprehension
that, in combination with the Bureau’s
expertise and knowledge of consumer
understanding and behavior, gave the
Bureau confidence to rely on the forms
that were developed and refined
through testing as a basis for the model
forms included in the Final Servicing
Rules.
The Bureau further emphasizes that it
is not relying solely on the consumer
testing to determine that any particular
disclosure will be effective. The Bureau
is also relying on its knowledge of, and
expertise in, consumer understanding
and behavior, as well as principles of
effective disclosure design.
B. Small Business Regulatory
Enforcement Fairness Act
As required by SBREFA, the Bureau
convened a Small Business Review
Panel to assess the impact of the
possible rules on small servicers and to
help the Bureau determine to what
extent it may be appropriate to consider
adjusting these standards for small
servicers, to the extent permitted by
law. Thus, on April 9, 2012, the Bureau
provided Advocacy with the formal
notification and other information
required under section 609(b)(1) of the
Regulatory Flexibility Act (RFA) to
convene the panel.
In order to obtain feedback from small
servicers, the Bureau, in consultation
with Advocacy, identified five
categories of small entities that may be
subject to the proposed rule:
Commercial banks/savings institutions,
credit unions, non-depositories engaged
primarily in lending funds with real
estate as collateral, non-depositories
primarily engaged in loan servicing, and
certain non-profit organizations. The
Bureau, in consultation with Advocacy,
selected 16 representatives to
participate in the Small Business
Review Panel process from the
categories of entities that may be subject
to the Proposed Servicing Rules. The
participants included representatives
from each of the categories identified by
the Bureau and comprised a diverse
group of individuals with regard to
geography and type of locality (i.e.,
rural, urban, suburban, or metropolitan
areas), as described in chapter 7 of the
Small Business Review Panel Report.
On April 10, 2012, the Bureau
convened the Small Business Review
Panel. In order to collect the advice and
recommendations of small entity
participants, the Panel held an outreach
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meeting/teleconference on April 24,
2012 (Panel Outreach Meeting). To help
the small entity participants prepare for
the Panel Outreach Meeting, the Panel
circulated briefing materials that
summarized the proposals under
consideration at that time, posed
discussion issues, and provided
information about the SBREFA process
generally.45 All 16 small entities
participated in the Panel Outreach
Meeting either in person or by
telephone. The Small Business Review
Panel also provided the small entities
with an opportunity to submit written
feedback until May 1, 2012. In response,
the Small Business Review Panel
received written feedback from 5 of the
representatives.46
On June 11, 2012, the Small Business
Review Panel submitted to the Director
of the Bureau the written Small
Business Review Panel Report, which
includes the following: Background
information on the proposals under
consideration at the time; information
on the types of small entities that would
be subject to those proposals and on the
participants who were selected to advise
the Small Business Review Panel; a
summary of the Panel’s outreach to
obtain the advice and recommendations
of those participants; a discussion of the
comments and recommendations of the
participants; and a discussion of the
Small Business Review Panel findings,
focusing on the statutory elements
required under section 603 of the RFA,
5 U.S.C. 609(b)(5).
In connection with issuing the
Proposed Servicing Rules, the Bureau
carefully considered the feedback from
the small entities participating in the
SBREFA process and the findings and
recommendations in the Small Business
Review Panel Report. The section-bysection analyses for the Final Servicing
Rules discuss this feedback and the
specific findings and recommendations
of the Small Business Review Panel, as
applicable. The SBREFA process
provided the Small Business Review
Panel and the Bureau with an
opportunity to identify and explore
opportunities to mitigate the burden of
the rule on small entities while
achieving the rule’s purposes. It is
important to note, however, that the
45 The Bureau posted these materials on its Web
site and invited the public to email remarks on the
materials. Press Release, U.S. Consumer Fin. Prot.
Bureau, Consumer Financial Protection Bureau
Outlines Borrower-Friendly Approach to Mortgage
Servicing (Apr. 9, 2012), available at http://
www.consumerfinance.gov/pressreleases/consumerfinancial-protection-bureau-outlines-borrowerfriendly-approach-to-mortgage-servicing/ (last
accessed Jan. 6, 2013).
46 This written feedback is attached as appendix
A to the Small Business Review Panel Report.
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Small Business Review Panel prepared
the Small Business Review Panel Report
at a preliminary stage of the proposal’s
development and that the report—in
particular, the findings and
recommendations—should be
considered in that light. Any options
identified in the Small Business Review
Panel Report for reducing the proposed
rule’s regulatory impact on small
entities were expressly subject to further
consideration, analysis, and data
collection by the Bureau to ensure that
the options identified were practicable,
enforceable, and consistent with
RESPA, TILA, the Dodd-Frank Act, and
their statutory purposes.
C. Summary of the Proposed Servicing
Rule
The 2012 RESPA Servicing Proposal
contained numerous significant
revisions to Regulation X. As a
preliminary matter, the Bureau
proposed to reorganize Regulation X to
include three distinct subparts. Subpart
A (General) would have included
general provisions of Regulation X,
including provisions that applied to
both subpart B and subpart C. Subpart
B (Mortgage settlement and escrow
accounts) would have included
provisions relating to settlement
services and escrow accounts, including
disclosures provided to borrowers
relating to settlement services. Subpart
C (Mortgage servicing) would have
included provisions relating to
obligations of mortgage servicers. The
Bureau also proposed to set forth a
commentary that included official
Bureau interpretations of Regulation X.
With respect to mortgage servicingrelated provisions, the proposed rule
would have amended existing
provisions currently published in 12
CFR 1024.21 that relate to disclosures of
mortgage servicing transfers and
servicer obligations to borrowers. The
Bureau proposed to include these
provisions within subpart C as
§§ 1024.33–1024.34. The Bureau also
proposed to move certain clarifications
in these provisions that were previously
published in 12 CFR 1024.21 to the
commentary to conform the
organization of these provisions with
the proposed additions to Regulation X.
The proposed rule would have
established procedures for investigating
and resolving alleged errors and
responding to requests for information.
The proposed requirements were set
forth in proposed §§ 1024.35–1024.36.
As proposed, these sections would have
required servicers to respond to notices
of error and information requests from
borrowers, including qualified written
requests. The Bureau’s goal was to
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conform and consolidate the preexisting requirements under RESPA
applicable to qualified written requests,
with the new requirements imposed by
the Dodd-Frank Act through the
addition of sections 6(k)(1)(C) and
6(k)(1)(D) of RESPA to respond to errors
and information requests. The Bureau
proposed to create a unified
requirement for servicers to respond to
notices of error and information
requests provided by borrowers, without
regard to whether the notices or requests
constituted qualified written requests.47
To that end, the proposed rule would
have implemented the Dodd-Frank Act
amendments to RESPA section 6(e) by
adjusting the timeframes applicable to
respond to qualified written requests, as
well as errors and information requests
generally, to conform to the new
requirements.
Proposed § 1024.37 would have
implemented limitations on servicers
obtaining force-placed insurance. The
proposed rule would have required
servicers to provide notices to borrowers
at certain timeframes before a servicer
could impose a charge on a borrower for
force-placed insurance. Further, the
proposed rule would have required that
charges related to force-placed
insurance, other than charges subject to
State regulation as the business of
insurance or authorized by Federal
flood laws, be bona fide and reasonable.
Finally, the proposed rule sought to
reduce the instances in which forceplaced insurance would be needed by
amending current § 1024.17 to require
that where a borrower has escrowed for
hazard insurance, servicers must
advance funds to, and disburse from, an
escrow account to maintain the
borrower’s own hazard insurance policy
even if the loan obligation is more than
30 days overdue. The proposed rule also
would have implemented the DoddFrank Act amendment to RESPA section
6(g) in proposed § 1024.34(b) by
imposing requirements on servicers to
47 As discussed below, RESPA sets forth a
‘‘qualified written request’’ mechanism through
which a borrower can assert an error to a servicer
or request information from a servicer. Section
6(k)(1)(C) and 6(k)(1)(D) of RESPA set forth separate
obligations for servicers to correct certain types of
errors asserted by borrowers and to provide
information to a borrower regarding an owner or
assignee of a mortgage loan without reference to the
‘‘qualified written request’’ process. The 2012
RESPA Servicing Proposal would have integrated
the new requirements under RESPA to respond to
errors and information requests with RESPA’s
preexisting qualified written request process.
Although a borrower would still have been able to
submit a ‘‘qualified written request,’’ under the
proposed rule, a ‘‘qualified written request’’ would
have been subject to the same error resolution or
information request requirements applicable to any
other type of written error notice or information
request to a servicer.
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10705
refund or transfer funds in an escrow
account when a mortgage loan is paid in
full.
The proposed rule would have
imposed obligations on servicers in four
additional areas not specifically
required by the Dodd-Frank Act: (1)
Servicer policies and procedures, (2)
early intervention for delinquent
borrowers, (3) continuity of contact, and
(4) loss mitigation procedures. The
policies and procedures provision
would have required servicers to
implement policies and procedures to
manage documents and information to
achieve defined objectives intended to
ensure that borrowers are not harmed by
servicers’ information management
operations. Further, the policies and
procedures provision would also have
imposed requirements on servicers
regarding record retention and
management of servicing file
documents. The early intervention
provision would have required servicers
to contact borrowers at an early stage of
delinquency and provide information to
borrowers about available loss
mitigation options and the foreclosure
process. The continuity of contact
provision would have required servicers
to make available to borrowers direct
phone access to personnel who could
assist borrowers in pursuing loss
mitigation options. The loss mitigation
procedures would have required
servicers that offer loss mitigation
options to borrowers to evaluate
complete and timely applications for
loss mitigation options. Servicers would
have been required to permit borrowers
to appeal denials of timely loss
mitigation applications for loan
modification programs. A servicer that
received a complete and timely
application for a loss mitigation option
would not have been able to proceed
with a foreclosure sale unless (1) the
servicer denied the borrower’s
application and the time for any appeal
had expired; (2) the borrower had
declined or failed to accept an offer of
a loss mitigation option within 14 days
of the offer; or (3) the borrower failed to
comply with the terms of a loss
mitigation agreement.
D. Overview of the Comments Received
The Bureau received approximately
300 comments on the Proposed
Servicing Rules. The comments came
from individual consumers, consumer
advocates, community banks, large bank
holding companies, secondary market
participants, credit unions, non-bank
servicers, State and national trade
associations for financial institutions in
the mortgage business, local and
national community groups, Federal
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and State regulators, academics, and
others. Commenters provided feedback
on all aspects of the Proposed Servicing
Rules. Most commenters tended to focus
on specific aspects of the proposals.
Accordingly, in general, the comments
are discussed below in the section-bysection analysis.
The majority of comments were
submitted by mortgage servicers,
industry groups representing servicers
and businesses involved in the servicing
industry. Large banks, community banks
and credit unions, non-bank servicers,
and industry trade associations
submitted nearly all of these comments.
The Small Business Administration
Office of Advocacy submitted a
comment and the remaining comments
were submitted by vendors and
attorney’s representing industry
interests. The Bureau also received a
significant number of comments from
consumer advocacy groups. The record
also includes a 50-page comment by the
Cornell e-Rulemaking Initiative
synthesizing submissions of 144
registered participants to Cornell’s
Regulation Room project. Regulation
Room is a pilot project designed to use
different web technologies and
approaches to enhance public
understanding and participation in
Bureau rulemakings and to evaluate the
advantages and disadvantages of these
techniques. Finally, the Bureau also
received comments from the Small
Business Administration, the Federal
Housing Finance Agency, the GSEs, and
from vendors and attorneys representing
industry interests.
Industry commenters and their trade
associations also provided comments
regarding the rulemaking process, and
those comments are addressed here.48 In
48 Some commenters provided comments strictly
with respect to the rulemaking process. One trade
association commented that small servicers that
participated in the Small Business Review Panel
process did not have adequate time to prepare for
the panel discussion and provide appropriate data,
while another trade association commented that
because the Bureau’s proposed rules are lengthy
and because some rules have overlapping comment
periods, each of which has been limited to 60 days,
the trade association has had difficulty dedicating
staff to comment on the Bureau’s proposals. As set
forth in this section, the Bureau has conducted the
rulemaking process, including the SBREFA process
and the public comment period, in a manner that
provided as much flexibility as possible to receive
feedback from the SBREFA participants and public
commenters in light of the deadlines required for
the rulemaking. The Bureau assisted the SBA in
calls and outreach with small entity participants to
obtain any comments not set forth during the panel
outreach with the small entity representatives.
Further, with respect to public comments, the
Bureau believes that the public had a meaningful
opportunity to comment, which is evidenced by the
significant number of comments received and their
length. The Bureau offered 61 days from August 10,
2012 through October 9, 2012, for comment; and 22
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that regard, community banks and their
trade associations stated that the Bureau
should consider cumulative burden
when writing regulations, setting
comment deadlines, and effective dates.
These commenters believed that the
combination of the Bureau’s rules as
well as the impact of Basel III
requirements with respect to accounting
for mortgage servicing rights in Tier I
capital may cause disruptions across all
mortgage market segments. A
community bank trade association
indicated that community banks are
likely to feel the impact of the rules
more acutely, as they cannot take
advantage of economies of scale in
mitigating the compliance burden. A
community bank trade association
stated that the Bureau should consider
the wide diversity among servicer
business models and adapt regulations
to preserve diversity within the
servicing industry. The commenter
emphasized that community banks have
strong reputation and performance
incentives to ensure that consumers are
provided a high level of service.
A large bank and a number of trade
association commenters stated that the
Bureau should be cognizant of imposing
requirements and standards potentially
inconsistent with those required by
settlement agreements, consent orders,
and GSE or government insurance
program requirements. One commenter
stated that the Bureau should consider
preempting State law mortgage servicing
requirements to provide legal and
regulatory certainty to industry
participants that are evaluating the
future desirability of maintaining
servicing operations. A number of trade
associations stated that the Bureau
should not issue regulations that would
impose requirements substantially
similar to the National Mortgage
Settlement on mortgage servicers that
are not parties to the National Mortgage
Settlement.
The Bureau has considered each of
these comments relating to the
cumulative impact of mortgage
regulation, including the mortgage
servicing rules; the potential for
inconsistent results with current
servicing obligations, including State
law and the National Mortgage
Settlement; and comments regarding the
diversity of servicing business models
and servicer sizes. The Bureau’s
consideration of those comments is
reflected below in the section-by-section
analysis with respect to various
determinations made in finalizing the
2012 RESPA Servicing Proposal,
days after the proposal was published in the
Federal Register on September 17.
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including the determination to create
clear requirements, the determination to
maintain consistency with current
servicing obligations, including those
imposed by State law and the National
Mortgage Settlement, and the
consideration of exemptions for small
servicers.
With respect to preemption of state
law, the Final Servicing Rules generally
do not have the effect of prohibiting
state law from affording borrowers
broader consumer protections relating to
mortgage servicing than those conferred
under the Final Servicing Rules.
However, in certain circumstances, the
effect of specific requirements of the
Final Servicing Rules is to preempt
certain limited aspects of state law.
Specifically, as set forth below,
§ 1024.41(f) bars a servicer from making
the first notice or filing required for a
foreclosure process unless a borrower is
more than 120 days delinquent,
notwithstanding that state law may
permit any such filing. Further,
§ 1024.33(d) incorporates a pre-existing
provision in Regulation X that
implements RESPA with respect to
preemption of certain state law
disclosures relating to mortgage
servicing transfers. In other
circumstances, the Bureau explicitly
took into account existing standards
(both State and Federal) and either built
in flexibility or designed its rules to
coexist with those standards. For
example, as discussed below, the
Bureau took into account the loss
mitigation timelines and ‘‘dualtracking’’ provisions in the National
Mortgage Settlement and the California
Homeowner Bill of Rights and designed
timelines that are consistent with those
standards. Similarly, in designing its
early intervention provision the Bureau
included a statement that nothing in
that provision shall require a servicer to
make contact with a borrower in a
manner that would be prohibited under
applicable law.
A number of commenters provided
comments regarding language access
and community blight. Two national
consumer groups urged the Bureau to
take action to remove barriers borrowers
with limited English-proficiency face
with respect to understanding the terms
of their mortgages because such barriers
might make these borrowers more
vulnerable to bad servicing practices.
One national consumer group urged the
Bureau to mandate translation of all
notices, documents, and bills going to
borrowers. Another national consumer
group urged the Bureau to consider
requiring servicers to provide
disclosures and services in a borrower’s
preferred language, noting that it
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represents a population that speaks
more than 100 different dialects.
Finally, one commenter suggests that
the Bureau should not only mandate
disclosures in other languages but also
should require servicers to provide
language-capable staff to assist
borrowers with limited English skills.
With respect to neighborhood blight, a
coalition of consumer advocacy groups
and a consumer advocate that
participated in outreach with the
Bureau commented that the Bureau
should consider implementing
regulations to manage neighborhood
blight by requiring servicers to maintain
real estate owned (REO) property to
decent, safe, and sanitary standards
capable of purchase by borrowers with
FHA financing.
Although some of these specific
requests exceed the scope of the
rulemaking, the Bureau takes seriously
the important considerations of
avoiding neighborhood blight and
language access. The Bureau recognizes
the challenges borrowers with limited
English proficiency face in
understanding the terms of their
mortgage. The Bureau believes that
servicers should communicate with
borrowers clearly, including in the
borrower’s native language, where
possible, and especially when lenders
advertise in the borrower’s native
language. The Bureau conducted
Spanish testing to support proposed
rules and forms combining the TILA
mortgage loan disclosure with the Good
Faith Estimate (GFE) and statement
required under RESPA. See 77 FR
54843. That testing underscores both the
value of disclosures in other languages
but also the challenges in translating
forms using English terms of art into
other languages to assure that the
foreign-language version of the form
effectively communicates the required
information to its readers.
The Bureau has not had the
opportunity to test the disclosures that
the Bureau is adopting, or the preexisting RESPA disclosures, in other
languages. Accordingly, the Bureau is
not imposing mandatory foreign
language translation requirements or
other language access requirements at
this time with respect to the mortgage
servicing disclosures and other
requirements the Bureau is adopting
under new subpart C. Although the
Bureau declines at this time to
implement requirements regarding
language access, the Bureau will
continue to consider language access
generally in connection with developing
disclosures and will consider further
requirements on servicer
communication with borrowers if
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appropriate. With respect to REO
properties, the Bureau continues to
consider whether regulations are
appropriate to address the maintenance
of properties owned by lenders and any
potential resulting harm from
community blight.
E. Other Dodd-Frank Act MortgageRelated Rulemakings
In addition to the Final Servicing
Rules, the Bureau is adopting several
other final rules and issuing one
proposal, all relating to mortgage credit,
to implement requirements of title XIV
of the Dodd-Frank Act. The Bureau is
also issuing a final rule and planning to
issue a proposal jointly with other
Federal agencies to implement
requirements for mortgage appraisals in
title XIV. Each of the final rules follows
a proposal issued in 2011 by the Board
or in 2012 by the Bureau alone or jointly
with other Federal agencies.
Collectively, these proposed and final
rules are referred to as the Title XIV
Rulemakings.
• Ability to Repay: The Bureau
recently issued a rule, following a May
2011 proposal issued by the Board (the
Board’s 2011 ATR Proposal),49 to
implement provisions of the DoddFrank Act (1) requiring creditors to
determine that a consumer has a
reasonable ability to repay covered
mortgage loans and establishing
standards for compliance, such as by
making a ‘‘qualified mortgage,’’ and (2)
establishing certain limitations on
prepayment penalties, pursuant to TILA
section 129C as established by DoddFrank Act sections 1411, 1412, and
1414. 15 U.S.C. 1639c. The Bureau’s
final rule is referred to as the 2013 ATR
Final Rule. Simultaneously with the
2013 ATR Final Rule, the Bureau issued
a proposal to amend the final rule
implementing the ability-to-repay
requirements, including by the addition
of exemptions for certain nonprofit
creditors and certain homeownership
stabilization programs and a definition
of a ‘‘qualified mortgage’’ for certain
loans made and held in portfolio by
small creditors (the 2013 ATR
Concurrent Proposal). The Bureau
expects to act on the 2013 ATR
Concurrent Proposal on an expedited
basis, so that any exceptions or
adjustments to the 2013 ATR Final Rule
can take effect simultaneously with that
rule.
• Escrows: The Bureau recently
issued a rule, following a March 2011
proposal issued by the Board (the
Board’s 2011 Escrows Proposal),50 to
49 76
50 76
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FR 27390 (May 11, 2011).
FR 11598 (Mar. 2, 2011).
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10707
implement certain provisions of the
Dodd-Frank Act expanding on existing
rules that require escrow accounts to be
established for higher-priced mortgage
loans and creating an exemption for
certain loans held by creditors operating
predominantly in rural or underserved
areas, pursuant to TILA section 129D as
established by Dodd-Frank Act sections
1461. 15 U.S.C. 1639d. The Bureau’s
final rule is referred to as the 2013
Escrows Final Rule.
• HOEPA: Following its July 2012
proposal (the 2012 HOEPA Proposal),51
the Bureau recently issued a final rule
to implement Dodd-Frank Act
requirements expanding protections for
‘‘high-cost mortgages’’ under the
Homeownership and Equity Protection
Act (HOEPA), pursuant to TILA sections
103(bb) and 129, as amended by DoddFrank Act sections 1431 through 1433.
15 U.S.C. 1602(bb) and 1639. The
Bureau also is finalizing rules to
implement certain title XIV
requirements concerning
homeownership counseling, including a
requirement that lenders provide lists of
homeownership counselors to
applicants for federally related mortgage
loans, pursuant to RESPA section 5(c),
as amended by Dodd-Frank Act section
1450. 12 U.S.C. 2604(c). The Bureau’s
final rule is referred to as the 2013
HOEPA Final Rule.
• Loan Originator Compensation:
Following its August 2012 proposal (the
2012 Loan Originator Proposal),52 the
Bureau is issuing a final rule to
implement provisions of the DoddFrank Act requiring certain creditors
and loan originators to meet certain
duties of care, including qualification
requirements; requiring the
establishment of certain compliance
procedures by depository institutions;
prohibiting loan originators, creditors,
and the affiliates of both from receiving
compensation in various forms
(including based on the terms of the
transaction) and from sources other than
the consumer, with specified
exceptions; and establishing restrictions
on mandatory arbitration and financing
of single premium credit insurance,
pursuant to TILA sections 129B and
129C as established by Dodd-Frank Act
sections 1402, 1403, and 1414(a). 15
U.S.C. 1639b, 1639c. The Bureau’s final
rule is referred to as the 2013 Loan
Originator Final Rule.
• Appraisals: The Bureau, jointly
with other Federal agencies,53 is issuing
51 77
FR 49090 (Aug. 15, 2012).
FR 55272 (Sept. 7, 2012).
53 Specifically, the Board of Governors of the
Federal Reserve System, the Office of the
52 77
Continued
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a final rule implementing Dodd-Frank
Act requirements concerning appraisals
for higher-risk mortgages, pursuant to
TILA section 129H as established by
Dodd-Frank Act section 1471. 15 U.S.C.
1639h. This rule follows the agencies’
August 2012 joint proposal (the 2012
Interagency Appraisals Proposal).54 The
agencies’ joint final rule is referred to as
the 2013 Interagency Appraisals Final
Rule. As discussed in that final rule, the
agencies plan to issue a supplemental
proposal addressing potential additional
exemptions to the appraisal
requirements. In addition, following its
August 2012 proposal (the 2012 ECOA
Appraisals Proposal),55 the Bureau is
issuing a final rule to implement
provisions of the Dodd-Frank Act
requiring that creditors provide
applicants with a free copy of written
appraisals and valuations developed in
connection with applications for loans
secured by a first lien on a dwelling,
pursuant to section 701(e) of the Equal
Credit Opportunity Act (ECOA) as
amended by Dodd-Frank Act section
1474. 15 U.S.C. 1691(e). The Bureau’s
final rule is referred to as the 2013
ECOA Appraisals Final Rule.
The Bureau is not at this time
finalizing proposals concerning various
disclosure requirements that were
added by title XIV of the Dodd-Frank
Act, integration of mortgage disclosures
under TILA and RESPA, or a simpler,
more inclusive definition of the finance
charge for purposes of disclosures for
closed-end mortgage transactions under
Regulation Z. The Bureau expects to
finalize these proposals and to consider
whether to adjust regulatory thresholds
under the Title XIV Rulemakings in
connection with any change in the
calculation of the finance charge later in
2013, after it has completed quantitative
testing, and any additional qualitative
testing deemed appropriate, of the forms
that it proposed in July 2012 to combine
TILA mortgage disclosures with the
good faith estimate (RESPA GFE) and
settlement statement (RESPA settlement
statement) required under the Real
Estate Settlement Procedures Act,
pursuant to Dodd-Frank Act section
1032(f) and sections 4(a) of RESPA and
105(b) of TILA, as amended by DoddFrank Act sections 1098 and 1100A,
respectively (the 2012 TILA–RESPA
Proposal).56 Accordingly, the Bureau
already has issued a final rule delaying
Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the National Credit Union
Administration, and the Federal Housing Finance
Agency.
54 77 FR 54722 (Sept. 5, 2012).
55 77 FR 50390 (Aug. 21, 2012).
56 77 FR 51116 (Aug. 23, 2012).
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implementation of various affected title
XIV disclosure provisions.57
Coordinated Implementation of Title
XIV Rulemakings
As noted in all of its foregoing
proposals, the Bureau regards each of
the Title XIV Rulemakings as affecting
aspects of the mortgage industry and its
regulations. Accordingly, as noted in its
proposals, the Bureau is coordinating
carefully the Title XIV Rulemakings,
particularly with respect to their
effective dates. The Dodd-Frank Act
requirements to be implemented by the
Title XIV Rulemakings generally will
take effect on January 21, 2013, unless
final rules implementing those
requirements are issued on or before
that date and provide for a different
effective date. See Dodd-Frank Act
section 1400(c), 15 U.S.C. 1601 note. In
addition, some of the Title XIV
Rulemakings are required by the DoddFrank Act to take effect no later than
one year after they are issued. Id.
The comments on the appropriate
effective date for this final rule are
discussed in detail below in part VI of
this notice. In general, however,
consumer advocates requested that the
Bureau put the protections in the Title
XIV Rulemakings into effect as soon as
practicable. In contrast, the Bureau
received some industry comments
indicating that implementing so many
new requirements at the same time
would create a significant cumulative
burden for creditors. In addition, many
commenters also acknowledged the
advantages of implementing multiple
revisions to the regulations in a
coordinated fashion.58 Thus, a tension
exists between coordinating the
adoption of the Title XIV Rulemakings
and facilitating industry’s
implementation of such a large set of
new requirements. Some have suggested
that the Bureau resolve this tension by
adopting a sequenced implementation,
while others have requested that the
57 77
FR 70105 (Nov. 23, 2012).
the several final rules being adopted under
the Title XIV Rulemakings, six entail amendments
to Regulation Z, with the only exceptions being the
2013 RESPA Servicing Final Rule (Regulation X)
and the 2013 ECOA Appraisals Final Rule
(Regulation B); the 2013 HOEPA Final Rule also
amends Regulation X, in addition to Regulation Z.
The six Regulation Z final rules involve numerous
instances of intersecting provisions, either by crossreferences to each other’s provisions or by adopting
parallel provisions. Thus, adopting some of those
amendments without also adopting certain other,
closely related provisions would create significant
technical issues, e.g., new provisions containing
cross-references to other provisions that do not yet
exist, which could undermine the ability of
creditors and other parties subject to the rules to
understand their obligations and implement
appropriate systems changes in an integrated and
efficient manner.
58 Of
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Bureau simply provide a longer
implementation period for all of the
final rules.
The Bureau recognizes that many of
the new provisions will require
creditors to make changes to automated
systems and, further, that most
administrators of large systems are
reluctant to make too many changes to
their systems at once. At the same time,
however, the Bureau notes that the
Dodd-Frank Act established virtually all
of these changes to institutions’
compliance responsibilities, and
contemplated that they be implemented
in a relatively short period of time. And,
as already noted, the extent of
interaction among many of the Title XIV
Rulemakings necessitates that many of
their provisions take effect together.
Finally, notwithstanding commenters’
expressed concerns for cumulative
burden, the Bureau expects that
creditors actually may realize some
efficiencies from adapting their systems
for compliance with multiple new,
closely related requirements at once,
especially if given sufficient overall
time to do so.
Accordingly, the Bureau is requiring
that, as a general matter, creditors and
other affected persons begin complying
with the final rules on January 10, 2014.
As noted above, section 1400(c) of the
Dodd-Frank Act requires that some
provisions of the Title XIV Rulemakings
take effect no later than one year after
the Bureau issues them. Accordingly,
the Bureau is establishing January 10,
2014, one year after issuance of the
Bureau’s 2013 ATR, Escrows, and
HOEPA Final Rules (i.e., the earliest of
the title XIV Rulemakings), as the
baseline effective date for most of the
Title XIV Rulemakings. The Bureau
believes that, on balance, this approach
will facilitate the implementation of the
rules’ overlapping provisions, while
also affording creditors sufficient time
to implement the more complex or
resource-intensive new requirements.
The Bureau has identified certain
rulemakings or selected aspects thereof,
however, that do not present significant
implementation burdens for industry.
Accordingly, the Bureau is setting
earlier effective dates for those final
rules or certain aspects thereof, as
applicable. Those effective dates are set
forth and explained in the Federal
Register notices for those final rules.
IV. Legal Authority
The final rule was issued on January
17, 2013, in accordance with 12 CFR
1074.1. The Bureau is issuing this final
rule pursuant to its authority under
RESPA and the Dodd-Frank Act. Section
1061 of the Dodd-Frank Act transferred
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to the Bureau the ‘‘consumer financial
protection functions’’ previously vested
in certain other Federal agencies,
including HUD. The term ‘‘consumer
financial protection function’’ is defined
to include ‘‘all authority to prescribe
rules or issue orders or guidelines
pursuant to any Federal consumer
financial law, including performing
appropriate functions to promulgate and
review such rules, orders, and
guidelines.’’ 59 RESPA and certain
provisions of Title XIV of the DoddFrank Act are Federal consumer
financial laws.60 Accordingly, the
Bureau has authority to issue
regulations pursuant to RESPA and Title
XIV of the Dodd-Frank Act, including
implementing the additions and
amendments to RESPA’s mortgage
servicing requirements made by Title
XIV of the Dodd-Frank Act.
Section 1463 of the Dodd-Frank Act
creates statutory mandates by adding
new section 6(k) through (m) to RESPA.
Section 1463 of the Dodd-Frank Act also
amends certain consumer protection
provisions set forth in existing section
6(e) through (g) of RESPA.
Regarding the statutory mandates,
section 6(k) of RESPA contains
prohibitions on servicers for servicing of
federally related mortgage loans.
Pursuant to section 6(k) of RESPA,
servicers are prohibited from: (i)
Obtaining force-placed insurance unless
there is a reasonable basis to believe the
borrower has failed to comply with the
loan contract’s requirements to maintain
property insurance; (ii) charging fees for
responding to valid qualified written
requests; (iii) failing to take timely
action to respond to a borrower’s
requests to correct certain types of
errors; (iv) failing to respond within ten
business days to a request from a
borrower to provide certain information
about the owner or assignee of a
mortgage loan; or (v) failing to comply
with any other obligation found by the
Bureau to be appropriate to carry out the
consumer protection purposes of
RESPA. See RESPA section 6(k).
Section 6(l) of RESPA sets forth
specific requirements for determining if
a servicer has a reasonable basis to
obtain force-placed insurance coverage.
Section 6(l) of RESPA requires servicers
to provide written notices to a borrower
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59 12
U.S.C. 5581(a)(1).
Act section 1002(14), 12 U.S.C.
5481(14) (defining ‘‘Federal consumer financial
law’’ to include the ‘‘enumerated consumer laws’’
and the provisions of title X of the Dodd-Frank Act);
Dodd-Frank Act section 1002(12), 12 U.S.C.
5481(12) (defining ‘‘enumerated consumer laws’’ to
include RESPA), Dodd-Frank section 1400(b), 15
U.S.C. 1601 note (defining ‘‘enumerated consumer
laws’’ to include certain subtitles and provisions of
title XIV).
60 Dodd-Frank
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before imposing on the borrower a
charge for a force-placed insurance
policy. Section 6(l) of RESPA also
requires a servicer to accept any
reasonable form of written confirmation
from a borrower of existing insurance
coverage. Section 6(l) of RESPA further
requires a servicer, within 15 days of the
receipt of such confirmation, to
terminate force-placed insurance and
refund any premiums and fees paid
during the period of overlapping
coverage. Section 6(m) of RESPA
requires that charges related to forceplaced insurance, other than charges
subject to State regulation as the
business of insurance, be bona fide and
reasonable.
The Dodd-Frank Act also amends
existing section 6(e) through (g) of
RESPA. Section 6(e) is amended by
decreasing the response times currently
applicable to a servicer’s obligation to
respond to a qualified written request.
Section 6(f) is amended to increase the
penalty amounts servicers may incur for
violations of section 6 of RESPA.
Further, section 6(g) is amended to
protect borrowers by obligating servicers
to refund escrow balances to borrowers
when a mortgage loan is paid in full or
to transfer the escrow balance in certain
refinancing related situations.
The Bureau observes that in addition
to the specific statutory mandates and
amendments the Dodd-Frank Act
established in RESPA, by adding section
6(k)(1)(E) to RESPA, the Dodd-Frank Act
authorizes the Bureau, through section
6(k), to prescribe regulations that are
appropriate to carry out the consumer
protection purposes of the title. RESPA
is a remedial consumer protection
statute and imposes obligations upon
servicers of federally related mortgage
loans. RESPA has established a
consumer protection paradigm of
requiring disclosures to consumers, and
establishing servicer requirements and
prohibitions, for the purpose of
protecting borrowers from certain
potential harms. The disclosures
include, for example, disclosures
regarding escrow account balances and
disbursements, transfers of mortgage
servicing among mortgage servicers, and
force-placed insurance notices. The
requirements and prohibitions include
requirements for servicers to respond to
qualified written requests from
borrowers and with respect to escrow
account payments. Servicers are subject
to civil liability for failure to comply
with such requirements and
prohibitions.
Considered as a whole, RESPA, as
amended by the Dodd-Frank Act,
reflects at least two significant
consumer protection purposes: (1) To
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establish requirements that ensure that
servicers have a reasonable basis for
undertaking actions that may harm
borrowers and (2) to establish servicers’
duties to borrowers with respect to the
servicing of federally related mortgage
loans. Specifically, with respect to
mortgage servicing, the consumer
protection purposes of RESPA include
responding to borrower requests and
complaints in a timely manner,
maintaining and providing accurate
information, helping borrowers avoid
unwarranted or unnecessary costs and
fees, and facilitating review for
foreclosure avoidance options. Each of
the provisions adopted in this final rule
is intended to achieve some or all of
these purposes.
The final rule also relies on the
rulemaking and exception authorities
specifically granted to the Bureau by
RESPA and Title X of the Dodd-Frank
Act, including the authorities discussed
below:
RESPA
Section 19(a) of RESPA authorizes the
Bureau to prescribe such rules and
regulations, to make such
interpretations, and to grant such
reasonable exemptions for classes of
transactions, as may be necessary to
achieve the purposes of RESPA, which
includes the consumer protection
purposes laid out above. 12 U.S.C.
2617(a). In addition, section 6(j)(3) of
RESPA authorizes the Bureau to
establish any requirements necessary to
carry out section 6 of RESPA. 12 U.S.C.
2605(j)(3)
Title X of the Dodd-Frank Act
Dodd-Frank Act section 1022(b).
Section 1022(b)(1) of the Dodd-Frank
Act authorizes the Bureau to prescribe
rules ‘‘as may be necessary or
appropriate to enable the Bureau to
administer and carry out the purposes
and objectives of the Federal consumer
financial laws, and to prevent evasions
thereof[.]’’ 12 U.S.C. 5512(b)(1). RESPA
and Title X are Federal consumer
financial laws. Accordingly, in adopting
this final rule, the Bureau is exercising
its authority under Dodd-Frank Act
section 1022(b) to prescribe rules to
carry out the purposes and objectives of
RESPA and Title X and prevent evasion
of those laws.
Dodd-Frank Act section 1032. Section
1032(a) of the Dodd-Frank Act provides
that the Bureau ‘‘may prescribe rules to
ensure that the features of any consumer
financial product or service, both
initially and over the term of the
product or service, are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
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understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.’’
12 U.S.C. 5532(a). The authority granted
to the Bureau in Dodd-Frank Act section
1032(a) is broad, and empowers the
Bureau to prescribe rules regarding the
disclosure of the ‘‘features’’ of consumer
financial products and services
generally. Accordingly, the Bureau may
prescribe rules containing disclosure
requirements even if other Federal
consumer financial laws do not
specifically require disclosure of such
features.
Dodd-Frank Act section 1032(c)
provides that, in prescribing rules
pursuant to Dodd-Frank Act section
1032, the Bureau ‘‘shall consider
available evidence about consumer
awareness, understanding of, and
responses to disclosures or
communications about the risks, costs,
and benefits of consumer financial
products or services.’’ 12 U.S.C. 5532(c).
Accordingly, in developing the final
rule under Dodd-Frank Act section
1032(a), the Bureau has considered
available studies, reports, and other
evidence about consumer awareness,
understanding of, and responses to
disclosures or communications about
the risks, costs, and benefits of
consumer financial products or services.
In addition, Dodd-Frank Act section
1032(b)(1) provides that ‘‘any final rule
prescribed by the Bureau under this
[section 1032] requiring disclosure may
include a model form that may be used
at the option of the covered person for
provision of the required disclosures.’’
12 U.S.C. 5532(b)(1). As required under
Dodd-Frank Act section 1032(b)(3), the
Bureau has validated model forms
issued under Dodd-Frank Act section
1032(b)(1) through consumer testing.
The Bureau uses the specific statutory
authorities set forth above, as well as the
broader authorities set forth in sections
6(j)(3), 6(k), and 19(a) of RESPA, and in
sections 1022 and 1032 of the DoddFrank Act discussed above in adopting
this final rule.
Commentary
The Bureau’s final rule also includes
official Bureau interpretations in a
supplement to Regulation X. RESPA
section 19(a) authorizes the Bureau to
make such reasonable interpretations of
RESPA as may be necessary to achieve
the consumer protection purposes of
RESPA. Good faith compliance with the
interpretations would afford servicers
protection from liability under section
19(b) of RESPA. The Bureau’s adoption
of these official Bureau interpretations
in the supplement substitutes for the
prior practice of HUD of publishing
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Statements of Policy with respect to
interpretations of RESPA.61
V. Section-by-Section Analysis
Subpart A—General
Existing Regulation X does not
contain distinctive subparts. The Bureau
proposed to create three distinct
subparts within Regulation X. The
Bureau did not receive any comments
on the proposed reorganization of
Regulation X. Therefore, the final rule
adopts the reorganization as proposed.
Subpart A, titled ‘‘General,’’ contains
general provisions as well as provisions
that would have been applicable to the
other two subparts of Regulation X. The
Bureau proposed to place current
§§ 1024.1 through 1024.5 in subpart A
and, as described below, proposed to
make a number of largely technical
corrections to those sections.
Current § 1024.2 sets forth defined
terms that are applicable to transactions
covered by Regulation X, including the
defined term ‘‘Federally related
mortgage loan’’ that is referenced in the
proposed defined term ‘‘Mortgage loan’’
in proposed subpart C. The Bureau
proposed to retain most of current
§ 1024.2 without change, except that the
Bureau proposed deletions from the
defined terms ‘‘Federally related
mortgage loan’’ and ‘‘Mortgage broker’’
and additions to the defined terms
‘‘Public Guidance Documents’’ and
‘‘Servicer.’’
Specifically, the Bureau proposed to
modify the defined term ‘‘Federally
related mortgage loan’’ to eliminate the
use of the short-hand reference to
‘‘mortgage loan’’ as a substitute for
‘‘Federally related mortgage loan’’ in
light of the fact that proposed § 1024.31
would have provided that the term
‘‘mortgage loan’’ for purposes of subpart
C’s mortgage servicing requirements is
to be a defined term distinct from the
defined term ‘‘Federally related
mortgage loan.’’ The Bureau also
proposed conforming edits that would
have replaced references to ‘‘mortgage
loan’’ with ‘‘federally related mortgage
loan’’ in the defined terms ‘‘Origination
service,’’ ‘‘Servicer,’’ and ‘‘Servicing’’
set forth in current § 1024.2 and in
current §§ 1024.7(f)(3), 1024.17(c)(8),
1024.17(f)(2)(ii), 1024.17(f)(4)(iii),
1024.17(i)(2), and 1024.17(i)(4)(iii). The
61 The Bureau recognizes that the proposed
supplement, which sets forth interpretations that
relate to the proposed mortgage servicing
rulemakings, is not inclusive of all interpretations
of RESPA, including interpretations previously
issued by the HUD. The Bureau does not intend that
the publication of the supplement would withdraw
or otherwise affect the status of any prior
interpretations of RESPA not set forth in the
supplement.
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Bureau did not receive comments on the
proposed revision to the defined term
‘‘Federally related mortgage loan’’ or the
conforming edits described above. The
final rule adopts the proposed revision
and conforming edits as proposed.
The 2012 RESPA Servicing Proposal
also would have removed a reference to
loan correspondents that are approved
under 24 CFR 202.8 from the defined
term ‘‘Mortgage broker’’ because the
reference was made obsolete when HUD
amended 24 CFR 202.8 on April 20,
2010, to eliminate the FHA approval
process for loan correspondents after
determining that loan correspondents
would no longer be approved
participants in FHA programs.62 The
Bureau did not receive comments on the
proposal to remove the reference to loan
correspondents from the current defined
term ‘‘Mortgage broker,’’ and the final
rule adopts the proposed removal from
the defined term ‘‘Mortgage broker’’ as
proposed.
The proposal also would have
modified the defined term ‘‘Public
Guidance Documents’’ to clarify that
such documents are available from the
Bureau upon request and to provide an
address for such requests. The Bureau
did not receive comments on these
proposed clarifications, and the final
rule adopts the clarifications to the
defined term ‘‘Public Guidance
Documents’’ as proposed.
The proposal also would have added
language to the defined term ‘‘Servicer’’
to clarify the status of the National
Credit Union Administration (NCUA) as
conservator or liquidating agent of a
servicer or in its role of providing
special assistance to an insured credit
union. The current definition of
‘‘Servicer’’ provides that the Federal
Deposit Insurance Corporation (FDIC) is
not a servicer (1) with respect to assets
acquired, assigned, sold, or transferred
pursuant to section 13(c) of the Federal
Deposit Insurance Act or as receiver or
conservator of an insured depository
institution; or (2) in any case in which
the assignment, sale, or transfer of the
servicing of the mortgage loan is
preceded by commencement of
proceedings by the FDIC for
conservatorship or receivership of a
servicer (or an entity by which the
servicer is owned or controlled). The
proposed addition to the defined term
‘‘Servicer’’ would have clarified
similarly that the NCUA is not a servicer
(1) with respect to assets acquired,
assigned, sold, or transferred, pursuant
to section 208 of the Federal Credit
Union Act or as conservator or
liquidating agent of an insured credit
62 See
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union; or (2) in any case in which the
assignment, sale, or transfer of the
servicing of the mortgage loan was
preceded by commencement of
proceedings by the NCUA for
appointment of a conservator or
liquidating agent of a servicer (or an
entity by which the servicer is owned or
controlled). The Bureau does not believe
there is a basis to impose on the NCUA,
when it is providing assistance to an
insured credit union or in its role as
conservator or liquidating agent of an
insured credit union, the obligations of
a servicer. The Bureau did not receive
any comments concerning the proposed
language. Accordingly, the Bureau
adopts the proposed addition to the
defined term ‘‘Servicer’’ as proposed.
The Bureau proposed to delete the
text of current § 1024.3 concerning the
process for the public to submit
questions or suggestions regarding
RESPA or to receive copies of Public
Guidance Documents and to replaced it
with the substance of the regulation
concerning electronic disclosures set
forth in current § 1024.23. The Bureau
did not believe a provision of
Regulation X was needed to address the
process for submitting questions and
requesting documents. The public may
contact the Bureau to request
documents, suggest changes to
Regulation X, or submit questions,
including questions concerning the
interpretation of RESPA by mail to the
Associate Director, Research, Markets,
and Regulations, Bureau of Consumer
Financial Protection, 1700 G St. NW.,
Washington, DC 20552, or by email to
CFPB_RESPAInquiries@cfpb.gov.
Further, the final rule includes contact
information to request copies of Public
Guidance Documents in the defined
term ‘‘Public Guidance Documents’’ in
§ 1024.2, as discussed above.
Current § 1024.23 states that
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) permitting electronic
disclosures to consumers if certain
conditions are met apply to Regulation
X. Because the Bureau believes that
such E-Sign Act provisions are
applicable to all provisions in
Regulation X, it decided that the best
place for the language was in § 1024.3.
In the process of moving the language in
current § 1024.23 to § 1024.3, the
Bureau also made technical edits to
conform the language to the language of
other similar Bureau regulations. The
Bureau did not receive comments on
these revisions to current §§ 1024.3 and
1024.23. The Final rule adopts § 1024.3
as proposed and removes § 1024.23 as
proposed.
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Current § 1024.4 sets forth provisions
relating to reliance upon rules,
regulations, or interpretations by the
Bureau. The Bureau proposed to remove
current § 1024.4(b) and redesignate
current § 1024.4(c) as proposed
§ 1024.4(b). Current § 1024.4(b) provides
that the Bureau may, in its discretion,
provide unofficial staff interpretations
but that such interpretations do not
provide protection under section 19(b)
of RESPA and that staff will not
ordinarily provide such interpretations
on matters adequately covered by
Regulation X, official interpretations, or
commentaries. The Bureau’s policy is to
assist the public in understanding the
Bureau’s regulations, including, but not
limited to, Regulation X. The Bureau
believes that this provision, which
states Bureau policy, is more
appropriate for the commentary and,
accordingly, proposed to include the
substance of this provision in the
introduction to the commentary. The
Bureau did not receive comments on the
proposed removal of current § 1024.4(b)
and re-designation of current § 1024.4(c)
as proposed § 1024.4(b). The final rule
adopts these revisions as proposed.
Current § 1024.5 sets forth exemptions
with respect to the applicability of
Regulation X. The Bureau proposed a
technical correction to current
§ 1024.5(b)(7) to reflect that mortgage
servicing-related provisions of
Regulation X will be included in new
subpart C and will no longer be placed
in current § 1024.21. The Bureau did not
receive comments on this technical
correction, and the final rule adopts the
technical correction to § 1024.5 as
proposed, with an additional technical
change to clarify the applicability of
subpart C to bona fide transfers in the
secondary market.
For reasons discussed below, current
§ 1024.21 is deleted. In connection with
the deletion of current § 1024.21 as
discussed below, the Bureau is also
making a technical correction to a crossreference in current § 1024.13(d) to
language in current § 1024.21(h) that is
being moved to § 1024.33(d).
Subpart B—Mortgage Settlements and
Escrow Accounts
In connection with the Bureau’s
proposal to create three distinct
subparts in Regulation X, the Bureau is
organizing §§ 1024.6 through 1024.20
under new subpart B. These provisions
generally relate to settlement services
and escrow accounts. As described
above, the Bureau is adopting the
conforming edits the Bureau proposed
relating to §§ 1024.7(f)(3), 1024.17(c)(8),
1024.17(f)(2)(ii), 1024.17(f)(4)(iii),
1024.17(i)(2), and 1024.17(i)(4)(iii).
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Section 1024.17
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Escrow Accounts
17(k) Timely Payments
Section 6(g) of RESPA establishes that
if the terms of any federally related
mortgage loan require a borrower to
make payments to a servicer of the loan
for deposit into an escrow account for
the purpose of assuring payment of
taxes, insurance premiums, and other
charges with respect to the property, the
servicer shall make such payments from
the borrower’s escrow account in a
timely manner as such payments
become due. Existing § 1024.21(g)
provides that the requirements set forth
in § 1024.17(k) govern the payment of
such charges. Existing § 1024.17(k)(1)
provides that if the terms of a federally
related mortgage loan require a borrower
to make payments to an escrow account,
a servicer must pay the disbursements
in a timely manner (specifically, on or
before the deadline to avoid a penalty)
unless a borrower’s payment is more
than 30 days overdue. Existing
§ 1024.17(k)(2) requires servicers to
advance funds if necessary to make the
disbursements in a timely manner
unless the borrower’s mortgage payment
is more than 30 days past due. Upon
advancing funds to pay a disbursement,
a servicer may seek repayment from a
borrower for the deficiency pursuant to
§ 1024.17(f).
The Bureau proposed a new
§ 1024.17(k)(5) to expand the scope of
these obligations with regard to
continuing a borrower’s hazard
insurance policy. Specifically, proposed
§ 1024.17(k)(5) would have required
that, notwithstanding § 1024.17(k)(1)
and (2), a servicer must make payments
from a borrower’s escrow account in a
timely manner to pay the premium
charge on a borrower’s hazard
insurance, as defined in § 1024.31,
unless the servicer has a reasonable
basis to believe that a borrower’s hazard
insurance has been canceled or not
renewed for reasons other than
nonpayment of premium charges. Thus,
proposed § 1024.17(k)(5) would have
required a servicer to both advance
funds to an escrow account and to
disburse such funds to pay a borrower’s
hazard insurance notwithstanding that a
borrower is more than 30 days
delinquent.
The proposed requirement would not
have applied where a servicer had ‘‘a
reasonable basis to believe that such
insurance has been canceled or not
renewed for reasons other than
nonpayment of premium charges’’
because the Bureau recognized that
there were situations where timely
payment by a servicer would not be
sufficient to continue a policy that had
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already been canceled or was not
renewed for other reasons, such as, for
example, risks presented by the
condition of the property.
The Bureau also proposed
commentary to clarify the requirements
in § 1024.17(k)(5). Specifically, the
Bureau proposed to clarify in comment
17(k)(5)–1 that the receipt by a servicer
of a notice of cancellation or nonrenewal from the borrower’s insurance
company before the insurance premium
is due provides a reasonable basis to
believe that the borrower’s hazard
insurance has been canceled or not
renewed for reasons other than
nonpayment of premium charges.
Comment 17(k)(5)–2 would have
provided three examples of situations in
which a borrower’s hazard insurance
was canceled or not renewed for reasons
other than the nonpayment of premium
charges, including because the borrower
cancelled the insurance policy, because
the insurance company no longer writes
the type of policy that the borrower
carried or writes policies in the area
where the borrower’s property is
located, or because the insurance
company is no longer willing to
maintain the borrower’s individual
policy to cover the borrower’s property
because of a change in risk affecting the
borrower’s property. Finally, proposed
comment 17(k)(5)–3 would have
clarified that a servicer that advances
the premium payment as required by
§ 1024.17(k)(5) may advance the
payment on a month-to-month basis, if
permitted by State or other applicable
law and accepted by the borrower’s
hazard insurance company.
The Bureau proposed § 1024.17(k)(5)
to protect consumers from the
unwarranted force-placement of hazard
insurance. Force-placed insurance
generally provides substantially less
coverage for a borrower’s property at a
substantially higher premium cost than
a borrower-obtained hazard insurance
policy, as discussed below in
connection with § 1024.37. Section 1463
of the Dodd-Frank Act demonstrates
that Congress was concerned about the
unwarranted or unnecessary forceplacement of hazard insurance for
mortgage borrowers. Section 6(k) of
RESPA, as amended by section 1463 of
the Dodd-Frank Act, evinces Congress’s
intent to establish reasonable
protections for borrowers to avoid
unwarranted force-placed insurance
coverage. Section 1024.17(k)(5), though
articulated differently than the
protections directly set forth in section
1463, draws directly from Congress’s
intent as set forth in section 1463 of the
Dodd-Frank Act to protect borrowers
from the force-placement of hazard
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insurance in situations where such
force-placement is unwarranted and can
be avoided. When a servicer is receiving
bills for the borrower’s hazard insurance
in connection with administration of an
escrow account, a servicer who elects
not to advance to a delinquent
borrower’s escrow account to maintain
the borrower’s hazard insurance,
allowing that insurance to lapse, and
then advances a far greater amount to a
borrower’s escrow account to obtain a
force-placed insurance policy
unreasonably harms a borrower. Section
1024.17(k)(5) implements the purposes
of section 1463 of the Dodd-Frank Act
to protect borrowers from the
unwarranted force-placement of
insurance when a servicer does not have
a reasonable basis to impose the charge
on a borrower.
Further, considered as a whole, one of
the consumer protection purposes of
RESPA, as amended by the Dodd-Frank
Act, is a requirement that servicers must
have a reasonable basis for undertaking
actions that may harm borrowers,
including delinquent borrowers. Section
1024.17(k)(5) furthers this purpose by
establishing that servicers may not
unnecessarily obtain force-placed
insurance in situations where such
placement is not warranted, that is,
when a servicer is able to maintain a
borrower’s current hazard insurance in
force by advancing and disbursing funds
to pay the premiums.
The Bureau further reasoned that
proposed § 1024.17(k)(5) would not
increase burdens on servicers generally,
because the Bureau understood that
many servicers already advance hazard
insurance premiums for borrowers with
escrow accounts even if the borrowers’
mortgage payments are more than 30
days past due. The Bureau also
understands that the proposed
requirement would benefit owners or
assignees of mortgage loans by
preventing the placement of costly and
unnecessary force-placed insurance
policies, the higher costs for which may
be recovered from an owner or assignee
in the event the property is liquidated.
The Bureau sought comment on all
aspects of the proposed escrow advance
provision including on whether there
should be additional limitations on a
servicer’s duty to advance funds. For
instance, the Bureau sought comments
on an alternative approach under which
a servicer could not charge a borrower
who has an escrow account established
to pay hazard insurance for force-placed
insurance unless those charges would
be less expensive than the charges for
reimbursing the servicer for advancing
funds to continue the borrower’s hazard
insurance policy. The Bureau further
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requested comment regarding whether
to require further that any such forceplaced insurance policy protect the
borrower’s interest. In addition, the
Bureau observed in the proposal that
§ 1024.17(k)(5) would only apply when
a borrower has an escrow account
established to pay hazard insurance,
and also invited comments on whether
a servicer should be required to pay the
hazard insurance premiums on behalf of
a borrower who has not established an
escrow account to pay for such
insurance. Finally, the Bureau further
requested comment on whether a
servicer should be required to ask such
a borrower whether the borrower would
consent to the servicer renewing the
borrower’s hazard insurance and, with
the borrower’s consent, be required to
advance funds to pay such premiums.
Industry commenters and their trade
associations varied significantly in their
comments with respect to
§ 1024.17(k)(5). A number of
commenters, including a force-placed
insurance provider and two trade
associations, stated that the proposed
requirement was consistent with current
industry practice and would not be
onerous to implement. For example, one
non-bank servicer indicated that it
generally advanced funds to escrow and
disbursed those funds to maintain
hazard insurance so long as it viewed
the advances as recoverable,
notwithstanding the delinquency status
of the borrower.
Numerous other servicers and their
trade associations, however, objected to
the requirement that a servicer timely
disburse funds from escrow to pay
hazard insurance for borrowers who are
delinquent and further that servicers
should advance funds to escrow
accounts that would then be disbursed
to pay hazard insurance. Some industry
commenters indicated that force-placed
insurance is the appropriate means for
insuring a property for a borrower that
has not paid for hazard insurance. For
example, a national trade association
representing property and casualty
insurers stated that the inclusion of
limitations on force-placed insurance in
section 1463(a) of the Dodd-Frank Act
recognized that an appropriate role
exists for force-placed insurance. Some
commenters indicated that the
procedures for obtaining force-placed
insurance, specifically notices provided
to borrowers, spur borrower action to
communicate with servicers and to
obtain insurance. These commenters
believe that the threat of forced
placement of insurance causes
borrowers to obtain hazard insurance to
avoid force-placed insurance. If the
threat is effective, they argue, servicers
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should not have to advance funds to
escrow accounts for delinquent
borrowers. One commenter, a forceplaced insurance provider, urged the
Bureau to first evaluate the effectiveness
of the notices and procedures required
by the Dodd-Frank Act before adopting
a final rule requiring a servicer to
advance funds for borrowers whose
mortgage payments were more than 30
days overdue. Finally, one commenter
hypothesized that the proposed
requirement was intended as a step
toward potential future actions by the
Bureau to eliminate the force-placed
insurance product market.
Some servicers and their trade
associations questioned the Bureau’s
authority to require servicers to advance
funds to, and disburse from, an escrow
account to maintain hazard insurance.
These commenters stated that (1) the
Bureau does not have the authority to
impose the requirement because it is not
specifically set forth in the Dodd-Frank
Act, (2) section 6(g) of RESPA only
applies to insurance required pursuant
to the terms of a federally related
mortgage loan, whereas the duty to
advance funds appeared to apply even
for insurance not required by the terms
of the loan, and (3) the requirement was
an unnecessary exercise of the Bureau’s
authority to impose additional
obligations on servicers pursuant to
sections 6(k)(1)(E) and 19(a) of RESPA.
Commenters further objected that the
requirement to advance funds would
require a servicer to provide funds to
maintain coverage obtained by a
borrower that exceeded the coverage
required by the lender, including, for
example, coverage for borrower
possessions or coverage beyond hazards
the lender required to be covered.
Some servicers and their trade
associations further stated that the
requirement to advance funds to, and
disburse from, an escrow account to
maintain hazard insurance would have
adverse consequences for servicers,
borrowers, and the insurance market.
With respect to potential impact on
servicers, some commenters indicated
that the proposed requirement would
create a disincentive to establish escrow
accounts. These commenters also
indicated that borrowers may
incorrectly presume that servicers will
advance to escrow accounts for
delinquent borrowers to pay all escrow
obligations, not just hazard insurance.
Further, a credit union trade association
commented that requiring
disbursements for hazard insurance may
deplete funds that may be available to
pay other escrow obligations, such as
tax liabilities. A commenter stated that
a servicer may be responsible for a loss
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if a hazard insurance provider to whom
it has advanced payments denies
coverage because a property is vacant
and is excluded from coverage; in such
a situation, the commenter said that
force-placed insurance is necessary
because it would cover the loss.
Some servicers stated that borrowers
may be unjustly enriched at the expense
of their servicers by cancelling hazard
insurance and obtaining for themselves
refunds of premiums that were paid by
their servicers. Although the Bureau had
attempted to address this concern,
which also was raised during the Small
Business Review Panel, through
proposed comment 17(k)(5)–3, servicers
disagreed on the solution. Importantly,
one state banking association stated that
the risk of moral hazard and unjust
enrichment was mitigated by proposed
comment 17(k)(5)–3, which permitted
the servicer to advance and disburse on
a month-to-month basis, while another
small bank commenter stated that the
Bureau’s comment permitting advancing
on a month-to-month basis would
increase its servicing costs because it
would be paying a borrower’s insurance
twelve times per year.
With respect to potential impact on
borrowers, several commenters
suggested that the proposal would result
in an increase in incidents of a borrower
being double-billed for hazard
insurance. These commenters
incorrectly interpreted the proposal to
require a servicer to pay to maintain
coverage even though the borrower had
decided to cancel the insurance and pay
a new insurer directly. These
commenters stated that borrowers may
be harmed because borrowers would be
responsible for duplicative hazard
insurance costs, whereas a borrower
would be entitled to a refund for
overlapping force-placed insurance,
including pursuant to the Dodd-Frank
Act.
With respect to impacts on the
insurance market, a number of
commenters who are not insurance
providers asserted that insurance
providers generally view seriously
delinquent borrowers as higher
insurance risks compared to other
borrowers. These commenters expressed
concern that the Bureau’s proposal
could potentially mask this risk because
the servicer would be required to
advance premiums, even if a borrower
is seriously delinquent. One commenter
requested that the Bureau state that
servicers may inform an insurance
provider that a borrower is delinquent.
In that regard, a commenter urged the
Bureau to provide a form that servicers
may provide to insurance providers
stating that a lender is paying some
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10713
identified portion of a borrower’s
insurance premium due to a deficiency
in the borrower’s escrow account.
Small banks and credit unions, as
well as their trade associations and
other small non-bank servicers,
indicated that the impact of proposed
§ 1024.17(k)(5) would be particularly
acute for small servicers. These
commenters indicated that small
servicers typically have different
practices with regard to force-placed
insurance than large servicers. Outreach
with small servicers indicated that in
certain circumstances, such servicers
may not require borrowers to maintain
insurance coverage, may self-insure, or
may impose charges for collateral
protection plans that may be less costly
than advances to maintain a borrower’s
hazard insurance coverage. Further,
commenters asserted that small
servicers may be more significantly
impacted by the cost of the funds
required to be advanced to borrower
escrow accounts.
Certain commenters requested
clarification regarding whether a
servicer would be entitled to recoup any
required advances and whether a
servicer may be liable to a borrower for
failing to advance funds to, and disburse
from, an escrow account to maintain
hazard insurance. Further, commenters
requested clarification that advancing
funds is only required if the owner or
assignee of a mortgage loan requires the
borrower to maintain hazard insurance.
Finally, one credit union commenter
requested that the Bureau exempt
servicers of home equity lines of credit
(HELOCs) from the proposed
requirement in § 1024.17(k)(5) to
advance funds. The commenter asserted
that HELOCs are largely in the
subordinate-lien position and requiring
a servicer of HELOCs to advance would
generally be needless costly to such
servicers because servicers servicing
liens in the first position would also be
advancing payment.
The Bureau received numerous
comments from consumers and
consumer advocacy groups with respect
to proposed § 1024.17(k)(5). These
commenters strongly supported all
aspects of proposed § 1024.17(k)(5) as
set forth in the proposal. These
commenters generally stated, however
that the Bureau should go farther than
the proposal and implement
requirements regarding advances and
disbursements to maintain hazard
insurance for delinquent borrowers that
do not have escrow accounts.
Commenters significantly disagreed
regarding the merits of requiring
advances and disbursements to
maintain hazard insurance of borrowers
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without escrow accounts. A number of
consumer advocacy group commenters
contended that the Bureau should make
no distinction between homeowners
that have escrow accounts and those
that do not. Certain state attorney
general commenters suggested instead
that the Bureau should require a
servicer, prior to force-placing
insurance, to ask for a borrower’s
consent to renew voluntary coverage
and to advance funds for the premium
if the borrower gives consent to the
creation of an escrow account. Industry
commenters were nearly uniformly
opposed to requiring servicers to
advance funds for the hazard insurance
premiums of borrowers who have not
escrowed for hazard insurance, citing
most often the impracticality for
servicers to reinstate a lapsed policy
without any gap in coverage.
The Bureau is finalizing
§ 1024.17(k)(5) as proposed with
adjustments to address pertinent issues
raised by the comments. Specifically,
the Bureau is not requiring that a
servicer advance funds to, or disburse
funds from, an escrow account to
maintain hazard insurance in all
circumstances. Rather, the Bureau had
adjusted the requirement in
§ 1024.17(k)(5)(i) to provide that a
servicer may not obtain force-placed
insurance unless a servicer is unable to
disburse funds from the borrower’s
escrow account to ensure that the
borrower’s hazard insurance is paid in
a timely manner. Thus, for example, a
servicer of a mortgage loan, including a
HELOC, is not required to disburse
funds from an escrow account to
maintain a borrower’s hazard insurance,
so long as the servicer does not
purchase force-placed insurance.
Pursuant to § 1024.17(k)(5)(ii)(A), a
servicer is unable to disburse funds if
the servicer has a reasonable basis to
believe that a borrower’s hazard
insurance has been canceled or not
renewed for reasons other than
nonpayment of premium charges.
Further, § 1024.17(k)(5)(ii)(B) states that
a servicer is not considered unable to
disburse funds solely because an escrow
account contains insufficient funds.
Section 1024.17(k)(5)(ii)(C) makes clear
that a servicer may seek repayment from
a borrower for funds advanced to pay
hazard insurance premiums. Finally, the
Bureau has determined to exempt small
servicers, that is, servicers that service
less than 5,000 mortgage loans and only
service mortgage loans owned or
originated by the servicer or an affiliate
so long as any force-placed insurance
purchased by the small servicer is less
costly to a borrower than the amount
that would be required to be disbursed
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to maintain the borrower’s hazard
insurance coverage. See
§ 1024.17(k)(5)(iii). The Bureau is not
implementing any requirement that a
servicer advance funds to pay for a
hazard insurance policy for a borrower
that does not have an escrow account.
The Bureau believes that a servicer
should not obtain force-placed
insurance when a servicer is able to
make disbursements from an escrow
account to maintain hazard insurance.
As set forth above, unless a policy has
been cancelled for reasons other than
nonpayment, a borrower’s delinquency
should not cause a servicer to take
actions (or make omissions) that would
lead to the cancellation of the
borrower’s voluntary insurance policy
and the potential replacement of that
policy with a more expensive (and less
protective) force-placed insurance
policy. The Bureau acknowledges that
in certain circumstances, force-placed
insurance is necessary. Section
1024.17(k)(5) does not prevent a servicer
from obtaining force-placed insurance,
subject to the requirements in § 1024.37,
when such a policy is appropriate,
including, for instance, where a
borrower’s hazard insurance policy has
been cancelled for reasons other than
non-payment. In that situation, a
servicer may impose a charge on a
borrower for a force-placed insurance
policy consistent with the requirements
in § 1024.37. However, as set forth
above and in the proposal, the Bureau
does not believe imposition of a charge
for force-placed insurance is appropriate
where a hazard insurance policy has not
been cancelled and a servicer is able to
disburse funds from an escrow account
to maintain the borrower’s preferred
hazard insurance policy in force.63
The Bureau is therefore adopting
§ 1024.17(k)(5) in reliance on section
6(k)(1)(E) of RESPA, which authorizes
the Bureau to prescribe regulations that
are appropriate to carry out the
consumer protection purposes of
RESPA. The Bureau has additional
authority pursuant to section 6(j)(3) of
RESPA to establish any requirements
necessary to carry out section 6 of
REPSA, including section 6(g) with
respect to administration of escrow
accounts, and has authority pursuant to
section 19(a) of RESPA to prescribe such
rules and regulations, and to make such
63 Notably, the National Mortgage Settlement
includes a similar protection for borrowers. See e.g.,
National Mortgage Settlement: Consent Agreement
A–37 (2012), available at http://
www.nationalmortgagesettlement.com. (stating that
‘‘For escrowed accounts, servicer shall continue to
advance payments for the homeowner’s existing
policy, unless the borrower or insurance company
cancels the existing policy.’’).
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interpretations, as may be necessary to
achieve the consumer protection
purposes of RESPA. The Bureau also
has authority to establish consumer
protection regulations pursuant to
section 1022 of the Dodd-Frank Act. A
consumer protection purpose of RESPA
is to help borrowers avoid unwarranted
or unnecessary costs and fees, and
further, the amendments to section 6(k)
of RESPA in section 1463 of the DoddFrank Act evince Congress’s intent to
establish reasonable protections for
borrowers to avoid unwarranted forceplaced insurance coverage. Section
1024.17(k)(5) furthers these purposes
and is therefore an appropriate
regulation under section 6(j) and
6(k)(1)(E) and section 19(a) of RESPA.64
The Bureau does not believe that
§ 1024.17(k)(5) will have adverse
consequences on servicers, borrowers,
or the insurance market. With respect to
impacts on servicers, § 1024.17(k)(5)
does not create significant disincentives
to maintain escrow accounts for
borrowers. Escrow accounts encourage
borrowers to budget for costs of
homeownership and to provide funds
regularly to servicers to be used to pay
those costs, including for insurance,
taxes, and other obligations. Lenders
include escrow requirements in
mortgage contracts because the use of
such an account reduces risk to an
owner or assignee of a mortgage loan.
Servicer also generally benefit from an
escrow account both as a result of the
improved performance of mortgage
loans and also because of the
opportunity to earn a return on funds
held. Further, servicers manage the
impact of an obligation to make
advances to escrow accounts by
ensuring that advances may be recouped
from an owner or assignee of a mortgage
loan in the event a property is
foreclosed upon and liquidated. In the
absence of § 1024.17(k)(5), a servicer
that obtains force-placed insurance
might advance a greater amount of
funds for the force-placed insurance
policy and would seek to obtain
repayment of those funds either from a
borrower or ultimately from an owner or
assignee of a mortgage loan if a property
is foreclosed upon and liquidated. For
these reasons, the Bureau is not
persuaded that § 1024.17(k)(5) creates
an incentive that would materially affect
whether servicers offer escrow accounts
to borrowers.
With respect to the ability of servicers
to use funds in an escrow account to
64 The Bureau notes that regulations established
pursuant to section 6 of RESPA are subject to
section 6(f) of RESPA, which provides borrowers a
private right of action to enforce such regulations.
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pay obligations other than hazard
insurance, the Bureau recognizes, of
course, that escrow account funds are
fungible and that payment of hazard
insurance necessarily requires
expending funds that would have been
available for payment of other escrowed
obligations, including tax obligations.
Servicers, on behalf of owners or
assignees of mortgage loans, currently
manage this risk by advancing funds to
escrow accounts to pay such obligations
and seeking repayment from borrowers
or ultimately from proceeds payable to
the owners or assignees of mortgage
loans. No contrary practice is required
here. Further, such a practice does not
create any new or enhanced risk for
servicers. Further, the Bureau has
clarified in § 1024.17(k)(5)(ii)(C) that
servicers may seek repayment of
advances unless otherwise prohibited
by applicable law. Servicers, as well as
owners and assignees of mortgage loans,
are capable of managing risks arising
from other escrow account obligations
by advancing funds to pay any such
obligations as appropriate.
The Bureau also does not believe that
§ 1024.17(k)(5) presents a material risk
to servicers from borrowers cancelling
policies, receiving refunds, and, thus,
becoming unjustly enriched at the
expense of a servicer. A borrower that
is current on a mortgage loan obligation
but anticipates a future delinquency
could engage in the same type of
behavior during a period of an escrow
account deficiency. Commenters have
not demonstrated that such actions
typically occur. Further, the Bureau has
mitigated this risk by finalizing
comment 17(k)(5)(ii)(C)–1, which
provides that servicers may, but are not
required to, advance payment on a
month-to-month basis. Because such
advancement is not required on a
month-to-month basis, servicers may
determine not to undertake that
schedule for advances if it would
impose greater costs on servicers with
respect to maintaining a borrower’s
hazard insurance.
The Bureau is not persuaded that
requiring servicers to disburse funds for
hazard insurance for borrowers that are
more than 30 days overdue will create
incentives for borrowers not to make
mortgage loan payments or to fund
escrow accounts. Nothing in
§ 1024.17(k)(5), nor Regulation X
generally, prevents servicers from
charging borrowers late fees or reporting
borrower failures to pay to a consumer
reporting agency. These consequences
to borrowers provide appropriate
disincentives from obtaining the far
more limited benefit of non-cancellation
of a hazard insurance policy.
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The Bureau is persuaded, however, by
the comment that hazard insurance
coverage may not provide similar
protections as force-placed insurance.
Many hazard insurance policies contain
exclusions from coverage for properties
that are vacant. In these circumstances,
losses may not be covered by insurance
for vacant properties. Delinquent
borrowers may have a higher incidence
of abandoning properties as vacant.
Accordingly, the Bureau has adjusted
§ 1024.17(k)(5)(ii) to provide that a
servicer may be considered unable to
disburse funds from escrow to maintain
a borrower’s hazard insurance policy if
the servicer has a reasonable basis to
believe the borrower’s property is
vacant.
The Bureau does not believe that
§ 1024.17(k)(5) will have adverse
impacts on borrowers. The only
borrower harm asserted by servicers and
their trade associations is that the
requirement will lead to an increase in
double-billing when a borrower cancels
hazard insurance and obtains a new
policy for which the borrower pays the
insurer directly. The commenters
provide no reason to believe that
borrowers that are more than 30 days
overdue are more likely to cancel hazard
insurance and pay insurance directly
than borrowers that are current on a
mortgage loan obligation or less than 30
days overdue. Further, if a servicer has
a reasonable basis to believe that a
borrower has cancelled a hazard
insurance policy, a servicer is not
required to disburse funds to pay for the
hazard insurance policy. Finally, when
a borrower has cancelled a policy, an
insurance company is unlikely to credit
the amounts paid by a servicer toward
that policy after the date of
cancellation.65
Further, the Bureau does not believe
that § 1024.17(k)(5) will have adverse
impacts on the insurance market.
Section 1024.17(k)(5) does not, as
commenters state, mask any risks
presented by a borrower that is more
than 30 days overdue on a mortgage
loan obligation. Nothing in
§ 1024.17(k)(5) prevents a servicer from
reporting a borrower’s payment history
to a consumer reporting agency, and an
insurance provider could, to the extent
permitted by applicable law, obtaining
borrower information it deems relevant
65 Notably, as discussed further below, the risk of
double-billing when a servicer is paying toward a
policy that was currently in place is markedly
different than the risk presented by a requirement
that a servicer obtain or renew a previously
cancelled policy, which would exist if a servicer
were required to disburse funds to obtain a policy
for a borrower that does not have an escrow
account.
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10715
to underwriting insurance, including a
consumer report. In addition, if insurers
are harmed by insuring borrowers who
are delinquent on their mortgage loans,
they face that same harm already for
borrowers that do not have escrow
accounts and pay hazard insurance
premiums directly to their insurers.
Section 1024.17(k)(5) does not present a
different category of risk in that regard.
With respect to one commenter’s
request that the Bureau issue a form for
lenders and servicers to provide to
insurance providers stating that a
servicer is paying some identified
portion of a borrower’s insurance
premium due to a deficiency in the
borrower’s escrow account, the Bureau
declines. To the extent applicable law
permits a lender or servicer to
communicate such information to an
insurance provider, the lender or
servicer should not need the Bureau to
develop a form for the communication.
Finally, the Bureau believes that
special treatment is warranted with
respect to ‘‘small servicers’’ as defined
in § 1026.41(e)(4). As explained in the
section by section discussion of
§ 1024.30(b) and in the 2013 TILA
Servicing Final Rule, the Bureau has
identified a class of servicers, referred to
as ‘‘small servicers’’ and defined by the
combination of the number of loans they
service and the servicer’s relationship to
those loans that sets those servicers
apart. With respect to the requirements
set forth in § 1024.17(k)(5), outreach
with small servicers indicates that small
servicers’ practices with respect to
obtaining force-placed insurance tend to
be less costly to borrowers than those
utilized by larger servicers. For
example, the Bureau understands that
small servicers often obtain force-placed
insurance in the form of collateral
protection policies. The charges passed
through to borrowers for such coverage,
if any, may be less expensive than the
costs of either maintaining a borrower’s
hazard insurance coverage or
purchasing an individual force-placed
insurance policy. At the same time,
requiring such servicers to continue the
borrower’s hazard insurance in force,
which may require advancing funds to
the borrower’s escrow, could cause
these servicers to incur incremental
expenses which, because of their size,
would be burdensome for them. Because
of this difference in practices, the
Bureau believes it is appropriate to
reduce the restrictions applicable to
small servicers with respect to
borrowers that have escrow accounts.
Accordingly, the Bureau has exempted
small servicers from the restriction in
§ 1024.17(k)(5)(i) and
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1024.17(k)(5)(ii)(B), so long any forceplaced insurance that is purchased by
the small servicer is less costly to a
borrower than the amount that would be
required to be disbursed to maintain the
borrower’s hazard insurance coverage.
The Bureau believes this partial
exemption sets an appropriate balance
of effectuating consumer protections for
borrowers with escrow accounts and
considerations that may be unique to
small servicers.
After consideration of the comments
received, the Bureau has also
determined not to require servicers to
continue hazard insurance policies and
advance premium payments for
borrowers who have not escrowed for
hazard insurance. The Bureau
understands the concern of the
consumer groups that commented, but
the Bureau is persuaded that it would
generally be impracticable for servicers
to renew the hazard insurance coverage
obtained by a non-escrowed borrower
without creating a significant risk of
double-billing and/or a gap in coverage.
For example, although the Bureau does
not find concerns about double-billing
of borrowers persuasive with respect to
situations in which insurance coverage
is being paid via disbursement from an
escrow account, the Bureau is
concerned that a substantially different
situation results where the borrower is
making direct payments and a policy is
allowed to lapse due to non-payment. In
those cases, it is far more likely that a
consumer may have switched insurance
providers without notifying the servicer,
and requiring a servicer to obtain a new
policy (or to reinstate a previously
cancelled policy) may result in borrower
harm through the purchase of
duplicative insurance and doublebilling of a borrower. Further, when a
borrower does not have an escrow
account, the servicer may not have
notice before a policy lapses, and no
ability to maintain the policy in
continuous force. Were the Bureau to
impose a duty on the servicer to pay for
hazard insurance in such circumstance,
such a duty would not necessarily be to
maintain a current policy in force.
Rather, the duty could well be to
reinstate a lapsed policy or to obtain a
new policy on behalf of the borrower to
replace the cancelled policy. Requiring
a servicer to obtain a new insurance
policy on behalf of a borrower that did
not have an escrow account to pay for
hazard insurance may be burdensome
and complex, and may not be justified.
Accordingly, the Bureau declines at this
time to impose requirements to obtain
insurance for borrowers that do not have
escrow accounts but will continue to
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monitor the impact of the requirements
set forth in § 1024.37 with respect to
force-placed insurance for any such
borrowers.
Two consumer groups submitted joint
comments urging the Bureau to amend
current § 1024.17(k)(1) so that a servicer
would be required to make timely
disbursements with respect to any
escrowed charge, not just hazard
insurance, so long as the borrower’s
escrow account contained sufficient
funds to do so. These consumer groups
asserted that there is no reason to
maintain the limitation for
disbursements to borrowers that are less
than 30 days overdue with respect to
escrow obligations other than hazard
insurance. For example, the commenters
stated that the failure of a servicer to
pay tax obligations in a timely manner
would harm a borrower, and suggested
that finalizing § 1024.17(k)(5) in
isolation could cause borrower
confusion because borrowers may not
understand that the rule applies only to
hazard insurance.
The Bureau understands the
commenters’ concern with respect to the
impact on borrowers if an escrowed
charge is not paid, but declines to
amend § 1024.17(k)(1) as part of this
rulemaking. Section 1024.17(k)(5), as
adopted, is only a restriction on
servicers’ ability to obtain force-placed
insurance. If a servicer will not be
purchasing force-placed insurance, the
servicer is not subject to the provisions
of § 1024.17(k)(5). For example, a
servicer that does not require a borrower
to maintain insurance is not required to
disburse funds to maintain the
borrower’s hazard insurance coverage
other than as required pursuant to
§ 1024.17(k)(1). Because the Bureau is
not imposing a blanket obligation to
advance funds to escrow to pay hazard
insurance premiums, the Bureau does
not believe that it would be appropriate
to impose such an obligation with
respect to other payments to be made
from escrow. Accordingly, the Bureau
declines to amend § 1024.17(k)(1) as
suggested.
Finally, as discussed above, the
Bureau requested comments on an
alternative approach to § 1024.17(k)(5),
which would have added language to
§ 1024.37 to provide that if a borrower
has an escrow account established for
hazard insurance, a servicer could not
charge the borrower for force-placed
insurance unless the force-placed
insurance obtained by a servicer was
less expensive to the borrower, for
comparable coverage, than would be the
servicer’s advancing funds to continue
the borrower’s hazard insurance policy.
The Bureau further requested comments
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on whether § 1024.37 should
additionally require that force-placed
insurance purchased by a servicer under
these circumstances protect a borrower’s
interests.
One large force-placed insurance
provider asserted that the proposed
alternative is neither necessary or
realistic because proposed
§ 1024.17(k)(5) reflects general industry
practice and because the cost of forceplaced insurance is invariably more
expensive to the borrower than the
servicer advancing funds to continue a
borrower’s hazard insurance policy. On
the other hand, another large forceplaced insurance provider and a
national trade association expressed a
preference for the alternative compared
to proposed § 1024.17(k)(5). These
commenters preferred, however, that the
alternative be placed in § 1024.17(k),
and not in § 1024.37, because they
believed that this alternative should
only limit a servicer’s force-placement
of insurance in situations where an
escrowed borrower’s hazard insurance
was canceled due to a servicer’s failure
to disburse funds to maintain a
borrower’s hazard insurance.
Commenters further expressed a variety
of views concerning how the scope of
comparable coverage would be
determined. While industry commenters
acknowledged that the industry
standard is to obtain force-placed
coverage equal to the replacement cost
of the property, two national trade
associations and a large force-placed
insurance provider argued that servicers
must be given flexibility to determine
coverage levels. In contrast, another
large force-placed insurance provider
suggested that the Bureau should
require coverage at replacement cost
value.
After consideration of the comments
received on the alternative, the Bureau
believes that the alternative proposal’s
requirement regarding comparable
coverage would add unnecessary
complexity to the regulation. Whether a
borrower may or may not benefit from
any particular coverage level is
dependent on the individual
circumstances of the borrower. Further,
differences between coverage provided
for homeowners’ insurance and forceplaced insurance make a comparability
determination and complex and
difficult process. The Bureau declines to
adopt the alternative proposal with
respect to obtaining comparable
coverage.
Section 1024.17(k)(5), as adopted,
however, is informed by the alternative
and the comments received in response
to the alternative. The Bureau has
adjusted the requirement in
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§ 1024.17(k)(5), consistent with the
alternative, to reflect that a servicer’s
ability to disburse funds to maintain
hazard insurance coverage serves as a
restriction on the servicer’s purchasing
force-placed insurance coverage. Thus, a
servicer is not required in all instances
to disburse funds to maintain hazard
insurance coverage for borrowers that
are more than 30 days overdue; instead,
a servicer may not obtain force-placed
insurance coverage unless the servicer is
unable to disburse funds from the
borrower’s escrow account pursuant to
§ 1024.17(k)(5). Further, the exemption
for small servicers in § 1024.17(k)(5)(iii)
provides that a small servicer may
obtain force-placed insurance, even if
the small servicer is not unable to
disburse funds from a borrower’s escrow
account, so long as the cost to the
borrower is less than the amount the
small servicer would need to disburse to
maintain the borrower’s hazard
insurance, without consideration of the
specific policy coverage provisions.
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17(l) System of Recordkeeping
The Bureau proposed to remove
current § 1024.17(l), which generally
requires that a servicer maintain for five
years records regarding the payment of
amounts into and from an escrow
account and escrow account statements
provided to borrowers. Current
§ 1024.17(l) further provides that the
Bureau may request information
contained in the servicer’s records for
an escrow account and that a servicer’s
failure to provide such information may
be deemed to be evidence of the
servicer’s failure to comply with its
obligations with respect to providing
escrow account statements to borrowers.
As discussed in the proposal, the
Bureau believed that the obligations set
forth in current § 1024.17(l) would no
longer be warranted in light of the
information management policies,
procedures, and requirements that the
Bureau proposed to impose under
proposed § 1024.38 and the
substantially different authorities
available to the Bureau with regard to
requesting information from entities
subject to § 1024.17. No comments were
received on the removal of current
§ 1024.17(l). Accordingly, the Bureau is
removing § 1024.17(l) as proposed.
Section 1024.18 Validity of contracts
and liens
The Bureau is removing current
§ 1024.18. Current § 1024.18 states that
‘‘Section 17 of RESPA (12 U.S.C. 2615)
governs the validity of contracts and
liens under RESPA.’’ 12 U.S.C. 2615
states ‘‘Nothing in this Act shall affect
the validity or enforceability of any sale
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or contract for the sale of real property
or any loan, loan agreement, mortgage,
or lien made or arising in connection
with a federally related mortgage loan.’’
The Bureau believes that RESPA clearly
delineates the validity and
enforceability of contracts and liens and
that § 1024.18 is an unnecessary
restatement of the provisions of RESPA.
Accordingly, in order to streamline the
regulations, the Bureau is removing
current § 1024.18.66
Section 1024.19 Enforcement
Similarly, the Bureau is removing
§ 1024.19. The first sentence of
§ 1024.19(a) states ‘‘[i]t is the policy of
the Bureau regarding RESPA
enforcement matters to cooperate with
Federal, state, or local agencies having
supervisory powers over lenders or
other persons with responsibilities
under RESPA.’’ The Bureau believes
this statement, which reflects the
Bureau’s general policy to cooperate
with counterpart agencies, is
unnecessary. The second sentence of
§ 1024.19(a) states ‘‘Federal agencies
with supervisory powers over lenders
may use their powers to require
compliance with RESPA.’’ Again, the
Bureau believes this general statement
of the supervisory authority of other
federal agencies, which neither conveys
authority nor creates limits or
restrictions with respect to such
authority, is unnecessary in Regulation
X. Further, the third sentence of
§ 1024.19(a) states ‘‘[i]n addition, failure
to comply with RESPA may be grounds
for administrative action by HUD under
HUD regulation 2 CFR part 2424
concerning debarment, suspension,
ineligibility of contractors and grantees,
or under HUD regulation 24 CFR part 25
concerning the HUD Mortgagee Review
Board.’’ Here the Bureau believes that
the applicable regulations issued by
HUD are controlling and whether
RESPA may serve as grounds for any
such enumerated action is based on
those HUD regulations. Accordingly, the
Bureau believes this provision, which
repeats the scope of HUD regulations, is
unnecessary. Section 1024.19(a) states
that ‘‘[n]othing in this paragraph is a
limitation on any other form of
enforcement that may be legally
available.’’ Because the Bureau believes
the other provisions of § 1024.19(a) are
unnecessary, this remaining sentence is
66 Although the Bureau did not propose to remove
§ 1024.18, the Bureau finds there is good cause to
finalize this aspect of the rule without notice and
comment. Because § 1024.18 simply restates,
verbatim, existing statutory text, its removal will
have no impact on, or significance for, any person;
notice and comment therefore would be
unnecessary.
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no longer necessary. Finally,
§ 1024.19(b) states that the Bureau’s
procedures for investigations and
investigational proceedings are set forth
in 12 CFR part 1080. A cross-reference
to the location of the Bureau’s
regulations regarding investigations and
investigational proceedings in
Regulation X is unnecessary.
Accordingly, § 1024.19 is removed in its
entirety.67
Subpart C—Mortgage Servicing
Section 6 of RESPA sets forth a
number of protections for borrowers
with respect to the servicing of federally
related mortgage loans that are currently
implemented through Regulation X in
current § 1024.21. Section 1463 of the
Dodd-Frank Act amended section 6 of
RESPA by adding new section 6(k)
through (m) to establish new obligations
on servicers for federally related
mortgage loans with respect to the
purchase of force-placed insurance and
responses to borrowers’ requests to
correct errors, among other things.68
The Bureau observes that section 6(k)
also establishes the Bureau’s authority
to create obligations the Bureau finds
appropriate to carry out the consumer
protection purposes of RESPA.
Section 1463 of the Dodd-Frank Act
also amended existing provisions in
section 6 of RESPA with respect to a
servicer’s obligation to respond to
qualified written requests, a servicer’s
administration of an escrow account.
Section 1463 also increased the dollar
amounts for damages for which a
servicer may be liable for violations of
section 6 of RESPA.
In order to implement the
amendments the Dodd-Frank Act added
to RESPA in a consistent and clear
manner, the Bureau proposed to
reorganize Regulation X to combine
current Regulation X provisions relating
to mortgage servicing in existing
§ 1024.21 with new mortgage servicing
provisions the Bureau proposed to
implement Dodd-Frank Act’s
amendment of section 6 of RESPA in a
newly created subpart C. As discussed
above, no comments were received on
the proposed reorganization of
Regulation X into three subparts and the
Bureau is adopting subpart C as
67 As with § 1024.18, the Bureau finds there is
good cause to remove § 1024.19 without notice and
comment. As the foregoing discussion
demonstrates, § 1024.19 has no impact on, or
significance for, any person; notice and comment
therefore would be unnecessary.
68 Section 1463 uses the term ‘‘federally related
mortgage’’ but it amends and expands section 6 of
RESPA that uses the term ‘‘federally related
mortgage loan.’’ Accordingly, the Bureau interprets
the ‘‘federally related mortgage’’ and ‘‘federally
related mortgage loan’’ to be the same.
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proposed as a separate subpart in
Regulation X.
Section 1024.21 Mortgage Servicing
Transfers
To incorporate mortgage servicingrelated provisions within subpart C, the
proposed rule would have removed
§ 1024.21 and would implement the
provisions of § 1024.21, subject to
proposed changes as discussed below,
in proposed §§ 1024.31–1024.34 within
subpart C. No comments were received
on the removal of § 1024.21 and its
incorporation within subpart C. The
final rule adopts the removal of
§ 1024.21 as proposed and implements
the provisions of § 1024.21, subject to
changes adopted as discussed below, in
§§ 1024.31–1024.34 within subpart C.
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Section 1024.22 Severability
Current § 1024.22 states that if any
particular provision of Regulation X, or
its application to any particular person
or circumstance is held invalid, the
remainder of Regulation X or the
application of such provision to any
other person or circumstance shall not
be affected. The Bureau proposed
removing current § 1024.22 because the
Bureau believes the section may create
unnecessary inconsistency with respect
to other Bureau regulations that do not
contain corresponding provisions. By
removing § 1024.22, the Bureau is not
suggesting that the severability of
Regulation X is changing or that the
Bureau intends the new provisions to be
non-severable. The Bureau intends that
the provisions of Regulation X are
severable and believes that if any
particular provision of Regulation X, or
its application to any particular person
or circumstance is held invalid, the
remainder of Regulation X or the
application of such provision to any
other provision or circumstance should
not be affected. The Bureau’s proposal
to remove current § 1024.22 should not
be construed to indicate a contrary
position. The Bureau did not receive
comments on the proposed removal of
current § 1024.22, and accordingly, is
adopting the removal of current
§ 1024.22 as proposed.
Section 1024.23 E-Sign Applicability
Current § 1024.23 states that
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) permitting electronic
disclosures to consumers if certain
conditions are met apply to Regulation
X. For reasons discussed above in the
section-by-section analysis of § 1024.3,
the Bureau has concluded that the ESign Act provisions are applicable to all
provisions in Regulation X.
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Accordingly, the Bureau decided that
the best place for this language was in
§ 1024.3. Having received no comments
on the removal of § 1024.3 or the
placing of the E-Sign Act provisions in
§ 1024.3, the Bureau, as discussed
above, is removing current § 1024.23
from Regulation X.
Section 1024.30 Scope
The proposal would have defined the
scope of subpart C as any mortgage loan,
as that term is defined in § 1024.31. A
‘‘mortgage loan,’’ as proposed would be
any federally related mortgage loan, as
defined in § 1024.2, except for open-end
loans (home equity plans) and except
for loans exempt from RESPA and
Regulation X pursuant to § 1024.5(b).
The Bureau received a significant
number of comments relating to the
scope of the mortgage servicing rules.
Small servicer exemption. In the 2012
TILA Servicing Proposal, the Bureau
proposed an exemption to the periodic
statement requirement for small
servicers, defined in the 2012 TILA
Servicing Proposal as servicers that
service 1,000 mortgage loans or fewer
and only servicer mortgage loan that the
servicer or an affiliate owns or
originated. The Bureau requested
comment in the 2012 TILA Servicing
Proposal regarding that exemption and,
in the 2012 RESPA Servicing Proposal,
further requested comment regarding
whether the Bureau should implement a
small servicer exemption for any
mortgage servicing requirements
proposed in Regulation X.
The Bureau received three comment
letters from consumer advocacy groups
with respect to a small servicer
exemption from certain requirements in
Regulation X. One comment from three
consumer advocacy groups indicated
that small servicers should be exempt
from the loss mitigation procedures
requirements in § 1024.41 on the basis
that these servicers already have an
interest in mitigating any losses that
might result from proceeding with
foreclosure. Two other consumer
advocacy groups, however, stated their
view that if a servicer cannot afford to
implement the required protections, the
servicer should not be permitted to
service mortgage loans. Further, a large
bank joined in opposing an exemption
for small servicers on the basis that such
an exemption does not implement
consumer protections for customers of
small servicers and creates artificial
distinctions that provide a competitive
advantage to small servicers.
The Bureau also received a significant
number of comments from small banks,
credit unions, and non-bank servicers,
as well as their trade associations, that
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requested that the Bureau consider an
exemption for small servicers from the
mortgage servicing rules, including the
discretionary rulemakings. The Bureau
also received a comment letter from
Advocacy urging the implementation of
a small servicer exemption for
requirements in Regulation X.
Many of the small banks, credit
unions, and non-bank servicers that
provided comments stated that their
business models necessarily facilitate
communication with delinquent
borrowers. Per the comments, such
servicers have an incentive to work with
borrowers to avoid losses because
typically, for small servicers, either the
mortgage loan is owned by the servicer
(or an affiliate) or the servicer has a
customer relationship with the borrower
to consider. Community banks, credit
unions, and Advocacy further stated
that the servicing market should not be
considered simplistically; small
servicers have substantially different
business practices than larger servicers,
including with respect to considering
borrowers for loss mitigation or
managing force-placed insurance.
Further, such servicers have not been
shown to have engaged in the servicing
failures that contributed to the financial
crisis, including poor oversight of thirdparty providers, lost documents and
other process failures relating to loss
mitigation evaluations, or wrongful
filing of foreclosure documents that
contain false information or fail to
comply with applicable law.
Comments from small banks, credit
unions, non-bank servicers, and their
trade associations, suggested various
means for defining a small servicer.
Most industry commenters indicated
that the proposed 1,000 mortgage loan
threshold was inadequate because it
would capture only the smallest
servicers in the market. One trade
association commenter stated that a
1,000-mortgage-loan threshold would
cover only single-employee servicing
operations. Most commenters indicated
that the small servicer exemption
threshold should be raised to between
5,000 and 15,000 mortgage loans. One
commenter indicated that a small
servicer threshold should be based on a
delinquency percentage or foreclosure
filing threshold, while a large
community bank servicer stated that a
small servicer exemption should
include all but the top five servicers by
market share.
Small servicers indicated several
components of the rulemaking that
would have particularly problematic
impacts on small servicers. For
example, many small servicers and their
trade associations raised concerns
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regarding the appeal process set forth in
§ 1024.41(h). Small servicers stated that
required independent reviews for the
appeal process would be difficult to
implement because the size of a small
servicer necessarily constrains the
number of knowledgeable servicing
personnel that would be able to conduct
the independent review. Per the
commenters, the resulting review would
be without value because the
independent review would be
conducted by employees less familiar
with, or skilled in, evaluating borrowers
for loss mitigation options. Small
servicers also indicated they would be
burdened by implementing new notice
requirements, including those set forth
in § 1024.39 and § 1024.41, which,
commenters believed, would only serve
to require communications that are
already occurring, but would impose the
cost of requirements to track
communications and demonstrate
compliance to appropriate regulators.
In addition to the comments, the
Bureau reviewed the input gained
through outreach with small servicers
during the Small Business Review Panel
process. As discussed throughout, in
order to gain feedback on small servicer
impacts, the Bureau participated in a
Small Business Review Panel and
conducted outreach with small entities
that would be subject to the regulations.
The Bureau solicited feedback from the
small entities participating in the Small
Business Review Panel on many
elements of the loss mitigation process
in conjunction with other elements of
the servicing proposals, including
impacts on loss mitigation processes of
small servicers from proposed rules
relating to error resolution, reasonable
information management policies and
procedures, early intervention for
troubled or delinquent borrowers, and
continuity of contact. In particular, the
Bureau requested feedback from small
servicers on the following: (1) A duty to
suspend a foreclosure sale while a
borrower is performing as agreed under
a loss mitigation option or other
alternative to foreclosure; (2) the ability
to adopt policies and procedures to
facilitate review of borrowers for loss
mitigation options; (3) the ability to
provide information regarding loss
mitigation early in the foreclosure
process to borrowers; and (4) the ability
to provide borrowers with the
opportunity to discuss evaluations for
loss mitigation options with designated
servicer contact personnel.69
69 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, appendix C at 19, 22, 24–26
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The small entities generally informed
the Small Business Review Panel that
they engaged in individualized contact
with borrowers early in the foreclosure
process, that some servicers completed
discussions of loss mitigation options
with borrowers prior to a point in time
when borrowers should receive
significant foreclosure-related
information, and that small servicers
generally worked closely with
foreclosure counsel such that
foreclosure processes and loss
mitigation could be easily conducted
simultaneously without prejudice to the
loss mitigation process. Further, the
small entities explained that they were
willing to communicate with borrowers
about loss mitigation
contemporaneously with the foreclosure
process, and one small entity indicated
that it would be willing to halt the
foreclosure process, if appropriate, in
order to consider a modification.70
The Bureau carefully considered the
comments regarding requested
exemptions for small servicers,
including the comments received from
Advocacy. In addition, the Bureau
carefully considered the specific aspects
of the rule that community banks, small
credit unions, and other small servicers
indicated would potentially impact
those institutions most significantly.
The analysis conducted by the Bureau is
set forth below, as well as in the
analyses required pursuant to section
1022 of the Dodd-Frank Act and the
Regulatory Flexibility Act.
In general, the Bureau is persuaded
based on its experience, outreach, and
the submission of the comments that the
problematic practices that have plagued
the servicing industry, particularly in
recent years, are to a large extent a
function of a business model in which
servicing is viewed as a discrete line of
business and profit center, and in which
servicers compete to secure business
from owners or assignees of mortgage
loans based upon price. As discussed in
greater detail in part II, such a model
leads to a high volume, low margin
business, in which servicers are not
incentivized to invest in operations
necessary to handle large numbers of
delinquent borrowers. The significant
weight of evidence of servicer failures of
which the Bureau is aware involved
large servicers following such a business
model.
(Jun, 11, 2012), available at http://
files.consumerfinance.gov/f/
201208_cfpb_SBREFA_Report.pdf.
70 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, 26 (Jun, 11, 2012).
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In contrast, there is a segment of
servicers who service a relatively small
number of mortgage loans and do not
purchase or hold mortgage servicing
rights for mortgage loans they do not
own or did not originate. Many
community bank and small credit union
servicers fit this model. For example,
the Bureau estimates that 10,829 banks,
thrifts, and credit unions service 5,000
or fewer loans. Of these, approximately
96 percent have assets of $1 billion or
less, which is the traditional threshold
for denoting a community bank. The
Bureau is not aware of evidence
indicating the performance of these
types of institutions in servicing the
mortgage loans they originate or own
generally results in substantial
consumer harm. To the contrary, data
available to the Bureau indicates that
such servicers achieve significantly
reduced levels of borrowers rolling into
90 or more days of delinquency or
having a mortgage loan charged-off
when compared to the average for all
banks. For example, in 2011, the 90+
delinquency rate for community banks
was 0.27 percent compared with over 6
percent for all banks. Further, the net
charge-off rate for community banks was
0.66 percent against 1.31 percent for all
banks. Community bank performance
with respect to levels of delinquencies
and charge-offs has also remained
relatively stable through the financial
crisis. From 2007 through 2011, the 90+
delinquency rate fluctuated between
0.27 percent in 2007 to a high of only
0.31 percent in 2009. The equivalent
metric for all banks showed the 90+
delinquency rate at 0.80 percent rising
rapidly to a high of 6.29 percent in
2011.
The reasons for this performance may
lay in the fact that small servicers have
very different incentives than large
servicers. Servicers that service 5,000 or
fewer mortgage loans and only service
mortgage loans that the servicer or an
affiliate owns or originated generally
must be conscientious of the impact of
servicing operations on the borrower.
Any such servicer has an interest in
maintaining a relationship with
borrower as a customer of the bank or
thrift or member of the credit union to
provide other banking services. Further,
such servicers must be conscientious of
reputational consequences within a
community or member base. Further, to
the extent a servicer or an affiliate owns
a mortgage loan, the servicer bears risk
from the borrower’s potential
delinquency and default on the
mortgage loan obligation and does not
have an incentive to engage in practices
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that may put the performance of the
mortgage loan obligation at risk.
All of these considerations, as well as
the performance data discussed above,
persuades the Bureau that the small
servicers are generally achieving the
goals of the discretionary rulemakings to
protect delinquent borrowers. The
Bureau recognizes, however, that these
small servicers may be achieving these
ends through procedures that differ
from those mandated in § 1024.39 and
§ 1024.41, with respect to early
intervention and loss mitigation
procedures, and that while the practice
of these small servicers are, in the main,
achieving the objectives delineated in
§ 104.38 and § 1024.40, with respect to
general servicing policies, procedures,
and requirements and continuity of
contact, these servicers may not have
systems in place to document how they
are achieving these results. Thus, the
Bureau believes that subjecting the
small servicers to these provisions
would impose costs that they could find
difficult to absorb.
In sum, the Bureau is not persuaded
at this time that the consumer
protection purposes of RESPA
necessarily would be furthered by
requiring small servicers to comply with
the discretionary rulemakings.
Accordingly, a small servicer as
defined pursuant to 12 CFR
1026.41(e)(4), that is, a servicer that
services 5,000 mortgage loans or less
and only services mortgage loans that
the servicer or an affiliate owns or
originated, is exempt from the
requirements of § 1024.38 through 41,
with two exceptions.71 First,
§ 1024.41(f) prohibits servicers from
making the first notice or filing required
by applicable law for any judicial or
non-judicial foreclosure process unless
a borrower’s mortgage loan obligation is
greater than 120 days delinquent.
Second, § 1024.41(g) prohibits a servicer
from, among other things, proceeding
with a foreclosure sale if the borrower
is performing under an agreement on a
loss mitigation option. The Bureau
deems it highly unlikely, given the
considerations discussed above, that a
small servicer would initiate a
foreclosure with respect to a borrower
who is less than 120 days delinquent to
conclude a foreclosure sale if a borrower
was performing under a loss mitigation
71 The 5,000-loan threshold reflects the purposes
of the exemptions that the rule establishes for these
servicers and the structure of the mortgage servicing
industry. The Bureau’s choice of 5,000 in loans
serviced for purposes of Regulation X does not
imply that a threshold of that type or of that
magnitude would be an appropriate way to
distinguish small firms for other purposes or in
other industries.
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agreement. Nonetheless, the Bureau
does not see any reason why these basic
protections should not be extended to
all borrowers or why subjecting small
servicers to these prohibitions would
create any burden for them.
Accordingly, § 1024.41(j) extends these
two rules to small servicers. The
analysis pursuant to section 1022 of the
Dodd-Frank Act, set forth in part VII
below, and the final regulatory
flexibility analysis, set forth in part VIII
below, provide significant additional
discussion regarding the assumptions
used in determining an appropriate
small servicer exemption threshold of
5,000 mortgage loans.
The Bureau received comments from
a nonprofit lender/servicer indicating
that the mortgage servicing rules would
be costly and difficult to implement, in
light of the commenter’s nonprofit
mission and volunteer workforce. The
commenter indicated that the Bureau
should carry over the small servicer
exemption proposed with respect to the
periodic statement requirement in
Regulation Z to the Regulation X
requirements and should also
implement a narrow exemption for
nonprofit servicers. Although the
Bureau declines to exempt nonprofit
servicers separately, the Bureau believes
that such servicers will likely fall within
the small servicer exemption
established by the Bureau.72 To the
extent a nonprofit servicer services more
than 5,000 mortgage loans or services
mortgage loans that the servicer or an
affiliate does not own or did not
originate, then the Bureau believes any
such servicer should be required to
provide appropriate consumer
protection by implementing the loss
mitigation procedures, notwithstanding
the non-profit status of the servicer.
Other exemptions. In addition to
requests for a small servicer exemption,
the Bureau received comments that it
should implement exemptions for
housing finance agencies, reverse
mortgage transactions, and servicers that
are qualified lenders as defined in
regulations established by the Farm
Credit Administration. Housing finance
agencies and their associations
commented that the mission orientation
of these agencies weighs in favor of
exempting such agencies from certain of
the proposed mortgage servicing rules.
A comment from one such agency with
respect to the Homeowners’ Emergency
Mortgage Assistance Program is
72 The nonprofit lenders/servicer did not object to
the proposed 1,000-loan threshold; the Bureau
infers that this nonprofit lender/servicer would
qualify as a small servicer under that threshold,
much less the 5,000-loan threshold that the Bureau
has implemented pursuant to § 1024.30.
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instructive. That program assists a
borrower experiencing hardship by
extending a loan, secured by a
subordinate lien on a borrower’s
property, to bring a borrower’s first-lien
mortgage loan current and, for certain
borrowers, to provide continuing
assistance. Absent an exemption, the
servicing of the subordinate-lien
mortgage loan that secures such
assistance would be subject to mortgage
servicing rules relating to loss
mitigation, notwithstanding that the
loan itself is a form of loss mitigation.
In addition, the Bureau received
comments from housing finance
agencies indicating that the costs of
certain of the rulemakings may be
burdensome for housing finance
agencies.
The Bureau also received comments
from a trade association for reverse
mortgage lenders and servicers. The
commenter stated that many of the
rulemakings, including the
discretionary rulemakings, are not
appropriate for reverse mortgage
transactions. For example, loss
mitigation requirements in the proposed
rule were based on days of delinquency,
which is an imprecise and difficult
concept with respect to a reverse
mortgage transaction because of the
structure of the transaction. Further, the
vast majority of reverse mortgage
transactions are subject to regulations
implemented by FHA in connection
with the Home Equity Conversion
Mortgage Program.
The Bureau received comments from
lenders subject to regulations
established by the Farm Credit
Administration with respect to loss
mitigation. These entities requested
exemptions for mortgage loans for
which a servicer is required to comply
with Farm Credit Administration
requirements on loss mitigation because
those requirements differ markedly from
those proposed by the Bureau.
The Bureau agrees that additional
exemptions are appropriate for certain
of the rulemakings. As discussed in
more detail below, the Bureau has
determined not to implement these
additional exemptions to those
regulations that principally implement
requirements set forth in the DoddFrank Act. These include the
requirements in §§ 1024.35 (Error
Resolution Procedures), 1024.36
(Information Requests), and 1024.37
(Force-Placed Insurance). With respect
to error resolution procedures and
information requests, those provisions
build upon the existing Qualified
Written Request procedures, which are
currently applicable to the servicers
discussed above. Providing an
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exemption to these requirements would
have removed a currently existing
consumer protection.
The Bureau is persuaded that
imposing the requirements in the
discretionary rulemakings on housing
finance agencies does not further the
goals of those requirements and imposes
undue costs on housing finance
agencies. Such agencies are engaged in
programs that assist mortgage loan
borrowers facing hardship under the
auspices of state or local governments.
The Bureau believes the mission of
these agencies, as articulated by the
agencies and their associations, clearly
demonstrates that the interests of such
agencies are aligned with those of
borrowers, so that imposing the
discretionary rulemakings on such
agencies would not further the
consumer protection purposes of
RESPA. Accordingly, the Bureau
exempts housing finance agencies from
the requirements of §§ 1024.38 through
1024.41 as well as the principal
restrictions of § 1024.17(k)(5). To
effectuate this exemption, the Bureau
simply uses the term ‘‘small servicer,’’
because Regulation Z, as amended by
the 2013 TILA Servicing Rule, defines a
housing finance agency as a small
servicer without regard to the number of
mortgage loans serviced by a housing
finance agency.
The Bureau also is persuaded that the
discretionary rulemakings are not
appropriate for reverse mortgage
transactions. For example, many of the
timing requirements in § 1024.41 relate
to the length of a borrower’s
delinquency, which is a concept that
does not apply cleanly with respect to
reverse mortgage transactions. Further,
the vast majority of reverse mortgage
transactions are subject to regulation by
FHA pursuant to the Home Equity
Conversion Mortgage program. These
regulations provide many protections
for borrowers that are appropriate for
the specific circumstances of a reverse
mortgage transaction. The Bureau
continues to consider appropriate
requirements for reverse mortgage
transactions separately from the
mortgage servicing rulemakings.
Similarly, the Bureau finds that
‘‘qualified lenders’’ subject to Farm
Credit Administration regulation of
their loss mitigation practices should be
exempt from compliance with
§§ 1024.38–41. The Bureau agrees with
the commenters that the Farm Credit
Administrations’ regulations in this area
offer consumer protections comparable
to those in the mortgage servicing rules
and subjecting such institutions to the
new rules would subject such servicers
to overlapping, and potentially
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inconsistent, regulatory requirements.
Accordingly, the Bureau has determined
to exempt a servicer with respect to any
mortgage loan for which the servicer is
a qualified lender as that term is defined
in 12 CFR 617.7000 from the
requirements of §§ 1024.38 through 41.
Finally, the Bureau has determined to
revise the scope of certain sections.
Section 1024.30(c) implements two
limitations on the scope of subpart C.
First, § 1024.33(a) is only applicable to
mortgage loans that are secured by first
liens. This limitation excludes from
coverage subordinate-lien mortgage
loans. Section 1024.33(a) is based on the
existing § 1024.21, renumbered in
accordance with the reorganization of
Regulation X, and § 1024.21 is already
limited to first-lien mortgage loans.
When the TILA–RESPA Integrated
Disclosure rulemaking is finalized, the
Bureau anticipates that rule will alter
the requirements for servicers to comply
with § 1024.33(a). Accordingly, the
Bureau does not believe it is beneficial
to require servicers to begin
implementing the requirements of
§ 1024.33(a) for subordinate-lien
mortgage loans, only to have to adjust
compliance with § 1024.33(a) upon
finalization of the TILA–RESPA
Integrated Disclosure rulemaking.
Accordingly, the Bureau is not making
a change to the scope of § 1024.33(a)
and retains the limitation on the scope
of that requirement to mortgage loans
that are secured by a first lien.
The Bureau proposed to maintain the
exclusion for open-end lines of credit
(home-equity plans) covered by TILA
and Regulation Z, including open-end
lines of credit secured by a first lien,
from the mortgage servicing
requirements in subpart C of Regulation
X. Open-end lines of credit, which may
be federally related mortgage loans
when secured by a first or subordinate
lien on residential real property, have
been historically excluded from
regulations applicable to mortgage
servicing under Regulation X. See
current § 1024.21(a) (defining ‘‘mortgage
servicing loan’’). Further, open-end
lines of credit are already regulated
under Regulation Z. Certain provisions
of Regulation Z would substantially
overlap with the servicer obligations
that would be set forth in subpart C,
including, for example, billing error
resolution procedures. See 12 CFR
1026.13. The Bureau requested
comment regarding whether to maintain
an exemption for open-end lines of
credit for the requirements in subpart C.
To the extent industry commenters
responded to the Bureau’s request, they
supported the continued exclusion of
open-end lines of credit (home-equity
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10721
plans). Two consumer advocacy groups,
however, jointly commented that openend credit transactions secured by a
borrower’s principal residence should
be fully covered by RESPA. The two
commenters stated that consumer
protections for open-end lines of credit
(home equity plans) are less robust than
consumer protections for closed-end
credit, particularly in the area of
disclosures, error resolution,
information requests, and penalties for
violation. They expressed concerns that
the Bureau has failed to appreciate these
differences and the potential for
consumer harm when predatory lenders
exploit these differences. Additionally,
the commenters questioned the Bureau’s
authority to exempt open-end lines of
credit (home-equity plans) when the
statutory definition of the term
‘‘federally related mortgage loan’’ does
not include such an exemption.
The Bureau believes it is necessary
and appropriate at this time not to apply
the requirements in subpart C to openend credit (home equity lines). Openend lines of credit secured by a first or
subordinate lien on residential real
property can constitute a federally
related mortgage loans. As stated in the
proposal, home equity lines of credit
(HELOCs) tend to reflect better credit
quality than subordinate-lien closed-end
mortgage loans and share risk
characteristics more similar to other
open-end consumer financial products,
such as credit cards, because of the
access to additional unutilized credit
provided by a HELOC.73 The Bureau
understands from discussions with
servicers and industry representatives
that the servicing of HELOCs tends to
differ significantly from closed-end
mortgage loans, including with respect
to information systems used, lender
remedies (including restricting access to
the line of credit), and borrower
behavior. Further, the Bureau
understands that although a household
may finance a property solely with an
open-end line of credit, the proportion
that do so is very small.74
In addition, the protections proposed
in subpart C of Regulation X are not
necessary for open-end lines of credit.
As set forth above, separate error
resolution and information request
73 See Donghoon Lee et al., A New Look at Second
Liens, 3, 19 (Feb. 2012), available at http://
ssrn.com/abstract=2014570 (chapter in Housing
and the Financial Crisis, Edward Glaeser and Todd
Sinai, eds.)
74 See, e.g., Julapa Jagtiani and William W. Lang,
Strategic Default on First and Second Lien
Mortgages During The Financial Crisis, at n.5
(Federal Reserve Bank of Philadelphia, Working
Paper No. 11–3, Dec. 9, 2010), available at http://
papers.ssrn.com/sol3/
papers.cfm?abstract_id=1724947.
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requirements exist under Regulation Z
for open-end lines of credit. Further, the
Bureau understands from servicers of
open-end lines of credit that such
servicers typically do not maintain
escrow accounts for open-end lines of
credit, require borrowers to maintain
insurance for properties secured by
open-end lines of credit, or force-place
insurance for such borrowers. The
Bureau believes that it would
contravene the consumer protection
purposes of RESPA for servicers to
expend resources complying with
overlapping or unnecessary
requirements that would not benefit
consumers.
Further, open-end lines of credit
perform differently from closed-end
mortgages with respect to loss
mitigation. A borrower is in control of
an open-end line of credit and can draw
from that line as necessary to meet
financial obligations. Many borrowers
who have become delinquent on a first
lien closed-end mortgage loan keep
current on payments for subordinate
lien open-end lines of credit in order to
maintain their access to the line of
credit.75 Conversely, when borrowers
experience difficulty meeting their
obligations, lenders have the ability to
cut off access to unutilized draws from
the open-end line of credit. These
features of open-end lines of credit
weigh against imposing the
requirements set forth for early
intervention with delinquent borrowers,
continuity of contact, and loss
mitigation procedures on servicers for
open-end lines of credit. Further, openend lines of credit tend to differ from
closed-end mortgage loans with respect
to servicing information systems
utilized.
For the reasons set forth above, the
Bureau believes it is necessary and
appropriate to achieve the purposes of
RESPA to maintain the current
exemption, which HUD originally
adopted as 24 CFR 3500.21 nearly 20
years ago. Accordingly, this exemption
is authorized under section 19(a) of
RESPA.
In addition, § 1024.30(c)(2) limits the
scope of §§ 1024.39 through 41 to
mortgage loans that are secured by a
borrower’s principal residence. The
purpose of the early intervention
requirement, the continuity of contact
requirement, and the loss mitigation
procedures is to help borrowers stay in
their principal residences, where
possible, while mitigating the losses of
75 See, e.g., Julapa Jagtiani and William W. Lang,
Strategic Default on First and Second Lien
Mortgages During The Financial Crisis, at n.11
(Federal Reserve Bank of Philadelphia, Working
Paper No. 11–3, Dec. 9, 2010).
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loan owners and assignees, by ensuring
that servicers use clear standards of
review for loss mitigation options. The
Bureau does not believe that this
purpose is furthered by extending those
protections to mortgage loans for
investment, vacation, or other properties
that are not principal residences. For
example, in such circumstances, the
protections set forth in §§ 1024.39–41
may only serve to assist a nonoccupying borrower to maintain cash
flow from rental revenue during a
period of delinquency. Further, for
certain properties that are not principal
residences, there is a significant risk
that a property may not be maintained
and may present hazards and blight to
local communities. Thus, for investment
or vacation properties, the lack of
borrower occupancy, and the potential
rental income obtained by the borrower,
vitiates the justifications for ensuring
that a foreclosure process is not
undertaken unless the borrower has the
opportunity for review for a loss
mitigation option. Finally, this
limitation is consistent with the
California Homeowner Bill of Rights
and the National Mortgage Settlement,
and its incorporation here furthers the
goal of creating uniform standards.76
Accordingly, the Bureau has limited the
scope of §§ 1024.39 through 41 to
mortgage loans that are secured by
properties that are borrowers’ principal
residences.
Section 1024.31 Definitions
For purposes of subpart C, proposed
§ 1024.31 would have provided
definitions of the following terms:
‘‘Consumer reporting agency,’’ ‘‘Day,’’
‘‘Hazard insurance,’’ ‘‘Loss mitigation
application,’’ ‘‘Loss mitigation options,’’
‘‘Master servicer,’’ ‘‘Mortgage loan,’’
‘‘Qualified written request,’’ ‘‘Reverse
mortgage transaction,’’ ‘‘Subservicer,’’
‘‘Service provider,’’ ‘‘Transferee
servicer,’’ and ‘‘Transferor servicer.’’ For
the reasons set forth below, and except
as otherwise discussed, § 1024.31 is
adopted as proposed.
‘‘Consumer reporting agency’’; ‘‘Day’’;
‘‘Reverse mortgage transaction’’;
‘‘Master servicer’’; ‘‘Transferee
servicer’’; ‘‘Transferor servicer.’’ The
Bureau proposed to move the
definitions of ‘‘Master servicer,’’
‘‘Transferee servicer,’’ and ‘‘Transferor
servicer’’ from current § 1024.21(a) to
76 See Cal. Civ. Code § 2923.6; see also Attorneys
Gen. et al., National Mortgage Settlement: Consent
Agreement A–1 (2012), available at http://
www.nationalmortgagesettlement.com stating ‘‘[t]he
provisions outlined below are intended to apply to
loans secured by owner-occupied properties that
serve as the primary residence of the borrower
unless otherwise noted herein’’).
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proposed § 1024.31 without change. The
Bureau also proposed to add new
defined terms for ‘‘Reverse mortgage
transaction’’ and ‘‘Consumer reporting
agency,’’ in proposed § 1024.31 by
adopting the same definition for those
terms as is already provided in current
Regulation Z and section 503 of the Fair
Credit Reporting Act, 15 U.S.C. 1681a,
respectively. The Bureau proposed to
add a new defined term ‘‘Day’’ in
proposed § 1024.31. The Bureau
proposed to define ‘‘Day’’ to mean a
calendar day because the Bureau
believed that Congress intended that the
term ‘‘day’’ by itself includes legal
public holidays, Saturdays, and
Sundays for purposes of RESPA. No
comments were received on these
proposed defined terms. The final rule
adopts these terms as proposed.
‘‘Hazard insurance.’’ As discussed in
the section-by-section analyses
concerning §§ 1024.17(k)(5) and
1204.37, section 1463(a) of the DoddFrank Act amended section 6 of RESPA
to establish new servicer duties with
respect to the purchase of force-placed
insurance on a property securing a
federally related mortgage. The statute
generally defines ‘‘force-placed
insurance’’ as hazard insurance
coverage obtained by a servicer of a
federally related mortgage when the
borrower has failed to maintain or
renew hazard insurance on such
property as required of the borrower
under the terms of the mortgage.’’ See
section 6(k)(2). Thus, the statutory
definition of ‘‘force-placed insurance’’
indicates that Congress intended the
term ‘‘force-placed insurance’’ to mean
a type of ‘‘hazard insurance.’’ However,
neither the statute nor current
Regulation X defines ‘‘hazard
insurance.’’ The Bureau believed that it
was necessary to define ‘‘hazard
insurance’’ in order to implement the
statute.
The Bureau proposed to add new
defined term ‘‘Hazard insurance’’ in
proposed § 1024.31 to mean insurance
on the property securing a mortgage
loan that protects the property against
loss caused by fire, wind, flood,
earthquake, theft, falling objects,
freezing, and other similar hazards for
which the owner or assignee of such
loan requires insurance. The Bureau
modeled the definition of ‘‘hazard
insurance’’ on the definition of
‘‘property insurance’’ in typical
mortgage loan contracts, in light of the
fact that the statute generally prohibits
servicers from obtaining force-placed
insurance ‘‘unless there is a reasonable
basis to believe the borrower has failed
to comply with the loan contract’s
requirement to maintain property
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insurance.’’ See section 6(k)(1)(A). The
Bureau thus interpreted the statute to
mean that ‘‘force-placed hazard
insurance’’ refers to ‘‘property
insurance’’ that the borrower has failed
to maintain as required by the
borrower’s mortgage loan contract.
The Bureau sought comment on the
definition in general and in particular
on the proposed inclusion of insurance
to protect against flood loss. Although
including flood insurance is consistent
with the way typical mortgage loan
contracts define ‘‘property insurance,’’
the Bureau did not believe that the
Bureau’s force-placed insurance
regulations should apply to servicers
when they are required by the Flood
Disaster Protection Act of 1973 (FDPA)
to purchase hazard insurance to protect
against flood loss. The FDPA provides
an extensive set of restrictions on flood
insurance provision, and the Bureau
was concerned that overlapping
regulatory restrictions would be unduly
burdensome and produce little
consumer benefit. The Bureau thus
proposed to include flood insurance as
part of the general definition of ‘‘Hazard
insurance,’’ but to exclude flood
insurance that is required under the
FDPA from the definition of ‘‘forceplaced insurance’’ in proposed
§ 1024.37(a)(2)(i).
The Bureau did not receive comments
from consumer groups or industry
commenters on the proposed defined
term ‘‘Hazard insurance’’ other than
with respect to the treatment of flood
insurance. On that topic, most industry
commenters believed that simply
excluding flood insurance obtained by a
servicer as required by the FDPA from
the definition of the term ‘‘force-placed
insurance’’ in proposed
§ 1024.37(a)(2)(i) was workable and
adequately mitigated the risk of a
servicer having to comply with both
regulations under the FDPA and the
Bureau’s force-placed insurance
regulations. But one large bank servicer
and one large force-placed insurance
provider urged the Bureau to exclude
flood insurance from the defined term
‘‘Hazard insurance’’ in § 1024.31
instead.
The large bank servicer expressed
concern that the proposed definitions of
‘‘hazard insurance’’ and ‘‘force-placed
insurance’’ would effectively require a
servicer to strictly monitor any potential
change in a mortgage’s property’s flood
zone designation because whether the
FDPA requires a servicer to obtain
hazard insurance to protect against
flood loss depends, among other things,
on whether a property is located in an
area designated as a Special Flood
Hazard Area (SFHA). The commenter
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thus worried that the force-placed
insurance requirements of § 1024.37
would become applicable
instantaneously after a change in SFHA
designations if that change meant that
flood insurance was no longer required
under the FDPA for a particular
property. The Bureau, however, does
not interpret § 1024.37 to apply in this
way. Compliance with § 1024.37 would
be required if the servicer decides to
renew or replace a flood insurance
policy that had been previously been
required under the FDPA with a new
policy after the property’s SFHA
designation had changed. As discussed
above, the Bureau proposed to exclude
hazard insurance required by the FDPA
from the definition of ‘‘force-placed
insurance’’ because the Bureau believes
that the FDPA and other related Federal
laws adequately regulated this activity.
However, if a servicer chooses to renew
or replace hazard insurance to protect
against flood loss even though the
insurance the renewal or replacement is
no longer required by the FDPA, then
the FDPA would not apply. The
Bureau’s force-placed insurance
regulations are intended to fill precisely
this gap to ensure that consumers have
basic procedural and substantive
protections in the absence of FDPA
coverage. Thus, a servicer would have to
check a property’s flood zone
designation when a servicer is about to
renew or replace hazard insurance to
protect against flood loss that the
servicer originally obtained pursuant to
the FDPA to determine whether the
status has changed such that § 1024.37
would apply going forward. The Bureau
believes that this presents minimal if
any burden on servicers and is justified
to avoid imposing unnecessary costs on
borrowers.
The large force-placed insurance
provider urged the same result based on
statutory interpretation grounds,
asserting that Congress had not intended
to include flood insurance as a type of
hazard insurance that would potentially
be subject to the force-placed insurance
requirements because section 1461 of
the Dodd-Frank Act, which governs the
establishment of escrow accounts for
certain higher-priced mortgage loans,
contains separate definitions for
‘‘hazard insurance’’ and ‘‘flood
insurance.’’ The commenter
acknowledged that section 1461 is
distinct from section 1463 and amends
different underlying statutes, TILA and
RESPA respectively. Nonetheless, it
asserted that both address insurance for
which premiums could be paid through
the establishment of escrow accounts
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and therefore should be interpreted in
tandem.
Again, the Bureau declines to make
this change. The Bureau does not
believe that Congress intended the
statutory definition of ‘‘flood insurance’’
and ‘‘hazard insurance’’ in section 1461
to control the interpretation of ‘‘hazard
insurance’’ for purposes of section
1463(a). Indeed, section 1461 expressly
limits its scope by stating that ‘‘For
purposes of this section, the following
definitions [of ‘‘flood insurance’’ and
‘‘hazard insurance’’] shall apply.’’ In
light of this language, the Bureau does
not believe that section 1461 controls.
Section 1463(a) itself demonstrates that
Congress expected the force-placed
insurance provisions to apply to flood
insurance other than that required by
the FDPA. Section 6(l)(4) of RESPA
states that nothing in the force-placed
insurance provisions shall be construed
as prohibiting a servicer from providing
simultaneous or concurrent notice of a
lack of flood insurance pursuant to the
FDPA. This provision would have little
impact if flood insurance could never be
considered force-placed insurance
within the meaning of section 1463.
Thus, the Bureau believes its
interpretation of the statutory terms to
apply the force-place insurance
requirements to flood insurance that is
not required by the FDPA and thus not
subject to that statute’s extensive
regulation is consistent with the
statutory language, congressional intent,
and consumers’ interests. Accordingly,
the Bureau adopts the proposed defined
term ‘‘Hazard insurance’’ as proposed.
‘‘Loss mitigation application.’’
Proposed § 1024.31 would have defined
a loss mitigation application as a
submission from a borrower requesting
evaluation for a loss mitigation option
in accordance with procedures
established by the servicer for the
submission of such requests. As
discussed below with respect to
§ 1024.41, the Bureau received
comments from large bank servicers
regarding the application of the loss
mitigation requirements on prequalification and informal oral
communications with borrowers.
Based on the consideration of those
comments, the Bureau has determined
to revise the definition of a loss
mitigation application. The Bureau
believes that a loss mitigation
application differentiates a
communication or inquiry from a
borrower regarding loss mitigation
options from a borrower’s request for
consideration for a loss mitigation
option. When a borrower, orally or
writing, expresses an interest in a loss
mitigation option and provides any
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information that would be evaluated by
a servicer, that communication should
be considered a loss mitigation
application. A servicer must then
determine whether the loss mitigation
application is complete or incomplete
pursuant to the requirements of
§ 1024.41(b). This definition of a loss
mitigation application is similar to
framework established in Regulation B
with respect to an application for credit.
Accordingly, § 1024.31 states that a
loss mitigation application means an
oral or written request for a loss
mitigation option that is accompanied
by any information required by a
servicer for evaluation for a loss
mitigation option.
‘‘Loss mitigation option.’’ Pursuant to
the Bureau’s authorities under RESPA
sections 6(k)(1)(E), 6(j)(3), and 19(a), the
Bureau proposed rules on error
resolution (proposed § 1024.35),
information management (proposed
§ 1024.38), early intervention (proposed
§ 1024.39), continuity of contact
(proposed § 1024.40), and loss
mitigation (proposed § 1024.41) that
would have set forth servicer duties
with respect to ‘‘Loss mitigation
options.’’
The Bureau proposed to define ‘‘Loss
mitigation options’’ at new § 1024.31 as
‘‘alternatives available from the servicer
to the borrower to avoid foreclosure.’’
The Bureau also proposed to clarify
through comment 31 (Loss mitigation
options)-1 that loss mitigation options
include temporary and long-term relief,
and options that allow borrowers to
remain in or leave their homes, such as,
without limitation, refinancing, trial or
permanent modification, repayment of
the amount owed over an extended
period of time, forbearance of future
payments, short-sale, deed-in-lieu of
foreclosure, and loss mitigation
programs sponsored by a State or the
Federal Government. The Bureau also
proposed to clarify through comment 31
(Loss mitigation options)-2 that loss
mitigation options available from the
servicer include options offered by the
owner or assignee of the loan that are
made available through the servicer.
Several industry commenters
addressed the Bureau’s proposed
definition of ‘‘Loss mitigation options.’’
One industry commenter recommended
that the term ‘‘Loss mitigation options’’
should be defined as alternatives
available ‘‘from the investor through the
servicer to the borrower’’ to avoid
foreclosure, in light of the general
industry practice that loss mitigation
options are generally authorized by
investors rather than servicers. While
one industry trade group supported the
proposed definition, other commenters
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were concerned that the breadth of the
definition could conflict with servicers’
delinquency management programs
because the definition would subject
short-term cures to the same procedural
requirements as more permanent
options. Similarly, industry commenters
were concerned that the proposed
definition would be inconsistent with
requirements under existing loss
mitigation programs, such as Farm
Credit Administration rules and
portions of the National Mortgage
Settlement.
In light of comments and upon further
consideration, the Bureau is adopting a
definition of the term ‘‘Loss mitigation
option’’ substantially as proposed, but
that incorporates the substance of
proposed comment 31 (Loss mitigation
options)-2 into the regulatory text.
Accordingly, the final rule defines the
term ‘‘Loss mitigation option’’ as an
alternative to foreclosure offered by the
owner or assignee of a mortgage loan
that is made available through the
servicer to the borrower.
The Bureau proposed to define ‘‘Loss
mitigation options’’ as alternatives
available ‘‘from the servicer’’ to reflect
the practical, day-to-day relationship
between borrowers and servicers, in
which servicers pursue loss mitigation
activities with respect to delinquent
borrowers on behalf of the owners or
assignees of the mortgage loans. The
Bureau had proposed to add comment
31 (Loss mitigation options)-2 to clarify
that the proposed definition should be
read to include options offered by the
owner and assignee and made available
through the servicer in light of the
actual legal relationship between
servicers and owners or assignees, in
which the owner or assignee authorizes
the offering of loss mitigation options.
Upon further consideration, the Bureau
believes that the text of the definition
should reflect the underlying legal
relationship between servicers and
owners or assignees to avoid confusion
over whether servicers may be able to
authorize loss mitigation options
independent of the owner or assignee of
the mortgage loan. Accordingly, the
Bureau is not adopting comment 31
(Loss mitigation options)-2 as proposed,
but instead is amending the proposed
definition to incorporate the substance
of proposed comment 31 (Loss
mitigation option)-2.
The definition of the term ‘‘Loss
mitigation option’’ is broad to account
for the wide variety of options that may
be available to a borrower, the
availability of which may vary
depending on the underlying loan
documents, any servicer obligations to
the lender or assignee of the loan, the
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borrower’s particular circumstances,
and the flexibility the servicer has in
arranging alternatives with the
borrower. Accordingly, the Bureau is
adopting proposed comment 31 (Loss
mitigation option)-1 substantially as
proposed to set forth examples of loss
mitigation options ‘‘without limitation.’’
The Bureau has revised proposed
comment 31 (Loss mitigation option)-1
to clarify that loss mitigation options
include programs sponsored by ‘‘a
locality’’ as well as a State or the
Federal government and other nonsubstantive revisions describing options
that allow borrowers ‘‘who are behind
on their mortgage payments to remain in
their homes or to leave their homes
without a foreclosure.’’
While the Bureau has developed a
broad definition of loss mitigation
options in order to accommodate the
variety of loss mitigation programs, the
Bureau does not intend for the
provisions of Regulation X that use the
term ‘‘Loss mitigation option’’ to require
servicers to offer options that are
inconsistent with any investor or
guarantor requirements. Thus, under the
Bureau’s definition, an alternative that
is not made available by the owner or
assignee of the mortgage loan would not
be a loss mitigation option for purposes
of the final rule. The Bureau discusses
the final rules that use the term ‘‘Loss
mitigation option’’ in the applicable
section-by-section analysis below.
The final rule includes new language
in comment 31 (Loss mitigation option)
-2, which explains that a loss mitigation
option available through the servicer
refers to an option for which a borrower
may apply, even if the borrower
ultimately does not qualify for such
option. The Bureau has included this
comment to clarify that the regulatory
text’s reference to options ‘‘available’’ to
borrowers is not intended to restrict the
definition to options for which a
borrower ultimately qualifies, but
instead refers to options for which a
borrower may apply.
‘‘Mortgage loan.’’ As discussed in
detail in the section-by-section analysis
of § 1024.30, the Bureau proposed to
add a new defined term ‘‘Mortgage
loan’’ in proposed § 1024.31 to mean
any federally related mortgage loan, as
that term is defined in § 1024.2, subject
to the exemptions in § 1024.5(b), but
does not include open-end lines of
credit (home equity plans). For the
reasons discussed in the section-bysection analysis of § 1024.30, the Bureau
is adopting the proposed definition to
the defined term ‘‘Mortgage loan’’ as
proposed.
‘‘Qualified written request.’’ The
Bureau proposed to adopt the defined
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term ‘‘Qualified written request’’
included in current § 1024.21(a) in
proposed § 1024.31 without change,
except to add related commentary,
proposed 31 (qualified written request)
-1, that would have explained that: (1)
A qualified written request is a written
notice a borrower provides to request a
servicer either correct an error relating
to the servicing of a loan or to request
information relating to the servicing of
the loan; and (2) a qualified written
request is not required to include both
types of requests. For example, a
qualified written request may request
information relating to the servicing of
a mortgage loan but not assert that an
error relating to the servicing of a loan
has occurred.
One commenter suggested that the
Bureau should clarify that the policies,
procedures, and penalties related to a
qualified written request are the same as
those related to error resolution and
information requests under §§ 1024.35
and 1024.36. The Bureau agrees that it
would be helpful to clarify that the error
resolution and information request
requirements in §§ 1024.35 and 1024.36
apply as set forth in those sections
irrespective of whether the servicer
receives a qualified written request, and
accordingly, is adopting new comment
31 (qualified written request)-2 for that
purpose. However, the Bureau does not
believe it is appropriate to discuss a
servicer’s penalties for violation of the
Bureau’s regulations in either the
regulation or the commentary.
In addition, the Bureau has made
slight modifications to the proposed
definition of ‘‘qualified written request’’
so it more closely tracks the definition
included in section 6(e)(1) of RESPA.
The final rule defines ‘‘qualified written
request’’ to mean a written
correspondence from the borrower to
the servicer that includes, or otherwise
enables the servicer to identify, the
name and account of the borrower, and
either: (1) States the reasons the
borrower believes the account is in
error; or (2) provides sufficient detail to
the servicer regarding information
relating to the servicing of the mortgage
loan sought by the borrower.
‘‘Service provider.’’ The Bureau
proposed to add new defined term
‘‘Service provider’’ in proposed
§ 1024.31 to mean any party retained by
a servicer that interacts with a borrower
or provides a service to the servicer for
which a borrower may incur a fee. The
Bureau proposed related commentary,
comment 31 (service provider)-1, that
would have clarified that service
providers may include attorneys
retained to represent a servicer or an
owner or assignee of a mortgage loan in
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a foreclosure proceeding, as well as
other professionals retained to provide
appraisals or inspections of properties.
Two industry groups representing
appraisal professionals submitted joint
comments that objected to the inclusion
of appraisal professionals in the
Bureau’s proposed comment 31 (service
provider)-1. The commenters sought
clarification from the Bureau about the
circumstances under which appraisers
are ‘‘service providers’’ and what their
obligations would be. The Bureau
believes that comment 31 (service
provider)-1 is clear in describing the
circumstances under which appraisal
professionals are ‘‘service providers’’
and thus feels no further explanation is
required. While acknowledging that the
Bureau’s mortgage servicing rules do not
directly regulate real estate appraisal
services, the commenters claimed that
individual appraisers and small
appraisal firms would experience costly
and unnecessary hardship if they were
considered ‘‘service providers.’’ The
Bureau disagrees. The definition of the
term ‘‘service provider’’ in § 1024.31, by
its terms, applies only for purposes of
subpart C, and the term ‘‘service
provider’’ appears only in § 1024.38 of
subpart C. Section 1024.38 requires
servicers maintain policies and
procedures reasonably designed to
ensure that they can exercise reasonable
oversight of their service providers. The
Bureau does not believe that requiring
servicers to exercise reasonable
oversight of their service providers will
lead to costly and unnecessary hardship
on individual appraisers and small
appraisal firms.
‘‘Subservicer.’’ The Bureau proposed
to adopt the defined term ‘‘Subservicer’’
included in current § 1024.21(a) in
proposed § 1024.31 without change. The
proposed defined term ‘‘Subservicer’’
provides that a ‘‘subservicer’’ is any
servicer who does not own the right to
perform servicing, but who performs
servicing on behalf of the master
servicer.
One commenter suggested that the
Bureau should replace the reference to
‘‘master servicer’’ in the definition of
‘‘subservicer’’ with ‘‘servicer’’ to
accommodate circumstances where
there are multiple levels of subservicing.
The example the commenter provided is
one where there is one master servicer,
but also a primary servicer and multiple
subservicers. It appears that the
commenter’s concern is that people
might be confused by thinking ‘‘primary
servicers’’ would not be considered
‘‘subservicers’’ for purposes of subpart C
of Regulation X. Based on the example
provided by the commenter, the Bureau
understands that a primary servicer is
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10725
performing servicing on behalf of the
master servicer, who owns the right to
perform servicing. Because the primary
servicer is not the owner of the right to
perform servicing, it would be a
‘‘subservicer’’ pursuant to the proposed
definition to the defined term
‘‘Subservicer.’’ Although industry
practice may differentiate between
levels of subservicing by referring to a
servicer that directly performs servicing
on behalf of a master servicer as the
‘‘primary servicer,’’ and servicers
performing on behalf of the ‘‘primary
servicer’’ as ‘‘subservicers,’’ for
purposes of subpart C, any servicer that
does not own the servicing right but
performs servicing on behalf of a
servicer that owns the servicing right is
a subservicer. Accordingly, the Bureau
believes the proposed definition to the
defined term ‘‘Subservicer’’ adequately
captures situations where there are
multiple levels of subservicing and the
defined term ‘‘Subservicer’’ is adopted
as proposed.
Section 1024.32
Requirements
General Disclosure
The Bureau set forth requirements
applicable to disclosures required by
subpart C in proposed § 1024.32.
Specifically, proposed § 1024.32(a)(1)
would have required that disclosures
provided by servicers be clear and
conspicuous, in writing, and in a form
the consumer may keep. This standard
is consistent with disclosure standards
applicable in other regulations issued by
the Bureau, including, for example,
Regulation Z. See, e.g., 12 CFR
1026.17(a)(1). Proposed § 1024.32(a)(2)
would have permitted disclosures to be
provided in languages other than
English, so long as disclosures are made
available in English upon a borrower’s
request. Further, proposed § 1024.32(b)
would have permitted disclosures
required under subpart C to be
combined with disclosures required by
applicable laws, including State laws, as
well as disclosures required pursuant to
the terms of an agreement between the
servicer and a Federal or State
regulatory agency.
The Bureau is adopting the final rule
as proposed, with minor changes to
§ 1024.32(a)(1) to replace the term
‘‘consumer,’’ with ‘‘recipient’’ as
applicable and to improve the clarity of
§ 1024.32. Two commenters
representing industry trade groups
suggested that the clarity of § 1024.32(a)
could be enhanced if the final rule
could remove the term ‘‘consumer’’
where permissible because the term
‘‘consumer’’ is more appropriate in the
context of disclosures provided prior to
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the consummation of the mortgage loan
transaction.
Section 1024.33 Mortgage Servicing
Transfers
RESPA section 6(a) through (d) sets
forth disclosure requirements for
servicing transfers that are currently
implemented in § 1024.21(b) through (d)
of Regulation X. 12 U.S.C. 2605(a)
through (d). As part of the Bureau’s
proposed reorganization of Regulation
X, which would have created a new
subpart C to contain the Bureau’s
mortgage servicing rules, the Bureau
proposed to move the disclosure
provisions in § 1024.21(b) through (d) to
new § 1024.33 and new Regulation X
official interpretations. The Bureau also
proposed to move the existing State law
preemption provision in § 1024.21(h) to
§ 1024.33(d). In addition to these
conforming amendments, the Bureau
proposed to add certain new provisions
to § 1024.33 and official commentary to
§ 1024.33, as discussed in more detail
below.77
Section 1024.21(b) through (d)
currently requires that borrowers
receive two notices related to mortgage
servicing: (1) A servicing disclosure
statement provided at application
notifying the applicant whether the
servicing of the loan may be transferred
at any time (§ 1024.21(b) and (c)); and
(2) if servicing is transferred, a notice of
transfer provided by the transferor and
transferee servicer around the time of
the transfer (§ 1024.21(d)).
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33(a) Servicing Disclosure Statement
RESPA section 6(a) generally sets
forth requirements for persons making
federally related mortgage loans to
disclose to loan applicants, at the time
of application, whether servicing of the
loan may be assigned, sold, or
transferred to any other person at any
time while the loan is outstanding. 12
U.S.C. 2605(a). Current § 1024.21(b) and
(c) implements requirements in RESPA
section 6(a) related to the servicing
disclosure statement. The Bureau’s
proposed § 1024.33(a) would have made
certain changes to the requirements
currently set forth in § 1024.21(b) and
(c) pertaining to the servicing disclosure
77 Further, the Bureau proposed to move and
amend provisions in § 1024.21(e) (pertaining to
servicer responses to borrower inquiries) to new
§ 1024.35 (error resolution) and § 1024.36
(information requests). The Bureau’s proposal also
would have removed current § 1024.21(f)
(damages), which had restated the damages and
costs provision in RESPA section 6(f). The Bureau
is removing this provision from Regulation X,
which is no longer accurate following amendments
to RESPA section 6(f) by section 1463(b) of the
Dodd-Frank Act. The Bureau believes the damages
and costs provision is more appropriate as a
statutory provision.
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statement, including changes to the
scope of applicability and delivery of
the servicing disclosure statement, and
certain other non-substantive technical
revisions.
The Bureau proposed to limit the
scope of the servicing disclosure
statement to closed-end reverse
mortgage transactions to conform
§ 1024.33(a) to the comprehensive
amendments to consumer mortgage
disclosures proposed by the Bureau in
the 2012 TILA–RESPA Proposal.78
Because the Bureau intended to
incorporate the servicing disclosure
statement requirements of RESPA
section 6(a) into the consolidated
disclosure forms for the TILA–RESPA
Integrated Disclosure rulemaking, the
Bureau had proposed to limit the scope
of the servicing disclosure statement
provisions in new § 1024.33 to closedend reverse mortgage transactions
because those transactions would not be
covered by the 2012 TILA–RESPA
Proposal.
After additional consideration,
because the Bureau will not be
finalizing the 2012 TILA–RESPA
Proposal until after this final rule, the
Bureau has decided not to finalize the
language in proposed § 1024.33(a) that
would have limited the scope of the
provision to closed-end reverse
mortgage transactions. Instead, the
Bureau is finalizing § 1024.33(a) by
conforming the scope to ‘‘mortgage
loans’’ other than subordinate-lien
mortgage loans, as discussed in the
section-by-section analysis of
§ 1024.30(c) above. The Bureau is
excluding subordinate liens in order to
maintain the current coverage of the
servicing disclosure statement
requirement in Regulation X.79 HUD
initially implemented this exemption in
reliance on its authority under section
19(a) of RESPA; 80 the Bureau relies on
the same authority to maintain the
current exemption. Accordingly, in the
final rule, the Bureau has added
language to § 1024.33(a) so that
applicants for ‘‘first-lien mortgage
loans’’ must receive the servicing
disclosure statement, as indicated at
§ 1024.30(c)(1). Thus, applicants for
both reverse and forward mortgage loans
must receive the servicing disclosure
statement. The Bureau expects to
78 The Bureau issued the 2012 TILA–RESPA
Proposal on July 9, 2012.
79 The Bureau notes that it proposed in the 2012
TILA–RESPA Proposal to implement the servicing
disclosure requirement in RESPA section 6(a)
through a disclosure appearing on the Bureau’s
proposed Loan Estimate for both first and
subordinate liens See 2012 TILA–RESPA Proposal,
77 FR 51116, 51230 (2012) and proposed
§ 1026.19(e)(1)(i).
80 See 59 FR 65442, 65443 (1994).
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harmonize the scope of § 1024.33(a) in
the final rule implementing the TILA–
RESPA integrated disclosures and to
provide for consolidated disclosure
forms at that time.
The Bureau also proposed to add
comment 33(a)(1)–2 to § 1024.33(a) to
clarify that the servicing disclosure
statement need only be provided to the
‘‘primary applicant.’’ Current
§ 1024.21(b) requires that the servicing
disclosure statement be provided to
mortgage servicing loan applicants, and
current § 1024.21(c) provides that if coapplicants indicate the same address on
their application, one copy delivered to
that address is sufficient, but that if
different addresses are shown by coapplicants on the application, a copy
must be delivered to each of the coapplicants. The Bureau proposed to
implement through commentary to
§ 1024.33(a) a clarification relating to
providing a servicing disclosure
statement for co-applicants—that when
an application involves more than one
applicant, notification need only be
given to one applicant but must be given
to the primary applicant when one is
readily apparent. A credit union trade
association supported this proposed
change.
In its proposal, the Bureau explained
that the modified requirement would
reduce burdens on servicers without
significantly reducing consumer
protections, given that the Bureau
proposed to apply the regulation only to
closed-end reverse mortgage
transactions. The Bureau explained that
such transactions are typically only
conducted with regard to a borrower’s
principal residence and do not involve
ongoing consumer payments for the life
of the loan, so that contact with
servicers is generally quite minimal.
The Bureau also observed that
amending the current requirement
would be consistent with disclosure
requirements applicable to other Bureau
regulations, such as the adverse action
notice required under Regulation B
(Equal Credit Opportunity Act).81
Because the Bureau is not limiting
§ 1024.33(a) to closed-end reverse
mortgage transactions in the final rule,
as originally proposed, the Bureau is not
adopting proposed comment 33(a)(1)–2
as proposed and is not amending the
existing requirement in § 1024.21(c),
under which the servicing disclosure
statement must be provided to coapplicants if different addresses are
shown by co-applicants. Instead,
comment 33(a)–2 contains the same
guidance that originally appeared in
§ 1024.21(c): That if co-applicants
81 See
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indicate the same address on their
application, one copy of the servicing
disclosure statement delivered to that
address is sufficient; and that if different
addresses are shown by co-applicants
on the application, a copy must be
delivered to each of the co-applicants.
Finally, in addition to proposing
changes about the scope of the rule, the
Bureau proposed in § 1024.33(a) to
make certain non-substantive changes to
language from current § 1024.21(b) and
(c) to clarify the circumstances under
which the servicing disclosure
statement must be provided and the
proper use of appendix MS–1, which
provides a model form for the servicing
disclosure statement. For example,
§ 1024.21(b) currently provides that the
servicing disclosure statement must be
provided ‘‘[a]t the time an application
for a mortgage servicing loan is
submitted, or within three days after
submission of the application.’’ The
Bureau’s proposed § 1024.33(a) stated
that the servicing disclosure statement
must be provided ‘‘[w]ithin three days
(excluding legal public holidays,
Saturdays, and Sundays) after a person
applies [.]’’ The Bureau also proposed to
incorporate some of the language
currently in § 1024.21(b) and (c) into
new Regulation X official commentary.
For example, the Bureau proposed to
move § 1024.21(b)(1), which explained
use of appendix MS–2, to new comment
33(a)–1; the Bureau also included
generally applicable instructions for use
of model forms and clauses in
commentary to appendix MS. The
Bureau did not receive comment on this
aspect of the proposal and adopts these
revisions substantially as proposed,
other than with respect to the scope of
the rule, discussed above.
In the final rule, the Bureau has
replaced the phrase ‘‘table funding
mortgage broker’’ with the phrase
‘‘mortgage broker who anticipates using
table funding,’’ which the Bureau
believes is clearer and better conforms
to the term that currently appears in
§ 1024.21(b)(1). In addition, the Bureau
has consolidated proposed comments
33(a)(2)–1, –2, and –3 into comment
33(a)–3, which contains disclosure
preparation instructions currently in
§ 1024.21(b)(2).82 Comment 33(a)–3
explains that, if the lender, mortgage
broker who anticipates using table
funding, or dealer in a first lien dealer
loan knows at the time of the disclosure
82 The disclosure preparation instructions in
current § 1024.21(b)(2) refer to ‘‘table funding
mortgage broker.’’ In implementing these
instructions through comment 33(a)–3, the Bureau
has replaced that phrase with the phrase ‘‘mortgage
broker who anticipates using table funding’’ to
better conform to the language in § 1024.33(a).
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whether it will service the mortgage
loan for which the applicant has
applied, the disclosure should, as
applicable, state that such entity will
service such loan and does not intend
to sell, transfer, or assign the servicing
of the loan, or that such entity intends
to assign, sell, or transfer servicing of
such mortgage loan before the first
payment is due. The comment also
provides that, in all other instances, a
disclosure that states that the servicing
of the loan may be assigned, sold, or
transferred while the loan is outstanding
complies with § 1024.33(a).
The final rule also makes a technical
revision to the last sentence of proposed
§ 1024.33(a). The final rule provides that
the servicing disclosure statement is not
required to be delivered if ‘‘a person
who applies for a first-lien mortgage
loan is denied credit’’ within the threeday period.
33(b) Notice of Transfer of Loan
Servicing
RESPA section 6(b) and (c) sets forth
the general requirement for the
transferor and transferee servicers of a
federally related mortgage loan to notify
the borrower in writing of any
assignment, sale, or transfer of servicing.
12 U.S.C. 2605(b) and (c). These
statutory requirements are implemented
through current § 1024.21(d). The
Bureau had proposed to move and adopt
substantially all of these requirements to
new § 1024.33(b), with a few exceptions,
as explained in the section-by-section
analysis below. The Bureau’s proposal
also would have made certain nonsubstantive revisions to current
§ 1024.21(d) to clarify existing servicing
transfer requirements.83 New
§ 1024.33(b)(1) sets forth the general
requirement to provide the servicing
transfer notice. New § 1024.33(b)(2) sets
forth the transfers for which a servicing
transfer is not required. New
§ 1024.33(b)(3) sets forth the timing
requirements of the notice. New
§ 1024.33(b)(4) sets forth the content
requirements for the servicing transfer
notice. The Bureau is generally adopting
these provisions as proposed, except as
83 For example, the Bureau changed ‘‘consumer
inquiry address,’’ under § 1024.21(d)(3)(ii) to an
address ‘‘that can be contacted by the borrower to
obtain answers to servicing transfer inquiries,’’
under § 1024.33(b)(4)(ii). The Bureau also changed
the provision in § 1024.21(d)(3)(v) regarding
‘‘[i]nformation concerning any effect the transfer
may have’’ on the terms of the continued
availability of mortgage life or disability insurance,
to a requirement in § 1024.33(d)(3)(v) to include
information ‘‘[w]hether the transfer will affect’’ the
terms or the continued availability of mortgage life
or disability insurance.
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noted in the section-by-section analysis
below.
33(b)(1) Requirements for Notice and
33(b)(2) Certain Transfers Excluded
RESPA section 6(b)(1) and (c)(1) sets
forth the general requirements for the
transferor and transferee servicers to
provide a notice of servicing transfer for
any federally related mortgage loan that
is assigned, sold, or transferred. 12
U.S.C. 2605(b)(1) and (c)(1). Current
§ 1024.21(d)(1)(i) implements the
general requirement for the transferor
and transferee servicers to provide the
notice of transfer, which the Bureau
proposed to move to new
§ 1024.33(b)(1). Unlike the servicing
disclosure statement that the Bureau
proposed in § 1024.33(a) to apply only
to closed-end reverse mortgage
transactions,84 the Bureau proposed that
the servicing transfer notice be provided
with respect to the transfer of a
‘‘mortgage loan,’’ including forward and
reverse mortgage loans.
The Bureau proposed to include in
§ 1024.33(b)(1) a statement that
appendix MS–2 contains a model form
for the notice. The reference to
appendix MS–2 was previously located
in § 1024.21(d)(4). Section 1024.21(d)(4)
also contained language indicating that
servicers could make minor
modifications to the sample language
but that the substance of the sample
language could not be omitted or
substantially altered. Similar language
now appears in a general comment to
appendix MS in comment MS–2,
discussed below in the section-bysection analysis of appendix MS. The
Bureau did not receive comment on
these proposed provisions and is
adopting them in the final rule.
Current § 1024.21(d)(i) exempts
certain transactions from the
requirement to provide the notice of
transfer (if there is no change in the
payee, address to which payment must
be delivered, account number, or
amount of payment due): Transfers
between affiliates, transfers resulting
from mergers or acquisitions of servicers
or subservicers, and transfers between
master servicers where the subservicer
remains the same. The Bureau did not
receive comment on these proposed
provisions and is adopting them in the
final rule.
Current § 1024.21(d)(ii) exempts the
FHA from the requirement to provide a
transfer notice where a mortgage
insured under the National Housing Act
84 As noted in the section-by-section analysis of
§ 1024.33(a), the Bureau is finalizing the servicing
disclosure statement requirement for first-lien
mortgage loans, including forward and reverse
mortgage loans.
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is assigned to the FHA. The Bureau
proposed to move this provisions to
new § 1024.33(b)(2)(i)(ii). HUD initially
implemented this exemption in reliance
on its authority under section 19(a) of
RESPA; 85 the Bureau relies on the same
authority to maintain the current
exemption. The Bureau did not receive
comment on this proposed provision
and is adopting it in the final rule.
33(b)(3) Time of the Notice
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33(b)(3)(i) In General
Timing of the Transferor and Transferee
Notices
RESPA section 6(b)(2)(A) requires that
the transferor’s notice be provided not
less than 15 days before the effective
date of transfer of servicing, except as
provided in RESPA section 6(b)(2)(B)
and (C), which provides that the notice
may be provided under different
timeframes in certain cases. 12 U.S.C.
2605(b)(2)(A). RESPA section 6(c)(2)(A)
requires that the transferee’s notice be
provided not more than 15 days after
the effective date of transfer, except as
provided in RESPA section 6(c)(2)(B)
and (C). 12 U.S.C. 2605(c)(2)(A). Current
§ 1024.21(d)(2)(i) implements these
requirements and provides that, except
as provided in paragraph (d)(1)(i) or
(d)(2)(ii), the notice of transfer must be
provided by the transferor not less than
15 days before the effective date of the
transfer and by the transferee not more
than 15 days after the effective date of
the transfer. The Bureau proposed to
move these requirements to new
§ 1024.33(b)(3)(i).
Several individual consumers
suggested that a 15-day timeframe was
too short a period for borrowers to make
adjustments with respect to whom they
should direct their mortgage payments.
They recommended that transferees
should be required to provide the
transfer notice 30 to 45 days in advance
of the effective date of transfer. In its
final rule, the Bureau is not adjusting
the exiting timing requirements. The 15day time period was established by
Congress, which reasonably concluded
that this time period provides borrowers
with sufficient time to make
adjustments to any automated payment
systems. In addition, the Bureau
believes that there is minimal risk to
borrowers who may be unable to send
payments to the proper servicer after a
transfer. Pursuant to § 1024.33(c)(1),
servicers generally may not treat a
payment as late for 60 days after a
transfer if a borrower makes a timely but
misdirected payment to the transferee
servicer.
85 See
59 FR 65442, 65443 (1994).
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Delivery. Subparagraphs (b)(1) and
(c)(1) of RESPA section 6 require that
the transferor and transferee servicer
notify ‘‘the borrower’’ of any
assignment, sale, or transfer of servicing.
Current § 1024.21(d)(1)(i) implements
these requirements by requiring that
notices be delivered to ‘‘the borrower.’’
However, unlike as set forth in current
§ 1024.21(c) with respect to the
servicing disclosure statement, current
§ 1024.21(d) does not contain specific
delivery instructions for delivering
servicing transfer notice under
§ 1024.21(d) to multiple borrowers. The
Bureau proposed comment 33(b)(3)–2 to
clarify that a notice of transfer should be
delivered to the mailing address listed
by the borrower in the mortgage loan
documents, unless the borrower has
notified the servicer of a new address
pursuant to the servicer’s requirements
for receiving a notice of a change of
address. Proposed comment 33(b)(3)–2
further clarified that when a mortgage
loan has more than one borrower, the
notice of transfer need only be given to
one borrower, but must be given to the
primary borrower when one is readily
apparent.
The Bureau did not receive comment
on the language in proposed comment
33(b)(3)–2 clarifying that a servicer
deliver the notice of transfer to the
mailing address listed by the borrower
in the mortgage loan documents unless
the borrower has notified the servicer of
a new address pursuant to the servicer’s
requirements for receiving a notice of a
change in address. However, the Bureau
did receive comment on the proposed
language clarifying that servicers may
provide the transfer notice to the
‘‘primary’’ borrower. Industry
commenters supported the proposed
limitation to provide the transfer notice
only to the primary borrower. One
industry commenter indicated,
however, that servicers generally will
not know who the primary borrower is,
noting that servicers would likely rely
on the owner’s or a prior servicer’s
designation in servicer transfer
instructions, or the party that is listed
first on the note. The industry
commenter recommended that the
Bureau permit such reliance.
Two consumer advocacy groups
recommended that the Bureau omit this
comment. These commenters were
concerned that providing notice to only
one party would not ensure that
multiple obligors, or even the party who
is actually making payments on the
mortgage, would receive it. For
example, in the event of a divorce or
separation, a ‘‘primary’’ borrower could
be a spouse who is no longer living at
home but who has submitted a change-
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of-address notice to the servicer. In
another scenario, a borrower not living
at home could be under a family court
order to make mortgage payments even
though the borrower is not a ‘‘primary’’
borrower. In these types of cases, the
consumer groups were concerned that
borrowers not considered ‘‘primary’’
would not receive the transfer notice.
The consumer groups also raised
concern about the lack of a definition of
‘‘primary’’ borrower and observed that,
even if a definition were provided, a
servicer’s original designation of
‘‘primary’’ may become inaccurate over
time if the obligors’ relationship
changes or other changed circumstances
arise. The consumer groups also noted
that sending two notices is not costly,
would simplify compliance, and would
reduce the risk that an interested
borrower would not receive the notice.
In light of comments received, the
Bureau is not adopting the proposed
comment 33(b)(3)–2 regarding delivery
to ‘‘primary’’ borrowers. The Bureau
recognizes that a party who may be
‘‘primary’’ at application could change
over time without the servicer’s
knowledge, which could be problematic
for borrowers responsible for making
ongoing payments to their servicer. The
Bureau believes that servicers should be
responsible for providing a notice to the
address listed by the borrower in the
mortgage loan documents or different
addresses they have received through
their own procedures, consistent with
§ 1024.11 86 and applicable case law.87
The Bureau has otherwise retained
proposed comment 33(b)(3)–2
substantially as proposed. The Bureau
has omitted the comment limiting
delivery to ‘‘primary’’ borrowers, added
parenthetical language about providing
the notice to ‘‘addresses,’’ and has
renumbered the comment as 33(b)(3)–1
because of the deletion of proposed
comment 33(b)(3)–1 discussed above.
Comment 33(b)(3)–1 explains that a
servicer mailing the notice of transfer
86 Section 1024.11 provides that ‘‘the provisions
of [part 1024] requiring or permitting mailing of
documents shall be deemed to be satisfied by
placing the document in the mail (whether or not
received by the addressee) addressed to the
addresses stated in the loan application or in the
other information submitted to or obtained by the
lender at the time of loan application or submitted
or obtained by the lender or settlement agent,
except that a revised address shall be used where
the lender or settlement agent has been expressly
informed in writing of a change in address.’’
87 See Rodriguez v. Countrywide Homes et al., 668
F. Supp. 2d 1239, 1245 (E.D. Ca. 2009)
(‘‘Countrywide submits, and the Court agrees, that
RESPA requires a lender to send a Good Bye letter
to the Mailing Address listed by the borrower in the
loan documents. When the borrower submits an
express change of mailing address, the lender is
required to send the Good Bye letter to the new
address.’’).
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must deliver the notice to the mailing
address (or addresses) listed by the
borrower in the mortgage loan
documents, unless the borrower has
notified the servicer of a new address
(or addresses) pursuant to the servicer’s
requirements for receiving a notice of a
change in address.
33(b)(3)(ii) Extended Time
RESPA section (b)(2)(B) and (c)(2)(B)
contains exemptions from the general
requirements that the transferor notice
be provided not less than 15 days before
the effective date of transfer and that the
transferee notice be provided not more
than 15 days after the effective date of
transfer. 12 U.S.C. 2605(b)(2)(B) and
(c)(2)(B). Paragraphs (b)(2)(B) and
(c)(2)(B) permit these notices to be
provided not more than 30 days after
the effective date of assignment, sale, or
transfer that is preceded by the
termination of a servicing contract for
cause, a servicer’s bankruptcy, or the
commencement of proceedings by the
FDIC for conservatorship or receivership
of the servicer. These exemptions to the
general timing requirements are
currently set forth in § 1024.21(d)(2)(ii).
The Bureau had proposed to adopt the
existing exemptions and add
§ 1024.33(b)(3)(ii)(D), which would
extend the current 30-day exemption to
situations in which the transfer of
servicing is preceded by commencement
of proceedings by the NCUA for
appointment of a conservator or
liquidating agent of the servicer or an
entity that owns or controls the servicer.
The Bureau did not receive comment on
this aspect of the proposal and is
adopting new § 1024.33(b)(3)(ii)(D) as
proposed.
As is evident by RESPA section
6(b)(2)(B) and (c)(2)(B), one of the
purposes of RESPA is to provide
exemptions from the general transfer
notice timing requirements for servicing
transfers occurring in the context of
troubled institutions involving the
appointment of an agent by a Federal
agency, such as those in which a
servicing transfer is preceded by the
commencement of proceedings by the
FDIC for conservatorship or receivership
of the servicer (or an entity by which the
servicer is owned or controlled). The
Bureau does not believe that the timing
for providing a servicing transfer
disclosure should differ for an insured
credit union in the process of
conservatorship of liquidation by the
NCUA compared to an insured
depository institution in the process of
conservatorship or receivership by the
FDIC. Thus, because the Bureau believes
institutions for which the NCUA has
commenced proceedings to appoint a
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conservator or liquidating agent should
be treated similarly to those for which
the FDIC has commenced proceedings
to appoint a conservator or receiver, the
Bureau believes § 1024.33(b)(3)(ii)(D) is
necessary to achieve the purposes of
RESPA. Accordingly, the Bureau
exercises its authority under RESPA
section 19(a) to grant reasonable
exemptions for classes of transactions
necessary to achieve the purposes of
RESPA.
33(b)(3)(iii) Notice Provided at
Settlement
RESPA section 6(b)(2)(C) and (c)(2)(C)
generally provides that the timing
requirements of the transferor and
transferee notices at RESPA section
6(b)(2)(A) and (B), and (c)(2)(A) and (B)
do not apply if the person making the
loan provides a transfer notice to the
borrower at settlement. Current
§ 1024.21(d)(2)(iii) implements these
provisions and provides that notices of
transfer delivered at settlement by the
transferor servicer and transferee
servicer, whether as separate notices or
as a combined notice, satisfy the timing
requirements of § 1024.21(d)(2). The
Bureau proposed to move this provision
to new comment 33(b)(3)–1
substantially as in the original.88 The
Bureau did not receive comment on this
aspect of the proposal. The Bureau is
adopting the substance of the language
in the proposed commentary but is
placing the language in new
§ 1024.33(b)(3)(iii) instead of official
commentary to more closely track the
requirements of the statute.
33(b)(4) Contents of Notice
Overview
RESPA section 6(b)(3) sets forth
content requirements for the transferor
notice, and RESPA section 6(c)(3)
requires that the transferee notice
contain the same content required by
RESPA section 6(b)(3). 12 U.S.C.
2605(b)(3) and (c)(3). RESPA section
6(b)(3)(A) through (G) requires that the
transferor and transferee notice contain
the effective date of transfer, contact
information for the transferee servicer,
the name of an individual or department
of the transferor and transferee servicer
who may be contacted for borrower
inquiries, the date on which the
transferor will stop accepting payments
and the date on which the transferee
servicers will begin accepting payments,
88 Whereas § 1024.21(d)(2)(iii) describes a notice
of transfer ‘‘delivered’’ at settlement,
§ 1024.33(b)(3)(iii) describes a notice of transfer
‘‘provided’’ at settlement. The Bureau has made this
change to conform to the language of RESPA section
6(b)(2)(C) and (c)(2)(C) and other similar technical
amendments throughout Regulation X.
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any information about the effect of the
transfer on the availability of insurance,
and a statement that the transfer will not
affect any term or condition of the
mortgage loan, other than servicing.
These requirements are currently
implemented by § 1024.21(d)(3)(i)
through (vi). Section 1024.21(d)(3)(vii)
also requires servicers to include a
statement of the borrower’s rights in
connection with complaint resolution,
including the information set forth in
§ 1024.21(e), as illustrated by current
appendix MS–2.
The Bureau proposed to adopt most of
the existing content requirements from
current § 1024.21(d)(3), with the
exception of the complaint resolution
statement in § 1024.21(d)(3)(viii) and
certain other changes discussed in more
detail below. Except as otherwise
discussed below, the Bureau is adopting
§ 1024.33(b)(4) as proposed.
Accordingly, § 1024.34(b)(4) sets forth
content requirements for the transfer
notice, including the effective date of
the servicing transfer; the name,
address, and telephone number for the
transferor and transferee servicers to
answer inquiries related to the transfer
of servicing; the date on which the
transferor will stop accepting payments
and the date the transferee will begin
accepting payments, as well as the
address for the transferee servicer to
which borrower payments should be
sent; information about whether the
transfer will affect the terms or
availability of insurance coverage; and a
statement indicating that the transfer
does not affect any of the mortgage loan
terms other than servicing.
Information about loan status. Two
consumer advocacy groups also
requested that the Bureau require that
transfer notices provide information
about the default status of the loan and
include a full payment history. The
groups explained that many servicing
problems occur at or near the time of
transferring servicing records and that
errors involving one or two payments
can spiral into a threatened foreclosure
despite borrower efforts to prove that
payments were in fact made. Thus, the
consumer groups recommended that the
transfer notices should advise if the
homeowner is current and whether
there are any unpaid fees, and the status
of loss mitigation options being
considered. They also recommended
that a full payment history, including
allocation of the payments to interest,
principal, late fees, and other fees
should be included by both the old and
the new servicer, so that the homeowner
may promptly ascertain if there is a
discrepancy in the records. These
commenters also requested that the
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Bureau require that fees not listed in a
payment history provided at the transfer
of servicing be waived.
The Bureau recognizes the problems
that can arise when servicing is
transferred, especially in the case of a
borrower who is not current at the time
of transfer. However, requiring
individualized information about each
borrower’s loan could significantly
affect the time required to produce the
notice as well as the cost. Moreover, the
Bureau believes that other new
provisions being finalized in Regulation
X and Regulation Z will adequately
address borrowers’ interests in ensuring
the accuracy of transferred records
concerning their payment history. First,
borrowers will be able to obtain
information about their current payment
status on a monthly basis on the
periodic statement required under the
Regulation Z provision that the Bureau
is finalizing in the 2013 TILA Mortgage
Servicing Final Rule. That statement
will show, among other things, the
payment amount due, the amount of any
late payment fee, the total sum of any
fees or charges imposed since the last
statement, the total of all payments
received since the last statement, the
total of all payments received since the
beginning of the current calendar year,
transaction activity since the last
statement, the outstanding principal
balance, the borrower’s delinquency
status, amounts past due from previous
billing cycles, and the total payment
amount needed to bring the account
current. As a result, if there are
discrepancies between the last
statement provided by the prior servicer
and the first statement provided by the
new servicer, those discrepancies will
be apparent on the face of the
statements. Second, borrowers will also
be able to assert errors and request
information about their payment history
and current status through the new error
resolution and information request
provisions of Regulation X §§ 1024.35
and 1024.36; and new
§ 1024.38(b)(1)(iii) requires servicers to
maintain policies and procedures
reasonably designed to ensure that the
servicer can provide a borrower with
accurate and timely information and
documents in response to the borrower’s
requests for information with respect to
the servicing of the borrower’s mortgage
loan account. Third, new § 1024.38(b)(4)
generally requires servicers to maintain
policies and procedures reasonably
designed to ensure (as a transferor
servicer) the timely transfer of all
information and documents in a manner
that ensures the accuracy of information
and documents transferred, and (as a
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transferee servicer) identify necessary
documents or information that may not
have been transferred by a transferor
servicer and obtain such documents
from the transferor servicer. Fourth, new
§ 1024.38(c)(2) generally requires,
among other things, that servicers
maintain a schedule of all transactions
credited or debited to the mortgage loan
account, including any escrow account
defined in § 1024.17(b) and any
suspense account and data in a manner
that facilitates compiling such
documents and data into a servicing file
within five days. In light of these
provisions, the Bureau does not believe
that the cost of providing the default
status of the loan or a full payment
history with the servicing transfer notice
for all borrowers would be justified.
Statement of borrower’s rights in
connection with the complaint
resolution process. Although not
specifically required by RESPA section
6(b)(3), current § 1024.21(d)(3)(vii)
requires that the transfer notice include
a statement of the borrower’s rights in
connection with the complaint
resolution process. The Bureau
proposed to remove this requirement
from the servicing transfer notice in new
§ 1024.33(b)(4). Two consumer
advocacy groups requested that the
Bureau retain the current requirement,
noting that borrowers would benefit
from being informed of their rights
related to errors and information
requests. They asserted that retaining an
existing disclosure would not add new
burden. Further, they asserted that
omitting the disclosure would not
significantly reduce burden because the
language in the proposed revised model
notice (without the complaint resolution
statement) at appendix MS–2 would
likely only comprise one page, and that
adding a paragraph about the error
resolution and information rights might
at most extend some of the information
to the back side of the notice, but would
not require an additional page or
increased postage.
After considering the comments
received, the Bureau has decided to
adopt § 1024.33(b)(4) without a
requirement to provide information
about complaint resolution, as
proposed. The Bureau believes that
borrowers are best served by providing
a notice that clearly and concisely
explains that the servicing of their
mortgage is being transferred, and that
detailed information about the error
resolution and information request
process may not always be optimally
located in the transfer notice.
Additionally, as a result of amendments
to the error resolution and information
request procedures that the Bureau is
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finalizing in this rule, the existing
disclosure in current appendix MS–2
would no longer be completely accurate.
The Bureau agrees that borrowers
should be notified of their rights in
connection with errors and inquiries,
but the Bureau believes that borrowers
should be informed of the error
resolution and information request
process through mechanisms that do not
necessarily depend on the transfer of
servicing. To address this, the Bureau is
adding a requirement in § 1024.38(b)(5)
that servicers maintain policies and
procedures reasonably designed to
ensure that servicers inform borrowers
of procedures for submitting written
notices of error set forth in § 1024.35
and written information requests set
forth in § 1024.36. New comment
38(b)(5)–1 explains, among other things,
that a servicer may comply with
§ 1024.38(b)(5) by including in the
periodic statement required pursuant to
§ 1026.41 a brief statement informing
borrowers that borrowers have certain
rights under Federal law related to
resolving errors and requesting
information about their account, and
that they may learn more about their
rights by contacting the servicer, and a
statement directing borrowers to a Web
site that provides the information about
the procedures set forth in §§ 1024.35
and 1024.36.89
The Bureau believes that a
requirement to establish policies and
procedures to achieve the objective of
notifying borrowers of the written error
resolution and information request
procedures set forth in §§ 1024.35 and
36 will provide servicers with more
flexibility to the time and in a manner
in which to notify borrowers about the
written error resolution and information
request procedures. Specifically, the
Bureau expects that servicers may
decide to inform borrowers about these
procedures at a time and in a manner
that borrowers are more likely to find
beneficial than at the time of servicing
transfer. Further, as described in more
detail in the section-by-section analysis
of § 1024.40, pursuant to § 1024.40(b)(4),
servicers must have policies and
procedures reasonably designed to
ensure that continuity of contact
personnel assigned to assist delinquent
borrowers provide such borrowers with
information about the procedures for
89 During the fourth round of consumer testing in
Philadelphia, Pennsylvania, the Bureau tested a
brief statement informing borrowers that they have
rights associated with resolving errors. While
participants generally understood the meaning of
the clause, the Bureau is not finalizing model
language for a statement informing borrowers of
their rights to resolve errors and request
information.
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submitting a notice of error pursuant to
§ 1024.35 or an information request
pursuant to § 1024.36.
Finally, the Bureau believes
borrowers are most likely to raise
questions and complaints with servicers
outside of the formal process outlined in
§§ 1024.35 and 36. To ensure that
servicers have systems in place for
responding to errors and information
requests through informal means, the
Bureau believes servicers should have
reasonable policies and procedures in
place for responding to errors and
information requests that fall outside of
the required error resolution and
information request procedures set forth
in §§ 1024.35 and 36. Accordingly, as
discussed in more detail in the sectionby-section analysis of § 1024.38(b)(1),
the Bureau is adopting
§ 1024.38(b)(1)(ii) and (iii), which
generally requires that servicers
maintain policies and procedures that
are reasonably designed to ensure that
the servicer can investigate, respond to,
and, as appropriate, make corrections in
response to borrower complaints, and
provide accurate and timely information
and documents in response to borrower
information requests. Therefore, for the
reasons discussed above, the Bureau is
adopting the proposal to remove the
requirement that the servicing transfer
notice describe the complaint resolution
statement currently set forth in
§ 1024.21(d)(3)(vii).
33(b)(4)(ii) and (b)(4)(iii)
RESPA section 6(b)(3)(C) and (D)
requires that the transferor and
transferee notices include the name and
a toll-free or collect call telephone
number for an individual employee or
the department of the transferor and
transferee servicers that can be
contacted by the borrower to answer
inquiries relating to the transfer of
servicing. 12 U.S.C. 2605(b)(3)(C) and
(D). The Bureau proposed to implement
these requirements, currently in
§ 1024.21(d)(3)(ii) and (iii), through new
§ 1024.33(b)(4)(ii) and (iii).
The Bureau’s proposal would have
retained the requirement to provide
contact information for ‘‘an employee or
department’’ of the transferor and
transferee servicers. The Bureau had
also proposed in § 1024.33(b)(4)(ii) and
(iii) to remove the requirement that the
transferor and transferee servicers
provide collect call telephone numbers,
but to retain the requirement to provide
toll-free telephone numbers.
Accordingly, proposed
§ 1024.33(b)(4)(ii) and (iii) would have
required that servicers provide only a
toll-free telephone number for an
employee or department of the
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transferee servicer that can be contacted
by the borrower to obtain answers to
servicing transfer inquiries. The
Bureau’s proposal also would have
required that the transferor notice
include the address for an employee or
department of the transferor servicer
that can be contacted by the borrower to
obtain answers to servicing transfer
inquiries. Current § 1024.21(d)(3)(iii)
requires only that the notice list
telephone contact information to reach
an employee or department of the
transferor servicer.
One industry commenter indicated
that providing an individual employee
name may not be appropriate in all
cases because individuals can change
roles within a servicer’s organization.
The commenter requested that only
contact information for a servicing
department be required. One individual
consumer recommended requiring that
the notice of transfer identify the owner
or assignee of the loan, without contact
information, in addition to contact
information for the transferor and
transferee servicers. Another individual
consumer also recommended that the
transfer notice include a plain language
explanation of what ‘‘owning’’ and
‘‘servicing’’ a loan mean.
The Bureau is adopting the
requirements in proposed
§ 1024.33(b)(4)(ii) and (iii) substantially
as proposed. However, the Bureau is
retaining the option to include a collect
call number because, upon further
consideration, the Bureau believes some
servicers may continue to use collect
call numbers. The Bureau is also
retaining the requirement to provide
contact information for either an
employee or department in the final
rule. Neither the statute nor the
regulatory provision requires servicers
to list specific employees but instead
gives servicers the option of listing
personnel or a department contact
number. The Bureau believes servicers
should be able to determine the most
appropriate point of contact within their
organizations. While the Bureau
recognizes that servicer personnel may
change over time, the Bureau does not
believe that there is significant risk from
the potential that contact information
may be inaccurate because servicers are
required under § 1024.38 to have
policies and procedures in place to
achieve the objective of providing
accurate information to borrowers.
Servicers may choose to provide
department-level contacts to ease their
own compliance. The Bureau believes
borrowers would likely benefit from the
disclosure of specific employees to the
extent the servicer decides to list them.
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10731
The Bureau has considered the
recommendation to require that the
servicing transfer notice identify the
owner or assignee of the loan in
addition to contact information for the
transferor and transferee servicer but is
not adopting such a requirement in the
final rule. First, the Bureau notes that
the servicing disclosure statement
provided at application pursuant to
§ 1024.33(a) already provides
information about whether the lender,
mortgage broker who anticipates using
table funding, or dealer may assign, sell,
or transfer the mortgage servicing to any
other person at any time. Additionally,
the Bureau believes the language in the
model form at appendix MS–2,
explaining that a new servicer will be
collecting the borrower’s mortgage loan
payments and that nothing else about
the borrower’s mortgage loan will
change, will avoid potential confusion
about what the transfer of servicing
means for a borrower’s loan.
Additionally, as explained above, the
Bureau believes that borrowers are best
served by a transfer notice that sets forth
the most relevant information related to
the transfer of servicing of their loan
and who should receive their payments
requiring additional information in the
notice about the owner or the loan may
be confusing. Finally, the servicing
transfer notice will include contact
information for the transferor and
transferee servicer that the borrower
may contact with any questions.90
33(b)(4)(iv)
RESPA section 6(b)(3)(E) requires that
the transferor and transferee notices
provide the date on which the transferor
will cease to accept payments relating to
the loan and the date on which the
transferee servicer will begin to accept
such payments. 12 U.S.C. 2605(b)(3)(E).
This requirement is currently in
§ 1024.21(d)(3)(iv), which the Bureau
proposed to implement through
proposed § 1024.33(b)(4)(iv).
Several individual consumers
indicated that the transfer notice could
provide clearer instructions for how
borrowers should submit payments after
the effective date of transfer date. One
individual consumer recommended that
the notice should list the Web site
address for transferee servicer and the
proper address to submit electronic
payments. Other consumers
recommended that the notice explain
which servicer is responsible for making
payments from any escrow account for
90 Pursuant to § 1024.36(d)(2)(i)(A), a servicer
generally must respond within 10 days to borrower
requests for information about the identify or, and
address or relevant contact information for, the
owner or assignee of the borrower’s mortgage loan.
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property taxes and insurance and the
effective date of such payments.
Current § 1024.21(d)(3)(i) requires and
the current model form in appendix
MS–2 include a statement directing
borrowers to send all payments due on
or after the effective date of transfer to
the new servicer.91 The Bureau’s
proposed amendments to the model
notice contained similar language but
included space for the transferee
servicer’s payment address.92 The
Bureau is adopting this change to the
model form in the final rule. See
appendix MS–2. The Bureau believes
this change to the model form will
provide clear instructions to borrowers
for the submission of future payments to
the transferee.
The Bureau does not believe it is
necessary to amend the regulatory text
of § 1024.33(b)(4)(iv) because the Bureau
believes servicers have an incentive to
instruct borrowers where to send future
payments, and the Bureau is concerned
that a regulatory requirement to identify
payment instructions, including
electronic payment instructions, could
be overly prescriptive. Moreover,
§ 1024.33(b)(ii) and (iii) requires
transferor and transferee servicers to
provide the contact information for
borrowers to obtain answers to inquiries
about the transfer; the Bureau believes
that borrowers requiring further
instruction about submitting payments
would make use of this contact
information.
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33(c) Borrower Payments During
Transfer of Servicing
33(c)(1) Payments Not Considered Late
RESPA section 6(d) provides that,
during the 60-day period beginning on
the effective date of transfer of servicing
of any federally related mortgage loan,
a late fee may not be imposed on the
borrower with respect to any payment
on such loan and no such payment may
be treated as late for any other purposes,
if the payment is received by the
transferor servicer (rather than the
transferee servicer who should properly
receive the payment) before the due date
applicable to such payment. This
provision is implemented through
§ 1024.21(d)(5). The Bureau proposed to
retain that general requirement in new
§ 1024.33(c) by making a clarifying
revision to the regulatory text—i.e., that
such misdirected payment may not be
treated as late ‘‘for any purpose.’’
91 Appendix MS–2 currently states, ‘‘Send all
payments due on or after that date to your new
servicer.’’
92 The Bureau proposed to amend appendix MS–
2 to state, ‘‘Send all payments due on or after [Date]
to [Name of new servicer] at this address: [New
servicer address].’’
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The Bureau also proposed to add a
qualification to that general prohibition
to conform new § 1024.33(c)(1) with the
requirements in new § 1024.39 by
clarifying that a borrower’s account may
be considered late for purposes of
contacting the borrower for early
intervention. Proposed § 1024.39 would
have required servicers to provide oral
and written notices to borrowers about
the availability of loss mitigation
options within 30 and 40 days after a
missed payment, respectively.
The Bureau did not receive comment
on this aspect of the proposal and is
adopting § 1024.33(c)(1) substantially as
proposed, except with respect to the
statement referencing § 1024.39. The
Bureau is adding new comment
33(c)(1)–1, to clarify that the prohibition
on treating a payment as late for any
purpose in § 1024.33(c)(1) includes a
prohibition on imposing a late fee on
the borrower with respect to any
payment on the mortgage loan, with a
cross-reference to RESPA section 6(d) in
order to clarify that the statutory
prohibition on charging late fees
remains in effect notwithstanding the
change to the language of the regulatory
provision.
In the final rule, the Bureau is not
adopting the proposed qualifying
language regarding § 1024.39 as
regulatory text, but instead is adopting
this language as new comment 33(c)(1)–
2. New comment 33(c)(1)–2 clarifies that
a transferee servicer’s compliance with
1024.39 during the 60-day period
beginning on the effective date of a
servicing transfer does not constitute
treating a payment as late for purposes
of § 1024.33(c)(1). The Bureau believes
this provision is more appropriately
located as commentary than regulatory
text because it is an interpretation of the
prohibition on treating a payment as
late.
The early intervention rules are new
requirements designed to inform
delinquent borrowers about loss
mitigation options. While a borrower
who has made a timely but misdirected
payment is not likely to benefit from
information about early intervention,
transferee servicers may not know the
reasons for a missed payment if they are
unable to establish live contact with
borrowers pursuant to § 1024.39(a)
(requiring that servicers establish live
contact or make good faith efforts to do
so by the 36th day of a borrower’s
delinquency). In the face of this
uncertainty, transferee servicers may
decide the best course of action is to
comply with § 1024.39, as applicable. In
these situations, the Bureau does not
believe a servicer complying with
§ 1024.39 is treating a borrower as late
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within the meaning of RESPA section
6(d).
33(c)(2)
Treatment of Payments
The Bureau also proposed to add a
requirement in proposed § 1024.33(c)(2)
that, in connection with a servicing
transfer, a transferor servicer shall
promptly either transfer a payment it
has received incorrectly to the transferee
servicer for application to a borrower’s
mortgage loan account or return the
payment to the person that made the
payment to the transferor servicer. The
Bureau explained that many servicers
already transfer misdirected payments
to the appropriate servicer in
connection with a servicing transfer,
and the Bureau requested comment
regarding whether the option to return
the payment to the borrower should be
eliminated.
One industry commenter supported
the proposed provision, but two
consumer advocacy groups and a
number of individual consumers
requested that the Bureau require the
transferring servicer to forward all
payments received from borrowers after
the transfer date to the appropriate
servicer. Consumer groups and
individual consumers were concerned
that returning misdirected payments to
the borrower would lead to confusion,
defaults, unnecessary fees, and
potentially more foreclosures. Consumer
groups believed that the transferor
servicer could easily pass payments on
to the transferee servicer, reducing the
opportunity for unnecessary harm to
borrowers. Similarly, one individual
consumer suggested that the borrower
should be permitted to make payments
to the transferor servicer during the 60
days after the transfer date. Another
individual consumer recommended that
the transferee servicer should be
responsible for collecting payments
from the transferor servicer. Another
consumer recommended that transferee
servicer should be required to take steps
to remind the borrower to send
payments to the new servicer.
After consideration of the comments
received, the Bureau has decided to
adopt § 1024.33(c)(2) substantially as
proposed. As discussed in more detail
below, the Bureau believes that this
requirement is necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including ensuring the avoidance of
unnecessary and unwarranted charges
and the provision of accurate
information to borrowers. Accordingly,
the provision is authorized under
sections 6(j)(3), 6(k)(1)(E), and 19(a) of
RESPA.
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The Bureau has added clarifying
language to § 1024.33(c)(2) and has
made conforming edits to
§ 1024.33(c)(2)(i) and (ii) to clarify the
circumstances under which the
transferor servicer must take action with
respect to misdirected payments.
Section 1024.33(c)(2) now provides that,
beginning on the effective date of
transfer of the servicing of any mortgage
loan, with respect to payments received
incorrectly by the transferor servicer
(rather than the transferee servicer that
should properly receive the payment on
the loan), the transferor servicer shall
promptly take action described in either
paragraph (c)(2)(i) or (c)(2)(ii). The
Bureau has modeled this language on
the language of § 1024.33(c)(1)
(payments not considered late). The
Bureau does not intend any substantive
difference from proposed
§ 1024.33(c)(2).
The Bureau has also added language
to § 1024.33(c)(2)(ii) to provide that if a
servicer does not transfer a misdirected
payment to the transferee servicer, the
servicer must return the payment to the
person that made the payment to the
transferor servicer and notify the payor
of the proper recipient of the payment.
The Bureau believes § 1024.33(c)(2) will
ensure that transferor servicers take
some action with respect to misdirected
payments; otherwise, transferor
servicers may claim that they had no
obligation with respect to misdirected
payments. The Bureau also believes it is
reasonable to permit transferors to either
return a misdirected payment to the
payor or transmit the payment to the
transferee servicer because there may be
circumstances in which a borrower
would want to be notified that the
payment had been mailed to the wrong
servicer, recoup the misdirected
payment, and forward it to the correct
servicer. In addition, there may be
situations in which a transferor servicer
receives a payment from a party it does
not recognize as the borrower associated
with the mortgage loan account. In such
situations, the Bureau believes servicers
may reasonably determine the best
course of action is to return such a
payment to the payor. Moreover, the
Bureau does not believe there is
significant potential for borrower harm
associated with § 1024.33(c)(2) because
§ 1024.33(c)(1) permits a 60-day grace
period in which timely but misdirected
payments to the transferor servicer may
not be considered late for any purpose.
In addition, § 1024.33(c)(2) requires the
transferor servicer to take action with
respect to the misdirected payment
‘‘promptly.’’ The Bureau does not agree
with individual consumers who suggest
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that borrowers should be permitted to
make payments to the transferor during
the 60 days after the transfer date, or
that the transferee servicer should
collect payments from the transferor.
While § 1024.33(c)(1) would prevent
timely but misdirected payments from
being treated as late, the transferor
servicer’s contractual right to collect
payments from the borrower would
likely end after a servicing transfer.
In the final rule, the Bureau has added
language to § 1024.33(c)(2)(ii) to require
the transferor servicer to notify the
payor of the proper recipient of
payment. Although the servicing
transfer notice will provide some notice
to the borrower of a transfer, there may
be situations in which the payor may be
a different party than the borrower who
received the transfer notice. In addition,
the fact that the payment was sent to the
transferor servicer would suggest that
the transfer notice sent pursuant to
§ 1024.33(b) did not achieve its
intended purpose. Thus, the Bureau
believes it is appropriate to instruct the
payor of the proper recipient of the
payment and that borrowers will be
better served by this requirement than
by requiring the transferor to redirect
the payment to the transferee.
33(d) Preemption of State Laws
RESPA section 6(h) generally
provides that a person who makes a
federally related mortgage loan or a
servicer shall be considered to have
complied with the provisions of any
such State law or regulation requiring
notice to a borrower at the time of
application for a loan or transfer of the
servicing of a loan if such person or
servicer complies with the requirements
under RESPA section 6 regarding
timing, content, and procedures for
notification of the borrower. 12 U.S.C.
2605(h). Current § 1024.21(h)
implements RESPA section 6(h) and
was finalized as part of a HUD’s 1994
final rule implementing RESPA section
6, which was added by section 921 of
the Cranston-Gonzalez National
Affordable Housing Act.93
Current § 1024.21(h) provides that a
lender who makes a mortgage servicing
loan or a servicer shall be considered to
have complied with any State law or
regulation requiring notice to a borrower
at the time of application or transfer of
servicing if the lender or servicer
complies with the requirements of
§ 1024.21. The provision further states
that any State law requiring notice to
the borrower at application or transfer of
servicing is preempted and that lenders
and servicers shall have no other
93 See
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disclosure requirements. Finally,
§ 1024.21(h) provides that provisions of
State law, such as those requiring
additional notices to insurance
companies or taxing authorities, are not
preempted by RESPA section 6 or
§ 1024.21 and that this additional
information may be added to a notice
provided under § 1024.33 if permitted
under State law.
The Bureau proposed to move
§ 1024.21(h) to new § 1024.33(d), along
with several non-substantive
amendments. The language of the
Bureau’s proposed preemption
provision is substantially similar to the
existing preemption provision with
respect to the types of provisions of
State laws or regulations preempted—
i.e., those requiring notices to the
borrower at application or transfer of
servicing where the servicer or lender
complies with the Bureau’s servicing
transfer notice provisions. The Bureau
notes, however, that consistent with the
discussion above, the Bureau’s proposal
would have expanded the coverage of
the preemption provision to cover
subordinate-lien mortgage loans by
replacing the term ‘‘mortgage servicing
loan’’ in the current language with
references to the term ‘‘mortgage loans.’’
The Bureau notes that expanded
coverage of the preemption provision to
subordinate-lien loans is consistent with
the scope of statutory preemption
provision in RESPA section 6(h), which
applies to ‘‘person who makes a
federally related mortgage loan or a
servicer.’’ As discussed above, the term
‘‘federally related mortgage loan’’
includes subordinate-lien loans. 12
U.S.C. 2602(1)(A).
The Bureau received one comment
from an organization of State bank
regulators that requested that the Bureau
omit § 1024.33(d). The organization
asserted that proposed § 1024.33(d) is
broader than the statutory preemption
provision in RESPA section 6(h)
because the proposed rule would have
invalidated State laws rather than
having provided that any State
requirements were fulfilled by
compliance with the Federal regime.
The organization explained it believes
RESPA section 6(h) is sufficient to
address the issue of duplicative or
conflicting State laws, without
promulgation of implementing
regulations.
Specifically, the organization objected
to language in proposed § 1024.33(d)
stating that State laws requiring notices
to borrowers were preempted, ‘‘and
there shall be no additional borrower
disclosure requirements.’’ The
commenter asserted that RESPA section
6(h) provides State notice laws are
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considered satisfied if the RESPA
timing, content, and notice procedure
requirements are met—not that State
laws are invalidated. The commenter
asserted that RESPA section 6(h) allows
State laws to apply where the or servicer
has not satisfied the RESPA
requirements, and that State
examination processes would be
hampered by an interpretation that
simply invalidates State law
requirements.
The Bureau is finalizing § 1024.33(d)
as proposed. The Bureau has considered
these objections but disagrees that the
language of § 1024.33(d) as proposed is
broader than the language of RESPA
section 6(h) or will introduce new
difficulties for State bank examiners. By
adopting § 1024.33(d), the Bureau is
maintaining substantially all of the
language of § 1024.21(h), which was
originally adopted by HUD through its
final rule implementing RESPA section
6(h). By implementing RESPA section
6(h) through § 1024.33(d), the Bureau
intends to maintain the current coverage
of § 1024.21(h) as it has existed for
many years. Accordingly, the Bureau
disagrees that § 1024.33(d) will
introduce any new complications into
the State examination process.
The commenter was also concerned
that, by implementing RESPA section
6(h) through language similar but not
identical to the statutory provision,
proposed § 1024.33(d) would broaden
the classes of State laws that are subject
to RESPA section 6(h). The commenter
focused on the omission in proposed
§ 1024.33(d) of the word ‘‘such’’ from
the statutory phrase ‘‘complied with the
provisions of any such State law’’; and
the omission of the phrase limiting the
scope of RESPA section 6(h) to the
‘‘timing, content, and procedures’’ for
notification to the borrower under
RESPA section 6.94
The Bureau disagrees with the
commenter’s assertion that, by
eliminating ‘‘such’’ from the statutory
provision of ‘‘complied with the
94 RESPA section 6(h) provides, in full:
‘‘Notwithstanding any provision of any law or
regulation of any State, a person who makes a
federally related mortgage loan or a servicer shall
be considered to have complied with the provisions
of any such State law or regulation requiring notice
to a borrower at the time of application for a loan
or transfer of the servicing of a loan if such person
or servicer complies with the requirements under
this section regarding timing, content, and
procedures for notification to the borrower’’
(emphasis added). Section 1024.33(d) provides, in
relevant part: ‘‘A lender who makes a mortgage loan
or a servicer shall be considered to have complied
with the provisions of any State law or regulation
requiring notice to a borrower at the time of
application for a loan or transfer of servicing of a
loan if the lender or servicer complies with the
requirements of this section.’’
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provisions of any such State law’’
(emphasis added), the Bureau has
broadened the scope of the preemption
from specific State laws requiring notice
to broad classes of law. Section
1024.33(d) makes clear that the State
laws at issue are those requiring notice
to borrower at the time of application
for a loan or transfer of servicing of a
loan, which the Bureau believes is
consistent with the types of notices
identified in RESPA section 6(h). The
Bureau also disagrees with the
commenter’s assertion that, by
eliminating the statutory phrase,
‘‘regarding timing, content, and
procedures for notification of the
borrower’’ from the description of the
requirements under section 6 with
which a servicer must comply to trigger
preemption, the Bureau has broadened
the preemption provision. Section
1024.33(d) indicates that State laws and
regulations are considered to be
complied with if the lender or servicer
complies with the requirements of ‘‘this
section,’’ which refers to the regulatory
section (1024.33) containing
requirements regarding timing, content,
and procedures for notifying borrowers
about servicing transfers. Accordingly,
the omission of the phrase regarding
timing, content, and procedures does
not substantively alter the meaning of
section 6(h) of RESPA.
Finally, the commenter suggested
there may be tension between
§ 1024.33(d) and § 1024.32(b), which
provides that servicers can combine
disclosures required by other laws or
the terms of an agreement with a
Federal or State regulatory agency with
the disclosures required by subpart C.
The Bureau does not believe these
provisions are in conflict. Paragraph
33(d) applies by its terms only to
notification provisions in § 1024.33. To
the extent § 1024.32(b) generally
provides that servicers can combine
disclosures required by other laws or
the terms of an agreement with a
Federal or State regulatory agency with
the disclosures required by subpart C,
the Bureau believes that servicers would
understand that the more specific rule
overrides the general rule with regard to
servicing transfer disclosures.
Section 1024.34 Timely Escrow
Payments and Treatment of Escrow
Account Balances In General
In the 2012 RESPA Mortgage
Servicing Proposal, the Bureau
proposed to move the substance of
current § 1024.21(g) to new § 1024.34(a)
to require a servicer to pay amounts
owed for taxes, insurance premiums,
and other charges from an escrow
account in a timely manner, pursuant to
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the requirements of current § 1024.17(k).
The Bureau also proposed in new
§ 1024.34(a) to make certain nonsubstantive amendments to the language
of current § 1024.21(g). Further, the
Bureau proposed to add new
§ 1024.34(b) to implement Dodd-Frank
Act amendments to section 6(g) of
RESPA. The Bureau is adopting
§ 1024.34 substantially as proposed,
except as where noted in the section-bysection analysis below.
34(a) Timely Escrow Disbursements
Required
RESPA section 6(g) provides that, if
the terms of any federally related
mortgage loan require the borrower to
make payments to the servicer of the
loan for deposit into an escrow account
for the purpose of assuring payment of
taxes, insurance premiums, and other
charges with respect to the property, the
servicer shall make payments from the
escrow account for such taxes,
insurance premiums, and other charges
in a timely manner as such payments
become due. 12 U.S.C. 2605(g). Current
§ 1024.21(g) implements this provision
by replicating the statutory nearly
verbatim. Current § 1024.21(g) uses the
term ‘‘mortgage servicing loan’’ in place
of the statutory term ‘‘federally related
mortgage loan’’ and includes a crossreference to § 1024.17(k), which sets
forth more detailed requirements for
how escrow payments are made in a
timely manner.
The Bureau proposed to incorporate
the substance of current § 1024.21(g)
into new § 1024.34(a) to provide that, if
the terms of a mortgage loan require the
borrower to make payments to the
servicer of the mortgage loan for deposit
into an escrow account to pay taxes,
insurance premiums, and other charges
for the mortgaged property, the servicer
shall make payments from the escrow
account in a timely manner, that is, on
or before the deadline to avoid a
penalty, as governed by the
requirements in § 1024.17(k).
As discussed above, the Bureau
proposed to expand the scope of current
§ 1024.21(g); proposed § 1024.34(a)
would have replaced the term
‘‘mortgage servicing loan’’ with the term
‘‘mortgage loan,’’ which includes
subordinate-lien loans. Other than this
change in scope, the Bureau proposed
several non-substantive technical
revisions to the current provision. One
commenter indicated that subordinatelien, closed-end loans typically do not
have escrow accounts. The commenter
asked that the Bureau clarify whether
these rules would apply to subordinatelien loans to avoid confusion.
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The Bureau is adopting this provision
as proposed. RESPA section 6(g), and
both current § 1024.21(g) and new
§ 1024.34(a), limit the applicability of
the provision, among other things, to
loans whose terms require the borrower
to make payments to the servicer of the
loan for deposit into an escrow account
to pay taxes, insurance premiums, and
other charges for the mortgaged
property. Thus, if a subordinate-lien
mortgage loan does not require
borrowers to make payments into an
escrow account, § 1024.34(a) would not
apply.
34(b)
Refunds of Escrow Balance
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34(b)(1)
In General
As noted above, RESPA section 6(g)
generally requires a servicer to make
payments from an escrow account in a
timely manner as payments become
due. 12 U.S.C. 2605(g). Section 1463(d)
of the Dodd-Frank Act amended RESPA
section 6(g) by adding a provision
requiring that any balance in any such
account that is within the servicer’s
control at the time the loan is paid off
be promptly returned to the borrower
within 20 business days or credited to
a similar account for a new mortgage
loan to the borrower with the ‘‘same
lender.’’ The Bureau proposed to add
§ 1024.34(b)(1) through (2) to implement
this amendment to RESPA section 6(g).
Proposed § 1024.34(b)(1) would have
provided that, within 20 days
(excluding legal public holidays,
Saturdays, and Sundays) of a borrower’s
payment of a mortgage loan in full, any
amounts remaining in the escrow
account shall be returned to the
borrower. The Bureau explained in its
proposal that the Bureau interprets the
20-day allowance in RESPA section 6(g)
to apply only if the servicer refunds the
escrow account balance to the borrower
(and not if the servicer credits a new
account with the same lender, as
provided in proposed § 1024.34(b)(2)).
Several industry associations and a
community bank commenter
recommended that the Bureau permit
servicers to net escrow funds against the
payoff amount. These commenters
noted that community banks frequently
net escrow funds against a payoff
balance, and they observed that
requiring servicer to obtain a full payoff
and then refund the escrow is costly and
does not provide a benefit to the
borrower. Another industry association
commenter requested that the Bureau
clarify that the borrower may direct how
the escrow account funds should be
applied.
Based on these comments and upon
further consideration, the Bureau has
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decided to revise the proposed
regulatory text and commentary. To
clarify the relationship between
§ 1024.33(b)(1) and (b)(2), the Bureau
has amended § 1024.34(b)(1) to provide
that, ‘‘[e]xcept as provided in paragraph
(b)(2),’’ a servicer shall return escrow
funds to the borrower. Paragraph (b)(2)
continues to give the servicer the option
of applying the escrow account to the
new loan in specified circumstances.
Accordingly, servicers shall generally
refund escrow amounts to the borrower,
unless the servicer applies the escrow
balance to a new account, as permitted
under § 1024.33(b)(2). In addition, the
Bureau has added language referring to
amounts remaining in an escrow
account ‘‘that is within the servicer’s
control’’ to replicate language appearing
in the statutory provision. The Bureau
has also made minor technical wording
clarifications, but is otherwise adopting
the text of § 1024.34(b)(1) as proposed.
The Bureau has also included
comment 34(b)(1)–1 to clarify that
§ 1024.34(b)(1) does not prohibit a
servicer from netting any remaining
funds in an escrow account against the
outstanding balance of the borrower’s
mortgage loan. The Bureau interprets
RESPA section 6(g), as amended by the
Dodd-Frank Act, as only requiring
servicers to return escrow balances or
credit a new account after the mortgage
loan is paid off. The Bureau does not
believe the Dodd-Frank Act amendment
to RESPA section 6(g) was intended to
affect the manner in which the loan is
paid off. Accordingly, the Bureau has
added comment 34(b)(1)–1 to clarify
that servicers are not prohibited under
§ 1024.34(b)(1) from netting any
remaining funds in an escrow account
against the borrower’s outstanding loan
balance.
34(b)(2) Servicer May Credit Funds to
a New Escrow Account
As amended by the Dodd-Frank Act,
RESPA section 6(g) permits a servicer to
credit the escrow account balance to an
escrow account for a new mortgage loan
to the borrower with the same lender if
the servicer does not return the balance
to the borrower within 20 business days.
12 U.S.C. 2605(g). To implement this
provision, the Bureau proposed to add
new § 1024.34(b)(2) to provide that a
servicer may credit funds in an escrow
account balance to an escrow account
for a new mortgage loan as of the date
of the settlement of the new mortgage
loan if the new mortgage loan is
provided to the borrower by a lender
that: (i) Was also the lender to whom the
prior mortgage loan was initially
payable; (ii) is the owner or assignee of
the prior mortgage loan; or (iii) uses the
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10735
same servicer that serviced the prior
mortgage loan to service the new
mortgage loan.95 Thus, if the servicer
credits the funds in the escrow account
to an escrow account for a new mortgage
loan, the credit should occur as of the
settlement of the new mortgage loan.
The Bureau proposed to add comment
34(b)(2)–1 to clarify that a servicer is not
required to credit an escrow account
balance to a new mortgage loan in any
circumstance in which it would be
permitted to do so. Thus, a servicer
would have been permitted, in all
circumstances, to return funds in an
escrow account to the borrower
pursuant to proposed § 1024.34(a).
Several industry commenters
supported proposed comment 34(b)(2)–
1. However, several industry
associations requested that the rule
include an option for the borrower to
direct how the escrow account funds
should be applied. One industry trade
association expressed concern that
RESPA section 6(g) and proposed
§ 1024.34 contained an ambiguity
regarding the ability of a servicer to
transfer funds retained in the escrow
account to a new lender with the
borrower’s consent. This commenter
noted that, while neither RESPA section
6(g) nor § 1024.34 explicitly prohibits
this practice, the use of the term ‘‘same
lender’’ in the statute and proposed
§ 1024.34 creates uncertainty over
whether a servicer may credit any
excess escrow account balances to a
new escrow account for a new mortgage
loan with a new lender with the
borrower’s consent.
Section 1024.34(b)(2) provides that,
notwithstanding § 1024.34(b)(1), if the
borrower agrees, a servicer may credit
any amounts remaining in an escrow
account that is within the servicer’s
control to an escrow account for a new
mortgage loan as of the date of the
settlement of the new mortgage loan if
the new mortgage loan is provided to
the borrower by a lender specified in
§ 1024.34(b)(2)(i) through (iii). As in the
proposal, these lenders are (i) the lender
to whom the prior mortgage loan was
initially payable; (ii) the lender that is
the owner or assignee of the prior
mortgage loan; or (iii) the lender that
uses the same servicer that serviced the
95 As the Bureau explained in its proposal, the
Bureau interprets the language ‘‘account with the
same lender’’ consistent with secondary market
practices. In addition, ‘‘lender’’ is defined in
Regulation X to mean, generally, the secured
creditor or creditors named in the debt obligation
and document creating the lien. For loans
originated by a mortgage broker that closes a
federally related mortgage loan in its own name in
a table funding transaction, the lender is the party
to whom the obligation is initially assigned at or
after settlement.
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prior mortgage loan to service the new
mortgage loan.
The Bureau has considered
commenters’ recommendations to revise
§ 1024.34 to permit servicers to credit
escrow accounts for loans with a new
lender with the borrower’s consent, but
the Bureau declines to further amend
proposed § 1024.34(b)(2) to expand the
types of lenders with whom a
borrower’s new mortgage loan may be
credited. The Dodd-Frank Act amended
RESPA section 6(g) to require that
servicers either return remaining escrow
account balances to the borrower within
20 days or credit a new escrow account
for a new mortgage loan with the ‘‘same
lender,’’ which the Bureau has
interpreted to be (i) the lender to whom
the prior mortgage loan was initially
payable; (ii) the lender that is the owner
or assignee of the prior mortgage loan;
or (iii) the lender that uses the same
servicer that serviced the prior mortgage
loan to service the new mortgage loan.
The Bureau believes an additional
exception to permit servicers to apply
remaining escrow balances to lenders
who are not the ‘‘same lender’’ within
the meaning of RESPA section 6(g)
would subsume the statutory provision.
Moreover, the Bureau believes that the
provision in § 1024.34(b)(1) (generally
requiring servicers to return remaining
escrow balances to borrowers within 20
days of loan payoff) provides borrowers
with sufficient flexibility to apply their
funds as they wish.
In addition, the Bureau has revised
proposed § 1024.34(b)(2) to add the
phrase ‘‘if the borrower agrees’’ to
require servicers to obtain the
borrower’s consent before crediting an
escrow balance to a new escrow account
for a new mortgage loan. The Bureau
has added this language to ensure
borrowers are informed of and agree to
a servicer’s actions with respect to any
remaining escrow balances if the
servicer does not return the balance
within 20 days under § 1024.34(b)(1).
Moreover, unlike the 20-day period in
which the servicer must otherwise
refund escrow balances in
§ 1024.34(b)(1), § 1024.34(b)(2) does not
require that funds be credited within a
particular time frame; the Bureau
believes it is appropriate to include a
requirement in § 1024.34(b)(2) that the
borrower agrees before the servicer takes
an action that could delay the
disposition of the borrower’s escrow
account balance. The Bureau also
believes it is appropriate to include a
requirement that borrowers agree to
servicer actions under § 1024.34(b)(2) to
avoid potential borrower confusion that
might otherwise arise if a servicer did
not refund an escrow balance within 20
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days, as required under § 1024.34(b)(1).
Accordingly, the Bureau believes that
the addition of the requirement that a
borrower must agree under
§ 1024.34(b)(2) is necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including to achieve the purposes of
RESPA section 6(g) and to ensure
responsiveness to borrower requests.
This change is therefore authorized
under sections 6(j)(3), 6(k)(1)(E), and
19(a) of RESPA. The Bureau has also
made technical revisions to proposed
§ 1024.34(b)(2) to clarify its relationship
to § 1024.34(b)(1), in light of the
Bureau’s revision to § 1024.34(b)(1) in
this final rule.96
To ensure servicers can easily credit
funds to a new account, the Bureau has
added comment 34(b)(2)–2, which
explains that a borrower may provide
consent either orally or in writing. The
Bureau has also added language to
§ 1024.34(b)(2), referring to amounts
remaining in an escrow account ‘‘that is
within the servicer’s control,’’ to
replicate language appearing in the
statutory provision. Finally, the Bureau
is adopting comment 34(b)(2)–1
substantially as proposed to clarify that
a servicer is not required to credit funds
in an escrow account to an escrow
account for a new mortgage loan and
may, in all circumstances, comply with
the requirements of § 1024.34 by
refunding the funds in the escrow
account to the borrower pursuant to
§ 1024.34(b)(1).97
Section 1024.35 Error Resolution
Procedures
Section 6(e) of RESPA requires
servicers to respond to borrowers’
‘‘qualified written requests’’ that relate
to the servicing of a loan, and
§ 6(k)(1)(B) of RESPA, added by the
Dodd-Frank Act, separately prohibits
servicers from charging fees for
responding to valid qualified written
requests. Section 1463(a) of the DoddFrank Act amended RESPA to add new
servicer prohibitions regarding
borrowers’ assertions of error and
requests for information. Specifically,
section 1463(a) of the Dodd-Frank Act
added section 6(k)(1)(C) to RESPA,
which states that a servicer shall not
‘‘fail to take timely action to respond to
a borrower’s requests to correct errors
relating to allocation of payments, final
balances for purposes of paying off the
96 The Bureau has added the following language
to § 1024.34(b)(2): ‘‘Notwithstanding paragraph
(b)(1) of this section * * *’’
97 The Bureau has made a technical correction to
comment 34(b)(2)–1 to replace the proposed
comment’s reference to ‘‘§ 1024.34(a)’’ with a
corrected reference to ‘‘§ 1024.34(b)(1).’’
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loan, or avoiding foreclosure, or other
standard servicer’s duties.’’ In addition,
section 1463(a) of the Dodd-Frank Act
added section 6(k)(1)(D) to RESPA
which states that a servicer shall not fail
to provide information regarding the
owner or assignee of a borrower’s loan
within ten business days of a borrower’s
request. Neither Dodd-Frank Act
provision suggests that a borrower
request to correct an error or for
information regarding the owner or
assignee of the borrower’s loan must be
in the form of a ‘‘qualified written
request’’ to trigger the new servicer
prohibitions.
As explained in the proposal, the
Bureau believed that both borrowers
and servicers would be best served if the
Bureau were to clearly define a
servicer’s obligation to correct errors or
respond to information requests as
required by RESPA sections 6(k)(1)(C)
and (D) and the RESPA provisions
regarding qualified written requests.
Thus, the Bureau proposed to establish
comprehensive, parallel requirements
for servicers to respond to specified
notices of error and information
requests. The Bureau proposed
§ 1024.35 to set forth the error
resolution requirements that servicers
would be required to follow to respond
to errors asserted by borrowers. The
Bureau proposed § 1024.36 to set forth
the information request requirements
that servicers would be required to
follow to respond to requests for
information from borrowers. In doing
so, the Bureau intended to establish
servicer procedural requirements for
error resolution and information
requests that are consistent with the
requirements applicable to a ‘‘qualified
written request’’ that relates to the
servicing of a loan under RESPA. Rather
than create overlapping regimes that
might confuse and frustrate both
borrowers and servicers alike, the
Bureau intended to create a uniform
regulatory regime by subsuming the
qualified written request rules in the
new regime established and authorized
by the Dodd-Frank Act for notices of
error and requests for information more
generally. The Bureau believed such a
single regulatory regime would reduce
the burden on both borrowers and
servicers who otherwise would expend
wasteful resources navigating between
two separate regulatory regimes and
parsing form requirements applicable to
qualified written requests. To that end,
the Bureau proposed to delete current
§ 1024.21(e), the existing regulations
concerning qualified written requests,
and provide instead that a qualified
written request asserting an error or
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requesting information regarding the
servicing of a mortgage loan would be
subject to the new provisions governing
notices of error and information
requests, as applicable.98
Because the Bureau understands that
the majority of borrower complaints are
submitted orally, the Bureau proposed
that both written and oral notices of
error would be subject to the error
resolution provisions. At the same time,
the Bureau recognized that permitting
oral error notices would significantly
expand servicers’ responsibility to
respond to notices of error. To enable
servicers to allocate resources to
respond to errors in a manner that
would benefit borrowers, the Bureau
proposed a limited list of errors to
which the error resolution provisions
would apply. As discussed in more
detail below, industry commenters were
unanimously opposed to applying error
resolution requirements under proposed
§ 1024.35 to errors asserted orally.
Consumer advocacy group commenters
expressed support for applying the
requirements under § 1024.35 to oral
error notices, but were strongly opposed
to the proposal to limit those errors
subject to error resolution procedures
under proposed § 1024.35 to a finite list.
Industry commenters supported
inclusion of a limited list. Based on the
Bureau’s consideration of these
comments and the analysis below, the
final rule does not require servicers to
comply with error resolution procedures
under § 1024.35 for oral notices of error.
At the same time, the final rule includes
a catch-all provision that defines as an
error subject to the error resolution
procedures under § 1024.35 errors
relating to the servicing of a borrower’s
mortgage loan. Moreover, the final rule
provides that a servicer’s policies and
procedures should be reasonably
designed to provide information to
borrowers who are not satisfied with the
resolution of a complaint or request for
information submitted orally of the
procedures for submitting written
notices of error and information
requests.
Some credit unions, community
banks and their trade associations
asserted that the Bureau should exempt
small servicers from error resolution
requirements under § 1024.35 and
information request requirements under
§ 1024.36. Commenters argued that
small servicers effectively communicate
with borrowers regarding complaints
and information requests, and especially
98 Notably, a notice of error may also constitute
a direct dispute under Regulation V, which
implements the Fair Credit Reporting Act, if it
complies with the requirements in 12 CFR 1022.43.
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disfavored the proposed requirement
that small servicers respond to oral
notices of error and information
requests. In contrast, a consumer
advocacy group commenter asserted
that exempting small servicers would be
inappropriate, as all servicers should be
capable of complying with error
resolution and information request
requirements. Having carefully
considered these comments, the Bureau
declines to exempt small servicers from
error resolution procedures under
§ 1024.35 and information request
procedures under § 1024.36. As
discussed above, §§ 1024.35 and
1024.36, as finalized, do not require
servicers to comply with such
procedures for oral submissions by
borrowers. In light of this adjustment,
final §§ 1024.35 and 1024.36 primarily
provide clarification as to existing
obligations under RESPA and
Regulation X. Moreover, the burden on
all servicers is significantly mitigated.
For these reasons, and the reasons
discussed below, the Bureau declines to
exempt small servicers from error
resolution and information request
procedures.
Legal Authority
Section 1024.35 implements section
6(k)(1)(C) of RESPA, and to the extent
the requirements are also applicable to
qualified written requests, sections 6(e)
and 6(k)(1)(B) of RESPA. Pursuant to the
Bureau’s authorities under sections 6(j),
6(k)(1)(E), and 19(a) of RESPA, the
Bureau is also adopting certain
additions and certain exemptions to
these provisions. As explained in more
detail below, these additions and
exemptions are necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including ensuring responsiveness to
consumer requests and complaints and
the provision and maintenance of
accurate and relevant information.
35(a) Notice of Error
Section 6(k)(1)(C) of RESPA, as added
by section 1463(a) of the Dodd-Frank
Act, prohibits servicers from failing to
take timely action to respond to requests
of borrowers to correct certain errors.
However, unlike section 6(e) of RESPA,
which sets forth specific rules for
submission of and response to
‘‘qualified written requests,’’ section
6(k)(1)(C) of RESPA does not specify
that borrowers’ requests to correct errors
must be submitted in any particular
format to trigger the new prohibition.
Proposed § 1024.35(a) stated that a
servicer must comply with the
requirements of § 1024.35 for a notice of
error made either orally or in writing
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10737
and that included the name of the
borrower, information that enabled a
servicer to identify the borrower’s
mortgage loan account, and the error the
borrower believed had occurred. Section
1024.35(a) was intended to implement
RESPA section 6(k)(1)(C), with respect
to borrower requests to assert errors
generally, and RESPA section 6(e), with
respect to qualified written requests by
borrowers to correct errors, by defining
what constituted a proper borrower
request within the meaning of these
provisions. The Bureau received
comment on proposed § 1024.35(a) and
is finalizing it with changes as
discussed below.
Substance Over Form
The proposal included proposed
comment 35(a)–2, which would have
clarified that the substance of the notice
of error would determine the servicer’s
obligation to comply with the error
resolution requirements, information
request requirements, or both, as
applicable. Proposed comment 35(a)–2
stated that no particular language (such
as ‘‘qualified written request’’ or ‘‘notice
of error’’) is necessary to set forth a
notice of error. The Bureau did not
receive comment regarding proposed
comment 35(a)–2 and is adopting it as
proposed.
Qualified Written Requests
Proposed § 1024.35(a) would have
required a servicer to treat a qualified
written request that asserts an error
relating to the servicing of a loan as a
notice of error subject to the
requirements of § 1024.35. The Bureau
intended to propose servicer obligations
applicable to qualified written requests
that were the same as requirements
applicable to other notices of error that
met the requirements for assertions of
error under § 1024.35(a). One consumer
group commenter expressed support for
the proposal because it dispensed with
technicalities about whether an
assertion of error constituted a valid
qualified written request. A trade
association commenter said the Bureau
failed to define a valid qualified written
request and said that proposed
§ 1024.35 does not fully integrate
section 6(e) of RESPA into the proposed
error resolution procedures. Another
trade association of private mortgage
lenders said the proposal did not make
clear what constitutes a qualified
written request and to what extent
servicers must continue to comply with
existing law regarding qualified written
requests. Having considered these
comments, the Bureau notes that final
§ 1024.31 defines the term ‘‘qualified
written request.’’ In addition, as
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discussed above, the Bureau has added
new comment 31 (qualified written
request)-2, which clarifies that the error
resolution and information request
requirements in §§ 1024.35 and 1024.36
apply as set forth in those sections
irrespective of whether the servicer
receives a qualified written request.
Finally, the Bureau has revised
proposed § 1024.35(a) to make clear in
the final rule that a qualified written
request that asserts an error relating to
the servicing of a mortgage loan is a
notice of error for purposes of § 1024.35
for which a servicer must comply with
all requirements applicable to a notice
of error.
Oral Notices of Error
The Bureau proposed to require
servicers to comply with the
requirements under § 1024.35 for errors
asserted by a borrower either orally or
in writing. The Bureau believed this
approach was warranted because, based
on its discussions with consumers,
consumer advocates, servicers, and
industry trade associations during
outreach, the Bureau learned that the
vast majority of borrower complaints are
asserted orally rather than in writing.
The proposal solicited comment
regarding whether servicers should be
required to comply with the error
resolution requirements under § 1024.35
for notices of error received orally.
The Bureau received a number of
comments from both consumer groups
and various industry members on this
question. Consumer advocacy group
commenters reiterated their support for
applying the requirements under
§ 1024.35 to notices of error made
orally, noting that consumers most often
assert errors and request information
orally rather than in writing. In contrast,
consumer commenters on Regulation
Room disfavored the proposal’s
application of the error resolution
requirements under § 1024.35 to notices
of error received orally. Consumer
commenters, citing their negative
experiences attempting to request
information from servicers orally, were
concerned that encouraging an oral
process would weaken consumer
protections. Industry commenters also
opposed the proposal’s application of
the error resolution requirements under
§ 1024.35 to oral notices of error, albeit
for different reasons. Industry
commenters asserted that applying error
resolution requirements to oral notices
of error would create new burdens for
servicers regarding tracking the notices
of error and monitoring borrowers’
receipt of written acknowledgements
and responses. Industry commenters
further stressed that a written process
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would provide more clarity and
certainty as to the nature of the error the
borrower asserted and the
communications from the servicer to the
borrower during the conversation.
Further, industry commenters asserted,
written notices of error would help
avoid situations in which the borrower
and servicer have differing recollections
as to the content of the borrower’s
notice of error and the servicer’s
response during the conversation.
Absent a written record, commenters
said, servicers would need to record
conversations with borrowers to
minimize the significant litigation risk.
The commenters asserted that recording
conversations could be especially costly
for small servicers and would require
the borrower’s consent in many
jurisdictions. Some industry
commenters also noted their belief that
RESPA requires that borrowers assert
errors in writing.
Many of the concerns articulated by
industry commenters were consistent
with those expressed by small entity
representatives with whom the Small
Business Review Panel conducted
outreach in advance of the proposal.
The Small Business Review Panel
recommended that the Bureau consider
requiring small servicers to comply with
the error resolution procedures under
§ 1024.35 only when borrowers asserted
errors in writing.99 The Small Business
Review Panel also recommended that
the Bureau consider adopting a more
flexible process for tracking errors and
demonstrating compliance that could be
used by small servicers.100
The Bureau had anticipated many of
these comments and had proposed to
delimit the category of issues that could
be raised through the error process to
mitigate the challenges of identifying
oral assertions of error. Nonetheless,
after consideration of these comments
and the comments received with respect
to the Bureau’s definition of error as
discussed below, the Bureau is
amending proposed § 1024.35(a) to
apply the error resolution requirements
under § 1024.35 solely to notices of
error received in writing, and the
Bureau is broadening the definition of
error as well. While borrowers may
continue to assert errors orally, servicers
will not be required to comply with the
formal error resolution requirements
outlined in § 1024.35 for such assertions
99 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, 30 (Jun, 11, 2012).
100 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, 30 (Jun, 11, 2012).
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of errors. Instead, the Bureau has added
§ 1024.38(b)(1)(ii), which generally
requires that servicers maintain policies
and procedures that are reasonably
designed to ensure that the servicer can
investigate, respond to, and, as
appropriate, make corrections in
response to complaints, whether written
or oral, asserted by borrowers. In
addition, the Bureau has added a
requirement in § 1024.38(b)(5) that
servicers establish policies and
procedures reasonably designed to
achieve the objective of informing
borrowers of the procedures for
submitting written notices of error set
forth in § 1024.35 and written
information requests set forth in
§ 1024.36.
The Bureau believes that imposing the
formal requirements under § 1024.35
only to written notices of error and
addressing oral notices of error instead
through the policies and procedures
requirements under § 1024.38 strikes the
appropriate balance between ensuring
responsiveness to consumer requests
and complaints and mitigating the
burden on servicers of following and
demonstrating compliance with specific
procedures with respect to oral notices
of error. The Bureau believes that the
need to provide additional flexibility to
servicers with respect to responding to
oral notices of error is particularly
necessary in light of the Bureau’s further
decision, as discussed below, to expand
the list of covered errors under
§ 1024.35 to include a catch-all
provision for errors relating to the
servicing of mortgage loans. On the one
hand, the Bureau is persuaded, for the
reasons discussed further below, that it
should not delimit the set of issues that
consumers should be able to raise
within the error resolution process. On
the other hand, the Bureau also is
persuaded that determining from a
telephone call from a borrower to a
servicer whether the borrower is
asserting an error rather than simply, for
example, posing a question can be
challenging. Drawing this line—and
triggering the investigation and response
requirement with respect to errors—
would be exponentially more difficult if
any concern relating to the servicing of
the borrower’s mortgage loan could
constitute an error.
The final rule will thus require
servicers to maintain policies and
procedures reasonably designed to
ensure that servicers investigate,
respond to and, as appropriate, resolve
oral complaints on a more informal
basis, without having to follow the
formal error resolution requirements, so
long as the servicer has policies and
procedures reasonably designed to
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ensure that borrowers are informed of
the written error resolution procedures.
At the same time, the final rule will
provide a broader definition of errors
subject to the requirements of § 1024.35.
Borrower’s Representative
Proposed comment 35(a)–1 would
have clarified that a notice of error
submitted by an agent of the borrower
is considered a notice of error submitted
by the borrower. Proposed comment
35(a)–1 would have further permitted
servicers to undertake reasonable
procedures to determine if a person who
claims to be an agent of a borrower has
authority from the borrower to act on
the borrower’s behalf. Several industry
commenters said it would be costly and
burdensome to determine whether a
third party has authority to act on a
borrower’s behalf. Many requested
clarification as to what the Bureau
believes constitutes acting on the
borrower’s behalf. Further, some
industry commenters expressed concern
about potential liability for the improper
release of information, including the
risk of violating State or Federal privacy
laws, as well as what commenters
perceived to be increased risk of
identity theft and fraud. Finally, a few
industry commenters took the position
that only the borrower, but not the
borrower’s agent, should be permitted to
assert notices of error.
Section 6(e)(1)(A) of RESPA states
that a qualified written request may be
provided by a ‘‘borrower (or an agent of
the borrower).’’ Thus, one consumer
advocacy group commenter noted that
the proposal to permit borrowers’ agents
to submit notices of error is consistent
with the statutory requirement.
Consumer groups also requested that the
Bureau clarify that the timelines for
error resolution will not toll during the
period in which the servicer attempts to
validate through reasonable policies and
procedures that a third party purporting
to act on a borrower’s behalf is, in fact,
an agent of the borrower.
Having considered these comments,
the Bureau is amending proposed
comment 35(a)–1 to address servicers’
concerns about potential liability for the
improper release of information. The
final comment clarifies that servicers
may have reasonable procedures to
determine if a person that claims to be
an agent of a borrower has authority
from the borrower to act on the
borrower’s behalf, for example, by
requiring purported agents to provide
documentation from the borrower
stating that the purported agent is acting
on the borrower’s behalf. Upon receipt
of such documentation, the servicer
shall treat a notice of error as having
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been submitted by the borrower. The
Bureau acknowledges that requiring
servicers to respond to error notices
submitted by borrowers’ agents is more
costly than limiting the requirement to
borrowers’ notices, but notes that this
approach is consistent with section
6(e)(1)(A) of RESPA with respect to a
qualified written request. The Bureau
believes that it is necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including ensuring responsiveness to
borrower requests and complaints, to
apply this requirement to all written
notices of error, especially since
borrowers who are experiencing
difficulty in making their mortgage
payments or in dealing with their
servicer may turn, for example, to a
housing counselor or other
knowledgeable persons to assist them in
addressing such issues. The Bureau
declines to define further the term
‘‘agent.’’ The concept of agency has
historically been defined under State or
other applicable law. Thus, it is
appropriate for the definition to defer to
applicable State law regarding agents.
35(b) Scope of Error Resolution
Section 6(e) of RESPA requires
servicers to respond to ‘‘qualified
written requests’’ asserting errors or
requesting information relating to the
servicing of a federally-related mortgage
loan. Section 1463(a) of the Dodd-Frank
Act amended RESPA to add section
6(k)(1)(C), which states that a servicer
shall not ‘‘fail to take timely action to
respond to a borrower’s request to
correct errors relating to allocation of
payments, final balances for purposes of
paying off the loan, or avoiding
foreclosure, or other standard servicer’s
duties.’’ The Bureau believes that
standard servicer duties are those
typically undertaken by servicers in the
ordinary course of business. Such duties
include not only the obligations that are
specifically identified in section
6(k)(1)(C) of RESPA, but also those
duties that are defined as ‘‘servicing’’ by
RESPA, as implemented by this rule, as
well as duties customarily undertaken
by servicers to investors and consumers
in connection with the servicing of a
mortgage loan. These standard servicer
duties are not limited to duties that
constitute ‘‘servicing,’’ as defined in this
rule, and include, for example, duties to
comply with investor agreements and
servicing program guides, to advance
payments to investors, to process and
pursue mortgage insurance claims, to
monitor coverage for insurance (e.g.,
hazard insurance), to monitor tax
delinquencies, to respond to borrowers
regarding mortgage loan problems, to
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10739
report data on loan performance to
investors and guarantors, and to work
with investors and borrowers on options
to mitigate losses for defaulted mortgage
loans.101
Limited List
The Bureau proposed § 1024.35(b) to
implement section 6(k)(1)(C) of RESPA.
Proposed § 1024.35(b) set forth a limited
list of errors to which the error
resolution provisions would apply. The
Bureau proposed a limited list because
it believed such a list would provide
certainty to both borrowers and
servicers regarding the types of errors
that are subject to the error resolution
process. Further, as discussed above, the
Bureau believed a limited list would
enable servicers to allocate resources to
respond to errors in a manner that
would ultimately benefit borrowers. The
Bureau also considered that it was
proposing to require servicers to
respond to both oral and written error
notices and information requests in
compressed time periods. Finally, the
Bureau considered the feedback the
Small Business Review Panel received
from small entity representatives
regarding whether the error resolution
procedures should include a catch-all
provision to the enumerated list of
errors. In general, small entity
representatives commented favorably on
the Bureau’s proposal to delimit the list
of errors.
The Bureau solicited comment
regarding whether the list of errors to
which error resolution procedures
would apply should include a catch-all
provision or be limited to an
enumerated list. Industry commenters
supported the establishment of a limited
list of errors, noting certainty, clarity,
and notice as its primary benefits.
Consumer group commenters generally
opposed limiting notices of error to an
enumerated list. Consumer advocates
asserted that the proposal was a
departure from and offered fewer
consumer protections than the existing
qualified written request process under
section 6 of RESPA, which incorporates
a catch-all provision for errors relating
to the servicing of a borrower’s mortgage
loan. Some consumer advocates noted
the reference in section 6(k)(1)(C) of
RESPA to ‘‘standard servicer’s duties,’’
and argued that the catch-all provision
should likewise cover all errors relating
to ‘‘standard servicer’s duties.’’ In
addition, some consumer group
commenters noted the fluid nature of
101 In providing these examples, the Bureau is
making no judgment regarding whether they fall
within the meaning of ‘‘servicing’’ as defined in this
rule.
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mortgage servicing and cautioned that a
limited list of covered errors lacks the
flexibility necessary to ensure that
consumers will be adequately protected
as servicing practices evolve.
After consideration of these
comments, and as discussed further
below, the Bureau has decided to revise
proposed § 1024.35(b) to include a
catch-all that includes as an error errors
relating to the servicing of a borrower’s
mortgage loan. In addition, as discussed
below, final § 1024.35(b) substantively
retains the enumerated errors listed in
the proposal. The Bureau believes
revising proposed § 1024.35(b) in this
manner is necessary and appropriate to
achieve the consumer protection
purposes of RESPA, including ensuring
responsiveness to consumer requests
and complaints in light of the fluidity of
the mortgage market and the inability to
anticipate in advance and delineate all
types of errors related to servicing that
borrowers may encounter, and which
should be subject to the error resolution
process under § 1024.35 to prevent
borrower harm. At the same time, the
Bureau believes that the costs and
burdens created by having a more
expansive definition of the term error
are significantly mitigated because, as
discussed above, the final rule applies
error resolution requirements under
§ 1024.35 only to written assertions of
error. Moreover, the final rule
implements an error resolution process
that is consistent with the existing
process for responding to qualified
written requests under RESPA section 6,
which includes a catch-all for servicingrelated errors.
Covered Errors
The Bureau proposed comment 35(b)–
1, which would have clarified that a
servicer would not be required to
comply with the requirements of
proposed § 1024.35(d) and (e) if a notice
related to something other than one of
the types of errors in proposed
§ 1024.35(b). The proposed comment
provided examples of categories of
excluded errors that would not be
considered covered errors pursuant to
proposed § 1024.35(b). These included
matters relating to the origination or
underwriting of a mortgage loan, matters
relating to a subsequent sale or
securitization of a mortgage loan, and
matters relating to a determination to
sell, assign, or transfer the servicing of
a mortgage loan.
Industry commenters supported the
proposed exclusion, noting that the
categories the Bureau proposed to
exclude are unrelated to servicing and
largely beyond servicers’ knowledge.
Some consumer group commenters
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objected that the proposed exclusions
were overly broad. The Bureau believes
that a mortgage servicer is generally not
in a position to investigate or resolve
borrower complaints regarding potential
errors that may have occurred during an
origination, underwriting, sale, or
securitization process. Accordingly, the
Bureau is adopting comment 35(b)–1
substantially as proposed. The final
comment clarifies that, in addition to
§ 1024.35(d) and (e), servicers need not
comply with § 1024.35(i) with respect to
a borrower’s assertion of an error that is
not defined as an error in § 1024.35(b).
Final comment 35(b)–1 also includes a
clarification that the failure to transfer
accurately and timely information
relating to a borrower’s loan account to
a transferee servicer is an error for
purposes of § 1024.35, while matters
relating to an initial determination to
transfer servicing are not.
A trade association of reverse
mortgage lenders also commented
regarding the scope of the error
resolution procedures, urging the
Bureau to exclude reverse mortgages
from the scope of covered error. Having
considered this comment, the Bureau
notes that servicers of reverse mortgage
transactions are already subject to the
qualified written request procedures set
forth in section 6(e) of RESPA and
§ 1024.21(e) of Regulation X. Likewise,
pursuant to final § 1024.30, the error
resolution requirements under § 1024.35
apply to reverse mortgage transactions
that are mortgage loans, as that term is
defined in final § 1024.31. Accordingly,
to the extent that a borrower asserts an
error under § 1024.35 that is applicable
to such a reverse mortgage, the servicer
shall comply with error resolution
procedures as to the error. For example,
because § 1024.30 generally excludes
servicers of reverse mortgage
transactions from § 1024.41, errors
asserted under § 1024.35(b)(9) and (10),
discussed below, are not applicable to
reverse mortgage transactions.
35(b)(1)
Proposed § 1024.35(b)(1) would have
included as a covered error a servicer’s
failure to accept a payment that
conforms to the servicer’s written
requirements for the borrower to follow
in making payments. The Bureau
proposed § 1024.35(b)(1) to implement,
in part, section 6(k)(1)(C) of RESPA with
respect to borrower requests to correct
errors relating to allocation of payments
for a borrower’s account and ‘‘other
standard servicer’s duties.’’
A failure to accept a proper payment
will necessarily have implications for
the correct application of borrower
payments. The Bureau further believes
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that proper acceptance of payments is a
standard servicer duty. Moreover,
proper acceptance of payments is, by
definition, servicing, and already
subject to the qualified written request
procedure set forth in section 6(e) of
RESPA and current § 1024.21(e) of
Regulation X. The Bureau did not
receive comment regarding proposed
§ 1024.35(b)(1) and is adopting it as
proposed.
35(b)(2)
Proposed § 1024.35(b)(2) would have
included as an error a servicer’s failure
to apply an accepted payment to the
amounts due for principal, interest,
escrow, or other items pursuant to the
terms of the mortgage loan and
applicable law. The Bureau proposed
§ 1024.35(b)(2) to implement, in part,
section 6(k)(1)(C) of RESPA with respect
to borrower requests to correct errors
relating to the allocation of payments for
a borrower’s account and other standard
servicer duties. Proper allocation of
payments is also, by definition,
servicing, and already subject to the
qualified written request procedures set
forth in section 6(e) of RESPA and
current § 1024.21(e) of Regulation X.
The Bureau did not receive comment
regarding proposed § 1024.35(b)(2) and
is adopting it as proposed.
35(b)(3)
Proposed § 1024.35(b)(3) would have
included as an error a servicer’s failure
to credit a payment to a borrower’s
mortgage loan account as of the date of
receipt, where such failure results in a
charge to the consumer or the furnishing
of negative information to a consumer
reporting agency. The Bureau proposed
§ 1024.35(b)(3) to implement, in part,
section 6(k)(1)(C) of RESPA with respect
to borrower requests to correct errors
relating to the allocation of payments for
a borrower’s account and other standard
servicer duties. A failure to credit a
payment as of the date of receipt may
have implications for the correct
application of borrower payments. A
servicer’s failure to credit a payment
promptly may cause the servicer to
report to a borrower improper
information regarding the amounts
owed by the borrower and may cause a
servicer to misapply other payments
received by the borrower. Further, a
servicer’s failure to credit borrower
payments promptly may generate
improper late fees and other charges.
The Bureau further believes that prompt
crediting of borrower payments is a
standard servicer duty as set forth in
section 6(k)(1)(C) of RESPA. The Bureau
also observes that prompt crediting of
borrower payments is, by definition,
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servicing and, therefore, is subject to the
qualified written request procedure set
forth in section 6(e) of RESPA.
As the Bureau noted in the 2012
RESPA Servicing Proposal, prompt
crediting of payments to consumers is
required by section 129F of TILA, which
was added by section 1464 of the DoddFrank Act and will be implemented by
§ 1026.36(c)(1) in the 2013 TILA
Servicing Final Rule. For a mortgage
loan secured by a principal dwelling,
TILA section 129F mandates that
servicers shall not fail to credit a
payment to a consumer’s loan account
as of the date of receipt, except when a
delay in crediting does not result in any
charge to the consumer, or in the
furnishing of negative information to a
consumer reporting agency. See 15
U.S.C. 1639f. TILA section 129F
provides a specific exception for
payments that do not conform to a
servicer’s written requirements, but
nonetheless are accepted by the
servicer, in which case the servicer shall
credit the payment as of five days after
receipt. See 15 U.S.C. 1639f(b).
Servicers of mortgage loans covered by
TILA section 129F have a duty to
comply with that provision.
A credit union and a non-bank
servicer commented on proposed
§ 1024.35(b)(3). The credit union
requested greater flexibility as to
payments received outside of the
servicer’s operating hours or at the end
of the business day. The non-bank
servicing company requested
clarification that the proposal was not
intended to impact servicers’ ability as
to scheduled interest loans to credit an
account as of the receipt date and apply
payment as of the scheduled due date.
The Bureau believes § 1024.35(b)(3) as
proposed would have provided
servicers sufficient flexibility to credit
payments, as it would have limited
errors to where the failure to credit a
payment as of the date of receipt results
in a charge to consumers or furnishing
of negative information to a credit
reporting agency. Nevertheless, the
Bureau recognizes that there would be
little consumer benefit to subjecting
servicers to potentially overlapping
standards as to prompt crediting of
borrowers’ accounts. At the same time,
for those loans that are not subject to
TILA section 129F, the Bureau believes
that it would be inappropriate to extend
the requirements of that provision
beyond the scope mandated by
Congress, as implemented by
§ 1026.36(c)(1) of the 2013 TILA
Servicing Final Rule. Accordingly, the
Bureau is revising the proposed
language in final § 1024.35(b)(3) to make
clear that a servicer’s failure to credit a
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payment to a borrower’s mortgage loan
account as of the date of receipt is an
error only in those circumstances in
which the failure to credit as of the date
of receipt would contravene
§ 1026.36(c)(1). Final § 1024.35(b)(3)
defines as an error the failure to credit
a payment to a borrower’s mortgage loan
account as of the date of receipt in
violation of 12 CFR 1026.36(c)(1).
Because servicers will already be
required to comply with § 1026.36(c)(1)
with respect to certain mortgage loans
they service, the Bureau does not
believe that defining their failure to do
so as an error imposes additional
burden on servicers.
35(b)(4)
Proposed § 1024.35(b)(4) would have
included as an error a servicer’s failure
to make disbursements from an escrow
account for taxes, insurance premiums,
or other charges, including charges that
the borrower and servicer have
voluntarily agreed that the servicer
should collect and pay, as required by
current § 1024.17(k) and proposed
§ 1024.34(a), or to refund an escrow
account balance in a timely manner as
required by proposed § 1024.34(b). The
Bureau proposed § 1024.35(b)(4) to
implement, in part, section 6(k)(1)(C) of
RESPA with respect to borrower
requests to correct errors relating to the
allocation of payments for a borrower’s
account and other standard servicer
duties.
In the normal course of business,
servicers typically engage in collecting
payments from borrowers to fund
escrow accounts and disburse payments
from escrow accounts to pay borrower
obligations for taxes, insurance
premiums, and other charges. Servicers
typically undertake this obligation on
behalf of investors because a borrower’s
maintenance of an escrow account
reduces risk for investors that unpaid
taxes may generate tax liens that are
higher in priority than a lender’s
mortgage lien and that unpaid insurance
may cause lapses in insurance coverage
that present risk for investors in the
event of a loss. Servicers are required to
make disbursements from escrow
accounts in a timely manner pursuant to
section 6(g) of RESPA and are required
to account for the funds credited to an
escrow account pursuant to section 10
of RESPA. In addition, the proper
disbursement of escrow funds is, by
definition, servicing and, therefore, is
currently subject to the qualified written
request procedure set forth in section
6(e) of RESPA and current § 1024.21(e)
of Regulation X. A credit union
commenter agreed that proposed
§ 1024.35(b)(4) should constitute an
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10741
error. For the reasons set forth above
and in the proposal, the Bureau is
adopting § 1024.35(b)(4) as proposed.
35(b)(5)
Proposed § 1024.35(b)(5) would have
included as an error a servicer’s
imposition of a fee or charge that the
servicer lacks a reasonable basis to
impose upon the borrower. The Bureau
proposed § 1024.35(b)(5) to implement,
in part, section 6(k)(1)(C) of RESPA with
respect to standard servicer duties. The
Bureau believes that it is a typical
servicer duty, both to the borrower and
to the servicer’s principal, to ensure that
the servicer has a reasonable basis to
impose a charge on a borrower.
The Bureau believes that servicers
should not impose fees on borrowers
that are not bona fide—that is, fees that
a servicer does not have a reasonable
basis to impose upon a borrower.
Examples of non-bona fide charges
include such common sense errors as
late fees for payments that were not late,
default property management fees for
borrowers that are not in a delinquency
status that would justify the charge,
charges from service providers for
services that were not actually rendered
with respect to a borrower’s mortgage
loan account, and charges for forceplaced insurance in circumstances not
permitted by final rule § 1024.37.
Improper fees harm both mortgage
loan borrowers and the investors that
are mortgage servicers’ principals.
Improper and uncorrected fees harm
borrowers by taking funds that may
otherwise be used to keep a mortgage
loan current. Further, improper fees
reduce recovery values available to
investors from foreclosures or loss
mitigation activities. Servicers that
operate in good faith in the normal
course of business refrain from
imposing charges on borrowers that the
servicer does not have a reasonable
basis to impose and correct errors
relating to those fees when they arise.
Industry commenters asserted that the
term ‘‘reasonable basis’’ is open to
interpretation and thus urged the
Bureau to further define the term or to
otherwise provide additional
clarification. One credit union trade
association suggested that the Bureau
prohibit fees for which the servicer
lacks a legal basis. Having considered
these comments, the Bureau believes it
is appropriate to provide more clarity as
to what constitutes a fee for which a
servicer lacks a reasonable basis.
Accordingly, the Bureau has added new
comment 35(b)–2, which provides
examples of fees that a servicer lacks a
reasonable basis to impose. The Bureau
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is otherwise adopting § 1024.35(b)(5) as
proposed.
35(b)(6)
Proposed § 1024.35(b)(6) would have
included as an error a servicer’s failure
to provide an accurate payoff balance to
a borrower upon request pursuant to 12
CFR 1026.36(c)(3). The Bureau intended
through this provision to implement
TILA section 129G, which was added by
section 1464 of the Dodd-Frank Act and
which requires that a creditor or
servicer of a home loan send an accurate
payoff balance amount to the borrower
within a reasonable time, but in no case
more than seven business days after the
receipt of a written request for such
balance from or on behalf of a borrower.
The Bureau proposed § 1024.35(b)(6) to
implement, in part, section 6(k)(1)(C) of
RESPA with respect to borrower
requests to correct errors relating to a
final balance for purposes of paying off
a mortgage loan and standard servicer
duties.
Servicers already have an obligation
to comply with the timing requirements
of section 129G of TILA with respect to
any mortgage loan that constitutes a
‘‘home loan’’ as used in section 129G of
TILA.102 The Bureau proposed
§ 1024.35(b)(6) because it believed,
consistent with TILA section 129G, that
borrowers require accurate payoff
statements to manage their mortgage
loan obligations. A payoff statement is
necessary any time a borrower repays a
mortgage loan, and servicers routinely
provide payoff statements for borrowers
to refinance or pay in full their mortgage
loan obligations. However, consumer
advocates have indicated that servicers
have failed, or refused, to provide payoff
statements to certain borrowers or have
required borrowers to make a payment
on a mortgage loan as a condition of
fulfilling the borrower’s request for a
payoff statement.103 Any such conduct
has the perverse effect of impeding a
borrower’s ability to pay a mortgage
loan obligation in full.
The Bureau did not receive comment
regarding proposed § 1024.35(b)(6) but
is revising the proposed language in the
final rule to make clear that the failure
to provide a payoff balance is an error
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102 In
the Bureau’s 2013 TILA Servicing Final
Rule, the Bureau interpreted the use of the term
‘‘home loans’’ to include consumer credit
transactions secured by a consumer’s dwelling.
103 See, e.g., Mortgage Servicing: An Examination
of the Role of Federal Regulators in Settlement
Negotiations and the Future of Mortgage Servicing
Standards: Joint Hearing Before the Subcomm. on
Fin. Inst. & Consumer Credit & Subcomm. on
Oversight & Investigations of the Hous. Fin. Serv.
Comm., 112th Cong. 76 (July 7, 2011) (statement of
Mike Calhoun, President, Center for Responsible
Lending).
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only in those circumstances in which
TILA section 129G, as implemented by
§ 1026.36(c)(3) of the 2013 TILA
Servicing Final Rule, applies. The
Bureau recognizes that there would be
little consumer benefit to subjecting
servicers to potentially overlapping
standards under TILA and RESPA as to
the provision of a payoff statement. At
the same time, for those loans that are
not subject to TILA section 129G, the
Bureau believes that it would be
inappropriate to extend the
requirements of the provision beyond
the scope mandated by Congress, as
implemented by § 1026.36(c)(3).
Final § 1024.35(b)(6) defines as an
error the failure to provide an accurate
payoff balance amount upon a
borrower’s request in violation of
section § 1026.36(c)(3). Because
servicers will already be required to
comply with the timeframes set forth in
§ 1026.36(c)(3) with respect to certain
mortgage loans they service, the Bureau
does not believe that defining their
failure to do so as an error imposes
additional burden on servicers.
35(b)(7)
Proposed § 1024.35(b)(7) would have
included as an error a servicer’s failure
to provide accurate information to a
borrower with respect to loss mitigation
options available to the borrower and
foreclosure timelines that may be
applicable to the borrower’s mortgage
loan account, as required by proposed
§§ 1024.39 and 1024.40. The Bureau
proposed § 1024.35(b)(7) to implement,
in part, section 6(k)(1)(C) of RESPA with
respect to borrower requests to correct
errors relating to avoiding foreclosure,
as well as errors relating to standard
servicer duties.
In order to pursue loss mitigation
options that may benefit both the
borrower and the owner or assignee of
the borrower’s mortgage loan, a
borrower requires accurate information
about the loss mitigation options
available to the borrower, the
requirements for receiving an evaluation
for any such loss mitigation option, and
the applicable timelines relating to both
the evaluation of the borrower for the
loss mitigation options and any
potential foreclosure process.
The Bureau believes that borrowers
may benefit from asserting errors with
respect to a servicer’s failure to provide
information regarding loss mitigation
options that may be available to the
borrower but for which the servicer has
not provided information to the
borrower. By correcting such errors and
providing the borrower with accurate
information regarding such loss
mitigation options, a servicer can help
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a borrower receive an evaluation for
available loss mitigation options
pursuant to § 1024.41 and to potentially
receive an offer of such an option,
which may be mutually beneficial to the
borrower and the owner or assignee of
the borrower’s mortgage loan.
Further, the Bureau believes that the
National Mortgage Settlement, servicer
participation in Home Affordable
Modification Program (HAMP)
sponsored by the U.S. Department of the
Treasury (Treasury) and HUD, and
servicer participation in other loss
mitigation programs required by Fannie
Mae and Freddie Mac demonstrate that,
at present, servicers typically provide
borrowers with information regarding
loss mitigation options and foreclosure
and that providing such information to
borrowers is a standard servicer duty.
One non-bank servicer and one credit
union commented on proposed
§ 1024.35(b)(7). Both advocated against
inclusion of a servicer’s failure to
provide information regarding loss
mitigation options as an error subject to
error resolution procedures under
§ 1024.35. The credit union asserted that
lenders are incentivized to provide
accurate loss mitigation information, as
they try to avoid foreclosing upon
properties.
The Bureau believes it is critical for
borrowers to have information regarding
available loss mitigation options and
requiring that a servicer comply with
error resolution procedures as to a
borrower assertion that a servicer failed
to provide such information is
important to ensure that borrowers
receive this information. The Bureau
does not believe there is significant risk
that the rule will result in servicers
limiting options offered to consumers,
as investors and guarantors dictate the
loss mitigation options available to
borrowers. Further, the Bureau notes
that the failure of a servicer to provide
accurate information will create liability
under this section only if the servicer
fails to correct the error when called to
its attention. Accordingly, the Bureau is
adopting § 1024.35(b)(7) as proposed,
except that the Bureau has removed the
reference to § 1024.40 in light of other
changes to the proposed rule.
35(b)(8)
Proposed § 1024.35(b)(8) would have
included as an error a servicer’s failure
to accurately and timely transfer
information relating to a borrower’s
mortgage loan account to a transferee
servicer. The Bureau proposed
§ 1024.35(b)(8) to implement, in part,
section 6(k)(1)(C) of RESPA with respect
to borrower requests to correct errors
relating to standard servicer duties.
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The Bureau believes that the accurate
and timely transfer of information
relating to a borrower’s mortgage
account is a standard servicer duty. In
the normal course of business, servicers
typically anticipate that they will be
required to transfer servicing for some
mortgage loans they service. Owners or
assignees of mortgage loans typically
have rights to transfer servicing for a
mortgage loan pursuant to the
requirements set forth in mortgage
servicing agreements. Servicers
generally are required to develop
capacity for transferring information to
transferee servicers in order to comply
with such obligations to owners or
assignees of mortgage loans. Further,
servicers generally are required to
develop capacity to download data for
transferred mortgage loans onto the
servicer’s servicing platform. Borrowers
may be harmed, however, if information
that is transferred to transferee servicers
is not accurate, current, or is not
properly captured by a transferee
servicer. In certain circumstances, such
failure may cause errors to occur
relating to allocating payments,
calculating final balances for purposes
of paying off a mortgage loan, or
avoiding foreclosure.
Accordingly, the 2013 RESPA
Servicing Final Rule requires servicers
to maintain policies and procedures
reasonably designed to achieve the
objective of facilitating servicing
transfers. Specifically, § 1024.38(b)(4)(i)
provides that as a transferor servicer, a
servicer must maintain policies and
procedures reasonably designed to
ensure the timely transfer of all
information and documents in the
possession or control of the servicer
relating to a transferred mortgage loan to
a transferee servicer in a form and
manner that ensures the accuracy of the
information and enables a transferee
servicer to comply with its obligations
to the owner or assignee of the mortgage
loan and applicable law.
Under proposed § 1024.35(b)(8), a
servicer’s failure to accurately and
timely transfer information relating to a
borrower’s mortgage loan account to a
transferee servicer would constitute an
error. The Bureau believes that by
defining an error in this way, a borrower
will have a remedy to ensure that a
transferor servicer provides information
to a transferee servicer that accurately
reflects the borrower’s account
consistent with the obligations
applicable to a servicer’s general
servicing policies and procedures. The
Bureau did not receive comment
regarding § 1024.35(b)(8) and is
adopting it as proposed.
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35(b)(9) and 35(b)(10)
Proposed § 1024.35(b)(9) would have
included as an error a servicer’s failure
to suspend a foreclosure sale in the
circumstances described in proposed
§ 1024.41(g). The Bureau proposed
§ 1024.35(b)(9) to implement, in part,
section 6(k)(1)(C) of RESPA with respect
to borrower requests to correct errors
relating to avoiding foreclosure and
other standard servicer duties.
Proposed § 1024.41(g) provided that a
servicer that offers loss mitigation
options to borrowers in the ordinary
course of business would be prohibited
from proceeding with a foreclosure sale
when a borrower has submitted a
complete application for a loss
mitigation option by a specified date
unless the servicer denies the
borrower’s application for a loss
mitigation option (including any appeal
thereof), the borrower rejects the
servicer’s offer of a loss mitigation
option, or the borrower fails to perform
on a loss mitigation agreement. These
requirements are discussed in more
detail in the section-by-section analysis
for § 1024.41 below.
A credit union commenter asserted
that failure to suspend a foreclosure sale
in the circumstances described in
proposed § 1024.41(g) should not be
considered an error subject to the error
resolution requirements under § 1024.35
because, the commenter reasoned, a
lender will delay foreclosure when there
is a legitimate need to do so. Having
considered the comment, and as
explained with respect to § 1024.41, the
Bureau continues to believe it is
appropriate to prohibit a servicer from
completing the foreclosure process until
after a borrower has had a reasonable
opportunity to submit an application for
a loss mitigation option and the servicer
has completed the evaluation of the
borrower for a loss mitigation option,
and that a borrower should be able to
assert an error where a servicer fails to
comply with these procedures.
The Bureau, however, is revising
proposed § 1024.35(b)(9) in light of
changes to proposed § 1024.41. Final
§ 1024.35(b)(9) defines as an error
subject to error resolution requirements
under § 1024.35 making the first notice
or filing required by applicable law for
any judicial or non-judicial foreclosure
process in violation of § 1024.41(f) or (j).
The Bureau has also added new
§ 1024.35(b)(10) which defines as an
error moving for foreclosure judgment
or order of sale, or conducting a
foreclosure sale in violation of
§ 1024.41(g) or (j).
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10743
35(b)(11)
New § 1024.35(b)(11) includes a
catch-all that applies error resolution
procedures to errors relating to the
servicing of a borrower’s mortgage loan.
As discussed above, the Bureau
solicited comment regarding whether
the list of covered errors should include
a catch-all provision. The Bureau also
requested comment as to whether to add
additional specific errors to the list of
errors under § 1024.35. In particular, the
Bureau solicited comment regarding
whether to include as an error a
servicer’s failure to correctly evaluate a
borrower for a loss mitigation option.
Industry commenters supported the
inclusion of a limited list of errors,
citing certainty, clarity, and notice as its
primary benefits. Consumer group
commenters generally opposed limiting
notices of error to a finite list. Consumer
advocates asserted that the proposal was
a departure from and offered fewer
consumer protections than the existing
qualified written request process under
section 6 of RESPA, which applies to all
errors relating to servicing. In addition,
some consumer group commenters
noted the fluid nature of mortgage
servicing and cautioned that a finite list
lacks the flexibility necessary to ensure
that consumers will be adequately
protected as servicing practices evolve.
As to whether the Bureau should add
additional specific errors to the list of
covered errors, some consumer groups
suggested the addition of specific errors,
including errors relating to escrow
accounts, servicing transfer, disclosures,
and loss mitigation, while also
reiterating their support for a broad
catch-all provision. While most industry
commenters said the proposed list of
covered errors was adequate, a credit
union commenter suggested that the
Bureau add requests to cancel liens once
accounts have been paid in full. Both
consumer groups and industry
commented regarding whether to
include a servicer’s failure to correctly
evaluate a borrower for a loss mitigation
option as an error. One consumer group
urged the Bureau to do so, asserting that
because the Dodd-Frank Act requires
servicers to take timely action to correct
errors relating to avoiding foreclosure,
the plain language of the statute
suggests that borrowers should be able
to assert errors related to loss mitigation
before they get to the point of a
foreclosure sale. The commenter further
contended that the appeals process set
forth in proposed § 1024.41(h) will not
hold servicers sufficiently accountable
for uncorrected errors. The commenter
said that borrowers need a statutory
remedy for uncorrected errors. Another
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consumer group advocated for a catchall sufficiently broad to capture the
array of servicer loss mitigation duties.
An industry association took the
opposing view, citing concerns about
the inability to objectively measure
whether a servicer evaluated a borrower
for an option correctly. The industry
commenter requested that should the
Bureau add this category as a covered
error, the Bureau also clarify that a
servicer who complies with § 1024.41
has not committed the error.
As noted in the proposal, the Bureau
believes that the appeals process set
forth in § 1024.41(h) provides an
effective procedural means for
borrowers to address issues relating to a
servicer’s evaluation of a borrower for a
loan modification program. For this
reason, and the reasons stated below
with respect to loss mitigation practices,
the Bureau declines to add a servicer’s
failure to correctly evaluate a borrower
for a loss mitigation option as a covered
error in the final rule.
The Bureau is, however, adding new
§ 1024.35(b)(11), which includes a
catch-all that defines as an error subject
to the requirements of § 1024.35 errors
relating to the servicing of a borrower’s
mortgage loan. The Bureau believes that
any error related to the servicing of a
borrower’s mortgage loan also relates to
standard servicer duties. The Bureau
also agrees with consumer advocacy
commenters that the mortgage market is
fluid and constantly changing and that
it is impossible to anticipate with
certainty the precise nature of the issues
that borrowers will encounter. The
Bureau, therefore, believes that it is
necessary and appropriate to achieve
the purposes of RESPA to craft error
resolution procedures that are
sufficiently flexible to adapt to changes
in the mortgage market and to
encompass the myriad and diverse types
of errors that borrowers may encounter
with respect to their mortgage loans. At
the same time, the Bureau believes the
costs and burdens created by having a
more expansive definition of error are
significantly mitigated because, as
discussed above, under the final rule the
requirements under § 1024.35 apply
only to written notices of error.
Moreover, the final rule adopts a
process that is consistent with the
existing process for responding to
qualified written requests under RESPA
section 6, which likewise includes a
catch-all for servicing-related errors.
The Bureau declines to add additional
covered errors beyond the catch-all.
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35(c) Contact Information for Borrowers
To Assert Errors
The Bureau proposed § 1024.35(c),
which would have permitted a servicer
to establish an exclusive telephone
number and address that a borrower
must use to assert an error. If a servicer
chose to establish a separate telephone
number and address for receiving errors,
the proposal would have required the
servicer to provide the borrower a notice
that states that the borrower may assert
an error at the telephone number and
address established by the servicer for
that purpose. Proposed comment 35(c)–
1 would have clarified that if a servicer
has not designated a telephone number
and address that a borrower must use to
assert an error, then the servicer will be
required to comply with the error
resolution requirements for any notice
of error received by any office of the
servicer. Proposed comment 35(c)–2
would have further clarified that the
written notice to the borrower may be
set forth in another written notice
provided to the borrower, such as a
notice of transfer, periodic statement, or
coupon book. Proposed comment 35(c)–
2 would have further clarified that if a
servicer establishes a telephone number
and address for receipt of notices of
error, the servicer must provide that
telephone number and address in any
communication in which the servicer
provides the borrower with contact
information for assistance from the
servicer.
The Bureau proposed to allow
servicers to establish a telephone
number and address that a borrower
must use to assert an error in order to
allow servicers to direct oral and written
errors to appropriate personnel that
have been trained to ensure that the
servicer responds appropriately. As the
proposal noted, at larger servicers with
other consumer financial service
affiliates, many personnel simply do not
typically deal with mortgage servicingrelated issues. For instance, at a major
bank servicer, a borrower might assert
an error to local bank branch staff, who
likely would not have access to the
information necessary to address their
error. Thus, the Bureau reasoned, if a
servicer establishes a telephone number
and address that a borrower must use,
a servicer would not be required to
comply with the error resolution
requirements for errors that may be
received by the servicer through a
different method.
Most industry commenters favored
allowing servicers to designate an
address and telephone number to which
borrowers must direct error notices. At
the same time, such commenters
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asserted that creating an exclusive
intake portal was not sufficient to offset
the burdens inherent in permitting oral
error notices to which error resolution
requirements apply. Some commenters
said that designating telephone lines for
error notices could be especially costly
for small servicers. Thus, one
community bank trade association
argued that the proposal favored large
institutions. Two industry commenters
requested clarification regarding how
servicers must treat error notices sent to
the wrong address. Finally, one credit
union commenter asserted that servicers
should only be required to include
designated telephone numbers and
addresses in regular forms of
communication to borrowers, such as
the periodic statement. In contrast,
consumer group commenters suggested
that to the extent a servicer designates
a telephone line or address, the servicer
should be required to post such
information on its Web site and to
include it in mailed notices.
Because the final rule removes the
requirement that servicers comply with
error resolution requirements under
§ 1024.35 for oral notices of error, the
Bureau believes that it is no longer
necessary to regulate the circumstances
under which servicers may direct oral
errors to an exclusive telephone number
that a borrower must use to assert an
error. However, for written error notices,
the Bureau continues to believe that it
is reasonable to permit servicers to
designate a specific address for the
intake of notices of error. Allowing a
servicer to designate a specific address
is consistent with current requirements
of Regulation X with respect to qualified
written requests. Current § 1024.21(e)(1)
permits a servicer to designate a
‘‘separate and exclusive office and
address for the receipt and handling of
qualified written requests.’’ Moreover,
the Bureau believes that identifying a
specific address for receiving errors and
information requests will benefit
consumers. By providing a specific
address, servicers will identify to
consumers the office capable of
addressing errors identified by
consumers.
The Bureau believes it is critical for
servicers to publicize any designated
address to ensure that borrowers know
how properly to assert an error and to
avoid evasion by servicers of error
resolution procedures. This is especially
important because, as noted in the
proposal, servicers who designate a
specific address for receipt of error
notices are not required to comply with
error resolution procedures for notices
sent to the wrong address. Accordingly,
final § 1024.35(c) requires servicers that
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designate an address for receipt of
notices of error to post the designated
address on any Web site maintained by
the servicer if the Web site lists any
contact address for the servicer. In
addition, final comment 35(c)–2 retains
the clarification that servicers that
establish an address that a borrower
must use to assert an error, must
provide the address to the borrower in
any communication in which the
servicer provides the borrower with
contact information for assistance. The
Bureau is otherwise adopting
§ 1024.35(c) and comments 35(c)–1 and
35(c)–2 as proposed, except that the
Bureau has revised the provisions
permitting servicers to designate a
telephone number that a borrower must
use to assert an error and clarified that
the notice to the borrower must be
written.
Multiple Offices
Proposed § 1024.35(c) also included
language that would have required a
servicer to use the same telephone
number and address it designates for
receiving notices of error for receiving
information requests pursuant to
proposed § 1024.36(b), and vice versa.
Further, the Bureau proposed comment
35(c)–3, which would have clarified that
any telephone numbers or address
designated by a servicer for any
borrower may be used by any other
borrower to submit a notice of error. For
instance, if a servicer set up regional
call centers, it would have had to assist
any borrowers who called in to a
particular center to complain about an
error, regardless of whether the
borrower called the correct region.
One non-bank servicer expressed
concern about the proposal’s
requirement to designate the same
address and telephone number for
notices of error and information
requests. The commenter explained that
it assigns separate teams to address
information requests and error notices.
Thus, the commenter asserted, proposed
§ 1024.35(c) would negatively impact
customer service. Having considered
this comment, the Bureau notes that it
proposed § 1024.35(c) because it was
concerned that designating separate
telephone numbers and addresses for
notices of error and information
requests could impede borrower
attempts to submit notices of error and
information requests to servicers due to
debates over whether a particular
communication constituted a notice of
error or an information request. For the
reasons set forth above and in the
proposal, final § 1024.35(c) maintains
the requirement that servicers designate
the same address for receipt of notices
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of error and information requests. In
addition, the Bureau is adopting
comment 35(c)–3 as substantially as
proposed, except that the Bureau has
removed references to error notices
received by telephone.
The Bureau proposed comment 35(c)–
5 to further clarify that a servicer may
use automated systems, such as an
interactive voice response system, to
manage the intake of borrower calls. The
proposal provided that prompts for
asserting errors must be clear and
provide the borrower the option to
connect to a live representative. Because
the final rule does not require servicers
to comply with error resolution
procedures for oral error notices, the
Bureau is withdrawing proposed
comment 35(c)–5 from the final rule.
Internet Intake of Notices of Error
The Bureau proposed comment 35(c)–
4 to clarify that a servicer would not be
required to establish a process for
receiving notices of error through email,
Web site form, or other online methods.
Proposed comment 35(c)–4 was
intended to further clarify that if a
servicer establishes a process for
receiving notices of error through online
methods, the servicer can designate it as
the only online intake process that a
borrower can use to assert an error. A
servicer would not be required to
provide a written notice to a borrower
in order to gain the benefit of the online
process being considered the exclusive
online process for receiving notices of
error. Proposed comment 35(c)–4 would
have further clarified that a servicer’s
decision to accept notices of error
through an online intake method shall
be in addition to, not in place of, any
processes for receiving error notices by
phone or mail.
One consumer group commenter
advocated requiring servicers to
establish on online process for receipt of
error notices. The Bureau agrees that
online processes have significant
promise to facilitate faster, cheaper
communications between borrowers and
servicers. However, the Bureau believes
that this suggestion raises a broader
issue around the use of electronic media
for communications between servicers
(and other financial service providers)
and borrowers (and other consumers).
The Bureau believes it would be most
effective to address this issue in that
larger context after study and outreach
to enable the Bureau to develop
principles or standards that would be
appropriate on an industry-wide basis.
The Bureau is therefore, at this time,
finalizing language to permit, but not
require, servicers to elect whether to
adopt such a process. The Bureau
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intends to conduct broader analyses of
electronic communications’ potential
for disclosure, error resolution, and
information requests after the rule is
released. Accordingly, the Bureau is
adopting comment 35(c)–4 as proposed,
with minor technical amendments, and
the Bureau has removed references to
error notices received by telephone.
35(d) Acknowledgment of Receipt
The Bureau proposed § 1024.35(d),
which would have required a servicer to
provide a borrower an
acknowledgement of a notice of error
within five days (excluding legal public
holidays, Saturdays, and Sundays) of
receiving a notice of error. Proposed
§ 1024.35(d) would have implemented
section 1463(c) of the Dodd-Frank Act,
which amended the current
acknowledgement deadline of 20 days
for qualified written requests to five
days. Proposed § 1024.35(d) would have
further implemented the language in
section 6(k)(1)(C) of RESPA prohibiting
the failure to take timely action to
respond to requests to correct errors by
applying the same timeline applicable
to a qualified written request to any
notice of error.
Industry commenters, including
multiple credit union associations,
requested that the Bureau lengthen the
acknowledgment time period, asserting
that five days is unreasonable,
especially for smaller institutions. A
nonprofit mortgage servicer said the
timeframe is insufficient for its small
volunteer staff. An industry trade
association commenter argued that the
acknowledgment requirement creates
unnecessary paperwork and should be
removed from the final rule altogether.
In contrast, consumer group
commenters were generally supportive
of the acknowledgment requirement,
noting that the timeline in the proposal
was consistent with that in the DoddFrank Act for qualified written requests.
The Bureau believes that
acknowledgment within five days is
appropriate given that the Dodd-Frank
Act expressly adopts that requirement
for qualified written requests and
differentiating between the two regimes
would increase operational complexity.
Moreover, the burden on servicers is
significantly mitigated by the fact that
the error resolution procedures are only
applicable to written notices of error.
The Bureau further notes that the
contents of the acknowledgment are
minimal. In addition, servicers need not
provide an acknowledgment if the
servicer corrects the error identified by
the borrower and notifies the borrower
of that correction in writing within five
days of receiving the error notice.
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Accordingly, the Bureau is adopting
§ 1024.35(d) substantially as proposed,
except that the Bureau has revised the
provision to clarify that the
acknowledgment must be written.
35(e) Response to Notice of Error
The Bureau proposed § 1024.35(e) to
set forth requirements on servicers for
responding to notices of error. As
discussed in more detail below,
proposed § 1024.35(e) would have
implemented the response requirement
in section 6(e)(2) of RESPA applicable to
a qualified written request, including
section 1463(c) of the Dodd-Frank Act,
which changed the deadline for
responding to qualified written requests
from 60 days to 30 days. Proposed
§ 1024.35(e) would have further
implemented section 6(k)(1)(C) of
RESPA by applying the same
requirements and timeline applicable to
a qualified written request to any notice
of error.
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35(e)(1) Investigation and Response
Requirements
Proposed § 1024.35(e)(1) would have
required a servicer to correct an error
within 30 days unless the servicer
concluded after a reasonable
investigation that no error occurred and
notified the borrower of that finding. As
discussed below, the Bureau maintains
the 30-day timeline in the final rule.
Notices to Borrower
Proposed § 1024.35(e)(1)(i)(A) would
have required a servicer that does not
determine after a reasonable
investigation that no error occurred as
set forth under § 1024.35(e)(1)(i)(B), to
correct the error identified by the
borrower, and provide the borrower
with notification that indicates that the
error was corrected, the date of the
correction, and contact information the
borrower can use to get further
information. One industry commenter
asserted that RESPA does not require
that servicers provide correction dates
and questioned the utility of such a
requirement. The commenter further
requested clarification as to whether the
date of correction was equivalent to the
effective date of the correction.
The Bureau did not intend the
reference to the date of correction in
§ 1024.35(e)(1)(i)(A) to refer to the date
the correction was made by the servicer,
but rather to the date the correction is
made effective. Accordingly, the Bureau
is amending proposed
§ 1024.35(e)(1)(i)(A) to add the word
‘‘effective’’ to the final rule in order to
clarify that the date servicers must
provide is the effective date of the
correction. The Bureau believes that
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providing the effective date of the
correction is meaningful information for
a borrower to assess whether the
servicer has satisfactorily corrected the
error, particularly in cases involving
changes to the balance of the borrower’s
account. Commenters did not comment
on other aspects of proposed
§ 1024.35(e)(1)(i)(A), and the Bureau is
adopting § 1024.35(e)(1)(i)(A) as
proposed, except that the Bureau has
revised the final rule to clarify that the
notification must be provided in writing
and the servicer’s contact information
must include a telephone number.
Proposed § 1024.35(e)(1)(i)(B) would
have required a servicer that determines
after conducting a reasonable
investigation that no error occurred to
provide the borrower a notice stating
that the servicer has determined that no
error has occurred, the reason(s) the
servicer believes that no error has
occurred, and contact information for
servicer personnel that can provide
further assistance. The proposal would
have also required the servicer to inform
the borrower in the notice that the
borrower may request documents relied
on by the servicer in reaching its
determination and how the borrower
can request such documents. In
contrast, proposed § 1024.35(e)(1)(i)(A)
would not have required a servicer who
determines that an error has occurred
and corrects the error to provide a
statement in the notice to the borrower
about requesting documents that were
the basis for that determination.
One consumer group commenter
requested that the Bureau amend the
proposed rule to address situations in
which servicers make inaccurate
determinations that no error occurred.
The Bureau believes that, as proposed,
the rule adequately addresses such
scenarios by requiring disclosures about
borrowers’ rights to request the
information on which the servicer
relied, so as to facilitate the borrower’s
opportunity to review and consider
further action as appropriate. The
Bureau believes that the rule will
facilitate the timely correction of errors
and that borrowers are less likely to
need documents and information when
errors are corrected per the borrower’s
requests. Accordingly, the Bureau is
adopting § 1024.35(e)(1)(i)(B) as
proposed, except that the Bureau has
revised the provision to clarify that the
notification must be written and the
servicer’s contact information must
include a telephone number.
Multiple Responses
The Bureau proposed comment
35(e)(1)(i)–1 to clarify that if a notice of
error asserts multiple errors, a servicer
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may respond to those errors through a
single or separate written responses that
address the alleged errors. The Bureau
believes that the purpose of the rule,
which is to require timely resolution of
errors, is facilitated by allowing a
servicer to respond to multiple errors set
forth in a single notice of error through
separate communications. For example,
a servicer could correct one error and
send a notice regarding the correction of
that error, while an investigation is in
process regarding another error that is
the subject of the same notice of error.
The Bureau did not receive any
comments regarding proposed comment
35(e)(1)(i)–1 and is adopting it as
proposed.
Different or Additional Error
The Bureau proposed
§ 1024.35(e)(1)(ii), which provided that
if a servicer, during the course of a
reasonable investigation, determines
that a different or additional error has
occurred, the servicer is required to
correct that different or additional error
and to provide a borrower a written
notice about the error, the corrective
action taken, the effective date of the
corrective action, and contact
information for further assistance.
Because the servicer would be
correcting an error, a servicer would not
be required to provide a notice to the
borrower about requesting documents
that were the basis for that
determination for the reasons discussed
above. Proposed comment 35(e)(1)(ii)–1
would have clarified that a servicer may
provide the response required by
§ 1024.35(e)(1)(ii) in the same notice
that responds to errors asserted by the
borrower pursuant to § 1024.35(e)(1)(i)
or in a separate response that addresses
the different or additional errors
identified by the servicer. The Bureau
did not receive any comments regarding
proposed § 1024.35(e)(1)(ii) and
comment 35(e)(1)(ii)–1 and is adopting
both substantially as proposed.
As discussed above, the Bureau
believes that a consumer protection
purpose of RESPA is to facilitate the
timely correction of errors. Where a
servicer discovers an actual error, this
purpose is best served by requiring the
servicer to correct that error subject to
the same procedures that would have
applied had the borrower asserted the
same error through a qualified written
request or notice of error. Accordingly,
the Bureau finds that § 1024.35(e)(1)(ii)
is necessary and appropriate to achieve
the consumer protection purposes of
RESPA, including of facilitating the
timely correction of errors.
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35(e)(2) Requesting Information From
Borrower
Proposed § 1024.35(e)(2) would have
permitted a servicer to request that a
borrower provide documentation if
needed to investigate an error but would
not have permitted a servicer to require
the borrower to provide such
documentation as a condition of
investigating the asserted error. Further,
proposed § 1024.35(e)(2) would have
prohibited a servicer from determining
that no error occurred simply because
the borrower failed to provide the
requested documentation. The Bureau
proposed § 1024.35(e)(2) to allow
servicers to obtain information that may
assist in resolving notices of error.
Several industry commenters stressed
the importance of permitting reasonable
requests for information from borrowers.
Commenters said that limiting servicers’
access could impede the early
resolution of errors. One industry
commenter asked that the Bureau clarify
that servicers may request documents so
long as they do not condition
investigation on the receipt of
documents. Other commenters
requested clarification that requiring a
borrower to provide specific
information about what the borrower is
requesting does not constitute requiring
a borrower to provide information as a
condition of conducting the
investigation.
Having considered these comments,
the Bureau believes the proposed rule
strikes the right balance by permitting
servicers to request documents from
borrowers so long as the servicer’s
investigation and conclusion that no
error occurred is not dependent on the
receipt of documents. As stated in the
proposal, the Bureau believes that the
process for servicers to obtain
information from borrowers should not
prejudice the ability of the borrower to
seek the resolution of the error.
Accordingly, the Bureau is adopting
§ 1024.35(e)(2) as proposed with minor
technical amendments.
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35(e)(3) Time Limits
35(e)(3)(i)
The Bureau proposed
§ 1024.35(e)(3)(i), which would have
required a servicer to respond to a
notice of error not later than 30 days
(excluding legal public holidays,
Saturdays, and Sundays) after the
borrower notifies the servicer of the
asserted error, with two exceptions:
Errors relating to accurate payoff
balances and errors relating to failure to
suspend a foreclosure sale where a
borrower has submitted a complete
application for a loss mitigation option.
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As discussed further below, the
proposal would have required servicers
to respond to errors relating to payoff
balances within five days (excluding
legal public holidays, Saturdays, and
Sundays) after the servicer receives the
notice of error. The Bureau believed this
shortened timeframe was appropriate
because a servicer’s failure to correct
such an error may prevent a borrowing
from pursuing options in the interim,
such as a refinancing transaction. The
proposal would have also required
servicers to respond to errors relating to
the failure to suspend a foreclosure sale
where a borrower has submitted a
complete application the earlier of
within 30 days (excluding legal public
holidays, Saturdays, and Sundays) after
the servicer receives the error notice or
prior to the foreclosure sale. The Bureau
believed the shorter timeline was
appropriate because delaying the
response and investigation until after
the foreclosure sale could cause
irreparable harm to the borrower.
While several industry commenters
asserted that 30 days was insufficient
for error notices, one credit union stated
that the timeline was reasonable.
Similarly, a consumer group commenter
noted that the timeline was consistent
with the time period for qualified
written requests required by the DoddFrank Act. Consumer commenters on
Regulation Room asserted that the
timelines were too generous. The
Bureau believes that the 30-day
timeframe proposed is appropriate given
that the Dodd-Frank Act expressly
changed the timeframe for qualified
written requests from 60 days to 30 days
and differentiating between two regimes
would increase operational complexity
as well as burden on borrowers and
servicers. Accordingly, the final rule
adopts the 30-day timeline as proposed.
Shortened Time Limit To Correct Errors
Relating to Payoff Balances
Proposed § 1024.35(e)(3)(i)(A) would
have provided that if a borrower
submits a notice of error asserting that
a servicer has failed to provide an
accurate payoff balance as set forth in
proposed § 1024.35(b)(6), a servicer
must respond to the notice of error not
later than five days (excluding legal
public holidays, Saturdays, and
Sundays) after the borrower notifies the
borrower of the alleged error. The
Bureau proposed the accelerated
timeframe because it believed that a 30day deadline for responding to this type
of notice of error would not provide
adequate protection for borrowers
because the servicer’s failure to correct
the error promptly may prevent a
borrower from pursuing options in the
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interim such as a refinancing
transaction. Moreover, discussions with
servicers during outreach suggested that
a five day timeframe would be
reasonable for a servicer to correct an
error with respect to calculating a payoff
balance.
Industry commenters noted the
complexity involved in calculating
payoff balances, especially where
servicers need to collect information
from third parties, such as fee
information from vendors or prior
servicers. In light of the complexity
involved, industry commenters asserted
that the timeframe was insufficient.
While the Bureau continues to believe
it is important to have an accelerated
timeline for errors associated with
payoff balances, the Bureau
acknowledges that in some
circumstances the need to collect
information from third parties may pose
timing challenges. Accordingly, the
Bureau has revised proposed
§ 1024.35(e)(3)(i)(A) to provide that a
servicer must respond to a borrower’s
notice of error asserting that a servicer
has failed to provide an accurate payoff
balance as set forth in § 1024.35(b)(6)
not later than seven days (excluding
legal public holidays, Saturdays, and
Sundays) after the borrower notifies the
servicer of the alleged errors. The
Bureau believes that this modest
increase in the timeline strikes the right
balance between prompt provision of
payoff information to consumers and
the need for servicers to have sufficient
time to access the required information.
Moreover, the Bureau also notes that
section 129G of TILA requires servicers
to provide accurate payoff balance
amounts to consumers within a
reasonable time, but in no case more
than seven business days. Otherwise,
the Bureau is adopting
§ 1024.35(e)(3)(i)(A) as proposed, with
minor technical amendments.
Shortened Time Limit To Correct
Certain Errors Relating to Foreclosure
Proposed § 1024.35(e)(3)(i)(B) would
have provided that if a borrower
submits a notice of error asserting,
under § 1024.35(b)(9), that a servicer has
failed to suspend a foreclosure sale, a
servicer would be required to
investigate and respond to the notice of
error by the earlier of 30 days (excluding
legal public holidays, Saturdays, and
Sundays) or the date of a foreclosure
sale. Proposed comment 35(e)(3)(i)(B)–1
would have clarified that a servicer
could maintain a 30-day timeframe to
respond to the notice of error if it
cancels or postpones the foreclosure
sale and a subsequent sale is not
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scheduled before the expiration of the
30-day deadline.
The Bureau believes the shortened
timeframe is appropriate because, given
the complexity of the process, servicers
may mistakenly fail to suspend a
foreclosure. Thus, the Bureau believes
borrowers may reasonably benefit from
the opportunity to have servicers
investigate and respond to notices of
error regarding such failures before the
foreclosure sale. The Bureau believes
that a timeframe that allowed a servicer
to investigate and respond to the notice
of error after the date of a foreclosure
sale would cause irreparable harm to a
borrower. Accordingly, the Bureau is
adopting § 1024.35(e)(3)(i)(B) and
comment 35(e)(3)(i)(B)–1 as proposed,
except for minor technical amendments
and that the Bureau has revised
§ 1024.35(e)(3)(i)(B) to reference both
§ 1024.35(b)(9) and (10).
Extensions of Time Limit
Proposed § 1024.35(e)(3)(ii) would
have permitted, subject to certain
exceptions discussed below, a servicer
to extend the time period for
investigating and responding to a notice
of error by 15 days (excluding legal
public holidays, Saturdays, and
Sundays) if, before the end of the 30-day
period set forth in proposed
§ 1024.35(e)(3)(i)(C), the servicer notifies
the borrower of the extension and the
reasons for the delay in responding.
Proposed comment 35(e)(3)(ii)–1 would
have clarified that if a notice of error
asserts multiple errors, a servicer may
extend the time period for investigating
and responding to those errors for
which extensions are permissible
pursuant to proposed § 1024.35(e)(3)(ii).
While some consumer groups
generally objected to the proposed
extension, one industry commenter
urged the Bureau to permit two
automatic 15-day extensions. The
Bureau does not believe that permitting
a second 15-day extension would
promote timely resolution of errors.
Section 1463(c)(3) of the Dodd-Frank
Act amended section 6(e) of RESPA to
provide one 15-day extension of time
with respect to qualified written
requests, and the Bureau believes that
differentiating between two regimes
would increase operational complexity.
The Bureau did not propose to apply
the extension allowance of proposed
§ 1024.35(e)(3)(ii) to investigate and
respond to errors relating to a servicer’s
failure to provide an accurate payoff
statement or to suspend a foreclosure
sale. As discussed above, the final rule
applies a shortened timeframe for
responding to such errors in light of
special statutory provisions and special
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considerations at the foreclosure stage.
Permitting a 15-day extension of those
timeframes would negate these
shortened response periods and
undermine the purposes served by
shortening them. For the reasons set
forth above and in the proposal, the
Bureau is adopting § 1024.35(e)(3)(ii)
and comment 35(e)(3)(ii)–1 substantially
as proposed.
35(e)(4) Copies of Documentation
Proposed § 1024.35(e)(4) would have
required that, where a servicer
determines that no error occurred and a
borrower requests the documents the
servicer relied upon, the servicer must
provide the documents within 15 days
of the servicer’s receipt of the
borrower’s request. The Bureau
proposed comment 35(e)(4)–1 to clarify
that a servicer would need only provide
documents actually relied upon by the
servicer to determine that no error
occurred, not all documents reviewed
by a servicer. Further, the proposed
comment stated that where a servicer
relies upon entries in its collection
systems, a servicer may provide printouts reflecting the information entered
into the system.
Some industry commenters
questioned the utility of providing
documents relied upon to borrowers,
noting that borrowers may not
understand how to interpret the
documents printed from servicers’
systems. Industry commenters said
providing such documents will be
burdensome, and one commenter added
that the Dodd-Frank Act neither
requires nor contemplates such a
requirement. One commenter urged the
Bureau to clarify that servicers need
only provide borrowers a summary of
information that is stored electronically
and not in a producible format. And
several industry commenters urged the
Bureau to limit servicers’ responsibility
to provide documents that reflect trade
secrets or other sensitive information.
The Bureau believes the proposed
rule strikes the right balance in that it
does not subject servicers to undue
paperwork burden but assures that
borrowers will have access to
underlying documentation if necessary.
In certain cases, a borrower may
determine that the servicer’s response
resolves an issue and that reviewing
documents would be unnecessary.
Thus, the Bureau believes that requiring
a servicer to provide documents only
upon a borrower’s request limits
burden. The Bureau understands that
servicers may store information
electronically and not in a readily
producible format. Accordingly, the
Bureau is adopting final comment
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35(e)(4)–1, which clarifies that servicers
may provide a printed screen capture in
such situations, as proposed with minor
technical amendments. In addition, the
Bureau acknowledges industry
commenters’ concern regarding
providing confidential or sensitive
information to borrowers. Accordingly,
the Bureau has revised proposed
§ 1024.35(e)(4) to provide that servicers
need not produce to borrowers
documents reflecting confidential,
proprietary or privileged information.
Final § 1024.35(e)(4) further provides
that if a servicer withholds documents
relied upon because such documents
reflect confidential, proprietary or
privileged information, the servicer
must notify the borrower of its
determination in writing. The Bureau is
otherwise adopting § 1024.35(e)(4) as
proposed.
35(f) Alternative Compliance
Proposed § 1024.35(f) provided that a
servicer would not be required to
comply with the timing and process
requirements of paragraphs (d) and (e)
of proposed § 1024.35 in two situations.
First, a servicer that corrects the error
identified by the borrower within five
days of receiving the notice of error, and
notifies the borrower of the correction in
writing, would not be required to
comply with the acknowledgment,
notice and inspection requirements in
paragraphs (d) and (e). Because such
errors are corrected, an investigation
would not be required. Second, a
servicer that receives a notice of error
for failure to suspend a foreclosure sale,
pursuant to § 1024.35(b)(9), seven days
or less before a scheduled foreclosure,
would not be required to comply with
paragraphs (d) and (e), if, within the
time period set forth in paragraph
(e)(3)(i)(B), the servicer responds to the
borrower, orally or in writing, and
corrects the error or states the reason the
servicer has determined that no error
has occurred.
35(f)(1) Early Correction
The Bureau proposed § 1024.35(f)(1)
to permit alternative compliance as to
errors resolved within the first five days.
This provision is consistent with section
6(e)(1)(A) of RESPA, which requires
servicers to provide written
acknowledgment of a qualified written
request within five days (excluding legal
public holidays, Saturdays, and
Sundays) ‘‘unless the action requested is
taken within such period.’’ In addition,
the alternative compliance mechanism
in proposed § 1024.35(f)(1) was based
on feedback from servicers during
outreach, and especially small servicers,
which indicated that the majority of
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errors are addressed promptly after a
borrower’s communication and
generally within five days. Small entity
representatives communicated to the
Small Business Review Panel that small
servicers have a high-touch customer
service model, which made it very easy
for borrowers to report errors or make
inquiries, and to receive real-time
responses. The Bureau believed the
alternative compliance method was
necessary and appropriate to reduce the
unwarranted burden of an
acknowledgement and other response
requirements on servicers, and
especially small servicers, that are able
to correct borrower errors within five
days consistent with the Small Business
Review Panel recommendation that the
Bureau consider requirements that
provide flexibility to small servicers.
Industry commenters supported the
proposal’s exemption of servicers from
complying with paragraphs (d) and (e)
where the servicer corrects the error
identified by the borrower within five
days of receiving the notice of error.
However, industry commenters opposed
the requirement that servicers notify
borrowers of the correction in writing.
Commenters reasoned that a significant
number of errors are asserted and
quickly resolved in a single telephone
call. Accordingly, commenters argued
that the requirement to advise borrowers
of the correction in writing would be
burdensome.
The Bureau believes that because the
final rule subjects written but not oral
notices to error resolution requirements
under § 1024.35, the commenters’
concerns regarding written notice of
correction has been significantly
mitigated. To the extent that a borrower
asserts an error in writing which the
servicer resolves within five days, the
Bureau believes the borrower will
benefit from receiving the written
notification. For these reasons, the
Bureau adopts § 1024.35(f)(1) as
proposed, except that the Bureau has
revised the provision to make clear that
the servicer must provide such
notification within five days of
receiving the notice of error.
35(f)(2) Errors Asserted Before
Foreclosure Sale
As explained in proposed
§ 1024.35(f)(2), the Bureau believes that
it is appropriate to streamline
acknowledgment and response
requirements when servicers receive a
notice of error that may impact a
foreclosure sale less than seven days
before a foreclosure sale. Notices of
errors identified in § 1024.35(b)(9) and
(10), which focus on the failure to
suspend a foreclosure sale in the
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circumstances described in § 1024.41(f),
(g), or (j), implicate this concern.
Numerous entities, including other
federal agencies and small entity
representatives during the Small
Business Review Panel outreach,
expressed concern about borrower use
of error resolution requirements as a
procedural tool to impede proper
foreclosures and promote litigation.104
Industry commenters reiterated
concerns heard during pre-proposal
outreach that borrowers could use the
error resolution requirements to halt
foreclosure sales, including minutes
before a foreclosure sale. One industry
commenter stressed that in some
circumstances, whether to proceed with
foreclosure will be beyond the servicer’s
control, as some courts will not cancel
foreclosure after a certain date and
Freddie Mac can override a servicer’s
request to postpone or cancel a sale.
Thus, two commenters urged the Bureau
to exempt from liability servicers
required by an investor, insurer,
guarantor or legal requirement to
proceed with a foreclosure sale. Another
industry commenter requested an
exception for those borrowers who have
had their claims heard by a court,
asserting that servicers need finality and
that extending foreclosure timelines is
costly. In contrast, consumer group
commenters opposed the alternative
compliance option for errors asserted
within seven days of a foreclosure sale.
Consumer groups asserted that servicers
should be required to communicate
with borrowers in writing. In addition,
some consumer group commenters
reasoned that because proposed
§ 1024.35(f)(2) would exempt the
servicer from the requirement to
conduct an investigation or provide the
borrower with the documents relied
upon in reaching its determination that
no error occurred, it would effectively
permit servicers to ignore valid requests
for postponement so long as the servicer
sends a letter stating that no error
occurred.
Having considered these comments,
the final rule provides that for error
notices submitted seven days or less
before a foreclosure sale that assert an
error identified in § 1024.35(b)(9) or
(10), servicers are not required to
comply with the requirements for
acknowledgement and response to
notices of error, but must make a good
faith attempt to respond to borrowers,
orally or in writing, and to either correct
the error or state the reason the servicer
104 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, 30 (Jun, 11, 2012).
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10749
has determined no error occurred. As
stated in the proposal, the Bureau
believes that reducing the procedural
requirements for servicers to follow for
such notices mitigates the concern that
borrowers may use error resolution
procedures to impede foreclosure, while
maintaining protection for consumers.
The Bureau believes that this alternative
compliance method is also consistent
with the Small Business Review Panel
recommendation that the Bureau
provide flexibility to small servicers and
responds to small entity representatives’
concern that error resolution procedures
may be used in unwarranted litigation.
Further, the Bureau understands the
timing to be consistent with the GSE
requirement that servicers conduct
account reviews to document that all
required actions have occurred at least
seven days prior to a foreclosure sale.
The Bureau declines to revise the
proposal to require that servicers
communicate with borrowers in writing,
as the Bureau believes servicers require
flexibility in communicating with
borrowers close in time to a foreclosure
sale.
35(g) Requirements Not Applicable
The Bureau proposed § 1024.35(g) to
set forth the types of notices of error to
which the error resolution requirements
would not apply.
35(g)(1) In General
Proposed § 1024.35(g)(1) would have
provided that a servicer is not required
to comply with the error resolution
requirements set forth in § 1024.35(d)
and (e) if the servicer reasonably makes
certain determinations specified in
§§ 1024.35(g)(1)(i), (ii), or (iii).
Specifically, subject to certain
exceptions, a servicer need not comply
with error resolution requirements with
respect to a notice of error that asserts
an error that is substantially the same as
an error asserted previously by or on
behalf of the borrower, that is overbroad
or unduly burdensome, or that is
untimely. A servicer would be liable to
the borrower for its unreasonable
determination that any of the listed
categories apply and resulting failure to
comply with proposed § 1024.35(d) and
(e), however. Industry commenters
generally favored the proposed
exclusions, but requested that the
Bureau expand the categories for which
servicers would not be required to
comply with error resolution
requirements. Except as discussed
below, the Bureau declines to do so. The
Bureau has, however, revised proposed
§ 1024.35(g)(1) to state that, in addition
to § 1024.35(d) and (e), a servicer is not
required to comply with § 1024.35(i) if
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a servicer reasonably determines that
§§ 1024.35(g)(i), (ii), or (iii) apply.
35(g)(1)(i)
Proposed § 1024.35(g)(1)(i) would
have provided that a servicer is not
required to comply with the notice of
error requirements in proposed
§ 1024.35(d) and (e) with respect to a
notice of error to the extent that the
asserted error is substantially the same
as an error asserted previously by or on
behalf of the borrower for which the
servicer had previously complied with
its obligation to respond to the notice of
error pursuant to § 1024.35(e)(1), unless
the borrower provides new and material
information. The proposed rule would
have defined new and material
information as information that was not
reviewed by the servicer in connection
with investigating the prior notice of
error and was reasonably likely to
change a servicer’s determination with
respect to the existence of an error.
As stated in the proposal, the Bureau
believes that both elements of this
requirement are important. First, the
information must not have been
reviewed by the servicer. If the
information was reviewed by the
servicer, then such information is not
new and requiring a servicer to re-open
an investigation will create unwarranted
burden and delay. Second, even if the
information is new, it must be material
to the asserted error. A servicer may not
have reviewed information because the
information may not have been material
to the error asserted by the borrower.
The Bureau proposed § 1024.35(g)(1)(i)
to ensure that a servicer is not required
to expend resources conducting
duplicative investigations of notices of
error unless there is a reasonable basis
for re-opening a prior investigation
because of new and material
information.
The Bureau proposed comment
35(g)(1)(i)–1 to further clarify that a
dispute regarding whether a servicer
previously reviewed information or
whether a servicer properly determined
that information reviewed was not
material to its determination of the
existence of an error, will not itself
constitute new and material information
and, consequently, does not require a
servicer to re-open a prior, resolved
investigation of a notice of error.
While industry commenters
supported the proposed exclusion, some
consumer groups expressed concern.
One consumer group commenter argued
that the proposal effectively requires
that borrowers describe alleged errors
with more specificity than is
appropriate, given that borrowers often
do not fully understand the nature of
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the alleged error. Another consumer
group commenter urged the Bureau to
require servicers to inform borrowers
that servicers will reconsider a
duplicative error notice to the extent
that the borrower is able to more
concisely describe an alleged error.
Another commenter asserted that the
proposed exclusion shields servicers
from the consequences of incompletely
addressing a notice of error the first time
it is received. Finally, an anonymous
commenter questioned the Bureau’s
authority to create the exclusion
altogether.
Having considered these comments,
the Bureau believes that
§ 1024.35(g)(1)(i), as proposed, strikes
the appropriate balance in that it
requires servicers to respond to
duplicative error notices only to the
extent that such notices present new
and material information. The Bureau
recognizes that borrowers will assert
errors in lay terms, and this section is
not intended to require any particular
level of specificity in the errors that
borrowers assert. All that this section
provides is that if a borrower submits a
second error claim that the servicer
reasonably determines is substantially
the same as a previous submission, the
servicer is not obligated to go back
through the investigative process unless
the borrower has presented new and
material information. Thus, to the extent
that a borrower initially lacks sufficient
information to articulate clearly an
alleged error but is later privy to new
and material information that enables
the borrower to describe the error more
clearly, proposed § 1024.35(g)(1)(i)
requires a servicer to reconsider new
and material information subsequently
put forward by the borrower. Thus, for
the reasons outlined in the proposal and
set forth above, the Bureau is adopting
§ 1024.35(g)(1)(i) and comment
35(g)(1)(i)–1 as proposed, with minor
technical amendments.
The Bureau’s authority for § 1024.35
is addressed above. Moreover, the
Bureau finds that § 1024.35 is necessary
and appropriate to achieve the purposes
of RESPA, including ensuring
responsiveness to consumer requests
and complaints because the Bureau
believes that this purpose will best be
met if servicers are not required to waste
resources responding to duplicative
requests that will not benefit consumers,
but rather are allowed to focus their
resources on responding to error
requests where such responses are most
likely to result in consumer benefit.
35(g)(1)(ii)
Proposed § 1024.35(g)(1)(ii) would
have provided that a servicer is not
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required to comply with the notice of
error requirements in proposed
§ 1024.35(d) and (e) with respect to a
notice of error that is overbroad or
unduly burdensome. The proposed rule
would have defined ‘‘overbroad’’ and
‘‘unduly burdensome’’ for this purpose.
It would have provided that a notice of
error is overbroad if a servicer cannot
reasonably determine from the notice of
error the specific covered error that a
borrower asserts has occurred on a
borrower’s account. The proposed rule
would have provided that a notice of
error is unduly burdensome if a diligent
servicer could not respond to the notice
of error without either exceeding the
maximum timeframe permitted by
§ 1024.35(e)(3)(ii) or incurring costs (or
dedicating resources) that would be
unreasonable in light of the
circumstances. The proposed rule
would have further clarified that if a
servicer can identify a proper assertion
of a covered error in a notice of error
that is otherwise overbroad or unduly
burdensome, a servicer is required to
respond to the covered error
submissions it can identify. Finally, the
Bureau proposed comment 35(g)(1)(ii)–
1 to set forth characteristics that may
indicate if a notice of error is overbroad
or unduly burdensome.
During pre-proposal outreach,
consumers, consumer advocates,
servicers, and servicing industry
representatives indicated to the Bureau
that consumers do not typically use the
current qualified written request process
to resolve errors. During the Small
Business Review Panel outreach, small
entity representatives expressed that
typically qualified written requests
received from borrowers were vague
forms found online or forms used by
advocates as a form of pre-litigation
discovery. Servicers and servicing
industry representatives indicated that
these types of qualified written requests
are unreasonable and unduly
burdensome. Small entity
representatives in the Small Business
Review Panel outreach requested that
the Bureau consider an exclusion for
abusive requests, or requests made with
the intent to harass the servicer.
The Bureau requested comment
regarding whether a servicer should not
be required to undertake the error
resolution procedures in proposed
§ 1024.35(d) and (e) for notices of error
that are overbroad or unduly
burdensome. Industry commenters
supported the exclusion, but urged the
Bureau to remove the requirement that
servicers identify valid assertions of
error in submissions that are otherwise
overbroad or unduly burdensome.
Industry commenters said servicers
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should not be required to parse through
such submissions to locate a clear
assertion of error. One large trade
association of mortgage servicers said
that the requirement effectively
subsumes the exclusion. Consumer
group commenters generally disfavored
the exclusion. One commenter
questioned the assertion that borrowers
primarily use qualified written requests
to obtain prelitigation discovery. One
consumer group said the exclusion gives
servicers too much discretion. Another
said it requires borrowers to state the
basis for their alleged error with too
much specificity. An anonymous
consumer advocate said a request from
a single borrower should not be so
voluminous as to be burdensome for
servicers to respond. Another consumer
group commenter requested that the
Bureau address situations in which the
servicer erroneously determines that a
submission is overbroad or unduly
burdensome. Finally, one consumer
group commenter said the proposed
exclusion for unduly burdensome
notices of error leaves borrowers
unprotected as to errors that are
especially egregious or complex.
In proposing § 1024.35(g)(1)(ii), the
Bureau did not intend to frustrate
consumers’ ability to assert actual
complex errors and to have such errors
investigated and corrected, as
appropriate, by servicers. The Bureau
believes it is critical that consumers
have a mechanism by which to have
complex errors addressed. Accordingly,
the Bureau has revised proposed
§ 1024.35(g)(1)(ii) and proposed
comment 35(g)(1)(ii)–1 to remove
references to unduly burdensome
notices of error. At the same time, the
Bureau proposed § 1024.35(g)(1)(ii), in
part, because the Bureau believes that
requiring servicers to respond to
overbroad notices of error from some
borrowers may cause servicers to
expend fewer resources to address other
errors that may be more clearly stated
and more clearly require servicer
attention. As discussed above, the
Bureau expands the definition of errors
subject to the requirements of § 1024.35
to contain a catch-all for all errors
relating to the servicing of the
borrower’s loan. Given the breadth of
the errors subject to the requirements of
§ 1024.35, the Bureau continues to
believe that a requirement for servicers
to respond to notices of error that are
overbroad may harm consumers and
frustrate servicers’ ability to comply
with the new error resolution
requirements. The Bureau does not
believe that the error resolution
procedures are the appropriate forum
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for borrowers to prosecute wide-ranging
complaints against mortgage servicers
that are more appropriate for resolution
through litigation. Accordingly, the
Bureau is adopting § 1024.35(g)(1)(ii)
and comment 35(g)(1)(ii)–1 substantially
as proposed, except that the Bureau has
revised the provisions to remove
references to unduly burdensome
notices of error.
35(g)(1)(iii)
Proposed § 1024.35(g)(1)(iii) would
have provided that a servicer is not
required to comply with the notice of
error requirements in proposed
§ 1024.35(d) and (e) for an untimely
notice of error—that is, a notice of error
received by a servicer more than one
year after either servicing for the
mortgage loan that is the subject of the
notice of error was transferred by that
servicer to a transferee servicer or the
mortgage loan amount was paid in full,
whichever date is applicable. The
Bureau proposed this provision to set a
specific and clear time that a servicer
may be responsible for correcting errors
for a mortgage loan.
Moreover, the Bureau proposed
§ 1024.35(g)(1)(iii) to achieve the same
goal that currently exists in Regulation
X with respect to qualified written
requests. Specifically, current
§ 1024.21(e)(2)(ii) states that ‘‘a written
request does not constitute a qualified
written request if it is delivered to a
servicer more than one year after either
the date of transfer of servicing or the
date that the mortgage servicing loan
amount was paid in full, whichever date
is applicable.’’
One industry trade association
expressed support for proposed
§ 1024.35(g)(1)(iii). A credit union
commenter requested that the Bureau
impose an additional time limitation on
borrowers’ ability to assert errors, noting
that it often services mortgages for the
life of the loan. A consumer advocacy
group commenter disagreed with
proposed § 1024.35(g)(1)(iii) and
asserted that borrowers should be
permitted to raise errors with their
current servicer regardless of whether
the servicer was responsible for the
error. Having considered these
comments, the Bureau declines to
impose additional time limits on a
borrower’s ability to assert errors, as
borrowers may discover errors long after
such errors were made. In addition, the
Bureau does not believe that
§ 1024.35(g)(1)(iii), as proposed,
prohibits a borrower from raising errors
with the borrower’s current servicer.
Thus, for the reasons set forth above, the
Bureau is adopting § 1024.35(g)(1)(iii) as
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10751
proposed with a minor technical
amendment.
35(g)(2) Notice to Borrower
Proposed § 1024.35(g)(2) would have
required that if a servicer determines
that it is not required to comply with
the notice of error requirements in
proposed § 1024.35(d) and (e) with
respect to a notice of error, the servicer
must provide a notice to the borrower
informing the borrower of the servicer’s
determination. The servicer must send
the notice not later than five days
(excluding legal public holidays,
Saturdays, and Sundays) after its
determination and the notice must set
forth the basis upon which the servicer
has made the determination, noting the
applicable provision of proposed
§ 1024.35(g)(1).
One credit union trade association
disfavored the proposed requirement
that a servicer send a notice informing
the borrower that an error falls into one
of the enumerated exceptions. The
commenter suggested that the Bureau
permit servicers to send a standard
notice informing borrowers that the
servicer received the notice of error and
is not required to respond.
The Bureau proposed § 1024.35(g)(2)
because it believes that borrowers
should be notified that a servicer does
not intend to take any action on the
asserted error. The Bureau also believes
borrowers should know the basis for the
servicer’s determination. By providing
borrowers with notice of the basis for
the servicer’s determination, a borrower
will know the servicer’s basis and will
have the opportunity to bring a legal
action to challenge that determination
where appropriate. Accordingly, having
considered the comment, the Bureau is
adopting § 1024.35(g)(2) as proposed.
35(h) Payment Requirements Prohibited
Proposed § 1024.35(h) would have
prohibited a servicer from charging a
fee, or requiring a borrower to make any
payment that may be owed on a
borrower’s account, as a condition of
investigating and responding to a notice
of error. Proposed comment 35(h)–1
would have clarified that § 1024.35(h)
does not alter or otherwise affect a
borrower’s obligation to make payments
owed pursuant to the terms of the
mortgage loan. The Bureau proposed
§ 1024.35(h) for three reasons. First,
section 1463(a) of the Dodd-Frank Act
added section 6(k)(1)(B) to RESPA,
which prohibits a servicer from charging
fees for responding to valid qualified
written requests. Proposed § 1024.35(h)
would implement that provision with
respect to qualified written requests.
Second, the Bureau believes that a
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servicer’s practice of charging for
responding to a notice of error impedes
borrowers from pursuing valid notices
of error and that the prohibition is
therefore necessary and appropriate to
achieve the consumer protection
purposes of RESPA, including ensuring
responsiveness to borrower requests and
complaints. Third, the Bureau
understands that, in some instances,
servicer personnel have demanded that
borrowers make payments before the
servicer will correct errors or provide
information requested by a borrower.
The Bureau believes that a servicer
should be required to correct errors
notwithstanding the payment status of a
borrower’s account. A consumer
advocacy group commenter noted,
without elaborating, that it supported
the fee prohibition reflected in proposed
§ 1024.35(h). For the reasons set out
above, the Bureau is adopting
§ 1024.35(h) and comment 35(h)–1 as
proposed.
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Adverse Information
Proposed § 1024.35(i)(1) would have
provided that a servicer may not furnish
adverse information regarding any
payment that is the subject of a notice
of error to any consumer reporting
agency for 60 days after receipt of a
notice of error. RESPA section 6(e) sets
forth this prohibition on servicers with
respect to a qualified written request
that asserts an error. Proposed
§ 1024.35(i)(1) would implement section
6(e) of RESPA with respect to qualified
written requests and would apply the
same requirements to other notices of
error.
The Bureau proposed to maintain the
prohibition regarding supplying adverse
information for the 60-day timeframe set
forth in section 6(e)(3) of RESPA with
respect to qualified written requests and
to apply it to all notices of error. Even
though a notice of error may be resolved
by no later than 45 days after it is
received pursuant to proposed
§ 1024.35(e)(3)(ii), the Bureau reasoned
that the 60-day timeframe is appropriate
in the event that there are follow-up
inquiries or additional information
provided to the borrower.
Industry commenters strongly
objected to the 60-day reporting
prohibition. Commenters said the
proposal undermines the accuracy and
integrity of credit reports. One
commenter said the Fair Credit
Reporting Act already governs credit
reporting. One large bank commenter
asserted that because credit reporting is
a safety and soundness protection,
banks have a duty to accurately report
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delinquencies. Several industry
commenters also noted a concern that,
based on prior experience, borrowers
may use the reporting prohibition to
manipulate the system by disputing
legitimate delinquencies in order to
apply for credit without derogatory
marks on credit reports. The Bureau
acknowledges the concerns expressed
but notes that Congress specifically
imposed the 60-day reporting
prohibition with respect to qualified
written requests in section 6(e) of
RESPA. As discussed above, the Bureau
believes it is necessary to achieve the
consumer protection purposes of
RESPA, including to ensure
responsiveness to borrower requests and
complaints and the provision of
accurate and relevant information to
borrowers, to apply the same procedures
to all notices of error as applicable to
qualified written requests. Otherwise,
borrowers and servicers must expend
wasteful resources parsing the form
requirements applicable to qualified
written requests and navigating between
two separate regulatory regimes. As
detailed above, the Bureau believes that
the interests of borrowers and servicers
are best served and the purposes of
RESPA are best met through a single
regulatory regime applicable to both
qualified written requests and other
notices of error. The Bureau is therefore
adopting § 1024.35(i)(1) as proposed, as
it is consistent with the 60-day reporting
prohibition for qualified written
requests required by section 6(e) of
RESPA.
Ability To Pursue Foreclosure
Proposed § 1024.35(i)(2) stated that,
with one exception, a servicer’s
obligation to comply with the
requirements of proposed § 1024.35
would not prohibit a lender or servicer
from pursuing any remedies, including
proceeding with a foreclosure sale,
permitted by the applicable mortgage
loan instrument. The Bureau proposed
one exception to § 1024.35(i)(2) where a
borrower asserts an error under
paragraph (b)(9) based on a servicer’s
failure to suspend a foreclosure sale in
the circumstances described in
proposed § 1024.41(g). The Bureau
proposed § 1024.35(i)(2) to clarify that,
in general, a notice of error could not be
used to require a servicer to suspend a
foreclosure sale.
A consumer group commenter
asserted that proposed § 1024.35(i)(2)
should be amended to prohibit a lender
or servicer from pursuing a foreclosure
sale upon receipt of any notice of error
that disputes a servicers’ ability to
foreclose. As stated in the proposal, the
Bureau believes that the purpose of
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RESPA of ensuring responsiveness to
borrower requests and complaints
would be impeded by allowing a notice
of error to obstruct a lender’s or
servicer’s ability to pursue remedies
permitted by the applicable mortgage
loan instrument.
The requirements in proposed
§ 1024.41 establish procedures that
servicers must follow for reviewing loss
mitigation applications. Servicers are
capable of complying with the
requirements prior to a foreclosure sale.
Nothing in this proposed requirement
affects the validity or enforceability of
the mortgage loan or lien. Further, a
servicer has the opportunity to retain its
remedies when a borrower submits a
completed application for a loss
mitigation option. A servicer may
establish a deadline by which a
borrower must submit a completed
application for a loss mitigation option,
and, so long as the servicer fulfills its
duty to evaluate the borrower for a loss
mitigation option before the date of a
foreclosure sale, a servicer may comply
with the requirements of § 1024.35
without suspending the foreclosure sale.
For the reasons set forth above and in
the proposal, the Bureau is adopting
§ 1024.35(i)(2) as proposed, except that
the Bureau has revised the provision to
reference both paragraphs (b)(9) and
(10).
Section 1024.36 Requests for
Information
Section 6(e) of RESPA requires
servicers to respond to ‘‘qualified
written requests’’ that relate to the
servicing of a loan. Section 1463(a) of
the Dodd-Frank Act amended RESPA to
add section 6(k)(1)(B), which prohibits
servicers from charging fees for
responding to valid qualified written
requests (as defined in regulations to be
issued by the Bureau). In addition,
section 1463(a) of the Dodd-Frank Act
amended RESPA to add section
6(k)(1)(D), which states that a servicer
shall not fail to provide information
regarding the owner or assignee of a
mortgage loan within ten business days
of a borrower’s request.
Proposed § 1024.36 set forth
requirements servicers would be
required to follow to respond to
information requests from borrowers
with respect to their mortgage loans.
The Bureau proposed § 1024.36 to
implement the servicer prohibitions set
forth in section 6(k)(1)(B) and 6(k)(1)(D)
of RESPA, as well as the requirements
applicable to qualified written requests
set forth in section 6(e) of RESPA. In
addition, as discussed above with
respect to § 1024.35, the Bureau
believed that it served the interests of
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borrowers and servicers alike to
establish a uniform regulatory regime,
parallel to that applicable to notices of
error under § 1024.35, applicable to
borrower requests for information
relating to their mortgage loan
irrespective of whether such requests
were made in the form of a qualified
written request. In the Bureau’s view,
such requirements are necessary to
ensure that servicers respond to
borrowers’ requests and complaints and
timely provide borrowers with relevant
and accurate information about their
mortgage loans.
Legal Authority
Section 1024.36 implements section
6(k)(1)(D) of RESPA, and to the extent
the requirements are also applicable to
qualified written requests, sections 6(e)
and 6(k)(1)(B) of RESPA. Pursuant to the
Bureau’s authorities under sections 6(j),
6(k)(1)(E), and 19(a) of RESPA, the
Bureau is also adopting certain
additions and certain exemptions to
these provisions. As explained in more
detail below, these additions and
exemptions are necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including ensuring responsiveness to
consumer requests and complaints and
the provision and maintenance of
accurate and relevant information.
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36(a) Information Requests
Proposed § 1024.36(a) would have
required a servicer to comply with the
requirements of proposed § 1024.36 for
an information request from a borrower
that includes the borrower’s name,
enables the servicer to identify the
borrower’s mortgage loan account, and
states the information the borrower is
requesting for the borrower’s mortgage
loan account. The Bureau received no
comment on this aspect of proposed
§ 1024.36, and is finalizing these
requirements as proposed. The Bureau
is otherwise finalizing proposed
§ 1024.36 as discussed below.
Qualified Written Requests
Similar to the proposed requirements
for notices of error, proposed
§ 1024.36(a) would have required a
servicer to treat a qualified written
request that requests information
relating to the servicing of a loan as an
information request subject to the
requirements of § 1024.36. The Bureau
intended to propose servicer obligations
applicable to qualified written requests
that were the same as requirements
applicable to information requests
under § 1024.36(a). One consumer group
commenter expressed support for the
proposal because it dispensed with
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technicalities about whether an
information request constituted a valid
qualified written request. One trade
association commenter said the Bureau
failed to define a valid qualified written
request and said that proposed
§ 1024.36 does not fully integrate
section 6(e) of RESPA into the proposed
information request procedures.
Another trade association of private
mortgage lenders said the proposal did
not make clear what constitutes a
qualified written request and to what
extent servicers must continue to
comply with existing law regarding
qualified written requests. Having
considered these comments, the Bureau
notes that final § 1024.31 defines the
term ‘‘qualified written request.’’ In
addition, as discussed above, the Bureau
has added new comment 31 (qualified
written request)-2, which clarifies that
the error resolution and information
request requirements in §§ 1024.35 and
1024.36 apply as set forth in those
sections irrespective of whether the
servicer receives a qualified written
request. Finally, the Bureau has revised
proposed § 1024.36(a) to make clear in
the final rule that a qualified written
request that requests information
relating to the servicing of a mortgage
loan is a request for information for
purposes of § 1024.36 for which a
servicer must comply with all
requirements applicable to a request for
information.
Oral Information Requests
The Bureau proposed to require
servicers to comply with information
request procedures under § 1024.36 for
information requests made by borrowers
orally or in writing. The Bureau
believed this approach was warranted,
in part, because discussions with
consumers, consumer advocates,
servicers, and industry trade
associations during outreach suggested
that the vast majority of borrowers
orally request information from
servicers.
As was the case for notices of error,
the Bureau believed that a requirement
that an information request be in writing
would serve as a barrier that could
unduly restrict the ability of borrowers
to have errors resolved and requests
fulfilled. At the same time, the Bureau
recognized the burdens on servicers to
ensure compliance with the proposed
rule with respect to oral information
requests. The Bureau believed that
elements of the proposed rule would
assist in mitigating servicer burden. For
example, the Bureau considered that the
proposal allowed servicers to designate
a specific telephone number for
receiving oral information requests and
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included an alternative compliance
provision that allows a servicer to
provide information orally if the
information is provided within five days
of the borrower’s request.
In addition, the Bureau learned from
pre-proposal discussions with servicers,
including the small entity
representatives in the Small Business
Review Panel outreach, that most
information requests are responded to
by servicers either on the same
telephone call with the borrower or
within an hour of a borrower’s
communication. The Bureau believed
that allowing servicers to respond to
information requests orally would
significantly reduce the burden
associated with the proposed
information request requirements on
servicers. Further, the Bureau believed
that this requirement provided
flexibility for small servicers consistent
with the recommendations of the Small
Business Review Panel and mitigates
concerns by the small entity
representatives regarding compliance
costs.
The Bureau solicited comment
regarding whether servicers should be
required to comply with information
request procedures for information
requests asserted orally. The Bureau
received a number of comments from
both consumer groups and various
industry members. Consumer group
commenters reiterated their support for
applying the information request
provisions to requests made orally,
noting that consumers most often
request information orally rather than in
writing. Consumer commenters on
Regulation Room disfavored the
proposal’s application of the
information request procedures under
§ 1024.36 to information requests
received orally. Consumer commenters,
citing their negative experiences
attempting to request information from
servicers orally, were concerned that
encouraging an oral process would
weaken consumer protections. Industry
commenters also opposed the proposal’s
application of the information request
requirements to oral information
requests. Commenters said doing so
would create new burdens for servicers
regarding tracking the information
requests and monitoring that a borrower
receives written acknowledgements and
responses. Industry commenters further
stressed that a written process would
provide more clarity and certainty as to
the nature of the request and what the
servicer communicated to the borrower
during the conversation. Further,
industry commenters asserted, requiring
written information requests would help
avoid situations in which the borrower
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and servicer have differing recollections
as to the borrower’s request and the
servicer’s response during the
conversation. Absent a written record,
commenters said, servicers would need
to record conversations with borrowers
to minimize the significant litigation
risk. The commenters asserted that
recording conversations could be
especially costly for small servicers and
would require the borrower’s consent in
many jurisdictions.
After consideration of these
comments, the Bureau is amending
proposed § 1024.36(a) to require
servicers to comply with § 1024.36
solely with respect to written requests
for information. While borrowers may
continue to raise information requests
orally, servicers will not be required to
comply with the formal requirements
outlined in § 1024.36 for such requests.
Instead, the Bureau has added to the
final rule § 1024.38(b)(1)(iii), which
generally requires that servicers
maintain policies and procedures that
are reasonably designed to ensure that
servicers provide borrowers with
accurate and timely information and
documents in response to borrowers’
requests for information. In addition,
the Bureau has added a requirement in
§ 1024.38(b)(5) that servicers establish
policies and procedures reasonably
designed to achieve the objective of
informing borrowers about the
availability of procedures for submitting
written notices of error set forth in
§ 1024.35 and written information
requests set forth in § 1024.36.
The Bureau believes that eliminating
the requirement under proposed
§ 1024.36(a) for servicers to comply with
the requirements under § 1024.36 with
respect to oral requests for information
from borrowers and instead requiring
servicers to develop policies and
procedures to ensure responsiveness to
such oral requests and inform borrowers
about the availability of the written
process, strikes the appropriate balance
between providing prompt responses to
borrower requests and mitigating
servicer burden. The final rule will thus
require servicers to maintain policies
and procedures reasonably designed to
assure that the servicers respond to oral
information requests on a more informal
basis, without having to comply with all
of the required steps for a formal
information request under § 1024.36. As
discussed more fully below, because
only written information requests will
be subject to the procedures outlined in
§ 1024.36, the Bureau believes it is
logical and appropriate to require
servicers to respond to such written
requests in writing.
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Borrower’s Representative
Section 6(e)(1)(A) of RESPA states
that a qualified written request may be
provided by a ‘‘borrower (or an agent of
the borrower).’’ See RESPA section
6(e)(1)(A). The Bureau proposed
comment 36(a)–1 to clarify that this
standard applies to all information
requests, irrespective of whether they
are qualified written requests.
Specifically, proposed comment 36(a)–1
would have clarified that a servicer
should treat an information request
submitted by a person acting as an agent
of the borrower as if it received the
request directly from the borrower.
Further, proposed comment 36(a)–1
stated that servicers may undertake
reasonable procedures to determine if a
person that claims to be an agent of a
borrower has authority from the
borrower to act on the borrower’s behalf.
Several industry commenters said it
would be costly and burdensome to
determine whether a third party has
authority to act on a borrower’s behalf.
Many requested clarification as to what
the Bureau believes constitutes acting
on the borrower’s behalf. Further, some
industry commenters expressed concern
about potential liability for the improper
release of information, including the
risk of violating State or Federal privacy
laws, as well as what commenters
perceived to be increased risk of
identity theft and fraud. Finally, a few
industry commenters took the position
that only the borrower, but not the
borrower’s agent, should be permitted to
request information pursuant to
§ 1024.36.
One consumer advocacy group noted
that the proposal to permit borrowers’
agents to submit information requests is
consistent with the statutory language.
Consumer groups also requested that the
Bureau clarify that the timelines will
not toll during the period in which the
servicer attempts to validate through
reasonable policies and procedures that
a third party purporting to act on a
borrower’s behalf is, in fact, an agent of
the borrower.
Having considered these comments,
the Bureau is amending proposed
comment 36(a)–1 to address servicers’
concerns about potential liability for the
improper release of information. The
final comment clarifies that servicers
may have reasonable procedures to
determine if a person that claims to be
an agent of a borrower has authority
from the borrower to act on the
borrower’s behalf, for example, by
requiring that purported agents provide
documentation from the borrower
stating that the purported agent is acting
on the borrower’s behalf. Upon receipt
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of such documentation, the servicer
shall treat a request for information as
having been submitted by the borrower.
The Bureau acknowledges that requiring
servicers to respond to information
requests submitted by borrowers’ agents
is more costly than limiting the
requirement to borrowers’ requests, but
notes that this approach is consistent
with section 6(e)(1)(A) of RESPA with
respect to a qualified written request.
The Bureau finds that it is necessary
and appropriate to achieve the
consumer protection purposes of
RESPA, including ensuring
responsiveness to borrower requests and
complaints, to apply this requirement to
all written information requests,
especially since borrowers who are
experiencing difficulty in making their
mortgage payments or dealing with their
servicer may turn, for example, to a
housing counselor or other
knowledgeable persons to assist them in
addressing such issues. The Bureau
declines to further define the term
‘‘agent.’’ The concept of agency has
historically been defined in State and
other applicable law. Thus, it is
appropriate for the definition to defer to
applicable State law regarding agents.
Information Subject to Information
Request Procedures
Section 6(e)(1)(A) of RESPA requires
servicers to respond to qualified written
requests that request information
relating to the servicing of a loan.
Proposed § 1024.36(a) would have
provided that any information requested
by a borrower with respect to the
borrower’s mortgage loan is subject to
the information request requirements in
proposed § 1024.36 other than as
provided in proposed § 1024.36(f),
which defined specific circumstances in
which a servicer is not obligated to
comply with information request
procedures.
One industry commenter expressed
concern that borrowers or their
attorneys may abuse the information
request process. The commenter said
that borrowers may request information
that should already be in the borrower’s
possession, such as information
received at closing. The commenter also
urged the Bureau not to require that
servicers produce the servicing file in
response to a borrower’s information
request. The commenter said that such
information will be of limited utility to
borrowers and often reflects privileged
communications. Having considered
these comments, the Bureau notes that
final § 1024.36, like the proposal, has
mechanisms in place to limit abuse and
to protect confidential communications.
Specifically, as discussed more fully
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below, § 1024.36(f) lists circumstances
under which servicers need not comply
with information request requirements
under § 1024.36. To the extent that a
borrower requests a servicing file, the
servicer shall provide the borrower with
a copy of the information contained in
the file subject to the limitations set
forth in § 1024.36(f).
Another commenter requested
clarification as to whether consumers
may use the information request process
to request payoff statements. The
Bureau is amending proposed
§ 1024.36(a) to make clear that servicers
need not treat borrowers’ requests for
payoff balances as requests for
information for which servicers must
comply with the information request
procedures set forth in § 1024.36. The
Bureau believes that this revision is
appropriate, as borrowers already have
a mechanism by which to request payoff
balances under section 129G of TILA
with respect to home loans. For those
loans that are not subject to section
129G of TILA, the Bureau believes that
it would be inappropriate to extend the
requirements of that provision beyond
the scope mandated by Congress, as
implemented by § 1026.36(c)(3) of the
2013 TILA Servicing Final Rule.
Owner or Assignee
Section 1463(a) of the Dodd-Frank Act
amended RESPA to add section
6(k)(1)(D), which states that a servicer
shall not fail to provide information
regarding the owner or assignee of a
mortgage loan within ten business days
of a borrower’s request. Proposed
comment 36(a)–2 would have clarified
that if a borrower requests information
regarding the owner or assignee of a
mortgage loan, a servicer complies with
its obligations to identify the owner or
assignee of the mortgage loan by
identifying the entity that holds the
legal obligation to receive payments
from a mortgage loan. Proposed
comments 36(a)–2.i and 36(a)–2.ii
would have provided examples of
which party is the owner or assignee of
a mortgage loan for different forms of
mortgage loan ownership. These include
situations when a mortgage loan is held
in portfolio by an affiliate of a servicer,
when a mortgage loan is owned by a
trust in connection with a private label
securitization transaction, and when a
mortgage loan is held in connection
with a GSE or Ginnie Mae guaranteed
securitization transaction. The Bureau
believes that it would not provide
additional consumer protection to
impose an obligation on a servicer to
identify entities that may have an
interest in a borrower’s mortgage loan
other than the owner or assignee of the
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mortgage loan, as such information
would be of limited utility.
During outreach, servicers generally
did not express concerns to the Bureau
regarding the obligation to provide
borrowers with the type of information
subject to the information request
requirements. Specifically, in the Small
Business Review Panel outreach, small
entity representatives indicated that
they felt fairly comfortable with the
types of information that would be
subject to the requirements, indicating
that this information was generally in
the borrower’s mortgage loan file.
The small entity representatives did
express concern regarding the obligation
to provide information regarding the
owner or assignee of a mortgage loan.
The small entity representatives stated
that servicers may not have contact
information for owners or assignees of
mortgage loans, that such owners or
assignees are not prepared to handle
calls from borrowers, and that a typical
servicer duty is to handle customer
complaints so that owners or assignees
of mortgage loans do not have to handle
that responsibility. Certain owners,
assignees, and guarantors of mortgage
loans, including other federal agencies,
have expressed similar concerns to the
Bureau.
Industry commenters expressed
similar concerns in response to the
proposal. One industry trade association
suggested that the Bureau amend
proposed comment 36(a)–2 to require
that servicers identify the name of the
trustee rather than the name of the legal
entity that holds the legal right to
receive payments. The commenter
argued that the information that the
Bureau proposes servicers provide
would not be meaningful to borrowers,
as the trust itself cannot act. Moreover,
the commenter asserted that servicers
do not typically track the trust name
with the account, as such information is
rarely used. One large bank commenter
urged the Bureau to amend the
comment to replace the reference to
‘‘obligation’’ with ‘‘right’’ as the
commenter asserted the former is not
technically accurate.
As outlined in the proposal, the
Bureau understands the concerns
asserted by servicers, owners, assignees,
guarantors, and other federal agencies
that requiring servicers to provide the
proposed information to borrowers may
confuse borrowers and lead to attempts
to communicate with owners or
assignees that are unprepared or
unwilling to engage in such
communications. The requirement that
servicers identify to the borrower the
owner or assignee of a mortgage loan
was added as section 6(k)(1)(D) of
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RESPA by the Dodd-Frank Act. Section
6(k)(1)(D) requires that information
regarding the owner or assignee of a
mortgage loan must be provided to
borrowers. The Bureau believes that the
benefit to borrowers of obtaining the
information, which was required by
Congress, justifies any concerns about
the potential for confusion. As to
commenters’ concern that trustee
information is more relevant than trust
information, the Bureau notes that
proposed comment 36(a)–2 provided
that where a trust is the owner or
assignee of a loan, a servicer must
provide the name of both the trustee and
the trust. Also, for clarification
purposes, the Bureau is revising
proposed comment 36(a)–2 to state that
when a borrower requests information
regarding the owner or assignee of a
mortgage loan, a servicer complies by
identifying the person on whose behalf
the servicer receives payments from the
borrower. Otherwise, the Bureau is
adopting comment 36(a)–2 substantially
as proposed.
36(b) Contact Information for Borrowers
To Request Information
The Bureau proposed § 1024.36(b),
which would have permitted a servicer
to establish an exclusive telephone
number and address that a borrower
must use to request information in
accordance with the procedures in
§ 1024.36. If a servicer chose to establish
a separate telephone number and
address for information requests, the
proposal would have required the
servicer to provide the borrower a notice
that states that the borrower may request
information using the telephone number
and address established by the servicer
for that purpose. Proposed comment
36(b)–1 would have clarified that if a
servicer has not designated a telephone
number and address that a borrower
must use to request information, then
the servicer will be required to respond
to an information request received at
any office of the servicer. Proposed
comment 36(b)–2 would have further
clarified that the written notice to the
borrower may be set forth in another
written notice provided to the borrower,
such as a notice of transfer, periodic
statement, or coupon book. Proposed
comment 36(b)–2 would have further
clarified that if a servicer establishes a
telephone number and address for
receipt of information requests, the
servicer must provide that telephone
number and address in any
communication in which the servicer
provides the borrower with contact
information for assistance from the
servicer.
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The Bureau proposed to allow
servicers to establish a telephone
number and address that a borrower
must use to request information in order
to allow servicers to direct oral and
written requests to appropriate
personnel that have been trained to
ensure that the servicer responds
appropriately. As the proposal noted, at
larger servicers with other consumer
financial service affiliates, many
personnel simply do not typically deal
with mortgage servicing-related issues.
For instance, at a major bank servicer,
a borrower might request information
from a local bank branch staff, who
likely would not have access to the
information necessary to respond to the
request. Thus, the Bureau reasoned, if a
servicer establishes a telephone number
and address that a borrower must use,
a servicer would not be required to
comply with the information request
requirements set forth in § 1024.36 for
requests that may be received by the
servicer through a different method.
Most industry commenters favored
allowing servicers to designate an
address and telephone number to which
borrowers must direct information
requests. At the same time, such
commenters asserted that the proposal
constituted an insufficient remedy to
the burdens inherent in permitting oral
information requests. Some commenters
said that designating telephone lines for
information requests could be especially
costly for small servicers. Thus, one
community bank trade association
argued that the proposal favored large
institutions. Two industry commenters
requested clarification regarding how
servicers must handle information
requests sent to the wrong address.
Finally, one credit union commenter
asserted that servicers should only be
required to include designated
telephone numbers and addresses in
regular forms of communication to
borrowers, such as the periodic
statement. In contrast, consumer group
commenters suggested that to the extent
a servicer designates a telephone line or
address, the servicer should be required
to post such information on its Web site
and to include it in mailed notices.
Because the final rule removes the
requirement that servicers comply with
information request requirements under
§ 1024.36 for oral information requests,
the Bureau believes that it is no longer
necessary to regulate the circumstances
under which servicers may direct oral
information requests to an exclusive
telephone number that a borrower must
use to request information. However, for
written information requests, the Bureau
continues to believe that it is reasonable
to permit servicers to designate a
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specific address for the intake of
information requests. Allowing a
servicer to designate a specific address
is consistent with current requirements
of Regulation X with respect to qualified
written requests. Current § 1024.21(e)(1)
permits a servicer to designate a
‘‘separate and exclusive office and
address for the receipt and handling of
qualified written requests.’’ Moreover,
the Bureau believes that identifying a
specific address for receiving
information requests will benefit
consumers. By providing a specific
address, servicers will identify to
consumers the office capable of
addressing requests made by consumers.
The Bureau believes it is critical for
servicers to publicize any designated
address to ensure that borrowers know
how properly to request information
and to avoid evasion by servicers of
information request procedures. This is
especially important because, as noted
in the proposal, servicers who designate
a specific address for receipt of
information requests are not required to
comply with information request
procedures for notices sent to the wrong
address. Accordingly, final § 1024.36(b)
requires servicers that designate
addresses for receipt of requests for
information to post the designated
address on any Web site maintained by
the servicer if the servicer lists any
contact address for the servicer. In
addition, final comment 36(b)–2 retains
the clarification that servicers that
establish an address that a borrower
must use to request information, must
provide the address to the borrower in
any communication in which the
servicer provides the borrower with
contact information for assistance. The
Bureau is otherwise adopting
§ 1024.36(b) and comments 36(b)–1 and
36(b)–2 as proposed, except that it has
revised the provisions permitting
servicers to designate a telephone
number that a borrower must use to
request information and clarified that
the notice must be written.
Multiple Offices
Proposed § 1024.36(b), similar to
proposed § 1024.35(c) for notices of
error, would have required a servicer to
use the same telephone number and
address it designates for receiving
notices of error for receiving
information requests pursuant to
proposed § 1024.36(b), and vice versa.
Further, proposed comment 36(b)–3
would have clarified that any telephone
numbers or addresses designated by a
servicer for any borrower may be used
by any other borrower to submit an
information request. This clarifies that a
servicer may not determine that an
information request is invalid if it was
received at any telephone number or
address designated by the servicer for
receipt of information requests just
because it was not received by the
specific phone number or address
identified to a specific borrower.
One non-bank servicer expressed
concern about the proposal’s
requirement to designate the same
address and telephone number for
notices of error and information
requests. The commenter explained that
it assigns separate teams to address
information requests and error notices.
Thus, the commenter asserted, proposed
§ 1024.36(b) would negatively impact
customer service. Having considered
this comment, the Bureau notes that it
proposed § 1024.36(b) because it was
concerned that designating separate
telephone numbers and addresses for
notices of error and information
requests could impede borrower
attempts to submit notices of error and
information requests to servicers due to
debates over whether a particular
communication constituted a notice of
error or an information request. For the
reasons set forth above and in the
proposal, final § 1024.36(b) retains the
requirement that servicers designate the
same address for receipt of information
requests and notices of error. In
addition, the Bureau is adopting
comment 36(b)–3 substantially as
proposed, except that the Bureau has
removed references to information
requests received by telephone.
Proposed comment 36(b)–5 would
have further clarified that a servicer may
use automated systems, such as an
interactive voice response system, to
manage the intake of borrower calls. The
proposal provided that prompts for
requesting information must be clear
and provide the borrower the option to
connect to a live representative. Because
the final rule does not require servicers
to comply with information request
procedures for oral requests, the Bureau
is withdrawing proposed comment
36(b)–5 from the final rule.
Internet Intake of Information Requests
The Bureau proposed comment 36(b)–
4 to clarify that a servicer would not be
required to establish a process for
receiving information requests through
email, Web site form, or other online
methods. Proposed comment 36(b)–4
was intended to further clarify that if a
servicer establishes a process for
receiving information requests through
online methods, the servicer can
designate it as the only online intake
process that a borrower can use to
request information. A servicer would
not be required to provide a written
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notice to a borrower in order to gain the
benefit of the online process being
considered the exclusive online process
for receiving information requests.
Proposed comment 36(b)–4 would have
further clarified that a servicer’s
decision to accept requests for
information through an online intake
method shall be in addition to, not in
place of, any processes for receiving
information requests by phone or mail.
One consumer group commenter
advocated requiring servicers to
establish an online process for receipt of
information requests. The Bureau agrees
that online processes have significant
promise to facilitate faster, cheaper
communications between borrowers and
servicers. However, the Bureau believes
that this suggestion raises a broader
issue around the use of electronic media
for communications between servicers
(and other financial services providers)
and borrowers (and other consumers).
The Bureau believes it would be most
effective to address this issue in that
larger context after study and outreach
to enable the Bureau to develop
principles or standards that would be
appropriate on an industry-wide basis.
The Bureau is therefore, at this time,
finalizing language to permit, but not
require, servicers to elect whether to
adopt such a process. The Bureau
intends to conduct broader analyses of
electronic communications’ potential
for disclosure, error resolution, and
information requests after the rule is
released. Accordingly, the Bureau is
adopting comment 36(b)–4 as proposed,
with minor technical amendments, and
having removed references to
information requests received by
telephone.
36(c) Acknowledgment of Receipt
Proposed § 1024.36(c) would have
required a servicer to provide a
borrower an acknowledgement of an
information request within five days
(excluding legal public holidays,
Saturdays, and Sundays) of receiving an
information request. Proposed
§ 1024.36(c) would have implemented
section 1463(c) of the Dodd-Frank Act,
which amended the current
acknowledgement deadline of 20 days
for qualified written requests to five
days. Proposed § 1024.36(c) would have
further applied the same timeline
applicable to a qualified written request
to any information request.
Industry commenters, including
multiple credit union trade associations,
requested that the Bureau lengthen the
acknowledgment time period, asserting
that five days was unreasonable,
especially for smaller institutions. A
nonprofit mortgage servicer said the
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timeframe was insufficient for its small
volunteer staff. An industry trade
association commenter argued that the
acknowledgment requirement creates
unnecessary paperwork and should be
removed from the final rule altogether.
In contrast, consumer group
commenters were generally supportive
of the acknowledgment requirement,
noting that the timeline in the proposal
was consistent with that in the DoddFrank Act for qualified written requests.
The Bureau believes acknowledgment
within five days is appropriate given
that the Dodd-Frank Act expressly
adopts that requirement for qualified
written requests and differentiating
between two regimes would increase
operational complexity. Moreover, the
burden on servicers is significantly
mitigated by the fact that the
information request procedures are only
applicable to written requests. The
Bureau further notes that the contents of
the acknowledgment are minimal.
Moreover, servicers need not provide an
acknowledgment if the servicer provides
the information requested within five
days. Accordingly, the Bureau is
adopting § 1024.36(c) as proposed.
36(d) Response to Information Request
The Bureau proposed § 1024.36(d) to
set forth requirements on servicers for
responding to information requests. As
discussed in more detail below,
proposed § 1024.36(d) would have
implemented the response requirement
in section 6(e)(2) of RESPA applicable to
a qualified written request, including
section 1463(c) of the Dodd-Frank Act,
which amended certain deadlines for
responses to qualified written requests.
Proposed § 1024.36(d) would have
further implemented the ten business
day timeline in section 6(k)(1)(D) of
RESPA by applying the timeline to
requests for information about the
owner or assignee of the loan.
36(d)(1) Investigation and Response
Requirements
Proposed § 1024.36(d)(1) would have
required a servicer to respond to an
information request within 30 days by
either (i) providing the borrower with
the requested information and contact
information for further assistance, or (ii)
conducting a reasonable search for the
requested information and providing the
borrower with a written notification that
states that the servicer has determined
that the requested information is not
available or cannot reasonably be
obtained by the servicer, as appropriate,
the basis for the servicer’s
determination, and contact information
for further assistance. The proposal
would have only required a servicer to
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provide a written notice to the borrower
in response to the information request if
the information requested by the
borrower is not available or cannot
reasonably be obtained by the servicer.
The proposal would have permitted a
servicer to respond either orally or in
writing to the borrower if the servicer is
providing the information requested by
the borrower. The Bureau proposed to
allow servicers to respond orally
because it believed that the goal of
providing information to borrowers
would be furthered by allowing
servicers to respond orally.
Additionally, the Bureau believed that
allowing the servicer to respond orally
would reduce the burden on servicers.
One consumer advocacy group
commenter urged the Bureau to require
that servicers respond to information
requests in writing. The commenter
argued that servicers regularly provide
borrowers inconsistent and inaccurate
information, which necessitates a
written response. Because, as discussed
above, the final rule requires borrowers
to submit information requests in
writing in order to gain the benefit of
the information request procedures set
forth in § 1024.36, the Bureau now
believes it is appropriate and effectuates
the consumer protection purposes of
RESPA to require that servicers respond
to borrowers’ information requests in
writing. Doing so will help ensure that
there is a written record of both the
borrower’s request and the servicer’s
response, which the Bureau believes
will reduce confusion regarding the
accuracy of the information provided.
For these reasons, the Bureau is
adopting § 1024.36(d)(1) substantially as
proposed, except that it has removed
references to a servicer’s oral response
and clarified that the servicer’s contact
information must include a telephone
number.
Information Not Available
Proposed comment 36(d)(1)(ii)–1
would have clarified that information
should not be considered as available to
a servicer if the information is not in the
servicer’s possession or control or the
servicer cannot retrieve the information
in the ordinary course of business
through reasonable efforts.
The purpose of the information
request requirements is to provide an
efficient means for borrowers to obtain
information regarding their mortgage
loan accounts and the Bureau believes
that imposing obligations on servicers to
provide information in response to an
information request is an efficient
means of achieving the goal of providing
a borrower with access to requested
information. However, the Bureau
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proposed comment 36(d)(1)(ii)–1
because it believes that burden for
information requests will increase
greatly if a servicer is required to
undertake an investigation for
documents that are not in a servicer’s
possession or control. The same
inefficiency exists even if information is
in a servicer’s possession or control but,
for appropriate business reasons, is
stored in a medium that is not
accessible by a servicer in the ordinary
course of business. The Bureau believes
that the marginal benefit of having
additional information available to
borrowers is not justified by the
significant burdens that such
investigations may incur. Moreover, the
Bureau believes that it would frustrate
the consumer protection purposes of
RESPA to require that servicers devote
considerable resources, which could
otherwise be spent on responding to
information requests that would benefit
borrowers, to locating inaccessible
information.
One mortgage servicer commented on
proposed comment 36(d)(1)(ii)–1. The
commenter requested that the Bureau
provide examples in the commentary of
what it considers to be unavailable
information. Proposed comment
36(d)(1)(ii)–2 provides examples of
when documents should and should not
be considered to be available to a
servicer in response to an information
request, and such examples are reflected
in the final comment as well. For the
reasons discussed in the proposal and
above, the Bureau is adopting comments
36(d)(1)(ii)–1 and 36(d)(1)(ii)–2
substantially as proposed.
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36(d)(2) Time Limits
36(d)(2)(i)
Section 1463(b) of the Dodd-Frank
Act amended section 6(e)(2) of RESPA
to require a servicer to investigate and
respond to a qualified written request
within 30 days (excluding legal public
holidays, Saturdays, and Sundays).
Prior to the Dodd-Frank Act, servicers
had 60 days to investigate and respond
to a borrower’s qualified written
request. The Bureau proposed
§ 1024.36(d)(2)(i) to implement section
6(e)(2) of RESPA with respect to
qualified written requests, and to
impose the same timeframe on other
requests for information from borrowers.
Specifically, proposed § 1024.36(d)(2)(i)
would have required a servicer to
respond to an information request not
later than 30 days (excluding legal
public holidays, Saturdays, and
Sundays) after the servicer receives the
information request, with one exception
discussed below.
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While several industry commenters
asserted that 30 days was insufficient,
one credit union opined that the
timeline was reasonable. Similarly, a
consumer group commenter noted that
the timeline was consistent with the
time period for qualified written
requests required by the Dodd-Frank
Act. Consumer commenters on
Regulation Room asserted that the
timeline was too generous. The Bureau
believes that the 30-day timeframe
proposed is appropriate given that the
Dodd-Frank Act expressly changed the
timeframe for qualified written requests
from 60 days to 30 days and
differentiating between two regimes
would increase operational complexity
as well as burden on borrowers and
servicers. Accordingly, the Bureau is
adopting the 30-day timeline as
proposed.
Shortened Time Limit To Provide
Information Regarding the Identity of
the Owner or Assignee
Section 1463(a) of the Dodd-Frank Act
added section 6(k)(1)(D) to RESPA,
which sets forth a ten business day
limitation on a servicer to respond to a
borrower’s request for information
regarding the owner or assignee of a
mortgage loan. The Bureau proposed
§ 1024.36(d)(2)(i)(A) to implement this
provision of RESPA. Proposed
§ 1024.36(d)(2)(i)(A) would have
provided that if a borrower submits a
request for information regarding the
identity of, and address or relevant
contact information for, the owner or
assignee of a mortgage loan, a servicer
shall respond to the information request
with ten days (excluding legal public
holidays, Saturdays, and Sundays).
Proposed § 1024.36(d)(2)(i)(A) would
have required a servicer to provide the
requested information within ten days
(excluding legal public holidays,
Saturdays, and Sundays) instead of ‘‘10
business days,’’ as the Bureau interprets
the ‘‘10 business day’’ requirement in
section 6(k)(1)(D) of RESPA to mean ten
calendar days with an exclusion for
intervening legal public holidays,
Saturdays, and Sundays, and proposes
to implement that interpretation in
proposed § 1024.36(d)(2)(i)(A).
Two non-bank servicers commented
that ten days is insufficient for those
circumstances in which a servicer needs
to obtain documentation confirming
ownership, such as information
contained in the collateral file. The
Bureau acknowledges the concerns
expressed but, as discussed in the
proposal, the Bureau does not believe
that the burden of obtaining this
information for any borrower will be
significant enough to justify additional
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time beyond the ten days (excluding
legal public holidays, Saturdays, and
Sundays) established by Congress for
responding to borrower requests for
information regarding the owner or
assignee of the loan. Servicers generally
have access to the identification of
investors as that information is
necessary to determine where to direct
mortgage loan payments and reports
with respect to the performance of
serviced assets. The benefit to the
borrower of obtaining the information,
which Congress required, justifies the
costs to servicers of complying within
ten days (excluding legal public
holidays, Saturdays, and Sundays).
Accordingly, the Bureau is adopting
§ 1024.36(d)(2)(i)(A) as proposed.
Extensions of Time Limits
Section 1463(c)(3) of the Dodd-Frank
Act amended section 6(e) of RESPA to
permit servicers to extend the time for
responding to a qualified written
request by 15 days if, before the end of
the 30-day period, the servicer notifies
the borrower of the reasons for the
extension. The Bureau proposed
§ 1024.36(d)(2)(ii) to implement this
provision with respect to qualified
written requests, and to impose the
same timeframe with respect to other
requests for information. Proposed
§ 1024.36(d)(2)(ii) would have permitted
a servicer to extend the time period for
responding to an information request by
15 days (excluding legal public
holidays, Saturdays, and Sundays) if,
before the end of the 30-day period set
forth in proposed § 1024.36(d)(2)(i)(B),
the servicer notifies the borrower of the
extension and the reasons for the delay
in responding. For the reasons
discussed above, the Bureau did not
propose to apply the extension
allowance of proposed
§ 1024.36(d)(2)(ii) to information
requests with respect to the owner or
assignee of a mortgage loan. Permitting
a 15-day extension of that timeframe
would negate the shortened response
period and undermine the purpose
served by shortening it. While some
consumer groups disfavored the
extension, for the reasons discussed
above and in the proposal, the Bureau
is adopting § 1024.36(d)(2)(ii) as
proposed with minor technical
amendments.
36(e) Alternative Compliance
Proposed § 1024.36(e) would have
provided that a servicer is not required
to comply with the requirements of
paragraphs (c) and (d) of proposed
§ 1024.36 if the information requested
by a borrower is provided to the
borrower within five days along with
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contact information the borrower can
use for further assistance. This
provision was consistent with section
6(e)(1)(A) of RESPA, which requires
servicers to provide written
acknowledgment of a qualified written
request within five days (excluding legal
public holidays, Saturdays, and
Sundays) ‘‘unless the action requested is
taken within such period.’’ Proposed
§ 1024.36(e) would have permitted a
servicer to provide the information
requested either orally or in writing.
Proposed comment 36(e)–1 would have
permitted servicers that provide
information orally to demonstrate
compliance by, among other things,
including a notation in the servicing file
that the information requested was
provided or maintaining a copy of a
recorded telephone conversation.
Because, as discussed above, the final
rule requires borrowers to submit
information requests in writing in order
to gain the benefit of the information
request procedures set forth in
§ 1024.36, the Bureau now believes it is
appropriate and consistent with the
consumer protection purposes of RESPA
to require that servicers respond to
borrowers’ information requests in
writing. Doing so will help ensure that
there is a written record of both the
borrower’s request and the servicer’s
response, which the Bureau believes
will reduce confusion regarding the
accuracy of the information provided.
The Bureau did not receive comment
regarding proposed § 1024.36(e) and, for
the reasons set forth above, is adopting
§ 1024.36(e) substantially as proposed,
except that it no longer permits
servicers to respond orally and clarifies
that the contact information must
include a telephone number. The
Bureau is removing proposed comment
36(e)–1 from the final rule.
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36(f) Requirements not Applicable
The Bureau proposed § 1024.36(f) to
set forth the types of information
requests to which the information
request requirements would not apply.
36(f)(1) In General
Proposed § 1024.36(f)(1) would have
provided that a servicer is not required
to comply with the information request
requirements set forth in § 1024.36(c)
and (d) if the servicer reasonably makes
certain determinations specified in
§§ 1024.36(f)(1)(i), (ii), (iii), (iv) or (v).
Specifically, subject to certain
exceptions, a servicer would not be
required to comply with information
request requirements under § 1024.36 as
to information requests that are
duplicative, overbroad or unduly
burdensome, or untimely, as well as
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requests for confidential, proprietary,
general corporate or irrelevant
information. A servicer would be liable
to the borrower for its unreasonable
determination that any of the listed
categories apply and resulting failure to
comply with proposed § 1024.36(c) and
(d).
36(f)(1)(i)
Proposed § 1024.36(f)(1)(i) would
have provided that a servicer is not
required to comply with the information
request requirements in proposed
§ 1024.36(c) and (d) with respect to an
information request that requests
information that is substantially the
same as information previously
requested by or on behalf of the
borrower, and for which the servicer has
previously complied with its obligation
to respond to the information request.
Proposed comment 36(f)(1)(i)–1 would
have clarified that a borrower’s request
for a type of information that can change
over time should not be considered
substantially the same as a previous
request for the same type of information.
The Bureau proposed § 1024.36(f)(1)(i)
to ensure that a servicer is not required
to expend resources conducting
duplicative searches for documents, as
such a requirement could divert
resources from responding to other
requests.
One anonymous commenter urged the
Bureau to withdraw proposed
§ 1024.36(f)(1)(i), claiming that the
Bureau lacked authority to narrow the
requirements listed in RESPA. The
Bureau’s authority for § 1024.36 is
discussed above. In addition, the Bureau
believes that it would frustrate the
consumer protection purposes of RESPA
to require that servicers devote
resources, which could otherwise be
spent on responding to information
requests that would benefit consumers,
to respond to duplicative information
requests. The Bureau therefore believes
that § 1024.36(f)(1)(i) is necessary to
achieve the purposes of RESPA,
including of ensuring responsiveness to
consumer requests and complaints and
the provision and maintenance of
accurate and relevant information.
Accordingly, for the reasons set forth in
the proposal and above, the Bureau is
adopting § 1024.36(f)(1)(i) and comment
36(f)(1)(i)–1 substantially as proposed.
36(f)(1)(ii)
Proposed § 1024.36(f)(1)(ii) would
have provided that a servicer is not
required to comply with the information
request requirements in proposed
§ 1024.36(c) and (d) with respect to an
information request that requests
confidential, proprietary, or general
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corporate information of a servicer. The
Bureau proposed § 1024.36(f)(1)(ii)
because it believed that the purpose of
providing borrowers with a means to
request information regarding a
borrower’s mortgage loan account
would be frustrated by permitting
borrowers to request confidential,
proprietary, or general corporation
information of a servicer. Proposed
comment 36(f)(1)(ii)–1 would have
provided examples of confidential,
proprietary, or general corporate
information. These include information
requests regarding: management and
profitability of a servicer; other
mortgage loans than the borrower’s;
investor reports; compensation,
bonuses, and personnel actions for
servicer personnel; the servicer’s
training programs; investor agreements;
the evaluation or exercise of any owner
or assignee remedy; the servicer’s
servicing program guide; investor
instructions or requirements regarding
loss mitigation options, examination
reports, compliance audits or other
investigative materials.
Industry commenters expressed
support for proposed § 1024.36(f)(1)(ii),
but urged the Bureau to make clear that
servicers need not turn over privileged
documents. Multiple industry
commenters said that servicers should
not be required to produce pooling and
servicing agreements, as such
agreements are confidential, proprietary
and also costly to mail. In contrast, one
consumer advocate commenter said that
such agreements are not typically
confidential or proprietary, yet
important because servicers rely on
such documents to make erroneous
claims that they are not authorized to
offer certain loan modifications.
Consumer advocacy groups also
asserted that proposed
§ 1024.36(f)(1)(ii), as a whole, gives
servicers too much discretion which
may increase servicers’
nonresponsiveness. An anonymous
commenter said it was unclear which
information falls into proposed
§ 1024.36(f)(1)(ii) and also questioned
the Bureau’s authority to narrow the
requirements of RESPA.
Having considered these comments,
the Bureau is amending proposed
§ 1024.36(f)(1)(ii) to provide that
servicers need not provide borrowers
with information that is confidential,
proprietary or privileged, as the Bureau
believes that permitting information
requests for such information could
impede the ability of servicers to
operate effectively. In addition, the
Bureau believes that it would frustrate
the consumer protection purposes of
RESPA to require that servicers devote
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resources, which could otherwise be
spent responding to information
requests that would benefit consumers,
to determining how to respond to
information requests for confidential,
proprietary, or privileged information
that generally would not directly benefit
the borrower, but might pose
considerable disclosure risk to the
servicer.
The final rule further removes the
reference to general corporate
information, and references to such
information have been removed from
the examples listed in final comment
36(f)(1)(ii)–1 as well. For example,
because the Bureau does not believe that
pooling and servicing agreements are
typically kept confidential, final
comment 36(f)(1)(ii)–1 no longer lists
such agreements as examples. However,
the Bureau notes that to the extent that
a borrower requests such agreements, a
servicer is not required to comply with
the requirements of § 1024.36(c) or (d) if
the servicer reasonably determines that
any of the exclusions set forth in
§ 1024.36(f) apply. The Bureau’s
authority for § 1024.36 is addressed
above.
36(f)(1)(iii)
Proposed § 1024.36(f)(1)(iii) would
have provided that a servicer is not
required to comply with the information
request requirements in proposed
§ 1024.36(c) and (d) with respect to
information requests that are not
directly related to the borrower’s
mortgage loan account. The Bureau
proposed § 1024.36(f)(1)(iii) because it
believes the protection in it is
appropriate to fulfill the purpose of the
proposed rule, which is to provide a
means for borrowers to obtain
information from servicers regarding
their own mortgage loan accounts.
A consumer group commenter argued
that the proposal requires that
borrowers state the information
requested with too much specificity,
arguing that a general request for
information about the status of the
borrower’s loan should suffice. An
anonymous commenter asserted that the
Bureau proposes to improperly narrow
the scope of information requests. The
commenter reasoned that section
6(e)(1)(B) of RESPA requires servicers to
respond to qualified written requests for
information relating to the servicing of
the loan. The commenter argued that the
Bureau proposes to narrow that
definition by adding the requirement
that such requests must ‘‘directly’’ relate
to the ‘‘mortgage loan account’’ for the
loan.
By relieving servicers of the duty to
respond to requests for information that
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are not directly related to the borrower’s
mortgage loan account, the Bureau does
not intend to impose an obligation on
borrowers to identify with specificity
the precise document or data point the
borrower is seeking. Rather, the point of
this section is to assure that servicers’
resources are focused on securing
relevant information for borrowers by
excluding requests for information that
are not relevant to the borrower’s
account. For the reasons discussed
above, the Bureau finds that
§ 1024.36(f)(1)(iii) is necessary to
achieve the purposes of RESPA by
ensuring that servicer resources that
could be devoted to responding to
information requests that benefit
borrowers are not diverted to
responding to information requests that
would not result in consumer benefit.
Accordingly, for the reasons set forth in
the proposal and above, the Bureau is
adopting § 1024.36(f)(1)(iii) as proposed.
The Bureau is also adopting new
comment 36(f)(1)(iii)–1, which includes
examples of information that is not
directly related to a borrower’s loan
account.
36(f)(1)(iv)
Proposed § 1024.36(f)(1)(iv) would
have provided that a servicer is not
required to comply with the request for
information requirements in proposed
§ 1024.36(c) and (d) with respect to a
request for information that is overbroad
or unduly burdensome. The proposed
rule would have defined ‘‘overbroad’’
and ‘‘unduly burdensome’’ for this
purpose. It would have provided that an
information request is overbroad if a
borrower requests a servicer provide an
unreasonable volume of documents or
information to a borrower. The
proposed rule stated that an information
request is unduly burdensome if a
diligent servicer could not respond to
the request without either exceeding the
maximum timeframe permitted by
§ 1024.36(d)(2)(ii) or incurring costs (or
dedicating resources) that would be
unreasonable in light of the
circumstances. The proposed rule
would have further clarified that if a
servicer can identify a valid information
request in a submission that is
otherwise overbroad or unduly
burdensome, the servicer is required to
respond to the information request that
it can identify. Finally, the Bureau
proposed comment 36(f)(1)(iv)–1 to set
forth characteristics that may indicate if
an information request is overbroad or
unduly burdensome.
As discussed above for proposed
§ 1024.35(g)(1)(ii), during pre-proposal
outreach, consumers, consumer
advocates, servicers, and servicing
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industry representatives indicated to the
Bureau that consumers do not typically
use the current qualified written request
process to request information. During
the Small Business Review Panel
outreach, small entity representatives
expressed that typically qualified
written requests received from
borrowers were vague forms found
online or forms used by advocates as a
form of pre-litigation discovery.
Servicers and servicing industry
representatives indicated that these
types of qualified written requests are
unreasonable and unduly burdensome.
Small entity representatives in the
Small Business Review Panel outreach
requested that the Bureau consider an
exclusion for abusive requests, or
requests made with the intent to harass
the servicer.
The Bureau requested comment
regarding whether a servicer should not
be required to undertake the
information request requirements in
proposed § 1024.36(c) and (d) for
information requests that are overbroad
or unduly burdensome. Industry
commenters supported the exclusion,
but urged the Bureau to remove the
requirement that servicers identify valid
information requests in submissions
that are otherwise overbroad or unduly
burdensome. Industry commenters said
servicers should not be required to parse
through such submissions to locate a
clear information request. One large
trade association of mortgage servicers
said that the requirement effectively
subsumes the exclusion. Consumer
group commenters generally disfavored
the exclusion. One commenter
questioned the assertion that borrowers
primarily use qualified written requests
to obtain prelitigation discovery. One
consumer group said the exclusion gives
servicers too much discretion. Another
said it requires borrowers to state their
information requests with too much
specificity. An anonymous consumer
advocate said a request from a single
borrower should not be so voluminous
as to be burdensome for servicers to
respond. Another consumer group
commenter requested that the Bureau
address situations in which the servicer
erroneously determines that a
submission is overbroad or unduly
burdensome.
The Bureau proposed
§ 1024.36(f)(1)(iv), in part, because the
Bureau believes that requiring servicers
to respond to overbroad or unduly
burdensome information requests from
some borrowers may cause servicers to
expend fewer resources to address
requests that may be more clearly stated
and more clearly require servicer
attention. The Bureau was especially
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concerned about this in light of the
proposed rule’s requirement that
servicers respond to an expanded
universe of information requests,
including requests for information that
do not specifically relate to ‘‘servicing’’
as defined in RESPA, as implemented
by this rule, as well as information
requests asserted orally. While the final
rule does not require that servicers
undertake the information request
procedures in § 1024.36(c) and (d) for
oral submissions, it does not limit
information requests to those related to
servicing. Thus, the Bureau continues to
believe that a requirement for servicers
to respond to information requests that
are overbroad or unduly burdensome
may harm consumers and frustrate
servicers’ ability to comply with the
new information request requirements.
Finally, as stated in the proposal, the
Bureau does not believe that the
information request procedures should
replace or supplant civil litigation
document requests and should not be
used as a forum for pre-litigation
discovery. Accordingly, the Bureau is
adopting § 1024.36(f)(1)(iv) and
comment 36(f)(1)(iv)–1 substantially as
proposed.
36(f)(1)(v)
Proposed § 1024.36(f)(1)(v) would
have provided that a servicer is not
required to comply with the information
request requirements in proposed
§ 1024.36(c) and (d) for an untimely
information request—that is, an
information request delivered to the
servicer more than one year after either
servicing for the mortgage loan that is
the subject of the request was
transferred by that servicer to a
transferee servicer or the mortgage loan
amount was paid in full, whichever date
is applicable. The Bureau proposed this
provision to set a specific and clear time
that a servicer may be responsible for
responding to information requests for a
mortgage loan.
Moreover, the Bureau proposed
§ 1024.36(f)(1)(v) to achieve the same
goal that currently exists in Regulation
X with respect to qualified written
requests. Specifically, current
§ 1024.21(e)(2)(ii) states that ‘‘a written
request does not constitute a qualified
written request if it is delivered to a
servicer more than one year after either
the date of transfer of servicing or the
date that the mortgage servicing loan
amount was paid in full, whichever date
is applicable.’’
One industry trade association
expressed support for proposed
§ 1024.36(f)(1)(v). Consumer advocacy
groups did not comment on proposed
§ 1024.36(f)(1)(v). For the reasons set
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forth above, the Bureau is adopting
§ 1024.36(f)(1)(v) as proposed with a
minor technical amendment.
36(f)(2) Notice to Borrower
Proposed § 1024.36(f)(2) would have
required that if a servicer determines
that it is not required to comply with
the information request requirements in
proposed § 1024.36(c) and (d) with
respect to an information request, the
servicer must provide a notice to the
borrower informing the borrower of the
servicer’s determination. The servicer
must send the notice not later than five
days (excluding legal public holidays,
Saturdays, and Sundays) after its
determination and the notice must set
forth the basis upon which the servicer
has made the determination, noting the
applicable provision of proposed
§ 1024.36(f)(1).
One credit union trade association
disfavored the proposed requirement
that a servicer send a notice informing
the borrower that an information request
falls into one of the enumerated
exclusions. The commenter suggested
that the Bureau permit servicers to send
a standard notice informing borrowers
that the servicer received the
information request and is not required
to respond.
The Bureau proposed § 1024.36(f)(2)
because it believes that borrowers
should be notified that a servicer does
not intend to take any action on the
information request. The Bureau also
believes borrowers should know the
basis for the servicer’s determination.
By providing borrowers with notice of
the basis for the servicer’s
determination, a borrower will know the
servicer’s basis and will have the
opportunity to bring a legal action to
challenge that determination where
appropriate. Accordingly, having
considered the comment, the Bureau is
adopting § 1024.36(f)(2) as proposed.
36(g) Payment Requirement Limitations
Proposed § 1024.36(g)(1) would have
prohibited a servicer from charging a
fee, or requiring a borrower to make any
payment that may be owed on a
borrower’s account as a condition of
responding to an information request.
Proposed § 1024.36(g)(2) would have,
however, permitted fees for providing
payoff statements or beneficiary notices
under applicable law. The Bureau
proposed § 1024.36(g)(1) and (2) for
three reasons. First, section 1463(a) of
the Dodd-Frank Act added section
6(k)(1)(B) to RESPA, which prohibits a
servicer from charging fees for
responding to valid qualified written
requests. Proposed § 1024.36(g) would
have implemented that provision with
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respect to qualified written requests for
information relating to the servicing of
a mortgage loan. Second, the Bureau
believes that a servicer practice of
charging for responding to an
information request impedes borrowers
from pursuing valid information
requests, and that the prohibition is
therefore necessary and appropriate to
achieve the consumer protection
purposes of RESPA, including ensuring
responsiveness to borrower requests and
complaints. Third, the Bureau learned
from outreach with consumer advocates
that, in some instances, servicers have
demanded that borrowers make
payments before the servicer will
provide a borrower with information
requested by the borrower or will
correct errors identified by a borrower.
The Bureau believes that a servicer is
required to provide a borrower with
information about the borrower’s
mortgage loan account notwithstanding
the payment status of a borrower’s
account.
Some consumer advocacy group
commenters expressed support for the
fee prohibition, stating that the
prohibition is statutorily required. In
contrast, a large credit union trade
association opposed the prohibition,
noting that it bars fees for items for
which credit unions routinely charge,
such as fees for copies of cancelled
checks and periodic statements. The
trade association argued that the
proposed rule should take the fact that
a fee is legally permissible into account.
A law firm that represents servicers
argued that it would be unfair and
economically burdensome to prohibit
servicers from charging fees for
duplicate statements, such as year-end
statements and tax forms.
Having considered these comments,
for the reasons stated above and in the
proposal, the Bureau is adopting
§ 1024.36(g) as proposed, except that
§ 1024.36(g)(2) no longer references
payoff statements. The Bureau has
removed the reference to payoff
statements, as the final rule excludes
such statements from information
request requirements under § 1024.36
altogether.
36(h) Servicer Remedies
Proposed § 1024.36(h) would have
provided that the existence of an
outstanding information request does
not prohibit a servicer from furnishing
adverse information to any consumer
reporting agency or from pursuing any
remedies, including proceeding with a
foreclosure sale, permitted by the
applicable mortgage loan instrument.
The proposed requirement is consistent
with section 6(e)(3) of RESPA which
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prohibits servicers from furnishing
adverse information only as to qualified
written requests that assert an error with
respect to the borrower’s payments, but
not to a qualified written request that
requests information. Moreover, the
Bureau does not believe that the
consumer protection purposes of RESPA
would be furthered by permitting
borrowers to evade consumer reporting
by submitting an information request.
The Bureau did not receive comment
regarding proposed § 1024.36(h) and is
adopting it as proposed.
Section 1024.37 Force-Placed
Insurance
Section 1463(a) of the Dodd-Frank Act
amended section 6 of RESPA to
establish new servicer duties with
respect to servicers’ purchase of forceplaced insurance on a property securing
a federally related mortgage loan. The
statute generally defines ‘‘force-placed
insurance’’ as hazard insurance
coverage obtained by a servicer of a
federally related mortgage loan when
the borrower has failed to maintain or
renew hazard insurance on such
property as required of the borrower
under the terms of the mortgage loan.
New § 6(k)(1)(A) of RESPA states that a
servicer shall not obtain force-placed
insurance unless there is a reasonable
basis to believe the borrower has failed
to comply with the loan contract’s
requirements to maintain property
insurance. New section 6(l) of RESPA
further states that servicers must: (1)
provide two written notices to a
borrower over a notification period
lasting at least 45 days before imposing
a charge for force-placed insurance on
the borrower; (2) accept any reasonable
form of written confirmation from a
borrower of existing insurance coverage;
and (3) within 15 days of the receipt of
confirmation of a borrower’s existing
insurance coverage, terminate forceplaced insurance and refund all forceplaced insurance premiums paid by the
borrower during any period during
which the borrower’s insurance
coverage and the force-placed insurance
coverage were both in effect, as well as
any related fees charged to the
borrower’s account with respect to
force-placed insurance during such
period. Section 6(l) of RESPA
additionally states that no provisions of
section 6(l) shall be construed as
prohibiting a servicer from providing
simultaneous or concurrent notice of a
lack of flood insurance pursuant to
section 102(e) of the Flood Disaster
Protection Act of 1973. Section 6(m) of
RESPA states that all charges related to
force-placed insurance imposed on a
borrower by or through a servicer, other
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than charges subject to State regulation
as the business of insurance, must be
bona fide and reasonable.
The Bureau proposed § 1024.37 to
implement the new servicer duties
established by section 1463(a) of the
Dodd-Frank Act in section 6(k) through
(m) of RESPA. Force-placed insurance
was created by the insurance industry to
provide mortgage loan owners and
investors with a hazard insurance
product that would protect the value of
their investment by insuring properties
securing mortgage loans when hazard
insurance obtained by a borrower
lapsed. In recent years, however, forceplaced insurance has become a
consumer protection concern and has
attracted the attention of lawmakers,
enforcement officials, and Federal and
State regulators.105 First, a force-placed
insurance policy typically provides less
coverage than the typical homeowners’
insurance policy because force-placed
insurance has been designed to provide
coverage limited to protecting the value
of the dwelling, but not personal
property, personal liabilities for injuries
on site, and other types of loss included
in the scope of coverage of a typical
homeowners’ insurance policy. Second,
although a force-placed insurance
policy generally provides less coverage
than a homeowners’ insurance policy,
force-placed insurance policy premiums
are generally substantially more
expensive than homeowners’ insurance
policy premiums. One large forceplaced insurance provider estimates that
the force-placed policies it writes cost,
on average, 1.5 to 2 times more than the
prior hazard insurance purchased by a
borrower.106 But at the same time, it has
been reported that an individual forceplaced policy could cost 10 times as
much as a homeowners’ insurance
105 See
e.g., H.R. Rep. 111–94, at 55 (calling the
force-placement of insurance without a reasonable
basis a problematic method used by some servicers
to increase revenue); see also further, Compl.,
United States of America et al. v. Bank of America
Corp., et al. at ¶ 51 (alleging that the defendant
servicers engaged in unfair and deceptive practices
in the discharge of their loan servicing activities by
imposing force-placed insurance without properly
notifying the borrowers and when borrowers
already had adequate coverage) (filed on March 14,
2012); see further, N.Y. Orders ‘Force-Placed’
Insurers to Submit New Lower Rate Proposals, Ins.
J., June 13, 2012 (describing that New York State’s
Department of Financial Services ordered three
force-placed insurance providers to submit new
force-placed insurance premium rates after
determining that the insurers overcharged New
York homeowners).
104 See Assurant Specialty Property, LenderPlaced Insurance, available at http://newsroom.
assurant.com/releasedetail.cfm?ReleaseID=645046
&ReleaseType=Featured%20News.
106 See Assurant Specialty Property, LenderPlaced Insurance, available at http://newsroom.
assurant.com/releasedetail.cfm?ReleaseID=645046
&ReleaseType=Featured%20News.
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policy.107 Explanations for the cost of
force-placed insurance differ. Industry
stakeholders generally attribute the
substantially higher cost of force-placed
insurance (relative to homeowners’
insurance) to the fact that force-placed
insurance: (1) Can be purchased for
every mortgage loan in a servicer’s
portfolio (including vacant properties
and other properties that homeowners’
insurance providers will not insure); (2)
ensures continuous coverage as of the
date a homeowners’ insurance policy
lapses or is canceled; and (3) can be
canceled by a servicer at any time, with
a full refund back to the date of
placement.
Consumer groups, however, assert
that the higher cost of force-placed
insurance can be largely explained by
market mechanisms that drive forceplaced insurance providers to compete
for business from servicers. Consumer
groups argue that the cost of forceplaced insurance is inflated by
incentives like commissions to servicers
(or their affiliates) that are licensed to
engage in insurance transactions, nocost or below-cost insurance tracking
and monitoring services to servicers
because the actual cost is passed on to
borrowers in the force-placed insurance
premium charge a force-placed
insurance provider assesses on a
borrower through the servicer, and
payments for entering into reinsurance
arrangements with servicers (or their
affiliates) that are licensed to engage in
insurance transactions. Consumer
groups and mortgage investors have
alleged that servicers have frequently
improperly placed force-placed
insurance, in some instances to receive
lucrative commissions or reinsurance
fees, or other consideration.108 In some
107 See Jeff Horowitz, Ties to Insurers Could Land
Mortgage Servicers in More Trouble, Am. Banker
(Nov. 9, 2010.)
108 See e.g., The Need for National Mortgage
Servicing Standards: Hearing Before the Subcomm.
on Hous., Transp., & Comm. Affairs of the Senate
Comm. on Banking and Urban Affairs, 112th Cong.
126 (2011)(statement of Laurie Goodman, Amherst
Securities) (testifying that incentives to obtain
force-placed insurance are such that it would be
‘‘unrealistic to expect a servicer to make an
unbiased decision on when to buy [force-placed
insurance],’’ and hence, national servicing
standards should be established to require servicers
to maintain a borrower’s hazard insurance ‘‘as long
as possible.’’); see also, N.Y. State Dep’t of Fin.
Services, Public Hearings on Force-Placed
Insurance (2012) (statement of Alexis Iwanisziw,
Neighborhood Economic Development Advocacy
Project) (testifying that problems like mortgage
servicers imposing force-placed insurance when
homeowners have voluntary market policies persist
because mortgage servicers receive commissions,
reinsurance contracts, free insurance tracking and
other kickbacks when they purchase force-placed
insurance); see further, Compl., United States of
America et al v. Bank of America Corp., et al at ¶ 51
(alleging that the defendant servicers engaged in
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cases, consumer groups have asserted
that the higher cost of force-placed
insurance can drive borrowers,
particularly those already facing
financial hardship, into default.
As discussed above, RESPA is a
remedial consumer protection statute
and imposes obligations upon the
servicing of federally related mortgage
loans that are intended to protect
borrowers. The Bureau believes that the
obligations the Dodd-Frank Act
established with respect to servicers’
purchase of force-placed insurance were
intended to impose, at minimum, (1) a
duty to help borrowers avoid
unwarranted and unnecessary charges
related to force-placed insurance
through both direct limitations on
certain charges and several procedural
safeguards; and (2) a duty to provide
borrowers with reasonably accurate
information about servicers’ grounds for
purchasing force-placed insurance and
the financial impact that such purchase
could have on the borrowers, in order to
encourage borrowers to take appropriate
steps to maintain their hazard insurance
policies.
Legal Authority
Section 1024.37 implements section
6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of
RESPA. Pursuant to the Bureau’s
authorities under sections 6(j),
6(k)(1)(E), and 19(a) of RESPA, the
Bureau is also adopting certain
additions and certain exemptions to
these provisions. As explained in more
detail below, these additions and
exemptions are necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including the avoidance of unnecessary
and unwarranted charges and fees and
the provision to borrowers of accurate
and relevant information.
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37(a) Definition of Force-Placed
Insurance
37(a)(1) In General
As added by the Dodd-Frank Act,
section 6(k)(2) of RESPA states that for
purposes of section 6(k) through (m) of
RESPA, force-placed insurance means
hazard insurance coverage obtained by
a servicer of a federally related mortgage
loan when the borrower has failed to
maintain or renew hazard insurance on
such property as required of the
borrower under the terms of the
mortgage. The Bureau proposed
§ 1024.37(a)(1) to implement section
unfair and deceptive practices in the discharge of
their loan servicing activities by imposing forceplaced insurance without properly notifying the
borrowers and when borrowers already had
adequate coverage) (filed on March 14, 2012).
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6(k)(2) of RESPA. The proposed
provision stated that in general, for
purposes of § 1024.37, the term ‘‘forceplaced insurance’’ means hazard
insurance obtained by a servicer on
behalf of the owner or assignee of a
mortgage loan on a property securing
such loan.
Proposed § 1024.37(a)(1) did not
incorporate language from the statute
referring to a borrower’s failure to
maintain or renew hazard insurance as
required under the terms of the
mortgage. As explained in the proposal,
the Bureau was concerned that adopting
that language might raise questions
whether the Dodd-Frank Act protections
applied to situations in which a
borrower did, in fact, have hazard
insurance in place but the borrower’s
servicer obtained force-placed insurance
anyway. The Bureau noted that
borrowers in such a situation are most
in need of protection from unwarranted
and unnecessary charges related to
force-placed insurance. Indeed, in other
respects, the force-placed insurance
provisions added to RESPA by the
Dodd-Frank Act expressly contemplate
that the protections apply in
circumstances where a borrower, in fact,
has hazard insurance in place. For
example, the notice to the borrower
required under RESPA section 6(l)(1)(A)
is required to include a statement of the
procedures by which the borrower may
demonstrate insurance coverage, and
under RESPA section 6(l)(3), which
provides that upon receipt by a servicer
of confirmation that a borrower has
hazard insurance in place, a servicer
must terminate force-placed insurance
and refund to the borrower all forceplaced premiums and related charges
for periods of overlapping coverage.
Thus, notwithstanding the phrase
‘‘when the borrower has failed to
maintain or renew hazard insurance,’’
the Bureau interprets the definition of
force-placed insurance to include
situations in which a servicer obtains
hazard insurance coverage on a property
where the borrower has in fact
maintained the borrower’s own hazard
insurance. The Bureau also proposed to
add language to the definition of the
term ‘‘force-placed insurance’’ in
proposed § 1024.37(a)(i) to describe the
insurance as being obtained by a
servicer ‘‘on behalf of the owner or
assignee of a mortgage loan on a
property securing such loan.’’ This
language was intended to distinguish
force-placed insurance from situations
in which a servicer renews borrowers’
own hazard insurance policies as
described in § 1024.17 or otherwise. The
Bureau observes that a servicer is
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simply renewing a borrower’s own
hazard insurance under these
circumstances and does not interpret
such insurance as hazard insurance
‘‘obtained’’ by a servicer within the
statutory definition of ‘‘force-placed
insurance’’ set forth in section 6(k)(2) of
RESPA. The Bureau did not receive
comments on the proposed definition of
the term ‘‘force-placed insurance’’ set
forth in proposed § 1024.37(a)(1).
Accordingly, the Bureau is adopting
§ 1024.37(a)(1) as proposed.
37(a)(2) Types of Insurance Not
Considered Force-Placed Insurance
37(a)(2)(i)
Proposed § 1024.37(a)(2)(i) would
have provided that hazard insurance to
protect against flood loss obtained by a
servicer as required by the Flood
Disaster Protection Act of 1973 is not
force-placed insurance for the purposes
of § 1024.37. The Bureau proposed to
exclude flood insurance that is required
under the Flood Disaster Protection Act
of 1973 (FDPA) from the definition of
the term ‘‘force-placed insurance,’’
because, as discussed above in the
section-by-section analysis of the
defined term ‘‘Hazard insurance,’’ the
Bureau believed and continues to
believe that the Bureau’s force-placed
insurance regulations should not apply
to servicers when they are required by
the FDPA to purchase flood insurance.
As discussed above, the FDPA provides
an extensive set of restrictions on a
servicers’ purchase of flood insurance
required by the FDPA, and the Bureau
was concerned that subjecting servicers
to overlapping regulatory restrictions
would be unduly burdensome and
might result in consumer confusion.
Several consumer groups suggested
that the Bureau should only exempt
servicers from the Bureau’s force-placed
insurance regulations to the extent they
purchase force-placed flood policies
from the National Flood Insurance
Program (NFIP) because the FDPA can
reasonably be interpreted to require
servicers to purchase force-placed flood
insurance through the NFIP. The
consumer groups further asserted that it
was important to ensure that RESPA’s
consumer protections with respect to
force-placed insurance apply when
servicers force-place private flood
insurance because private force-placed
insurance policies are more expensive
than the NFIP flood policies. As
discussed above, industry commenters
generally said that the proposed
exclusion of hazard insurance to protect
against flood loss obtained by a servicer
as required by the FDPA from the
definition of the term ‘‘force-placed
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insurance’’ was workable and
adequately mitigated the risk of a
servicer having to comply with both
regulations under the FDPA and the
Bureau’s force-placed insurance
regulations.
The Bureau has carefully considered
these comments and is adopting
proposed § 1024.37(a)(2)(i) as proposed.
The Bureau does not administer the
FDPA, and accordingly declines to
opine on whether the FDPA requires
servicers to purchase flood insurance
policies from the NFIP. The Bureau,
however, observes that there is existing
guidance from Federal agencies that
administer the FPDA that suggests that
a servicer may reasonably interpret the
FDPA to permit servicers to satisfy their
obligations under the statute through
the purchase of private flood
insurance.109
Moreover, the consumer groups did
not suggest that the consumer
protections in the FDPA do not apply to
a servicer’s purchase of private flood
insurance, and the Bureau has no reason
to believe that they do not. Accordingly,
the Bureau believes that if the Bureau
were to adopt the consumer groups’
suggestion to exclude from the
definition of the term ‘‘force-placed
insurance’’ only policies purchased
under the NFIP, a servicer who
purchased private flood insurance to
comply with its obligations under the
FDPA would have to comply with both
the Bureau’s regulations and regulations
under the FDPA. As discussed above,
this result would impose unnecessary
compliance burdens and frustrate the
consumer protection purposes of
RESPA’s force-placed insurance
provisions. For the reasons discussed
above, § 1024.37(a)(2)(i) is necessary
and appropriate to avoid undermining
the consumer protection purposes of
RESPA’s force-placed provisions and is
thus authorized under sections
6(k)(1)(E), 6(j)(3), and 19(a) of RESPA.
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37(a)(2)(ii) and (iii)
The Bureau proposed
§ 1024.37(a)(2)(ii) to clarify that hazard
insurance obtained by a borrower but
renewed by the borrower’s servicer as
required by § 1024.17(k)(1), (2), or (5) is
not force-placed insurance for purposes
of § 1024.37. The Bureau proposed
109 See Interagency Questions and Answers
Regarding Flood Insurance, 74 FR 35914, 35944
(July 21, 2009) (question 63 & 64 provide guidance
on the circumstances under which lenders could
rely on private flood insurance policies to meet
their obligations to maintain adequate flood
insurance coverage); see also, Fed. Emergency
Mgmt. Agency, Mandatory Purchase of Flood
Insurance Guidelines 42 (September 2007)(stating
that a lender has the option of force placing flood
insurance through a private (non-NFIP) insurer).
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§ 1024.37(a)(2)(iii) to clarify that hazard
insurance renewed by the servicer at its
discretion if the servicer is not required
to renew the borrower’s hazard
insurance as required by § 1024.17(k)(1),
(2), or (5) is also not force-placed
insurance for purposes of § 1024.37. As
discussed above, the Bureau observes
that a servicer is simply renewing a
borrower’s own hazard insurance under
these circumstances and does not
interpret such insurance as hazard
insurance ‘‘obtained’’ by a servicer
within the statutory definition of ‘‘forceplaced insurance’’ set forth in section
6(k)(2) of RESPA. Other than a large
bank servicer commending the Bureau
for the exclusion from the definition of
‘‘force-placed insurance’’ of hazard
insurance renewed at the servicer’s
discretion for non-escrowed borrowers,
the Bureau did not receive comments on
either proposed § 1024.37(a)(2)(ii) or
(iii). Accordingly, proposed
§ 1024.37(a)(2)(ii) and (iii) are adopted
as proposed, except the Bureau has
made technical revisions to proposed
§ 1024.37(a)(2)(ii) consistent with
changes to the language of
§ 1024.17(k)(5), and adopts
§ 1024.37(a)(2)(iii) with the clarification
that § 1024.37(a)(2)(iii) applies to the
extent the borrower agrees. The Bureau
believes it is appropriate to create
incentives for servicers to work with
non-escrowed borrowers to renew
hazard insurance originally obtained by
these borrowers, but not for servicers to
renew such insurance without borrower
consent.
One state housing finance agency
commenter suggested that the Bureau
should allow collateral protection plans
as an acceptable alternative to forceplaced insurance for subordinate liens.
The Bureau’s force-placed insurance
regulations are not intended to regulate
the type of hazard insurance a servicer
obtains on behalf of the owner or
assignee of a mortgage loan to insure the
property securing such loan. But if a
servicer attempts to seek payment from
a borrower for such insurance, the
Bureau’s force-placed regulations will
apply.
37(b) Basis for Charging a Borrower for
Force-Placed Insurance
Section 6(k)(1)(A) of RESPA states
that a servicer of a federally related
mortgage loan shall not obtain forceplaced insurance unless there is a
reasonable basis to believe the borrower
has failed to comply with the loan
contract’s requirements to maintain
property insurance. The Bureau
proposed § 1024.37(b) to implement
section 6(k)(1)(A) of RESPA. Proposed
§ 1024.37(b) stated that a servicer may
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not obtain force-placed insurance unless
the servicer has a reasonable basis to
believe that the borrower has failed to
comply with the mortgage loan
contract’s requirement to maintain
hazard insurance.
The Bureau also proposed related
commentary to provide illustrative
examples of ‘‘a reasonable basis to
believe’’ that a borrower has failed to
maintain hazard insurance. Proposed
comment 37(b)–1 would have provided
two examples in the context of a
borrower with an escrow account
established to pay for hazard insurance
premiums. Proposed comment 37(b)–2
would have provided an example of a
borrower who has not established an
escrow account to pay for hazard
insurance premiums. During preproposal outreach, servicers and forceplaced insurance providers told the
Bureau that their process of verifying
the existence of insurance coverage
before obtaining force-placed insurance
for borrowers with escrow and
borrowers without escrow was different.
Accordingly, the Bureau believed that it
was appropriate to provide different
examples based on whether the
borrower had escrowed for hazard
insurance.
Several consumer groups and a
number of industry commenters
suggested that the Bureau make changes
to proposed § 1024.37(b). Consumer
group commenters expressed the
concern that proposed § 1024.37(b)
would be too weak to motivate servicers
to change their practices with respect to
the purchase of force-placed insurance.
Several consumer groups recommended
that that the Bureau replace the
proposed commentary to 1024.37(b)
with a collective standard that would
determine whether the servicer had a
reasonable basis for obtaining forceplaced insurance based on whether the
percentage of cases in which borrowers
receive a full refund for force-placed
insurance charges exceed five percent
per calendar year.
In contrast, a number of industry
commenters suggested that proposed
§ 1024.37(b) was too limiting and might
unduly chill servicer’s use of forceplaced insurance to protect a lender’s
collateral. A number of industry
commenters requested that the Bureau
change proposed § 1024.37(b) so that the
reasonable basis standard in
§ 1024.37(b) would be defined solely by
compliance with the procedural
requirements enumerated in section 6(l)
of RESPA and § 1024.37(c) and (d) 110
110 Section 6(l) provides that a servicer of a
federally related mortgage shall not be construed as
having a reasonable basis for obtaining force-placed
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or, in the alternative, would provide a
safe harbor for servicers that meet such
requirements. One large force-placed
insurance provider and one large bank
servicer said that if the Bureau did not
change proposed § 1024.37(b), then the
Bureau should expressly state in
commentary to § 1024.37(b) that the
examples are illustrative and do not
provide the only situations in which a
servicer has a reasonable basis to believe
that the borrower’s hazard insurance has
lapsed. One national trade association
representing federal credit unions
suggested that the Bureau provide a safe
harbor for servicers acting in good faith
when they obtained force-placed
insurance.
After careful review of these
comments and further consideration,
the Bureau is adopting § 1024.37(b) with
changes. First, the Bureau has
concluded that when a servicer
purchases force-placed insurance but
does not charge a borrower for such
insurance, the servicer does not
‘‘obtain’’ force-placed insurance within
the meaning of section 6(k)(1)(A) of
RESPA. The Bureau arrived at this
conclusion after re-evaluating the
connection between section 6(k)(1)(A)
and (l). As described above, section
6(k)(1)(A) establishes that a servicer of
a federally related mortgage loan shall
not obtain force-placed insurance unless
there is a reasonable basis to believe the
borrower has failed to comply with the
loan contract’s requirements to maintain
property insurance. Section 6(l)
establishes that a servicer of a federally
related mortgage loan shall not be
construed as having a reasonable basis
for obtaining force-placed insurance
unless the requirements of section 6(l)
have been met. But one of the
requirements is that a servicer must
terminate force-placed insurance within
15 days of the servicer receiving
confirmation of a borrower’s existing
insurance coverage. The Bureau believes
that this provision expressly
contemplates that a servicer may
purchase force-placed insurance before
meeting the requirements of section 6(l).
Accordingly, where ‘‘obtaining’’ is used
in section 6(l), the Bureau interprets the
statute to mean ‘‘charging.’’ Because
‘‘obtain’’ appears in section 6(k)(1)(A)
and 6(l), the Bureau has changed
§ 1024.37(b) to reflect more clearly the
statutory prohibition against ‘‘charging.’’
Accordingly, as finalized, § 1024.37(b)
provides that a servicer may not assess
on a borrower a premium charge or fee
related to force-placed insurance unless
the servicer has a reasonable basis to
insurance unless the requirements of section 6(l) of
RESPA have been met.
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believe that the borrower has failed to
comply with the mortgage loan
contract’s requirement to maintain
hazard insurance.
The Bureau has also changed
commentary intended to explain the
circumstances that provide a servicer
with a ‘‘reasonable basis to believe’’ for
purposes of § 1024.37(b). The Bureau
has decided not to provide specific
examples of ‘‘a reasonable basis to
believe.’’ Instead, as adopted, comment
37(b)–1 provides that information about
a borrower’s hazard insurance received
by a servicer from a borrower, the
borrower’s insurance provider or
insurance agent, may provide a servicer
with a reasonable basis to believe that
the borrower has failed to comply with
the loan contract’s requirement to
maintain hazard insurance. The Bureau
believed that sometimes the absence of
information may provide a servicer with
a reasonable basis to believe that the
borrower has failed to comply with the
loan contract’s requirement to maintain
hazard insurance. Accordingly,
proposed comment 37(b)–1 would have
clarified that a servicer had a reasonable
basis to believe that a borrower with an
escrow account established for hazard
insurance has failed to maintain hazard
insurance if the servicer had not
received a renewal bill within a
reasonable time prior to the expiration
date of the borrower’s hazard insurance.
Upon further consideration, the Bureau
believes that the comment may convey
that the absence of information would
provide a servicer with a safe harbor.
The Bureau believes that a safe harbor
based on the absence of information
would not adequately ensure that
borrowers are protected from
unwarranted and unnecessary charges
related to force-placed insurance.
Accordingly, the Bureau is adopting
commentary to provide that in the
absence of receiving information about
a borrower’s hazard insurance, a
servicer may satisfy the reasonable basis
to believe standard if a servicer acts
with reasonable diligence to ascertain a
borrower’s hazard insurance status, and
does not receive, from the borrower or
otherwise have evidence of insurance
coverage as provided in
§ 1024.37(c)(1)(iii).
The Bureau has concluded that a
servicer following the notification
procedure established by section 6(l) of
RESPA has acted with reasonable
diligence to ascertain a borrower’s
hazard insurance status, but compliance
with those procedural elements alone
are not sufficient to provide a safe
harbor. The statute prohibits a servicer
from imposing any charge on a borrower
for force-placed insurance if the servicer
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has received demonstration of hazard
insurance coverage by the end of the
notification process. Accordingly,
comment 37(b)–1, as adopted, explains
that an example of acting with
reasonable diligence is one in which a
servicer complies with the notification
requirements set forth in
§ 1024.37(c)(1)(i) and (ii), and if after
complying with such requirements, the
servicer does not receive, from the
borrower or otherwise, evidence of
insurance coverage as provided in
§ 1024.37(c)(1)(iii).
The Bureau does not believe that it is
necessary to provide a separate safe
harbor for servicers acting in good faith
because the Bureau believes the
standard set forth in § 1024.37(b)
provides sufficient flexibility for
servicers to balance their obligations to
owners and assignees of mortgage loans
to ensure that a property is adequately
insured and to protect borrowers from
unwarranted and unnecessary charges
and fees. The Bureau also declines to
adopt a collective standard to evaluate
whether a servicer’s purchase of forceplaced insurance is proper. The Bureau
believes that the percentage of cases in
which a borrower receives a full refund
for force-placed insurance charges may
be relevant in assessing whether a
servicer is maintaining reasonable
policies and procedures to ensure that a
servicer is maintaining accurate
information about a borrower’s mortgage
loan. But the Bureau believes that
section 6(k)(1)(A) of RESPA established
a loan-level standard. Using a collective
standard to evaluate whether a servicer
has satisfied the reasonable basis to
believe requirement in section 6(k)(1)(A)
would not be appropriate because the
standard would be overbroad and might
discourage a servicer from obtaining
force-placed insurance even though a
servicer has actual information that a
borrower has failed to comply with the
loan contract’s requirements to maintain
property insurance.
A state trade association representing
banks and one of its member banks
urged the Bureau to eliminate proposed
§ 1024.37(b). They expressed concern
that the reasonable basis standard, in
combination with the prohibition on
charging a borrower for insurance in
proposed § 1024.37(c)(1) for at least 45
days, would increase the likelihood that
homes go uninsured for a significant
period of time. The Bureau declines to
eliminate § 1024.37(b) because the
Bureau believes the provision is
necessary to implement RESPA’s forceplaced provisions. In addition, the
Bureau believes that the commenters’
concern is unwarranted, in particular,
because § 1024.37(b) has been revised to
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reframe the prohibition as one on
charging the borrower for, rather than
purchasing, force-placed insurance.
Lastly, a state trade association
representing banks and thrifts expressed
concern that servicers may rely on
information from an insurance provider
that later turns out to be incorrect about
the status of a borrower’s hazard
insurance coverage to purchase forceplaced insurance. For example, the
commenter said that insurance
providers may send notices of
cancellation to servicers before a
borrower’s insurance actually lapses.
The Bureau recognizes that servicers
may sometimes wrongly conclude that
there is a reasonable basis to charge
borrowers for force-placed insurance,
even after complying with the
procedures steps in § 1024.37(c)(1). But
whether § 1024.37(b) is violated turns
on whether or not a servicer had a
reasonable basis to reach its conclusion
based on the information the servicer
has at the time the servicer charges a
borrower for force-placed insurance.
37(c) Requirements for Charging
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37(c)(1) In General
Section 6(l)(1) of RESPA, added by
section 1463(a) of the Dodd-Frank Act,
states that a servicer may not impose
any charge on a borrower for forceplaced insurance with respect to any
property securing a federally related
mortgage unless the servicer (1) sends a
written notice by first-class mail to a
borrower that contains disclosures about
a borrower’s obligation to maintain
hazard insurance, a servicer’s lack of
evidence that a borrower has such
insurance, a clear and conspicuous
statement of how the borrower may
demonstrate coverage, and a statement
that a servicer may obtain insurance
coverage at a borrower’s expense if the
borrower does not provide
demonstration of coverage in a timely
manner (see section 6(1)(1)(A)(i)
through (iv)); (2) sends a second written
notice by first-class mail containing the
same disclosures to a borrower at least
30 days after mailing the first written
notice (see section 6(l)(1)(B)); and (3)
does not receive any demonstration of
hazard insurance coverage by the end of
the 15-day period beginning on the date
the second written notice was sent to
the borrower (see section 6(l)(1)(C)).
The Bureau proposed § 1024.37(c)(1)
to implement section 6(l)(1). Proposed
§ 1024.37(c)(1) would have provided
that a servicer may not charge a
borrower for force-placed insurance
unless: (1) A servicer delivers to the
borrower or places in the mail a written
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notice with the disclosures set forth in
§ 1024.37(c)(2) at least 45 days before
the premium charge or any fee is
assessed; (2) it delivers to such borrower
or places in the mail a written notice in
accordance with § 1024.37(d)(1), which
would have prohibited a servicer from
delivering or placing in the mail this
second notice until 30 days have passed
after the servicer has delivered or placed
in the mail the first written notice
required by § 1024.37(c)(1)(i); and (3)
during the 45-day notice period, the
servicer has not received verification
that such borrower has hazard insurance
in place continuously. Proposed
§ 1024.37(c)(1)(iii) also stated that
determining whether the borrower has
hazard insurance in place continuously,
the servicer shall take account of any
grace period provided under State or
other applicable law. The Bureau
proposed to permit a servicer to choose
between delivering the written notice to
the borrower or mailing the written
notices established by section 6(l)(1)(A)
and (B) of RESPA because the Bureau
believed it was necessary and proper to
achieve the purposes of RESPA to
provide servicers with flexibility to
either deliver or mail the required
notices, since delivery will often be
faster than transmittal by mail.
Proposed comment 37(c)(1)–1 would
have clarified the minimum length of
the notice period. It stated that notice
period set forth in § 1024.37(c)(1) begins
on the day that the servicer delivers or
mails the notice to the borrower and
expires 45 days later, and that the
servicer may assess the premium charge
and any fees for force-placed insurance
beginning on the 46th day if the servicer
has fulfilled the requirements of
§ 1024.37(c) and (d). The comment
further stated that if not prohibited by
State or other applicable law, the
servicer may retroactively charge a
borrower for force-placed insurance
obtained during the 45-day notice
period. Proposed comment 37(c)(1)(iii)–
1 would have provided examples of
borrowers having hazard insurance in
place continuously.
Two non-bank servicers stated that
they supported proposed § 1024.37(c)(1)
and related commentary. One of the
commenters observed that the Bureau’s
proposal reflects its current practice.
This is consistent with feedback from
small servicers with whom the Small
Business Review Panel conducted
outreach in advance of the proposal.
One participant stated that it currently
provides two notices that are very
similar to the ones that would be
required, and another participant stated
that it currently exceeds the number of
notices that would be required.
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The Bureau received comments on
various aspects of proposed
§ 1024.37(c)(1). Except as discussed
below, the majority of industry
commenters did not raise concerns with
the notification aspect of proposed
§ 1024.37(c)(1). The majority of industry
commenters only sought clarification.
First, they requested the Bureau clarify
that a servicer may retroactively charge
a borrower for force-placed insurance
back to the date that a borrower’s hazard
insurance lapsed, even if the servicer
sends the first notice after the date of
lapse. Second, a number of industry
commenters requested that the Bureau
clarify how a servicer should account
for grace periods when determining
whether a borrower has hazard
insurance in place continuously. They
observed that a grace period under a
typical hazard insurance policy extends
a policyholder’s insurance coverage past
the expiration date only if the
policyholder pays the past-due
premium during such period. A bank
servicer requested the Bureau clarify
that ‘‘grace period’’ used in proposed
§ 1024.37 refer to grace periods
applicable to the borrower’s hazard
insurance, and not grace periods
applicable to the borrower’s loan during
which the borrower pays the mortgage
payment after the due date without
incurring a late charge. One large bank
servicer sought clarification of whether
the notice period could exceed 45 days.
A minority of industry commenters
opposed the notification aspect of
proposed § 1024.37(c)(1). One credit
union contended that the proposed
notices would be duplicative,
unnecessary, and add to the overall cost
of lending because borrowers already
receive multiple notices from their
insurers prior to cancellation. A trade
association representing retail banks
asserted that if a borrower’s hazard
insurance coverage lapses before the
second notice is provided, then a
servicer should be able to obtain forceplaced insurance without having to
send the second notice. A bank servicer
argued that rather than requiring a
servicer to send a second notice at least
15 days prior to charging a borrower for
force-placed insurance, the Bureau
should instead permit a servicer to
simply provide a notice within five days
of purchasing force-placed insurance.
One state credit union league expressed
concern about the aggregate notice
burden servicers would be required to
bear if the mortgage servicing rules are
finalized as proposed and suggested that
the burden could be reduced if the
Bureau combines the first and second
written notice into a single notice. One
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credit union asserted that the Bureau
should allow a servicer to include the
proposed force-placed insurance notices
with the periodic statement because
multiple documents mailed to the
borrower could decrease the probability
of the borrower actually paying
attention to the information.
Several industry commenters urged
the Bureau to reconsider the aspect of
the proposal that would have required
servicers to wait at least 45 days to
charge a borrower for force-placed
insurance. The commenters contended
that servicers, especially small servicers,
would incur significant costs because
servicers would have to advance forceplaced insurance charges for borrowers.
One state credit union trade association
urged the Bureau to exercise its
exception authority to exempt small
servicers from the requirements of
§ 1024.37(c). In addition to the cost of
advancement, the commenter also
asserted that it would be costly for small
servicers to send the notices. One nonbank servicer suggested the Bureau
shorten the notice period to 30 days,
while a bank servicer urged the Bureau
to shorten the notice period to 10 days.
One bank servicer also requested the
Bureau to preempt Texas law that
addresses notification requirements that
apply to creditors’ purchase of forceplaced insurance for residential
mortgages.
One bank servicer commented that a
rule requiring servicers to provide
notices like the proposed periodic
statement or force-placed insurance
notices to borrowers would be a waste
of servicer resources without a
corresponding benefit to consumers in
situations involving a borrower whom
the servicer has referred to foreclosure,
a borrower who has declared
bankruptcy, or a borrower who has
made no payment or contacted the
servicer for more than six months and
whom the servicer has determined to
have vacated the property. It sought an
exemption from compliance with any
force-placed insurance notification
requirements with regard to those three
categories of borrowers. One national
trade association representing credit
unions and a credit union commenter
expressed concern that credit union
members may believe that they should
only be charged from the date that they
received the first notice. Lastly, some
industry commenters stated that a
servicer should not be subject to a
waiting period of 45 days to obtain
force-placed insurance because it leaves
collateral exposed and increases the risk
to the borrower.
In contrast, one consumer advocacy
group urged the Bureau to strengthen
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the notification requirement so that a
servicer would be required to provide
the first notice within 15 days of placing
force-placed insurance. It further
asserted that it would be unreasonable
to permit a servicer to retroactively
charge a borrower for more than 60 days
of force-placed insurance because it is a
servicer’s responsibility to identify
lapses in insurance and notify
borrowers of such lapses in a timely
fashion.
Lastly, several industry commenters
requested the Bureau clarify what
‘‘verification’’ means because they were
concerned that the proposal would have
required servicers to accept any
insurance information they received
from borrowers. The commenters noted
that the traditional means of
establishing proof of insurance is by
requiring a borrower to provide a copy
of an insurance policy declaration page,
a certificate of insurance, or the
insurance policy. The commenters
expressed concern that without any of
these, servicers may might potentially
not be able to provide mortgage
investors with the proof such investors
require as evidence of coverage.
After careful consideration of these
comments and further consideration,
the Bureau is adopting § 1024.37(c)(1)
with several adjustments. With respect
to the notification aspect of
§ 1024.37(c)(1), the Bureau notes that
RESPA establishes a very detailed
scheme for any servicer (without
consideration of the servicer’s size) to
follow before a servicer imposes a
charge on any borrower for force-placed
insurance. The Bureau believes that the
prescriptive nature of the statutory
scheme suggests that Congress believed
that each step was necessary to achieve
the consumer protection purpose of
RESPA’s force-placed insurance
provisions. The notification procedures
the Bureau proposed in § 1024.37(c)(1)
mirror the prescriptive statutory scheme
because they were necessary to achieve
the intent of Congress. The Bureau
declines to adopt suggestions received
from commenters, which ranged from
creating exemptions for small servicers
and unresponsive borrowers to changing
various aspects of the notification
requirements, because they would make
§ 1024.37(c)(1) depart from the statutory
scheme Congress established.
The Bureau has also worked to craft
effective notices through consumer
testing, and the results of those tests
suggest that borrowers will in fact
welcome and respond to the notices.
The Bureau further believes that some of
the commenters’ concerns are addressed
by the fact that the Bureau is
interpreting the statutory language to
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10767
allow charges to be assessed
retroactively for any period in which
coverage was not maintained
continuously once the procedural and
substantive statutory criteria are met.
Moreover, the Bureau believes that it is
unnecessary to set limitations on a
servicer’s right to assess on borrowers
charges retroactively because the statute
establishes that a borrower has an
unconditional right to a full refund of
force-placed insurance premium charges
and related fees the borrower has paid
for any period in which the borrower’s
hazard insurance and the force-placed
insurance were both in place.
With respect to the request for
preemption, the Bureau observes that
based on the way in which the
commenter described Texas law, it does
not appear that compliance with Texas
law would prevent a servicer from
complying with the Bureau’s forceplaced insurance notification
requirements. Accordingly, the Bureau
believes preemption is not appropriate
based on the information provided.
The Bureau is making several changes
to § 1024.37(c)(1) for clarification
purposes. The Bureau is adopting new
comment § 1024.37(c)(1)(i) to clarify
that a servicer may charge a borrower
for force-placed insurance a servicer
purchased, retroactive to the first day of
any period in which the borrower did
not have hazard insurance in place. The
Bureau is clarifying the role of a grace
period under applicable law in
determining whether a borrower has
hazard insurance in place continuously
in new comment 37(c)(1)(iii)–1. The
Bureau is adopting § 1024.37(c)(1)(iii) to
clarify what ‘‘receiving verification’’
means by replacing the phrase ‘‘received
verification that the borrower has
hazard insurance in place
continuously’’ in proposed
§ 1024.37(c)(1)(iii) with the phrase
‘‘received, from the borrower or
otherwise, evidence demonstrating that
the borrower has had in place
continuously hazard insurance coverage
that complies with the loan contract’s
requirements to maintain hazard
insurance.’’
The Bureau has concluded that
putting the responsibility entirely on a
servicer to verify a borrower’s hazard
insurance coverage by requiring a
servicer to accept any written
information from a borrower as long as
it contains the insurance policy number,
and the name, mailing address and
phone number of the borrower’s
insurance company or the borrower’s
insurance agency as evidence of
insurance would impose too large of a
burden on a servicer to determine
whether the property is in fact insured
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in accordance with the terms and
conditions of a borrower’s loan contract.
Accordingly, in new comment
1024.37(c)(1)(iii)–2, the Bureau is
explaining that as evidence of
continuous hazard insurance coverage
that complies with the loan contract’s
requirements to maintain hazard
insurance, a servicer may require a copy
of the borrower’s hazard insurance
policy declaration page, the borrower’s
insurance certificate, the borrower’s
insurance policy, or other similar forms
of written confirmation because the
Bureau interprets the statutory language
‘‘reasonable form of written
confirmation of existing insurance
coverage’’ in section 6(l)(2) of RESPA to
mean documents servicers typically
require borrowers to provide to establish
proof of coverage. Further, comment
37(c)(1)(iii)–2 provides that a servicer
may reject evidence of hazard insurance
coverage submitted by the borrower if
neither the borrower’s insurance
provider nor insurance agent provides
confirmation of the insurance
information submitted by the borrower,
or if the terms and conditions of the
borrower’s hazard insurance policy do
not comply with the borrower’s loan
contract requirements because the
Bureau interprets section 6(l)(3) of
RESPA to permit a servicer to separately
confirm insurance information that a
borrower has proffered to establish
proof of coverage and the statutory
language in section 6(k)(1)(A) to permit
a servicer to charge a borrower forceplaced insurance when the servicer has
a reasonable basis to believe that the
borrower has failed to comply with the
loan contract’s requirements to maintain
property insurance.
With respect to the request to clarify
that the 45-day notification period set
forth in proposed § 1024.37(c)(1)
establishes the minimum amount of
time that must lapse between the time
a servicer sends a borrower the first
written notice required by section 6(l)(1)
and the time a servicer imposes a
premium charge or fee related to forceplaced insurance, the Bureau believes
that the fact that the Bureau intended
the 45 days to be the minimum amount
of time was clear in the proposal and
thus, does not believe additional
clarification in the final rule is
necessary.
37(c)(2) Content of Notice
As discussed in the section-by-section
analysis of § 1024.37(c)(1), section
6(l)(1)(A)(i) through (iv) of RESPA
establishes the disclosures that a
servicer of a federally related mortgage
loan must provide in the written notices
it sends to borrowers. The Bureau
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proposed § 1027.37(c)(2) to implement
section 6(l)(1)(A)(i) through (iv).
Proposed § 1024.37(c)(2) would have
required a servicer to set forth, in the
notice that would have been required
under proposed § 1024.37(c)(1)(i),
certain information about force-placed
insurance. Specifically, proposed
§ 1024.37(c)(2)(i) through (iv) would
have required a servicer to disclose the
following information: (1) The date of
the notice; (2) the servicer’s name and
mailing address; (3) the borrower’s
name and mailing address; and (4) a
statement that requests the borrower to
provide hazard insurance information
for the borrower’s property and
identifies the property by its address.
Proposed § 1024.37(c)(2)(v) would have
required that a servicer provide a
statement that the borrower’s hazard
insurance is expiring or expired, as
applicable, and that the servicer does
not have evidence that the borrower has
hazard insurance coverage past the
expiration date. For a borrower that has
more than one type of hazard insurance
on the property, the servicer must
identify the type of hazard insurance for
which the servicer lacks evidence of
coverage. Proposed comment
37(c)(2)(v)–1 would have explained that
if a borrower has purchased a
homeowners’ insurance policy and a
separate hazard insurance policy to
insure loss against hazards not covered
under his or her homeowners’ insurance
policy, the servicer must disclose
whether it is the borrower’s
homeowners’ insurance policy or the
separate hazard insurance policy for
which it lacks evidence of coverage to
comply with § 1024.37(c)(2)(v).
Proposed § 1024.37(c)(2)(vi) would have
required that a servicer provide a
statement that hazard insurance is
required on the borrower’s property and
that the servicer has obtained or will
obtain, as applicable, insurance at the
borrower’s expense.
Proposed § 1024.37(c)(2)(vii) would
have required that the initial notice to
the borrower contain a statement
requesting the borrower to promptly
provide the servicer with the insurance
policy number and the name, mailing
address and phone number of the
borrower’s insurance company or the
borrower’s insurance agent. Proposed
§ 1024.37(c)(2)(viii) would have
required the notice to contain a
description of how the borrower may
provide the information requested
pursuant to § 1024.37(c)(2)(vii).
Finally, § 1024.37(c)(2)(ix) and (x)
would have required information
regarding the relative costs and scope of
coverage of force-placed insurance
versus hazard insurance obtained by the
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borrower, specifically: (1) The cost of
the force-placed insurance, stated as an
annual premium, or as a good faith
estimate if actual pricing is not
available; and (2) a statement that
insurance the servicer obtains may cost
significantly more than hazard
insurance obtained by the borrower and
may not provide as much coverage as
hazard insurance obtained by the
borrower. Proposed § 1024.37(c)(2)(xi)
would have required that a servicer
provide the servicer’s telephone number
for borrower questions.
The disclosures regarding the
potential cost and scope of coverage for
force-placed insurance were not
specifically required under the DoddFrank Act, but the Bureau believed that
it was appropriate to propose them
pursuant to the Bureau’s RESPA section
6(k)(1)(E) authority in order to provide
borrowers with critical information
about the benefits, costs, and risks of the
insurance that would be imposed if they
failed to act. The Bureau noted in the
proposal that the Bureau tested the
force-placed insurance disclosures
established by the Dodd-Frank Act in
three rounds of consumer testing.
Participant response in consumer
testing suggested that knowing about
higher cost of force-placed insurance
could motivate borrowers to act
promptly and thus avoid being charged
for force-placed insurance. All
participants said upon receipt of the
notice, they would immediately contact
their insurance provider to find out
whether or not their hazard insurance
had expired or purchase new hazard
insurance because they would not want
to pay for the higher cost of force-placed
insurance.
The Bureau proposed comment
37(c)(2)(ix)–1 to clarify that the good
faith estimate of the cost of the forceplaced insurance the servicer may
obtain should be consistent with the
best information reasonably available to
the servicer at the time the disclosure is
provided. The proposed comment stated
that differences between the amount of
the estimated cost disclosed under
§ 1024.37(c)(2)(ix) and the actual cost do
not necessarily constitute a lack of good
faith, so long as the estimated cost was
based on the best information
reasonably available to the servicer at
the time the disclosure was provided.
The Bureau believed that its proposed
good faith standard would provide
significant safeguards against the risk
that some servicers might intentionally
underestimate the cost of force-placed
insurance while providing sufficient
flexibility to account for the fact that
costs may change due to legitimate
reasons between the time the disclosure
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is made and the time the borrower is
charged.
Several consumer groups applauded
the content requirements the Bureau
proposed, but with one caveat. They
expressed concern that the proposed
disclosure concerning the fact that
force-placed insurance may not provide
as much coverage as borrower-obtained
hazard insurance was too generic, and
thus would not provide information
meaningful enough to alert the borrower
to the risks of force-placed insurance
and prompt the borrower to act. They
suggested adding additional disclosures
that force-placed insurance would not
cover damage to the borrower’s personal
property, personal liability for injuries
to others while they are on the
borrower’s property, or living expenses
while the borrower’s home is under
repair. The Bureau has considered the
consumer groups’ concern but is
reluctant to add further information
without consumer testing in light of the
risk that information overload could
adversely impact the effectiveness of the
notice. The Bureau also notes that
results of the testing of the model forms
suggest that the existing disclosures will
prompt recipients of the force-placed
insurance notices to act promptly. As
summarized by Macro in its report on
the consumer testing of mortgage
servicing disclosures during the preproposal stage, all subjects who were
shown samples of force-placed
insurance notices said they would act
immediately in response to receiving
such notices, even though the samples
did not contain detailed description of
potential coverage differences.
One consumer group suggested that a
statement informing a borrower of the
availability of State-created hazard
insurance programs should be a
required disclosure because these
programs are designed to make hazard
insurance available to borrowers who
have trouble qualifying for insurance
from traditional sources. Again, the
Bureau has considered the issue but is
reluctant to add further information
without consumer testing in light of the
risks of information overload. The
Bureau is also concerned that a
completely generic notice that State
programs ‘‘may’’ be available without
contact information would not be very
useful to consumers, and that tailoring
the notices to particular States would be
burdensome to servicers. Accordingly,
the Bureau declines to implement the
comment. The commenter also urged
the Bureau to require servicers to
include force-placed insurance charges
in regular invoice statements that are
sent to a borrower so that a borrower is
constantly reminded of how much of
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the borrower’s payments are going
toward paying for such insurance.
Another consumer group submitted
similar comments recommending that
the Bureau require servicers to identify
force-placed insurance charges
specifically in proposed periodic
statements so that borrowers could
easily recognize when force-placed
insurance has been obtained. The
Bureau notes that servicers will be
required to list force-placed insurance
charges like any other charge, in the
periodic statement that the Bureau is
finalizing in the 2012 TILA Servicing
Final Rule.
Consumer advocates and some
industry commenters praised the
proposal to require actual cost
information or estimated costs in the
mandatory disclosures. A force-placed
insurance commenter, for instance,
stated that it currently provides its
borrowers with such estimates and that
it has proven successful in convincing
borrowers of the benefit of obtaining
their own coverage. Some industry
commenters, however, opposed the
proposed disclosure as unnecessary
because the Bureau separately proposed
to require servicers to inform borrowers
that force-placed insurance may cost
significantly more than borrowerobtained hazard insurance. One forceplaced insurance provider further
observed that the existing practice of
most servicers is to provide a binder of
the force-placed insurance coverage
with the second notice to make
borrowers aware of the cost of such
insurance. These commenters and a
large bank servicer further noted that
the National Mortgage Settlement did
not include a required disclosure about
the cost of force-placed insurance and
urged the Bureau to refrain from
requiring more disclosures than
required by the settlement.
Commenters also asserted that a
servicer might not have enough
information to provide an estimate of
force-placed insurance costs because the
first notice would be provided to a
borrower at a point where a servicer
might not have obtained the premium
information. Estimates are also
complicated by the fact that the cost of
insurance is determined by factors not
within the servicer’s control (e.g.,
insurers’ pricing formulas, the number
of days a borrower is delinquent on the
mortgage loan). Two national trade
associations representing the mortgage
industry asserted that if a servicer does
not rely on a third party to track a
borrower’s hazard insurance, the
servicer would not have the information
necessary to make good faith estimates
of insurance premiums until the force-
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placed insurance is actually issued. One
of the commenters asserted that this
problem is likely to be most acute for
small servicers because they often do
not hire third parties to track a
borrower’s hazard insurance. The two
commenters also questioned whether a
servicer could be held liable for
differences between an estimate and the
actual cost under a theory that the
differences were caused by unfair,
deceptive, or abusive practices. They
also questioned whether a servicer
would have the authority to provide the
estimate because for an estimate to be
binding, an insurance binder from a
licensed insurance agent or provider is
required. The two commenters and a
force-placed insurance provider also
expressed concern that the potential
inaccuracies with estimate costs may
lead to customer confusion and
complaints. Lastly, several industry
commenters expressed concern with the
use of the phrase ‘‘good faith estimate’’
because the phrase is a defined term in
existing Regulation X with a different
meaning than the meaning set forth in
proposed comment 37(c)(2)(ix)–1.
After considering these comments, the
Bureau is withdrawing the requirement
to provide the cost of force-placed
insurance (or a good faith estimate of
the cost) in the notice required by
§ 1024.37(c)(1)(i), but keeping the
requirement for purposes of the
reminder notice required by
§ 1024.37(c)(1)(ii). The Bureau believes
that this will reduce compliance burden
concerns while continuing to assure that
borrowers receive specific prices or
estimates that are likely to provide
strong motivation to renew their
homeowners’ insurance policies.
Additionally, the regulatory text is
changed to refer to a ‘‘reasonable
estimate’’ rather than a ‘‘good faith
estimate,’’ and the commentary is
changed to clarify what a ‘‘reasonable
estimate’’ means.
A number of industry commenters
recommended that the Bureau allow
servicers to provide a borrower with
additional information about forceplaced insurance. They stated that
servicers currently provide a number of
disclosures in addition to the
information the Bureau has proposed in
response to State disclosure
requirements, class action litigation, and
industry best practices. Commenters
expressed concern that the failure by
servicers to include additional
information may subject servicers to
further litigation and extensive potential
liability. Some commenters suggested
that the Bureau permit servicers to
include additional information and the
required information in one document.
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One large bank servicer suggested an
alternative approach where a servicer
would be permitted to include
additional information in the same
transmittal that is used to provide
notices containing the required
information.
The Bureau believes that providing
additional information in the same
notice as the required information could
obscure the most important information
or tend to create information overload.
For instance, one industry commenter
provided a list of additional information
that included 10 specific pieces of
information and a catch-all category for
disclosures related to force-placed
insurance imposed by other State or
Federal law. The Bureau believes it
would be better if servicers have
latitude to provide the additional
information on separate pieces of paper
in the same transmittal. Accordingly,
the Bureau is adopting new
§ 1024.37(c)(4) to provide that a servicer
may not include any information other
than information required by
§ 1024.37(c)(2) in the written notice
required by § 1024.37(c)(1)(i), but that a
servicer may provide such additional
information to a borrower in the same
transmittal as the transmittal used to
provide the notice required by
§ 1024.37(c)(1)(i) but on separate pieces
of paper. The Bureau is adopting
parallel provisions in § 1024.37(d) and
(e), numbered as § 1024.37(d)(4) and
(e)(4), respectively. The Bureau has also
revised § 1024.37(c)(2) to permit the
notice required by § 1024.37(c)(1)(i) to
include, if applicable, a statement
advising a borrower to review additional
information provided in the same
transmittal. The Bureau has adopted
parallel provisions in § 1024.37(d) and
(e).
37(c)(3) Format
As previously discussed, section
6(l)(1) of RESPA establishes that a
servicer must provide a borrower with
two written notices before charging a
borrower for force-placed insurance. To
implement this provision, the Bureau
proposed § 1024.37(c)(3) and (d)(3) in
parallel. Proposed 1024.37(c)(3) stated
that disclosures set forth in proposed
§ 1024.37(c)(2) must be in a format
substantially similar to form MS–3(A),
set forth in appendix MS–3. Disclosures
made pursuant to § 1024.37(c)(2)(vi) and
(c)(2)(ix) must be in bold text.
Disclosure made pursuant to
§ 1024.37(c)(2)(iv) must be in bold text,
except that the physical address of the
borrower’s property may be in regular
text. The Bureau believed the use of
bold text to bring attention to important
information would make it easier for
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borrowers to identify promptly the
purpose of the notice and to find the
information quickly and efficiently.
Additionally, the Bureau stated in the
proposal that the Bureau believed that it
was important to bring attention to the
cost of force-placed insurance so
borrowers have a clear understanding of
the cost to them of the service that
servicers provide in obtaining forceplaced insurance. The Bureau further
noted that it believed that it was
important for borrowers to understand
that the servicer’s purchase of forceplaced insurance arises from the
borrower’s obligation to maintain
hazard insurance. Although the notice
contains additional information that is
important, the Bureau believes the
usefulness of highlighting in focusing a
borrower’s attention on important
information decreases if highlighting is
used unsparingly.
One large bank servicer commended
the Bureau for the model forms the
Bureau proposed. It observed that the
forms were thoughtfully designed and
should be readily understandable to
consumers. Another large bank servicer
agreed with the Bureau’s rationale that
model forms facilitate compliance with
the new Dodd-Frank Act requirements
concerning force-placed insurance
disclosures and the Bureau’s proposed
supplemental disclosures, but sought
clarification that servicers may use the
model forms as guidance but are not
required to demonstrate strict adherence
to the language of the forms. One nonbank servicer argued that disclosure
forms should generally be open-ended
to allow the servicer to provide all the
content required by the Bureau while
allowing the servicer to tailor the form
to its needs; however, the commenter
stated that it did not have concerns with
the model force-placed insurance forms
the Bureau proposed.
In consideration of the comments
received and based on further
consideration, the Bureau is changing
§ 1024.37(c)(3) to no longer require a
servicer to provide the information
required by § 1024.37(c)(2) in a form
‘‘substantially similar’’ to form MS–3A,
as set forth in appendix MS–3. As
adopted, § 1024.37(c)(3) provides that a
servicer may use form MS–3A in
appendix MS–3 to comply with the
requirements of § 1024.37(c)(1)(i) and
(2). However, the Bureau is adopting a
final § 1024.37(c)(3) that generally
contains the highlighting requirements
set forth in the proposal.
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37(d) Reminder Notice
37(d)(1) In General
As discussed above, section 6(l)(1) of
RESPA, added by section 1463(a) of the
Dodd-Frank Act, states that a servicer
must send two written notices to the
borrower prior to charging the borrower
for force-placed insurance. Specifically,
RESPA section 6(l)(1)(B) requires
servicers to use first-class mail to send
a second written notice to the borrower,
at least 30 days after mailing initial the
notice required by RESPA section
6(l)(1)(A), that contains all the
information described in section
6(l)(1)(A)(i) through (iv) of RESPA.
The Bureau proposed § 1024.37(d)(1)
to implement section 6(l)(B) of RESPA.
Proposed § 1024.37(d)(1) stated that one
written notice in addition to the written
notice required pursuant to
§ 1024.37(c)(1)(i) must be delivered to
the borrower or placed in the mail prior
to a servicer charging a borrower for
force-placed insurance. It further stated
that the servicer may not deliver or
place this second written notice under
§ 1024.37(d)(1) in the mail until 30 days
after delivering to the borrower or
placing in the mail the first written
notice under § 1024.37(c)(1)(i). Proposed
§ 1024.37(d)(1) would also have
mandated that a servicer that receives
no insurance information after
delivering or placing in the mail the
written notice required pursuant to in
§ 1024.37(c)(1)(i) must provide the
disclosures set forth in
§ 1024.37(d)(2)(i), while a servicer that
does receive insurance information but
is unable to verify that the borrower has
hazard insurance coverage continuously
must provide the disclosures set forth in
§ 1024.37(d)(2)(ii).
Proposed comment 37(d)(1)–1 would
have explained the content of the
reminder notice will vary depending on
the insurance information the servicer
has received from the borrower. Two
national trade associations representing
the mortgage industry urged the Bureau
to permit servicers to use the same letter
they sent to a borrower to comply with
the first written notice requirement to
comply with the second written notice
requirement.
As the Bureau noted in the proposal,
section 6(k)(1)(B) of RESPA can be read
to require a servicer to provide the same
disclosures a borrower has previously
received. However, where a borrower
responds to the first notice by providing
insurance information, the Bureau
believed that the reminder notice would
be more useful if it contained an
acknowledgement of the information
these borrowers provided in response to
the first notice and informed these
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borrowers that the information provided
was not sufficient for a servicer to verify
that they had continuous coverage in
place. The Bureau observed in the
proposal that simply repeating the same
content as the first notice might cause
borrowers to become frustrated and
confused by the fact that they are
receiving another notice asking for
insurance information when they
thought they had already provided such
information.
As discussed above in the section-bysection analysis of § 1024.37(c)(1), some
industry commenters urged the Bureau
to withdraw the requirement that a
servicer send a borrower a second notice
before charging a borrower for forceplaced insurance. As the Bureau
observed in the section-by-section
analysis of § 1024.37(c)(1), Congress
specifically required that two notices be
provided before a servicer charges a
borrower for force-placed insurance. For
reasons discussed above, the Bureau
does not believe that varying from this
statutory scheme is appropriate.
Further, comments from two large forceplaced insurance providers suggest that
at least by the time of the second notice,
servicers will be able to provide
borrowers with a reasonable estimate of
the cost of the force-placed insurance,
so that the second notice will
complement the first.111 Accordingly,
the Bureau is adopting § 1024.37(d)(1)
as proposed with an adjustment to
emphasize that a servicer may not
charge a borrower for force-placed
insurance unless it has delivered or
mailed the second written notice at least
15 days prior to imposing such charge.
37(d)(2) Content of Reminder Notice
The Bureau proposed § 1024.37(d)(2)
to address the content of the second
required notice. Proposed
§ 1024.37(d)(2)(i) would have set forth
the information that a servicer must
provide in the written notice established
by section 6(l)(1)(B) of RESPA to a
borrower from whom the servicer has
not received any insurance information.
Proposed § 1024.37(d)(2)(ii) would have
set forth the information required where
the servicer received insurance
information from the borrower within
30 days after delivering to the borrower
or placing in the mail the written notice
set forth § 1024.37(c)(1)(i), but not was
not able to verify that the borrower has
hazard insurance in place continuously.
Proposed § 1024.37(d)(2)(i) would
have required that if a servicer that has
111 The commenters suggested that if the Bureau
was going to adopt the requirement that servicers
must provide the actual cost (or good faith estimate
of the cost) of force-placed insurance, the
requirement should be limited to the second notice.
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not received any insurance information
from the borrower within 30 days after
delivering or placing in the mail the
notice required pursuant to
§ 1024.37(c)(1)(i), the servicer must
provide a reminder notice that contains
the disclosures forth in
§ 1024.37(c)(2)(ii) to (c)(2)(xi), the date
of the notice, and a statement that the
notice is the second and final notice.
The Bureau explained in the proposal
that it believes that the date of the
notice and a statement that the notice is
the second and final notice helps to
distinguish the notice from the notice
required pursuant to § 1024.37(c)(1)(i).
Moreover, because the servicer would
not have received any insurance
information, the Bureau believed it
would be appropriate to require the
servicer to provide the disclosures set
forth in § 1024.37(c)(2)(ii) to (c)(2)(xi) in
the second written notice sent to a
borrower who has not sent the servicer
any insurance information in response
to the first written notice.
Proposed § 1024.37(d)(2)(ii) would
have required that if a servicer has
received insurance information from the
borrower within 30 days after delivering
to the borrower or placing in the mail
the written notice set forth in
§ 1024.37(c)(1)(i), but has not been able
to verify that the borrower has hazard
insurance in place continuously, then
the servicer must deliver or place in the
mail a written notice that contains the
following: (1) The date of the notice; (2)
a statement that the notice is the second
and final notice; (3) the disclosures set
forth in § 1024.37(c)(2)(ii), (c)(2)(iii),
(c)(2)(iv), and (c)(2)(xi); (4) a statement
that the servicer has received the hazard
insurance information that the borrower
provided; (5) a statement that indicates
to the borrower that the servicer is
unable to verify that the borrower has
hazard insurance in place continuously;
and (6) a statement that the borrower
will be charged for insurance the
servicer obtains for the period of time
where the servicer is unable to verify
hazard insurance coverage unless the
borrower provides the servicer with
hazard insurance information for such
period.
As described above in the section-bysection analysis of § 1024.37(c)(2), a
number of industry commenters
requested the Bureau to withdraw the
requirement to provide the cost of forceplaced insurance (or a good faith
estimate of the cost) and to permit
servicers to include additional
information in the force-placed
insurance notices the Bureau proposed.
For reasons discussed above, the Bureau
is keeping the requirement to provide
the cost of force-placed insurance
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(revised to refer to a ‘‘reasonable
estimate’’ rather than a ‘‘good faith
estimate’’) in the second notice and not
permitting a servicer to include
additional information in a second
reminder notice. The Bureau has also
added new comment 37(d)(2)(i)(D)–1 to
clarify what a ‘‘reasonable estimate’’
means.
37(d)(3) Format
As previously discussed, the Bureau
proposed new §§ 1024.37(c)(3) and
(d)(3) in parallel to implement section
6(l)(1). Proposed § 1024.37(d)(3) would
have provided that the disclosures set
forth in proposed § 1024.37(d)(2)(i) must
be in a format substantially similar to
form MS–3(B), and the disclosures set
forth in § 1024.37(d)(2)(ii) must be in a
format be substantially similar to form
MS–3(C). Proposed § 1024.37(d)(3)
would have provided that disclosures
required by § 1024.37(d)(2)(i)(B),
(d)(2)(ii)(B), and (d)(2)(ii)(F) must be in
bold text. The Bureau observed in the
proposal that the reasons the Bureau
provided for requiring the use of
highlighting (bold text) for purposes of
§ 1024.37(c)(3) also applied to
§ 1024.37(e)(3). As discussed above, the
Bureau has made changes to
§ 1024.37(c)(3) in adopting
§ 1024.37(c)(3), and the Bureau is
making conforming changes to
§ 1024.37(d)(3).
37(d)(4) Updating Notice With Borrower
Information
The Bureau proposed § 1024.37(d)(4)
to provide that if a servicer receives
hazard insurance information from a
borrower after the second written notice
required pursuant to § 1024.37(d)(1) has
been put into production, the servicer is
not required to update the notice so long
as the notice was put into production
within a reasonable time prior to the
servicer delivering the notice to the
borrower or placing the notice in the
mail. The Bureau proposed related
commentary, comment 37(d)(4)–1, that
would have provided that five days
prior to the delivery or mailing of the
second notice is a reasonable time and
invited comments on whether, in
certain circumstances, a longer time
frame is reasonable.
As discussed above, the Bureau
observes that one of the minimum
consumer protection purposes Congress
intended to establish by creating new
servicer duties with respect to a
servicer’s purchase of force-placed
insurance is to provide a borrower with
reasonably accurate information about a
servicer’s grounds for purchasing forceplaced insurance. The Bureau believes
that a servicer has a duty to ensure that
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the second notice contains reasonably
accurate information about an
individual borrower’s hazard insurance
status. Therefore, the Bureau believes
that a servicer has a duty to update the
second notice if it receives new
insurance information about a borrower
after sending the first written notice to
the borrower. The Bureau, however,
observed in the proposal that a servicer
might have to prepare the written notice
in advance of sending it. Accordingly,
the Bureau explained that it believed
that it was appropriate to create a safe
harbor of five days to protect a servicer
acting diligently from exposure to
potential litigation if the information the
servicer provided in the second notice
turns out to be, in fact, inaccurate, due
to information about a borrower’s
hazard insurance it receives subsequent
to putting the second notice into
production.
One force-placed insurance provider
and two national trade associations
representing the mortgage industry
recommended the Bureau withdraw
proposed § 1024.37(d)(4) or, in the
alternative, expand the safe harbor to 10
days, excluding legal holidays,
Saturdays and Sundays, because some
servicers use third-party service
providers to prepare force-placed
insurance notices and need a period of
longer than 5 days to prepare the
notices. The force-placed insurance
provider contended that servicers are
going to update the second notice or not
send the second notice at all if they
have received verification of a
borrower’s hazard insurance because
they would not want to send their
customers unnecessary notices. Two
other force-placed insurance providers
also recommended that the safe harbor
be expanded to 10 days from the date
that a borrower’s insurance is verified,
but did not indicate whether 10 days
should exclude legal holidays,
Saturdays, and Sundays.
The Bureau observes that as discussed
above, the intent of § 1024.37(d)(4) is to
create a safe harbor to protect servicers
who are diligent in ensuring that
borrowers receive reasonably accurate
information from potential litigation
risk. Accordingly, the Bureau is
concerned that a 10-day safe harbor,
even one that includes legal public
holidays, Saturdays and Sundays,
would be overbroad and give the benefit
of the safe harbor to servicers who are
not diligent in ensuring that borrowers
receive accurate information. But the
Bureau has concluded that servicers that
use third-party service providers to
prepare force-placed insurance notices
could reasonably require more than 5
days to prepare the second written
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notice in a timely manner, especially a
five-day period that includes a legal
public holiday, Saturday, or Sunday.
Accordingly, the Bureau is adopting
proposed comment 37(d)(4)–1 with a
change to clarify that the 5-day period
excludes legal public holidays,
Saturdays, and Sundays. The Bureau
believes this adjustment strikes the right
balance between achieving the
consumer protection of providing a
borrower with accurate information
about a servicer’s grounds for
purchasing force-placed insurance and
providing diligent servicers with a safe
harbor from potential litigation risk.
37(e) Renewal or Replacement of ForcePlaced Insurance
The Bureau proposed § 1024.37(e) to
prohibit a servicer from charging a
borrower for the replacement or renewal
of an existing force-placed insurance
policy unless certain procedural
requirements are followed as specified
in proposed § 1024.37(e). The Bureau
proposed the requirements because preproposal outreach suggested that there
is no widespread industry standard that
applies to renewal procedures for forceplaced insurance. Moreover,
commissions and reinsurance
agreements may create strong incentives
at renewal as well as at original
placement. The Bureau believes that the
renewal notice is authorized under
RESPA section 6(l), which provides that
a servicer does not have a reasonable
basis to obtain force-placed insurance
unless certain notice requirements are
met, and does not limit such
requirements to the first time a servicer
obtains and charges a borrower for
force-placed insurance. The Bureau has,
however, made certain adjustments to
the notice and procedure requirements
set forth in RESPA section 6(l), as
described below, to account for the fact
that in the case of the renewal of forcedplaced insurance, the borrower already
will have received at least two prior
force-placed insurance notices. Section
1024.37(e) is further authorized under
sections 6(j)(3), 6(k)(1)(E), and 19(a) of
RESPA as necessary and appropriate to
achieve the consumer protection
purposes of RESPA, including avoiding
unwarranted charges and fees and
ensuring the provision to borrowers of
accurate and relevant information. As
discussed below, the Bureau is adopting
proposed § 1024.37(e) generally as
proposed with a few changes to address
issues that were raised in comments.
37(e)(1) In general
The Bureau proposed § 1024.37(e)(1)
to provide that that a servicer may not
charge a borrower for renewing or
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replacing existing force-placed
insurance unless: (1) The servicer
delivers or places in the mail a written
notice to the borrower with the
disclosures set forth in § 1024.37(e)(2) at
least 45 days before the premium charge
or any fee is assessed; and (2) during the
45-day notice period, the servicer has
not received evidence that the borrower
has obtained hazard insurance. The
Bureau stated in the proposal that it
believed that the procedures it proposed
concerning renewal and replacement
would provide advance notice to allow
a borrower the time the borrower may
need to buy hazard insurance before
being charged again for the cost of forceplaced insurance at renewal or
replacement.
The Bureau did not believe a servicer
should have to wait until the end of the
notice period before charging a borrower
for the cost of renewing the force-placed
insurance if a borrower has confirmed
that there was a gap in coverage with
respect to a borrower who obtains
hazard insurance after receiving the
renewal notice. Accordingly, the Bureau
proposed § 1024.37(e)(1)(iii) to permit a
servicer who has renewed or replaced
existing force-placed insurance during
the notice period to charge a borrower
for such renewal or replacement
promptly after a servicer receives
verification that the hazard insurance
obtained by a borrower did not provide
a borrower with insurance coverage for
any period of time following the
expiration of the existing force-placed
insurance, notwithstanding
§ 1024.37(e)(1)(i) and (e)(1)(ii). The
Bureau proposed comment 37(e)(1)(iii)–
1 to provide an example of what this
means.
Two national trade associations
representing the mortgage industry
observed that it is common industry
practice for a servicer to send renewal
notice to borrowers but urged that the
Bureau permit servicers to charge a
borrower for the renewal of existing
force-placed insurance at the time of
purchase because a servicer should not
have to incur the burden of not being
able to impose a charge on a borrower
related to force-placed insurance at the
time of renewal or replacement. The
Bureau declines to modify the proposal
because the Bureau believes imposing a
notice period during which a servicer is
prohibited from charging a borrower for
force-placed insurance is appropriate
and necessary to help a borrower avoid
the cost associated with the borrower’s
servicer renewing or replacing the
borrower’s hazard insurance. The
Bureau further notes that a servicer can
provide the 45-day notice in advance of
the expiration of the current forced
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place coverage, and accordingly,
disagrees that § 1024.37(e)(1) would
invariably prohibit a servicer from
imposing a charge on a borrower related
to force-placed insurance at the time of
renewal or replacement. Accordingly,
the Bureau is adopting § 1024.37(e)(1) as
proposed, except technical changes to
clarify what evidence of borrower’s
coverage means for § 1024.37(e)(1). New
comment 37(e)(1)–1 clarifies that a
servicer may require a borrower to
provide a form of written confirmation
as described in comment 37(c)(1)(iii)–3
and may reject evidence of coverage
submitted by the borrower for the
reasons described in comment
37(c)(1)(iii)–2. Comment 37(e)(1)(iii) is
adopted as proposed.
37(e)(2) Content of Renewal Notice
Proposed § 1024.37(e)(2) would have
required a servicer to provide a number
of the disclosures set forth in in
proposed § 1024.37(c)(2) in the renewal
notice. The Bureau explained in the
proposal that the main differences
between the disclosures set forth in
proposed § 1024.37(c)(2) and proposed
§ 1024.37(e)(2) are that in proposed
§ 1024.37(e)(2), servicers must provide a
statement that: (1) The servicer
previously obtained insurance on the
borrower’s property and assessed the
cost of the insurance to the borrower
because the servicer did not have
evidence that the borrower had hazard
insurance coverage for the property; and
(2) the servicer has the right to maintain
insurance by renewing or replacing the
insurance it previously obtained
because insurance is required. The
Bureau believes the differences are
necessary to distinguish the notice
required pursuant to proposed
§ 1024.37(e)(1) from the notice required
pursuant to proposed § 1024.37(c)(1).
The proposed requirement in
§ 1024.37(c)(2)(ix) concerning provision
of the cost of the force-placed insurance,
stated as an annual premium, or a good
faith estimate of such cost, would have
been replicated in proposed
§ 1024.37(e)(2)(vii), with related
commentary that would have explained
that the good faith requirement set forth
in § 1024.37(e)(2)(vii) is the same good
faith requirement set forth in
§ 1024.37(c)(2)(ix).
The comments the Bureau received
with respect to the content of the forceplaced insurance notices under
§ 1024.37(c)(2) (i.e., comments about the
requirement to provide a good-faith
estimate and requests to be allowed to
provide additional information) also
apply to proposed § 1024.37(e)(2). The
Bureau believes that the burden of
providing a good faith estimate is lower
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for purposes of § 1024.37(e)(2) than for
purposes of providing such an estimate
for purposes of § 1024.37(c)(2) because a
servicer can provide such an estimate
based on the amount of current
premiums. Accordingly, the Bureau is
adopting this requirement in the final
rule (revised to refer to a ‘‘reasonable
estimate’’) and made technical changes
in related commentary to reflect this
revision. For reasons discussed above,
the Bureau is not permitting a servicer
to include additional information in the
notice required by § 1024.37(e)(1). But,
as discussed above, the Bureau is
adopting new § 1024.37(e)(4) to permit
servicers to provide additional
information in the same transmittal the
servicer uses to provide the replacement
or renewal notice.
37(e)(3) Format
Proposed § 1024.37(e)(3) would have
provided that that the disclosures set
forth in § 1024.37(e)(2) must be in a
format substantially similar to form MS–
3(D), set forth in appendix MS–3. It also
stated that disclosures made pursuant to
§ 1024.37(e)(2)(vi)(B) and 37(e)(2)(vii)
must be in bold text, and disclosures
made pursuant to § 1024.37(e)(2)(iv)
must be in bold text, except that the
physical address of the property may be
in regular text. Because proposed
§ 1024.37(e)(3) paralleled proposed
§§ 1024.37(c)(3) and (d)(3), the Bureau is
adopting § 1024.37(e)(3) with change to
conform to changes made in
§ 1024.37(c)(3) and (d)(3).
37(e)(4) Compliance
Proposed § 1024.37(e)(4) would have
provided that before the first
anniversary of a servicer obtaining
force-placed insurance on a borrower’s
property, the servicer shall deliver to
the borrower or place in the mail the
notice required by § 1024.37(e)(1).
Further, proposed § 1024.37(e)(4) would
have provided that a servicer is not
required to comply with § 1024.37(e)(1)
before charging a borrower for renewing
or replacing existing force-placed
insurance more than once every 12
months.
The Bureau explained that the Bureau
did not believe receiving more than one
renewal or replacement notice in a 12month period was necessary because
borrowers should be able to retain the
first notice under proposed
§ 1024.37(e)(1), including the cost or
estimate information, for future
reference. The Bureau also noted that
some small servicers who participated
in the Small Business Review Panel
expressed concerns about the cost of
sending renewal notices over a 12month period because unlike large
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10773
servicers, a number of small servicers
purchase force-placed insurance
policies that would have to be renewed
monthly. The Bureau, however,
solicited comments on whether
providing the renewal or replacement
notice once during a 12-month period
would adequately inform borrowers
about the costs, benefits, and risks
associated with servicers’ renewal or
replacement of existing force-placed
insurance.
One large force-placed insurance
provider commented that one notice per
year is sufficient to remind borrowers
without overly burdening the servicer or
potentially inundating borrowers with
multiple and repetitive notices. In
contrast, a state consumer group
asserted that one notice over a 12-month
period may not be enough to adequately
inform borrowers of the costs, benefits,
and risks of servicer’s renewal or
replacement of force-placed insurance
and urged the Bureau to require a
servicer to provide at least two renewal
notices over a 12-month period to
inform borrowers of the force-placed
insurance premium they would be
charged.
The Bureau has further considered the
issue but continues to believe for the
reasons stated in the proposal that one
annual renewal notice will adequately
inform borrowers of the costs, benefits,
and risks of servicer’s renewal or
replacement of force-placed insurance.
Additionally, the Bureau notes that in
conjunction with the Bureau’s periodic
statement rule, most borrowers whose
servicers are charging them for forceplaced insurance will be made aware of
that fact because a servicer will be
required to list force-placed insurance
charges on periodic statements.
Accordingly, the Bureau is adopting
proposed § 1024.37(e)(4) as proposed,
renumbered as § 1024.37(e)(5) in the
final rule.
37(f) Mailing the Notices
Section 6(l)(1) of RESPA, discussed
previously, establishes that servicers
must use first-class mail to send the
notices established by section 6(l)(1)(A)
and (B) of RESPA. The Bureau proposed
to implement this aspect of section
6(l)(1) of RESPA by adding new
§ 1024.37(f) to provide that if a servicer
mails a notice required pursuant to
§ 1024.37(c)(1)(i), (d)(1), or (e)(1) of this
section, a servicer must use a class of
mail not less than first-class mail.
As discussed above, the Bureau
believes that it is necessary and
appropriate to achieve the purposes of
RESPA to allow servicers to transmit the
force-placed notices required under
§ 1024.37 by a class of mail better than
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first. The Bureau observed in the
proposal that although the notice
required by proposed § 1024.37(e)(1) is
not required by RESPA, applying the
same mailing requirements to all notices
under § 1024.37 would facilitate
compliance by promoting consistency.
The Bureau did not receive any
comments on proposed § 1024.37(f) and
is adopting § 1024.37(f) as proposed.
37(g) Cancellation of Force-Placed
Insurance
Section 1463(a) added new section
6(l)(3) to RESPA, which states that
within 15 days of receipt by a servicer
of confirmation of a borrower’s existing
insurance coverage, the servicer must:
(1) Terminate the force-placed
insurance; and (2) refund to the
borrower all force-placed insurance
premium charges and related fees paid
by the borrower during any period in
which the borrower’s insurance and the
force-placed insurance were both in
effect. The Bureau proposed
§ 1024.37(g)(1) and (2) to implement
section 6(l)(3) of RESPA. Section
1024.37(g)(1) and (2) would have
provided that within 15 days of
receiving verification that the borrower
has hazard insurance in place, a servicer
must cancel force-placed insurance
obtained for a borrower’s property and
for any period during which the
borrower’s hazard insurance was in
place, refund to the borrower all forceplaced insurance premium charges and
related fees paid by the borrower for
such period. Proposed § 1024.37(g)(2)
would have also required a servicer to
remove all force-placed insurance
charges and related fees that the servicer
has assessed to the borrower for any
period during which the borrower’s
hazard insurance was in place from the
borrower’s account. The Bureau believes
that Congress, by establishing the duty
to provide a full refund of the forceplaced insurance premium and related
charges paid by a borrower for any
period of time during which the
borrower’s hazard insurance coverage
and the force-placed insurance coverage
were both in effect, also intended to
establish the duty to remove a premium
charge or fee related to force-placed
insurance for such period. Accordingly,
the Bureau interprets the statutory duty
to provide such refund to include the
duty to remove all force-placed
insurance premium charges and related
fees charged to a borrower’s account for
any period during which the borrower’s
hazard insurance coverage and the
force-placed insurance coverage were
both in effect.
Several industry commenters asserted
that a borrower should not have an
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unconditional right to receive a refund
for all force-placed insurance premium
charges and related fees paid by the
borrower during any period of
overlapping coverage. They asserted
that it would not be reasonable for a
servicer to absorb the cost of the refund
if a borrower does not provide evidence
of insurance in a timely manner or if a
servicer had a reasonable basis to
purchase force-placed insurance. Some
commenters asserted that an
unconditional right to a refund would
encourage borrowers to act irresponsibly
by not providing evidence of insurance
in a timely manner. One state housing
finance agency and a force-placed
insurance provider suggested that
servicers needed 15 business days to
cancel force-placed insurance and
provide a borrower with refunds in an
orderly manner and asked the Bureau to
adjust the timelines accordingly.
The Bureau is finalizing § 1024.37(g)
as proposed, with adjustments to the
regulatory language for clarity. While a
number of commenters indicated that
they understood ‘‘receiving verification
that the borrower has hazard insurance
in place’’ meant receiving evidence of
insurance coverage, just as the Bureau
has adjusted the text of
§§ 1024.37(c)(1)(iii), (d)(2)(ii), and
(e)(1)(iii), to clarify what ‘‘receiving
verification’’ means, the Bureau has
made similar revisions to enhance the
clarity of § 1024.37(g).
Additionally, in finalizing
§ 1024.37(g)(2), the Bureau has replaced
the proposed phrase ‘‘for any period
during which the borrower’s hazard
insurance was in place’’ with the phrase
‘‘for any period of overlapping
insurance coverage’’ because the Bureau
believes the language ‘‘periods of
overlapping coverage’’ more closely
aligns with the statutory language ‘‘any
period during which the borrower’s
insurance coverage and the force-placed
insurance coverage were each in effect’’
in RESPA section 6(l)(3). The Bureau is
adopting new comment 37(g)(2)–1 to
explain what ‘‘period of overlapping
insurance coverage’’ means for purposes
of § 1024.37(g)(2). The Bureau, however,
is not adopting proposed comment
37(g)–1 because upon further
consideration, the Bureau believes that
further elaboration on what a servicer
must do to comply with § 1024.37(g) is
not required.
With respect to commenters asserting
that a borrower should not have an
unconditional right to a full refund of
force-placed insurance premiums and
related fees paid by the borrower, the
Bureau notes that section 6(l)(3) of
RESPA expressly establishes that a
borrower’s right to a full refund for any
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period during which the borrower’s
hazard insurance and the force-placed
insurance were both in effect is an
unconditional one. Moreover, based on
consumer testing and other outreach,
the Bureau is skeptical that the statutory
regime will cause borrowers to be less
diligent in responding to notices from
their servicers asking them to provide
evidence demonstrating insurance
coverage and result in servicers having
to absorb significant costs.
As discussed above, across all rounds
of testing, participants uniformly
understood the timeliness of their
response upon the receipt of forceplaced insurance notices affected
whether or not they would have to pay
for force-placed insurance. All
participants said they would take
immediate action because they did not
want to bear the expense of force-placed
insurance.112 The uniformity of the
responses supports the Bureau’s belief
that the substantially higher cost of
force-placed insurance provides
borrowers with a natural incentive to
provide their servicers with evidence of
insurance coverage in a timely manner.
Further, based on outreach the Bureau
has done with force-placed insurance
providers and servicers, as well as based
on public statements made by these
entities and comment letters the Bureau
has received from industry, the Bureau
observes that the typical force-placed
insurance on the market provides for
flat cancellation (i.e., the force-placed
insurance provider provides a full
refund of force-placed insurance
premiums paid by the borrower for any
period of time where the force-placed
insurance and the borrower’s hazard
insurance coverage were both in
effect).113 Accordingly, the Bureau does
112 ICF Int’l, Inc., Summary of Findings: Design
and Testing of Mortgage Servicing Disclosures 24–
29 (Aug. 2012) (‘‘Macro Report’’), available at
http://www.regulations.gov/
#!documentDetail;D=CFPB-2012-0033-0003.
113 See e.g., N.Y. State Dep’t of Fin. Services,
Testimony of John Frobose, President of American
Security Insurance Company (ASIC) 6 (describing
that if ASIC receives proof that there was no gap
in hazard insurance coverage on a borrower’s
property, ASIC refunds all force-placed insurance
premiums paid); see also, N.Y. State Dep’t of Fin.
Services, Written Testimony of Nicholas Pastor and
Matthew Freeman on behalf of QBE Insurance
Corporation and QBE FIRST Insurance Agency 15
(stating that if the borrower provides proof of
voluntary insurance such that there was no lapse in
the voluntary coverage, all premiums paid by a
borrower or deducted from a borrower’s escrow
account are refunded, regardless of when the
borrower provided the proof of voluntary coverage):
See further, N.Y. State Dep’t of Fin. Services,
Written Testimony of Justin Crowley on behalf of
Select Portfolio Servicing, Inc, Pelatis Insurance
Agency Corp. and Pelatis Insurance Limited 5
(stating that it provides a full refund equal to the
total amount of force-placed insurance premiums
charged to the borrower’s account for any period
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not believe that servicers will have to
absorb significant costs.
The Bureau further declines to adjust
the timeline a servicer must follow to
cancel fore-placed insurance and refund
force-place premium charges and
related fees paid by the borrower. As
discussed above in the section-bysection analysis of the defined term
‘‘Day’’ in § 1024.31, the Bureau believes
that Congress intended the term ‘‘day’’
by itself to mean a calendar day for
purposes of RESPA. The 15-day
timeline for cancellation and refund is
expressly established by section 6(l)(3)
of RESPA.
Further, based on the Bureau’s
outreach and public statements made by
force-placed insurance providers and
servicers, the Bureau understands that
servicers’ purchase of force-placed
insurance is generally a rare occurrence.
If the volume of force-placement is
small to begin with, then the Bureau is
skeptical that requiring servicers to
follow the statutorily-prescribed
timeline would overwhelm a servicer or
otherwise impose too large of a burden.
Accordingly, the Bureau does not
believe it is appropriate to deviate from
the statutory-determined timeline set
forth in section 6(l)(3).
A large force-placed insurance
provider, a state trade association
representing mortgage lenders, and a
bank servicer expressed concern that
§ 1024.37(g), as proposed, would be
construed as requiring a servicer to
cancel force-placed insurance and
provide a full refund even if a
borrower’s hazard insurance policy does
not meet the loan contract’s
requirements. Although the Bureau does
not believe that it was reasonable to
construe proposed § 1024.37(g) to
require a servicer to cancel force-placed
insurance and provide a full refund
even if a borrower’s hazard insurance
policy does not meet the loan contract’s
requirements, the Bureau believes that
in any event, the commenters’ concern
is adequately addressed by § 1024.37(g),
which, as adopted, clarifies that
‘‘receiving verification’’ in proposed
§ 1024.37(g) means receiving evidence
demonstrating that the borrower has had
hazard insurance in place that complies
the loan contract’s requirements to
maintain hazard insurance.
Lastly, one large bank servicer
expressed concern that the obligation to
refund a borrower for force-placed
insurance premiums and related fees
paid by the borrower triggers a
during which the borrower maintained his or her
own homeowners’ coverage) (copies of the
aforementioned testimonies are available at http://
www.dfs.ny.gov/insurance/hearing/
fp_052012_testimony.htm).
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subsequent escrow analysis disclosure
set forth in current § 1024.17(c)(3),
which requires a servicer to perform an
escrow account analysis at the
completion of the escrow account
computation year, which is defined in
current § 1024.17(b) as ‘‘a 12-month
period that a servicer establishes for the
escrow account beginning with the
borrower’s initial payment date.’’
Providing a refund to a borrower in
accordance with § 1024.37(g), by itself,
does not trigger the obligation to
perform an escrow account analysis
required by current § 1024.17(c)(3).
37(h) Limitation on Force-Placed
Insurance Charges
Section 1463(a) of the Dodd-Frank Act
amended RESPA section 6 by adding
new section 6(m) to RESPA, which
states that apart from charges subject to
State regulation as the business of
insurance, all charges related to forceplaced insurance imposed on the
borrower by or through the servicer
must be bona fide and reasonable.
Proposed § 1024.37(h)(1) generally
mirrored the statutory language by
providing that except for charges subject
to State regulation as the business of
insurance and charges authorized by the
Flood Disaster Protection Act of 1973,
all charges related to force-placed
insurance assessed to a borrower by or
through the servicer must be bona fide
and reasonable. Proposed
§ 1024.37(h)(2) would have provided
that a bona fide and reasonable charge
is a charge for a service actually
performed that bears a reasonable
relationship to the servicer’s cost of
providing the service, and is not
otherwise prohibited by applicable law.
The Bureau noted in the proposal that
the Flood Disaster Protection Act of
1973 establishes that notwithstanding
any Federal or State law, any servicer
for a loan ‘‘secured by improved real
estate or a mobile home’’ may charge a
reasonable fee for determining whether
the building or mobile home securing
the loan is located or will be located in
a special flood hazard zone. See 42
U.S.C. 4012a(h). As discussed in the
proposal and explained above, the
Bureau was concerned about issuing
regulations that would overlap with
regulations issued pursuant to the
FDPA, and believed that borrowers
would be confused by receiving
overlapping notices under the two
regimes with respect to the same flood
insurance policy. Accordingly, as
discussed above, the Bureau used its
authority under section 19(a) of RESPA
to exempt hazard insurance to protect
against flood loss obtained by a servicer
as required by the FDPA from the
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definition of force-placed insurance.
Consistent with this exemption and for
the same reasons, the Bureau believed
that it was necessary to achieve the
purposes of RESPA’s force-placed
insurance provisions to use it authority
under section 19(a) of RESPA to exempt
charges authorized by the FDPA from
proposed § 1024.37(h). The Bureau
received no comments on the exemption
and is adopting this aspect of
§ 1024.37(h)(1) as proposed.
With respect to proposed
§ 1024.37(h)(2), which would have set
forth the Bureau’s proposed definition
of ‘‘bona fide and reasonable charge,’’
the Bureau noted in the proposal that
the Bureau believed it was important
that servicers do not try to inflate the
already-high cost of force-placed
insurance by assessing charges to
borrowers that are not for services
actually performed, do not bear a
reasonable relationship to the servicer’s
cost of providing the service, or are
prohibited by applicable law.
One non-bank servicer commended
the proposed definition of ‘‘bona fide
and reasonable charge’’ and predicted
that the Bureau’s proposal would stop
many of the abusive servicer practices
that have damaged the industry’s
reputation over the past few years. But
a national trade association representing
the consumer credit industry contended
that the proposed definition would
create an ambiguous standard that
would expose lenders to class action
lawsuits and infringe on state insurance
departments’ sole authority to regulate
insurance rates.
Other comments received from a
national trade association representing
realtors and several consumer groups
urged the Bureau to go further in
regulating charges related to forceplaced insurance that a servicer imposes
on a borrower. The realtors association
urged the Bureau to mandate affordable
force-placed insurance premiums. One
consumer group urged the Bureau to
ban servicers or their affiliates from
receiving any fee, commission,
kickback, reinsurance contract, or any
other thing of value for a force-placed
insurance provider in exchange for
purchasing force-placed insurance, and
to prohibit a servicer from obtaining an
amount of force-placed insurance
coverage greater than the replacement
cost value of the borrower’s property.
Two national consumer groups
suggested that the Bureau should
expressly exclude unreasonable costs
and other costs unrelated to the
provision of force-placed insurance.
Two other national consumer groups
asserted that the Bureau should
expressly exclude commissions or other
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compensation paid by a force-placed
insurance provider or its agent to a
servicer or any affiliate of the servicer,
costs associated with insurance
tracking, cost for activities for which a
servicer is being reimbursed by the
owner of the mortgage, costs associated
with the administration of reinsurance
programs, cost to subsidize unrelated
servicer activities, and any cost that is
not directly related to the provision of
force-placed insurance. They also urged
the Bureau to provide guidance about
prohibited fees that is consistent with
Fannie Mae’s proposed changes to its
servicing guidelines on force-placed
insurance.114 These commenters further
asserted that State insurance regulators
have no authority over a charge that a
servicer imposes on a borrower for
force-placed insurance because a
servicer is not an entity regulated by
state insurance regulators.
After consideration of the comments
submitted, the Bureau believes it is
appropriate to finalize § 1024.37(h)(2) as
proposed. The Bureau believes
§ 1024.37(h) appropriately implements
RESPA 6(m)’s ‘‘bona fide and
reasonable’’ requirement in a way that
does not overlap with state insurance
departments’ authority to regulation
insurance rates. Further, the Bureau
believes § 1024.37(h) provides clear
guidance for servicers by
unambiguously prohibiting a servicer
from charging a borrower for a service
it did not perform, or charging a
borrower a fee that does not bear a
reasonable relationship to the servicer’s
cost of providing the service, or that
would be otherwise prohibited by
applicable law.
With respect to the request that the
Bureau should revise the definition of
‘‘bona fide and reasonable charges’’ to
exclude unreasonable costs, other costs
unrelated to the provision of forceplaced insurance, and cost to subsidize
servicing activities unrelated to the
provision of force-placed insurance, the
114 Fannie Mae issued a servicing announcement
stating that any servicer requesting reimbursement
of force-placed insurance premiums must exclude
any lender-placed insurance commission earned on
that policy by the servicer or any related entity,
costs associated with insurance tracking or
administration, or any other costs beyond the actual
cost of the lender-placed insurance policy
premium. See Fannie Mae, Updates to LenderPlaced Property Insurance and Hazard Insurance
Claims Processing (Mar. 14, 2012), available at
https://www.fanniemae.com/content/
announcement/svc1204.pdf. The Bureau observes
that Fannie Mae followed up in May of 2012 with
a public statement announcing that it has
postponed the implementation date of these
guidelines until further notice. Fannie Mae,
Effective Date for Lender-Placed Property Insurance
Requirements, available at https://
www.fanniemae.com/content/announcement/
ntce052312.pdf.
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Bureau believes that the proposed and
final definition already exclude such
charges.
With respect to requests that the
Bureau mandate affordable force-placed
insurance premiums, prohibit servicers
from receiving commission or similar
fees or things of value, prohibit fees
associated with the cost of
administration of reinsurance programs
or insurance tracking, the Bureau
recognizes the concerns, but believes
the provisions of § 1024.37 provide
adequate safeguards to borrowers and
consistent with the regulatory scheme
mandated by Congress.
With respect to the request that the
Bureau prohibit servicers from charging
borrowers for costs that could be
reimbursed by the owner of the
mortgage loan, the Bureau believes that
where a servicer charges a borrower for
first-placed insurance in accordance
with the requirements under § 1024.37,
it is reasonable for the borrower, rather
than the owner or assignee of the
mortgage loan, to bear the costs of such
insurance. With respect to the request
that the Bureau exclude costs not
directly related to force-placed
insurance from the definition of ‘‘bona
fide and reasonable charges,’’ the
Bureau believes that the bona fide and
reasonable standard provides adequate
protection to borrowers without
distinguishing between whether a
charge is ‘‘directly’’ or ‘‘indirectly’’
related to force-placed insurance. Such
a standard would thus inject addition
complexity without concomitant
consumer benefit.
With respect to the request that the
Bureau provide guidance about
prohibited fees that is consistent with
Fannie Mae’s proposed changes to its
servicing guidelines, the Bureau
carefully reviewed Fannie Mae’s
servicing announcement and concluded
that it would not be appropriate to
provide similar guidance. The draft
guidance simply informs servicers that
Fannie Mae no longer plans to
reimburse a servicer for certain servicer
expenses related to servicer’s purchase
of force-placed insurance and
importantly, it offers no guidance on the
charges a servicer may impose on a
borrower with respect to a servicer’s
purchase of force-placed insurance.
Additionally, the Bureau believes that
the prohibitions and requirements with
respect to force-placed insurance under
§ 1024.37 provide adequate protection
to borrowers and that there is no reason
to depart from the scheme established
by Congress to regulate force-placed
insurance by importing Fannie Mae’s
guidance regarding prohibited fees into
the final rule.
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Lastly, with regard to the argument
that no charge imposed by a servicer is
subject to State regulation as the
business of insurance because a servicer
is not regulated by State insurance
regulators, the Bureau believes the
language of section 6(m) of RESPA
clearly contemplates that servicers may
pass through charges that are subject to
State regulation as the business of
insurance to a borrower, and the fact
that such charge is passed through by
the servicer does not mean that such
charge is no longer subject to State
regulation as the business of insurance.
For the foregoing reasons, the Bureau is
adopting § 1024.37(h)(2) as proposed.
37(i) Relationship to Flood Disaster
Protection Act of 1973
Section 1463 of the Dodd-Frank Act
amended section 6 of RESPA to add
new section 6(l)(4) to provide that the
new Dodd-Frank Act requirements
concerning force-placed insurance do
not prohibit servicers from sending a
simultaneous or concurrent notice of a
lack of flood insurance pursuant to
section 102(e) of the Flood Disaster
Protection Act (FDPA). The Bureau
proposed § 1024.37(i) to provide that if
permitted by regulation under section
102(e) of the Flood Disaster Protection
Act of 1973, a servicer subject to the
requirements of § 1024.37 may deliver
to the borrower or place in the mail any
notice required by § 1024.37 together
with the notice required by section
102(e) of the Flood Disaster Protection
Act of 1973.
One national trade association
representing banks and insurance
providers urged the Bureau to permit
servicers to combine the notice required
pursuant to the FDPA with any notice
required pursuant to § 1024.37. One
state consumer group expressed concern
that a borrower might be confused if it
receives a notice required pursuant to
§ 1024.37 and a notice required
pursuant to the FDPA at the same time.
The commenter observed that the
notices should be distinguishable from
each other and should state that there is
a difference between the two notices.
Congress vested other Federal
regulators with the authority to issue
regulations under the FDPA, and thus,
the Bureau cannot revise the content of
notices required under the FDPA. With
respect to potential confusion caused by
receiving concurrent notices, the Bureau
notes that it has excluded insurance
required under the FDPA from the
definition of force-placed insurance so
that borrowers will not receive
overlapping notices under § 1024.37 and
the FDPA with respect to the same
insurance policy. To the extent
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borrowers receive separate notices
under § 1024.37 and the FDPA with
respect to separate insurance policies,
the Bureau further believes that
borrowers will be able to distinguish the
notices under the two regulatory
schemes based on their content. The
Bureau also observes that it has
addressed compliance burden by
permitting under final § 1024.37(i) that
notices under the FDPA and § 1024.37
could be provided to borrowers in the
same transmittal. Accordingly, the
Bureau is adopting § 1024.37(i) as
proposed, except with adjustment just
described. As adopted, § 1024.37(i)
states if permitted by regulation under
section 102(e) of the Flood Disaster
Protection Act of 1973, a servicer
subject to the requirements of § 1024.37
may deliver to the borrower or place in
the mail any notice required by
§ 1024.37 and the notice required by
section 102(e) of the Flood Disaster
Protection Act of 1973 on separate
pieces of paper in the same transmittal.
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Section 1024.38 General Servicing
Policies, Procedures, and Requirements
Background. As discussed above, the
Bureau proposed rules that would
amend Regulation X to implement the
Dodd-Frank Act amendments to TILA
and RESPA, with respect to among other
things, error resolution and information
requests. The Bureau also proposed to
use its section 19(a) authority to require
servicers to establish and to implement
reasonable policies and procedures to
manage information and documents, to
evaluate and respond to loss mitigation
applications, and to achieve other
important objectives.
As described more fully above, the
Bureau’s proposal sought to address
pervasive consumer protection
problems across major segments of the
mortgage servicing industry that came to
light during the recent financial crisis
and that underlie many consumer
complaints and recent regulatory and
enforcement actions. In the 2012 RESPA
Servicing Proposal, the Bureau stated
that it believed that many servicers
simply had not made the investments in
resources and infrastructure necessary
to service large numbers of delinquent
loans. The Bureau noted that recent
evaluations of mortgage servicer
practices have indicated that borrowers
have been harmed as a result of many
servicers’ lacking adequate policies and
procedures to provide servicer
personnel with appropriate borrower
information. Federal regulatory agencies
reviewing mortgage servicing practices
have found that certain servicers
demonstrated ‘‘significant weaknesses
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in risk-management, quality control,
audit, and compliance practices.’’ 115
Further, the Bureau noted that major
servicers demonstrated systemic failures
to document and verify, in accordance
with applicable law, information
relating to borrower mortgage loan
accounts in connection with foreclosure
proceedings. Examinations by
prudential regulators found ‘‘critical
deficiencies in foreclosure governance
processes, document preparation
processes, and oversight and monitoring
of third parties * * * [a]ll servicers
[examined] exhibited similar
deficiencies, although the number,
nature, and severity of deficiencies
varied by servicer.’’ 116
As the Bureau explained in the 2012
RESPA Servicing Proposal, a servicer’s
obligation to maintain accurate and
timely information regarding a mortgage
loan account and to be able to provide
accurate and timely information to its
own employees and to borrowers,
owners, assignees, subsequent servicers,
and courts, among others, is one of the
most basic servicer duties. A servicer
cannot comply with its myriad
obligations to investors and applicable
law, unless it maintains sound systems
to manage the servicing of mortgage
loan accounts, including information
systems that maintain accurate and
timely information with respect to
mortgage loan accounts. To address
those critical concerns, the Bureau
decided to use RESPA section 19(a)
authority to propose a rule to address
servicers’ information management and
other general servicing policies and
procedures across the industry.
The Bureau received general
comments about whether it was
appropriate for the Bureau to regulate
servicers’ practices related to
information management and other
servicer policies and procedures
identified in the 2012 RESPA Servicing
Proposal. Consumer group comments
generally demonstrated support for the
proposal. Industry comments, on the
other hand, expressed skepticism about
whether it is necessary for the Bureau to
regulate servicers’ information
115 Problems in Mortg. Servicing From
Modification to Foreclosure: Hearings Before the
Senate Comm. on Banking, Hous. & Urban Affairs,
111th Cong. 4 (2010) (statement of Daniel K.
Tarullo, Board of Governors, Federal Reserve
System), available at http://
www.federalreserve.gov/newsevents/testimony/
tarullo20101201a.htm.
116 Failure to Recover: The State of Hous. Mkts.,
Mortg. Servicing Practices and Foreclosures:
Hearings Before the House Comm. on Oversight and
Gov’t Reform, 112th Cong. 4 (2012) (statement of
Morris Morgan, Office of the Comptroller of the
Currency), available at http://www.occ.gov/newsissuances/congressional-testimony/2012/pub-test2012–47-written.pdf.
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management and other operational
practices. Some industry comments
suggested that recent State and Federal
remediation efforts, such as the National
Mortgage Settlement, and other existing
regulations obviated the need for any
regulation by the Bureau. Some
servicers also urged the Bureau to delay
adopting the proposed rule. The Bureau
also received a small number of
comments about the scope of the rule,
including whether the proposed rule
would apply to mortgages other than
federally regulated mortgages or to
reverse mortgages.
In light of the potential harm to
borrowers due to the deficiencies in
servicer practices highlighted in the
proposal, the Bureau continues to
believe that servicers should achieve
certain critical general servicing
objectives and requirements. The
Bureau declines to adopt the
commenters’ suggestions that regulation
of these practices is not necessary at this
time, and is adopting § 1024.38, as
proposed with the modifications
discussed in detail below. Through
enforcement and supervision of
§ 1024.38, the Bureau will evaluate
whether servicers are achieving the
objectives and requirements set forth in
§ 1024.38. The Bureau also expects that
servicers will measure their own ability
to achieve the objectives and
requirements set forth in § 1024.38. In
addition, the Bureau expects that
servicers’ policies and procedures will
address the core functions that they
need to achieve those objectives and
requirements, including providing
adequate staffing and meaningful
oversight of the resources engaged in
achieving those important objectives
and requirements, including servicer
staff, service providers, and vendors.
As explained above, the Bureau
believes that the general servicing
policies, procedures, and requirements
set forth in § 1024.38 are necessary and
appropriate to achieve the consumer
protective purposes of RESPA,
including to avoid unwarranted or
unnecessary costs and fees, to ensure
that servicers are responsive to
consumer requests and complaints, to
ensure that servicers provide and
maintain accurate and relevant
information about the mortgage loan
accounts that they service, and to
facilitate the review of borrowers for
foreclosure avoidance options.
Moreover, as discussed in detail below
in part VII, the Bureau believes that the
burden imposed on servicers under the
final rule is reasonable in light of the
countervailing benefits of the
provisions.
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As discussed in detail above in the
section-by-section analysis of § 1024.30,
§ 1024.38 applies only to the servicing
of federally related mortgage loans, as
defined in § 1024.2, and does not apply
to the servicing of reverse mortgages, as
defined in § 1024.31, or with respect to
any mortgage loan for which a servicer
is subject to regulation by the Farm
Credit Administration as a ‘‘qualified
lender,’’ as defined in 12 CFR 617.7000.
In addition, § 1024.38 does not apply to
small servicers, as defined in 12 CFR
1026.41(e)(4). The Bureau has also
modified the final rule to clarify that the
policies, procedures, and requirements
set forth in § 1024.38 are broader than
information management and
encompass general servicing policies,
procedures, and requirements.
Legal Authority
In proposing § 1024.38, the Bureau
relied on a number of authorities,
including section 6(k)(1)(E) of RESPA.
That provision, which was added by
§ 1463 of the Dodd-Frank Act as part of
a broader set of servicing-related
requirements, authorizes the Bureau to
promulgate regulations ‘‘appropriate to
carry out the consumer protection
purposes of [RESPA].’’ In the proposal,
the Bureau noted that § 1024.38 was
further authorized under section 6(j)(3)
of RESPA, as necessary to carry out
section 6 of RESPA, and under section
19(a) of RESPA, as necessary to achieve
the purposes of RESPA. Because rules
issued under section 6 of RESPA,
including under sections 6(k)(1) and
6(j)(3), are enforceable through private
rights of action, the Bureau proposed
§ 1024.38(a)(2), which set forth a safe
harbor under which a servicer would
not violate proposed § 1024.38 unless it
engaged in a pattern or practice of
failing to achieve any of the objectives
set forth in § 1024.38. The Bureau
believed that creating a pattern or
practice threshold would significantly
improve industry practices but not
subject servicers to lawsuits with
respect to, for example, a single lost
document or filing error.
The Bureau received many comments
on the private liability suggested by the
Bureau’s reliance on its authority under
section 6 of RESPA to propose
§ 1024.38. Numerous industry
commenters expressed concern that
authorizing § 1024.38 under section 6 of
RESPA would create a private cause of
action to enforce the provisions of the
section. These commenters noted that
the litigation risk created by the
proposed rule would complicate
compliance due to the potential for
inconsistent judicial interpretations of
the rule. In light of this concern,
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industry commenters asked the Bureau
to provide detailed, specific guidance
on how to comply with the objectives
set forth in proposed § 1024.38. In
addition, servicers argued that the
Bureau and prudential regulators are
better positioned to assess and supervise
servicers’ internal policies and
procedures than courts through civil
litigation. Industry commenters also
stressed that the private litigation that
would likely ensue under proposed
§ 1024.38 would increase the cost of
servicing and thereby decrease the
availability of credit.
Consumer group commenters
generally supported the allowance of
private rights of action to enforce
§ 1024.38 but expressed dissatisfaction
with the proposed safe harbor, which
they argued should be eliminated or
revised to reduce the barriers to
successful civil actions and to ensure
sufficient protection for borrowers. They
commented that the safe harbor
definition would make it difficult for
consumers to bring successful civil
suits, and urged the Bureau to eliminate
or to revise the safe harbor to provide
relief for more borrowers. Consumer
advocates argued that borrowers need
strong protections because borrowers
cannot select their servicers.
As stated in the proposal, the Bureau
is concerned that a servicer’s failure to
achieve each of the objectives and
standard requirements set forth in
§ 1024.38 creates the potential for
adverse consequences harmful to
borrowers. These may include imposing
improper fees on borrowers, inability
reasonably to evaluate borrowers for
loss mitigation options that may benefit
borrowers and owners or assignees of
mortgage loans, unwarranted costs to
borrowers, and the potential for fraud
upon courts through inaccurate or
unverifiable legal pleadings.
The Bureau sought to balance the
need for consumer protections with the
costs created by command-and-control
regulation by proposing objectivesbased policies and procedures that
allowed servicers flexibility to set
policies and procedures reasonably
designed to achieve certain defined
objectives. Because a single failure to
achieve a desired objective or
requirement is not necessarily
indicative of a servicer’s failure to
implement appropriate policies and
procedures and in light of the potential
costs of civil litigation, the Bureau
proposed a safe harbor under which
servicers would be liable only for
systemic violations of § 1024.38. Upon
consideration of the comments and
further consideration, however, the
Bureau has concluded that the proposed
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formulation would not have adequately
balanced the countervailing concerns of
borrowers and industry. Requiring a
showing of a pattern or practice could
make it difficult for borrowers or
regulators to obtain remedies until a
servicer had inflicted widespread harm
among its borrowers. At the same time,
the prospect that many individual suits
could be filed could threaten to
undermine the basic goal of an
objectives-based system, if servicers felt
pressured to adopt models to reduce
risk that were not in fact appropriately
tailored to their particular operations.
Ultimately, the Bureau agrees with the
commenters that allowing a private right
of action for the provisions that set forth
general servicing policies, procedures,
and requirements would create
significant litigation risk. As the
commenters noted, courts potentially
would interpret the proposed flexible
objectives-based standards
inconsistently, which would have
created compliance challenges for
servicers. To address such challenges,
the Bureau believes that it would have
needed to issue more prescriptive
standards in the final rule. The Bureau
continues to believe, however, for the
reasons discussed above, that flexible
objectives-based standards are best
suited to address the information
management and other servicing
challenges faced by different servicers
that the Bureau identified in the
proposal. Policies and procedures best
suited to achieve the desired objectives
are often highly dependent on the facts
and circumstances of an individual
servicer, such as the number and type
of loans being serviced, and the
technology that the servicer has
deployed.
The Bureau believes that supervision
and enforcement by the Bureau and
other Federal regulators for compliance
with and violations of § 1024.38
respectively, would provide robust
consumer protection without subjecting
servicers to the same litigation risk and
concomitant compliance costs as civil
liability for asserted violations of
§ 1024.38. Indeed, the Bureau believes
that the Bureau and other Federal
regulators have the experience and
judgment necessary to evaluate a
servicer’s compliance with § 1024.38
and to take action against servicers
whose operational systems are not
reasonably designed to achieve the
stated objectives without waiting for
evidence of a pattern or practice of
undesirable outcomes. Prior to the
enactment of the Dodd-Frank Act, there
was no comprehensive Federal
supervisory authority over non-bank
mortgage servicers. The Dodd-Frank Act
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created a comprehensive regime of
federal regulation over both bank and
non-bank mortgage servicers. Under this
new regime, the Bureau and other
federal regulators can calibrate
supervision to focus on practices that
present the greatest risk to borrowers
and work with servicers to assure that
servicers have implemented effective
systems that protect consumers and
manage servicing portfolios. At the same
time, the new comprehensive regulatory
regime will allow the Bureau and other
regulators to take prompt and effective
action where a servicer’s policies and
procedures are deficient without
waiting for proof of a pattern or practice
of abuse.
Therefore, the Bureau is restructuring
the final rule so that it neither provides
private liability for violations of
§ 1024.38 nor contains a safe harbor
limiting liability to situations where
there is a pattern or practice of
violations. As discussed in more detail
below, the Bureau has also revised some
of the proposed objectives and added
new requirements that the Bureau
believes can be appropriately overseen
by supervisory agencies but that would
have been difficult for the courts to
administer on a case-by-case basis. The
Bureau believes that this approach more
appropriately balances the need for
robust consumer protections with
respect to the general servicing policies,
procedures, and requirements set forth
in § 1024.38 through supervision and
enforcement by the Bureau and other
agencies with the flexibility for industry
to define how to achieve the important
objectives set forth in § 1024.38.
Thus, the Bureau no longer relies on
its authorities under section 6 of RESPA
to issue § 1024.38. Instead, the Bureau is
adopting § 1024.38 pursuant to its
authority under section 19(a) of RESPA.
As explained in more detail below, the
Bureau believes that the servicing
policies, procedures, and requirements
set forth in § 1024.38 are necessary to
achieve the purposes of RESPA,
including to avoid unwarranted or
unnecessary costs and fees, to ensure
that servicers are responsive to
consumer requests and complaints, to
ensure that servicers provide and
maintain accurate and relevant
information about the mortgage loan
accounts that they service, and to
facilitate the review of borrowers for
foreclosure avoidance options. The
Bureau believes that without sound
operational policies and procedures and
without achieving certain standard
requirements, servicers will not be able
to achieve those purposes. The Bureau
is also adopting § 1024.38 pursuant to
its authority under section 1022(b) of
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the Dodd-Frank Act to prescribe
regulations necessary or appropriate to
carry out the purposes and objectives of
Federal consumer financial laws.
Specifically, the Bureau believes that
§ 1024.38 is necessary and appropriate
to carry out the purpose under section
1021(a) of the Dodd-Frank Act of
ensuring that markets for consumer
financial products and services are fair,
transparent, and competitive, and the
objective under section 1021(b) of the
Dodd-Frank Act of ensuring that
markets for consumer financial products
and services operate transparently and
efficiently to facilitate access and
innovation. The Bureau additionally
relies on its authority under section
1032(a) of the Dodd-Frank Act, which
authorizes the Bureau to prescribe rules
to ensure that the features of any
consumer financial product or service,
both initially and over the term of the
product or service, are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
38(a) Reasonable Policies and
Procedures
Proposed § 1024.38(a)(1) would have
required servicers to establish
reasonable policies and procedures for
achieving certain objectives relating to
borrower mortgage loan accounts.
Proposed § 1024.38(a)(1) provided that a
servicer meets this requirement if the
servicer’s policies and procedures are
reasonably designed to achieve certain
objectives, which are set forth in
proposed § 1024.38(b), and are
reasonably designed to ensure
compliance with certain specific
requirements in proposed § 1024.38(c).
Proposed comment 38(a)–1 would
have clarified that the proposed rule
permits servicers to determine the
specific methods by which they will
implement reasonable policies and
procedures to achieve the required
objectives. The proposed comment also
explained that servicers have flexibility
to design the operations that are
reasonable in light of the size, nature,
and scope of the servicer’s operations,
including, for example, the volume and
aggregate unpaid principal balance of
mortgage loans serviced, the credit
quality, including the default risk, of the
mortgage loans serviced, and the
servicer’s history of consumer
complaints. The Bureau noted in the
proposal that it intended that this
clarification would provide servicers
flexibility to design policies and
procedures that are appropriate for their
servicing businesses.
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The Bureau received a handful of
comments on the structure of the
requirements. Industry commenters,
especially credit unions, were generally
supportive of framing the requirements
as objectives-based standards. A trade
association expressed support for the
flexibility included in the rule, but
noted concern that examiners may not
view servicers’ programs flexibly and
instead may ask servicers to change
existing programs based on unpublished
rules. A consumer group commented
that framing the requirements as
objectives-based standards would lead
to inconsistent practices throughout the
mortgage servicing industry.
The Bureau is adopting § 1024.38(a),
which is re-numbered from proposed
§ 1024.38(a)(1), as proposed with nonsubstantive modifications. The Bureau
believes that, due to diversity of servicer
size, infrastructure, and work practices,
flexible objectives-based standards are
best-suited to manage servicers’
operational practices. The Bureau
understands as the commenters suggest
that framing the requirements as
objectives-based standards will lead to
differences between how servicers
implement the objectives, but believes
that objectives-based standards best
balance the burden on the industry with
the protections for consumers.
The Bureau is adopting comment
38(a)–1, as proposed with nonsubstantive modifications to explain
that a servicer may determine the
specific policies and procedures it will
adopt and the methods by which it will
implement those policies and
procedures so long as they are
reasonably designed to achieve the
objectives set forth in § 1024.38(b). A
servicer has flexibility to determine
such policies and procedures and
methods in light of the size, nature, and
scope of the servicer’s operations,
including, for example, the volume and
aggregate unpaid principal balance of
mortgage loans serviced, the credit
quality, including the default risk, of the
mortgage loans serviced, and the
servicer’s history of consumer
complaints. Comment 38(a)–1 clarifies
that servicers may retain existing
procedures or design policies and
procedures that are appropriately
tailored to their operations, as long as
the procedures are reasonably designed
to achieve the important objectives set
forth in § 1024.38(b). The Bureau is also
adopting new comment 38(a)–2 to
clarify the meaning of the term
procedures. As stated in the comment,
the term ‘‘procedures’’ refers to the
actual practices followed by a servicer
for achieving the objectives set forth in
§ 1024.38(b). This comment clarifies
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that the Bureau expects that servicers’
policies and procedures will be
reasonably designed to measure their
ability to achieve the objectives set forth
in § 1024.38 and to make ongoing
improvements to their policies and
procedures to address any deficiencies.
Safe harbor. As discussed above, the
Bureau proposed § 1024.38(a)(2) to
provide a safe harbor for servicers for
non-systemic violations of § 1024.38 to
manage the costs that would arise from
the contemplated litigation risk created
by the contemplated civil liability for
violations of § 1024.38. Proposed
§ 1024.38(a)(2) stated that a servicer
satisfies the requirement in proposed
§ 1024.38(a)(1) if the servicer does not
engage in a pattern or practice of failing
to achieve any of the objectives set forth
in proposed § 1024.38(b) and did not
engage in a pattern or practice of failing
to comply with any of the standard
requirements in proposed § 1024.38(c).
Proposed comment 38(a)(1)–1 would
have provided examples of potential
pattern or practice failures by servicers.
Proposed comment 38(a)(2)–1 would
have provided further clarification
about the operation of the safe harbor.
Comments received by the Bureau
expressed uniform dissatisfaction with
the proposed safe harbor definition.
Industry commenters in general
expressed the concern that the proposed
safe harbor would not sufficiently
insulate them from the large costs that
they said that they would bear due to
the litigation risk they saw embedded in
the proposal as a result of civil liability,
as discussed above in the section-bysection discussion of the legal authority
for § 1024.38. In addition, some industry
commenters stated that the safe harbor
provision, which is based on the lack of
a pattern or practice, would lead to
costly discovery because servicers
would be required to produce large
volumes of documents to establish the
absence of a pattern or practice.
Consumer group commenters also
expressed opposition to the proposed
safe harbor. They commented that the
safe harbor definition would make it
difficult for borrowers to bring
successful civil suits, and urged the
Bureau to eliminate or to revise the safe
harbor to provide relief for more
borrowers. Consumer advocates argued
that borrowers need strong protections
because borrowers cannot select their
servicers.
As discussed above, the Bureau is
adopting final general servicing policies,
procedures, and requirements that are
not enforceable through a private right
of action. As violations of this § 1024.38
no longer carry potential civil liability,
the Bureau does not believe that the
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proposed safe harbor is appropriate to
include in the final rule. The Bureau is
adopting a final rule that does not
include proposed § 1024.38(a)(2) or
proposed comments 38(a)(1)–1 and
38(a)(2)–1. This revision will also allow
the Bureau to protect borrowers through
robust supervision and enforcement of
the servicing policies, procedures, and
requirements set forth in § 1024.38
without having to demonstrate a pattern
or practice of violations.
38(b) Objectives
38(b)(1) Accessing and Providing
Timely and Accurate Information
38(b)(1)(i)
Proposed § 1024.38(b)(1)(i) would
have required that a servicer’s policies
and procedures be reasonably designed
to achieve the objective of providing
accurate and timely disclosures to
borrowers. As stated in the proposal, the
Bureau believed that this was an
important objective to protect borrowers
by making sure that servicers provide
borrowers with accurate and timely
information about their mortgage loan
accounts. Having received no comments
on this provision, the Bureau is
adopting § 1024.38(b)(1)(i), as proposed.
38(b)(1)(ii)
Proposed § 1024.38(b)(1)(ii) would
have required that a servicer’s policies
and procedures be reasonably designed
to achieve the objective of enabling the
servicer to investigate, respond to, and,
as appropriate, correct errors asserted by
borrowers, in accordance with the
procedures set forth in § 1024.35,
including errors resulting from actions
of service providers. A servicer’s ability
to investigate promptly and respond
appropriately to an assertion of error is
necessarily dependent upon the
accuracy of the servicer’s records and on
the ability of the servicer’s employees to
access those records readily. As a result,
the Bureau believed that including this
objective as one of the objectives for a
servicer’s policies and procedures was
an important supplement to the DoddFrank Act error resolution requirements
that are implemented in § 1024.35.
The Bureau received one comment on
proposed § 1024.38(b)(1)(ii). A trade
association urged the Bureau to limit the
applicability of § 1024.38(b)(1)(ii) to
errors submitted pursuant to § 1024.35.
The Bureau declines to adopt the
commenter’s suggestion. In light of the
Bureau’s decision to limit the
applicability of § 1024.35 to notices of
error submitted in writing, as discussed
above in the section-by-section analysis
of § 1024.35, the Bureau has decided to
modify proposed § 1024.38(b)(1)(ii) to
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clarify that a servicer must have policies
and procedures reasonably designed to
respond to complaints asserted by
borrowers, including those complaints
that are not subject to the procedures set
forth in § 1024.35. In particular, the
Bureau believes that the modification is
necessary and appropriate to ensure that
consumers receive prompt and
appropriate responses to oral
complaints even though such
complaints will not trigger the formal
processes under § 1024.35.
The Bureau also is removing the
reference to the actions of service
providers from the text of the rule, and,
instead, is adopting new comment
38(b)(1)(ii)–1 to clarify that policies and
procedures to comply with
§ 1024.38(b)(1)(ii) must be reasonably
designed to provide for promptly
obtaining information from service
providers to facilitate achieving the
objective of correcting errors resulting
from actions of service providers,
including obligations arising pursuant
to § 1024.35.
38(b)(1)(iii)
Proposed § 1024.38(b)(1)(iii) would
have required servicers to develop
policies and procedures reasonably
designed to provide borrowers with
accurate and timely information and
documents in response to borrower
requests for information or documents
related to their mortgage loan accounts
in accordance with the procedures set
forth in § 1024.36. The Bureau believed
that the proposed provision was an
important supplement to the DoddFrank Act information request
requirements that are implemented in
§ 1024.36 because the maintenance of
accurate information regarding mortgage
loan accounts is necessary for a servicer
to respond to requests for information
made by borrowers.
The Bureau received no comments on
§ 1024.38(b)(1)(iii). However, in light of
the Bureau’s decision to limit the
applicability of § 1024.36 to requests for
information submitted in writing, as
discussed above in the section-bysection analysis of § 1024.36, the Bureau
has decided to modify proposed
§ 1024.38(b)(1)(iii) to clarify that a
servicer must have policies and
procedures to provide a borrower with
accurate and timely information and
documents in response to the borrower’s
requests for information with respect to
the borrower’s mortgage loans,
including those requests that are not
asserted in accordance with the
procedures set forth in § 1024.36. In
particular, the Bureau continues to
believe that servicers must have the
capacity to respond to borrowers’
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requests for information reported to
servicers orally, but the Bureau believes
that it is appropriate to allow servicers
to design policies and procedures best
suited to their operations to achieve this
objective. Accordingly, the Bureau is
adopting § 1024.38(b)(1)(iii) with
modifications from the proposal to
broaden the scope of the objective to
include borrower requests for
information or documents with respect
to the borrower’s mortgage loan that are
not encompassed by the written
information request process set forth in
§ 1024.36.
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38(b)(1)(iv)
Proposed § 1024.38(b)(1)(iv) would
have required servicers to establish
policies and procedures reasonably
designed to achieve the objective of
providing owners or assignees of
mortgage loans with accurate and
current information and documents
about any mortgage loans that they own.
As stated in the proposal, the Bureau
believes that to protect borrowers, it is
necessary for owners and assignees to
receive accurate and timely information
about the mortgage loans they own. As
the Bureau stated, owners and assignees
can play an important role in ensuring
that servicers comply with the
requirements of the owner or assignee
which may inure to the benefit of
borrowers.
The Bureau received a comment on
this proposed provision from an
investor, providing types of information
that would benefit investors regarding
loss mitigation evaluations conducted,
and loss mitigation agreements entered
into, by servicers. Having received no
comments on the substance of the
proposed rule, the Bureau is adopting
§ 1024.38(b)(1)(iv), as proposed. The
Bureau is also adopting new comment
38(b)(1)(iv)–1 to clarify the information
and documents contemplated by this
section. Comment 38(b)(1)(iv)–1
provides that the relevant and current
information to owners or assignees of
mortgage loans includes, among other
things, information about a servicer’s
evaluation of borrowers for loss
mitigation options and a servicer’s
agreements with borrowers on loss
mitigation options, including loan
modifications. Such information
includes, for example, information
regarding the date, terms, and features
of loan modifications, the components
of any capitalized arrears, the amount of
any servicer advances, and any
assumptions regarding the value of a
property used in evaluating any loss
mitigation options.
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38(b)(1)(v)
Proposed § 1024.38(b)(1)(v) would
have required that a servicer’s policies
and procedures be reasonably designed
to achieve the objective of enabling the
servicer to submit documents or filings
required for a foreclosure process,
including documents or filings required
by a court of competent jurisdiction,
that reflect accurate and current
information and that comply with
applicable law. The Bureau believes that
it is necessary and appropriate to
protect borrowers from harms resulting
from servicers’ failure to submit
accurate, current, and compliant
documents in foreclosure proceedings.
In issuing the proposed rule, the Bureau
pointed to findings by the Office of the
Comptroller of the Currency that major
servicers demonstrated failures to
document and verify, in accordance
with applicable law, information
relating to borrower mortgage loan
accounts in connection with foreclosure
proceedings.117
The Bureau received a number of
comments on proposed
§ 1024.38(b)(1)(v). State attorneys
general commented that the Bureau
should adopt stricter standards to
ensure the accuracy and validity of
foreclosure documentation, such as the
standards included in the recent
National Mortgage Settlement. In
addition, consumer groups urged the
Bureau to require servicers who are
initiating a foreclosure to provide
documentation to borrowers of the right
of the party initiating the action to
foreclose, including providing evidence
of an enforceable security interest and
verification of supporting statements.
After consideration of the comments,
the Bureau has concluded that the
proposed language already
appropriately addresses the concerns
raised. Section 1024.38(b)(1)(v), as
proposed, requires servicers to develop
policies and procedures reasonably
designed to achieve the objective of
ensuring the accuracy of any documents
filed in foreclosure proceedings, which
would include affidavits or security
instruments, and, therefore, is broad
enough to cover the specific documents
identified in the National Mortgage
Settlement. Specifying particular
documents which must be submitted
accurately, or regulating the particulars
of how documents are prepared and
validated by servicers, would be
117 Failure to Recover: The State of Hous. Mkts.,
Mortg. Servicing Practices and Foreclosures:
Hearings Before the House Comm. on Oversight and
Gov’t Reform, 112th Cong. 4 (2012) (statement of
Morris Morgan, Office of the Comptroller of the
Currency).
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inconsistent with the rule’s broad
objectives-based standards, which, as
discussed above, are designed to
provide flexibility for a wide range of
servicers to develop policies and
procedures that are appropriate to their
business and that will achieve the stated
objectives. Accordingly, the Bureau
declines to adopt a final rule containing
the specific details included in the
National Mortgage Settlement. The
Bureau expects that the court filings of
servicers whose operational and
information management policies and
procedures are reasonably designed to
achieve the objective of
§ 1024.38(b)(1)(v) will be accurate and
authorized by the underlying security
documents.
Second, the Bureau believes that the
information request process defined in
proposed § 1024.36 provides borrowers
in foreclosure with access to the
documentation described by consumer
groups. Specifically, § 1024.36, as
proposed, requires servicers to provide
to borrowers upon their request
information about their mortgage loan
accounts, including their servicing files,
which includes a complete payment
history, a copy of their security
instrument, collection notes, and other
valuable information about their
accounts. Accordingly, the Bureau does
not believe that it is necessary to revise
the proposed language to provide this
protection. For the reasons discussed
above, the Bureau is adopting
§ 1024.38(b)(1)(v), as proposed.
38(b)(1)(vi)
The Bureau’s proposed servicing
operational policies and procedures did
not specifically address a servicer’s
obligations related to successors in
interest upon the death of a borrower.
The Bureau received information about
difficulties faced by surviving spouses,
children, or other relatives who succeed
in the interest of a deceased borrower to
a property that they also occupied as a
principal residence, when that property
is secured by a mortgage loan account
solely in the name of the deceased
borrower. In particular, the Bureau
understands that successors in interest
may encounter challenges in
communicating with mortgage servicers
about a deceased borrower’s mortgage
loan account. The Bureau believes that
it is essential that servicers’ policies and
procedures are reasonably designed to
facilitate communication with
successors in interest regarding a
deceased borrower’s mortgage loan
accounts. Therefore, the Bureau is
adopting § 1024.38(b)(1)(vi) to clarify
that servicers should maintain policies
and procedures that are reasonably
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designed to, upon notification of the
death of a borrower, identify promptly
and facilitate communication with the
successor in interest of the deceased
borrower with respect to the property
secured by the deceased borrower’s
mortgage loan.
38(b)(2) Properly Evaluating Loss
Mitigation Applications
Proposed § 1024.38(b)(2) would have
established a number of objectives
designed specifically to support
servicers’ loss mitigation activities and
to facilitate compliance with various
requirements under proposed § 1024.41.
Specifically, proposed § 1024.38(b)(2)
would have required that a servicer’s
policies and procedures be reasonably
designed to achieve the objective of
enabling the servicer to (i) provide
accurate information to borrowers
regarding loss mitigation options; (ii)
identify all loss mitigation options for
which a borrower may be eligible; (iii)
provide servicer personnel with prompt
access to all documents and information
submitted by a borrower in connection
with a loss mitigation option; (iv) enable
servicer personnel to identify
documents and information that a
borrower is required to submit to make
a loss mitigation application complete;
and (v) enable servicer personnel to
evaluate borrower applications
properly, and any appeals, as
appropriate.
In the proposal, the Bureau expressed
its belief that requiring servicers to have
reasonable policies and procedures to
maintain and manage information and
operations that are designed to enable
the servicer to evaluate borrowers for
loss mitigation options facilitates
compliance with proposed § 1024.41.
Further, such policies and procedures
are likely to protect consumers by
requiring servicers to consider, in
advance of the potential delinquency of
a particular mortgage loan, the loss
mitigation options that are generally
available to borrowers.
While acknowledging that servicers
generally have begun to alter the
manner in which they invest in
infrastructure and are changing their
approach to default management, the
Bureau stated in the 2012 RESPA
Servicing Proposal that it believes that
a requirement to develop reasonable
policies and procedures to enable a
servicer to evaluate loss mitigation
applications imposes a reasonable
burden on servicers that will benefit
delinquent borrowers once the rule
takes effect and will protect borrowers
in future years as servicers transition
from reacting to the current financial
crisis to a more steady market more
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likely to be punctuated by regional
spikes in delinquencies and
foreclosures. Absent regulation,
servicers that have not yet invested in
improving loss mitigation functions may
find less incentive to do so as housing
markets recover, leading to continued
inadequate infrastructure during future
regional or national housing downturns,
which may lead to future borrower
harm. The Bureau requested comment
regarding whether the Bureau had
identified the appropriate objectives
with respect to proposed § 1024.38(b)(2)
and whether objectives should be
removed, or other objectives included,
in the requirements.
Loss mitigation information. Proposed
§ 1024.38(b)(2) would have required that
a servicer’s policies and procedures be
reasonably designed to achieve the
objective of enabling the servicer to (i)
provide accurate information to
borrowers regarding loss mitigation
options; (ii) identify all loss mitigation
options for which a borrower may be
eligible; (iii) provide servicer personnel
with prompt access to all documents
and information submitted by a
borrower in connection with a loss
mitigation option; (iv) enable servicer
personnel to identify documents and
information that a borrower is required
to submit to make a loss mitigation
application complete.118
The Bureau received a small number
of comments on § 1024.38(b)(2).
Consumer advocates supported
proposed § 1024.38(b)(2), and urged the
Bureau to specify that servicers are
required to provide borrowers with a list
of available loss mitigation options.
Trade associations urged the Bureau to
clarify servicers’ obligations in this
section, in particular whether servicers
could limit the information provided to
borrowers to only the loss mitigation
programs that the servicer offers. The
Bureau also received many comments
about the servicers’ obligations to offer
loss mitigation options to borrowers,
which are discussed in detail in the
section-by-section analysis of § 1024.41.
For the reasons discussed above, the
Bureau is adopting §§ 1024.38(b)(2)(i)
through (b)(2)(iv), as proposed with
slight modifications for clarification.
Section 1024.38(b)(2)(ii) clarifies that
the rule envisions that servicers will
develop policies and procedures
reasonably designed to identify with
specificity all loss mitigation options
available for mortgage loans currently
serviced by a mortgage servicer and that
118 Proposed § 1024.38(b)(2)(v), discussed above,
would have required servicers to establish
reasonable policies and procedures that enable
servicer personnel to properly evaluate borrower
applications, and any appeals, as appropriate.
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the mortgage servicer may service in the
future. The Bureau is also adopting new
comment 38(b)(2)(ii)–1, which explains
that servicers must develop policies and
procedures reasonably designed to
enable servicer personnel to identify all
loss mitigation options available for
mortgage loans currently serviced by the
mortgage servicer. For example, a
servicer’s policies and procedures must
be reasonably designed to address how
a servicer specifically identifies, with
respect to each owner or assignee, all of
the loss mitigation options that the
servicer may consider when evaluating
any borrower for a loss mitigation
option and the criteria that should be
applied by a servicer when evaluating a
borrower for such options. In addition,
a servicer’s policies and procedures
must be reasonably designed to address
how the servicer will apply any specific
thresholds for eligibility for a particular
loss mitigation option established by an
owner or assignee of a mortgage loan
(e.g., if the owner or assignee requires
that a servicer only make a particular
loss mitigation option available to a
certain percentage of the loans that the
servicer services for that owner or
assignee, then the servicer’s policies and
procedures must be reasonably designed
to determine in advance how the
servicer will apply that threshold to
those mortgage loans). A servicer’s
policies and procedures must also be
reasonably designed to ensure that such
information is readily accessible to the
servicer personnel involved with loss
mitigation, including personnel made
available to the borrower as described in
§ 1024.40.
To meet the objectives of
§ 1024.38(b)(2)(ii), a servicer will have
to establish policies and procedures that
are reasonably designed to provide
servicer personnel with the ability to
determine, on a loan by loan basis,
which loss mitigation options made
available by the servicer are available to
particular borrowers and to provide that
information to such borrowers. This
objective requires that servicers have
access to accurate information about the
available loss mitigation options for
particular types of loans. The Bureau
anticipates that for servicers that service
mortgage loans held by the servicer or
an affiliate in portfolio, providing access
to the latter category of information will
not present significant burdens with
respect to such mortgage loans as any
such policies likely will be uniformly
set forth by the servicer or affiliate.
Similarly, the Bureau anticipates that
servicers that service mortgage loans
that are included in securitizations
guaranteed by Fannie Mae, Freddie
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Mac, or Ginnie Mae, or insured by FHA
or other government sponsored
insurance programs, will be familiar
with policies that will be set forth by
those entities regarding the
requirements for loss mitigation options
and will be able to make that
information available to servicer
personnel and borrowers. Servicers that
service mortgage loans that are
securitized through private label
securities may need to undertake more
detailed discussions with investors to
identify which, if any, loss mitigation
programs made available by the servicer
are available to borrowers whose
mortgage loans are owned by the
securitization trust pursuant to the
terms of any particular servicing
agreement. However, the Bureau
believes the burden is still reasonable
and will abate over time as the industry
does a better job of clarifying such
issues at the time that the servicing
agreements are first drafted.
The Bureau believes that the final rule
will increase protection for borrowers
by requiring servicers to adopt policies
and procedures reasonably designed to
ensure that servicers consider, in
advance of the potential delinquency of
a particular mortgage loan, the loss
mitigation options that are generally
available to borrowers. Further, the final
rule provides a basis for Bureau
supervision and enforcement regarding
whether servicers are unjustifiably
asserting investor limitations as a basis
for avoiding the work of processing loss
mitigation applications.
Proper evaluation of loss mitigation
applications. Proposed
§ 1024.38(b)(2)(v) would have defined as
an objective of a servicer’s policies and
procedures, the proper evaluation of
loss mitigation applications, and any
appeals, pursuant to the requirements of
proposed § 1024.41. As explained in the
proposal, borrowers who are struggling
to pay their mortgage have a vital
interest in being properly considered for
all available loss mitigation options, and
the ability of servicers to do so is largely
dependent upon servicers establishing
and implementing policies and
procedures that are reasonably designed
to assure that servicer personnel have
prompt and complete access to all
relevant information, including
documents and information submitted
by the borrowers. Proposed § 1024.41, as
discussed below, in turn defined
procedures for evaluating loss
mitigation applications.
Most of the comments received by the
Bureau regarding proposed
§ 1024.38(b)(2)(v) focused on the
procedures set forth in proposed
§ 1024.41. However, in light of the
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comments received, the Bureau is
adopting § 1024.38(b)(2)(v), with
modifications from the proposal to make
clear that the objective of proper
evaluation of a borrower’s application
for a loss mitigation option, or any
appeal, extends to all loss mitigation
options that are potentially available to
the borrower pursuant to any
requirements established by the owner
or assignee of the borrower’s mortgage
loan. As explained below in the sectionby-section analysis of § 1024.41, this
objective is not inconsistent with the
use of a waterfall of loss mitigation
options that an investor or assignee may
establish.
The Bureau is also adopting new
comment 38(b)(2)(v)–1 to clarify that a
servicer is required pursuant to
§ 1024.38(b)(2)(v) to maintain policies
and procedures reasonably designed to
evaluate a borrower for a loss mitigation
option consistent with any owner or
assignee requirements, even where the
requirements of § 1024.41 may be
inapplicable. For example, an owner or
assignee may require that a servicer
implement certain procedures to review
a loss mitigation application submitted
by a borrower less than 37 days before
a foreclosure sale. Further, an owner or
assignee may require that a servicer
implement certain procedures to reevaluate a borrower who has
demonstrated a material change in the
borrower’s financial circumstances for a
loss mitigation option after the
servicer’s initial evaluation. A servicer
must maintain policies and procedures
reasonably designed to implement these
requirements even if such loss
mitigation evaluations may not be
required pursuant to § 1024.41. The
Bureau believes that the final rule will
provide borrowers with greater access to
loss mitigation options and more
transparency into the evaluation
process.
38(b)(3) Facilitating Oversight of, and
Compliance by, Service Providers
Proposed § 1024.38(b)(3) would have
required that a servicer’s policies and
procedures be reasonably designed to
achieve the objective of enabling the
servicer to provide appropriate servicer
personnel with accurate and current
information reflecting actions performed
by service providers, facilitating
periodic reviews of service providers,
and facilitating the sharing of accurate
and current information among servicer
personnel and service providers.
The Bureau explained that proposed
§ 1024.38(b)(3) was designed to address
recent evaluations of mortgage servicer
practices that had found that some
major servicers ‘‘did not properly
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10783
structure, carefully conduct, or
prudently manage their third-party
vendor relationships.’’ 119 For example,
certain servicers supervised by the
Board of Governors of the Federal
Reserve System and the Office of the
Comptroller of the Currency were found
by those agencies to have failed to
monitor third-party vendor foreclosure
law firms’ compliance with the
servicer’s standards or to retain copies
of documents maintained by third-party
law firms.120 Similar failures were
found to be present in connection with
servicer relationships with default
management service providers and
Mortgage Electronic Registration
Systems, Inc. (MERS).121 The Bureau
noted in the proposal that these failures
likely resulted in significant harms for
borrowers, including imposing
unwarranted fees on borrowers and
harms relating to so-called ‘‘dual
tracking’’ from miscommunications
between service providers and servicer
loss mitigation personnel.
The Bureau requested comment
regarding whether the Bureau had
identified the appropriate objectives and
whether objectives should be removed,
or other objectives included, in the
requirements. The Bureau received a
small number of comments proposed
§ 1024.38(b)(3), all of which were
submitted by industry. Commenters
sought clarification about the scope of
proposed § 1024.38(b)(3), including
whether the provision would apply to
vendors used for non-mortgage loan
related tasks and whether the provision
would create an independent obligation
for service providers to comply with
§ 1024.38. Servicers also sought
guidance on how to comply with the
periodic review requirements of
proposed § 1024.38(b)(3)(ii), including
whether compliance with the recent
National Mortgage Settlement or
participation in shared assessment
programs would satisfy a servicer’s
obligations under the proposed rule.
Proposed § 1024.38(b)(3) would have
imposed obligations on servicers with
respect to maintaining and providing
access to information about service
providers, as defined by § 1024.31,
119 Fed. Reserve Sys., Office of the Comptroller of
the Currency & Office of Thrift Supervision,
Interagency Review of Foreclosure Policies and
Practices 9 (2011), available at http://www.occ.gov/
news-issuances/news-releases/2011/nr-occ-2011–
47a.pdf.
120 Fed. Reserve Sys., Office of the Comptroller of
the Currency, & Office of Thrift Supervision,
Interagency Review of Foreclosure Policies and
Practices 9 (2011).
121 Fed. Reserve Sys., Office of the Comptroller of
the Currency, & Office of Thrift Supervision,
Interagency Review of Foreclosure Policies and
Practices 10 (2011).
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discussed above in the section-bysection analysis of that section, which
includes any party retained by a servicer
that interacts with a borrower or
provides a service to a servicer for
which a borrower may incur a fee. The
proposed provision would therefore not
have created obligations with respect to
vendors who do not meet this
definition.
The Bureau is adopting
§ 1024.38(b)(3), as proposed. The
Bureau remains concerned about
servicers’ inadequate oversight of
service providers, and believes that
proposed § 1024.38(b)(3) appropriately
addresses this concern by requiring
servicers to maintain reasonable policies
and procedures, which will provide
servicer personnel with information
about actions of service providers and
facilitate review of service providers.
The Bureau expects that servicers
seeking to demonstrate that their
policies and procedures are reasonably
designed to achieve these objectives will
demonstrate that, in fact, the servicer
has been able to use its information to
oversee its service providers effectively,
such as through a shared assessment
program of the type set forth in the
National Mortgage Settlement.
38(b)(4) Facilitating Transfer of
Information During Servicing Transfers
Proposed § 1024.38(b)(4) would have
required that a servicer’s policies and
procedures be reasonably designed to
achieve the objective of ensuring the
timely transfer of all information and
documents relating to a transferred
mortgage loan to a transferee servicer in
a form and manner that enables the
transferee servicer to comply with the
requirements of subpart C and the terms
of the transferee servicer’s contractual
obligations to owners or assignees of the
mortgage loans. Further, proposed
§ 1024.38(b)(4) would have provided an
objective that a transferee servicer shall
have documents and information
regarding the status of discussions with
a borrower regarding loss mitigation
options, any agreements with a
borrower for a loss mitigation option,
and any analysis with respect to
potential recovery from a nonperforming mortgage loan, as
appropriate (typically called a final
recovery determination).
In proposing § 1024.38(b)(4), the
Bureau expressed concern that servicing
transfers could give rise to potential
harms to consumers. Transferee
servicers may experience problems
relating to inaccurate transfer of past
payment information, failures of the
transferor servicer to transfer documents
provided to it by a borrower or others,
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and inaccurate transfer of information
relating to loss mitigation discussions
with borrowers. Borrowers engaged in
loss mitigation efforts may be
transferred to transferee servicers that
have no knowledge of the existence or
status of the loss mitigation efforts.
The Bureau explained in the proposal
that it believed it is a typical servicer
duty for servicers to be able to effectuate
sales, assignments, and transfers of
mortgage servicing in a manner that
does not adversely impact borrowers.
Servicers generally should expect that
servicing may be sold, assigned, or
transferred for certain loans they
service. Servicers may owe a duty to
investors to ensure that mortgage
servicing can be transferred without
adversely impacting the value of the
investor’s asset. The Bureau stated that
it believes it is appropriate for servicers
to establish policies and procedures
reasonably designed to achieve the
objective of ensuring that in the event of
any such transfer, documents and
information regarding mortgage loan
accounts are identified and transferred
to a transferee servicer in a manner that
permits the transferee servicer to
continue providing appropriate service
to the borrower.
The Bureau requested comments
regarding whether the Bureau had
identified the appropriate objectives and
whether objectives should be removed,
or other objectives included, in the
requirements. The Bureau received a
small number of comments on proposed
§ 1024.38(b)(4). Consumer advocates
and some industry expressed support
for the proposal. Other commenters
asked for clarification about what the
proposal would require, including
whether transferor servicers must
transfer all of the servicing file elements
and whether the rule would require
transferor servicers to obtain documents
outside of the transferor servicers’
possession or control. Servicers also
asked for clarification about whether the
rule would allow servicers to transfer
files electronically.
In addition, the Bureau has received
information that consumers often face
difficulty enforcing a loss mitigation
agreement reached with a transferor
servicer prior to transfer with the
transferee servicer. The Bureau has
learned that transferee servicers often
fail to request complete information
about loss mitigation agreements from
transferor servicers, and instead require
borrowers to provide that
documentation.
The Bureau is adopting
§ 1024.38(b)(4)(i), renumbered from
proposed § 1024.38(b)(4), with
modifications to address those
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comments. The Bureau has revised the
proposal to add language to clarify that
a transferor servicer’s objectives
regarding facilitating transfer relate only
to documents within the transferor
servicer’s possession or control and that
the transfer of information and
documents must be in a form and
manner that enables a transferee
servicer to comply with obligations both
under the terms of the mortgage loan
and with applicable law. The Bureau is
also removing the language concerning
the transfer of information regarding
loss mitigation discussions with
borrowers from the text of proposed
§ 1024.38(b)(4) and, instead, is
including new comment 38(b)(4)(i)–2,
which clarifies the transferor servicer’s
obligation under § 1024.38(b)(4)(i) to
establish policies and procedures
reasonably designed to ensure that the
transfer includes any information
reflecting the current status of
discussions with a borrower regarding
loss mitigation options, any agreements
entered into with a borrower on a loss
mitigation option, and any analysis by
a servicer with respect to potential
recovery from a non-performing
mortgage loan, as appropriate.
To address industry’s comments
about the manner in which transferor
servicers may effectuate the transfer of
documents and information, the Bureau
is adopting new comment 38(b)(4)(i)–1,
which clarifies that a transferor
servicer’s policies and procedures may
provide for transferring documents and
information electronically provided that
the transfer is conducted in a manner
that is reasonably designed to ensure the
accuracy of the information and
documents transferred and that enables
a transferee servicer to comply with its
obligations to the owner or assignee of
the loan and with applicable law. For
example, transferor servicers must have
policies and procedures for ensuring
that data can be properly and promptly
boarded by a transferee servicer’s
electronic systems and that all necessary
documents and information are
available to, and can be appropriately
identified by, a transferee servicer.
The Bureau is also adopting
§ 1024.38(b)(4)(ii) to more clearly define
objectives for transferee servicers.
Section 1024.38(b)(4)(ii) defines as an
objective of a transferee servicer’s
reasonable policies and procedures
identifying necessary documents or
information that may not have been
transferred by a transferor servicer and
obtaining such documents from the
transferor servicer. Comment
38(b)(4)(ii)–1 explains that a transferee
servicer must have policies and
procedures reasonably designed to
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ensure, in connection with a servicing
transfer, that the servicer receives
information regarding any loss
mitigation discussions with a borrower,
including any copies of loss mitigation
agreements. Further, the comment
clarifies that the transferee servicer’s
policies and procedures must address
obtaining any such missing information
or documents from a transferor servicer
before attempting to obtain such
information from a borrower.
The Bureau is also adopting
§ 1024.38(b)(4)(iii) to clarify that the
obligations set forth in § 1024.38(b)(4)
apply to circumstances when the
performance of servicing of a mortgage
loan is transferred, but the right to
perform servicing of a mortgage loan is
not transferred, such as a transfer
between a master servicer and a
subservicer or between subservicers.
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38(b)(5) Informing Borrowers of Written
Error Resolution and Information
Request Procedures
As discussed above in the section-bysection analysis of § 1024.33, the Bureau
is adopting a requirement for the
servicing transfer notice that no longer
requires a statement informing
borrowers of the error resolution
procedures required by existing
§ 1024.21(d)(3)(vii). To address concerns
raised by commenters about the
proposed revision of the transfer
servicing notice, as discussed above, the
Bureau is adopting § 1024.38(b)(5) to
require servicers to maintain policies
and procedures reasonably designed to
achieve the objective of informing
borrowers about the procedures for
submitting written notices of error set
forth in § 1024.35 and written requests
for information set forth in § 1024.36.
The Bureau is also adopting new
comment 38(b)(5)–1 to clarify the
manner in which a servicer may inform
borrowers about the procedures for
submitting written notices of errors set
forth in § 1024.35 and for submitting
written requests for information set
forth in § 1024.36. The Bureau is also
adopting new comment 38(b)(5)–2 to
clarify that a servicer’s policies and
procedures required by § 1024.38(b)(5)
must be reasonably designed to provide
information to borrowers who are not
satisfied with the resolution of a
complaint or request for information
submitted orally about the procedures
for submitting written notices of error
set forth in § 1024.35 and for submitting
written requests for information set
forth in § 1024.36.
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38(c) Standard Requirements
38(c)(1) Record Retention
Proposed § 1024.38(c)(1) would have
required a servicer to retain records that
document actions taken with respect to
a borrower’s mortgage loan account
until one year after a mortgage loan is
paid in full or servicing of a mortgage
loan is transferred to a successor
servicer. When issuing the proposed
rule, the Bureau observed that proposed
§§ 1024.35 and 1024.36 would have
required servicers to respond to notices
of error and information requests
provided up to one year after a mortgage
loan is paid in full or servicing of a
mortgage loan is transferred to a
successor servicer. The Bureau also
noted that it believes that the record
retention requirement was necessary for
servicer compliance with obligations set
forth in §§ 1024.35 and 1024.36. The
Bureau also proposed to eliminate the
systems of record keeping set forth in
current § 1024.17(l), which required
servicers to retain copies of documents
related to borrower’s escrow accounts
for five years after the servicer last
serviced the escrow account, which is
likely to be close in time to when a
mortgage loan is paid in full or servicing
of a mortgage loan is transferred to a
successor servicer. Further, the Bureau
observed that servicers will require
accurate information for the life of the
mortgage loan to provide accurate
payoff balances to borrowers or to
exercise a right to foreclose. The Bureau
requested comment regarding whether
servicers should be required to retain
documents and information relating to a
mortgage file until one year after a
mortgage loan is paid in full or servicing
of a mortgage loan is transferred to a
successor servicer and the potential
burden of this requirement.
The Bureau received a handful of
comments on proposed § 1024.38(c)(1).
Consumer advocates urged the Bureau
to extend the retention period from one
year to five years to ensure that
documents were available for discovery
in civil litigation. Two servicers argued
that the one year retention period would
impose too great a cost on servicers.
Another servicer commented that it
agreed with the proposed one year
retention period. A trade association
also urged the Bureau to clarify that
contractual rights to access records
possessed by another entity would
satisfy the servicer’s requirements under
this provision.
The Bureau is adopting
§ 1024.38(c)(1), as proposed. The Bureau
believes that servicers should retain
records that document actions taken by
the servicer with respect to a borrower’s
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mortgage loan account until one year
after the date the mortgage loan is
discharged or servicing of a mortgage
loan is transferred by the servicer to a
transferee servicer. As the Bureau stated
in the proposal, the Bureau believes that
the record retention requirement is
necessary for servicer compliance with
obligations set forth in §§ 1024.35 and
1024.36. Further, the Bureau believes
that servicers require accurate
information for the life of the mortgage
loan to provide accurate payoff balances
to borrowers or to exercise a right to
foreclose. Requiring servicers to retain
records until one year after the transfer
or payoff of a mortgage loan may impose
some marginal increase in the servicer’s
compliance burden in the form of
incremental storage costs, but the
Bureau believes that this burden is
reasonable in light of the considerable
benefits to borrowers. Moreover, the
retention period is necessary to ensure
that the Bureau and other regulators
have an opportunity to supervise
servicers’ compliance with applicable
laws effectively. The Bureau declines to
adopt the longer period suggested by
commenters. The Bureau believes that
the final rule adequately addresses the
commenters’ concerns about the
availability of documents for discovery
by requiring retention of documents
throughout the life of the loan and for
one year following the payoff or transfer
of servicing.
To clarify the methods that servicers
may utilize to retain records, the Bureau
is adopting new comment 38(c)(1)–1
that explains that retaining records that
document actions taken with respect to
a borrower’s mortgage loan account does
not necessarily mean actual paper
copies of documents. The records may
be retained by any method that
reproduces the records accurately
(including computer programs) and that
ensures that the servicer can easily
access the records (including a
contractual right to access records
possessed by another entity).
38(c)(2) Servicing File
Proposed § 1024.38(c)(2) would have
required servicers to create a single
servicing file for each mortgage loan
account containing (1) a schedule of all
payments credited or debited to the
mortgage loan account, including any
escrow account as defined in
§ 1024.17(b) and any suspense account;
(2) a copy of the borrower’s security
instrument; (3) any collection notes
created by servicer personnel reflecting
communications with borrowers about
the mortgage loan account; (4) a report
of any data fields relating to a
borrower’s mortgage loan account
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created by a servicer’s electronic
systems in connection with collection
practices, including records of
automatically or manually dialed
telephonic communications; and (5)
copies of any information or documents
provided by a borrower to a servicer in
accordance with the procedures set
forth in §§ 1024.35 or 1024.41. The
proposal also would have required that
servicers provide borrowers with copies
of the servicing file in accordance with
the procedures set forth in § 1024.36.
In the proposal, the Bureau expressed
concern that many large servicers
maintained documents and information
related to a borrower’s mortgage loan
account in disparate systems and that
this practice has led servicers to have
difficulty identifying all necessary
information regarding a borrower’s
mortgage loan account, including
collector’s notes, payment histories,
note and deed of trust documents, and
account debit and credit information,
including escrow account information.
Proposed § 1024.38(c)(2) would have
required servicers to aggregate into a
single system a servicing file for each
mortgage loan account, containing the
specific information described above.
The Bureau solicited comment
regarding whether servicers should be
required to provide copies of a defined
servicing file to a borrower upon request
and on the burden of adopting this
requirement. Further, the Bureau
requested comment regarding whether
the Bureau had identified the
appropriate components of a servicing
file and whether certain categories of
documents and information should be
included or removed from the proposed
requirement. The comments that the
Bureau received are described in detail
below.
Providing copies of the servicing file
to borrowers upon request. Proposed
§ 1024.38(c)(2) would have required
servicers to provide a borrower with a
copy of a servicing file, containing
specifically listed elements, for the
borrower’s mortgage loan account, in
accordance with the procedures set
forth in § 1024.36. The Bureau received
a large number of comments on that
aspect of the proposal.
The majority of the comments on
proposed § 1024.38(c)(2) came from
industry, and demonstrated confusion
about the proposed provision. Industry
commenters generally misunderstood
the proposed provision as a requirement
to provide borrowers with copies of
their servicing files not subject to the
procedures for information requests set
forth in § 1024.36. Some servicers
explicitly urged the Bureau to subject
requests for servicing files to the
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procedural requirements of the
information requests defined in
§ 1024.36. In addition, given this
misunderstanding, industry comments
urged the Bureau to adopt limits on
borrowers’ requests for servicing files to
protect servicers from burdensome or
duplicative requests. Servicers also
suggested that the Bureau eliminate
certain elements of the servicing file,
such as payment histories, collection
notes, and data fields, because they
claimed that those elements would be
too voluminous to provide to borrowers.
A large servicer also urged the Bureau
to allow flexibility in how servicers
provide the information to borrowers,
such as allowing borrowers to access the
servicing file via a Web site.
Servicers also expressed concern that
the proposed provision might require
them to disclose privileged or
proprietary information to borrowers. In
particular, many commenters pointed to
collection notes and data fields as
elements potentially containing
privileged or proprietary information.
Some comments also focused on a
perceived litigation risk from providing
copies of the servicing file to borrowers.
Two comments cautioned that
borrowers and their attorneys could use
the request for the servicing file to
obtain information normally only
available to borrowers through courtordered discovery in litigation.
Commenters also stated that collection
notes and data fields were created for
strictly internal purposes, and would
confuse borrowers, which might lead to
litigation.
Consumer groups expressed support
for providing borrowers with copies of
their servicing files upon request.
Consumer advocates noted that they
specifically supported providing
borrowers with a copy of a record of all
payments credited to the account upon
request and the data fields identifying
the owner or assignee of the mortgage
loan account. Also, one consumer
advocate noted that the schedule of
payments should include all payments
made during the life of the loan and not
just payments made to the current
servicer.
To address the commenters’
confusion about the relationship
between proposed §§ 1024.38(c)(2) and
1024.36, the Bureau has removed the
requirement to provide borrowers with
copies of their servicing file from the
language of proposed § 1024.38(c)(2).
Instead, the Bureau is adopting new
comment 38(c)(2)–2 that clarifies that
§ 1024.38(c)(2) does not confer upon any
borrower an independent right to access
information contained in the servicing
file and that upon receipt of a
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borrower’s request for a servicing file, a
servicer shall provide the borrower with
a copy of the information contained in
the servicing file for the borrower’s
mortgage loan, subject to the procedures
and limitations set forth in § 1024.36.
This revision does not alter the
substance of proposed § 1024.38(c)(2).
Aggregation of servicing file. Proposed
§ 1024.38(c)(2) would have required that
servicers provide a defined set of
information and data, i.e. a serving file,
to borrowers upon request. Commenters
interpreted this provision to require that
servicers aggregate the elements of the
servicing file defined in this section into
a single file or information management
system. Industry commenters, especially
community banks, and credit unions,
expressed concern about the potential
implementation burden of aggregating
the information regarding each borrower
into a single system. Some of these
commenters explained that their
existing information systems stored
some of the elements of the servicing
file in separate systems. Some of these
commenters also stated that their
existing systems had not led to
problems identified in the proposal, and
urged the Bureau not to mandate that
servicers with sound existing
information management systems
rebuild those systems to satisfy the
technical details in the regulation.
The intent of the servicing file
requirement in proposed § 1024.38(c)(2)
was to prevent harm to borrowers and
to investors by requiring servicers to
have the capacity to access key
information about a mortgage loan
quickly. However, the Bureau
recognizes that there are multiple ways
to achieve this objective. The Bureau
also does not want needlessly to require
servicers with existing systems that
work well to dismantle those systems by
adopting an overly prescriptive
regulatory framework. In light of the
comments that the Bureau received, the
Bureau is adopting § 1024.38(c)(2) with
modifications to allow flexibility for the
manner in which a servicer maintains a
servicing file. Under the final rule,
§ 1024.38(c)(2) requires servicers to
maintain a specific defined set of
documents and data on each mortgage
loan account serviced by the servicer in
a manner that facilitates compiling such
documents and data into a servicing file
within five days. The Bureau believes
that the final rule appropriately
balances the benefits to borrowers and
to investors by ensuring that servicers
have ready access to all of the
information necessary to service
mortgage loan accounts with the
flexibility required to enable servicers to
design information management
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systems that correspond to the servicers’
existing information management
practices.
Content of servicing file. Proposed
§ 1024.38(c)(2) would have required
servicers to create a single servicing file
for each mortgage loan account
containing, (i) a schedule of all
payments credited or debited to the
mortgage loan account, including any
escrow account as defined in
§ 1024.17(b) and any suspense account;
(ii) a copy of the borrower’s security
instrument; (iii) any collection notes
created by servicer personnel reflecting
communications with borrowers about
the mortgage loan account; (iv) a report
of any data fields relating to a
borrower’s mortgage loan account
created by a servicer’s electronic
systems in connection with collection
practices, including records of
automatically or manually dialed
telephonic communications; and (v)
copies of any information or documents
provided by a borrower to a servicer in
accordance with the procedures set
forth in §§ 1024.35 or 1024.41.
The Bureau received several
comments on this aspect of the
proposal. Consumer advocates
highlighted their support for the
requirement that servicers maintain a
servicing file that includes a copy of the
security instrument and the complete
payment history. Some servicers
commented that the Bureau should limit
the payment history requirement due to
the costs associated with maintaining a
payment history for the life of the
mortgage loan, especially with respect
to partial payments. A large servicer
urged the Bureau to delay
implementation of this proposed
provision to allow the Bureau to test
what fields should be contained in a
servicing file. Industry comments also
noted that some servicers’ existing files
do not contain all of the required
elements.
Some servicers also asked for
clarification about the requirements for
certain elements of the servicing file. A
few servicers also asked for clarification
about what type of communications
with borrowers must be recorded in the
collection notes, and in particular,
whether a servicer must record
communications with borrowers
unrelated to mortgage loans. A few
industry commenters asked the Bureau
to clarify the data fields the servicer
must maintain, described in proposed
§ 1024.38(c)(2)(iv).
As described above, the Bureau
believes the interests of borrowers are
best served if servicers are quickly able
to access certain key information
regarding a borrower’s mortgage loan
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account, including a schedule of all
transactions credited or debited to the
mortgage loan account, including any
escrow account as defined in
§ 1024.17(b) and any suspense account,
a copy of the security instrument that
establishes the lien securing the
mortgage loan, any notes created by
servicer personnel reflecting
communications with borrowers about
the mortgage loan account, data fields as
defined by § 1024.38(c)(2)(iv), and
copies of any information or documents
provided by the borrower to the
servicers in accordance with the
procedures set forth in §§ 1024.35 or
1024.41. Therefore, the Bureau declines
to remove any of the proposed elements
from the servicing file definition. Also,
the flexibility added to the final rule for
servicers to determine how best to store
the elements of the servicing file
reduces the implementation burden on
servicers. Therefore, for the reasons
discussed above, the Bureau is adopting
the elements of the servicing file in
§ 1024.38(c)(2), with minor technical
adjustments, as proposed.
To address commenters’ confusion
about the information described in
proposed § 1024.38(c)(iv), the Bureau is
adopting new comment 38(c)(2)(iv)–1.
Comment 38(c)(2)(iv)–1 clarifies that a
report of the data fields relating to the
borrower’s mortgage loan account
created by the servicer’s electronic
systems in connection with servicing
practices means a report listing the
relevant data fields by name, populated
with any specific data relating to the
borrower’s mortgage loan account.
Comment 38(c)(2)(iv)–1 also provides
examples of data fields relating to a
borrower’s mortgage loan account
created by the servicer’s electronic
systems in connection with servicing
practices including fields used to
identify the terms of the borrower’s
mortgage loan, fields used to identify
the occurrence of automated or manual
collection calls, fields reflecting the
evaluation of a borrower for a loss
mitigation option, fields used to identify
the owner or assignee of a mortgage
loan, and any credit reporting history.
Also, § 1024.38(c)(2)(iii) only requires
servicers to maintain any notes created
by servicer personnel reflecting
communications with a borrower about
the mortgage loan account.
The Bureau also is adopting comment
38(c)(2)–1 to address commenters’
confusion about the applicability of the
servicing file requirements to existing
servicer documents and information.
Comment 38(c)(2)–1 explains that a
servicer complies with § 1024.38(c)(2) if
it maintains information in a manner
that facilitates compliance with
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§ 1024.38(c)(2) beginning on or after
January 10, 2014. A servicer is not
required to comply with § 1024.38(c)(2)
with respect to information created
prior to January 10, 2014.
Section 1024.39 Early Intervention
Requirements for Certain Borrowers
Background
Proposed § 1024.39 would have
required servicers to provide delinquent
borrowers with two notices. First,
proposed § 1024.39(a), would have
required servicers to notify or make
good faith efforts to notify a borrower
orally that the borrower’s payment is
late and that loss mitigation options
may be available, if applicable.
Servicers would have been required to
take this action not later than 30 days
after the payment due date, unless the
borrower satisfied the payment during
that period. Second, proposed
§ 1024.39(b) would have required
servicers to provide a written notice
with information about the foreclosure
process, housing counselors and the
borrower’s State housing finance
authority, and, if applicable,
information about loss mitigation
options that may be available to the
borrower. Servicers would have been
required to provide the written notice
not later than 40 days after the payment
due date, unless the borrower satisfied
the payment during that period. These
two notices were designed primarily to
encourage delinquent borrowers to work
with their servicer to identify their
options for avoiding foreclosure.
While a number of industry
commenters supported the overall
objective of encouraging communication
between servicers and delinquent
borrowers, many commenters,
particularly small servicers, requested
that the Bureau not issue regulations
that are not required by the express
provisions of the Dodd-Frank Act, citing
compliance burden and the potential for
overwhelming and confusing borrowers.
Some industry commenters were
concerned that the breadth of the
definition of ‘‘Loss mitigation options’’
would require servicers to offer options
or take actions inconsistent with
investor or guarantor requirements. One
industry commenter suggested, as an
alternative to early intervention, that all
borrowers be required to receive
education about mortgages earlier in the
process, before they become delinquent.
Another stated that the Bureau’s early
intervention requirements would be
ineffective because borrowers would not
open mail or respond to phone calls.
Consumer advocacy groups were
uniformly in favor of both an oral and
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written notice requirement. One
consumer advocacy group explained
that an oral and written notice
requirement would help homeowners
identify late payments quickly and
engage in loss mitigation earlier to avoid
foreclosure. Several consumer advocacy
groups who submitted a joint comment
stated that the Bureau was justified in
proposing early intervention, explaining
that early intervention is already an
industry norm under GSE guidelines,
the National Mortgage Settlement, and
HAMP, which have standards for
multiple phone calls and written notices
at the early stages of a delinquency.
These commenters also cited research
that showed borrowers have a lower redefault rate the earlier they are reached
in their delinquency.
However, most consumer advocacy
groups requested that the Bureau
require servicers to provide more
information about the foreclosure
process and loss mitigation options than
the Bureau had proposed to require.
Many consumer advocacy groups
recommended that the Bureau require
servicers to provide information about
all loss mitigation options potentially
available to borrowers through the
proposed oral and written notices. One
mortgage investor commenter supported
the Bureau’s policy goal of requiring
servicers to engage more actively with
delinquent borrowers about loss
mitigation options. This commenter also
recommended that the final rule require
that servicers maintain adequate staffing
levels with respect to delinquent loans,
maintain frequent contact with
borrowers to remind borrowers of
available options, review them for such
options, and provide a user-friendly and
up-to-date Web site on which borrowers
could locate servicer contact
information.
Industry commenters questioned
whether the Bureau’s rules were
necessary in light of recent State and
Federal remediation efforts, such as the
National Mortgage Settlement and
various consent agreements with bank
regulators. One credit union trade
association believed that the Bureau’s
proposed requirements were too rigid
and would be ineffective, while another
indicated that the early intervention
requirements would not present issues
because many of its affiliated members
would be able to modify their current
procedures without much difficulty.
However, other industry trade
associations and a nonprofit servicer
indicated that, while most servicers
already perform some form of early
intervention, their programs are not
identical to the Bureau’s proposal, and
that compliance would require
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adjustments to or formalization of
servicer policies and procedures that
may not necessarily be suited to a
borrower’s particular circumstances.
Several industry commenters expressed
concern that the Bureau’s rules overlap
and could conflict with existing State
and Federal law.122 With respect to
addressing potential conflicts between
the Bureau’s rules and existing State
and Federal law as well as existing
industry practice, commenters
identified a variety of ways the Bureau
could provide relief, including by not
adopting rules that exceed or otherwise
conflict with existing requirements,
providing safe harbors (such as by
clarifying that compliance with existing
laws and agreements satisfies 1024.39),
adopting more flexible standards,
providing exemptions, including a
mechanism in the rule to resolve
compliance conflicts, or broadly
preempting State laws.
Trade associations, smaller servicers,
credit unions, and rural creditors
subject to Farm Credit Administration
rules generally requested exemptions
from the early intervention
requirements, citing a ‘‘high-touch’’
customer service model, problems with
internalizing compliance costs relative
to larger servicers, and potential
conflicts arising from complying with
conflicting sets of rules. Small servicers
and credit unions expressed concern
that higher compliance costs would
make it difficult to maintain high levels
of customer service.123 A reverse
mortgage trade association requested an
exemption from the early intervention
requirements because of the unique
nature of reverse mortgage products and
because the majority of reverse
mortgages made in the current market
are FHA Home Equity Conversion
Mortgages already subject to specific
requirements.
The Bureau has considered the
comments submitted but continues to
believe that rules governing early
intervention are warranted. As the
Bureau explained in its proposal, the
Bureau believes that a servicer’s
delinquency management plays a
significant role in whether the borrower
cures the delinquency or ends up in
122 For example, one credit union trade
association identified a Michigan law that generally
requires that, before a foreclosing party proceeds to
foreclosure, it must provide borrowers with a notice
containing information about foreclosure avoidance
options and housing counselors. See Mich. Comp.
Laws 600.3205a.
123 One nonprofit servicer requested that the
Bureau clarify how the early intervention
requirements would apply if, as the Bureau
proposed, small servicers are exempt from the
periodic statement requirement in Regulation Z.
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foreclosure.124 For a variety of reasons,
at least among the larger players,
servicers have not been consistent in
managing delinquent accounts to
provide borrowers with an opportunity
to avoid foreclosure. In addition,
incentives remain that may discourage
these larger servicers from addressing a
delinquency quickly as servicers may
profit from late fees.125 The Bureau also
explained that delinquent borrowers
may not make contact with servicers to
discuss their options because they may
be unaware that they have options 126 or
that their servicer is able to assist
them.127 There is risk to borrowers who
do not make contact with servicers and
remain delinquent; the longer a
borrower remains delinquent, the more
difficult it can be to avoid
foreclosure.128 By requiring early
124 See Diane Thompson, Foreclosing
Modifications: How Servicer Incentives Discourage
Loan Modifications, 86 Wash. L. Rev. 755, 768
(2011); Kristopher Gerardi & Wenli Li, Mortgage
Foreclosure Prevention Efforts, 95 Fed. Reserve
Bank of Atlanta Econ. Rev., 1, 8–9 (2010); Michael
A. Stegman et al., Preventative Servicing is Good for
Business and Affordable Homeownership Policy, 18
Housing Policy Debate 243, 274 (2007). See also
part VII of the final rule.
125 See, e.g., The Need for National Mortgage
Servicing Standards: Hearing Before the Subcomm.
on Hous., Transp., & Comm. Affairs of the Senate
Comm. on Banking and Urban Affairs, 112th Cong.
72–73 (2011) (statement of Diane Thompson); see
generally Diane Thompson, Foreclolsing
Modifications, 86 Wash. L. Rev. 755 (2011). The
Bureau is aware that the GSEs and other programs,
such as HAMP, align servicer incentives to
encourage early intervention. See, e.g., Fannie Mae,
Single-Family Servicing Guide, Part VII § 602.04.05
(2012); Freddie Mac, Single-Family Seller/Servicer
Guide, Volume 2, Ch. 65.42 (2012); U.S. Dep’t of
Treasury & U.S. Dep’t of Hous. & Urban Dev.,
Making Home Affordable Program Handbook,106
(December 15, 2011). Through this rulemaking, the
Bureau intends to make early intervention a
uniform minimum national standard and part of
established servicer practice.
126 See, e.g., Are There Government Barriers to
the Housing Recovery? Hearing Before the
Subcomm. on Ins., Hous., and Comm. Opportunity
of the House Comm. on Fin. Services, 112th Cong.
50–51 (2011) (statement of Phyllis Caldwell, Chief,
Homeownership Preservation Office, U.S. Dep’t. of
the Treasury); Freddie Mac, Foreclosure Avoidance
Research II: A Follow-Up to the 2005 Benchmark
Study 8 (2008), available at http://
www.freddiemac.com/service/msp/pdf/
foreclosure_avoidance_dec2007.pdf; Freddie Mac,
Foreclosure Avoidance Research (2005), available
at http://www.freddiemac.com/service/msp/pdf/
foreclosure_avoidance_dec2005.pdf.
127 See Office of the Comptroller of the Currency,
Foreclosure Prevention: Improving Contact with
Borrowers, Insights (June 2007), available at
http://www.occ.gov/topics/communityaffairs/
publications/insights/insights-foreclosureprevention.pdf.
128 See, e.g., John C. Dugan, Comptroller, Office
of the Comptroller of the Currency, Remarks Before
the NeighborWorks America Symposium on
Promoting Foreclosure Solutions (June 25, 2007),
available at http://www.occ.gov/news-issuances/
speeches/2007/pub-speech-2007-61.pdf; Laurie S.
Goodman et al., Amherst Securities Group LP,
Modification Effectiveness: The Private Label
Experience and Their Public Policy Implications
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intervention with delinquent borrowers,
the Bureau has sought to correct
impediments to borrower-servicer
communication so that borrowers have
a reasonable opportunity to avoid
foreclosure at the early stages of a
delinquency. As the Bureau recognized
in its proposal, not all delinquent
borrowers may respond to servicer
outreach or pursue available loss
mitigation options. However, the Bureau
believes that the notices will ensure, at
a minimum, that covered borrowers
have an opportunity to do so at the early
stages of a delinquency.
The Bureau notes that the 2013
HOEPA Final Rule implements, among
other things, RESPA section 5(c)
requiring lenders to provide applicants
of federally related mortgage loans with
a list of homeownership counseling
providers. Thus, borrowers will receive
information to access counseling
services at the time of application. In
addition, the 2013 HOEPA Final Rule
requires that applicants for ‘‘high cost’’
mortgages receive counseling prior to
obtaining credit. While pre-mortgage
counseling will help ensure borrowers
understand the costs involved in
obtaining a mortgage, borrowers who
become delinquent may not know that
they have options for avoiding
foreclosure unless the servicer notifies
them.
The Bureau understands that private
lenders and investors, Fannie Mae and
Freddie Mac, and Federal agencies, such
as FHA and VA, already have early
intervention servicing standards in
place for delinquent borrowers.129
However, servicers may vary as to how
forthcoming they are in providing
borrowers who are behind on their
mortgage payments with options other
than to pay only what is owed. The
(June 19, 2012), at 5–6; Michael A. Stegman et al.,
Preventative Servicing, 18 Hous. Policy Debate 245
(2007); Amy Crews Cutts & William A. Merrill,
Interventions in Mortgage Default: Policies and
Practices to Prevent Home Loss and Lower Costs
11–12 (Freddie Mac, Working Paper No. 08–01,
2008).
129 HUD and the VA have promulgated
regulations and issued guidance on servicing
practices for loans guaranteed or insured by their
programs. See 24 CFR 203 subpart C (HUD); U.S.
Hous. & Urban Dev., Handbook 4330.1 rev–5, Ch.
7; 38 CFR Ch. 1 pt. 36, Subpt. A. Fannie Mae &
Freddie Mac have established recommended
servicing practices for delinquent borrowers in their
servicing guidelines and align their modification
incentives with the number of days the mortgage
loan is delinquent when the borrower enters a trial
period plan. See Fannie Mae, Single-Family
Servicing Guide, 700–1 (2012); Fannie Mae,
Outbound Call Attempts Guidelines (Oct. 1, 2011),
available at https://www.efanniemae.com/home/
index.jsp; Fannie Mae, Letters and Notice
Guidelines (Apr. 25, 2012), available at https://
www.efanniemae.com/home/index.jsp; Freddie
Mac, Single-Family Seller/Servicer Guide, Vol. 2,
Ch. 64–69 (2012).
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Bureau’s goal with respect to its early
intervention requirements is to identify
consumer protection standards that are
now best practices but were not
consistently applied during the recent
financial crisis and to apply these across
the market, subject to exemptions
identified in § 1024.30(b) and the scope
limitation of § 1024.30(c)(2), to ensure
that servicers are providing delinquent
borrowers with a meaningful
opportunity to avoid foreclosure.
In light of comments received on the
proposal, the Bureau has revised the
proposed early intervention
requirements to provide servicers with
additional flexibility. Proposed
§ 1024.39(a) would have required
servicers to notify, or make good faith
efforts to notify, delinquent borrowers
orally that loss mitigation options, if
applicable, may be available by the 30th
day of their delinquency. Under the
proposal, servicers that make loss
mitigation options available to
borrowers would generally have been
required to notify delinquent borrowers
of the availability of such options not
later than the 30th day of their
delinquency.
The final rule does not require
servicers to provide this notice to all
borrowers and does not require servicers
to inform borrowers of options that are
not available from the owner or
investor. Instead, under § 1024.39(a),
servicers must establish or make good
faith efforts to establish live contact
with a delinquent borrower by the 36th
day of the borrower’s delinquency. Live
contact includes telephoning or
conducting an in-person meeting with
the borrower. In addition, under
§ 1024.39(a), promptly after establishing
live contact, servicers must inform the
borrower about the availability of loss
mitigation options if appropriate.
Among other changes, the final rule
includes commentary that clarifies that
it is within a servicer’s reasonable
discretion to determine whether such a
notice is appropriate under the
circumstances. Commentary to the final
rule also provides a more flexible good
faith efforts standard that would permit
servicers to comply by encouraging the
borrower through written or electronic
communication to make contact with
the servicer. These changes are intended
to help ensure servicers make efforts to
contact delinquent borrowers who
would be interested in learning about
loss mitigation options and, at the same
time, avoid causing servicers to spend
resources notifying borrowers about loss
mitigation options the servicer has
reason to believe would not benefit from
being informed of such options.
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10789
The final rule includes a written
notice requirement similar to the one
proposed at § 1024.39(b), but the Bureau
has sought to mitigate compliance
burden without undermining the
protection of an early written notice by
extending the deadline for providing the
notice from 40 to 45 days of a
borrower’s delinquency to align with
other notices that servicers may already
provide to borrowers at that time. The
Bureau has sought to develop flexible
early intervention requirements to
accommodate existing practices and
requirements to avoid servicers having
to duplicate existing early intervention
practices. For example, if servicers are
required by other laws to provide a
notice that includes the content
required by § 1024.39(b)(2) and if
servicers may provide such notice
within the first 45 days of a borrower’s
delinquency, the Bureau does not
believe servicers would need to provide
each notice separately.
The Bureau has further sought to
accommodate existing practices by
providing clarifying commentary to
§ 1024.39(b)(1) that servicers may
combine notices that may already meet
the content requirements of
§ 1024.39(b)(2) into a single mailing. In
addition, comment 39(b)(2)–1 explains
that the written notice contains
minimum content requirements for the
written notice and that a servicer may
provide additional information that the
servicer determines would be helpful or
which may be required by applicable
law or the owner or assignee of the
mortgage loan. The Bureau has included
this comment, in part, to accommodate
similar notices that servicers may
already be providing. Further, to assist
with compliance, the Bureau has also
developed model clauses, which the
Bureau has tested with the assistance of
Macro. A servicer’s appropriate use of
the model clauses will act as a safe
harbor for compliance.
While the Bureau has designed its
early intervention requirements to
provide flexibility to servicers that
already have early intervention
practices in place or that are complying
with external existing requirements, the
Bureau acknowledges that some of the
new requirements may not align
perfectly with all existing practices. To
address actual conflicts with State or
Federal law, the Bureau has included
new § 1024.39(c), which, as discussed in
more detail below, provides that
nothing in § 1024.39 shall require a
servicer to make contact with a
borrower in a manner that would be
prohibited under applicable law. The
Bureau believes this approach to
conflicting laws is preferable to
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preempting other laws. Because
§ 1024.39 require servicers to
proactively contact borrowers, the
Bureau is concerned that preempting
laws might override those that protect
delinquent borrowers from certain
contacts (e.g., debt collection laws).
In addition, the Bureau is granting
exemptions for small servicers as
defined in 12 CFR 1026.41(e)(4);
servicers with respect to any reverse
mortgage transaction as that term is
defined in § 1024.31; and servicers with
respect to any mortgage loan for which
the servicer is a qualified lender as that
term is defined in 12 CFR 617.7000. See
the section-by-section analysis of
§ 1024.30(b) above. The Bureau is
further limiting the application of
§§ 1024.39 through 41 to mortgage loans
that are secured by a borrower’s
principal residence, as discussed in
more detail in the section-by-section
analysis of § 1024.30(c)(2) above.
The Bureau is not mandating that
servicers maintain specific staffing
levels to perform early intervention with
delinquent borrowers, but the Bureau
notes that, under § 1024.38, servicers
must maintain policies and procedures
reasonably designed to achieve the
objective of properly evaluating
borrowers for loss mitigation options.
The Bureau is not requiring servicers to
maintain a Web site for delinquent
borrowers to provide early intervention
information because the Bureau believes
such a requirement may be burdensome
for all servicers and is unnecessary in
light of the written notice at
§ 1024.39(b), which includes contact
information for servicer continuity of
contact personnel assigned pursuant to
§ 1024.40(a).
The Bureau declines to grant an
exemption from the early intervention
requirements with respect to borrowers
who have ceased making payments for
the past six months and have not
contacted their servicer. To the extent
loss mitigation options are available for
such borrowers, the Bureau believes
these borrowers should be so informed
in accordance with § 1024.39(a) and (b).
Further, the Bureau believes servicers
should make good faith efforts to
establish live contact with borrowers
who may be reluctant to reach out
before taking action that may result in
the loss of the borrower’s home. In
addition, the Bureau believes these
borrowers would benefit from
information about how to contact their
servicer as well as information about
how to access housing counseling
resources.
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Legal Authority
The Bureau proposed to implement
§ 1024.39 pursuant to authority under
sections 6(k)(1)(E), 6(j)(3), and 19(a) of
RESPA. Violations of section 6 of
RESPA are subject to a private right of
action. Industry commenters, including
the GSEs, industry trade associations,
and several large bank servicers were
concerned that a private right of action
would result in uncertainty for servicers
and could delay loss mitigation efforts
and the foreclosure process if a
borrower claimed it did not receive a
timely notice required by the Bureau’s
rules. Commenters indicated that
increased litigation costs would limit
access to and increase the cost of credit
to borrowers. One commenter was
concerned that a private right of action
would result in loss mitigation being
perceived as a substantive right. Instead,
commenters requested that the Bureau
issue the early intervention and other
loss mitigation provisions solely in
reliance on RESPA section 19(a)
authority.
The Bureau has considered industry
comments but continues to rely on
RESPA section 6 authority as a basis for
the Bureau’s early intervention
requirements under § 1024.39. The
Bureau does not believe § 1024.39 will
result in loss mitigation being treated as
a substantive right because it sets forth
procedural requirements only. As
finalized, § 1024.39 does not require
servicers to offer any particular loss
mitigation option to any particular
borrower. The live contact requirement
under § 1024.39(a) requires servicers to
notify borrowers of the availability of
loss mitigation options ‘‘if appropriate’’;
associated commentary clarifies that it
is within a servicer’s reasonable
discretion to determine whether it is
appropriate to inform borrowers of such
options. The written notice requirement
under § 1024.39(b)(2)(iii) requires
servicers to inform borrowers, ‘‘if
applicable,’’ of examples of loss
mitigation options available through the
servicer. Nothing in § 1024.39 affects
whether a borrower is permitted as a
matter of contract law to enforce the
terms of any contract or agreement
between a servicer and an owner or
assignee of a mortgage loan.
In addition, the Bureau has taken
steps to clarify requirements in the rule,
which the Bureau believes will help
avoid uncertainty for servicers and help
minimize litigation risk and compliance
costs arising from a private right of
action associated with RESPA section 6.
For example, the final rule omits the
proposed oral notice requirement under
proposed § 1024.39(a) and instead
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requires that servicers establish or make
good faith efforts to establish live
contact with borrowers and, promptly
after establishing live contact, inform
borrowers of the availability of loss
mitigation options ‘‘if appropriate.’’
Comment 39(a)–3.i explains that it is
within a servicer’s reasonable discretion
to determine whether informing a
borrower about the availability of loss
mitigation options is appropriate under
the circumstances; the comment also
includes illustrative examples to assist
with compliance. While this guidance
should provide servicers with some
degree of certainty around compliance,
the Bureau recognizes there may be
limited situations that are less clear; in
these cases, however, servicers could
avoid compliance risk by informing
borrowers of loss mitigation options.
Comment 39(a)–3.ii explains that a
servicer may inform borrowers about the
availability of loss mitigation options
either through an oral or written
communication. The final rule also
provides servicers with more flexibility
in satisfying the good faith efforts
standard; servicers may demonstrate
compliance by providing written or
electronic communication encouraging
borrowers to establish live contact with
their servicer. In addition, with respect
to the written notice under § 1024.39(b),
the final rule includes model clauses
and clarifies in commentary that
servicers may provide additional
information about loss mitigation
options not included in the model
clauses. Further, the final rule includes
flexible minimum content requirements
for the written notice that will assist
servicers in accommodating existing
disclosures and other related disclosure
requirements.
The Bureau does not believe that the
risk of a private right of action will
negatively impact access to, or cost of,
credit. The requirements under
§ 1024.39 include clear procedural
requirements as well as protections for
a servicer’s exercise of reasonable
discretion. Further, the requirements
have been implemented to reduce
compliance burden and provide clear
rules capable of efficient
implementation by servicers, including
through the use of model clauses.
Accordingly, the Bureau believes that
the early intervention rules under
§ 1024.39 provide necessary consumer
protections and that servicers are
capable of providing such protections
without negative consequences for
borrowers, including with respect to
access to, or cost of, credit.
The Bureau is adopting § 1024.39
pursuant to its authorities under
sections 6(j)(3), 6(k)(1)(E), and 19(a) of
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RESPA. As explained in more detail
below, the Bureau finds, consistent with
RESPA section 6(k)(1)(E), that § 1024.39
is appropriate to achieve the consumer
protection purposes of RESPA,
including to help borrowers avoid
unwarranted or unnecessary costs and
fees and to facilitate review of borrowers
for foreclosure avoidance options. For
the same reasons, § 1024.39 is
authorized under section 6(j)(3) of
RESPA as necessary to carry out section
6 of RESPA, and under section 19(a) of
RESPA as necessary to achieve the
purposes of RESPA, including
borrowers’ avoidance of unwarranted or
unnecessary costs and fees and the
facilitation of review of borrowers for
foreclosure avoidance options.
The Bureau is also adopting § 1024.39
pursuant to its authority under section
1022(b) of the Dodd-Frank Act to
prescribe regulations necessary or
appropriate to carry out the purposes
and objectives of Federal consumer
financial laws, including the purposes
and objectives of Title X of the DoddFrank Act. Specifically, the Bureau
believes that § 1024.39 is necessary and
appropriate to carry out the purpose
under section 1021(a) of the Dodd-Frank
Act of ensuring that markets for
consumer financial products and
services are fair, transparent, and
competitive, and the objectives under
section 1021(b) of the Dodd-Frank Act
of ensuring that consumers are provided
with timely and understandable
information to make responsible
decisions about financial transactions,
and markets for consumer financial
products and services operate
transparently and efficiently to facilitate
access and innovation. The Bureau
additionally relies on its authority
under section 1032(a) of the Dodd-Frank
Act, which authorizes the Bureau to
prescribe rules to ensure that the
features of any consumer financial
product or service, both initially and
over the term of the product or service,
are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances. Consistent
with section 1032(b) of the Dodd-Frank
Act, the model clauses at appendix MS–
4 have been validated through consumer
testing.
39(a) Live Contact
Proposed § 1024.39(a)
Proposed § 1024.39(a) would have
required that, if a borrower is late in
making a payment sufficient to cover
principal, interest, and, if applicable,
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escrow, the servicer must, not later than
30 days after the missed payment, notify
or make good faith efforts to notify the
borrower that the payment is late and
that loss mitigation options, if
applicable, may be available. Proposed
§ 1024.39(a) also provided that if the
servicer attempts to notify the borrower
by telephone, good faith efforts would
require calling the borrower on at least
three separate days in order to reach the
borrower. The Bureau explained in the
section-by-section analysis of the
proposed rule that the ‘‘if applicable’’
qualification in proposed § 1024.39(a)
meant that servicers that do not make
any loss mitigation options available to
borrowers would not be required to
notify borrowers that loss mitigation
options may be available.
The Bureau had proposed to clarify
through comment 39(a)–1.i that the oral
notice would have to be made through
live contact or good faith efforts to make
live contact with the borrower, such as
by telephoning or meeting in-person
with the borrower, and that oral contact
does not include a recorded message
delivered by phone. Proposed comment
39(a)–1.ii would have clarified that a
servicer is not required to describe
specific loss mitigation options, and that
the servicer need only inform the
borrower that loss mitigation options
may be available, if applicable. The
comment also would have clarified that
a servicer may provide more detailed
information that the servicer believes
would be helpful. Proposed comment
39(a)–2 clarified that, in order to make
a good faith effort by telephone, the
servicer must complete the three phone
calls attempting to reach the borrower
by the end of the 30-day period after the
payment due date.
The Bureau received significant
comment on the proposed oral notice
from consumer advocacy groups, trade
associations, credit unions, community
banks, rural servicers, large banks, nonbank servicers, and individual
consumers. Consumer advocacy groups
and two residential real estate trade
associations were generally supportive
of an oral notice requirement. One
coalition of consumer advocacy groups
explained that a mandatory phone call
or visit would alert borrowers that loss
mitigation options may be available and
give borrowers an opportunity to ask
questions and gather accurate
information about the borrower’s rights
and responsibilities. Several consumer
advocacy groups and individual
consumers supported an oral notice
requirement because it would permit
borrowers to engage in an interactive
conversation with servicers about their
rights and responsibilities surrounding
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10791
loss mitigation. A number of consumer
advocacy groups, however, requested
that the Bureau require that servicers
provide more information about loss
mitigation options than the notice set
forth in proposed § 1024.39(a). These
commenters recommended that
servicers notify borrowers of all loss
mitigation options that may be
available, including application
instructions and deadlines, and
information about the foreclosure
process at the time of the oral notice.
Several consumer advocacy groups also
recommended that the Bureau delete
proposed comment 39(a)–1.ii, which
explained that a servicer need not
describe specific loss mitigation options
during the oral notice and that the
servicer need only inform borrowers
that loss mitigation options may be
available, if applicable.
Industry commenters expressed
concern about the circumstances under
which servicers would be required to
notify borrowers about loss mitigation
options. These commenters explained
that a servicer’s offer of loss mitigation
depends on not only the stage of a
borrower’s delinquency but also the
nature of the delinquency, as well as
other circumstances, pursuant to
investor or guarantor guidelines and
could be perceived as misleading for
borrowers who are ultimately ineligible
based on owner or investor
requirements. These commenters,
including one Federal agency, also
expressed concern that informing
borrowers of loss mitigation options that
are inappropriate for short-term
delinquencies could impede the
resolution of delinquent loans by
discouraging borrowers from resolving a
short-term delinquency they could have
cured on their own. Industry
commenters also asserted that notifying
borrowers about loss mitigation options
too early would be confusing or
perceived as potentially harassing for
those borrowers at low risk of default.
In addition, several commenters cited
concerns that requiring early
intervention for low-risk borrowers
would detract from helping high-risk
borrowers. To address these concerns,
they requested that the Bureau clarify
the circumstances under which
servicers would be required to notify
borrowers that loss mitigation options
may be available. In particular, several
commenters requested that the Bureau
clarify that, before providing the notice
regarding loss mitigation options, a
servicer may first determine whether a
borrower is experiencing a short- or
long-term delinquency, and that
servicers be permitted to pursue
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collection efforts in the case of shortterm delinquencies.
Industry commenters also expressed
concern with demonstrating compliance
with the oral notice requirement,
particularly in light of the possibility of
a private right of action under RESPA
section 6, which the Bureau relied on as
a source of legal authority for proposed
§ 1024.39. Rural, community bank, and
credit union servicers recommended
against an oral notice requirement
because such requirements are difficult
to track and verify, would require
systems reprogramming or upgrades,
may be misunderstood by borrowers,
and would not guarantee establishing
contact with borrowers. One community
bank commenter stated that a simple
delinquency notice should suffice,
without a need to have a live
conversation about loss mitigation
options. Several rural and credit union
servicers indicated that staffing and
resource limitations would make it
difficult to reach borrowers after normal
work hours, when most borrowers are
available by phone. One industry
commenter recommended that the
Bureau mandate in-person outreach in
addition to the oral and written notice
requirements while another industry
commenter asked that the Bureau clarify
that this provision does not mandate inperson outreach.
Several industry commenters and
individual consumers recommended
that other forms of contact, such as text
messages or email should be permitted,
but not required, to satisfy good faith
efforts, or that email should be
permitted in lieu of live contact. These
commenters noted that a more flexible
approach, such as permitting written or
other forms of electronic contact, would
help reach borrowers and address
compliance issues because written
methods are more easily tracked.
Several industry commenters requested
that the Bureau permit servicers to
engage in any form of contact that is
reasonable under the circumstances.
One industry commenter suggested that
servicers should be permitted to leave a
recorded message instead of three phone
calls.
By contrast, a number of consumer
advocacy groups stated that the good
faith effort standard as proposed was
reasonable, although some
recommended that servicers be required
to engage in more efforts to contact the
borrower, such as by attempting to
contact borrowers on every telephone
number on record in order to reach the
borrower and by requiring that servicers
leave a message when servicers have
that option. Some consumer advocacy
groups recommended that servicers be
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required to leave a message when a
borrower’s telephone number provided
a voicemail option, while an industry
commenter indicated there may be
privacy concerns with respect to any
potential requirement for notices to be
provided via text or email.
Final § 1024.39(a)
After considering comments on the
proposal, the Bureau is revising the
proposed oral notice requirement into a
live contact requirement permits
servicers to exercise reasonable
discretion in determining whether
informing delinquent borrowers of the
availability of loss mitigation options is
appropriate under the circumstances.
The Bureau is also adjusting the timing
of the contact requirement from the
proposed 30-day timeframe to 36 days.
Under § 1024.39(a), a servicer must
establish or make good faith efforts to
establish live contact with a delinquent
borrower not later than the 36th day of
the borrower’s delinquency and,
promptly after establishing live contact,
inform such borrower about the
availability of loss mitigation options ‘‘if
appropriate.’’ The Bureau has added
comment 39(a)–3.i to clarify that it is
within a servicer’s reasonable discretion
to determine whether informing a
borrower about the availability of loss
mitigation options is appropriate under
the circumstances. To illustrate,
comment 39(a)–3.i provides examples
demonstrating when a servicer has
made a reasonable determination
regarding the appropriateness of
providing information about loss
mitigation options. Comment 39(a)–
3.i.A illustrates a scenario in which a
servicer provides information about the
availability of loss mitigation options to
a borrower that notifies a servicer
during live contact of a material adverse
change in the borrower’s financial
circumstances that is likely to cause the
borrower to experience a long-term
delinquency for which loss mitigation
options may be available. Comment
39(a)–3.i.B illustrates a scenario in
which a servicer does not provide
information about the availability of loss
mitigation options to a borrower who
has missed a January 1 payment and
notified the servicer that full late
payment will be transmitted to the
servicer by February 15.
The Bureau is adopting a modified
version of the proposed oral notice in
§ 1024.39(a) because the Bureau agrees
that a prescriptive requirement to
provide an oral notice for all delinquent
borrowers, where loss mitigation
options were available, within the first
30 days of a delinquency would be
overbroad. The Bureau observes that the
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oral notice as proposed would not have
required servicers to offer options in a
manner that is inconsistent with
investor or guarantor requirements
because servicers would only have had
to notify borrowers that loss mitigation
options, if applicable, ‘‘may’’ be
available; servicers would not have been
required to provide information about or
offer options that the servicer did not
already offer. However, the Bureau
recognizes the potential for borrower
confusion if servicers are required in
every instance to notify borrowers who
are experiencing short-term
delinquencies of available loss
mitigation options if these borrowers
ultimately are unlikely to need or be
eligible for such options. The Bureau
agrees that providing the notice within
the first 30 days of a borrower’s
delinquency may be unwarranted if a
borrower would not ultimately qualify
based on investor or guarantor
requirements or for whom loss
mitigation options are unnecessary,
such as for borrowers who are
experiencing a short-term cash-flow
problem. As the Bureau noted in its
proposal, borrowers who are 30 days
delinquent generally present a lower
risk for default, (compared to borrowers
with more extended delinquencies), and
such borrowers typically resolve their
delinquency without the assistance of
loss mitigation options.130
Nonetheless, while many borrowers
who miss a payment will be able to selfcure within 30 days, some portion of
these borrowers are likely to fall further
behind on their payments, and the
Bureau believes servicers should make
efforts to inform such borrowers that
help is available. As the Bureau noted
in its proposal, evidence suggests that
one of the barriers to communication
between borrowers and servicers is that
borrowers do not know that servicers
may be helpful or that they have options
to avoid foreclosure, and that as a result
of these barriers, borrowers may not
know that help is available until too
late, when it can be more difficult to
cure a delinquency. Although borrowers
may receive notice of loss mitigation
options through other written notices,
such as the written early intervention
notice proposed at § 1024.39(b),
borrowers may be reluctant to contact a
130 See, e.g., Amy Crews Cutts & William A.
Merrill, Interventions in Mortgage Default: Policies
and Practices to Prevent Home Loss and Lower
Costs 10 (Freddie Mac, Working Paper No. 08–01,
2008) (explaining that, in one study, there was a
‘‘significant cure rate out of the 30-day delinquency
population without servicer intervention,’’ but that
‘‘as the time in delinquency increases so does the
hurdle the borrower has to overcome to reinstate
the loan and the importance of calling the
servicer’’).
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servicer on their own but would
nonetheless benefit from early
notification that help is available. By
establishing early live contact with
borrowers, servicers would be able to
begin working with the borrower to
develop appropriate relief at the early
stages of a delinquency. The Bureau
recognizes that, by giving servicers
flexibility to determine whether it is
appropriate under the circumstances to
notify borrowers about loss mitigation
options, there is some risk that
servicers, despite their reasonable
exercise of discretion, may incorrectly
determine a borrower is experiencing a
short-term delinquency. The Bureau
believes that, on balance, the potential
that delinquent borrowers may remain
uninformed of their options is mitigated
by the requirement in § 1024.39(b)(1),
discussed below, to provide a written
notice not later than the 45th day of a
borrower’s delinquency.
Proposed comment 39(a)–1.i would
have clarified that the proposed oral
notice would have to be made through
live contact or good faith efforts to make
live contact, such as by telephoning or
conducting an in-person meeting with
the borrower, but not leaving a recorded
message. The final rule adopts proposed
comment 39(a)–1.i substantially as
proposed, which the Bureau has
renumbered as comment 39(a)–2 for
organizational purposes. Final comment
39(a)–2 includes guidance appearing in
proposed comment 39(a)–1.i about the
meaning of live contact, but omits
reference to the notice required under
1024.39(a) because, as discussed
immediately below, the final rule does
not require servicers to inform
borrowers of the availability of loss
mitigation options under § 1024.39(a)
during live contact. Final comment
39(a)–2 further clarifies that a servicer
may, but need not, rely on live contact
established at the borrower’s initiative
to satisfy the live contact requirement in
§ 1024.39(a). Final comment 39(a)–2
also explains that live contact provides
servicers an opportunity to discuss the
circumstances of a borrower’s
delinquency.
The Bureau has added comment
39(a)–3.ii to clarify that, if appropriate,
servicers may inform borrowers about
the availability of loss mitigation
options orally, in writing, or through
electronic communication, but that
servicers must provide such information
promptly after the servicer establishes
live contact. This comment is intended
to provide servicers flexibility in
notifying borrowers about loss
mitigation options at the early stages of
delinquency. The Bureau believes
establishing initial live contact is
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important for a servicer to learn about
the circumstances for a borrower’s
delinquency and to determine whether
it is appropriate under the
circumstances to inform borrowers
about the availability of loss mitigation
options. The Bureau believes that
providing borrowers with initial notice
about the availability of loss mitigation
options may be accomplished through
an oral conversation or information
delivered in writing, as long as it is
provided promptly after the servicer
establishes live contact, if appropriate.
Comment 39(a)–3.ii further explains
that a servicer need not notify a
borrower about any particular loss
mitigation options promptly after the
servicer determines that a borrower
should be informed of loss mitigation
options; a servicer need only inform a
borrower generally that loss mitigation
options may be available. This comment
is substantially similar to proposed
comment 39(a)–1.ii. The Bureau is not
requiring that servicers to provide
detailed information about all loss
mitigation options, application
deadlines, or foreclosure timelines
because not all borrowers may benefit
from such a conversation at the time of
this contact. Further, the Bureau
believes the continuity of contact
provisions at § 1024.40 will serve to
provide borrowers with access to
personnel who can assist them with loss
mitigation options. Comment 39(a)–3.ii
also explains that, if appropriate, a
servicer may satisfy the requirement in
§ 1024.39(a) to inform a borrower about
loss mitigation options by providing the
written notice required by
§ 1024.39(b)(1), but the servicer must
provide such notice promptly after the
servicer establishes live contact. The
Bureau believes that the written notice
that must be provided by the 45th day
of a borrower’s delinquency pursuant to
§ 1024.39(a) provides sufficient
information about the availability of loss
mitigation options.
Good Faith Efforts
The Bureau agrees with commenters
who assert that servicers should be
permitted to engage in a wide variety of
methods of contacting borrowers who
may be difficult to reach by telephone.
Accordingly, in the final rule, the
Bureau has developed a more flexible
good faith efforts standard. Proposed
§ 1024.39(a) would have provided that,
if the servicer attempts to notify the
borrower about loss mitigation options
by telephone, good faith efforts would
require calling the borrower on at least
three separate days in order to reach the
borrower. The final rule does not define
good faith efforts to establish live
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contact by identifying a particular
number of days to reach the borrower.
Instead, comment 39(a)–2 clarifies that
good faith efforts to establish live
contact consist of reasonable steps
under the circumstances to reach a
borrower and may include telephoning
the borrower on more than one occasion
or sending written or electronic
communication encouraging the
borrower to establish live contact with
the servicer.
The Bureau believes that, by
permitting servicers to satisfy the good
faith efforts standard through a wider
variety of methods, servicers will be
able to reach borrowers who may be
difficult to reach by phone, particularly
if a servicer does not have access to a
borrower’s mobile phone or if a
borrower is unreachable by phone
during the day. In addition, permitting
servicers to satisfy the good faith efforts
standard through written or electronic
communication encouraging the
borrower to establish live contact
addresses servicer concerns about
tracking and compliance risks
associated with the proposed oral notice
requirement.
Although the Bureau is permitting
servicers to contact borrowers through a
variety of means, the Bureau is not
requiring servicers to contact borrowers
through every means of contact possible
because it would be difficult, if not
impossible, to satisfy such a standard.
The Bureau is not requiring servicers to
leave a voicemail message when such an
option is available because such a
requirement may implicate privacy
concerns. The Bureau is not adopting a
requirement mandating that servicers
establish in-person contact or so-called
‘‘field calls’’ to the borrower’s residence.
While such methods of contact may be
effective methods of reaching
delinquent borrowers, the Bureau
believes telephone calls are equally, if
not more effective in certain
circumstances, and mandating an inperson contact requirement would be
unduly burdensome for most servicers.
Of course, a servicer could choose to
establish live contact through in-person
meetings.
36th Day of Delinquency
Proposed § 1024.39(a) would have
required servicers to provide the oral
notice not later than 30 days after a
payment due date. In light of comments
received, the Bureau is not adopting the
30-day timeframe in proposed
§ 1024.39(a) and instead is adopting a
requirement that a servicer establish live
contact not later than the 36th day of a
borrower’s delinquency to determine
whether to inform such borrower that
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loss mitigation options may be
available.
Industry commenters stated that
providing notices too early would be
unnecessary for borrowers capable of
curing a short-term delinquency or for
borrowers at low risk of default, and
that providing notice of loss mitigation,
in such circumstances, may interfere
with sound delinquency management. A
variety of servicers and trade
associations recommended that the
Bureau extend the deadline to 40 or 45
days and one trade association
recommended that the Bureau extend
the deadline to 60 days to provide
servicers with maximum flexibility. One
industry commenter indicated that a 30day timeframe would be burdensome for
servicers that honor a 15-day grace
period because it would only leave
servicers only 15 days to satisfy the
good faith efforts standard. Trade
associations, community banks, and
rural lenders were concerned that the
Bureau’s requirements might be
duplicative of or not perfectly aligned
with existing requirements. Some
commenters requested that the Bureau
create an exemption from the 30-day
deadline for servicers that employ a
behavior modeling tool. In contrast,
consumer advocacy groups requested
that the Bureau maintain the 30-day
period and include more information in
the oral notice. One consumer advocate
recommended that borrowers be
notified about their options as soon as
their account is deemed delinquent by
the servicer.
In the final rule, the Bureau is
retaining a deadline by which a servicer
must establish or make good faith efforts
to establish live contact, but the Bureau
is adjusting the timing of the deadline
from the 30-day period originally
proposed to a 36-day period. As the
Bureau recognized in its proposal,
certain borrowers may be temporarily
delinquent because of an accidental
missed payment, a technical error in
transferring funds, a short-term payment
difficulty, or some other reason. These
borrowers may be able to cure a
delinquency without a servicer’s efforts
to make live contact. Thus, if the
borrower fully satisfies the payment
before the end of the 36-day period, the
servicer would not be required to
establish live contact or otherwise
comply with § 1024.39(a). Proposed
comment 39(a)–4 explained that a
servicer would not be required to notify
or make good faith efforts to notify a
borrower unless the borrower remains
late in making a payment during the 30day period after the payment due date.
A similar comment appears in
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39(a)–1.iv, revised to reflect the new 36day period.
As the Bureau noted in its proposal,
there is risk to borrowers as a result of
a delay in notifying borrowers that loss
mitigation options may be available;
research indicates that the longer a
borrower remains delinquent, the more
difficult it can be to avoid
foreclosure.131 At the same time, the
Bureau understands that a significant
portion of borrowers who become
delinquent are able to self-cure within
30 days of a missed payment.
The government-sponsored
enterprises generally recommend that
servicers initiate phone calls for
borrowers who have missed a payment
by the 16th day after a payment due
date, although calling campaigns for
high-risk borrowers must begin by the
third day after a due date.132 In general,
calls must occur every three days
through day 36 of delinquency, and
follow-up calls are required after
borrower solicitation packages have
been sent. Other standards, such as
HAMP 133 and the National Mortgage
Settlement,134 typically provide for the
131 See, e.g., John C. Dugan, Comptroller, Office
of the Comptroller of the Currency, Remarks Before
the NeighborWorks America Symposium on
Promoting Foreclosure Solutions (June 25, 2007);
Laurie S. Goodman et al., Amherst Securities Group
LP, Modification Effectiveness: The Private Label
Experience and Their Public Policy Implications 5–
6 (June 19, 2012); Michael A. Stegman et al.,
Preventative Servicing, 18 Hous. Policy Debate 245
(2007); Amy Crews Cutts & William A. Merrill,
Interventions in Mortgage Default: Policies and
Practices to Prevent Home Loss and Lower Costs
11–12 (Freddie Mac, Working Paper No. 08–01,
2008).
132 Freddie Mac recommends servicers contact
borrowers within three days of a missed payment,
unless the servicers use a behavior modeling tool
that would support an alternate approach. Fannie
Mae recommends servicers contact ‘‘high risk’’
borrowers within three days of a missed payment;
campaigns for non-high-risk borrowers should
begin within 16 days of a missed payment. See
Fannie Mae, Single-Family Servicing Guide 700–1
(2012); Fannie Mae, Outbound Call Attempts
Guidelines (Oct. 1, 2011), available at https://
www.efanniemae.com/home/index.jsp; Fannie Mae,
Letters and Notice Guidelines (Apr. 25, 2012),
available at https://www.efanniemae.com/home/
index.jsp.
133 Under HAMP, servicers must pre-screen all
first lien mortgage loans where two or more
payments are due and unpaid (at least 31 days
delinquent). Servicers must proactively solicit for
HAMP any borrower whose loan passes this prescreen, unless the servicer has documented that the
investor is not willing to participate in HAMP. See
U.S. Dep’t of Treasury & U.S. Dep’t of Hous. &
Urban Dev., MHA Handbook version 51 (June 1,
2011).
134 ‘‘Servicer shall commence outreach efforts to
communicate loss mitigation options for first lien
mortgage loans to all potentially eligible delinquent
borrowers (other than those in bankruptcy)
beginning on timelines that are in accordance with
HAMP borrower solicitation guidelines set forth in
the MHA Handbook version 3.2, Chapter II, Section
2.2, regardless of whether the borrower is eligible
for a HAMP modification.’’ National Mortgage
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commencement of outreach efforts to
communicate loss mitigation options for
potentially eligible borrowers after two
missed payments. For FHA-insured
mortgages, HUD has a general
requirement to contact borrowers with
FHA-insured mortgages by telephone
between the 17th day of delinquency
and the end of the month.135 However,
HUD Mortgagee Letter 98–18 provides
that, at the lender’s discretion following
a formal risk assessment, borrowers
with FHA loans at low risk for
foreclosure may be contacted by phone
by the 45th day of delinquency.
The Bureau is adjusting the timing by
which a servicer must establish live
contact from 30 to 36 days to be more
consistent with GSE outbound call
guidelines, HAMP, and the National
Mortgage Settlement, and to give
borrowers more time to cure a
delinquency before a servicer attempts
to establish live contact. In addition, a
36-day deadline would help servicers
screen for delinquent borrowers who
regularly pay late, by permitting
servicers to identify borrowers at risk of
missing two payment deadlines before
attempting efforts to contact them. The
Bureau understands that servicers may
not be able to complete an initial
eligibility evaluation prior to the
deadline for contact (potentially within
five days after a second missed payment
due date). However, the Bureau’s rule
would only require servicers to establish
or make good faith efforts to establish
live contact with borrowers and inform
such borrowers of the availability of loss
mitigation options promptly after
establishing live contact ‘‘if
appropriate.’’ Where a servicer
determines that it would be appropriate
to inform a borrower about the
availability of such options, comment
39(a)–3.ii clarifies that a servicer need
not notify borrowers about specific loss
mitigation options under 1024.39(a), but
only that loss mitigation options may be
available. In addition, even if servicers
have not completed an initial eligibility
evaluation by the time of oral contact,
the Bureau believes delinquent
borrowers would still benefit from
hearing about any other loss mitigation
options for which they may be eligible.
The Bureau believes a 36-day standard
would be consistent with the Settlement
terms requiring servicers to commence
outreach efforts after the second missed
Settlement: Consent Agreement A–23 (2012)(Loss
Mitigation Communications with Borrowers),
available at http://
www.nationalmortgagesettlement.com.
135 See U.S. Hous. & Urban Dev., Handbook
4330.1 REV–5, ch. 7, para. 7–7B, available at
http://portal.hud.gov/hudportal/documents/
huddoc?id=DOC_14710.pdf.
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payment. Under § 1024.39(a), servicers
must establish or make good faith efforts
to establish live contact with borrowers
by the 36th day of delinquency, which
would occur after a second missed
payment is due. Moreover, servicers
need not inform borrowers of the
availability of loss mitigation options at
the time of establishing live contact (if
appropriate); § 1024.39(a) requires that
they do so promptly after establishing
live contact. The Bureau declines to
adopt a requirement to contact
borrowers as soon as they become
delinquent because the Bureau believes
such a requirement would be overbroad,
as discussed above.
The Bureau declines to adopt a
general 40- or 45-day standard for all
borrowers because the Bureau believes
borrowers who may be experiencing the
early stages of a long-term delinquency
are, on balance, likely to benefit from
earlier contact, and the Bureau believes
that by the 36th day of a delinquency,
servicers would know whether a
borrower has missed two payments
(subject only to the possibility that the
payment will be received before the
expiration of the grace period for the
second payment). The Bureau believes
that borrowers who miss two payments
generally will present a greater financial
risk than borrowers who are only one
month late. The Bureau believes
servicers should be required to establish
live contact, or make good faith efforts
to do so, not later than several days after
a borrower has missed a second
payment due date so the servicer may
begin to learn about the circumstances
of a borrower’s delinquency. Of course,
servicers may elect to contact borrowers
sooner, and the Bureau believes most
servicers will do so pursuant to GSE,
FHA, and VA guidelines. Finally, the
Bureau declines to permit servicers to
delay contact for borrowers identified as
low-risk based on a servicer’s use of a
behavior modeling tool. The Bureau is
concerned that modeling tools used to
predict future behavior are inherently
imprecise and produce a certain
percentage of false negatives—i.e.,
borrowers who are predicted to self-cure
but do not. As also discussed below, at
this time, the Bureau does not have
sufficient data to evaluate or validate
such tools.
To account for situations in which a
borrower proactively contacts the
servicer about a late payment, proposed
comment 39(a)–5 explained that, if the
borrower contacts the servicer at any
time prior to the end of the 30-day
period to explain that the borrower
expects to be late in making a payment,
the servicer could provide the oral
notice under proposed § 1024.39(a) by
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informing the borrower at that time that
loss mitigation options, if applicable,
may be available. The Bureau did not
receive comment on proposed comment
39(a)–5 or the two illustrative examples
at proposed 39(a)–5.i.A or –5.i.B. The
Bureau is omitting these comments from
the final rule because the Bureau does
not believe they are necessary in light of
the clarifications provided in comment
39(a)–2 (establishing live contact).
The Bureau proposed in § 1024.39(a)
to require a servicer to provide an oral
notice, or make good faith efforts to do
so, if the borrower is late in making ‘‘a
payment sufficient to cover principal,
interest, and, if applicable, escrow.’’
Thus, a servicer would not have been
required to provide the oral notice if a
borrower is late only with respect to
paying a late fee for a given billing
cycle. As explained in the proposal, the
Bureau proposed this trigger because the
Bureau believes there is low risk that
borrowers will default solely because of
accumulated late charges if they are
otherwise current with respect to
principal, interest, and escrow
payments. The Bureau proposed to add
comment 39(a)–3 to explain that, for
purposes of proposed § 1024.39(a), a
payment would be considered late the
day after a payment due date, even if the
borrower is afforded a grace period
before the servicer assesses a late fee.
Thus, for example, if a payment due
date is January 1, the servicer would be
required to notify or make good faith
efforts to notify the borrower not later
than 30 days after January 1 (i.e., by
January 31) if the borrower has not fully
paid the amount owed as of January 1
and the full payment remains due
during that period.
The Bureau did not receive comment
on what constitutes a late payment for
purposes of providing the oral notice
and is adopting a substantially similar
standard in the final rule, which the
Bureau has defined as ‘‘delinquency’’
for purposes of § 1024.39. The Bureau
has added comment 39(a)–1.i to clarify
that, for purposes of § 1024.39,
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,
even if the borrower is afforded a period
after the due date to pay before the
servicer assesses a late fee. For example,
if a payment due date is January 1 and
the amount due is not fully paid during
the 36-day period after January 1, the
servicer must establish or make good
faith efforts to establish live contact not
later than 36 days after January 1—i.e.,
by February 6. Delinquency is
calculated in a similar manner with
respect to the written notice under
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10795
§ 1024.39(b)(1) that must be provided by
the 45th day of a borrower’s
delinquency. The Bureau uses the term
‘‘delinquency’’ in the final rule to
improve and clarify the proposed
regulatory text and intends no
substantive difference from the
proposal. Unlike proposed comment
39(b)(1)–2, comment 39(a)(1)–1.i does
not use the term ‘‘grace period’’ but
instead uses the phrase ‘‘period of time
after the due date has passed to pay
before the servicer assesses a late fee.’’
The Bureau intends no substantive
difference between the final rule and the
proposal, but has made this change to
conform to similar changes in the
Bureau’s 2013 TILA Mortgage Servicing
Final Rule.
Proposed comment 39(a)–6 clarified
that a servicer would not be required
under § 1024.39(a) to provide the oral
notice to a borrower who is performing
as agreed under a loss mitigation option
designed to bring the borrower current
on a previously missed payment. The
Bureau did not receive comment on
proposed comment 39(a)–6 and is
adopting it substantially as proposed,
but reorganized under comment 39(a)–
1 as a clarification to whether a
borrower is ‘‘delinquent’’ for purposes
of § 1024.39(a). Thus, comment 39(a)–
1.ii explains that a borrower who is
performing as agreed under a loss
mitigation option designed to bring the
borrower current on a previously missed
payment is not delinquent for purposes
of § 1024.39.
Rural and community bank
commenters requested clarification on
whether the oral and written notices
would be required to be provided on a
recurring basis for borrowers who
satisfy their mortgage payments late on
a recurring basis and who may be
unresponsive to servicer collection
efforts. The Bureau has addressed the
issue of recurring delinquencies with
regard to the written notice below in the
section-by-section analysis of
§ 1024.39(b), discussed below. With
respect to the live contact requirement,
servicers would be required to establish
live contact or make good faith efforts to
do so with borrowers to determine
whether to inform borrowers of loss
mitigation options. Thus, a servicer
must establish live contact or make good
faith effort to establish live contact, even
with borrowers who are regularly
delinquent, by the 36th day of a
borrower’s delinquency. However, it is
within a servicer’s reasonable discretion
to determine whether it would be
appropriate to inform a borrower who is
delinquent on a recurring, month-tomonth basis about the availability of
loss mitigation options.
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Servicing transfers. The Bureau has
added comment 39(a)–1.iii, which
explains that, during the 60-day period
beginning on the effective date of
transfer of the servicing of any mortgage
loan, a borrower is not delinquent for
purposes of § 1024.39 if the transferee
servicer learns that the borrower has
made a timely payment that has been
misdirected to the transferor servicer
and the transferee servicer documents
its files accordingly.
The Bureau has added this comment
to address situations that may arise
during the 60 days after a servicing
transfer. RESPA section 6(d) provides
that, during the 60-day period beginning
on the effective date of transfer of
servicing of any federally related
mortgage loan, a late fee may not be
imposed on the borrower with respect to
any payment on such loan and no such
payment may be treated as late for any
other purposes, if the payment is
received by the transferor servicer
(rather than the transferee servicer who
should properly receive the payment)
before the due date applicable to such
payment. 12 U.S.C. 2605(d). This
provision is implemented through
current § 1024.21(d)(5), which the
Bureau is moving and finalizing as
§ 1024.33(c)(1). As explained in more
detail in the section-by-section analysis
of § 1024.33(c)(1) above, the Bureau has
added comment 33(c)(1)–2 to clarify a
transferee servicer’s compliance with
1024.39 during the 60-day period
beginning on the effective date of a
servicing transfer does not constitute
treating a payment as late for purposes
of § 1024.33(c)(1). The Bureau has
added comment 33(c)(1)–2 to address
situations in which a transferee servicer
does not know the reasons for a late
payment but may still need to comply
with § 1024.39 in the face of this
uncertainty.
To account for situations in which the
transferee servicer learns that a
borrower has simply misdirected a
timely payment, the Bureau has added
comment 39(a)–1.iii to clarify that,
during the 60-day period beginning on
the effective date of transfer of the
servicing of any mortgage loan, a
borrower is not delinquent for purposes
of § 1024.39 if the transferee servicer
learns that the borrower has made a
timely payment that has been
misdirected to the transferor servicer
and the transferee servicer documents
its files accordingly. In such cases, the
Bureau does not believe such borrowers
should be treated as delinquent for
purposes of § 1024.39. Comment 39(a)–
1.iii also contains cross-references to
§ 1024.33(c)(1) and comment 33(c)(1)–2.
To clarify that this guidance also applies
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to § 1024.39(b), comment 39(b)(1)–1
includes a cross-reference to comment
39(a)–1.
Borrower’s representative. Several
consumer group commenters and a
housing counseling organization
requested that the Bureau clarify that a
servicer must communicate with a
borrower’s representative. The Bureau
agrees that, in certain situations, such as
where the borrower is represented by an
attorney, it may be appropriate for
servicers to communicate with the
borrower’s authorized representative,
particularly in situations involving
delinquency that may result in
foreclosure. Accordingly, the Bureau
has added comment 39(a)–4 to explain
that § 1024.39 does not prohibit a
servicer from satisfying the
requirements of § 1024.39 by
establishing live contact with, and, if
applicable, providing information about
loss mitigation to a person authorized
by the borrower to communicate with
the servicer on the borrower’s behalf.
The comment provides that a servicer
may undertake reasonable procedures to
determine if a person that claims to be
an agent of a borrower has authority
from the borrower to act on the
borrower’s behalf, for example by
requiring that a person that claims to be
an agent of the borrower provide
documentation from the borrower
stating that the purported agent is acting
on the borrower’s behalf. This comment
is similar to comments 35(a)–1, 36(a)–1,
and 40(a)–1.
The Bureau does not believe it is
necessary to specifically require
servicers to communicate with a
borrower’s representative for purposes
of § 1024.39. By comparison, the
requirements applicable to notices of
error and information requests under
§§ 1024.35 and 36 include comments
35(a)–1 and 36(a)–1, which explain that
notices of error and information
requests from a borrower’s
representative are treated the same way
that servicers treat such
communications from a borrower
though the servicer may undertake
reasonable procedures to determine if a
person that claims to be an agent of a
borrower has authority from the
borrower to act on the borrower’s behalf.
In situations involving notices of error
or information requests, in which a
borrower requests through a
representative that the servicer take
some action that the servicer may not
otherwise perform, there is some risk
that a servicer might claim it had no
obligation to act if the regulation only
required actions with respect to the
‘‘borrower.’’ However, § 1024.39
requires that servicers reach out to
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borrowers. Thus, the risk that servicers
would claim they had no obligation to
act with respect to a borrower is not
present in this case; to the contrary, the
Bureau believes it would mitigate the
burden on the servicer to be able to
communicate with either the borrower
or the borrower’s representative.
39(b) Written Notice
39(b)(1) Notice Required
As discussed below, the Bureau is
adopting a written notice requirement
that has been slightly revised from the
proposal. The Bureau proposed
§ 1024.39(b)(1) to require servicers to
provide borrowers who are late in
making a payment with a written notice
containing information about the
foreclosure process, contact information
for housing counselors and the
borrower’s State housing finance
authority, and, if applicable, loss
mitigation options. The Bureau
proposed to require that this notice be
provided not later than 40 days after the
payment due date. Proposed comment
39(b)(1)–1 explained that the written
notice would be required even if the
servicer provided information about loss
mitigation and the foreclosure process
previously during the oral notice under
§ 1024.39(a).
Consumer advocacy groups were
generally supportive of a written notice,
although they recommended including
more detail about loss mitigation
options, application instructions, and
foreclosure timelines. Industry
commenters were concerned that the
written notice requirement would
conflict with existing early intervention
requirements and recommended that the
Bureau provide more flexibility with
respect to the content of the notice and
that the Bureau extend the deadline for
providing the written notice. Some
commenters questioned the necessity of
the written notice in light of an oral
notice requirement and other existing
requirements.
The Bureau is adopting a written
notice requirement in the final rule at
§ 1024.39(b). Borrowers may not receive
information about loss mitigation
options either because the servicer is
unable to establish live contact with a
borrower despite good faith efforts or
because the servicer exercises
reasonable discretion to determine that
providing information about loss
mitigation options is not appropriate.
Further, as the Bureau noted in its
proposal, even if a borrower receives
information about the availability of loss
mitigation options orally, the Bureau
believes a written notice is still
necessary if a borrower has not cured by
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day 45 because borrowers may be
unable to adequately assess and recall
detailed information provided orally
and the written notice would provide
more information than what would
likely have been provided under
§ 1024.39(a).
In addition, a written disclosure
would provide borrowers with the
ability to review the information or
discuss it with a housing counselor or
other advisor. Accordingly, the Bureau
is adopting comment 39(b)(1)–1
substantially as proposed. The proposed
comment explained that the written
notice would be required even if the
servicer provided information about loss
mitigation and the foreclosure process
previously during an oral
communication under § 1024.39(a). In
the final rule, the Bureau has omitted
the reference to foreclosure and
renumbered this comment as 39(b)(1)–4
for organizational purposes. The Bureau
has also included new comment
39(b)(1)–3 to provide a cross-reference
to comment 39(a)–4 to clarify that the
Bureau’s guidance with respect to
communicating with a borrower’s
representative also applies to the
written notice provision at § 1024.39(b).
In response to comments, however,
the Bureau is adjusting the timing of the
notice from 40 to 45 days after a missed
payment and is making certain
adjustments to the proposed content of
the notice. To assist servicers in
complying with the notice requirement,
the Bureau is adopting model clauses,
referenced in § 1024.39(b)(3), which the
Bureau has amended. The model
clauses are discussed in the section-bysection analysis of appendix MS–4.
Some industry commenters were
concerned that the breadth of the
definition of ‘‘Loss mitigation options’’
would require servicers to offer options
or take actions inconsistent with
investor or guarantor requirements.
The Bureau does not believe the
written notice requirement in
§ 1024.39(b) will pose a conflict with
investor or guarantor requirements and
is adopting it as applicable to servicers
of all mortgage loans, with certain
exemptions and limitations in scope, as
discussed above.136 Given the breadth of
the definition of ‘‘Loss mitigation
option’’ and the general industry
136 As discussed in the section-by-section analysis
of § 1024.30(b), above, the Bureau is adopting
exemptions from § 1024.39 for small servicers,
servicers with respect to reverse mortgage
transactions, and servicers with respect to mortgage
loans for which the servicer is a qualified lender (as
defined in 12 CFR 617.7000). In addition, as
discussed in the section-by-section analysis of
§ 1024.30(c), § 1024.39 does not apply to any
mortgage loan that is not secured by a borrower’s
principal residence.
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practice of offering some sort of shortterm relief or at least accepting a deedin-lieu of foreclosure, the Bureau
expects that few servicers would not
offer any loss mitigation options. In
addition, the definition of ‘‘Loss
mitigation option’’ is limited to options
offered by the owner or assignee of a
mortgage loan that are available through
the servicer. Thus, options that are not
offered by an owner or assignee and
thus not available through the servicer
would not be required to be listed. In
addition, the Bureau has developed
flexible content requirements in the
written notice with regard to how and
which loss mitigation options are
described. Finally, the Bureau has
retained the ‘‘if applicable’’ qualifier in
§ 1024.39(b)(2) setting forth
requirements to describe loss mitigation
options. Thus, if an owner or assignee
of a loan offers no loss mitigation
options for delinquent borrowers, the
servicer would not be required to
include statements describing loss
mitigation options, but would still be
required to send a notice encouraging
the borrower to contact the servicer and
containing information about housing
counselors; the Bureau believes
borrowers would benefit from
information about how to contact their
servicer or housing counselors to ask
questions, for example, about how the
foreclosure process works.
45th Day of Delinquency
Similar to the proposed oral notice,
the Bureau proposed in § 1024.39(b) to
require servicers to provide the written
notice if a borrower is late in making a
payment sufficient to cover principal,
interest, and, if applicable, escrow.
However, unlike the proposed oral
notice that servicers would have been
required to provide, or make good faith
efforts to provide, not later than 30 days
after a payment due date, the Bureau
proposed to require that the written
notice be provided not later than 40
days after the payment due date. The
Bureau had proposed a 40-day deadline
to provide borrowers a reasonable
opportunity to cure a short-term
delinquency while also ensuring that
they received information on loss
mitigation options at the early stages of
a delinquency. The Bureau proposed to
permit servicers to provide the written
notice at any time during the 40-day
period. The Bureau proposed a deadline
for the written notice that occurred after
the 30-day deadline for the proposed
oral notice to provide servicers an
opportunity to tailor the written notice
and other information to the borrower’s
individual circumstances following the
oral notice. However, servicers would
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10797
also have had the option of sending the
notice at any time after the borrower’s
missed payment. The Bureau proposed
to include guidance at comment
39(b)(1)–2 to clarify that servicers
should consider a payment late in the
same manner as they would for
purposes of calculating when the oral
notice must be provided. The Bureau
solicited comment on whether the
written deadline should be extended to
45 days, 65 days, or longer.
Consumer advocacy groups and one
industry commenter were generally
supportive of the timing of the written
notice as proposed, although one
consumer advocacy group
recommended that borrowers receive a
more detailed notice 60 days after the
missed payment following a lighter
notice about loss mitigation options
immediately after a delinquency. Most
industry commenters recommended that
the Bureau extend the deadline for the
written notice to sometime between 45
and 70 days after a missed payment.
Industry commenters argued that
extending the deadline would preserve
servicer flexibility in managing
delinquencies and reduce the
compliance burden in light of existing
early intervention practices and
requirements. Similar to arguments
made about the proposed oral notice,
industry commenters and a Federal
agency expressed concern that
informing a borrower of loss mitigation
options that the borrower does not
qualify for or that are not available to
the borrower could cause borrower
confusion and impede the resolution of
delinquent loans.
Industry commenters and several
consumer advocacy groups noted that
extending the deadline for the written
notice would allow servicers time to
distinguish between high- and low-risk
borrowers, allowing servicers to focus
on high-risk borrowers while avoiding
the need to make contact with
borrowers who are able to self-cure the
occasional late payment or those who
are repeatedly delinquent but who
eventually make their payments. Several
industry commenters recommended that
the Bureau extend the deadline to 60
days to permit servicers additional time
to complete an eligibility assessment
required under HAMP and the National
Mortgage Settlement. One trade
association noted that the Bureau’s
original outline of proposals under
consideration included a proposal for
servicers to provide borrowers with
written information about loss
mitigation options within five days after
notifying the servicer that they may
have trouble making their payments.
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The commenter requested that this be a
requirement in the final rule.
In addition, as with the proposed oral
notice, industry commenters were
concerned that the Bureau’s
requirements may be duplicative of or
not perfectly aligned with existing State
and Federal requirements, GSE
guidelines, consent orders, and
settlement agreements. Many industry
commenters noted that a 40-day
deadline would be premature and that
it would be more efficient, common,
and would avoid borrower confusion to
send the notice by 45 days after a
missed payment, consistent with other
notices that servicers send by that time,
such as breach letters, a notice under
section 106(c)(5) of the Housing and
Urban Development Act of 1968, as
amended, regarding the availability of
housing counselors (12 U.S.C.
1701x(c)(5)(B)), and a notice under the
Servicemembers Civil Relief Act (50
U.S.C. App. 501 et seq.).137 One large
servicer explained that extending the
deadline from 40 to 45 days would still
provide borrowers with sufficient notice
of loss mitigation options before a
servicer begins the foreclosure process.
One industry commenter recommended
that the Bureau extend the deadline to
50 days after the payment due date to
better accommodate other loss
mitigation-related communications that
go out by the 45th day of delinquency.
In addition, a variety of servicers and
trade associations requested additional
flexibility in delivering the content of
the written notice, such as by combining
the proposed written notice requirement
with existing notices.
The GSEs, certain large lenders, and
trade associations, as well as several
consumer advocacy groups,
recommended that the Bureau permit
servicers to send the written notice by
the 60th, 65th or 70th day of a
borrower’s delinquency. Other industry
commenters and a few consumer
advocacy groups recommended that the
Bureau extend the deadline to sometime
between 60 and 70 days after a missed
payment. A number of commenters
expressed concern that the proposed 40day notice was not in line with GSE
guidelines that permit servicers to send
a loss mitigation solicitation package to
borrowers identified by the servicer as
low default risks by the 65th day of the
borrower’s delinquency. Other
commenters recommended that the
Bureau permit an exemption from the
40-day deadline for servicers to comply
137 See
Form, U.S. Hous. & Urban Dev., Service
Members Civil Relief Act Form HUD–92070 (June
30, 2011), available at http://portal.hud.gov/
hudportal/documents/huddoc?id=92070.pdf.
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with a later deadline if the servicer uses
behavior modeling to identify
chronically late payers that do not
appear at risk of serious delinquency
and where the notice is unlikely to be
helpful, in order to better align with
GSE practice.
Based on comments received, the
Bureau is adopting a 45-day deadline
rather than a 40-day deadline in the
final rule. First, the Bureau believes that
a 45-day deadline strikes an appropriate
balance between permitting servicers
flexibility in managing delinquencies
and providing borrowers information at
the early stages of a delinquency. Some
borrowers are in the habit of making
their mortgage payments after the due
date in order to take advantage of the
15-day period generally available to
make payment without incurring a late
fee. A borrower who has missed a
payment entirely may likewise wait
until up to the 15th day after the next
payment is due (i.e., the 45th day after
the initial payment was due) before
making a payment. A 45-day deadline
would permit borrowers to receive a
written notice of loss mitigation options
at the early stages of their delinquency
while also permitting servicers to
distinguish between borrowers who can
self-cure out of a 30-day delinquency
and those experiencing longer-term
problems. The Bureau believes that the
fact that a borrower has not satisfied a
late payment by the 45th day of a
delinquency generally indicates that
such borrower is having difficulty
making payments and should be
informed of the availability of loss
mitigation options.
The Bureau understands that some
servicers may not be able to complete
eligibility assessments for borrowers by
the 45th day of a delinquency under
HAMP (which is set to expire by
December 31, 2013).138 However, the
Bureau’s rule would not require that
servicers make a determination of
eligibility of loss mitigation options by
this time; they require only that they
notify borrowers that loss mitigation
options may be available. The Bureau
has crafted flexible content standards
that would not require servicers to list
specific loss mitigation options in the
written notice. With respect to the
National Mortgage Settlement, the
Bureau believes a 45-day standard
would be in line with the Settlement
terms requiring servicers to commence
138 See U.S. Dep’t of Treasury & U.S. Dep’t of
Hous. & Urban Dev., Home Affordable Modification
Program, available at http://
www.makinghomeaffordable.gov/programs/lowerpayments/Pages/hamp.aspx.
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outreach efforts after the second missed
payment.
The Bureau understands that GSE
servicers have additional flexibility in
providing the solicitation package to
certain lower-risk borrowers as late as
the 65th day of their delinquency.139 As
noted above, several industry
commenters and consumer advocacy
groups recommended that the Bureau
extend the deadline for the written
notice to sometime between 60 and 70
days after a missed payment in order to
accommodate this GSE practice.
However, the Bureau is not adopting an
exemption for servicers who use
behavior modeling tools to identify
lower-risk borrowers for the following
reasons. Evidence available to the
Bureau indicates that the longer a
borrower remains delinquent, the more
difficult it can be to avoid
foreclosure,140 particularly as a
borrower experiences a delinquency
lasting 60 days or longer.141 While
waiting to day 65 to see if a delinquent
borrower has self-cured may be
appropriate for low-risk borrowers,
modeling tools to predict future
behavior are inherently imprecise and
identify a certain number of borrowers
who are predicted to self-cure but do
not. At this time, the Bureau does not
have data with which to validate or
evaluate such models. Further, the
Bureau is concerned that if these
borrowers are not informed of their
options until the beginning of the third
month of their delinquency, it may be
139 The GSEs allow servicers to rely on the results
of a behavioral modeling tool to evaluate a
borrower’s risk profile. U.S. Consumer Fin. Prot.
Bureau, Final Report of the Small Business Review
Panel on CFPB’s Proposals Under Consideration for
Mortgage Servicing Rulemaking, 30 (Jun, 11, 2012).
140 See, e.g., John C. Dugan, Comptroller, Office
of the Comptroller of the Currency, Remarks Before
the NeighborWorks America Symposium on
Promoting Foreclosure Solutions (June 25, 2007);
Laurie S. Goodman et al., Amherst Securities Group
LP, Modification Effectiveness: The Private Label
Experience and Their Public Policy Implications 5–
6 (June 19, 2012); Michael A. Stegman et al.,
Preventative Servicing, 18 Hous. Policy Debate 245
(2007); Amy Crews Cutts & William A. Merrill,
Interventions in Mortgage Default: Policies and
Practices to Prevent Home Loss and Lower Costs
11–12 (Freddie Mac, Working Paper No. 08–01,
2008).
141 See Amy Crews Cutts & William A. Merrill,
Interventions in Mortgage Default: Policies and
Practices to Prevent Home Loss and Lower Costs 12
(Freddie Mac, Working Paper No. 08–01,
2008)(examining the success of repayment plans,
the authors found that ‘‘[t]he cure rate among loans
that are only 30 days delinquent is just under 60
percent, but that rate falls to less than 30 percent
if they are 3 or more payments behind at the onset
of the plan’’); Laurie S. Goodman et al., Amherst
Securities Group LP, Modification Effectiveness:
The Private Label Experience and Their Public
Policy Implications 6 (June 19, 2012).
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more difficult for them to find a solution
than if they were notified sooner.
The Bureau appreciates that a 45-day
notice requirement might result in
notices to borrowers who would selfcure without any notice. On balance,
however, the Bureau believes it is
appropriate to be potentially overbroad
to avoid situations in which borrowers
may not receive any information until
potentially three months of missed
payments. The Bureau has sought to
address the compliance burden on GSE
servicers who use behavior modeling
tools by creating flexible content
standards for the written notice. The
Bureau has also sought to limit the
burden of sending the notice by limiting
the number of times a borrower would
receive the notice, as discussed in more
detail below.
In addition, the Bureau believes a 45day deadline would be more consistent
with other notices that servicers send by
that time than the 40-day deadline as
originally proposed. As discussed in
more detail in the section-by-section
analysis of § 1024.39(b)(2), the Bureau
has sought to adopt flexible content
requirements for the 45-day written
notice to accommodate existing early
intervention notices. The Bureau agrees
that permitting servicers to comply with
§ 1024.39(b) by combining other notices
that go out at this time would reduce
possible confusion among borrowers as
well as compliance burden. See the
discussion of comment 39(b)(2)–3
below. Servicers of VA loans generally
must provide borrowers with a letter if
payment has not been received within
30 days after it is due and telephone
contact could not be made.142 HUD
generally requires servicers of FHAinsured loans to provide each mortgagor
in default HUD’s ‘‘Avoiding
Foreclosure’’ pamphlet, or a form
developed by the mortgagee and
approved by HUD, not later than the
end of the second month of
delinquency, although HUD
recommends sending the form by the
32nd day of delinquency in order to
prevent foreclosures from proceeding
where avoidable.143
Section 106(c)(5) of the Housing and
Urban Development Act of 1968, as
amended, generally requires creditors to
provide notice of homeownership
counseling to eligible delinquent
borrowers not later than 45 days after a
borrower misses a payment due date. 12
U.S.C. 1701x(c)(5)(B). In addition, HUD
has developed a notice pursuant to the
Servicemembers Civil Relief Act, as
amended, providing notice of
servicemembers’ rights that must be
provided within 45 days of a missed
payment. Servicers of GSE loans are
expected to send a written package
soliciting delinquent borrowers to apply
for loss mitigation options 31 to 35 days
after a payment due date, unless the
servicer has made contact with the
borrower and received a promise to cure
the delinquency within 30 days.144
The Bureau is not adopting a
requirement in the final rule for
servicers to provide the § 1024.39(b)
written notice based solely on a
borrower’s indication of difficulty in
making payment. The Bureau notes that,
pursuant to § 1024.39(a) and comment
39(a)–3.i, servicers must promptly
inform borrowers of the availability of
loss mitigation options if appropriate,
which servicers may determine based
on their exercise of reasonable
discretion. If the servicer determines
informing a borrower of loss mitigation
options is appropriate, they may choose
to do so orally or in writing, in
accordance with comment 39(a)–3.ii.
The Bureau believes a strict 45-day
deadline for the written notice required
under § 1024.39(b) is necessary to
mitigate the risk that borrowers may not
receive notice of the availability of loss
mitigation options pursuant
§ 1024.39(a): a servicer may not
establish live contact with a borrower
despite good faith efforts to do, or a
servicer may make a reasonable
determination that such notice is not
appropriate under § 1024.39(a). In
addition, as previously noted, a single
deadline would provide servicers with
flexibility, within the deadline, to
determine the most appropriate time to
provide the written notice, e.g., for
borrowers who may be able to self-cure.
Finally, the Bureau believes that new
§ 1024.36, which will require servicers
to respond to information requests, and
new § 1024.38(b)(2)(i), which requires
servicers to maintain policies and
procedures that are reasonably designed
to ensure that servicers provide accurate
142 ‘‘This letter should emphasize the seriousness
of the delinquency and the importance of taking
prompt action to resolve the default. It should also
notify the borrower(s) that the loan is in default,
state the total amount due and advise the
borrower(s) how to contact the holder to make
arrangements for curing the default.’’ 38 CFR
36.4278(g)(iii).
143 See 24 CFR 203.602; U.S. Hous. & Urban Dev.,
HUD Handbook 4330.1 rev-5, ch. 7, para. 7–7(G).
144 See Fannie Mae, Letters and Notice Guidelines
(Apr. 25, 2012), available at https://
www.efanniemae.com/home/index.jsp; Freddie
Mac Single-Family Seller/Servicing Guide, Volume
2, Chapter 64.5 (2012). During the Small Business
Panel Review outreach, SERs that service for Fannie
Mae and Freddie Mac generally described strict
rules and tight timeframes in dealing with
delinquent borrowers. See Small Business Review
Panel Report at 25.
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information regarding loss mitigation
options available to a borrower, will
address situations in which borrowers
request information about loss
mitigation and foreclosure.
In the final rule, the Bureau uses the
term ‘‘delinquency’’ to identify when
the 45-day period begins. The Bureau
has clarified the meaning of
delinquency in commentary in a
manner substantially similar to the late
payment trigger that was proposed in
§ 1024.39(b). Accordingly, in the final
rule, § 1024.39(a) requires a servicer to
provide the written notice not later than
the 45th day of ‘‘a borrower’s
delinquency.’’ Comment 39(b)(1)–1
contains a cross-reference to comment
39(a)–1, which generally explains that
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,
even if the borrower is afforded a period
of time after the due date has passed to
pay before the servicer assesses a late
fee. The cross-reference also clarifies
that a borrower is not delinquent for
purposes of § 1024.39 if the borrower is
performing as agreed under a loss
mitigation option designed to bring the
borrower current on a previously missed
payment.
Comment 39(b)(1)–1 provides an
example substantially similar to the
example proposed as comment 39(b)(1)–
2, in which a borrower misses a January
1 payment that remains due during the
45–day period after January 1, requiring
that the servicer provide the written
notice by February 15. Comment
39(b)(1)–1 also contains an example
similar to the example in proposed
comment 39(b)(1)–3, which explained
that a servicer is not required to provide
the written notice if the borrower makes
the payment during the 45 days after the
payment due date. The Bureau has also
replaced the 40-day period in the
comment with a 45-day period to
conform to changes adopted in the final
rule regarding the timing of the written
notice. The Bureau has made this
change to clarify that the notice must be
provided only if the borrower is
delinquent, and must be provided not
later than the 45th day of the borrower’s
delinquency.
Frequency of the Notice
Proposed § 1024.39(b)(1) would have
provided that a servicer would not be
required to provide the written notice
under § 1024.39(b) more than once
during any 180-day period beginning on
the date on which the disclosure is
provided. Proposed comment 39(b)(1)–4
further explained that, notwithstanding
this limitation, a servicer would still be
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required to provide the oral notice
required under § 1024.39(a) for each
payment that is overdue. Several
commenters provided feedback on the
frequency of the written notice. Two
consumer advocacy groups
recommended that the Bureau require
the notice be resent if the borrower
redefaults on the mortgage loan. Other
consumer advocacy groups
recommended that servicers provide the
notice again based on the results of a
behavior modeling tool.
The Bureau is retaining the proposed
180-day limitation in § 1024.39(b)(1).
The Bureau is also retaining
substantially all of the language in
comment 39(b)(1)–4, which the Bureau
is renumbering to comment 39(b)(1)–2.
The Bureau has replaced the 40-day
time periods in the examples in the
commentary with 45-day time periods
to conform to the final rule; the Bureau
is also omitting the reference in the
proposed comment to 39(a) in the last
example in light of the Bureau’s change
to the nature of the proposed oral
notice.
The Bureau is requiring that servicers
provide the notice once every 180 days
to limit the number of times a servicer
would have to send the notice to
borrowers who consistently pay late but
otherwise eventually make their
payments. The Bureau does not believe
that borrowers who consistently carry a
short-term delinquency would benefit
from receiving the same written notice
every month. Because § 1024.32 requires
that the written notice be provided in a
form the borrower may keep, borrowers
would be able to retain the disclosure
for future reference. In addition, a 180day timeframe is generally consistent
with HUD’s requirement that, in
connection with FHA loans, HUD’s
‘‘Avoiding Foreclosure’’ pamphlet must
be resent to delinquent borrowers unless
the beginning of the new delinquency
occurs less than six months after the
pamphlet was last mailed.145
The Bureau believes that the
requirement to provide the notice once
every 180 days as well as the
requirement in § 1024.40(a) to make
servicer personnel available to
borrowers not later than the 45th day of
a borrower’s delinquency will, as a
practical matter, address situations in
which borrowers may redefault. Further,
§ 1024.39(a) requires that servicers
establish or make good faith efforts to
establish live contact with borrowers
with respect to every delinquency and
promptly inform such borrowers that
loss mitigation options may be available
145 See 24 CFR 203.602; U.S. Hous. & Urban Dev.,
HUD Handbook 4330.1 rev-5, ch. 7, para. 7–7(G).
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if appropriate, subject to a servicer’s
reasonable exercise of discretion. In
addition, borrowers who previously
worked with servicer personnel
assigned under the continuity of contact
rule to develop a loss mitigation option
would know that they may contact their
servicer to discuss loss mitigation
options. The Bureau is not adopting an
exemption based on a servicer’s use of
a behavior modeling tool for the reasons
discussed above with respect to the
timing of the written notice.
39(b)(2) Content of the Written Notice
In General
The Bureau proposed to add new
§ 1024.39(b)(2) to set forth information
that servicers would be required to
include in the written notice. Under
paragraphs (b)(2)(i) and (b)(2)(ii) of
proposed § 1024.39, servicers would
have been required to include a
statement encouraging the borrower to
contact the servicer, along with the
servicer’s mailing address and
telephone number. Under paragraphs
(b)(2)(iii) and (b)(2)(iv) of proposed
§ 1024.39, servicers would have been
required, if applicable, to include a
statement providing a brief description
of loss mitigation options that may be
available, as well as a statement
explaining how the borrower can obtain
additional information about those
options. Proposed § 1024.39(b)(2)(v)
would have required servicers to
include a statement explaining that
foreclosure is a process to end the
borrower’s ownership of the property.
Proposed § 1024.39(b)(2)(v) also would
have required servicers to provide an
estimate for when the servicer may start
the foreclosure process. This estimate
would have been required to be
expressed in a number of days from the
date of a missed payment. Finally,
proposed § 1024.39(b)(iv) would have
required servicers to include contact
information for any State housing
finance authorities, as defined in
FIRREA section 1301, for the State in
which the property is located, and
either the Bureau or HUD list of
homeownership counselors or
counseling organizations.
Industry commenters, particularly
smaller servicers, were generally
concerned that the written notice was
too prescriptive. A number of industry
commenters requested clarification
whether the Bureau’s notice would be in
addition to other similar notices that
servicers may be already providing to
borrowers. A variety of servicers and
several trade associations recommended
that the Bureau permit servicers to
combine the § 1024.39(b) notice with
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other notices servicers send around the
45-day time period to improve
efficiency and reduce the risk of
information overload. One industry
commenter recommended that the
Bureau allow an exemption from the
written notice where existing notices
satisfy the content requirements of the
rule, or permit servicers to consolidate
the required information into an
existing letter. A non-bank servicer
requested clarification on whether
servicers would have flexibility in how
servicers delivered the content in the
written notices, such as by permitting
the use of logos, color, web sites, and
additional information beyond what
was required.
Many consumer advocacy groups
requested that the Bureau require more
information in the written notice,
particularly information about all
available loss mitigation options from
the servicer, detailed application
instructions and eligibility
requirements, and foreclosure referral
deadlines. One coalition of consumer
advocacy groups supported the Bureau’s
proposal to include model clauses,
explaining that they would mitigate the
cost of creating written notice forms, but
would also set an essential standard for
content and level of detail, and help
ensure that all borrowers receive the
same information, regardless of the type
of servicer.
As noted in the proposal, the Bureau
sought to establish minimum standards
such that servicers that are already
providing adequate notices of loss
mitigation options would already be in
compliance. The Bureau is not adopting
standardized written notices because
the Bureau continues to believe an
overly-prescriptive written notice may
not account for the variety of situations
posed by delinquent borrowers or the
variety of loss mitigation options
available from investors and guarantors.
Thus, the Bureau is adopting generally
applicable minimum content
requirements that can be tailored to a
specific situations, as discussed in more
detail in the section-by-section analysis
of § 1024.39(b)(2) below. As discussed
above in the section-by-section analysis
of § 1024.30(b), the Bureau is granting
exemptions from § 1024.39 for small
servicers, servicers with respect to
reverse mortgages, and servicers with
respect to any mortgage loan for which
the servicer is a qualified lender as that
term is defined in 12 CFR 617.7000.
The Bureau believes that permitting
servicers to incorporate relevant
portions of the notice required under
§ 1024.39(b)(1) into other disclosures
that already include some or all of the
statements required by § 1024.39(b)(2)
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would reduce the potential for borrower
confusion otherwise resulting from
duplicative statements. Accordingly, the
Bureau has added comment 39(b)(2)–3
to clarify that servicers may satisfy the
requirement to provide the written
notice by grouping other notices that
satisfy the content requirements of
§ 1024.39(b)(2) into the same mailing,
provided each of the required
statements satisfies the clear and
conspicuous standard in § 1024.32(a)(1).
To accommodate existing servicer
requirements and practices, proposed
comment 39(b)(2)–1 explained that a
servicer may provide additional
information beyond the proposed
content requirements that the servicer
determines would be beneficial to the
borrower. This would include any
additional disclosures that servicers
believe would be helpful, such as
directing borrowers to Web sites. In
addition, proposed comment 39(b)(2)–2
explained that any color, number of
pages, size and quality of paper, type of
print, and method of reproduction may
be used so long as the disclosure is
clearly legible. The Bureau is adopting
comments 39(b)(2)–1 and 39(b)(2)–2
substantially as proposed. The Bureau
has further amended proposed comment
39(b)(2)–1 to provide that servicers may
provide additional information that the
servicer determines would be helpful
‘‘or which may be required by
applicable law or the owner or assignee
of the mortgage loan.’’ The Bureau has
added this language to clarify that
servicers may provide additional
content that may be required by, for
example, State law. The Bureau has
revised guidance in proposed comment
39(b)(2)–2 that had clarified that the
statements required by § 1024.39(b)(2)
must be ‘‘clearly legible.’’ Instead,
comment 39(b)(2)–2 explains that the
statements required by § 1024.39(b)(2)
must satisfy the clear and conspicuous
standard in § 1024.32(a)(1). The Bureau
has made this revision in order to clarify
that the § 1024.39(b) written notice is
subject to the same legibility standard
applicable to other notices, pursuant to
§ 1024.32(a)(1).
Finally, the Bureau notes that
comment MS–2, which provides
commentary that is generally applicable
to the model forms and clauses in
appendix MS, clarifies that, except as
otherwise specifically required,
servicers may add graphics or icons,
such as the servicer’s corporate logo, to
the model forms and clauses. Thus, it is
unnecessary to include a comment to
§ 1024.39(b)(2) to clarify that servicers
may include corporate logos. The
Bureau has addressed consumer group
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comments regarding additional content
for the written notice below.
Statement Encouraging the Borrower to
Contact the Servicer
Proposed § 1024.39(b)(2)(i) would
have required the written notice to
include a statement encouraging the
borrower to contact the servicer. The
Bureau did not receive comment on this
requirement and is adopting it as
proposed, renumbered as
§ 1024.39(b)(2)(i). As noted in its
proposal, the Bureau believes that a
statement informing borrowers that the
servicer can provide assistance with
respect to their delinquency is necessary
to facilitate a discussion between the
borrower and the servicer at the early
stages of delinquency. Many borrowers
do not know that their servicer can help
them avoid foreclosure if they are
having trouble making their monthly
payments. The Bureau believes a
statement encouraging the borrower to
call would help remove this barrier to
borrower-servicer communication.
Proposed comment 39(b)(2)(i)–1
explained that the servicer would not be
required, for example, to specifically
request the borrower to contact the
servicer regarding any particular loss
mitigation option. The Bureau is not
adopting this comment in the final rule
because the Bureau does not believe it
is necessary in light of comment
39(b)(2)(iii)–1, which explains that
§ 1024.39(b)(2)(iii) does not require that
a specific number of examples be
disclosed in the written notice.
Contact Information for the Servicer
To facilitate a dialogue between the
servicer and the borrower, proposed
§ 1024.39(b)(2)(ii) would have required
the written notice to include the
servicer’s mailing address and
telephone number. Proposed comment
39(b)(2)(ii)–1 had explained that, if
applicable, a servicer should provide
contact information that would put a
borrower in touch with servicer
personnel under the continuity of
contact rule at § 1024.40. Under
§ 1024.40(a)(2), servicers are generally
required to maintain policies and
procedures that are reasonably designed
to achieve the objective of ensuring that
a servicer makes available to a
delinquent borrower telephone access to
servicer personnel to respond to
borrower inquiries and, as applicable,
assist with loss mitigation options by
the time the servicer provides the
borrower with the § 1024.39(b) written
notice, but in any event not later than
the 45th day of a borrower’s
delinquency. See the section-by-section
analysis of § 1024.40(a) below.
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The Bureau is moving language from
comment 39(b)(2)(ii)–1 to regulation text
to clarify that servicers are required to
provide the telephone number to access
servicer personnel assigned under
§ 1024.40(a) and the servicer’s mailing
address. The Bureau believes it is more
appropriate to include as a requirement
of § 1024.39(b)(2)(ii), rather than as
commentary, that servicers must
provide in the written notice the
telephone number to access continuity
of contact personnel. The Bureau
believes that including this contact
information will help direct borrowers
to continuity of contact personnel who
will be able to assist delinquent
borrowers.
Brief Description of Loss Mitigation
Options
Proposed § 1024.39(b)(2)(iii) would
have required that the written notice
include a statement, if applicable,
providing a brief description of loss
mitigation options that may be available
from the servicer. Proposed comment
39(b)(2)(iii)–1 explained that
§ 1024.39(b)(2)(iii) does not mandate
that a specific number of examples be
disclosed, but explained that borrowers
are likely to benefit from examples that
permit them to remain in their homes
and examples of options that would
require that borrowers end their
ownership of the property in order to
avoid foreclosure. Proposed comment
39(b)(2)(iii)–2 explained that an
example of a loss mitigation option may
be described in one or more sentences.
Proposed comment 39(b)(2)(iii)–2 also
explained that if a servicer offers several
loss mitigation programs, the servicer
may provide a generic description of
each option instead of providing
detailed descriptions of each program.
The comment explained, for example,
that if a servicer provides several loan
modification programs, it may simply
provide a generic description of a loan
modification.
Many consumer advocacy groups
recommended that servicers should be
required to provide detailed information
about all loss mitigation options
available from the servicer. One
consumer group recommended that
servicers provide individually tailored
information about a borrower’s options
depending on the nature of the
borrower’s loan. Another recommended
that servicers be required to inform
borrowers specifically what type of loan
they have and what options are
available to them. By contrast, several
industry commenters recommended that
the description of loss mitigation
options should be minimal, asserting
that lengthy explanations could confuse,
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overwhelm, and discourage borrowers
from reaching out to their servicer. One
large servicer indicated that, in its
experience, providing borrowers with
more generic information about loss
mitigation options resulted in better
contact rates and pull through to
complete loan modifications. One
industry commenter recommended that
any communication regarding loss
mitigation options should explicitly
state that all loss mitigation options
have qualification requirements and that
not all options are available to all
consumers to address the risk that
listing options that are not available to
certain borrowers could be perceived as
deceptive.
The Bureau is adopting proposed
§ 1024.39(b)(2)(iii) and the associated
commentary substantially as proposed.
The Bureau is amending the regulatory
text of proposed § 1024.39(b)(2)(iii) to
require that servicers are required to
describe only ‘‘examples’’ of loss
mitigation options that may be
available. The Bureau has made this
revision to clarify the nature of the
requirement, consistent with proposed
comment 39(a)(2)(iii)–1, which
explained that the regulation does not
mandate that a specific number of
examples be disclosed.
At the time the Bureau proposed its
early intervention requirements for the
Small Business Panel, the Bureau
considered requiring servicers to
provide a brief description of any loss
mitigation programs available to the
borrower.146 However, the Bureau did
not propose, and is not requiring in the
final rule, that servicers list all of the
loss mitigation options they offer. The
Bureau understands that, pursuant to
investor or guarantor requirements,
eligibility criteria for certain loss
mitigation options are complex and may
depend on circumstances that may arise
over the course of a borrower’s
delinquency. In addition, the Bureau
understands that loss mitigation options
may comprise several programs;
servicers may have, for example several
different types of loan modification
options. The Bureau understands that
there may be operational difficulties
associated with explaining subtle
differences among these programs in a
written notice. Moreover, the Bureau is
concerned that a lengthy written notice
may undermine the intended effect of
encouraging borrowers to contact their
servicers to discuss their options. The
Bureau is not requiring servicers to
146 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, appendix C (Jun, 11, 2012).
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provide each borrower with an
individually tailored written notice
about that borrower’s options because
the Bureau does not believe it would be
practicable for servicers to provide such
a notice at this stage of a borrower’s
delinquency or without additional
information about a borrower’s
particular circumstances. Instead, the
Bureau believes borrowers would be
better served by servicer continuity of
contact personnel explaining, in
accordance with policies and
procedures required under § 1024.40(b),
the various loss mitigation options for
which borrowers may be eligible.
In lieu of providing borrowers with
information about every option, the
Bureau proposed that the written notice
contain a statement, if applicable,
informing borrowers how to obtain more
information about loss mitigation
options from the servicer, as well as
contact information for housing
counseling resources that could provide
borrowers with information about other
loss mitigation options that might not be
listed on the written notice. As adopted
in the final rule, the notice must also
include the telephone number to access
servicer personnel assigned under
§ 1024.40(a). In addition, the Bureau has
included requirements in
§ 1024.40(b)(1) for servicers to establish
policies and procedures reasonably
designed to achieve the objectives of
providing accurate information
regarding loss mitigation options.
Pursuant to § 1024.38(b)(2)(ii), servicers
must also establish policies and
procedures reasonably designed to
achieve the objective of identifying all
loss mitigation options for which a
borrower may be eligible. For these
reasons and those set forth in the
proposal, the Bureau is adopting the
§ 1024.39(b)(2)(iii) substantially as
proposed.
The Bureau is retaining proposed
comment 39(b)(2)(iii)–1, which explains
that § 1024.39(b)(2)(iii) does not require
that a specific number of examples be
disclosed, but that borrowers are likely
to benefit from examples of options that
would permit them to retain ownership
of their home and examples of options
that may require borrowers to end their
ownership to avoid foreclosure. The
comment further explains that a servicer
may include a generic list of loss
mitigation options that it offers to
borrowers, and that it may include a
statement that not all borrowers will
qualify for all of the listed options,
because different loss mitigation options
may be available to borrowers
depending on the borrower’s
qualifications or other factors. The
Bureau proposed this comment to avoid
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borrower confusion regarding their
eligibility for loss mitigation options
listed in the materials. The Bureau
agrees that servicers should be able to
clarify that not all of the enumerated
loss mitigation options will necessarily
be available. During consumer testing of
the proposed model clauses, all
participants understood that the fact
that they received this notice did not
mean that they would necessarily
qualify for these options. The Bureau is
adopting this comment substantially as
proposed.
The Bureau is also retaining proposed
comment 39(b)(2)(iii)–2 substantially as
proposed, which explains that an
example of a loss mitigation option may
be described in one or more sentences
and that if a servicer offers several loss
mitigation programs, the servicer may
provide a generic description of the type
of option instead of providing detailed
descriptions of each program. The
Bureau has included this comment
because the Bureau recognizes that there
may be operational difficulties
associated with determining how to
explain specialized loss mitigation
programs. The Bureau recognizes that
loss mitigation options are complex, and
providing comprehensive explanations
of each option may overwhelm
borrowers and may undermine the
intended effect of the written notice of
encouraging borrowers to get in touch
with their servicers to identify
appropriate relief. The Bureau does not
believe that borrowers would benefit
from a disclosure with voluminous
detail at the early stage of exploring
available options. Instead, the Bureau
believes that servicers should provide
borrowers with a brief explanation of
loss mitigation options and encourage
borrowers to contact their servicer to
discuss whether any options may be
appropriate.
Explanation of How the Borrower May
Obtain More Information About Loss
Mitigation Options
Proposed § 1024.39(b)(2)(iv) would
have required the written notice to
include an explanation of how the
borrower may obtain more information
about loss mitigation options, if
applicable. Proposed comment
39(b)(2)(iv)–1 explained that, at a
minimum, a servicer could comply with
this requirement by directing the
borrower to contact the servicer for
more information, such as through a
statement like, ‘‘contact us for
instructions on how to apply.’’
Consumer advocacy groups
recommended that the Bureau require
servicers to identify the deadline by
which borrowers must send application
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materials. One consumer group
indicated that a requirement to notify
borrowers of application deadlines in
the written notice was necessary to
coordinate with the Bureau’s proposed
requirement in 1024.41(g) that only
applications received by the servicer’s
deadline are subject to the prohibition
on foreclosure sales. In addition to
application deadlines, many consumer
advocacy groups recommended that
servicers be required to provide
borrowers with eligibility requirements,
an application form and application
instructions, along with a clear list of
required documentation necessary to be
considered a complete application,
consistent with GSE practice. By
contrast, an industry commenter
indicated that communications about
loss mitigation options should be more
general in nature rather than provide too
much detail that might overwhelm
borrowers. An individual consumer
indicated that the most important
element of the notice was to inform
borrowers who they could contact to
discuss their options.
While the Bureau appreciates that
borrowers may benefit from knowing
about the applicability of deadlines, the
Bureau is concerned that there may be
operational difficulties with a
requirement to disclose application
deadlines in the written notice at
§ 1024.39(b). Because the Bureau is not
requiring servicers to disclose in the
written notice all loss mitigation options
available from the servicer, the Bureau
does not believe it would be appropriate
to require servicers to disclose all loss
mitigation application deadlines that
may apply; otherwise, such information
could be confusing to borrowers.
Moreover, the Bureau is concerned that
there may be comprehension difficulties
associated with an explanation in the
§ 1024.39(b) written notice of the
interaction between application
deadlines and deadlines in the Bureau’s
loss mitigation procedures at § 1024.41.
The Bureau believes that a requirement
to specifically identify application
deadlines in the early intervention
notice requires further analysis by the
Bureau to address the concern that
disclosure of deadlines occurring far in
the future might discourage borrowers
from acting quickly to resolve a
delinquency. See the discussion below
under the heading ‘‘Foreclosure
Statement’’ for more discussion of the
Bureau’s concerns about borrower
perception of deadlines in the early
intervention notice. Further, the Bureau
notes that servicers must maintain
policies and procedures reasonably
designed to ensure that servicer
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personnel assigned to a borrower
pursuant to § 1024.40(a) provide
borrowers accurate information about
actions that the borrower must take to
be evaluated for loss mitigation options
and applicable loss mitigation deadlines
established by an owner or assignee of
a mortgage loan or § 1024.41. See
§ 1024.40(b)(1)(ii) and (v); § 1024.41
(setting forth various procedural
requirements and timeframes governing
a servicer’s consideration of a
borrower’s loss mitigation application).
Finally, because the Bureau is adopting
§ 1024.41(f)(1) to prohibit servicers from
making the first notice or filing required
by applicable law unless a borrower’s
mortgage loan is more than 120 days
delinquent, borrowers will have more
time to submit loss mitigation
applications before a servicer initiates
the foreclosure process.
The Bureau is not adopting a rule to
require servicers to identify application
materials in the written notice. At the
time the Bureau proposed its early
intervention requirements for the Small
Business Review Panel, the Bureau
considered requiring servicers to
provide a brief outline of the
requirements for qualifying for any
available loss mitigation programs,
including documents and other
information the borrower must provide,
and any timelines that apply.147 The
Bureau did not propose requiring
servicers to provide this level of detail
because each loss mitigation option may
have its own specific documentation
requirements and servicers may be
unable to provide comprehensive
application instructions generally
applicable to all options. Additionally,
because the Bureau had proposed that
servicers provide only examples of loss
mitigation options in the written notice,
the proposal noted that detailed
instructions for only the listed options
may not be useful for all borrowers. The
Bureau believes setting consistent and
streamlined requirements best achieves
the central purpose of the early
intervention notice, which is to inform
borrowers that help is available and to
encourage them to contact their servicer.
In addition, the Bureau understands that
not all loss mitigation options are
necessarily appropriate for every
borrower. The Bureau is concerned that
a requirement to provide application
materials for all options listed in the
notice might be overwhelming for
borrowers at this stage in the process.
Servicers might have multiple loss
147 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, appendix C (Jun, 11, 2012).
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mitigation options and each may have
its own documentation requirements. A
requirement to prospectively disclose
all documentation requirements for all
listed options could prove voluminous.
Additionally, a borrower’s eligibility for
options depends on the borrower’s
circumstances as well as the stage of
delinquency, and the Bureau believes
servicers or housing counselors are best
suited to advising borrowers about their
options during a live conversation.
The Bureau’s continuity of contact
requirements are designed to assist
borrowers who are provided the
§ 1024.39(b) written notice or who reach
a certain stage of delinquency. These
requirements are designed to ensure
servicers have servicer personnel
dedicated to guiding such borrowers
through the loss mitigation application
process. Pursuant to § 1024.40(a),
servicers must maintain policies and
procedures that are reasonably designed
to achieve the objective of making
available to a delinquent borrower
telephone access to servicer personnel
to respond to the borrower’s inquiries
and, as applicable, assist the borrower
with loss mitigation options to
borrowers by the time the servicer
provides the borrower with the
§ 1024.39(b) written notice but in any
event no than the 45th day of a
borrower’s delinquency. Pursuant to
§ 1024.40(b)(1), the Bureau has set forth
objectives that servicer policies and
procedures for continuity of contact
personnel must be reasonably designed
to achieve. These objectives include
providing accurate information about
loss mitigation options available to a
borrower from the owner or assignee of
a mortgage loan; actions the borrower
must take to be evaluated for such
options, including actions the borrower
must take to submit a complete loss
mitigation application, as defined in
§ 1024.31, and, if applicable, actions the
borrower must take to appeal the
servicer’s determination to deny the
borrower’s loss mitigation application
for any trial or permanent loan
modification program offered by the
servicer; the status of any loss
mitigation application that the borrower
has submitted to the servicer; the
circumstances under which the servicer
may make a referral to foreclosure; and
applicable loss mitigation deadlines
established by an owner or assignee of
a mortgage loan or § 1024.41. The
Bureau believes these requirements will
help ensure borrowers receive accurate
information about how to submit a
complete loss mitigation application.
Of course, servicers may choose to
provide application materials with the
written notice. Accordingly, the Bureau
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proposed comment 39(b)(2)(iv)–1 to
explain that, to expedite the borrower’s
timely application for any loss
mitigation options, servicers may wish
to provide more detailed instructions on
how a borrower could apply, such as by
listing representative documents the
borrower should make available to the
servicer, such as tax filings or income
statements, and by providing estimates
for when the servicer expects to make a
decision on a loss mitigation option.
Proposed comment 39(b)(2)(iv)–1 also
provided that servicers may supplement
the written notice with a loss mitigation
application form. The Bureau is
adopting this comment substantially as
proposed in the final rule.
Foreclosure Statement
Proposed § 1024.39(b)(2)(v) would
have required that the written notice
include a statement explaining that
foreclosure is a legal process to end the
borrower’s ownership of the property.
Proposed § 1024.39(b)(2)(v) also would
have required that the notice include an
estimate of how many days after a
missed payment the servicer makes the
referral to foreclosure. The Bureau
proposed to clarify through comment
39(b)(2)(v)–1 that the servicer may
explain that the foreclosure process may
vary depending on the circumstances,
such as the location of the borrower’s
property that secures the loan, whether
the borrower is covered by the
Servicemembers Civil Relief Act, and
the requirements of the owner or
assignee of the borrower’s loan. The
Bureau also proposed to clarify through
comment 39(b)(2)(v)–2 that the servicer
may qualify its estimates with a
statement that different timelines may
vary depending on the circumstances,
such as those listed in comment
39(b)(2)(v)–1. Proposed comment
39(b)(2)(v)–2 also explained that the
servicer may provide its estimate as a
range of days.
Consumer advocacy groups and
industry commenters were generally
divided over whether servicers should
be required to provide information
about foreclosure in the written notice,
although one industry trade group
supported such a requirement. Several
industry commenters supported the
Bureau’s proposal to provide an
estimated range of dates for when
foreclosure may occur, citing the need
to be flexible in light of unforeseen
circumstances and the variety of
timelines in which a foreclosure could
proceed in light of the nature of the
property. However, other industry
commenters were concerned that
including any range may be too
inaccurate to provide meaningful
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guidance to borrowers because of the
variety of factors that could influence a
foreclosure referral. One large servicer
explained that servicers do not typically
review accounts for or pursue
foreclosure until much later in a
borrower’s delinquency and that
including information about foreclosure
could be construed as a threat to take
action that is not likely to happen until
much later. Another industry
commenter and a trade group expressed
concern that requiring prospective
disclosure of possible foreclosure
timelines could lead to litigation if the
information turned out to be inaccurate.
By contrast, some consumer advocacy
groups recommended that the notices
should include a narrower foreclosure
timeline. Some consumer advocacy
groups also believed it was appropriate
to make servicers accountable to their
estimates, such as by prohibiting
servicers from initiating foreclosure
earlier than the timeline in the notice.
Industry commenters and consumer
advocacy groups were also divided over
whether the estimated foreclosure
timeline would undermine the purpose
of the early intervention notice. Several
industry commenters expressed concern
that a foreclosure timeline estimate
could confuse borrowers into believing
that the referral date is the last day for
loss mitigation options whereas help
may be available even after the
foreclosure referral date. One of these
commenters recommended that the
Bureau add qualifying language to
address concerns that a foreclosure
timeline estimate could mislead
borrowers into believing they had more
time to take action to avoid foreclosure.
Consumer advocacy groups, on the
other hand, believed that a more
detailed notice about the foreclosure
process could serve an educational
function. One consumer advocacy group
recommended provision of detailed,
State-specific foreclosure timelines
tailored to the borrower’s residence.
One coalition of consumer advocacy
groups recommended that the
foreclosure statement should provide
more explanation of the steps occurring
in the foreclosure process, such as a
description of court procedures and a
sheriff’s sale that occur in judicial
foreclosure jurisdictions; this group
explained that borrowers are often
confused about how foreclosure
referrals are related to the actual sale of
their home. This group of advocates also
explained that information when
foreclosure will start and end is also
important in non-judicial foreclosure
jurisdictions, where the foreclosure
process can occur quickly and with
fewer opportunities for borrowers to
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object. In addition, this group of
advocates recommended that the Bureau
should specify a minimum period of
time between a missed payment and the
date on which foreclosure may begin.
The Bureau notes at the outset that
because the Bureau is adopting
§ 1024.41(f)(1) to delay foreclosure
referrals until 120 days after a missed
payment, there is less risk of borrower
confusion about when foreclosure may
begin. Section 1024.41(f)(1) is discussed
in more detail below in the applicable
section-by-section analysis.
Nonetheless, while a single foreclosure
deadline would minimize compliance
issues around potentially inaccurate
estimates, the Bureau is concerned that
requiring foreclosure information in the
written early intervention notice may
cause borrower confusion and may
possibly discourage borrowers from
seeking early assistance. In addition, an
explanation that a servicer will not
initiate foreclosure until the 120th day
of delinquency may suggest to some
borrowers that they cannot submit a loss
mitigation application after the
initiation of foreclosure, which may not
necessarily be the case. See
§ 1024.41(g).148
During consumer testing of the model
clauses, participants had a mixed
reaction to the foreclosure statement,
which included an estimated timeline
for when foreclosure may begin. The
statement tested a timeline that
explained foreclosure could occur 90–
150 days after a missed payment. All
participants understood before reading
the statement that foreclosure was a
process through which their lender
could take their home if they did not
make their mortgage payments.
With respect to the estimated timeline
for when foreclosure may begin, some
thought that the estimated timeline
meant nothing would happen before
that date, despite the fact that the clause
stated that the process ‘‘may begin
earlier or later.’’ While some
participants appeared to be motivated to
act quickly because of the foreclosure
statement, others commented that the
estimated timeline implied that it was
less important to act immediately
because there would be a period of time
during which they would be safe from
foreclosure. One participant felt strongly
148 Section 1024.41(g) generally provides that, if
a borrower submits a complete loss mitigation
application after a servicer has made the first
foreclosure filing but more than 37 days before a
scheduled or anticipated foreclosure sale, a servicer
may not move for foreclosure judgment or order of
sale, or conduct a foreclosure sale until a borrower
is notified of the borrower’s ineligibility for a loss
mitigation options, the borrower rejects a loss
mitigation offer, or the borrower fails to perform as
agreed under an option.
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that if it were true that the foreclosure
process could start in less than 90 days,
then the reference to the 90 to 150 day
time period should be removed from the
clause because it was misleading.
The Bureau is not finalizing the
proposed requirement that servicers
notify borrowers about foreclosure in
the written notice. While the Bureau
agrees that the early intervention
written notice could serve an
educational function with regard to the
foreclosure process, the Bureau believes
a requirement to notify borrowers about
the foreclosure process in the written
early intervention notice requires
further evaluation by the Bureau
because of the risk that such a
disclosure could be perceived as
confusing or negatively by borrowers,
and may discourage some borrowers
from reaching out to their servicer
promptly. As the Bureau noted in its
proposal, during the Small Business
Review Panel outreach, some small
servicer representatives explained that
information about foreclosure is
typically not provided until after loss
mitigation options have been
explored; 149 and during consumer
testing, several participants indicated
that the tone of the foreclosure
statement seemed at odds with the tone
of the rest of the clauses encouraging
borrowers to resolve their delinquency
as soon as possible. Further, the Bureau
is concerned that, given the variation in
State foreclosure processes, a
prescriptive requirement to explain
foreclosure may either result in
explanations that are too generic to be
useful or too complex to be easily
understood. Accordingly, for the
reasons set forth above, the Bureau is
removing the proposed requirement that
servicers provide information about the
foreclosure process in the written early
intervention notice.
Although the Bureau is not finalizing
the requirement for servicers to provide
a statement describing foreclosure in the
written notice, the Bureau agrees that
some borrowers would benefit from
receiving information about foreclosure
at the time of receiving information
about loss mitigation options. Such
information could help some borrowers
understand their choices they face at the
early stages of delinquency. The Bureau
believes the requirements to include
contact information for housing
counselors and servicer personnel
assigned under § 1024.40(a) will help
address potential information
149 See U.S. Consumer Fin. Prot. Bureau, Final
Report of the Small Business Review Panel on
CFPB’s Proposals Under Consideration for Mortgage
Servicing Rulemaking, 31 (Jun, 11, 2012).
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shortcomings of the written notice.
Pursuant to § 1024.40(b)(1)(iv), servicers
must have policies and procedures
reasonably designed to ensure that
servicer continuity of contact personnel
provide accurate information about the
circumstances under which borrowers
may be referred to foreclosure.
Accordingly, for the reasons discussed
above, the Bureau is not finalizing
proposed § 1024.39(b)(2)(iv) or model
clause MS–4(D), which contained
language illustrating the foreclosure
statement.
Contact Information for Housing
Counselors and State Housing Finance
Authorities
Proposed § 1024.39(b)(vi) would have
required the written notice to include
contact information for any State
housing finance authority for the State
in which the borrower’s property is
located, and contact information for
either the Bureau list or the HUD list of
homeownership counselors or
counseling organizations.
With respect to contact information
for homeownership counselors or
counseling organizations, the Bureau
proposed to require similar information
pertaining to housing counseling
resources that would be required on the
ARM interest rate adjustment notice and
the periodic statement, as provided in
the Bureau’s 2012 TILA Mortgage
Servicing Proposal.150 For these notices,
the Bureau did not propose that
servicers include a list of specific
housing counseling programs or
agencies (other than the State housing
finance authority, discussed below), but
instead that servicers provide contact
information for either the Bureau list or
the HUD list of homeownership
counselors or counseling organizations.
The Bureau solicited comment on
whether the written early intervention
notice should include a generic list to
access counselors or counseling
organizations, as proposed here, or a list
of specific counselors or counseling
organizations, as was proposed in the
2012 HOEPA Proposal.151
150 See proposed Regulation Z §§ 1026.20(d) and
1026.41(d)(7) in the Bureau’s 2012 TILA Mortgage
Servicing Proposal.
151 The 2013 HOEPA Final Rule, which, among
other things, implements RESPA section 5(c),
which requires lenders to provide applicants of
federally related mortgage loans with a ‘‘reasonably
complete or updated list of homeownership
counselors who are certified pursuant to section
106(e) of the Housing and Urban Development Act
of 1968 (12 U.S.C. 1701x(e)) and located in the area
of the lender.’’ The list provided to applicants
pursuant to this requirement will be obtained
through a Bureau Web site Bureau or data made
available by the Bureau or HUD to comply with this
requirement.
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Some consumer advocacy groups
recommended that the Bureau require
that servicers provide a list of specific
counselors or HUD-certified agencies,
citing the need to protect borrowers
against so-called ‘‘foreclosure rescue’’
scams, and one organization
recommended that the Bureau require
servicers to refer borrowers directly to
specific counselors upon the borrower’s
request. Industry commenters expressed
support for the proposed requirement to
provide generic contact information for
borrowers to access a list of counselors.
One industry commenter was concerned
that requiring servicers to provide a list
of counselors would require frequent
updating by servicers to ensure the
accuracy of the notice. In addition, the
commenter was concerned that
providing a list of counselors could be
construed as the servicer advocating for
a particular counselor. One housing
counseling organization and an industry
commenter explained that some States
already require that servicers provide a
list of nonprofit housing counseling
agencies at the time of sending a written
foreclosure notice. The housing
counseling organization recommended
that the final rule require servicers to
provide a list of HUD-approved
nonprofit counseling agencies in the
written notice, while the industry
commenter was concerned about
complying with overlapping
requirements.
During the fourth round of consumer
testing in Philadelphia, all participants
indicated they were likely to take
advantage of the contact information
contained in the notice, although they
indicated they would try to contact their
bank first.152 Several participants said
that they would contact HUD 153 or the
State housing finance agency 154 if they
were not satisfied with the assistance
they got from their bank. One
participant indicated that this contact
information would be useful to help
verify that information provided by the
152 During consumer testing, participants referred
colloquially to their ‘‘bank.’’ The Bureau does not
believe this reflects comprehension difficulties with
respect to the party borrowers must contact. During
testing when asked whether the terms ‘‘servicer’’
and ‘‘lender’’ were identical, participants indicated
that they were not.
153 Macro tested a statement including HUD’s
housing counselor list and phone number because,
at the time of testing, the Bureau did not have a web
site containing this information. The Bureau
believes consumers would have the same reaction
if the Bureau’s contact information were listed
instead of HUD’s.
154 At the time of testing, the Bureau tested
clauses that included contact information for a State
housing finance agency, as the Bureau would have
required to be listed under proposed
§ 1024.39(b)(2)(vi).
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lender was accurate and followed legal
guidelines.
The Bureau is adopting the
requirement substantially as proposed,
renumbered as § 1024.39(b)(2)(v) from
§ 1024.39(b)(2)(vi). Section
1024.39(b)(2)(v) requires servicers to
include in the written notice the Web
site to access either the Bureau list or
the HUD list of homeownership
counselors or counseling organizations,
and the HUD toll-free telephone number
to access homeownership counselors or
counseling organizations.155 The Bureau
is modifying the proposed requirement,
which would have required servicers to
list either the HUD telephone number or
a Bureau telephone number. In the final
rule, the Bureau is requiring servicers to
list the HUD telephone number but not
a Bureau telephone number because the
Bureau believes the HUD telephone
number that currently exists provides
adequate access to approved counseling
resources.
As noted in its proposal, the Bureau
believes that delinquent borrowers
would benefit from knowing how to
access housing counselors because some
borrowers may be more comfortable
discussing their options with a thirdparty.156 In addition, a housing
counselor could provide a borrower
with additional information about loss
mitigation options that a servicer may
not have listed on the written notice.
The Bureau also believes the contact
information to access the HUD or
Bureau list would provide borrowers
with access to qualified counselors or
counseling organizations that could
counsel borrowers about potential
foreclosure rescue scams. While the
Bureau agrees that borrowers may
benefit from a list of specific counseling
organizations or counselors, the Bureau
also believes that there is value in
keeping the content requirements in the
written notice flexible to ensure the
notice is able to accommodate existing
requirements, such as State laws, that
may overlap with the Bureau’s
requirements. The Bureau believes that
providing borrowers with the Web site
address for either the Bureau or HUD
list of homeownership counseling
agencies and programs would
155 The HUD list is available at http://
www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm and the
HUD toll-free number is 800–569–4287. The Bureau
list will be available by the effective date of this
final rule at http://www.consumerfinance.gov/.
156 Some servicers have found that borrowers may
trust independent counseling agencies more than
they trust servicers. See Office of the Comptroller
of the Currency, Foreclosure Prevention: Improving
Contact with Borrowers, Insights (June 2007) at 6,
available at http://www.occ.gov/topics/communityaffairs/publications/insights/insights-foreclosureprevention.pdf.
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streamline the disclosure and present
clear and concise information for
borrowers.
In addition to information about
accessing housing counselors, the
Bureau proposed to require that the
written notice include contact
information for the State housing
finance authority located in the State in
which the property is located. In its
proposal, the Bureau sought comment
on the costs and benefits of the
provision of information about housing
counselors and State housing finance
authorities to delinquent borrowers in
the proposed written notice. The Bureau
also sought comment on the potential
effect of the Bureau’s proposal on access
to homeownership counseling generally
by borrowers, and the effect of increased
borrower demand for counseling on
existing counseling resources, including
demand on State housing finance
authorities.
A State housing finance agency, an
association of State housing finance
agencies, and a large servicer
recommended that the Bureau remove
housing finance authority contact
information from the written notice,
citing resource limitations of State
housing finance authorities. The large
servicer expressed concern that
borrowers would blame their servicer
for directing them to State housing
finance agencies that proved unable to
provide assistance, or that such an
experience would discourage borrowers
from seeking other assistance. Two
industry commenters also
recommended that the Bureau eliminate
the requirement to provide State
housing finance authority contact
information, citing the tracking burden
associated with this requirement. One
commenter explained that a phone
number to access housing counselors
(e.g., through a HUD or Bureau phone
number or Web site) would provide
borrowers with sufficient access to
assistance. As an alternative, the
industry commenter suggested that the
Bureau host this information or that the
Bureau simply include language that
there may be State-sponsored programs
in the borrower’s State that could be
helpful. Another servicer recommended
that the written notice simply reference
that assistance may be available through
the State Housing Finance Authority
and provide a telephone number that
borrowers could call to learn more about
them.
In the final rule, the Bureau is
omitting the proposed requirement to
disclose State housing finance authority
contact information in the written
notice because the Bureau shares the
concern of the State housing finance
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authorities that directing borrowers to
specific State agencies may overwhelm
their limited resources. The Bureau also
understands that not all State housing
finance authorities offer counseling
services, which may cause confusion
among delinquent borrowers directed to
such entities. In addition, the Bureau
believes providing contact information
for housing counselors or counseling
organizations through access to a HUD
or Bureau Web site or telephone number
will ensure borrowers have access to
assistance. Accordingly, the Bureau is
amending proposed paragraph (b)(2)(vi)
to contain no subparagraphs and is
renumbering it as paragraph (b)(2)(v) in
light of the deletion of the proposed
foreclosure statement. In addition, the
Bureau is deleting the portion of model
clause MS–4(E) containing language
about State housing finance authorities.
39(b)(3) Model Clauses
The Bureau proposed to add new
§ 1024.39(b)(3), which contained a
reference to proposed model clauses
that servicers may use to comply with
the written notice requirement. The
Bureau proposed to include these model
clauses are in new appendix MS–4. For
more detailed discussion of the model
clauses, see the section-by-section
analysis of appendix MS below.
39(c) Conflicts With Other Law
As noted above, industry commenters
were concerned that the Bureau’s
proposed early intervention
requirements could conflict with
existing law. Several commenters
requested guidance on whether
servicers would be required to comply
with the early intervention requirements
if the borrower instructed the servicer to
cease collection efforts, not to contact
the borrower by telephone, or that the
borrower refuses to pay the debt.
Several of these commenters requested
that the Bureau include an exemption in
cases involving debt collection or
bankruptcy law. One industry
commenter requested that the Bureau
clarify whether servicers would have
immunity from claims of harassment or
improper conduct under the Fair Debt
Collection Practices Act, 15 U.S.C. 1692.
To address concerns about conflicts
with other law, the Bureau has added
subsection (c) to § 1024.39 to provide
that nothing in § 1024.39 shall require a
servicer to communicate with a
borrower in a manner otherwise
prohibited under applicable law. The
Bureau has added this provision to
clarify that the Bureau does not intend
for its early intervention requirements to
require servicers to take any action that
may be prohibited under State law, such
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as a statutory foreclosure regime that
may prohibit certain types of contact
with borrowers that may be required
under § 1024.39. The Bureau has also
added this provision to clarify that
servicers are not required to make
contact with borrowers in a manner that
may be prohibited by Federal laws, such
as the Fair Debt Collection Practices Act
or the Bankruptcy Code’s automatic stay
provisions. The Bureau has also added
comment 39(c)–1 to address borrowers
in bankruptcy. Comment 39(c)–1
provides that § 1024.39 does not require
a servicer to communicate with a
borrower in a manner inconsistent with
applicable bankruptcy law or a court
order in a bankruptcy case; and that, to
the extent permitted by such law or
court order, servicers may adapt the
requirements of § 1024.39 in any
manner that would permit them to
notify borrowers of loss mitigation
options. Through this comment the
Bureau has not sought to interpret the
Bankruptcy Code, but instead intended
to indicate that servicers may take a
flexible approach to complying with
§ 1024.39 in order to provide
information on loss mitigation options
to borrowers in bankruptcy to the extent
permitted by applicable law or court
order.
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Section 1024.40
Continuity of Contact
Background. As discussed above, this
final rule addresses servicers’ obligation
to provide delinquent borrowers with
access to servicer personnel to respond
to inquiries, and as applicable, assist
them with foreclosure avoidance
options. Widespread reports of
communication breakdowns between
servicers and delinquent borrowers who
present a heightened risk for default
have revealed that one of the most
significant impediments to the success
of foreclosure mitigation programs is the
inadequate manner by which servicer
personnel at major servicers have
provided assistance to these borrowers.
The Bureau noted in the proposal that
the problem was systemic. For example,
Federal regulatory agencies reviewing
mortgage servicing practices have found
that ‘‘a majority of the [servicers
examined] had inadequate staffing
levels or had recently added staff with
limited servicing experience.’’ 157 The
Bureau proposed § 1024.40 to establish
requirements to ensure that there would
be a baseline level of standards that
would address the issue.
157 See Fed. Reserve Sys., Office of the
Comptroller of the Currency, & Office of Thrift
Supervision, Interagency Review of Foreclosure
Policies and Practices, at 8 (2011).
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Proposed § 1024.40(a)(1) would have
provided that a servicer must assign
personnel to respond to borrower
inquiries and as applicable, assist a
borrower with loss mitigation options
no later than five days after a servicer
has provided such borrower with the
oral notice that would have been
required by proposed § 1024.39(a). For a
transferee servicer, proposed
§ 1024.40(a)(1) would have required
such servicer to make the assignment
within a reasonable time after the
mortgage servicing right to a borrower’s
mortgage loan has been transferred to
such servicer if the borrower’s previous
servicer had assigned personnel to such
borrower as would have been required
by proposed § 1024.40(a)(1) before the
mortgage servicing right was transferred
and the assignment had not ended when
the servicing right was transferred.
Proposed § 1024.40(a)(2) would have
required a servicer to make access to
assigned personnel available via
telephone and would have set forth
related requirements on what a servicer
must do if a borrower contacts the
servicer and does not receive a live
response from the assigned personnel.
Proposed § 1024.40(b) would have
required a servicer to establish
reasonable policies and procedures
designed to ensure that the servicer
personnel the servicer assigns to a
borrower pursuant to proposed
§ 1024.40(a) perform certain enumerated
functions. Proposed § 1024.40(c) would
have set forth requirements with respect
to how long the assigned personnel
must be assigned and available to a
borrower.
Although many servicers failed to
adequately assist delinquent borrowers,
the Bureau recognized that some
servicers provide a high level of
customer service to their borrowers both
to ensure loan performance (because
either they or one of their affiliates
owned the loan) and maintain strong
customer relationships (because they
rely on providing borrowers with other
products and services and thus have a
strong interest in preserving their
reputation and relationships with their
customers). The Bureau believed that to
the extent that a servicer’s existing
practices with respect to providing
assistance to delinquent borrowers have
been successful at helping borrowers
avoid foreclosure, it was important that
these practices be permitted to continue
to exist within the framework of
proposed § 1024.40. The Bureau sought
to clarify the Bureau’s intent by
explaining in proposed comment
40(a)(1)–3.i that the continuity of
contact provisions allowed a servicer to
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10807
exercise discretion to determine the
manner by which continuity of contact
is implemented.
The Bureau received general
comments about whether it was
appropriate for the Bureau to regulate
the manner by which servicer personnel
at servicers provide assistance to
delinquent borrowers. With one
exception, consumer groups expressed
support for proposed § 1024.40. One
consumer group that identified itself as
primarily serving Asian-Americans and
Pacific Islander communities expressed
concern that proposed § 1024.40 only
appeared to address the initial
assignment of servicer staff to assist
delinquent borrowers. The commenter
also urged the Bureau to mirror the
more prescriptive approach of the
National Mortgage Settlement and the
California Homeowner Bill of Rights.
A number of consumer groups
suggested that the Bureau add an
additional requirement to require
servicers to establish electronic loan
portals to facilitate the exchange of
documents related to a borrower’s loan
modification application. Consumer
groups asserted that servicers’ insistence
that borrowers have not submitted
requested documents remains a barrier
to loan modification success and that
the National Mortgage Settlement
already requires the five largest
servicers to develop online portals
linked to a servicer’s primary servicing
system where borrowers can check the
status of their first-lien loan
modifications, at no cost to them.
Industry commenters generally
expressed agreement with the principle
that servicers must have adequate
staffing levels to meet the needs of
delinquent borrowers and commended
the Bureau for recognizing the
importance of permitting successful
servicing practices with respect to how
servicers provide assistance to
delinquent borrowers to continue to
exist. But smaller servicers and rural
creditors subject to Farm Credit
Administration rules generally
requested exemptions from the
continuity of contact requirements.
Smaller servicers predicted that the
continuity of contact requirements will
bring about a significant increase in
borrower communication, which they
will have to respond by significantly
increasing the size of their staff and
making substantial changes to their
servicing platforms. Smaller servicers
asserted that these adjustments will
increase their compliance costs and
result in the reduction in the high
quality of customer service they already
provide to their customers. Rural
lenders subject to Farm Credit
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Administration rules asserted that they
should be exempted from the Bureau’s
continuity of contact requirements
because they are already required to
follow a highly prescriptive set of
regulations when working with
borrowers with distressed loans issued
by the Farm Credit Administration.
They expressed concern about
potentially having to comply with
inconsistent regulations and borrower
confusion.
A national trade association
representing the reverse mortgage
industry sought a general exemption for
reverse mortgages, asserting that
continuity of contact requirements
would be duplicative of existing HUD
regulations that require servicers of
home equity conversion mortgages
(HECM) to assign specific employees to
assist HECM borrowers and provide the
information to HECM borrowers on an
annual basis and whenever the assigned
employees change.
Several industry commenters urged
the Bureau to make changes to § 1024.40
where they contend the proposal is
inconsistent with the National Mortgage
Settlement because of the cost of
potentially being required to comply
with different standards. One non-bank
servicer requested that the Bureau
specify that compliance with § 1024.40
would provide a safe harbor from
compliance with similar applicable law,
including State law, the National
Mortgage Settlement, HAMP guidelines,
and investor requirements. Another
non-bank servicer asserted that several
of the functions the Bureau proposed to
require continuity of contact personnel
to perform under § 1024.40 would
require servicers under some States’ law
to make available licensed loan
originators to assist borrowers and that
the Bureau should preempt such laws
because servicers may not have an
adequate number of licensed staff.
One bank servicer and one non-bank
servicer suggested the Bureau could
reduce any potential compliance burden
with § 1024.40 if the Bureau limited a
servicer’s duty to comply with § 1024.40
to borrowers who are responsive to
servicers’ attempts to engage them in
foreclosure avoidance options and who
have not vacated their principal
residences. One non-bank servicer urged
the Bureau create an exemption from
compliance with continuity of contact
requirements with respect to borrowers
who have filed for bankruptcy.
In light of the comments received and
upon further consideration, the Bureau
has made a number of changes to
§ 1024.40. The Bureau has concluded
that the best way to ensure that existing,
successful servicing practices with
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respect to assisting delinquent
borrowers be able to continue to exist
would be to adopt proposed § 1024.40
as a requirement for servicers to
maintain policies and procedures
reasonably designed to achieved
specified objectives, and leave it to each
servicers to implement its own policies
and procedures calculated to achieve
the desired results. Given the flexibility
provided by § 1024.40 as finalized, the
Bureau does not discern a need to
provide servicers with express safe
harbors or preemptions or a need to
make § 1024.40 align exactly with the
terms of the National Mortgage
Settlement.
The Bureau also declines to adopt the
electronic portal requirement a number
of consumers have urged the Bureau to
impose on servicers. The Bureau agrees
that servicers should, consistent with
the purposes of RESPA, facilitate the
exchange of documents related to a
borrower’s loan modification
application and is adopting
requirements in the final rule that
would support this objective. For
example, § 1024.38(b)(2)(iii) requires
servicers to maintain policies and
procedures reasonably designed to
achieve the objective of providing
prompt access to all documents and
information submitted by a borrower in
connection with a loss mitigation option
to servicer personnel assigned to assist
the borrower as described in § 1024.40.
The Bureau believes that to fulfill this
requirement, servicers must have
policies and procedures for the use of
reasonable means to track and maintain
borrower-submitted loss mitigation
documents. However, imposing on
servicers a specific obligation to
establish electronic portals would
supplant other reasonable means to
track and maintain borrower-submitted
loss mitigation documents. As noted
above, the Bureau expects to further
consider the benefits of electronic
portals, as well as requirements
regarding electronic communication
with servicers more broadly.
Further, for reasons discussed in the
section-by-section analysis of § 1024.30,
the Bureau has decided that
requirements set forth in the Bureau’s
discretionary rulemakings are generally
not appropriate to impose on small
servicers (servicers that servicers 5,000
mortgage loans or less and only
servicers mortgage loans that either they
or their affiliates own or originated),
housing finance agencies, servicers with
respect to any mortgage loan for which
the servicer is a qualified lender as that
term is defined in 12 CFR 617.7000, and
servicers of reverse mortgage
transactions.
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In addition, for reasons set forth
above, the Bureau has limited the scope
of §§ 1024.39 through 41 to mortgage
loans that are secured by a borrower’s
principal residence. But the Bureau
declines to further limit the scope of
§ 1024.40 to ‘‘responsive borrowers’’ or
to exclude borrowers who have filed for
bankruptcy. As discussed above, the
purpose of the early intervention,
continuity of contact, and loss
mitigation procedure requirements is to
ensure that a borrower who resides in a
property as a principal residence have
the protection of clear standards of
review for loss mitigation options so
that the borrower can be considered for
an option that will assist the borrower
in retaining the property and the owner
or assignee in mitigating losses. The
Bureau believes limiting the
applicability of § 1024.40 to
‘‘responsive’’ borrowers introduces a
notable degree of subjectivity that
conflicts with this purpose. The Bureau
additionally declines to create an
exemption with respect to borrowers
who have filed for bankruptcy because
the exemption would be too broad. A
borrower could have filed for
bankruptcy but still be eligible for loss
mitigation assistance.
Legal Authority
The Bureau proposed § 1024.40
pursuant to authority under sections
6(k)(1)(E), 6(j)(3), and 19(a) of RESPA,
and accordingly, like other rules issued
pursuant to the Bureau’s authority
under section 6 of RESPA, § 1024.40
would have been enforceable through
private rights of action. But as discussed
above, the Bureau is adopting § 1024.40
as an objectives-based policies and
procedures requirement. As discussed
above in the section-by-section analysis
of § 1024.38, the Bureau believes that
private liability is not compatible with
objectives-based policies and
procedures requirements. The Bureau
has therefore decided to finalize
§ 1024.40 such that there will be no
private liability for violations of the
provision. Accordingly, the Bureau no
longer relies on its authorities under
section 6 of RESPA to issue § 1024.40.
Instead, the Bureau is adopting
§ 1024.40 pursuant to its authority
under section 19(a) of RESPA. The
Bureau believes that the objectivesbased policies and procedures set forth
in § 1024.40 that regulate the manner by
which servicer personnel provide
assistance to delinquent borrowers are
necessary to achieve the purposes of
RESPA, including avoiding
unwarranted or unnecessary costs and
fees, ensuring that servicers are
responsive to consumer requests and
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complaints, and facilitating the review
of borrowers for foreclosure avoidance
options.
The Bureau is also adopting § 1024.40
pursuant to its authority under section
1022(b) of the Dodd-Frank Act to
prescribe regulations necessary or
appropriate to carry out the purposes
and objectives of Federal consumer
financial laws. Specifically, the Bureau
believes that § 1024.40 is necessary and
appropriate to carry out the purpose
under section 1021(a) of the Dodd-Frank
Act of ensuring that markets for
consumer financial products and
services are fair, transparent, and
competitive, and the objective under
section 1021(b) of the Dodd-Frank Act
of ensuring that markets for consumer
financial products and services operate
transparently and efficiently to facilitate
access and innovation. The Bureau
additionally relies on its authority
under section 1032(a) of the Dodd-Frank
Act, which authorizes the Bureau to
prescribe rules to ensure that the
features of any consumer financial
product or service, both initially and
over the term of the product or service,
are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances.
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Proposed 40(a)
Proposed § 1024.40(a)(1) would have
provided that no later than five days
after a servicer has notified or made a
good faith effort to notify a borrower to
the extent required by proposed
§ 1024.39(a), the servicer must assign
personnel to respond to the borrower’s
inquiries, and as applicable, assist the
borrower with loss mitigation options.
Proposed § 1024.40(a)(1) further
provided that if a borrower has been
assigned personnel as required by
§ 1024.40(a)(1) and the assignment has
not ended when servicing for the
borrower’s mortgage loan has
transferred to a transferee servicer,
subject to § 1024.40(c)(1) through (4),
the transferee servicer must assign
personnel to respond to the borrower’s
inquiries, and as applicable, assist the
borrower with loss mitigation options,
within a reasonable time of the transfer
of servicing for the borrower’s mortgage
loan. In support of the continuity of
contact requirements with respect to the
transfer of a borrower’s mortgage loan,
the Bureau reasoned that the transfer of
a borrower’s mortgage loan from one
servicer to another should not
negatively impact the borrower’s pursuit
of loss mitigation options.
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Proposed comment 40(a)(1)–1 would
have explained that for purposes of
responding to borrower inquiries and
assisting the borrower with loss
mitigation options, the term ‘‘borrower’’
includes a person whom the borrower
has authorized to act on behalf of the
borrower (a borrower’s agent), and may
include, for example, a housing
counselor or attorney. The comment
would have further explained that
servicers may undertake reasonable
procedures to determine if such person
has authority from the borrower to act
on the borrower’s behalf. Proposed
comment 40(a)(1)–1 reflects the
Bureau’s understanding that some
delinquent borrowers may authorize
third parties to assist them as they
pursue alternatives to foreclosure.
Accordingly, the Bureau sought to
clarify that a servicer’s obligation in
proposed § 1024.40 extends to persons
authorized to act on behalf of the
borrower.
Proposed comment 40(a)(1)–2 would
have clarified that for purposes of
§ 1024.40(a)(1), a reasonable time for a
transferee servicer to assign personnel to
a borrower is by the end of the 30-day
period of the transfer of servicing for the
borrower’s mortgage loan. Proposed
comment 40(a)(1)–2 reflects the
Bureau’s belief that a transferee servicer
may require some time after the transfer
of servicing to identify delinquent
borrowers who had personnel assigned
to them by the transferor servicer. The
Bureau believed that 30 days is a
reasonable amount of time for a
transferee servicer to assign personnel to
a borrower whose mortgage loan has
been transferred to the servicer through
a servicing transfer. The Bureau invited
comments on whether a longer time
frame is appropriate.
Proposed comment 40(a)(1)–3.i.
would have explained that a servicer
has discretion to determine the manner
by which continuity of contact is
implemented and reflected the Bureau’s
belief that a one-size-fits-all approach to
regulating the mortgage servicing
industry may not be optimal, and thus
servicers should be given flexibility to
implement proposed § 1024.40 in the
manner best suited to their particular
circumstances. Proposed comment
40(a)(1)–3.ii would have explained that
§ 1024.40(a)(1) requires servicers to
assign personnel to borrowers whom
servicers are required to notify pursuant
to § 1024.39(a). If a borrower whom a
servicer is not required to notify
pursuant to § 1024.39(a) contacts the
servicer to explain that he or she
expects to be late in making a particular
payment, the comment would have
explained that the servicer may assign
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10809
personnel to the borrower upon its own
initiative. Proposed comment 40(a)(1)–4
would have explained that proposed
§ 1024.40(a)(1) does not permit or
require a servicer to take any action
inconsistent with applicable bankruptcy
law or a court order in a bankruptcy
case to avoid any potential conflict
between the continuity of contact
requirements and the automatic stay.
The Bureau, however, invited comment
on whether servicers should be required
to continue providing delinquent
borrowers continuity of contact after
borrowers have filed for bankruptcy.
The Bureau proposed § 1024.40(a)(2)
to require a servicer to make access to
the assigned personnel available via
telephone. If a borrower contacted the
servicer and did not receive a live
response from the assigned personnel,
proposed § 1024.40(a)(2) would have
required that the borrower be able to
record his or her contact information
and that the servicer respond to the
borrower within a reasonable time.
Proposed comment 40(a)(2)–1 would
have provided that for purposes of
§ 1024.40(a)(2), three days (excluding
legal public holidays, Saturdays, and
Sundays) is a reasonable time to
respond. The Bureau intended comment
40(a)(2)–1 to function as a safe harbor
because the Bureau believed in most
cases, it would be reasonable to expect
that borrowers receive a response within
the proposed time frame. The Bureau
invited comments on whether the
Bureau should provide for a longer
response time.
As discussed above, consumer groups
generally supported the Bureau’s
proposed continuity of contact
requirements, but industry commenters
urged the Bureau to make changes in
various ways. With respect to proposed
§ 1024.40(a)(1), industry commenters
overwhelmingly opposed the
requirement that would have required a
servicer to make contact personnel
available to any borrower five days after
a servicer has orally notified such
borrower about the borrower’s late
payment in accordance with proposed
§ 1024.39(a). Commenters asserted that
tying the assignment of contact staff to
the oral notification requirement might
require servicers to devote significant
resources to assist borrowers who do not
require formal loss mitigation assistance
because in most cases, borrowers who
are delinquent for 30 days or less selfcure. The commenters additionally
asserted that the diversion of resources
would adversely impact borrowers who
actually need loss mitigation assistance
by diverting servicer resources
unnecessarily. One state credit union
association suggested that there might
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be implementation challenges because
servicers’ current systems might not be
set up to assign personnel based on a
borrower’s payment status.
Industry commenters suggested
alternative methods of assignment that
they asserted would be more effective:
(1) Delay assignment until borrowers
become at least 45 days delinquent (the
range was between 45 and 60 days); (2)
permit servicers to rely on their internal
policies and procedures to determine
the timing of assignment; (3) require
servicers to assign contact personnel to
borrowers who request loss mitigation
assistance, which could be
demonstrated by either submitting a loss
mitigation application or the first piece
of documentation a servicer has
requested from a borrower with respect
to a loss mitigation application. Industry
commenters who suggested the last
alternative observed that limiting a
servicer’s obligation to assign contact
personnel would be consistent with the
National Mortgage Settlement and thus
would make compliance with the
Bureau’s proposed rule less costly to
servicers who have already
implemented systems changes to
comply with the National Mortgage
Settlement.
With respect to comments received on
proposed § 1024.40(a)(2), one non-bank
servicer expressed concern about
whether proposed § 1024.40(a)(2) would
have required servicers to track
voicemail messages left in the voicemail
box of individual staff members and
urged the Bureau to change the
requirement such that borrowers are
transferred to available live
representatives or require servicers to
call borrowers back within some set
amount of time. With respect to
proposed comment 40(a)(2)–1, one
national non-profit organization urged
the Bureau to provide that a servicer
may take five days to respond because
it saw the three-day response time as a
requirement that it could not meet
because it is mostly staffed by
volunteers. A non-bank servicer
requested clarification whether the
three-day response time is guidance or
a requirement.
Final 1024.40(a)
For reasons discussed above, the
Bureau is adopting proposed § 1024.40
as a requirement that servicers maintain
a set of policies and procedures
reasonably designed to achieve
specified objectives. Accordingly, the
Bureau is withdrawing § 1024.40(a)(1)
and (2) because they are proposed as
specific requirements. But, the
objectives the Bureau is adopting in
§ 1024.40(a) largely draw from the
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specific requirements concerning
assignment of personnel in proposed
§ 1024.40(a), unless otherwise noted
below. As adopted, § 1024.40(a) requires
a servicer to maintain policies and
procedures that are reasonably designed
to achieve the following objectives: (1)
Assign personnel to a delinquent
borrower by the time a servicer provides
such borrower with the written notice
required in § 1024.39(b), but in any
event, not later than the 45th day of a
borrower’s delinquency; (2) make
available to such borrower, via
telephone, the assigned personnel to
respond to the borrower’s inquiries and,
as applicable, assist the borrower with
available loss mitigation options until
the borrower has made two consecutive
mortgage payments in accordance with
the terms of a permanent loss mitigation
agreement without incurring a late
charge; and (3) ensure that the servicer
can provide a live response to a
delinquent borrower who contacts the
assigned personnel but does not
immediately receive a live response.
After carefully considering industry
commenters’ concern that tying the
assignment of contact personnel to the
oral notification requirement in
proposed § 1024.39(a) might require
servicers to devote significant resources
to assist borrowers who do not require
formal loss mitigation assistance, the
Bureau has decided to delay the timing
of the assignment of contact personnel
to the 45th day of a borrower’s
delinquency, unless the servicer
provides the written notice required by
§ 1024.39(b) beforehand. The Bureau
believes that this change adequately
addresses the concern of industry
commenters that the proposal might
require servicers to devote significant
resources to assist borrowers who do not
require formal loss mitigation
assistance. To the extent a servicer
becomes obligated to assign contact
personnel to a borrower before such
borrower becomes 45-days delinquent,
it would be because the servicer has
determined that such borrower should
be informed of the availability of loss
mitigation options before day 45.
The Bureau does not believe it is
appropriate to make assignment and
availability of contact personnel
contingent on a borrower making a
request for loss mitigation assistance.
The Bureau believes that servicers have
more information about the
qualifications for various loss mitigation
options than borrowers, and
accordingly, the Bureau believes it is
necessary to achieve the purposes of
RESPA to require servicers to engage a
borrower in communication that would
facilitate reviewing a borrower for
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foreclosure avoidance options. The
Bureau also disagrees that servicers
would be unduly burdened by a
continuity of contact provision that does
not exactly align with the terms of the
National Mortgage Settlement. The
Bureau observes that the National
Mortgage Settlement requires a servicer
to identify the contact personnel to a
borrower after a borrower has requested
assistance. The Bureau is not requiring
that a servicer provide borrowers with
identifying information about the
contact personnel, just that contact
personnel be available to borrowers to
whom a servicer has provided loss
mitigation information to answer
borrower inquiries and assist borrowers
with loss mitigation options, as
applicable. The Bureau believes the
Bureau’s requirement is less
burdensome than the terms and
conditions of the National Mortgage
Settlement.
The Bureau has made changes to
proposed comment 40(a)(1)–1 in
response to general concerns expressed
by several industry commenters about
communicating with persons other than
a borrower with respect to error
resolution, information requests, and
during the loss mitigation process.
Industry commenters asserted that it
would be costly to servicers to verify
whether such persons are in fact
authorized to act on a borrower’s behalf.
They also expressed concern regarding
potential liability for inadvertent release
of confidential information and
violation of applicable privacy laws.
The Bureau acknowledges that
requiring servicers to provide continuity
of contact personnel to borrowers’
agents is more costly than limiting the
requirement to borrowers. The Bureau
believes, however, that borrowers who
are experiencing difficulty in making
their mortgage payments or in dealing
with their servicer may turn, for
example, to a housing counselor or
other knowledgeable persons to assist
them in addressing such issues. The
Bureau believes that it is necessary to
achieve the purposes of RESPA to
permit such agents to communicate
with the servicer on a borrower’s behalf.
Proposed comment 40(a)(1)–1 is
adopted as comment 40(a)–1 to clarify
that a servicer may undertake
reasonable procedures to determine if a
person who claims to be an agent of a
borrower has authority from the
borrower to act on the borrower’s behalf
and that such reasonable policies and
procedures may require that a person
that claims to be an agent of the
borrower provide documentation from
the borrower stating that the purported
agent is acting on the borrower’s behalf.
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The Bureau believes that this
clarification adequately balances the
duty of servicers to communicate with
third parties authorized by delinquent
borrowers to act on their behalf in
pursuing alternatives to foreclosure and
the compliance cost and potential
liability asserted by industry
commenters and described above.
Further, the Bureau notes that this
comment is similar to commentary
appearing in §§ 1024.35, 36, and 39.
In adopting § 1024.40(a), the Bureau
has added to comment 40(a)–1
clarification of what the term
‘‘delinquent borrower’’ means for
purposes of § 1024.40(a). Upon further
consideration, the Bureau believes it
would be better to state clearly in
§ 1024.40(a) that the continuity of
contact requirements in § 1024.40 only
apply to delinquent borrower rather
than setting forth a separate section in
proposed § 1024.40(c) to the same effect.
Accordingly, the Bureau is not adopting
proposed § 1024.40(c) and is instead
moving the substance of proposed
§ 1024.40(c), which the Bureau has
modified for reasons set forth below,
into commentary as part of comment
40(a)–1 to explain the term ‘‘delinquent
borrower.’’
The Bureau is adopting proposed
comment 40(a)(1)–3.i as comment 40(a)–
2. Two GSEs and a credit union
commenter asked the Bureau to move
the clarification in proposed comment
40(a)(1)–3.i that a servicer may assign a
team of persons to assist a borrower as
required by proposed § 1024.40(a)(1)
from commentary to rule text. The
Bureau declines because the proposed
clarification is an example of how a
servicer may exercise discretion to
determine the manner by which
continuity of contact is implemented.
Accordingly, the Bureau believes that it
is appropriate that the clarification
remains in the commentary.
As adopted, comment 40(a)–2
additionally provides that a servicer
may assign single-purpose or multipurpose personnel. Single-purpose
personnel are personnel whose primary
responsibility is to respond to a
delinquent borrower who meets the
assignment criteria described in
§ 1024.40(a)(1). Multi-purpose
personnel can be personnel that do not
have a primary responsibility at all, or
personnel for whom responding to a
borrower who meet the assignment
criteria set forth in § 1024.40(a)(1) is not
the personnel’s primary responsibility.
The Bureau added this clarification to
address comments by industry
commenters expressing concern that
some servicers do not have the capacity
to dedicate staff members to assisting
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borrowers with loss mitigation options
to the exclusion of other
responsibilities. Comment 40(a)–2
further explains that when a borrower
who meets the assignment criteria of
§ 1024.40(a) has filed for bankruptcy, a
servicer may assign personnel with
specialized knowledge in bankruptcy
law to assist such borrowers in response
to questions raised by industry
commenters about whether the Bureau’s
continuity of contact requirement would
allow servicers to reassign a borrower
who has filed for bankruptcy to
personnel with specialized knowledge
and training in bankruptcy law. Because
the Bureau is adopting this clarification
in comment 40(a)–2, the Bureau is not
adopting proposed comment 40(a)(1)–4,
which, as explained above, was
proposed to clarify the relationship
between proposed § 1024.40 and
bankruptcy law to address situations in
which servicers transfer the borrower’s
file to a separate unit of personnel (i.e.,
personnel who are not part of the
servicer’s loss mitigation unit), or to
outside bankruptcy counsel to comply
with bankruptcy law). The Bureau is
also not adopting proposed comment
40(a)(1)–3.ii because the final rule no
longer ties the assignment of contact
personnel to a servicer’s provision of the
oral notice that would have been
required pursuant to proposed
§ 1024.39(a).
As discussed above, proposed
§ 1024.40(a)(1) would have required a
transferee servicer to assign contact
personnel to a borrower if the borrower
had been assigned personnel by the
transferor servicer, and the assignment
had not ended at the time of the
borrower’s mortgage loan had been
transferred. The Bureau became
concerned that transferee servicers may
try to evade compliance with the
obligation to provide continuity of
contact by asserting that this obligation
is contingent upon whether the
borrower has been assigned contact
personnel by the transferor servicer. The
Bureau believes that preventing a
servicer’s evasion of its continuity of
contact obligation is necessary to
achieve the purposes of RESPA. The
Bureau believes that finalized
§ 1024.40(a) makes it clear that a
servicer’s obligation to maintain policies
and procedures reasonably designed to
assign contact personnel to certain
delinquent borrowers is not contingent
upon whether the borrower was
assigned such personnel by the
borrower’s previous servicer.
Proposed 40(b)
The Bureau proposed § 1024.40(b)(1)
to require a servicer to establish policies
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and procedures reasonably designed to
ensure that the servicer personnel the
servicer makes available to the borrower
pursuant to proposed § 1024.40(a)
perform certain functions that the
Bureau believed would facilitate
servicers’ review of a borrower for loss
mitigation options. The functions would
have been as follows: (1) Providing a
borrower with accurate information
about loss mitigation options offered by
the servicer and available to the
borrower based on information in the
servicer’s possession (proposed
§ 1024.40(b)(1)(i)(A)), actions a borrower
must take to be evaluated for loss
mitigation options, including what the
borrower must do to submit a complete
loss mitigation application, as defined
in proposed § 1024.41, and if applicable,
what the borrower must do to appeal the
servicer’s denial of the borrower’s
application (proposed
§ 1024.40(b)(1)(i)(B)), the status of the
borrower’s already-submitted loss
mitigation application (proposed
§ 1024.40(b)(1)(i)(C)), the circumstances
under which a servicer must make a
foreclosure referral (proposed
§ 1024.40(b)(1)(i)(D)), and loss
mitigation deadlines the servicer has
established (proposed
§ 1024.40(b)(1)(i)(E)); (2) accessing a
complete record of the borrower’s
payment history in the servicer’s
possession, all documents the borrower
has submitted to the servicer in
connection with the borrower’s
application for a loss mitigation option
offered by the servicer, and if
applicable, documents the borrower has
submitted to prior servicers in
connection with the borrower’s
application for loss mitigation options
offered by those servicers, to the extent
that those documents are in the
servicer’s possession (proposed
§ 1024.40(b)(1)(ii)(A through (C)); (3)
providing the documents in
§ 1024.40(b)(1)(ii)(B) through (C) to
persons authorized to evaluate a
borrower for loss mitigation options
offered by the servicer if the servicer
personnel assigned to the borrower is
not authorized to evaluate a borrower
for loss mitigation options (proposed
§ 1024.40(b)(1)(iii)); and (4) within a
reasonable time after a borrower request,
provide the information to the borrower
or inform the borrower of the telephone
number and address the servicer has
established for borrowers to assert an
error pursuant to § 1024.35 or make an
information request pursuant to
§ 1024.36 (proposed § 1024.40(b)(1)(iv)).
Proposed comment 40(b)(1)(iv) would
have clarified that for purposes of
§ 1024.40(b)(1)(iv), three days
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(excluding legal public holidays,
Saturdays, and Sundays) is a reasonable
time to provide the information the
borrower has requested or inform the
borrower of the telephone number and
address the servicer has established for
borrowers to assert an error pursuant to
§ 1024.35 or make an information
request pursuant to § 1024.36.
Proposed § 1024.40(b)(1) reflected the
Bureau’s belief that having staff
available to help delinquent borrowers
is necessary, but not sufficient, to
ensure that when a borrower at a
significant risk of default reaches out to
a servicer for assistance, the borrower is
connected to personnel who can address
the borrower’s inquiries or loss
mitigation requests adequately. The staff
a servicer makes available to delinquent
borrowers must be able to perform
functions that are calibrated toward,
among other things, facilitating the
review of borrowers for foreclosure
avoidance options. Further, as discussed
in the proposal, § 1024.40 was intended
to work together with proposed
§§ 1024.39 and 1024.41. For example,
proposed § 1024.41 would have
required a servicer to notify a borrower
if the borrower has submitted an
incomplete loss mitigation application.
Proposed § 1024.40(b)(1) would have
addressed this duty by requiring the
personnel assigned to the borrower to
inform the borrower about the steps the
borrower must take to complete his or
her loss mitigation application.
The Bureau additionally proposed
§ 1024.40(b)(1) based on the recognition
that mortgage investors and other
regulators have responded to
breakdowns in borrower-servicer
communication by requiring servicers to
adopt staffing standards. The Bureau
believed that the functions set forth in
proposed § 1024.40(b)(1) would have
complemented existing standards. The
Bureau did not receive comments in
response to proposed § 1024.40(b)(1),
with the exception that two national
consumer groups questioned whether
proposed § 1024.40(b)(1)(ii)(C) would
unnecessarily dilute a transferor
servicer’ responsibility to ensure it
transfers all relevant borrower
information and a transferee servicer’s
responsibility to ensure that it take
possession of all such information
because proposed § 1024.40(b)(1)(ii)(C)
would have limited the transferred
documents to ones in a transferee
servicer’s possession. The consumer
groups also questioned whether
§ 1024.40(b)(1)(ii)(C) would have
conflicted with proposed
§ 1024.38(b)(4), which would have
required servicers to transfer all of the
information and documents relating to a
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transferred mortgage loan. The Bureau
observes that the limitation was
proposed because the Bureau did not
believe a transferee servicer should be
exposed to potentially costly litigation if
the lack of access to documents is due
to the fault of the transferor servicer.
The Bureau observes that several of the
proposed objectives with respect to
providing information or accessing
information would have been limited to
circumstances where the information
was in the servicer’s possession. This
proposed limitation was intended to be
a safeguard to help servicers manage
costs arising from the litigation risk that
would have been created by the
existence of civil liability for violations
of proposed § 1024.40. But because the
Bureau has decided to finalize § 1024.40
such that there will be no private
liability for violations of the provision,
the Bureau is not adopting the
safeguard.
Proposed § 1024.40(b)(2) would have
provided that a servicer’s policies and
procedures satisfy the requirements in
§ 1024.40(b)(1) if servicer personnel do
not engage in a pattern or practice of
failing to perform the functions set forth
in § 1024.40(b)(1) where applicable.
Proposed comment 40(b)(2)–1.i would
have provided that for purposes of
§ 1024.40(b)(2), a servicer exhibits a
pattern or practice of failing to perform
such functions, with respect to a single
borrower, if servicer personnel assigned
to the borrower fail to perform any of
the functions listed in § 1024.40(b)(1)
where applicable on multiple occasions,
such as, for example, repeatedly
providing the borrower with inaccurate
information about the status of the loss
mitigation application the borrower has
submitted. Proposed comment 40(b)(2)–
1.ii would have explained that a
servicer exhibits a pattern or practice of
failing to perform such functions, with
respect to a large number of borrowers,
if servicer personnel assigned to the
borrowers fail to perform any of the
functions listed in § 1024.40(b)(1) in
similar ways, such as, for example,
providing a large number of borrowers
with inaccurate information about the
status of the loss mitigation applications
the borrowers have submitted.
The Bureau recognizes that contact
personnel may occasionally make a
mistake and fail to perform a function
enumerated in proposed § 1024.40(b)(1).
Proposed § 1024.40(b)(2) reflects the
Bureau’s belief that the occasional
mistake is not necessarily indicative of
servicers not complying with the
servicing obligation set forth in
proposed § 1024.40(b)(1). Accordingly,
just as the Bureau proposed the safe
harbor in proposed § 1024.38(a)(2) for
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servicers for non-systemic violations of
§ 1024.38 to manage the costs arising
from the litigation risk created by the
existence of civil liability for violations
of § 1024.38, the Bureau proposed a safe
harbor in proposed § 1024.40(b)(2) for
servicers for non-systemic violations of
§ 1024.40(b)(1).
Both consumer groups and industry
commenters opposed the safe harbor the
Bureau proposed in § 1024.40(b)(2). Just
as consumer groups urged the Bureau to
eliminate the proposed safe harbor in
proposed § 1024.38(a)(2) to reduce
barriers to successful litigation and to
ensure that the rule provides protection
for more borrowers, they urged the
Bureau to withdraw proposed
§ 1024.40(b)(2). Just as industry groups
urged the Bureau to eliminate the
pattern or practice private cause of
action under § 1024.38(a)(2) to reduce
significant litigation exposure, they
urged the Bureau to do the same with
respect to proposed § 1024.40(b)(2).
Moreover, as is true in the general
servicing policies and procedures
context, the Bureau is concerned that
the safe harbor in proposed
§ 1024.40(b)(2) would hamper the
Bureau and other regulators in
exercising supervisory authority and
could preclude relief from being secured
until there have been widespread or
repeated incidents of consumer harm.
Further, the safe harbor is no longer
necessary because, as discussed above,
the Bureau has decided to finalize
§ 1024.40 such that there will be no
private liability for violations of the
provision. Accordingly, the Bureau is
not adopting § 1024.40(b)(2) and related
comments 40(b)(2)–1.i and ii. Instead,
the Bureau is only adopting
§ 1024.40(b)(1) as § 1024.40(b).
New 40(b)
Proposed § 1024.40(b)(1) is largely
adopted as § 1024.40(b)(1) through (3).
In addition to changes that have been
noted above, the Bureau has made
technical changes to proposed
§ 1024.40(b)(1)(i)(B) (redesignated as
§ 1024.40(b)(1)(ii)) to be consistent with
changes to the language of § 1024.41, to
clarify that the function of accessing the
information set forth in proposed
§ 1024.40(b)(1)(ii) (redesignated as
§ 1024.40(b)(2)) means retrieval, and to
clarify that the retrieval must be done in
a timely manner. The Bureau is also
clarifying that ‘‘document’’ means
‘‘written information’’ for purposes of
proposed § 1024.40(b)(1)(ii)(B)
(redesignated as § 1024.40(b)(2)(ii)).
Proposed 40(c)
The Bureau proposed § 1024.40(c) to
provide that a servicer shall ensure that
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the personnel it assigns and makes
available to a borrower pursuant to
§ 1024.40(a) remain assigned and
available to the borrower until any of
the following occur: (1) the borrower
refinances the mortgage loan (see
proposed § 1024.40(c)(1)); (2) the
borrower pays off the mortgage loan (see
proposed § 1024.40(c)(2)); (3) a
reasonable time has passed since (i) the
borrower has brought the mortgage loan
current by paying all amounts owed in
arrears, or (ii) the borrower and the
servicer have entered into a permanent
loss mitigation agreement in which the
borrower keeps the property securing
the mortgage loan (see proposed
§ 1024.40(c)(3)(i) through (ii)); (4) title to
the borrower’s property has been
transferred to a new owner through, for
example, a deed-in-lieu of foreclosure, a
sale of the borrower’s property,
including, as applicable, a short sale, or
a foreclosure sale (see proposed
§ 1024.40(c)(4)); or (5) if applicable, a
reasonable time has passed since
servicing for the borrower’s mortgage
loan was transferred to a transferee
servicer (see proposed § 1024.40(c)(5)).
The Bureau observes that proposed
§ 1024.40(c) clearly indicates that the
Bureau intended § 1024.40 to apply to
more than just the initial assignment of
contact personnel.
The Bureau proposed comment
40(c)(3)–1 to provide that for purposes
of § 1024.40(c)(3), a reasonable time has
passed when the borrower has made ontime mortgage payments for three
consecutive months. The Bureau noted
in the 2012 RESPA Servicing Proposal
that the ability of a borrower to make
on-time mortgage payments for three
consecutive months has gained wide
acceptance as an indicator of whether a
previously-delinquent borrower can
succeed in keeping his or her mortgage
loan current. For example, under
Treasury’s HAMP program, a borrower
is put in a trial modification period
lasting three months. The borrower
must have made all trial period
payments to qualify for a permanent
loan modification.158 The Bureau sought
comment on whether criteria other than
a borrower making on-time mortgage
payments for three consecutive months
should be used to determine what is a
‘‘reasonable time’’ for purposes of
§ 1024.40(c)(3).
A number of industry commenters
asserted that three months of tracking a
borrower who later becomes current
would generally be excessive,
158 Making Home Affordable Program Handbook,
v3.4, at 89 (December 15, 2011); see also Fannie
Mae Single Family Servicing Guide, Ch. 6, § 602
(2012).
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particularly if the borrower cures
without the aid of loan modification.
Several industry commenters urged the
Bureau to conform proposed
§ 1024.40(3) to the requirement in the
National Mortgage Settlement, which
permits a servicer to end the assignment
of a single point of contact to a borrower
upon the reinstatement of the loan,
which occurs either due to voluntary
reinstatement or the processing of a
permanent loan modification program.
They urged the Bureau to not discount
a borrower’s completion of a trial
modification program, and several
commenters urged servicers to count a
borrower’s trial modification payments
toward meeting the proposed on-time
payment requirement in § 1024.40(c)(3).
One bank servicer suggested that the
Bureau should further clarify proposed
§ 1024.40(c)(3) by replacing the phrase
‘‘on-time mortgage payment’’ with
‘‘when the borrower has made payment
for three consecutive months that have
not incurred a late fee.’’ The servicer
expressed the concern that narrowly
interpreting ‘‘on-time’’ payments as
paying as of the due date could
unnecessarily extend the duration of the
continuity of contact and that the
Bureau should take account of any grace
period after the payment due date
during which a borrower could pay
without incurring a late fee.
Proposed comment 40(c)(5)–1 would
have provided that for purposes of
§ 1024.40(c)(5), a reasonable time would
have passed 30 days after servicing for
the borrower’s mortgage loan was
transferred to a transferee servicer. As
discussed above, the Bureau believed
that the transferee servicer may require
up to 30 days from the date of transfer
of servicing to identify borrowers who
had personnel assigned to them by the
transferor servicer.
A large bank servicer and a national
trade association representing large
mortgage financing companies opposed
requiring a transferor servicer to
continue making continuity of contact
personnel available to a borrower whose
loan has been transferred because after
servicing has been transferred, the
transferor servicer would no long have
access to any records or documents of
the borrower and could no longer
reasonably be expected to assist a
borrower effectively. The large bank
servicer suggested that if the Bureau
adopts a rule that requires a transferor
service to continue making continuity of
contact personnel available after a
borrower’s loan has been transferred,
the Bureau should require the
assignment to last no more than 15 days
following the transfer. The national
trade association suggested that the
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10813
Bureau should require contact
information for the continuity of contact
personnel made available by a transferee
servicer be disclosed in the servicing
transfer letter or provide an exemption
for liability for potentially violating
§ 1024.40(b) as the personnel will be
unable to perform many of the functions
set forth in proposed § 1024.40(b). One
bank servicer recommended that the
Bureau provide a safe harbor for
situations where a continuity of contact
personnel is no longer available due to
staffing changes in the normal course of
business.
The Bureau has considered the
comments the Bureau has received in
response to proposed § 1024.40(c) and is
making several adjustments. The Bureau
has reconsidered the appropriate
continuity of contact objectives where a
borrower’s mortgage loan is made
current through voluntary
reinstatement. The Bureau believes that
the objective should be to maintain
continuity of contact until a borrower
either brings a mortgage loan current by
paying all amount owed in arrears or is
able to make at least the first two
payments following a permanent
modification agreement. In the case of a
borrower who brings her mortgage
current, the Bureau believes that the
likelihood of a near-term re-default is
relatively low and thus the servicer
should not be required to implement
policies and procedures reasonably
designed to maintain continuity of
contact with such a borrower. On the
other hand, The Bureau believes that the
risk of a re-default for a borrower who
has gone through formal loss mitigation
assistance is sufficiently high that the
servicer’s policies and procedures
should be reasonably designed to
maintain continuity of contact with
such a borrower throughout any trial
modification and for a period of time
after the borrower enters into a
permanent loan modification agreement.
The Bureau is adopting § 1024.40(a)(2),
which reduces the number of
consecutive monthly payments from
three to two. This responds to concerns
about whether three months of tracking
might be excessive. The Bureau has also
considered the request to permit a
servicer to factor in grace periods when
determining whether a payment was an
on-time payment and believes that it
would be an appropriate change. This
change is reflected in final
§ 1024.40(a)(2).
The Bureau has considered the issue
of a transferor servicer’s obligation to
continue making contact personnel
available to a borrower whose loan has
been transferred. As discussed above,
the Bureau reasoned that it might
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reasonably take some time for transferee
servicers to identify borrower who had
personnel assigned to them by the
transferor servicer. The Bureau believes
this safeguard is no longer necessary
when violations of finalized § 1024.40
no longer expose a servicer to civil
liability. Accordingly, the Bureau is not
finalizing proposed § 1024.40(c)(5).
As discussed above, one industry
commenter suggested that the Bureau
should relieve a servicer of its obligation
to make continuity of contact personnel
available due to staffing changes in the
normal course of business. The Bureau
disagrees. The Bureau expects that
servicers already have existing policies
and procedures in place to address the
implication of staffing changes to their
servicing operations, including the
impact on borrower-servicer
communications and accordingly, this
limitation is unnecessary.
As discussed above, after further
consideration, the Bureau believes it
would be better to state clearly in
§ 1024.40(a) that the continuity of
contact policy and procedures
requirements in § 1024.40 only applies
to delinquent borrower rather than
setting forth a separate section in
proposed § 1024.40(c) to the same effect.
Accordingly, the Bureau is not adopting
proposed § 1024.40(c) as a separate
subsection of § 1024.40 and is instead
moving the substance of proposed
§ 1024.40(c), revised as discussed above,
to comment 40(a)–1, which elaborates
on the meaning of the term ‘‘delinquent
borrower’’ for purposes of § 1024.40(a).
As adopted, comment 40(a)–1 clarifies
that a borrower is no longer a
‘‘delinquent borrower’’ (for purposes of
§ 1024.40(a)) if a borrower has
refinanced the mortgage loan, paid off
the mortgage loan, brought the mortgage
loan current by paying all amounts
owed in arrears, or if title to the
borrower’s property has been transferred
to a new owner through, for example, a
deed-in-lieu of foreclosure, a sale of the
borrower’s property, including, as
applicable, a short sale, or a foreclosure
sale.
Proposed 40(d)
The Bureau proposed § 1024.40(d) to
provide that a servicer has not violated
§ 1024.40 if the servicer’s failure to
comply with this section is caused by
conditions beyond a servicer’s control.
Proposed comment 40(d)–1 would have
explained that ‘‘conditions beyond the
servicer’s control’’ include natural
disasters, wars, riots or other major
upheaval, delays or failures caused by
third parties, such as a borrower’s delay
or failure to submit any requested
information, disruptions in telephone
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service, computer system malfunctions,
and labor disputes, such as strikes. The
Bureau intended proposed § 1024.40(d)
to limit the liability of servicers to
borrowers under RESPA. The Bureau
did not believe that failures to comply
with the continuity of contact
requirements in proposed § 1024.40
caused by conditions beyond a
servicer’s control should expose a
servicer to liability to a borrower under
section 6 of RESPA. Even if servicers
implement processes that would
address staffing failures that had a
significant adverse impact on borrowers
seeking alternatives to foreclosure, the
Bureau believes that such conditions
may occasionally occur that could
adversely affect a servicer’s ability to
provide adequate and appropriate staff
to assist delinquent borrowers.
One non-bank servicer recommended
that the Bureau add to the list of
conditions beyond a servicer’s control
circumstances under which a servicer
cannot establish reasonable contact with
a borrower or the borrower is not
responsive to reasonable attempts to
make contact. Another servicer asked
the Bureau to provide that major
business reorganizations, such as
mergers, be added to the list of
conditions beyond a servicer’s control.
In response to the first commenter, the
Bureau observes that a servicer’s
obligation under proposed § 1024.40
would have been to simply make
contact personnel available in
accordance with § 1024.40(a). The
contact personnel would not have been
required by § 1024.40 to make multiple
attempts to contact a borrower. Making
multiple attempts to contact a borrower
is also not an objective of § 1024.40 as
adopted. In response to the second
commenter, the Bureau observes that
major business organizations typically
require advanced negotiation and
planning. Accordingly, the Bureau
believes that such transactions should
not be added to the list of conditions
beyond a servicer’s control.
But importantly, the Bureau is
withdrawing proposed § 1024.40(d) and
related comment 40(d)–1. For reasons
discussed above, violations of § 1024.40
will not give rise to civil liability.
Accordingly, the Bureau believes that
adopting proposed § 1024.40(d) is no
longer necessary.
Section 1024.41 Loss mitigation
procedures
As discussed in the Bureau’s 2012
RESPA Servicing Proposal, and in part
II above, there has been widespread
concern among mortgage market
participants, consumer advocates, and
policymakers regarding pervasive
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problems with servicers’ performance of
loss mitigation activity in connection
with the financial crisis, including lost
documents, non-responsive servicers,
and unwillingness to work with
borrowers to reach agreement on loss
mitigation options. In response,
servicers, investors, guarantors, and
State and Federal regulators have
undertaken efforts to adjust servicer loss
mitigation and foreclosure practices to
address problems relating to evaluation
of loss mitigation options. Specifically:
(1) Treasury and HUD sponsored the
Making Home Affordable program,
which established guidelines for Federal
government sponsored loss mitigation
programs such as HAMP; 159 (2) the
Federal Housing Finance Agency
(FHFA) directed Fannie Mae and
Freddie Mac to align their guidelines for
servicing delinquent mortgages they
own or guarantee to improve servicing
practices; 160 (3) prudential regulators,
including the Board and the OCC,
undertook enforcement actions against
major servicers, resulting in consent
orders imposing requirements on
servicing practices; 161 (4) the National
Mortgage Settlement agreement imposes
obligations on five of the largest
servicers, including on the conduct of
loss mitigation evaluations; 162 and (5) a
number of States have adopted, and
others continue to propose, regulations
relating to mortgage servicing and
foreclosure processing, including
requiring evaluation for loss mitigation
options.163
Many of these initiatives imposed a
similar set of consumer protective
practices on covered servicers with
respect to delinquent borrowers. For
example, the FHFA servicing alignment
initiative, the National Mortgage
Settlement, and HAMP all require
servicers to review loss mitigation
159 www.makinghomeaffordable.gov.
160 Press Release, Federal Housing Finance
Agency, Fannie Mae and Freddie Mac to Align
Guidelines for Servicing Delinquent Mortgages
(Apr. 28, 2011), http://www.fhfa.gov/webfiles/
21190/SAI42811.pdf. See also Comment letter
submitted by Fannie Mae and Freddie Mac.
161 Press Release, Office of the Comptroller of the
Currency, NR 2011–47, OCC Takes Enforcement
Action Against Eight Servicers for Unsafe and
Unsound Foreclosure Practices (Apr. 13, 2011);
Federal Reserve Board Press Release, Federal
Reserve Issues Enforcement Actions Related to
Deficient Practices in Residential Mortgage Loan
Servicing (April 13, 2011), available at: http://
www.federalreserve.gov/newsevents/press/
enforcement/20110413a.htm.
162 www.nationalmortgagesettlement.com.
163 See, e.g., N.Y. Comp. Codes R. & Regs. tit. 3,
§ 419.1 et seq.; 2012 Cal. Legis. Serv. Ch. 86 (A.B.
278) (WEST) amending Cal. Civ. Code § 2923.6. See
also Massachusetts proposed mortgage servicing
regulations, available at http://www.mass.gov/
ocabr/docs/dob/209cmr18proposedred.pdf. (last
accessed November 19, 2012).
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applications within 30 days.164 Further,
the FHFA servicing alignment initiative
and the National Mortgage Settlement
require a servicer that receives an
application for a loss mitigation option
from a borrower before the 120th day of
delinquency to postpone the referral of
the borrower’s mortgage loan account to
foreclosure until the borrower has been
evaluated for a loss mitigation option.165
While these various initiatives are
starting to bring standardization to
significant portions of the market, none
of them to date has established a set of
consistent national procedures and
expectations regarding loss mitigation
procedures. The Financial Stability
Oversight Council, observing that the
mortgage servicing industry was
unprepared and poorly structured to
address the rapid increase in defaults
and foreclosures, recommended that
federal regulators establish national
mortgage servicing standards to address
structural vulnerability in the mortgage
servicing market.166 Further, the GAO
recommended that to the extent federal
regulators create national servicing
standards, such standards should
address servicer foreclosure
practices.167
In response to these
recommendations, the Bureau has
developed these final rules to serve as
national mortgage servicing standards.
The Bureau believes that because so
many borrowers are more than 90 days
delinquent and in need of consideration
for loss mitigation, because borrowers
often are not able to choose the servicer
of their mortgage loan, and because the
manner in which loss mitigation is
handled has such potentially significant
impacts on both individual consumers
and the health of the larger housing
market and economy, establishing
national mortgage servicing standards is
necessary and appropriate to protect
borrowers and achieve the consumer
protection purposes of RESPA. Such
standards establish appropriate
expectations for loss mitigation
164 See e.g., National Mortgage Settlement at
Appendix A, at A–26; Freddie Mac Single Family
Seller/Servicer Guide, Vol. 2 § 64.6(d)(5) (2012);
Fannie Mae Single Family Servicing Guide § 205.08
(2012); HAMP Guidelines, Ch. 6 (2011).
165 See e.g., National Mortgage Settlement at
Appendix A, at A–17, available at http://
www.nationalmortgagesettlement.com (last
accessed January 15, 2013).
166 See Financial Stability Oversight Council,
2011 Annual Report (July 22, 2011), available at
http://www.treasury.gov/initiatives/fsoc/
Documents/FSOCAR2011.pdf (last accessed January
15, 2013).
167 U.S. Government Accountability Office,
Mortgage Foreclosures—Documentation Problems
Reveal Need for Ongoing Regulatory Oversight (May
2011), available at http://www.gao.gov/assets/320/
317923.pdf (last accessed January 15, 2013).
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processes for borrowers and for owners
or assignees of mortgage loans. Such
standards also ensure that borrowers
have a full and fair opportunity to
receive an evaluation for a loss
mitigation option before suffering the
harms associated with foreclosure.
These standards are appropriate and
necessary to achieve the consumer
protection purposes of RESPA,
including facilitating borrowers’ review
for loss mitigation options, and to
further the goals of the Dodd-Frank Act
to ensure a fair, transparent, and
competitive market for mortgage
servicing.
As stated in the proposal, the Bureau
has considered a number of different
options for addressing consumer harms
relating to loss mitigation. In general,
the Federal government has at least
three approaches to addressing loss
mitigation: (1) Establishing processes to
facilitate actions by market participants;
(2) mandating outcomes of loss
mitigation process (implicitly raising
costs to market participants of pursuing
foreclosure actions in violation of the
mandated outcomes); or (3) providing
subsidies to incent the desired
outcomes.168 Only options (1) and (2)
were considered by the Bureau in light
of resources and other factors. These
present a stark choice: Whether to
mandate processes that provide
consumer protections without
mandating specific outcomes or whether
to mandate specific outcomes by
establishing criteria for when such
outcomes are required. For example, a
requirement that a servicer review a
completed loss mitigation application in
a certain time period establishes a
process requirement but does not
impose upon the servicer a criterion for
determining whether to offer a loss
mitigation option. In contrast, a
requirement that a servicer provide a
loan modification when an evaluation of
a loss mitigation application indicates
that a loan modification may have a
positive net present value would impose
a substantive criterion. Mandating a
methodology or set of assumptions for
determining when a modification has a
positive net present value would further
constrain the investor’s discretion in
deciding under what circumstances to
offer a loss mitigation option.
The 2012 RESPA Servicing Proposal
included proposed procedural
requirements for servicers to follow in
reviewing borrowers for loss mitigation
options. Specifically, proposed
§ 1024.41 provided that servicers that
168 See Patricia A. McCoy, Barriers to Home
Mortgage Modifications During the Financial Crisis,
at 4 (May 31, 2012).
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make loss mitigation options available
to borrowers in the ordinary course of
business must undertake certain duties
in connection with the evaluation of
borrower applications for loss
mitigation options. The proposal was
intended to achieve three main goals:
First, it was designed to provide
protections to borrowers to ensure that,
to the extent a servicer offers loss
mitigation options, a borrower would
receive timely information about how to
apply, and that a servicer would
evaluate a complete application in a
timely manner. Second, it was designed
to prohibit a servicer from completing a
foreclosure process by proceeding with
a foreclosure sale until a borrower and
a servicer had terminated discussions
regarding loss mitigation options.169
Third, it was designed to set timelines
for loss mitigation evaluation that could
be completed without requiring a
suspension of the foreclosure sale date
in order to avoid strategic use of these
procedures to extend foreclosure
timelines.
The Bureau intended that the
protections that were set forth in
169 Although there is a paucity of reliable data
about the prevalence of problems resulting from
proceeding with a foreclosure sale while loss
mitigation discussions are ongoing, the Federal
Reserve identified anecdotal evidence of these
problems in 2008. See Larry Cordell et al., The
Incentives of Mortgage Servicers: Myths and
Realities, at 9 (Federal Reserve Board, Working
Paper No. 2008–46, Sept. 2008). Anecdotal
evidence continues to accumulate. See, e.g.,
Haskamp, et al. v. Federal National Mortgage
Assoc., et al., No. 11–cv–2248, Plaintiff’s
Memorandum of Law In Support of Their Motion
For Partial Summary Judgment (D. Minn. June 14,
2012); Stovall v. Suntrust Mortgage, Inc., No. 10–
2836, 2011 U.S. Dist. LEXIS 106137 (D. Md.
September 20, 2011); Debra Gruszecki, REAL
ESTATE: Homeowner Protests ‘‘Dual Tracking,’’
Press-Enterprise (June 19, 2012), available at: http://
www.pe.com/local-news/local-news-headlines/
20120619-real-estate-homeowner-protests-dualtracking.ece. Information presented by consumer
advocacy groups illustrates that consumers and
their advocates continue to be frustrated by the
process of dual tracking. For example, the NCLC
conducted a survey of consumer attorneys to
identify instances of foreclosure sales occurring
while loss mitigation discussions were on-going.
Per that survey, 80 percent of surveyed consumer
attorneys surveyed reported an instance of an
attempted foreclosure sale while awaiting a loan
modification. National Consumer Law Center &
National Association of Consumer Bankruptcy
Attorneys, Servicers Continue to Wrongfully Initiate
Foreclosures: All Types of Loans Affected (Feb.
2012), available at http://www.nclc.org/images/pdf/
foreclosure_mortgage/mortgage_servicing/wrongfulforeclosure-survey-results.pdf. Further, a survey by
the National Housing Resource Center stated that 73
percent of 285 housing counselors surveyed rate
servicer performance in complying with dual
tracking rules outlined in HAMP guidelines as
‘‘fair’’ or ‘‘poor.’’ National CAPACD Comment
Letter, at 7. These surveys, while certainly not
conclusive evidence of the prevalence of dual
tracking or compliance with requirements imposed
on servicers, indicate that concurrent loss
mitigation and foreclosure processes continue to
negatively impact borrowers.
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations
proposed § 1024.41 would have been
augmented and supplemented by
protections in other sections of the 2012
RESPA Servicing Proposal that
addressed loss mitigation issues. In
proposed § 1024.39, for instance, the
Bureau proposed to implement
obligations on servicers that would have
required servicers to contact borrowers
early in the delinquency process and to
provide information to borrowers
regarding loss mitigation options. In
proposed § 1024.40, the Bureau
proposed to implement obligations on
servicers that would have required
servicers, in certain circumstances to
provide borrowers with contact
personnel to assist them with the
process of applying for a loss mitigation
option. Such personnel would have
been required to have access to, among
other things, information regarding loss
mitigation options available to the
borrower, actions the borrower must
take to be evaluated for such loss
mitigation options, and the status of any
loss mitigation application submitted by
the borrower. Further, in proposed
§ 1024.38, the Bureau proposed to
require that servicers implement
policies and procedures reasonably
designed to achieve the objective of
reviewing borrowers for loss mitigation
options. Finally, in proposed § 1024.35,
the Bureau proposed to permit a
borrower to assert an error as a result of
a servicer’s failure to postpone a
scheduled foreclosure sale when a
servicer has failed to comply with the
requirements for proceeding with a
foreclosure sale. The Bureau believed
that all of these protections, when
implemented together, would have a
substantial impact on reducing
consumer harm.
The Bureau requested comment on all
aspects of the proposal, and, in
particular, whether focusing on the
provision of procedural rights was the
appropriate approach to addressing the
consumer harm it had identified. The
Bureau sought comment on whether
there were additional appropriate
measures that could be required to
improve loss mitigation outcomes for all
parties. The Bureau also sought
comment on whether the proposed
requirements ensured that consumers’
timely and complete applications would
receive fair and full consideration and
ensured the predictability of outcomes
for consumers as well as owners and
assignees of mortgage loans. Finally,
and as discussed further below, the
Bureau sought comment on whether
proposed § 1024.41 would have
required servicers to undertake practices
that conflicted with other Federal
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regulatory requirements or State law or
may have caused servicers to undertake
practices that might reduce the
availability of loss mitigation options or
access to credit.170
The Bureau received comments from
numerous individual consumers,
consumer advocates, as well as some
servicers and industry trade associations
in support of the Bureau’s
implementation of loss mitigation
procedures. Although many of these
commenters indicated specific areas
where adjustments to the proposed
requirements might be warranted, a
number of commenters indicated that
the loss mitigation procedures proposed
by the Bureau would provide necessary
and appropriate tools to assist
consumers in receiving evaluations for
loss mitigation options. Other
commenters disagreed with the Bureau’s
proposed approach with respect to loss
mitigation requirements. Numerous
consumer advocacy groups commented
that the Bureau’s proposed requirements
were inadequate to address consumer
harm, and that the Bureau should more
aggressively regulate loss mitigation
activities. Conversely, the majority of
industry participants and their trade
associations commented that the
proposed requirements were
burdensome, unnecessary to address
consumer harm, and could create an
incentive for servicers and owners or
assignees of mortgage loans to withdraw
current loss mitigation practices.
Consumer advocacy groups primarily
commented on three main topics: (1)
Mandating specific loss mitigation
criteria; (2) addressing consumer harms
relating to dual tracking of processes for
pursuing foreclosures and evaluating
borrowers for loss mitigation; and (3)
appropriate timelines for the loss
mitigation procedures. These topics are
addressed in turn below. In certain
circumstances, because the Bureau’s
approach to loss mitigation is not
limited to the loss mitigation procedures
set forth in § 1024.41, but involves a
coordinated use of tools set forth in
different provisions of the mortgage
servicing rules (including the error
resolution procedures in § 1024.35, the
reasonable information management
policies and procedures in § 1024.38,
the early intervention requirements in
§ 1024.39, and the continuity of contact
requirements in § 1024.40), the Bureau
has implemented adjustments to other
provisions in light of the comments
170 With respect to investor or guarantor
requirements that do not constitute Federal or State
law, such as requirements of the GSEs, the Bureau
observes that such entities may need to review and
adjust their requirements in light of the consumer
protections set forth in the final rules.
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received with respect to the loss
mitigation procedures in § 1024.41 as
discussed further below and in the
discussions of the other sections as
appropriate.
Mandating Specific Loss Mitigation
Criteria
Consumer advocates submitted a
significant number of comments
requesting that the Bureau mandate
criteria for loss mitigation programs. For
example, twelve individual consumer
advocacy groups, as well as two
coalitions of consumer advocacy groups,
commented that the Bureau’s proposal
to require loss mitigation procedures
did not go far enough to protect
consumers from harms relating to the
loss mitigation process.
Many consumer advocate commenters
set forth a list of goals that should be
considered by the Bureau to guide the
development of a fuller set of consumer
protections relating to the loss
mitigation process. These goals
included: (1) The Bureau should
mandate specific home-saving
strategies, with affordable loan
modifications ranked first and with an
order of priority among types of
modifications (e.g. temporary or
permanent interest rate reduction,
extension of term, reduction of
principal, etc.); (2) the Bureau should
require all servicers to offer affordable,
net present value positive loan
modifications to qualified homeowners
facing hardship and should establish
rules for determining what constitutes
an affordable modification by
establishing a maximum or target debtto-income ratio; 171 (3) the Bureau
should require that successful trial loan
modifications must be automatically
converted to permanent modifications
by servicers; 172 and (4) the Bureau
should require servicers to notify
homeowners regarding the status of
evaluations for loss mitigation options
in writing. Notably, one commenter
stated that the Bureau should require
that if a homeowner is ineligible for a
loan modification option, a servicer
should fully explore non-home
retention options, such as cash-for-keys
or deed-in-lieu of foreclosure, with the
homeowner before a foreclosure is filed.
Mandatory loan modifications were
addressed by a number of other
171 One commenter added that servicers should
be required to demonstrate that these models are
accurate and do not result in discriminatory
impacts.
172 The commenters indicated that they believed
servicers unduly delayed conversion of trial
modifications to permanent modifications and
stated that homeowners should not bear the
financial burden of undue delay in conversion of
a trial modification to a permanent modification.
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comment submissions. A coalition of 60
consumer advocacy groups further
commented that the Bureau should
require loan modification programs
similar to HAMP using a public and
transparent net-present-value test
mandated by the Bureau. One consumer
advocacy group commented that a
servicer should be required to offer loss
mitigation when the servicer is a
participant in a Federal, State, or private
loss mitigation program or process.
Further, one commenter stated that
servicers should be prohibited from
offering loss mitigation options that
grossly deviate from standard industry
practices. Finally, individual consumers
that participated in a discussion of the
proposed rules in connection with the
Regulation Room project commented
that the Bureau should mandate specific
loan modification programs and
requirements.
On the other hand, three consumer
advocacy groups expressly stated that
the Bureau should not mandate specific
loan modification programs and
requirements. Although these groups
advocated that the Bureau should
mandate that all servicers engage in loss
mitigation procedures and ‘‘include
loan modifications that reduce
payments to an affordable level as one
of the loss mitigation options generally
available to borrowers,’’ these groups
recommended against prescribing
specific loss mitigation criteria,
specified waterfalls or debt-to-income
targets, or net present value models or
assumptions. Rather, these groups stated
that servicers should be given discretion
to implement loss mitigation programs.
These groups did urge, however, that
servicers should be responsible for
implementing loss mitigation programs
consistent with the requirements
imposed by owners or assignees of
mortgage loans with respect to the
administration of those programs.
In contrast with consumer advocates,
industry commenters stated that
regulations concerning loss mitigation
procedures will limit the availability of
loss mitigation options and restrict the
availability of credit. Specifically, a
community bank, a credit union, and a
non-bank mortgage lender commented
that mandating outcomes would be a
disincentive to offering loss mitigation
programs. Further, these commenters
indicated that such programs would be
costly and burdensome to implement.
Further, a number of servicers, their
trade associations, and a law firm stated
that allowing a private right of action for
loss mitigation options would
substantially increase costs for lenders,
limit the offering of loss mitigation
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options, and more generally, restrict the
availability of credit.
After careful consideration of the
comments, the Bureau has decided to
refrain at this time from mandating
specific loss mitigation programs or
outcomes. The Bureau continues to
believe that it is necessary and
appropriate to achieve the purposes of
RESPA to implement required
procedures for servicers’ evaluations of
borrowers for loss mitigation options
and that this approach will maintain
consumer access to credit.
As discussed in the 2012 RESPA
Servicing Proposal, the Bureau is
concerned that mandating specific loss
mitigation programs or outcomes might
adversely affect the housing market and
the ability of consumers to access
affordable credit. Even in its current
constrained state, the mortgage market
generates approximately $1.4 trillion
dollars in new loans.173 The mortgage
market necessarily depends on a large
number of creditors, investors, and
guarantors who are willing to accept the
credit risk entailed in mortgage lending.
The market is constrained today at least
in part because, in the wake of the
financial crisis, private capital is largely
unwilling to accept that risk without a
government guarantee.
As with any secured lending, those
who take the credit risk on mortgage
loans do so in part in reliance on their
security interest in the collateral. When
a borrower is unable (or unwilling) to
repay a loan, it is in the interest of those
who own the loans to attempt to
mitigate (i.e., reduce) their losses. There
are myriad options, ranging from
forbearance, to loan modification, to
short sales, to foreclosure or deed-inlieu of foreclosure to achieve that end.
Further, there is a wide range of
borrower situations regarding which the
borrower and owner or assignee of the
mortgage loan must make judgments as
to the desirable options. And for any
given situation with respect to a
borrower’s willingness and ability to
pay, there are a large number of issues
to resolve in determining how to
structure a particular option, such as a
forbearance plan, loan modification, or
short sale.
The Bureau understands that different
creditors, investors, and guarantors have
differing perspectives on how best to
173 See Laurie Goodman, Outlook and
Opportunities U.S. RMBS Market (October 2012)
(estimated originations through the first six months
of 2012 were approximately $777 billion;
originations for CY2011 were approximately $1.308
trillion). See also Mortgage Bankers Association,
MBA Increases Originations Estimate for 2012 by
Almost $200 Billion (May 24, 2012) http://
www.mortgagebankers.org/NewsandMedia/
PressCenter/80910.htm.
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achieve loss mitigation based in part on
their own individual circumstances and
structures and in part on their market
judgments and assessments. Community
banks and credit unions with loans on
portfolio may have a different
viewpoint, for example, than large
investors who purchased mortgage loans
on the secondary market. Even
government insurance programs adopt
approaches that differ in material
respects from each other, as well as from
those programs implemented by the
GSEs.
The Bureau does not believe that it
can develop, at this time, rules that are
sufficiently calibrated to protect the
interests of all parties involved in the
loss mitigation process and is concerned
that an attempt to do so may have
unintended negative consequences for
consumers and the broader market. Loss
mitigation programs have evolved
significantly since the onset of the
financial crisis and the Bureau is
concerned that an attempt to mandate
specific loss mitigation outcomes risks
impeding innovation, that would allow
such programs to evolve to the needs of
the market. The Bureau further believes
that if it were to attempt to impose
substantive loss mitigation rules on the
market at this time, consumers’ access
to affordable credit could be adversely
affected. Creditors who were otherwise
prepared to assume the credit risk on
mortgages might be unwilling to do so,
or might charge a higher price (interest
rate) because they would no longer be
able to establish their own criteria for
determining when to offer a loss
mitigation option in the event of a
borrower’s default. Investors in the
secondary market might likewise reduce
their willingness to invest in mortgage
securities or pay less for securities at
present rates (thereby requiring
creditors to charge higher interest rates
to maintain the same yield). The cost of
servicing might increase substantially to
compensate servicers for the burden of
complying with prescribed criteria for
evaluation of loss mitigation
applications. Based upon these
considerations, the Bureau declines to
prescribe specific loss mitigation criteria
at this time.
The Bureau is implementing
requirements, however, for servicers to
evaluate borrowers for loss mitigation
options pursuant to guidelines
established by the owner or assignee of
a borrower’s mortgage loan. In order to
effectuate this policy, the Bureau has
created certain requirements in
§ 1024.38, with respect to general
servicing policies, procedures, and
requirements, and other requirements in
connection with the loss mitigation
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations
procedures in § 1024.41. Pursuant to
§ 1024.38, servicers are required to
maintain policies and procedures to
achieve the objective of (1) identifying,
with specificity, all loss mitigation
options for which borrowers may be
eligible pursuant to any requirements
established by an owner or assignee of
the borrower’s mortgage loan and (2)
properly evaluating a borrower who
submits an application for a loss
mitigation option for all loss mitigation
options for which the borrower may be
eligible pursuant to any requirements
established by the owner or assignee of
the borrower’s mortgage loan. Further,
in § 1024.41, the Bureau is
implementing procedural protections
for borrowers with respect to the
process of obtaining an evaluation for
loss mitigation options, as well as
restrictions on the foreclosure process
while a borrower is being evaluated for
a loss mitigation option. Borrowers have
a private right of action to enforce the
procedural requirements in § 1024.41, as
set forth in § 1024.41(a); borrowers do
not, however, have a private right of
action under the Bureau’s rules to
enforce the requirements set forth in
§ 1024.38 or to enforce the terms of an
agreement between a servicer and an
owner or assignee of a mortgage loan
with respect to the evaluation of
borrowers for loss mitigation options.
The Bureau believes this framework
provides an appropriate mortgage
servicing standard; servicers must
implement the loss mitigation programs
established by owners or assignees of
mortgage loans and borrowers are
entitled to receive certain protections
regarding the process (but not the
substance) of those evaluations.
In reaching the conclusion not to
impose substantive requirements on loss
mitigation programs, such as eligibility
criteria, or to mandate the outcomes of
loss mitigation processes, the Bureau
recognizes that there is abundant
evidence that the current system is not
producing a level of loan modifications
and other foreclosure alternatives that
best meets the interests of distressed
borrowers, the communities that would
be hurt by borrowers’ loss of their
homes, and owners or assignees of
mortgage loans. To the extent that is the
result of process failures by servicers—
specifically, the lack of infrastructure to
handle the flood of delinquent
borrowers resulting from the financial
crisis—the Bureau believes that it can
best contribute to solving that problem
through the rules it is adopting which,
as previously discussed, will require
servicers to establish policies and
procedures governing servicer
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operations, to implement continuity of
contact policies and procedures, to
engage in early intervention with
delinquent borrowers, and to comply
with procedures regarding the
evaluation of a borrower for loss
mitigation options. Together, these
requirements are necessary and
appropriate to achieve the consumer
protection purposes of RESPA.
To the extent the failure of the current
system to produce an optimal level of
loss mitigation is the result of servicers
pursuing their self-interest rather than
the interest of their principals (i.e. the
owners or assignees of the mortgage
loans), the Bureau is addressing that
issue by requiring servicers to maintain
policies and procedures reasonably
designed to identify all available loss
mitigation options of their principals
and properly consider delinquent
borrowers for all such options.
The Bureau observes that the vast
bulk of delinquent mortgages today are
owned or guaranteed by governmental
agencies such as FHA or by the GSEs in
conservatorship. Those agencies, and
the FHFA as conservator for the GSEs,
are accountable to the public for
meeting their statutory responsibilities
to borrowers and taxpayers. The Bureau
believes these agencies are best situated
to establish loss mitigation programs for
their mortgage loans, to determine the
extent to which they believe it
appropriate to allow individual
borrowers to enforce their loss
mitigation rules, and to evaluate
whether a borrower should be able to
obtain judicial review of the decision of
a servicer in an individual case to offer
a loss mitigation option. If the Bureau
were to effectively mandate such
review, the Bureau fears that investors
and guarantors might dilute the
obligations they impose on servicers or
the loss mitigation options they make
available. Such a result would not serve
the interests of consumer or the housing
market. Accordingly, the Bureau has
determined not to establish substantive
criteria for review of loss mitigation
programs at this time and not to make
investor guidelines with respect to loss
mitigation enforceable against servicers
by borrowers through RESPA. The
Bureau will continue to monitor
developments in the market and work
with the prudential regulators, as well
as other Federal agencies, to assess
collectively whether additional rules are
necessary and appropriate to improve
outcomes for all participants in the
mortgage market.
Although the Bureau is not mandating
specific loss mitigation criteria and,
instead, is adopting a procedural
approach, the Bureau is finalizing the
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loss mitigation procedures as proposed
with significant adjustments, as set forth
below, that are designed to enhance the
effectiveness of the proposed
procedures in light of the public
comments. Such adjustments include,
for example, expanding the scope of the
loss mitigation procedures to apply to
all servicers, not just servicers that offer
loss mitigation options in the ordinary
course of business, adjusting the
timelines for the loss mitigation
procedures, and implementing
protections for borrowers from the
harms of dual tracking. Although the
Bureau believes that substantially all, if
not all, servicers offer loss mitigation
options, as defined by the Bureau, in the
ordinary course of business, the Bureau
acknowledges, and agrees with,
comments received from consumer
advocates that requiring servicers to
comply with the loss mitigation
requirements notwithstanding their
business practices better achieves the
consumer protection purposes of
RESPA.
As set forth more fully below (and
above with respect to § 1024.38), the
Bureau is also making adjustments to
other sections of the rule to address
concerns raised by certain consumer
advocate commenters related to loss
mitigation. For example, § 1024.38
requires servicers to maintain policies
and procedures reasonably designed to
implement the loss mitigation program
requirements established by owners or
assignees of mortgage loans. Such
programs may require servicers to
consider whether a borrower’s material
change in financial circumstances
warrants further consideration of the
availability of loss mitigation options
and may require consideration of loss
mitigation applications beyond the
timelines required by the Bureau.
Although the Bureau has determined
not to adjust the loss mitigation
procedures requirements in § 1024.41 to
address such concerns, the Bureau has
made adjustments to the requirements
for servicers to adopt policies and
procedures in § 1024.38, as set forth
above, which has the effect of
addressing such concerns.
Restricting Dual Tracking
The proposed rule would have
required servicers to comply with the
loss mitigation procedures by reviewing
complete and timely loss mitigation
applications before a servicer could
proceed with a foreclosure sale. Timely
applications included complete loss
mitigation applications submitted
within a deadline established by a
servicer, which could be no earlier than
90 days before a foreclosure sale. By
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prohibiting servicers from proceeding to
a foreclosure sale while a complete and
timely loss mitigation application is
pending, the proposed rule would have
addressed one of the most direct
consumer harms resulting from
concurrent evaluation of loss mitigation
options and prosecution of foreclosure
proceedings.
The comments from consumer
advocacy groups regarding dual tracking
set forth three distinct themes: (1)
Borrowers should have the opportunity
to be reviewed for a loss mitigation
option before a servicer begins a
foreclosure process, (2) borrowers
should not receive inconsistent
communications relating to, or incur
costs for, continuing the foreclosure
process when a loss mitigation review is
underway, and (3) borrowers should
receive the protection of required loss
mitigation procedures closer in time to
the date of a foreclosure sale than 90
days. The first two of these themes are
addressed here and the third is
addressed below with respect to
timelines.
Consumer advocates submitted a
significant number of comments stating
that although the Bureau’s proposal
would address harms resulting from a
foreclosure sale, other harms to
consumers relating to dual tracking
were not addressed by the proposed
rule. These included consumer harms
resulting from participating in the
foreclosure process, including confusion
from receiving inconsistent and
confusing foreclosure communications,
while loss mitigation reviews are ongoing. Such harm potentially may lead
to failures by borrowers to complete loss
mitigation processes that may have
more beneficial consequences for
borrowers as well as owners or
assignees of mortgage loans. Further,
borrowers may be negatively impacted
because borrowers are responsible for
accruing foreclosure costs while an
application for a loss mitigation option
is under review. These costs burden
already struggling borrowers and may
impact the evaluation and ultimate
outcome for a borrower for a loss
mitigation option.
These commenters recommended that
the Bureau restrict servicers from
pursuing the foreclosure process and
evaluating a borrower for loss mitigation
options on dual tracks. For example,
twelve individual consumer advocacy
groups, as well as two coalitions of
consumer advocacy groups stated that
the Bureau should require servicers to
undertake loss mitigation evaluations,
including loan modification reviews
and offers, prior to beginning the
foreclosure process. These commenters
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further stated that homeowners
applying for loss mitigation options
after a foreclosure has started should
have their foreclosures paused while
their files are reviewed, and if needed,
appealed, in a timely fashion. Further,
three consumer advocacy groups
commented that the Bureau should
create a defined pre-foreclosure period
of 120 days before a borrower can be
referred to foreclosure. This period
should also have a mandatory review of
a borrower before proceeding with
foreclosure.
Industry commenters also addressed
whether the Bureau should implement
protections relating to dual tracking
apart from the prohibition on
foreclosure sale set forth in the
proposal. Outreach with servicers and
their trade associations indicated
general support for maintaining
consistency among any ‘‘dual tracking’’
requirements established by the Bureau
and the National Mortgage Settlement.
A law firm commented that the Bureau’s
requirements with respect to ‘‘dual
tracking’’ should model the National
Mortgage Settlement. Notably, a
community bank and its trade
association commented that, as a
consequence of the Bureau’s regulations
on loss mitigation procedures, servicers
may try to begin foreclosures as soon as
possible after delinquency in order to
evade the requirements of the Bureau’s
loss mitigation procedures and preserve
flexibility in handling the foreclosure
process.
The Bureau is persuaded by the
comments that the potential harm to
consumers of commencing a foreclosure
proceeding before the consumer has had
a reasonable opportunity to submit a
loss mitigation application or while a
complete loss mitigation application is
pending is substantial. The fact that the
GSEs and the National Mortgage
Settlement both prohibit servicers from
commencing foreclosure for a specified
period of time to afford a borrower a
reasonable opportunity to apply for a
loss mitigation option is further
persuasive that providing borrowers
with the same protection would
advance the consumer protection
purposes of RESPA and would not
present a significant risk of unintended
consequences.
Accordingly, in light of the
comments, the Bureau has determined
to implement restrictions on dual
tracking beyond those set forth in the
proposal. These restrictions have three
main components. First, the Bureau is
prohibiting a servicer of a mortgage loan
subject to § 1024.41 from making the
first notice or filing required for a
foreclosure process unless a borrower is
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more than 120 days delinquent. After a
borrower is 120 days delinquent, a
servicer may make the first notice or
filing required for a foreclosure process
unless the borrower has submitted a
complete loss mitigation application, in
which case, the servicer must complete
the review and appeal procedures set
forth in § 1024.41 before starting the
foreclosure process. If a borrower is
performing under an agreement on a
loss mitigation option, such as a trial
modification, the servicer may not
commence the foreclosure process.
Second, the Bureau is expanding and
clarifying the prohibition on proceeding
with a foreclosure sale. If a borrower
submits a complete loss mitigation
application by an applicable deadline,
as discussed below, a servicer must
complete the loss mitigation procedures
before proceeding to a foreclosure
judgment, obtaining an order of sale for
the property, or conducting a
foreclosure sale. As set forth below, the
Bureau has clarified that proceeding to
a foreclosure judgment includes filing a
dispositive motion, such as a motion for
a default judgment, judgment on the
pleadings, or summary judgment, which
may result in the issuance of a
foreclosure judgment. If such a motion
is pending when a servicer receives a
complete loss mitigation application,
the servicer should take reasonable
steps to avoid a ruling on such motion
until completing the loss mitigation
procedures. The Bureau is also
finalizing the prohibition on proceeding
with a foreclosure sale if a borrower is
performing under a trial modification or
other agreed upon loss mitigation
option.
Third, as set forth below with respect
to timelines, the Bureau is
implementing procedures applicable to
the evaluation of complete loss
mitigation applications submitted by
borrowers less than 90 days before a
foreclosure sale, but 37 days or more
before a foreclosure sale. These
procedures expand the protections from
the harms of dual tracking to borrowers
that submit complete loss mitigation
applications closer in time to a
foreclosure sale. The Bureau received
comments from consumer advocates in
states with non-judicial foreclosure
processes that operate on relatively
short timelines indicating that
consumers in such states may not
benefit from the protections
implemented by the Bureau. The Bureau
agrees with these comments and is
implementing protections on dual
tracking that address different timing
scenarios. The Bureau believes that such
provisions are necessary and
appropriate to achieve the consumer
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protection purposes of RESPA,
including ensuring that consumers in all
jurisdictions have an opportunity to
submit a complete loss mitigation
application and avoid certain of the
harms resulting from dual tracking.
The Bureau is not, however,
otherwise mandating a pause in
foreclosure proceedings if a loss
mitigation application is submitted after
a foreclosure proceeding has been
commenced. Once the foreclosure
process is initiated, there are typically
timelines for the steps that follow that
are established by state law or, in
judicial foreclosure jurisdictions, by
court rules or orders entered in
individual cases. Those timelines and
steps vary from state to state and even
from case to case. Some of these
timelines and steps have been
implemented to ensure that consumers
receive the benefit of disclosures or
processes enacted by state law to assist
consumers. So long as a servicer does
not proceed with a dispositive motion
in a foreclosure action, the Bureau does
not believe that the benefits that might
accrue to borrowers from mandating a
pause in a foreclosure proceeding
(which pause may last for up to 88 days
under the timelines the Bureau is
mandating for resolving loss mitigation
applications) are justified by the
disruption that might result to state
court proceedings from a mandated
pause and the risk of a loss mitigation
application being submitted
strategically to delay or derail the
foreclosure process.
The Bureau recognizes that requiring
a pause in foreclosures while a complete
loss mitigation application is being
considered would create incentives for
servicers to address such applications
expeditiously. The Bureau believes,
however, that the best way to address
this issue is by mandating strict
deadlines for review of a complete loss
mitigation application, as the Bureau is
doing, and providing for enforcement of
those deadlines through private rights of
action. The Bureau also recognizes that
a pause could reduce costs to borrowers
that would otherwise be incurred for the
foreclosure process while a loss
mitigation application is under review.
However, so long as a servicer adheres
to the timelines established by the
Bureau, the Bureau does not believe that
these costs are likely to be substantial.
Appropriate Timelines for the Loss
Mitigation Procedures
The proposed rule would have
required mortgage servicers to comply
with the procedures set forth in
proposed § 1024.41 with respect to a
complete loss mitigation application
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that was received by a deadline
established by a servicer, which
deadline could be no earlier than 90
days before a foreclosure sale. In the
proposal, the Bureau stated that a 90day threshold set an appropriate line
because a servicer who received a
complete loss mitigation application 90
days before a foreclosure sale would
have 30 days to review a borrower’s
application for a loss mitigation option,
would be able to provide the borrower
with 14 days to respond to the servicer’s
offer of a loss mitigation option and/or
to file an appeal, would be able to
consider any timely appeal during a
subsequent 30 day period, and would be
able to provide the borrower with an
additional 14 days to respond to any
offer of a loss mitigation option after an
appeal. Thus, with the timeline set
forth, a servicer would be able to
complete the entire process within 88
days and a 90 day deadline could
accommodate completing the process
without rescheduling the foreclosure
sale. Proposed comment 41(f)–1 would
have clarified that where a foreclosure
sale had not been scheduled, or where
a foreclosure sale could occur less than
90 days after the sale is scheduled
pursuant to State law, a servicer should
establish a deadline that is no earlier
than 90 days before the day that a
servicer reasonably anticipates that a
foreclosure sale will be scheduled.
Although some servicers and a trade
association indicated support for the 90
day maximum deadline, in general,
commenters indicated substantial
disagreement regarding the appropriate
deadlines and framework for structuring
timing requirements for reviewing loss
mitigation applications. A substantial
number of consumer advocacy groups
objected to the underlying premise of
the deadline requirement. In addition to
establishing timeframes prior to a
foreclosure referral, as discussed above,
consumer advocacy groups stated that
borrowers should be permitted to
provide complete loss mitigation
applications less than 90 days before a
foreclosure sale and receive the
protection of the procedures required by
the Bureau. A housing counselor and
three consumer advocacy groups
indicated that the deadline should be
extended until a maximum of 14 days
before a foreclosure sale. Another
consumer advocacy group stated that
the deadline should be no more than 7
days before a foreclosure sale. These
commenters further recommended
postponing a foreclosure sale if an
application received at least 14 days
before a sale is still in the review
process by 14 days before a sale to allow
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time for review and appeals. Further,
consumer advocacy groups operating in
states with non-judicial foreclosure
processes with relatively short timelines
stated that borrowers may not be able to
benefit from the loss mitigation
procedures established by the Bureau
within the 90-day deadline set forth in
the proposal.
Conversely, banks, credit unions, and
non-bank servicers, as well as their
trade associations, objected to the
proposed 90 day deadline requirement
because it would purportedly provide
too much time for borrowers to pursue
loss mitigation applications. Two credit
unions, two large banks, and two nonbank servicers objected to the 90 day
deadline on the basis that the rules
should encourage borrowers to seek
assistance at the earliest possible time
while the delinquency may be curable
and allow the borrower to retain the
home. A non-bank servicer stated that it
appreciated the 90 day deadline but
indicated that this deadline could be so
far after an initial delinquency in certain
jurisdictions that it may lead to a
borrower submitting an application after
so much time has passed that no option
could reasonably assist the borrower
with curing a delinquency. Further, a
non-bank servicer suggested the Bureau
implement staged timelines rather than
requiring servicers to establish timelines
that may be inconsistent with state
law.174
In light of the comments, the Bureau
has reconsidered the proposed approach
to timelines for the loss mitigation
procedures and has made certain
adjustments. The Bureau is persuaded
that, however regrettable, some
borrowers simply may not be prepared
to come to terms with their situations
and explore the availability of loss
mitigation options until foreclosure is
close at hand. The Bureau also is
persuaded that it is necessary, and
appropriate, to implement protections
for consumers that apply for loss
mitigation options closer in time to a
foreclosure sale than 90 days. At the
same time, the Bureau is cognizant that
if applications received at the last
moment were allowed to unduly delay
a foreclosure from proceeding, there is
a risk that the application process could
be used tactically to stall foreclosure.
Given that foreclosure timelines are
already very long in many jurisdictions;
given that the Bureau is implementing
protections to mandate early
communication with borrowers
174 A large bank servicer also commented that in
light of the incentives for the borrower, it should
not be required to notify a consumer of a deadline
so long as the communication with the consumer
is not within 90 days of the foreclosure sale.
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regarding loss mitigation options; and
given that the Bureau is prohibiting
servicers from proceeding to foreclosure
unless a borrower is more than 120 days
delinquent to ensure that borrowers
have the opportunity to apply for loss
mitigation options early in the
delinquency timeline; the Bureau does
not believe it is appropriate to permit
applications provided shortly before a
foreclosure sale to delay the foreclosure.
Accordingly, as set forth below,
instead of setting an overall deadline for
the loss mitigation procedures, the
Bureau is implementing timelines that
provide different loss mitigation
processes with differing levels of
protection at certain stages of the
foreclosure process. These requirements
are: (1) Pursuant to § 1024.41(b)(2), a
servicer must comply with the
requirements relating to
acknowledgement of a loss mitigation
application and notice of additional
documents and information required to
complete a loss mitigation application
for any loss mitigation application
received 45 days or more before a
foreclosure sale; (2) pursuant to
§ 1024.41(c)(1), a servicer must evaluate
within 30 days any complete loss
mitigation application received more
than 37 days before a foreclosure sale;
(3) pursuant to § 1024.41(e)(1), if a
servicer receives a complete loss
mitigation application 90 days or more
before a foreclosure sale, the servicer
must provide the borrower at least 14
days to accept or reject an offer of a loss
mitigation option; if a servicer receives
a complete loss mitigation application
less than 90 days before a foreclosure
sale but more than 37 days before a
foreclosure sale, the servicer must
provide the borrower at least 7 days to
accept or reject an offer of a loss
mitigation option; and (4) pursuant to
§ 1024.41(h)(1), a servicer must comply
with the appeal process for any
complete loss mitigation application
received 90 days or more before a
foreclosure sale. Applying these
timelines together yields four timing
scenarios depending upon when a
borrower submits a complete loss
mitigation application.
Scenario 1. If a borrower is less than
120 days delinquent, or if a borrower is
more than 120 days delinquent but the
servicer has not made the first notice or
filing required for a foreclosure process,
and a borrower submits a complete loss
mitigation application, the servicer (1)
must review the complete loss
mitigation application within 30 days,
(2) must allow the borrower at least 14
days to accept or reject an offer of a loss
mitigation option, and (3) must permit
the borrower to appeal the denial of a
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loan modification option pursuant to
§ 1024.41(h)(1). Further, for all loss
mitigation applications received in this
timeframe, the servicer must comply
with the requirements for
acknowledging a loss mitigation
application and providing notice of
additional information and documents
necessary to make an incomplete loss
mitigation application complete. The
servicer may not make the first notice or
filing required for a foreclosure process
unless these procedures are completed.
Scenario 2. If a borrower submits a
complete loss mitigation application
after a servicer has made the first notice
or filing for a foreclosure process, but 90
days or more exist before a foreclosure
sale, the servicer (1) must review the
complete loss mitigation application
within 30 days, (2) must allow the
borrower at least 14 days to accept or
reject an offer of a loss mitigation
option, and (3) must permit the
borrower to appeal the denial of a loan
modification option pursuant to
§ 1024.41(h). Further, for all loss
mitigation applications received in this
timeframe, the servicer must comply
with the requirements for
acknowledging a loss mitigation
application and providing notice of
additional information and documents
necessary to make an incomplete loss
mitigation application complete. The
servicer may not proceed to foreclosure
judgment or order of sale, or conduct a
foreclosure sale, unless these
procedures are completed.
Scenario 3. If a borrower submits a
complete loss mitigation application
after a servicer has made the first notice
or filing for a foreclosure process, and
less than 90 days, but more than 37
days, exist before a foreclosure sale, the
servicer (1) must review the complete
loss mitigation application within 30
days, and (2) must allow the borrower
at least 7 days to accept or reject an offer
of a loss mitigation option. The servicer
is not required to permit the borrower
to appeal the denial of a loan
modification option pursuant to
§ 1024.41(h)(1). Further, the servicer
must comply with the requirements for
acknowledging a loss mitigation
application and providing notice of
additional information and documents
necessary to make an incomplete loss
mitigation application complete only if
the loss mitigation application was
received 45 days or more before a
foreclosure sale. The servicer may not
proceed to foreclosure judgment or
order of sale, or conduct a foreclosure
sale, unless these procedures are
completed.
Scenario 4. None of the loss
mitigation procedures apply to a loss
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10821
mitigation application, including a
complete loss mitigation application,
received 37 days or less before a
foreclosure sale. Servicers are required,
however, pursuant to § 1024.38 to
implement policies and procedures
reasonably designed to achieve the
objective of reviewing borrowers for loss
mitigation options pursuant to
requirements established by an owner or
assignee of a mortgage loan. As set forth
below, nothing in § 1024.41 excuses a
servicer from complying with additional
requirements imposed by an owner or
assignee of a mortgage loan. For
example, the GSEs require servicers to
engage in certain procedures to review
loss mitigation applications submitted
37 days or less before a foreclosure sale,
and servicers may be required by the
GSEs to comply with those
requirements. The requirement to
implement policies and procedures to
achieve the objective of reviewing
borrowers for loss mitigation options
pursuant to requirements established by
an owner or assignee of a mortgage loan
includes timelines established by any
such owner or assignee of a mortgage
loan.
Other Servicer Loss Mitigation
Requirements
As set forth above, the Bureau
recognizes that servicers have many
layers of requirements with which they
must comply. These include
requirements imposed by owners or
assignees of mortgage loans, as well as
requirements imposed by State law or
pursuant to settlement agreements and
consent orders.
Notably, certain commenters
requested clarification regarding the
interaction between the proposed rules
and certain existing servicing
requirements. The GSEs commented
that their processes allow reviews of
loss mitigation applications closer in
time to foreclosure than the 90 day
timeline proposed by the Bureau and
requested clarification regarding the
impact of the proposed deadlines in the
loss mitigation procedures and the GSE
requirements. A non-bank servicer also
requested clarification regarding the
interaction of timelines imposed by the
Bureau and existing State or local preforeclosure mediation requirements that
may require a complete loss mitigation
application package in advance of the
mediation meeting.
In order to reduce burden to servicers
and costs to borrowers, the Bureau has
sought to maintain consistency among
§ 1024.41, the National Mortgage
Settlement, FHFA’s servicing alignment
initiative, Federal regulatory agency
consent orders, and State law mortgage
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servicing statutory requirements. In
certain instances, each of these other
sources of servicing requirements may
be more restrictive or prescriptive than
§ 1024.41. That is intentional. Section
1024.41 establishes standard consumer
protections and provides flexibility for
Federal regulatory agency requirements,
State law, or investor and guarantor
requirements to impose obligations that
may be more restrictive on servicers.
Servicers should comply with the
most restrictive requirements to which
they are subject. For example, § 1024.41
imposes requirements with respect to
complete loss mitigation applications
received more than 37 days before a
foreclosure sale. This is consistent with
the National Mortgage Settlement and
GSE requirements.175 Notably, the
National Mortgage Settlement and GSE
requirements impose obligations to
conduct an expedited loss mitigation
evaluation for servicers with respect to
loss mitigation applications received 37
days or less before a foreclosure sale
(although in certain circumstances the
servicer is not necessarily required to
complete the review before foreclosure).
Nothing in § 1024.41 prohibits or
impedes a servicer from complying with
these requirements and servicers may be
required to comply with requirements
that are more prescriptive than the
regulations implemented by the Bureau.
Indeed, as noted, § 1024.38 requires
servicers to maintain policies and
procedures reasonably designed to
achieve the objective of evaluating
borrower for loss mitigation options
pursuant to requirements established by
owners or assignees of mortgage loans.
Similarly, if a servicer is required to
proactively engage with a borrower to
evaluate a borrower for a loss mitigation
option prior to engaging in a mandatory
mediation or arbitration process,
§ 1024.41 does not prohibit a servicer
from obtaining a loss mitigation
application before such process so long
as the servicer complies with the
procedures set forth in § 1024.41 with
respect to such application.
Legal Authority
The Bureau relies on its authority
under sections 6(j)(3), 6(k)(1)(C),
6(k)(1)(E) and 19(a) of RESPA to
establish final rules setting forth
obligations on servicers to comply with
the loss mitigation procedures in
§ 1024.41. These loss mitigation
procedures are necessary and
appropriate to achieve the consumer
protection purposes of RESPA,
including by requiring servicers to
175 See National Mortgage Settlement., at
Appendix A, at A–19.
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provide borrowers with timely access to
accurate and necessary information
regarding an evaluation for a foreclosure
avoidance option and to facilitate the
evaluation of borrowers for foreclosure
avoidance options. Further, the loss
mitigation procedures implement, in
part, a servicer’s obligation to take
timely action to correct errors relating to
avoiding foreclosure under section
6(k)(1)(C) of RESPA by establishing
servicer duties and procedures that
must be followed where appropriate to
avoid errors with respect to foreclosure.
In addition, the Bureau relies on its
authority pursuant to section 1022(b) of
the Dodd-Frank Act to prescribe
regulations necessary or appropriate to
carry out the purposes and objectives of
Federal consumer financial law,
including the purposes and objectives of
Title X of the Dodd-Frank Act.
Specifically, the Bureau believes that
§ 1024.41 is necessary and appropriate
to carry out the purpose under section
1021(a) of the Dodd-Frank Act of
ensuring that markets for consumer
financial products and services are fair,
transparent, and competitive, and the
objective under section 1021(b) of the
Dodd-Frank Act of ensuring that
markets for consumer financial products
and services operate transparently and
efficiently to facilitate access and
innovation. The Bureau additionally
relies on its authority under section
1032(a) of the Dodd-Frank Act, which
authorizes the Bureau to prescribe the
rules to ensure that features of any
consumer financial product or service,
both initially and over the terms of the
product or service, are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.
41(a) Enforcement and Limitations
Proposed § 1024.41(a) would have
required any servicer that offers loss
mitigation options in the ordinary
course of business to comply with the
requirements of § 1024.41. The purpose
of this section was to clarify that the
requirements in proposed § 1024.41 are
applicable only to those servicers that
are engaged in a practice, in the
ordinary course of business, of
evaluating loss mitigation options for
their own portfolios or pursuant to
duties owed to investors or guarantors
of mortgage loans. Further, proposed
comment 41(a)–1 clarified that nothing
in proposed § 1024.41 was intended to
impose a duty on a servicer to offer loss
mitigation options to borrowers
generally or to offer or approve any
particular borrower for a loss mitigation
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option. As set forth in the 2012 RESPA
Servicing Proposal, the Bureau did not
intend to create a private right of action
for borrowers to enforce, in private
litigation, any requirements that are
imposed by owners or assignees of
mortgage loans (including investors or
guarantors) on servicers to mitigate
losses for such parties. Rather, the
Bureau intended that borrowers could
enforce the loss mitigation procedures
against servicers to ensure that servicers
complied with the appropriate
procedural steps before completing the
foreclosure process when a borrower
had submitted a complete loss
mitigation application.
If a servicer did not evaluate
borrowers for loss mitigation options in
the ordinary course of business, the
servicer would not have been subject to
proposed § 1024.41. In proposed
comment 41(a)–2, the Bureau set forth
examples of practices that, by
themselves, would not have been
considered indicia that a servicer had
opted to offer loss mitigation options in
the ordinary course of business. The
Bureau notes, however, that the
proposed definition of loss mitigation
options in § 1024.31, however, was
expansive, encompassing not just loan
modifications, but also forbearance
plans, short sale agreements, and deedin-lieu of foreclosure programs. The
Bureau believes that substantially all, if
not all, servicers offer these loss
mitigation options in the ordinary
course of business.
Consumer advocate commenters
stated that the loss mitigation
procedures should not be limited to
mortgage servicers that offered loss
mitigation options in the ordinary
course of business. These commenters
stated that the recent financial crisis has
demonstrated that reviewing borrowers
for loss mitigation options has risen to
the level of a standard servicer duty that
should be expected of all mortgage
servicers. Further, industry commenters
did not take issue with the concept that
engaging in loss mitigation should be
considered a standard servicer duty.
Rather, comments from industry
focused instead on whether prescriptive
loss mitigation requirements would
adversely affect the manner in which
servicers engage in reviews of borrowers
for loss mitigation options. Specifically,
a number of large banks and their trade
associations stated that a private right of
action for loss mitigation was a
particular concern. These commenters
indicated that borrowers should not be
entitled to bring an action to enforce
loss mitigation requirements set forth by
an owner or assignee of a mortgage loan
or a voluntary loss mitigation program
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(such as HAMP). In addition, the
Bureau’s outreach and additional
analysis raised questions regarding
whether the scope of the loss mitigation
provisions should be limited to a
borrower’s principal residence
consistent with other governmental
initiatives.
Community banks, credit unions, and
their trade associations commented that
the loss mitigation procedures (and
other rulemakings not specifically
required by the Dodd-Frank Act) should
exempt small servicers. These
commenters also argued that the
definition of small servicers should be
large enough to cover most credit
unions and community banks. A trade
association for reverse mortgage lenders
commented that reverse mortgage
servicers should be exempt from the
proposed rules. Further, four farm credit
system institutions stated that they
should be exempt because they are
required to comply with distressed
borrower regulations promulgated by
the Farm Credit Administration in 12
CFR part 617. A nonprofit lender
commented that bona-fide nonprofits
should be exempt from the mortgage
servicing rules.
The Bureau has adjusted § 1024.41(a)
in response to the public comments.
First, the Bureau has revised
§ 1024.41(a) to eliminate the limitation
on the loss mitigation procedures to
only those servicers that offer loss
mitigation options in the ordinary
course of business. The Bureau has not
identified from the comments or
outreach any servicers that did not offer
loss mitigation options in the ordinary
course of business as contemplated by
the Bureau and would not have been
subject to § 1024.41 as proposed.
Moreover, the Bureau believes that
owners or assignees of mortgage loans
should determine whether they will
offer loss mitigation options and, if so,
the Bureau does not believe an
exemption from complying with the loss
mitigation procedures should exist
based on separate business practices of
a servicer. Further, the Bureau believes
that it is preferable that temporary or
pilot programs should be addressed
through clarifications regarding for
which programs, if any, a servicer
should evaluate a borrower’s
application, not by limiting the overall
application of the loss mitigation
procedures. Accordingly, § 1024.41(a)
has been adjusted to require that
servicers comply with the requirements
of § 1024.41 without consideration of
whether a servicer currently offers loss
mitigation options in the ordinary
course of business.
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Second, for the reasons set forth above
with respect to § 1024.30, the scope of
§ 1024.41 has been changed to limit the
scope of the loss mitigation procedures
to a borrower’s principal residence.
Third, for the reasons set forth above
with respect to § 1024.30, the Bureau
has exempted from the loss mitigation
procedures requirements (1) small
servicers (with the exception of
§ 1024.41(j)), (2) reverse mortgage
transactions, and (3) ‘‘qualified lenders’’
that are required to comply with Farm
Credit Administration regulations
relating to distressed borrowers.
Finally, the Bureau observes that the
loss mitigation procedures are issued,
among other authorities, pursuant to the
Bureau’s authority under section 6 of
RESPA. Violations of section 6 of
RESPA are subject to a private right of
action pursuant to section 6(f) of
RESPA. Servicers may be liable to
borrowers pursuant to section 6(f) of
RESPA for failure to comply with the
loss mitigation procedures in § 1024.41.
The Bureau believes a private right of
action for borrowers to enforce the loss
mitigation procedures is necessary to
ensure that individual borrowers have
the necessary tools to ensure they
receive the benefit of the loss mitigation
procedures in their own individual
circumstances. Further, the Bureau
believes that the risk of a private right
of action will not negatively impact
access to, or cost of, credit. The
requirements in § 1024.41 include clear
procedural requirements and have been
calibrated to avoid risks of litigation
relating to owner or assignee contractual
requirements, as discussed below.
Further, the requirements in § 1024.41
are consistent with requirements
already implemented by the GSEs, the
National Mortgage Settlement, and
certain State laws, with respect to
certain servicers. Accordingly, the
Bureau has revised § 1024.41(a) to
reflect the effect of section 6(f) of RESPA
with respect to a private right of action.
Although servicers are required to
comply with the procedural
requirements of § 1024.41, the Bureau
has clarified in response to inquiries
raised by commenters that servicers are
not required by the Bureau’s rules to
offer any particular loss mitigation
option to any particular borrower.
Nothing in § 1024.41 should affect
whether a borrower is permitted as a
matter of contract law to enforce the
terms of any contract or agreement
between a servicer and an owner or
assignee of a mortgage loan.
Accordingly, the Bureau finalizes
§ 1024.41(a) by relocating the substance
of proposed comment 41(a)–1 in the text
of § 1024.41(a). Section 1024.41(a)
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provides that nothing in § 1024.41
imposes a duty on a servicer to offer any
borrower any particular loss mitigation
option. Further, § 1024.41(a) states
nothing in § 1024.41 should be
construed to permit a borrower to
enforce the terms of any agreement
between a servicer and the owner or
assignee of a mortgage loan, including
with respect to the evaluation for, or
provision of, any loss mitigation option.
41(b) Loss Mitigation Application
Proposed § 1024.41(b) defined the
term complete loss mitigation
application and set forth requirements
for servicers with regard to both
complete and incomplete loss
mitigation applications. Specifically,
proposed § 1024.41(b)(1) stated that a
complete loss mitigation application
means a borrower’s submission
requesting evaluation for a loss
mitigation option for which a servicer
has received all the information the
servicer regularly obtains and considers
in evaluating a loss mitigation
application by the deadline established
by the servicer. Proposed § 1024.41(b)(2)
would have required a servicer that
receives an incomplete loss mitigation
application to exercise reasonable
diligence in obtaining information from
a borrower to make the application
complete. Further, proposed
§ 1024.41(b)(2) would have required a
servicer that receives an incomplete loss
mitigation application earlier than 5
days (excluding legal public holidays,
Saturdays, and Sundays) before the
deadline established by the servicer to
notify the borrower that the application
was incomplete, the documents and
information necessary to make the
application complete, and the date by
which the borrower must submit such
documents. The servicer would have
been required to provide the notice
within 5 days (excluding legal public
holidays, Saturdays, and Sundays) after
receiving an incomplete loss mitigation
application.
The Bureau received numerous
comments regarding these requirements.
First, the Bureau received comments
regarding the definition of a loss
mitigation application and a complete
loss mitigation application. A large bank
servicer requested clarification
regarding prequalification processes,
including whether oral communications
with borrowers should be considered a
loss mitigation application. A non-bank
servicer commented that defining a
complete loss mitigation application as
requiring all the information the
servicer ‘‘regularly obtains’’ is both
ambiguous and unduly limiting with
respect to evaluations of borrowers in
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substantially different circumstances or
subject to substantially different
investor requirements. The commenter
suggested instead that the Bureau define
a complete loss mitigation application
as a borrower’s submission requesting
evaluation for a loss mitigation option
for which a servicer has received all the
information the servicer obtains and
considers in evaluating a loss mitigation
application for a particular loan type,
investor, or other group of loans, as
deemed appropriate by the servicer.
Second, the Bureau received
comments regarding servicer obligations
upon receipt of a loss mitigation
application. Specifically, four consumer
advocacy groups stated that servicers
should be required to review a loss
mitigation application for completeness
promptly upon receipt. Conversely, a
trade association commented that five
days is too short a time to evaluate a
loss mitigation application, determine
that it is incomplete, determine what
additional documentation is needed,
and generate a notice to the borrower. A
financial industry trade association
requested that the Bureau provide
guidance in the form of examples of
‘‘reasonable diligence’’ to obtain
information from borrowers. The
commenter suggested that one example
be that the servicer sends a letter or
electronic communication to the
borrower with a list of what information
is needed and how the borrower can
submit that information.
Third, a non-bank servicer
commented that the Bureau should
create standard loss mitigation
applications so that industry may align
around similar loss mitigation strategies.
Finally, a coalition of 60 consumer
advocacy groups commented that the
Bureau should mandate that servicers
provide borrowers that submit
incomplete loss mitigation applications
a reasonable amount of time to complete
the applications.
The Bureau has adjusted § 1024.41(b)
in response to the public comments.
First, the Bureau agrees with
commenters that further clarification
regarding the definitions of the term loss
mitigation application and complete
loss mitigation application is
appropriate. Section 1024.31 defines a
loss mitigation application to mean an
oral or written request for a loss
mitigation option that is accompanied
by any information required by a
servicer for evaluation for a loss
mitigation option. This definition is
intended to distinguish between
inquiries regarding the availability of
loss mitigation options and an actual
request for an evaluation for a loss
mitigation option. The Bureau intends
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the loss mitigation procedures to apply
when servicers receive loss mitigation
applications during oral
communications with borrowers,
including communications between the
borrower and any contact personnel
assigned to the borrower’s mortgage
loan account pursuant to § 1024.40.
The definition of a complete loss
mitigation application (and,
consequently, an incomplete loss
mitigation application) has been
designed similarly to the complete and
incomplete application concepts
underlying Regulation B. See 12 CFR
1002.2(f), 1002.9(c). Thus, at a point in
a conversation between a borrower and
a mortgage servicer, if the borrower
requests an evaluation for a loss
mitigation option and provides
information to the servicer that will be
used in the evaluation of a loss
mitigation application, the borrower has
made a loss mitigation application, and
the servicer, pursuant to
§ 1024.41(b)(2)(i)(A), must review the
application promptly to determine
whether it is complete or incomplete.
If a loss mitigation application is
complete and has been submitted by an
applicable deadline, the servicer must
evaluate the loss mitigation application
pursuant to the requirements in
§ 1024.41. Under § 1024.41(b)(1), a
complete loss mitigation application
means an application in connection
with which a servicer has received all
the information that the servicer
requires from a borrower in evaluating
applications for the loss mitigation
options available to the borrower. The
Bureau has removed the requirement
that a loss mitigation application must
include all the information the servicer
regularly obtains and considers in
evaluating loss mitigation applications.
This change is intended to further the
goal of providing servicers flexibility to
determine the information required for
any individual mortgage loan borrower’s
application for a loss mitigation option
and require servicers to consider an
application complete notwithstanding
that the borrower has not submitted
certain information that the servicer
may regularly require but is irrelevant
with respect to a particular borrower.
Thus, under § 1024.41(b)(1), a loss
mitigation application is complete when
a servicer receives all information that
a servicer requires from a borrower.
Section 1024.41(b)(1) requires a
servicer to exercise reasonable diligence
in obtaining information to complete a
loss mitigation application and to
evaluate a complete loss mitigation
application. Accordingly, a servicer is
required to exercise reasonable
diligence to follow up with borrowers to
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obtain any information the borrower has
not submitted that is necessary to make
the application complete and to ensure
that the servicer timely receives any
necessary third-party information, such
as an automated valuation or consumer
report. Contrary to requests from
commenters, the Bureau declines to
implement commentary that providing
the notice required by § 1024.41(b)(2)
constitutes reasonable diligence for
purposes of § 1024.41(b)(1). Rather,
reasonable diligence is based on the
circumstances, including the
circumstances of any continuing
discussions between a borrower and the
contact personnel assigned pursuant to
§ 1024.40. Such contact personnel
should have information regarding the
status of a borrower’s loss mitigation
application and should work with
borrowers to make any such loss
mitigation application complete. The
Bureau has added commentary to clarify
this requirement as set forth below.
The Bureau has added commentary to
§ 1024.41(b) to clarify the meaning of a
complete loss mitigation application.
The Bureau has added comment
41(b)(1)–1 to clarify that a servicer,
consistent with the requirements of the
investor or assignee with respect to a
particular mortgage, has flexibility to
establish application requirements for a
loss mitigation option offered by an
owner or assignee and to decide the
type and amount of information it will
require from borrowers applying for loss
mitigation options. The Bureau agrees
with the comments that servicers may
require different application
information for loss mitigation programs
undertaken for different owners or
assignees of mortgage loans. Different
owners or assignees may establish
widely varying criteria and
requirements for loss mitigation
evaluations, and servicers may require
different forms and types of information
to effectuate such programs. The Bureau
believes the requirement that a complete
loss mitigation application contain
information required by servicers
provides appropriate flexibility to
servicers to determine application
requirements consistent with the variety
of borrower circumstances or owner or
assignee requirements that servicers
must evaluate and to ensure that
individual borrowers are not obliged to
provide information or documents that
are unnecessary and inappropriate for a
loss mitigation evaluation.
The Bureau has added comments
41(b)(1)–2 and 41(b)(1)–3 in response to
comments requesting clarity regarding
prequalification programs and other
feedback seeking clarification regarding
informal communications between
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servicers and borrowers. As set forth
above, the Bureau received a comment
from a large bank servicer requesting
clarification regarding prequalification
programs. Further, in outreach, another
large bank servicer requested
clarification regarding whether the
Bureau’s regulations, and specifically,
the error resolution and the loss
mitigation procedures represented a
policy of regulation of informal
communication.
Although the Bureau has withdrawn
the proposed requirements regarding
oral error resolution and information
request process with respect to
§§ 1024.35–1024.36, the Bureau believes
that the loss mitigation procedures
should apply when a borrower orally
requests evaluation for a loss mitigation
option. One of the principal goals of the
early intervention and continuity of
contact requirements of the rule is to
establish oral communications between
servicers and borrowers; it would be
inconsistent with that purpose to ignore
these communications in determining
whether a borrower has requested
consideration for a loss mitigation
option. Further, one of the purposes of
the loss mitigation procedures is to
provide accurate information to
borrowers and to facilitate the
evaluation of foreclosure avoidance
options by creating uniform evaluation
processes and ensuring that a borrower
obtains an evaluation for all loss
mitigation options available to the
borrower. That purpose may be
circumvented if the loss mitigation
requirements focused only on written
communications, and a servicer could
steer a borrower into a specific loss
mitigation option through oral
communications. Consistent with the
requirements set forth in Regulation B
regarding applications for credit, the
Bureau believes it is necessary and
appropriate to achieve the purposes of
RESPA to implement requirements on
servicers to treat oral communications
that have sufficiently passed the point
of inquiries as loss mitigation
applications subject to the loss
mitigation procedures.
The Bureau has added comment
41(b)(1)–2 to clarify when an inquiry or
prequalification request becomes an
application. The Bureau recognizes
there is substantial ambiguity in
interpersonal communications but
believes that loss mitigation
applications should be considered
expansively. For example, if a borrower
indicates that the borrower would like
to apply for a loss mitigation option and
provides any information the servicer
would evaluate in connection with a
loss mitigation application, a borrower
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has submitted a loss mitigation
application. Because a servicer must
exercise reasonable diligence in making
a loss mitigation application complete,
the Bureau believes appropriate
communication with a borrower that
expresses an interest in a loss mitigation
option is to clarify the borrower’s
intention regarding the submission and
to obtain information from the borrower
to make a loss mitigation application
complete.
Not all communications regarding
loss mitigation options will constitute
loss mitigation applications.
Accordingly, the Bureau has added
comment 41(b)(1)–3 to illustrate
circumstances where oral
communications will not constitute a
loss mitigation application. Comment
41(b)(1)–3.i states that a borrower calls
to ask about loss mitigation options and
servicer personnel explain the loss
mitigation options available to the
borrower and the criteria for
determining the borrower’s eligibility
for any such loss mitigation option. In
this example, only an inquiry has taken
place. The borrower has not submitted
information that would be evaluated in
connection with a loss mitigation
option. Comment 41(b)(1)–3.ii states
that a borrower calls to ask about the
process for applying for a loss
mitigation option but the borrower does
not provide any information that a
servicer would consider for evaluating a
loss mitigation application. A servicer
that provides information regarding the
process for applying for a loss
mitigation application has not taken a
loss mitigation application in this
circumstance.
The Bureau has added comment
41(b)(1)–4 to indicate how a servicer
should comply with its requirement to
undertake reasonable diligence to obtain
the information necessary to make an
incomplete loss mitigation application
complete. For example, a servicer must
request information necessary to make a
loss mitigation application complete
promptly after receiving the loss
mitigation application. Comment
41(b)(1)–4.i provides that reasonable
diligence requires contacting an
applicant promptly to obtain
information missing from a loss
mitigation application, like an address
or telephone number to verify
employment. This obligation exists
notwithstanding a servicer’s obligation
to provide a notice pursuant to
§ 1024.41(b)(2)(i)(B). Further, comment
41(b)(1)–4.ii provides that reasonable
diligence also includes reviewing
documents that may have been included
in connection with a servicing transfer
to determine if a borrower previously
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submitted information or documents to
a transferor servicer that may complete
a loss mitigation application.
The Bureau has added comment
41(b)(1)–5 regarding circumstances
where a servicer requires information
that is not in the borrower’s control. A
loss mitigation application is complete
when a borrower provides all
information required from the borrower
notwithstanding that additional
information may be required by a
servicer that is not in the control of a
borrower. For example, if a servicer
requires a consumer report for a loss
mitigation evaluation, a loss mitigation
application is considered complete if a
borrower has submitted all information
required from the borrower without
regard to whether a servicer has
obtained a consumer report that a
servicer has requested from a consumer
reporting agency.
The Bureau has also adjusted the
requirements in § 1024.41(b)(2) with
respect to a servicer’s obligation upon
receipt of a loss mitigation application.
The Bureau agrees with the comments it
received that a servicer should be
required to promptly evaluate a loss
mitigation application to determine
whether the application is complete or
incomplete. Accordingly,
§ 1024.41(b)(2)(i)(A) requires a servicer
that receives a loss mitigation
application to determine promptly upon
receipt whether such application is
complete or incomplete. Further, under
§ 1024.41(b)(2)(i)(B), a servicer must
notify a borrower in 5 days (excluding
legal public holidays, Saturdays, and
Sundays) regarding whether the servicer
has determined an application is
complete or incomplete.
Proposed § 1024.41(b)(2) would have
required a servicer that receives a loss
mitigation application to provide a
notice to a borrower only in the event
a loss mitigation application is
incomplete. The Bureau recognizes,
however, that a borrower that submits a
complete loss mitigation application
may not realize that such application
has been considered complete and that
an evaluation for a loss mitigation
application is ongoing. Accordingly,
§ 1024.41(b)(2)(i)(B) requires providing a
notice to a borrower regardless of
whether the application is complete or
incomplete.
Section 1024.41(b)(2)(i)(B) further
requires a servicer that determines a loss
mitigation application is incomplete to
notify the borrower of the additional
documents and information the
borrower must submit to make the loss
mitigation application complete and the
date by which the borrower must submit
the additional documents and
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information to be reviewed. The notice
to the borrower must also include a
statement that the borrower should
consider contacting servicers of any
other mortgage loans secured by the
same property to discuss available loss
mitigation options. The Bureau has
added this statement to the notice in
connection with withdrawing proposed
§ 1024.41(j), discussed below, with
respect to providing a loss mitigation
application to servicers of other
mortgage loan liens. Further, because of
the added content of the notice and the
requirements with respect to oral
communications constituting loss
mitigation applications, the Bureau has
determined to withdraw the proposal
that the notice required pursuant to
§ 1024.41(b)(2)(i)(B) could be provided
orally. Rather, the Bureau has
determined the notice must be provided
in writing.
Finally, the Bureau finds that 5 days
(excluding legal public holidays,
Saturdays, and Sundays) is a reasonable
amount of time for a servicer to comply
with the requirements for an incomplete
loss mitigation application. Fannie Mae
and Freddie Mac guidelines, as well as
the National Mortgage Settlement,
require servicers to provide a
substantially similar but, in some cases,
more prescriptive, notice within 5
business days of receipt of an
incomplete loss mitigation
application.176
The Bureau has added
§ 1024.41(b)(2)(ii) to clarify how a
servicer communicates to a borrower the
deadline by which the borrower should
submit a complete loss mitigation
application. A servicer must state to the
borrower that the borrower should
submit documents needed to complete
the application by the earliest remaining
date of four potential options. The rule
provides that a servicer must disclose
the date a borrower should complete a
loss mitigation application, rather than
the date a borrower must complete a
loss mitigation application, because the
effect of the various timelines is that a
borrower may miss the deadline
communicated by the servicer but still
be able to submit a complete loss
mitigation application in the future (and
thus a requirement that a borrower must
complete an application by an earlier
deadline may be inaccurate). However,
a borrower should complete the
application by the applicable deadline
in order to incur the lowest application
176 See United States of America v. Bank of
America Corp., at Appendix A, at A–26, http://
www.nationalmortgagesettlement.com; Freddie Mac
Single Family Seller/Servicer Guide, Vol. 2
§ 64.6(d)(4) (2012); Fannie Mae Single Family
Servicing Guide § 205.07 (2012).
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burden and to gain the benefit of the
most consumer protections for the loss
mitigation application. Further, the
Bureau agrees with comments received
from a number of servicers and their
trade associations that it is appropriate
to encourage earlier submission of loss
mitigation applications by borrowers.
A servicer must state that the
borrower should provide the documents
and information by the earliest
remaining date of: (a) The date by which
any document or information already
submitted by a borrower will be
considered stale or invalid pursuant to
any requirements applicable to any loss
mitigation program available to the
borrower; (b) the date that is the 120th
day of the borrower’s delinquency; (c)
the date that is 90 days before a
foreclosure sale; or (d) the date that is
38 days before a foreclosure sale. Dates
in (b), (c), and (d) are designed to match
the various scenarios set forth above
with respect to the timing of the loss
mitigation procedures. The date in (a) is
meant to incorporate any internal
servicer policy to ensure that borrowers
do not submit documents beyond the
date when documents and information
previously provided are considered
stale or invalid, which would frustrate
the process of obtaining a complete loss
mitigation application.
41(c) Evaluation of Loss Mitigation
Applications
Proposed § 1024.41(c) would have
required that, within 30 days of
receiving a complete loss mitigation
application, a servicer must evaluate the
borrower for all loss mitigation options
available to the borrower and provide
the borrower with a written notice
stating the servicer’s determination of
whether it will offer the borrower a loss
mitigation option. In the proposal, the
Bureau stated that it was appropriate to
require servicers to evaluate complete
loss mitigation applications within 30
days because review of a loss mitigation
application in 30 days is an industry
standard, as discussed above.
The Bureau further stated that it is
appropriate to require a servicer to
evaluate a borrower for all loss
mitigation options available to the
borrower rather than requiring
borrowers to select options for which
the borrower may be evaluated. A
servicer is in a better position than a
borrower to determine the loss
mitigation programs for which a
borrower may qualify. Requiring that a
borrower select a loss mitigation option
for which the borrower may be
considered, or only evaluating a
borrower for a few loss mitigation
options, may cause a borrower to accept
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or reject an option without seeking
evaluation for another option. This may
lead to less effective programs, disparate
outcomes for similarly situated
borrowers, and longer timelines for
effectuating loss mitigation options.
Instead, the Bureau has proposed that a
servicer evaluate a borrower for all loss
mitigation programs available to the
borrower. The Bureau believes that this
approach will ensure that all borrowers
receive fair evaluations for all options
available to them and will be able to
select options appropriate for their
circumstances. In sum, owners or
assignees of mortg